Cleanspark, Inc 10-Q for FY2022 Q1
Cleanspark, Inc. (CLSK)
About this 10-Q
Cleanspark, Inc filed this 10-Q on February 9, 2022, covering the quarter ended December 31, 2021 (FY2022 Q1).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $41.24M
- up 1726.8% from $2.26M a year earlier
- Net income
- $14.49M
- compared with a net loss of $7.17M a year earlier
- Diluted EPS
- $0.35
- compared with -$0.32 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended |
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Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from __________ to __________ |
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Commission File Number: |
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(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
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(Registrant’s telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☐ Accelerated filer |
☐ Non-accelerated Filer |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
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Item 1: |
5 |
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Item 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
4 |
Item 3: |
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Item 4: |
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PART II – OTHER INFORMATION
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Item 1: |
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Item 1A: |
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Item 2: |
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Item 3: |
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Item 4: |
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Item 5: |
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Item 6: |
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2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: the success of its digital currency mining activities; the volatile and unpredictable cycles in the emerging and evolving industries in which we operate, increasing difficulty rates for bitcoin mining; bitcoin halving; new or additional governmental regulation; the anticipated delivery dates of new miners; the ability to successfully deploy new miners; the dependency on utility rate structures and government incentive programs; the successful deployment of energy solutions for residential and commercial applications; the expectations of future revenue growth may not be realized; ongoing demand for the Company's software products and related services; the impact of global pandemics (including COVID-19) on logistics and shipping and the demand for our products and services; and other risks described in the Company's prior press releases and in its filings with the Securities and Exchange Commission (SEC), including under the heading "Risk Factors" in the Company's Annual Report on Form 10-K and any subsequent filings with the SEC. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context requires otherwise, references to “CleanSpark,” the “Company,” “we,” “us,” and “our,” refer to CleanSpark, Inc. and its consolidated subsidiaries.
GENERAL
We may announce material business and financial information to our investors using our investor relations website at https://www.cleanspark.com/investor-relations/. We therefore encourage investors and others interested in CleanSpark to review the information that we make available on our website, in addition to following our filings with the SEC, webcasts, press releases and conference calls. Information contained on our website is not part of this Quarterly Report on Form 10-Q.
3
WHERE YOU CAN FIND MORE INFORMATION
All reports we file with the SEC are available for download free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC’s website at www.sec.gov. We also make electronic copies of our reports available for download, free of charge, through our website at https://www.cleanspark.com/investor-relations/ as soon as reasonably practicable after filing such material with the SEC. Information contained on our website is not part of this Quarterly Report on Form 10-Q.
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our consolidated financial statements included in this Form 10-Q are as follows:
Consolidated Balance Sheets as of December 31, 2021 (unaudited) and September 30, 2021; |
F-1 |
F-2 |
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F-3 |
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F-4 |
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F-5 |
This report on Form 10-Q for the quarter ended December 31, 2021, should be read in conjunction with the Company's annual report on Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission (“SEC”) on December 14, 2021.
The accompanying consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended December 31, 2021 are not necessarily indicative of the results that can be expected for the full year.
5
CLEANSPARK, INC.
CONSOLIDATED BALANCE SHEETS
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December 31, 2021 (Unaudited) |
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September 30, 2021 |
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ASSETS |
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Current assets |
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Cash and cash equivalents, including restricted cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventory |
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Prepaid expense and other current assets |
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Digital currency |
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Derivative investment asset |
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Investment in equity security |
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Investment in debt security, AFS, at fair value |
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Total current assets |
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$ |
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$ |
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Property and equipment, net |
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$ |
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$ |
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Operating lease right of use asset |
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Capitalized software, net |
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Intangible assets, net |
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Deposits on mining equipment |
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Other long-term asset |
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Goodwill |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Contract liabilities |
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Operating lease liability |
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Finance lease liability |
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Acquisition liability |
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Contingent consideration |
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Dividends payable |
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Total current liabilities |
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Long-term liabilities |
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Operating lease liability, net of current portion |
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Finance lease liability, net of current portion |
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Total liabilities |
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$ |
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$ |
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Stockholders' equity |
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Common stock; $ |
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Preferred stock; $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-1
CLEANSPARK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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Three months ended |
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December 31, |
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December 31, |
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Revenues, net |
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Digital currency mining revenue, net |
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$ |
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$ |
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Energy hardware, software and services revenue |
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Other services revenue |
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Total revenues, net |
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Costs and expenses |
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Cost of revenues (exclusive of depreciation and amortization shown below) |
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Professional fees |
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Payroll expenses |
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General and administrative expenses |
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Other impairment expense (related to Digital Currency) |
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— |
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Depreciation and amortization |
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Total costs and expenses |
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Income (loss) from operations |
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( |
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Other income/(expense) |
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Change in fair value of contingent consideration |
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— |
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Realized gain on sale of digital currency |
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Realized gain on sale of equity security |
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— |
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Unrealized loss on equity security |
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( |
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( |
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Unrealized gain (loss) on derivative security |
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( |
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Interest income |
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Interest expense |
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( |
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( |
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Loss on write off and disposal of assets |
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( |
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— |
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Total other income (expense) |
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( |
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Income (loss) before income tax (expense) or benefit |
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( |
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Income tax (expense) or benefit |
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— |
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Net income (loss) |
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$ |
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$ |
( |
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Preferred stock dividends |
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— |
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Net income (loss) attributable to common shareholders |
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$ |
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$ |
( |
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Other comprehensive income |
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— |
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Total comprehensive income (loss) attributable to common shareholders |
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$ |
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$ |
( |
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Income (loss) per common share - basic |
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$ |
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$ |
( |
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Weighted average common shares outstanding - basic |
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Income (loss) per common share - diluted |
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$ |
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$ |
( |
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Weighted average common shares outstanding - diluted |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
CLEANSPARK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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For the Three Months Ended December 31, 2021 |
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Preferred Stock |
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Common Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance, September 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Options and restricted stock units issued for services |
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— |
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- |
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- |
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- |
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- |
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- |
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Shares issued for settlement of contingent consideration related to business acquisition |
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— |
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- |
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- |
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- |
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Exercise of options and warrants |
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— |
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- |
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- |
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- |
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Shares issued under equity offering, |
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— |
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- |
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- |
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- |
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Preferred dividends |
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— |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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Net income |
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— |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive income |
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— |
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- |
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- |
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- |
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- |
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- |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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For the Three Months Ended December 31, 2020 |
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Preferred Stock |
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Common Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance, September 30, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Shares issued for services |
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— |
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- |
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- |
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- |
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Options and warrants issued for services |
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— |
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- |
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- |
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- |
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- |
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- |
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Shares issued for business acquisition |
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— |
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- |
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- |
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- |
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Exercise of options and warrants |
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— |
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- |
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- |
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- |
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Shares issued under underwritten offering, |
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— |
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- |
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- |
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- |
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Net Loss |
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— |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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'Balance, December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
CLEANSPARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
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Three Months Ended |
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December 31, |
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December 31, |
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Cash Flows from Operating Activities |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Unrealized loss on equity security |
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Realized gain on sale of equity security |
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( |
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Impairment of digital currency |
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Realized gain on sale of digital currency |
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( |
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( |
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Digital currency issued for services |
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Unrealized (gain) loss on derivative asset |
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( |
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Gain on fair valuation of contingent consideration |
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( |
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Non-cash lease expense |
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Stock Based Compensation |
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Depreciation and amortization |
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||
Loss on write-off and disposal of assets |
|
|
|
|
|
|
||
Changes in operating assets and liabilities |
|
|
|
|
|
|
||
Production of digital currency |
|
|
( |
) |
|
|
( |
) |
Decrease in operating lease right of use liabilities |
|
|
( |
) |
|
|
( |
) |
Decrease (increase) in contract assets, net |
|
|
|
|
|
|
||
Increase (decrease) in contract liabilities, net |
|
|
|
|
|
( |
) |
|
Increase (decrease) in accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
(Increase) in prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Increase in accounts receivables |
|
|
( |
) |
|
|
( |
) |
(Increase) decrease in Inventory |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
$ |
( |
) |
|
$ |
( |
) |
Cash Flows from investing |
|
|
|
|
|
|
||
Payments on miner deposits |
|
$ |
( |
) |
|
$ |
|
|
Purchase of fixed assets |
|
|
( |
) |
|
|
( |
) |
Investment in infrastructure development |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of digital currencies |
|
|
|
|
|
|
||
Proceeds from the sale of equity securities |
|
|
|
|
|
|
||
Cash acquired from ATL acquisition |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
$ |
( |
) |
|
$ |
( |
) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Payments on promissory notes |
|
$ |
|
|
$ |
( |
) |
|
Payments on finance leases |
|
|
( |
) |
|
|
|
|
Proceeds from exercise of options and warrants |
|
|
|
|
|
|
||
Proceeds from offerings, net |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, beginning of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for tax |
|
$ |
|
|
$ |
|
||
Non-cash investing and financing transactions |
|
|
|
|
|
|
||
Shares and options issued for business acquisition |
|
$ |
|
|
$ |
|
||
Cashless exercise of options and warrants |
|
$ |
|
|
$ |
|
||
Shares issued for settlement of seller agreements related to acquisition |
|
$ |
|
|
$ |
|
||
Preferred shares dividends accrued |
|
$ |
|
|
$ |
|
||
Reclass from fixed assets to miner deposits |
|
$ |
|
|
$ |
|
||
Reclass from miner deposits to fixed assets |
|
$ |
|
|
$ |
|
||
Reclass from AP and accrued expenses to construction in progress |
|
$ |
|
|
$ |
|
||
Gross-up of accounts payable related to bills received for goods and services outstanding |
|
$ |
|
|
|
|
||
Changes in other comprehensive income |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
CLEANSPARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Organization
The Company – CleanSpark, Inc. (“CleanSpark,” “we,” “our,” or the "Company") was incorporated in the state of Nevada on
CleanSpark, Inc. is a bitcoin mining and energy technology company. The Company sustainably mines bitcoin and provides advanced energy technology solutions to commercial and residential customers to solve modern energy challenges. The Company, through itself and its wholly owned subsidiaries, has operated in the digital currency mining sector since December 2020, and in the alternative energy sector since March 2014.
CleanSpark, Inc. aims to develop a long-term sustainability and clean energy plan to support its bitcoin mining operations. We are currently working with industry leaders and other advisors in developing a long-term sustainability and clean energy plan. We are also using all available clean and renewable energy resources that we currently have reasonable access to in all of our bitcoin mining locations in order to further support our sustainability efforts.
Lines of Business
Digital Currency Mining Segment
Through our wholly owned subsidiaries, ATL Data Centers LLC (“ATL”) and CleanBlok, Inc. (“CleanBlok”), the Company mines bitcoin. The Company entered the bitcoin mining industry through our acquisition of ATL in December 2020. It acquired a second data center in August 2021 and has had a co-location agreement with New York-based Coinmint, LLC in place since July 2021. Bitcoin mining has now become the Company’s principal revenue generating business activity. We currently intend to acquire additional facilities, equipment and infrastructure capacity to continue to expand our bitcoin mining operations.
Through our subsidiaries CSRE Properties Norcross, LLC, CSRE Property Management Company, LLC and CSRE Properties, LLC, we maintain real property holdings for ATL Data Centers LLC and CleanBlok Inc.
Energy Segment
The Company provides energy solutions through our wholly owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consist of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response (“OpenADR”), solar, energy storage for microgrid and distributed energy systems to military, commercial and residential customers in Southern California and throughout the world.
The Company’s solutions are supported by a proprietary suite of software solutions that include microgrid energy modeling, energy market communications and energy management solutions.
Other business activities
Through our wholly owned subsidiary p2kLabs, Inc., we provide design, software development, and other technology-based consulting services. The services provided are generally hourly or fixed-fee project-based arrangements.
Through ATL, we also provide traditional data center services, such as providing customers with rack space, power and equipment, and offer several cloud-based service solutions including virtual services, virtual storage, and data backup services.
F-5
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent annual report on Form 10-K for the year ended September 30, 2021, filed with the SEC on December 14, 2021 (“Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented in this quarterly report on Form 10-Q have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
The accompanying unaudited consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II, LLC, CleanSpark Critical Power Systems Inc., p2kLabs, Inc, GridFabric, LLC, ATL Data Centers LLC, CleanBlok, Inc., CSRE Properties, LLC, Solar Watt Solutions, Inc, CSRE Properties Norcross, LLC and CSRE Property Management Company, LLC. All intercompany transactions have been eliminated upon consolidation of these entities.
Liquidity
As shown in the accompanying unaudited consolidated financial statements, the Company generated a net income of $
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimates used to review the Company’s goodwill and digital currency impairment, intangible assets acquired, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, revenue recognition from digital currency mining, valuation of derivative assets and liabilities, available-for-sale investments, allowances for uncollectible accounts, valuation of digital currencies, valuation of contingent consideration, warranty, and the valuations of share based awards. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that the ongoing COVID-19 pandemic may have on the Company’s operations.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Our accounting policy on revenue recognition by type of revenue is provided below.
F-6
Revenues from digital currency mining
The Company has entered into contracts with digital asset mining pool operators to provide computing power to the mining pools. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company starts providing computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less net digital asset transaction fees to the mining pool operator), for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration the Company receives is noncash consideration, in the form of digital currency, which the Company measures at fair value on the date received which is not materially different than the fair value at contract inception or time the Company has earned the award from the mining pools. Fair value of the digital currency award received is determined using the spot price of the related digital currency on the date earned.
There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for digital currencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Engineering & Construction Contracts and Service Contracts
The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the Company is acting as a principal rather than as an agent (i.e., the Company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract.
The Company recognizes energy (solar panel and battery) installation contract revenue for residential customers at a point in time upon completion of the installation. The revenues associated with energy installations for commercial customers are recognized over a period of time as noted in the engineering and construction contract revenue disclosure above.
For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services.
For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets
F-7
on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract.
Revenues from Sale of Equipment
Performance Obligations Satisfied at a point in time.
We recognize revenue on agreements for equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery). Generally, shipping costs are included in the price of equipment unless the customer requests a non-standard shipment. In situations where an alternative shipment arrangement has been made, the Company recognizes the shipping revenue upon customer receipt of the shipment.
In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.
Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities.
Due to the customized nature of the equipment, the Company does not allow for customer returns.
Service Performance obligations satisfied over time.
We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods, and these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) and contract work in progress (typically for fixed-price contracts). There were
Revenues from software
The Company derives its software revenue from both subscription fees from customers for access to its energy software offerings and software license sales and support services. Revenues from software licenses are generally
F-8
recognized upfront when the software is made available to the customer and revenues from the related support is generally recognized ratably over the contract term. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements.
The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time.
Revenues from design, software development and other technology-based consulting services
For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer.
Revenues from data center services
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. 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.
Variable Consideration
The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the Company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.
The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.
Practical Expedients
If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the Company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.
F-9
The Company does not adjust the contract price for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a service to a customer and when the customer pays for that service will be one year or less.
The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes).
Cost of Revenues
The Company includes the following in cost of revenues: energy costs, materials costs, manufacturing and logistics costs, freight costs, inventory write-downs, hosting services costs. The recognition of cost of revenue for our energy segment is dependent upon the revenue stream that it pertains to, refer below:
Cash and cash equivalents
Cash and cash equivalents include cash and amounts due from banks and restricted cash. The Company’s restricted cash represents amounts held in trust for certain construction projects. The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statements of cash flows.
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Cash and cash equivalents, excluding restricted cash |
|
$ |
|
|
|
$ |
|
|
Restricted cash - construction escrow account |
|
$ |
|
|
|
$ |
|
|
Cash and cash equivalents, including restricted cash |
|
$ |
|
|
|
$ |
|
|
Accounts receivable
Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. They are initially recorded at the invoiced amount upon the sale of goods or services to customers, and do not bear interest. 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.
F-10
Accounts receivable, net consists of the following:
|
|
December 31, |
|
|
September 30, |
|
||
Accounts Receivable, gross |
|
$ |
|
|
$ |
|
||
Other receivables |
|
|
|
|
|
|
||
Provision for doubtful allowances |
|
|
( |
) |
|
|
( |
) |
Total Accounts Receivable, net |
|
$ |
|
|
$ |
|
||
Inventory
Inventory is stated at the lower of cost or net realizable value with cost being measured on a first-in, first-out basis. For solar panel and battery installations, the Company transfers component parts from inventories to cost of goods sold once installation is complete. The Company periodically reviews inventories for unusable and obsolete items based on assumptions about future demand and market conditions. Based on this evaluation, provisions are made to write inventories down to their net realizable value. There were
|
|
December 31, |
|
|
September 30, |
|
||
Batteries and solar panels |
|
|
|
|
$ |
|
||
Supplies and other |
|
|
|
|
|
|
||
Total inventory |
|
|
|
|
$ |
|
||
Prepaid expense and other current assets
The Company records a prepaid expense for costs paid but not yet incurred. Those expected to be incurred within one year are recognized and shown as a short-term pre-paid expense. Any costs expected to be incurred outside of one year would be considered other long-term assets.
Other current assets are assets that consist of deposits and interest receivable. Deposits and interest we expect to receive within one year are shown as short-term. Those we expect to receive outside of one year are shown as other long-term assets.
Concentration Risk
At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. The cash balance, in excess of the FDIC limits was $
The Company has certain customers and vendors who individually represented
Stock-based compensation
The Company follows the guidelines in FASB Codification Topic ASC 718-10 Compensation-Stock Compensation, which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense for stock options is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services. The Company determines the grant date
F-11
fair value of the options using the Black-Scholes option-pricing model. For equity awards granted by the Company that are contingent upon market based conditions, the Company fair values these awards using the Monte Carlo simulation model. For discussion of accounting for restricted stock units (RSUs), please refer Note 11 – Stock-Based Compensation.
Earnings (loss) per share
The Company reports earnings (loss) per share in accordance with FASB ASC 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of December 31, 2021, there were
|
|
For the Three Months |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Numerator |
|
|
|
|
|
|
||
Consolidated net income (loss) attributable to common shareholders |
|
$ |
|
|
$ |
( |
) |
|
Denominator |
|
|
|
|
|
|
||
Weighted- average common shares outstanding, |
|
|
|
|
|
|
||
Dilutive impact of stock options and other |
|
|
|
|
|
|
||
Weighted- average common shares outstanding, |
|
|
|
|
|
|
||
Net income (loss) per common share attributable |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
( |
) |
|
Diluted |
|
$ |
|
|
$ |
( |
) |
|
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Construction in progress is the construction or development of assets that has not yet been placed in service for its intended use. Depreciation for machinery and equipment, mining equipment, buildings, furniture and fixtures and leasehold improvements commences once they are ready for its intended use. Leasehold improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the terms of the related leases. Land is not depreciated.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
|
|
Useful life (years) |
Building |
|
|
Machinery and equipment |
|
|
Mining equipment |
|
|
Infrastructure asset |
|
Shorter of estimated lease term or |
Leasehold improvements |
|
Shorter of estimated lease term or |
Furniture and fixtures |
|
In accordance with the Financial Accounting Standards Board ASC 360-10, "Property, Plant and Equipment” the carrying value of property and equipment, and other long-lived assets is reviewed on a regular basis for the existence
F-12
of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three months ended December 31, 2021 and December 31, 2020 the Company did
Digital Currency
Digital currencies are included in current assets in the consolidated balance sheets. Digital currencies are recorded at cost less impairment. They are classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other, and are accounted for in connection with the Company’s revenue recognition policy detailed above and in Note 2 – Summary of Significant Accounting Policies. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. Quantitative impairment is measured using the quoted price of the digital currency at the time its fair value is being measured in accordance with ASC 820, Fair Value Measurement. Quoted prices are obtained from the principal market. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted as per ASC 350, Intangibles – Goodwill and Other.
Digital currencies earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows. The sales of digital currencies are included within investing activities in the accompanying consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations and comprehensive income (loss). The Company accounts for its gains or losses in accordance with the first in first out (“FIFO”) method of accounting.
The following table presents the activities of the digital currencies for the three months ended December 31, 2021:
|
|
Amount ($) |
|
|
Balance as on September 30, 2021 |
|
|
|
|
Addition of digital currencies |
|
|
|
|
Sale of digital currencies |
|
|
( |
) |
Digital currencies issued for services |
|
|
( |
) |
Realized gain on sale of digital currencies |
|
|
|
|
Impairment loss |
|
|
( |
) |
Balance as on December 31, 2021 |
|
|
|
|
Fair Value Measurement of financial instruments, derivative asset and contingent consideration
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.
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.
F-13
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.
The carrying value of cash, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.
The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2021 and September 30, 2021:
December 31, 2021: |
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||||
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Amount ($) |
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|
Level 1 ($) |
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Level 2 ($) |
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Level 3 ($) |
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||||
Derivative asset |
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||||
Investment in equity security |
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Investment in debt security |
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|
||||
Contingent cash consideration |
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|
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|
||||
Total |
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$ |
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|
||||
September 30, 2021: |
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||||
|
|
Amount ($) |
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|
Level 1 ($) |
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Level 2 ($) |
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Level 3 ($) |
|
||||
Derivative asset |
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||||
Investment in equity security |
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Investment in debt security |
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Contingent cash consideration |
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||||
Total |
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||||
There were no transfers between Level 1, 2 or 3 during the three months ended December 31, 2021 and 2020.
Income taxes
The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of December 31, 2021 and September 30, 2021.
Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from managements estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of December 31, 2021 and September 30, 2021, the Company had
F-14
Income tax expense/(benefit) from operations for the three months ended December 31, 2021 and 2020 was $
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company has two reportable segments, namely, (1) Digital Currency Mining Segment and (2) Energy Segment.
Recently issued accounting pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This new guidance is effective for the Company for its fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company's results of operations or cash flows.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and issued subsequent amendments to the initial guidance (collectively, “Topic 848”). Topic 848 became effective March 12, 2020 and expires on December 31, 2022. Topic 848 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. Topic 848 provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform if certain criteria are met. The adoption of ASU 2020-04 did not have a material impact on the Company’s financial statements or disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”). ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses. As the Company was a Smaller Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim periods within the fiscal year. Early application of the adoption is permitted. The Company is evaluating its potential impact but does not expect the new standard to have a material impact on the Company's results of operations or cash flows.
In August 2020, the FASB issued ASU2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require separate accounting for embedded conversion features. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate. Further, the diluted net income
F-15
per share calculation for convertible instruments will require the Company to use the if-converted method. The treasury stock method should no longer be used to calculate diluted net income per share for convertible instruments. The amendment will be effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements or disclosures.
SOLAR WATT SOLUTIONS, INC.
On February 23, 2021, the Company entered into an Agreement and Plan of Merger (the “SWS Merger Agreement”) with Solar Watt Solutions, Inc. (“SWS”) and its owners (the “Sellers”). The Company accounted for the acquisition of SWS as an acquisition of a business under ASC 805 – Business Combination.
At the closing on February 24, 2021, SWS became a wholly owned subsidiary of the Company. In exchange, the Company issued (i)
The Company determined the fair value of the consideration given to the sellers of SWS in connection with the transaction in accordance with ASC 820 was as follows:
Consideration: |
|
Fair Value |
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Cash |
|
$ |
|
|
Contingent consideration |
|
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|
|
|
|
$ |
|
|
|
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|
||
Total Consideration |
|
$ |
|
|
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Preliminary |
|
|
Adjustments |
|
|
Final |
|
|||
Customer List |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Goodwill |
|
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|
|
|
|
|
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|
|||
Other Assets and Liabilities assumed, |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-16
The goodwill recorded as result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration. Acquired goodwill is not deductible for income tax purposes. The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.
The amortization period for customer list is estimated to be
The contingent cash consideration was re-measured to $
ATL DATA CENTERS, LLC
On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “ATL Merger”) with ATL Data Centers LLC (“ATL”) and its members. The Company accounted for the acquisition of ATL as an acquisition
of a business under ASC 805 – Business Combination.
At the closing, ATL became a wholly owned subsidiary of the Company. In exchange, the Company issued
Of the
In connection with the return of the
The consideration remitted in connection with the ATL Merger is subject to adjustment based on post-closing adjustments to closing cash, indebtedness, and transaction expenses of ATL within 90 days of closing. The Company also assumed approximately $
Purchase Price Allocation |
|
Preliminary |
|
|
Adjustments |
|
|
Final |
|
|||
Strategic Contract |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Goodwill |
|
|
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|
|
( |
) |
|
|
|
||
Other Assets and Liabilities assumed, |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Company made measurement period adjustments, primarily to strategic contract and goodwill, to better reflect the facts and circumstances that existed at the acquisition date.
F-17
The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s service portfolio and the expected revenue growth from increased market penetration. Acquired goodwill is not deductible for income tax purposes. The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values.
The strategic contract relates to supply of a critical input to our digital currency mining business. The other assets and liabilities assumed include $
The amortization period for strategic contracts is estimated to be
The following is the unaudited pro forma information assuming the acquisition of, ATL and SWS occurred on October 1, 2020:
|
|
December 31, 2020 |
|
|
Net sales |
|
$ |
|
|
Net income (loss) |
|
|
( |
) |
Net profit / (loss) per common share – basic |
|
$ |
( |
) |
Weighted average common shares outstanding – basic |
|
|
|
|
Net profit / (loss) per common share – diluted |
|
$ |
( |
) |
Weighted average common shares outstanding – diluted |
|
|
|
|
The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that would have actually resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. All transactions that would be considered inter-company transactions for proforma purposes have been eliminated.
As of December 31,2021 and September 30, 2021, the Company had total investments of $
International Land Alliance, Inc.
On November 5, 2019, the Company entered into a binding Memorandum of Understanding (the “MOU”) with International Land Alliance, Inc. (“ILAL”), a Wyoming corporation, to lay a foundational framework where the Company will deploy its energy solutions products and services to ILAL, its energy projects, and its customers.
In connection with the MOU, and to support the power and energy needs of ILALs development and construction of certain projects, the Company entered into a Securities Purchase Agreement (“SPA”), dated as of November 6, 2019, with ILAL.
Pursuant to the terms of the SPA with ILAL, the Company purchased
F-18
were redeemable on August 6, 2020. The Preferred Stock can be converted into common stock at a variable rate (refer the discussion on embedded derivative assets below). This variable conversion ratio will increase by 10% with the occurrence of certain events. Since the investments were not redeemed on August 6, 2020, they are now redeemable at the Company`s option in cash or into common stock, based on the conversion ratio. The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of December 31, 2021. Any change in the fair values of AFS debt securities are reported net of income tax as an element of Other Comprehensive income.
The Company accrued interest on our available-for-sale debt securities totaling $
The Company has deemed this variable conversion feature of ILAL preferred stock as an embedded derivative instrument in accordance with ASC Topic No. 815. This topic requires the Company to account for the conversion feature on its balance sheet at fair value and account for changes in fair value as a derivative gain or loss. Unrealized gain or loss on fair valuation of this embedded feature is recognized as an income in Consolidated statements of Operations and Comprehensive Income (Loss).
Total fair value of investment in derivative assets as of December 31, 2021 and September 30, 2021, respectively was $
The following table sets forth a
|
|
ILAL |
|
|
ILAL |
|
|
ILAL |
|
|
Law |
|
||||
Balance as of September 30, 2021 |
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$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Shares sold during the year |
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|
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( |
) |
|
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|
|||
Realized loss on fair value recognized income in other income/expense |
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( |
) |
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|
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Unrealized gain recognized in net income in other income/expense |
|
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|
||||
Unrealized gain on fair value recognized in other comprehensive income |
|
|
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|
|
|
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|
||||
Balance as of December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
F-19
Intangible assets consist of the following as of December 31, 2021 and September 30, 2021:
December 31, 2021 |
|
|||||||||||
|
|
Intangible assets |
|
|
Accumulated amortization |
|
|
Total |
|
|||
Patents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Websites |
|
|
|
|
|
|
|
|
- |
|
||
Customer list and non-compete agreement |
|
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|
|||
Design assets |
|
|
|
|
|
|
|
|
- |
|
||
Trademarks |
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|
|
|
|
|
|
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|
|||
Engineering trade secrets |
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|
|
|
|
|
|
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|
|||
Software |
|
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|
|
|
|
|
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|
|||
Strategic Contract |
|
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|
|
|
|
|
|
|
|||
mPulse software |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
September 30, 2021 |
|
|||||||||||
|
|
Intangible assets |
|
|
Accumulated amortization |
|
|
Total |
|
|||
Patents |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Websites |
|
|
|
|
|
|
|
|
— |
|
||
Customer list and non-compete agreement |
|
|
|
|
|
|
|
|
|
|||
Design assets |
|
|
|
|
|
|
|
|
— |
|
||
Trademarks |
|
|
|
|
|
|
|
|
|
|||
Engineering trade secrets |
|
|
|
|
|
|
|
|
|
|||
Software |
|
|
|
|
|
|
|
|
|
|||
Strategic Contract |
|
|
|
|
|
|
|
|
|
|||
mPulse software |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization expense for the three months ended December 31, 2021 and 2020 was $
The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows:
Year |
|
December 31, |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
F-20
Property and equipment consist of the following:
|
|
December 31, |
|
|
September 30, |
|
||
Mining equipment |
|
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|
|
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|
||
Land and building |
|
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|
||
Machinery and equipment |
|
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|
||
Leasehold improvements |
|
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|
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|
||
Furniture and fixtures |
|
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|
|
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|
||
Infrastructure |
|
|
|
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|
||
Construction in progress |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense for three months ended December 31, 2021 and 2020 was $
The Company placed-in service mining equipment for approximately $
Construction in progress: The Company is expanding its facility in Atlanta, a build out adjacent to the ATL data center mentioned above.
As of December 31, 2021, the Company has outstanding deposits worth $
On October 1, 2019, the Company adopted the amendments to ASC 842, Leases, which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet. The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements.
The Company’s operating leases are office spaces and finance leases primarily in relation to the equipment used at its data center.
The Company's lease costs recognized during the three months ended December 31, 2021 and 2020 in the Consolidated Statements of Operations and Comprehensive Income (Loss) consist of the following:
|
|
December 31, |
|
|
December 31, |
|
||
Operating lease cost (1) |
|
$ |
|
|
|
|
||
Finance lease cost: |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Interest on lease obligations |
|
$ |
|
|
|
|
||
(1)
F-21
Other lease information is as follows:
|
|
December 31, |
|
|
December 31, |
|
||
Cash paid for amounts included in |
|
|
|
|
|
|
||
Operating cash flows from operating |
|
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
|
|
December 31, |
|
|
September 30, 2021 |
|
||
Weighted-average remaining lease term - |
|
|
|
|
||||
Weighted-average remaining lease term - |
|
|
|
|
||||
Weighted-average discount rate - operating |
|
|
% |
|
|
% |
||
Weighted-average discount rate - finance |
|
|
% |
|
|
% |
||
The following is a schedule of the Company's lease liabilities by contractual maturity as of December 31, 2021:
Fiscal Year |
|
Operating |
|
|
Finance |
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Gross lease liabilities |
|
|
|
|
|
|
||
Less: imputed interest |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
$ |
|
||
Less: Current portion of lease liabilities |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities, net of current portion |
|
$ |
|
|
$ |
|
||
8. RELATED PARTY TRANSACTIONS
Zachary K. Bradford - Chief Executive Officer and Director
During the three months ended December 31, 2021 and 2020, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $
Overview
The Company’s authorized capital stock consists of
F-22
there were
Common Stock issuances during the three months ended December 31, 2021
The Company issued
The Company issued
The Company issued
Common stock returned during the three months ended December 31, 2021
The Company did
The following is a summary of stock warrant activity during the three months ended December 31, 2021:
|
|
Number of |
|
|
Weighted |
|
||
Balance, September 30, 2021 |
|
|
|
|
|
|
||
Warrants granted |
|
|
|
|
|
|
||
Warrants expired |
|
|
( |
) |
|
|
||
Warrants canceled |
|
|
|
|
|
|
||
Warrants exercised |
|
|
|
|
|
|
||
Balance, December 31, 2021 |
|
|
|
|
|
|||
As of December 31, 2021, there are warrants exercisable to purchase
During the three months ended December 31, 2021, there were
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. On October 7, 2020, the Company executed a first amendment to the Plan to increase its share pool from
Effective September 15, 2021, following approval by our stockholders, the Plan was amended to (i) increase the number of shares of common stock authorized for issuance under the Plan by an additional
As of December 31, 2021, there were
The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation rights, common stock, units of common stock, restricted stock, performance shares and performance units. Other than incentive stock options that are granted to participants who owns more than
F-23
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 or Ten Percent Stockholders at the date of the grant of the option. Non-qualified stock options and the other types of awards issuable under the Plan may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Compensation Committee believes have contributed, or will contribute, to the success of the Company. The option vesting schedule for options granted is determined by the Compensation Committee 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 December 31, 2021, no non-qualified options were granted pursuant to the Plan.
The Company recognized $
STOCK OPTIONS
The following is a summary of stock option activity during the three months ended December 31, 2021:
|
|
Number of |
|
|
Weighted Average |
|
||
Balance, September 30, 2021 |
|
|
|
|
|
|
||
Options granted |
|
|
|
|
|
|
||
Options expired |
|
|
( |
) |
|
|
|
|
Options canceled |
|
|
( |
) |
|
|
|
|
Options exercised |
|
|
( |
) |
|
|
|
|
Balance, December 31, 2021 |
|
|
|
|
|
|||
As of December 31, 2021, there are options exercisable to purchase
During the three months ended December 31, 2021, a total of
The Black-Scholes model utilized the following inputs to value the options granted during the three months ended December 31, 2021:
Fair value assumptions Options: |
|
December 31, |
|
|
Risk free interest rate |
|
|
% |
|
Expected term (years) |
|
|
|
|
Expected volatility |
|
|
% |
|
Expected dividends |
|
|
% |
|
As of December 31, 2021, the Company expects to recognize $
RESTRICTED STOCK UNITS
The Company grants RSUs that contain (a) service conditions, (b) performance conditions, or (c) market performance conditions. RSUs containing service conditions vest monthly or annually. RSUs containing performance conditions generally vest over
F-24
When the criteria for vesting is met, the Company recognizes the expense equal to the total fair value of the common stock price on the grant date. All of the RSUs issued prior to September 30, 2021 were either vested or forfeited and cancelled.
The following table summarizes the performance-based restricted stock units at the maximum award amounts based upon the respective performance share agreements. Actual shares that will vest depend on the attainment of the performance-based criteria.
|
|
Number of |
|
|
Weighted |
|
|
Aggregate |
|
|||
Outstanding at September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|||
During the three months ended December 31, 2021, the Company granted
As of December 31, 2021, the Company had $
The Company has purchase commitments that are cancellable of approximately $
The Company has purchase commitments for mining related equipment of approximately $
The following table sets forth certain information concerning our obligations to make contractual future payments towards our agreements as of December 31, 2021:
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Recorded contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating lease obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Finance Lease obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|||||||
Mining equipment |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
Mining operations related equipment |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Contingent consideration
GridFabric: On August 31, 2020, the Company acquired GridFabric, LLC. Pursuant to the terms of the purchase agreement, additional shares of the Company’s common stock valued at up to $
F-25
achieves certain revenue and product release milestones. On September 30, 2021, the contingent consideration was re-measured to $
During the three months ended December 31, 2021, the Company settled all contingent consideration due to GridFabric resulting in a payment of
Solar Watt Solutions: On February 24, 2021, the Company acquired Solar Watt Solutions, Inc. Pursuant to the terms of the purchase agreement, additional cash consideration of up to $
On January 31, 2022, the Company settled all contingent consideration due to the SWS sellers, resulting in a payment of $
Legal contingencies
From time to time we 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, Lori Love (“Love”) (the “Class Action”). The Class Complaint alleges 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 Allegations”). The 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. On December 2, 2021, the Court appointed Darshan Hasthantra as lead Plaintiff, and Glancy, Prongay and Murray LLP as class counsel. Hasthantra now has until February 14, 2022, to file an amended complaint, and the Company is permitted to file its Motion to Dismiss by April 14, 2022.
Although the ultimate outcome of the Class Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures and believes that the claims raised in the Class Complaint are entirely without
F-26
merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.
Notwithstanding the Class 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 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, Lori Love (“Love”) and Directors Matthew Schultz, Roger Beynon, Larry McNeill and Tom Wood (Bradford, Love and Directors collectively referred to as “Defendants.”) On June 22, 2021, Mark Perna (“Perna”) (Ciceri, Perna, and Defendants collectively referred to as the “Parties”) filed a verified shareholder derivative action (the “Perna Derivative Action”) in the same Court against the same 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 “Derivative Action”). The Derivative Action alleges that 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 Defendants include breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. A claim for contribution under Sections 10(b) and 21D of the Securities and Exchange Act is asserted against only Bradford and Love. The 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. Any of the Parties may also terminate the stay on 20 days’ notice.
Although the ultimate outcome of the Derivative Action cannot be determined with certainty, the Company stands behind all of its prior statements and disclosures, and believes that the claims raised in that case are entirely without merit. The Company intends to both defend itself vigorously against these claims and to vigorously prosecute any counterclaims.
Digital Currency Mining Segment
For the three months ended December 31, 2021 and 2020, the digital currency mining business had the following customers that represented more than 10% of revenue.
F-27
|
|
December 31, |
|
|
December 31, 2020 |
|
||
Mining Pool Operator A |
|
|
% |
|
|
|
||
Mining Pool Operator B |
|
|
% |
|
|
% |
||
For the three months ended December 31, 2021 and 2020, the
|
|
December 31, |
|
|
December 31, 2020 |
|
||
Vendor A |
|
|
% |
|
|
% |
||
Vendor B |
|
|
% |
|
|
% |
||
At December 31, 2020, all mining equipment the Company had was from the ATL acquisition.
Energy Segment
For the three months ended December 31, 2021 and 2020, the
Major Customer |
December 31, 2021 |
|
December 31, 2020 |
|
||
Customer A |
|
% |
|
% |
||
Customer B |
|
% |
|
% |
||
Customer C |
|
% |
|
% |
||
For the three months ended December 31, 2021 and 2020, the
Major Vendor |
|
December 31, |
|
December 31, |
|
||
Vendor A |
|
|
% |
|
% |
||
Vendor B |
|
|
|
|
% |
||
We disclose segment information that is consistent with the way in which management operates and views the business. Our operating structure contains
Digital Currency: This segment consists of operations related to Bitcoin mining. The Company provides computing power through ATL Data Centers LLC and CleanBlok Inc. to the mining pools. This segment also includes operation related to maintenance of real property holdings for company purposes through CSRE properties Norcross LLC and CSRE properties LLC. This segment revenue represents fractional share of the fixed cryptocurrency award received from the mining pool operator in exchange of computing power.
Energy: This segment provides services, equipment, and software to the energy industry. This segment includes revenue from providing engineering and construction services, selling equipment such as residential battery, residential solar, commercial solar and non-customized equipment and providing access to its energy software offerings and software license sales and support services.
Other Revenue and Eliminations: This includes revenue from providing design, software development, and other technology-based consulting services through p2k Labs and data center services through ATL Data Center. Corporate items and eliminations consist of corporate overhead and other items not allocated to any of the Company's segments
F-28
as in the table below.
|
|
December 31, |
|
|
December 31, 2020 |
|
||
Revenue |
|
|
|
|
|
|
||
Energy |
|
$ |
|
|
$ |
|
||
Digital Currency Mining |
|
$ |
|
|
|
|
||
Total segment revenues |
|
|
|
|
|
|
||
Other revenue and eliminations |
|
|
|
|
|
|
||
Consolidated Revenues |
|
|
|
|
|
|
||
Profit |
|
|
|
|
|
|
||
Energy |
|
$ |
|
|
$ |
|
||
Digital Currency Mining |
|
|
|
|
$ |
|
||
Total segment profit/(loss) |
|
|
|
|
|
|
||
Corporate items and eliminations (including |
|
$ |
( |
) |
|
$ |
( |
) |
Net income/(loss) |
|
$ |
|
|
$ |
( |
) |
|
For details on major customers of Digital currency and Energy segment, see Note 13.
A summary of segment assets is as follows:
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
Digital Currency Mining |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Energy |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Other and Corporate assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The Company operates its business only in the United States.
Total additions in long-lived assets for the three months ended December 31, 2021 and 2020:
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
|
|
Digital |
|
|
Energy |
|
|
Corporate |
|
|
Digital |
|
|
Energy |
|
|
Corporate |
|
||||||
Property Plant and Equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Intangibles |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
||||||
Capitalized software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
We have evaluated events occurring between the end of the most recent fiscal period and the date the financial statements were issued through February 9, 2022. There were no material subsequent events except as disclosed below:
F-29
Solar Watt Solutions, Inc.
On January 31, 2022, the Company entered into a Merger Satisfaction and Release Agreement (the "Merger Satisfaction Agreement") with Sellers of SWS. In consideration of fully satisfying the previously agreed milestone, the Company will pay Sellers $
F-30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the interim condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part II, Item 1A “Risk Factors” or in other parts of this Quarterly Report on Form 10-Q, as well as those identified in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. See “Forward-Looking Statements.”
Company Overview
CleanSpark, Inc. is a leading bitcoin mining and diversified energy company incorporated in Nevada, whose common stock is listed on the Nasdaq Capital Market. We sustainably mine bitcoin; we also provide advanced energy technology solutions to commercial and residential customers to solve modern energy challenges. The Company, through itself and its wholly owned subsidiaries, has operated in the digital currency mining sector since December 2020, and in the alternative energy sector since March 2014.
We are currently working with industry leaders and other advisors in developing a long-term sustainability and clean energy plan. We are also using all available clean and renewable energy resources that we currently have reasonable access to in all of our bitcoin mining locations in order to further support our sustainability efforts.
Lines of Business
Digital Currency Mining Segment
Through our wholly owned subsidiaries, ATL Data Centers LLC (“ATL”) and CleanBlok, Inc. (“CleanBlok”), we mine bitcoin. We entered the bitcoin mining industry through our acquisition of ATL in December 2020. We acquired a second data center in August 2021 and have had a co-location agreement with New York-based Coinmint in place since July 2021. Bitcoin mining has now become our principal revenue generating business activity. We currently intend to continue to acquire additional facilities, equipment and infrastructure capacity to continue to expand our bitcoin mining operations.
Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,” which contains a record of every bitcoin transaction ever processed. The bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation. The authenticity of each bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive bitcoin. Users have full control over remitting bitcoin from their own sending addresses. All transactions on the bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. To be recorded on the blockchain, each bitcoin transaction is validated through a proof-of-work consensus method, which entails solving complex mathematical problems to validate transactions and post them on the blockchain. This process is called mining. Miners are rewarded with bitcoins, both in the form of newly-created bitcoins and fees in bitcoin, for successfully solving the mathematical problems and providing computing power to the network.
Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining. As of the date of this filing, our mining units are currently capable of producing over 2.0 exahash per second (“EH/s”) in hash rate capacity. In cryptocurrency mining, “hash rate” is a measure of the processing capacity and speed by which a mining computer mines and processes transactions on the bitcoin network. Our activities in this area are complemented by our energy background and
4
planning is underway to deploy our portfolio of energy technologies to advance our bitcoin mining business, with the goal of maximizing energy savings, increasing total power capacity, providing resilient electricity, and reducing greenhouse gas emissions. We are expanding our bitcoin mining business with the goal of reaching 4.0 EH/s in hash rate capacity at or near the end of December 31, 2022. We expect to exceed 3 EH/s in capacity at or near the end of September 31, 2022. Hash rate capacity is one of the most important metrics for evaluating bitcoin mining companies.
We obtain bitcoin as a result of our mining operations; while we retain a significant portion of the bitcoin, we have sold, and intend to sell bitcoin from time to time, to support our operations and strategic growth. We do not currently plan to engage in regular trading of bitcoin (other than as necessary to convert our bitcoin to U.S. dollars) or to engage in hedging activities related to our holding of bitcoin; however, our decisions to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell bitcoin that we hold, or the number of bitcoins we will sell. Rather, decisions to hold or sell bitcoins are currently determined by analyzing forecasts and monitoring the market in real time.
Through our recently formed wholly owned subsidiaries, CSRE Properties, LLC, CSRE Property Management Company LLC, and CSRE Properties Norcross, LLC, we maintain real property holdings for ATL and CleanBlok.
Energy Segment
We provide energy solutions through our wholly-owned subsidiaries CleanSpark, LLC, CleanSpark Critical Power Systems, Inc., GridFabric, LLC, and Solar Watt Solutions, Inc. These solutions consist of engineering, design and software solutions, custom hardware solutions, Open Automated Demand response (“OpenADR”), solar, energy storage for microgrid and distributed energy systems to military, commercial and residential customers in Southern California and through the world.
Our solutions are supported by our proprietary suite of software platforms (collectively, the “Platforms”) that include microgrid energy modeling, energy market communications and energy management solutions as summarized below:
|
· |
mPulse and mVoult: Patented, proprietary controls platforms that enable integration and optimization of multiple energy sources. |
|
· |
Canvas: Middleware used by grid operators and aggregators to administrate load shifting programs. |
|
· |
Plaid: Middleware used by controls and IoT (internet-of-things) product companies to participate in load shifting programs. |
|
· |
mVSO: Energy modeling software for internal microgrid design . |
The Platforms were developed to enable the designing, building, and operating of distributed energy systems and microgrids which efficiently manage energy assets. These strategies are generally targeted to achieve resiliency and economic optimization.
We also own patented gasification energy technologies. Our technology converts organic material into synthesis gas, which can be used as fuel for a variety of applications and as feedstock for the generation of DME (Di-Methyl Ether). As previously disclosed, we currently plan to continue to focus on our other offerings.
Other business activities
Through p2kLabs, Inc., we provide design, software development, and other technology-based consulting services. The services provided are generally hourly or fixed-fee project-based arrangements.
Through ATL, we also provide traditional data center services, such as providing customers with rack space, power and equipment, and offer several cloud services including virtual services, virtual storage, and data backup services.
5
Results of operations for the three months ended December 31, 2021 and 2020
Revenues
Revenues increased to $41,241,969 during the three months ended December 31, 2021, as compared with $2,257,570 in revenues for the same period ended 2020 primarily due to increase in revenues from our digital currency mining segment.
For the three months ended December 31, 2021, our revenue was derived from digital currency mining, the sale of equipment, solar panels, batteries, design, engineering, and services, and data center services. Income from our mining segment is a result of bitcoin mining activities in the United States. Income from our Energy segment is the result of contracts to sell switchgear equipment, perform engineering design, provide software for distributed energy and microgrid systems, and provide solar and battery installation.
Costs and Expenses
We had costs and expenses of $36,806,806 for the three months ended December 31, 2021, as compared with $8,427,668 for the three months ended December 31, 2020.
Our cost of revenues was $8,797,926 for the three months ended December 31, 2021, as compared with cost of revenues of $1,332,890 for the three months ended December 31, 2020. Our cost of revenues during the three months ended December 31, 2021 was mainly the result of mining energy costs of $1,373,711, mining hosting fees of $4,171,662, hardware material purchases of $2,280,279 and contract manufacturing expenses of $344,088. Our cost of revenues during the three months ended December 31, 2020 was mainly the result of contract manufacturing expenses of $748,214, hardware material purchase of $236,247, and mining expenses of $169,046.
Professional fees increased to $3,317,819 for the three months ended December 31, 2021 from $1,712,723 for the three months ended December 31, 2020. Our professional fees expenses for the three months ended December 31, 2021 consisted mainly of accounting and tax consulting fees of $1,548,189, audit and review fees of $498,121, subcontractor expenses of $417,989, legal fees of $290,278, recruitment fees of $222,240, and consulting fees of $155,983. Our professional fees for the three months ended December 31, 2020 consisted mainly of legal fees of $1,231,562, and investor relations and public relations consulting expense of $120,838.
Payroll expenses increased to $8,883,047 for the three months ended December 31, 2021 from $3,314,201 for the three months ended December 31, 2020. Our payroll expenses for the three months ended December 31, 2021 consisted mainly of salary and wages expense of $2,901,295, and employee and officer stock-based compensation and related bonuses of $5,749,101. Our payroll expenses for the three months ended December 31, 2020 consisted mainly of salary and wages expense of $1,726,526 and employee and officer stock-based compensation of $932,040.
General and administrative expenses increased to $1,888,100 for the three months ended December 31, 2021 from $950,139 for the three months ended December 31, 2020. Our general and administrative expenses for the three months ended December 31, 2021 consisted mainly of insurance expenses of $487,680, marketing expenses of $280,614, dues and subscriptions expense of $217,084, utilities expense of $196,125, and travel expenses of $114,489. Our general and administrative expenses for the three months ended December 31, 2020 consisted mainly of dues and subscriptions expense of $110,681 and marketing expense of $601,387.
Depreciation and amortization expense increased to $7,697,568 for the three months ended December 31, 2021, from $1,117,715 for the three months ended December 31, 2020.
Impairment expenses were recorded for the three months ended December 31, 2021 for $6,222,346, and no impairment expenses were recorded for the three months ended December 31, 2020. Impairment expense for the three months ended December 31, 2021 consisted of bitcoin impairment of $6,222,346.
6
Other income (expenses)
Other income increased to $10,050,592 for the three months ended December 31, 2021 compared to other expense of ($997,432) for the three months ended December 31, 2020. Our other income/(expenses) for the three months ended December 31, 2021 consisted mainly of a realized gain on sales of digital currency of $9,994,791, an unrealized loss on derivative security of $298,849, and loss on write off of assets of ($278,170). Our other expenses for the three months ended December 31, 2020 consisted mainly of an unrealized loss on derivative security of ($1,020,494).
Net Income
We recorded a net income of $14,485,755 for the three months ended December 31, 2021, as compared with a net loss of $7,167,530 for the three months ended December 31, 2020. The increase was due mainly to the increase in digital currency mining revenue.
Liquidity and Capital Resources
Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, public company costs and general corporate needs. We expect these needs to continue as we develop and grow our business. Our principal sources of liquidity have been and are expected to be our cash and cash equivalents and digital currency inventory.
As of December 31, 2021, we had total current assets of $58,682,565, consisting of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, digital currency, investment in equity security, investment in debt security and related derivative asset, and total assets in the amount of $418,144,771. Our total current and total liabilities as of December 31, 2021 were $22,481,979 and $24,069,321 respectively. We had working capital of $36,200,586 as of December 31, 2021.
As of December 31, 2021, there were no off-balance sheet arrangements.
We believe our cash and cash equivalents on hand, together with cash we expect to generate from future operations, will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Quarterly Report on Form 10-Q. We are likely to require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and in either the short-term or long-term may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited. In particular, the widespread COVID-19 pandemic, including variants, has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when or on the terms desired, our business, financial condition and results of operations could be adversely affected.
Operating Activities
Operating activities used $(20,969,236) in cash for the three months ended December 31, 2021, as compared with using $(6,833,578) in cash for the three months ended December 31, 2020. Our net income of $14,485,755 was the main component of our negative operating cash flow for the three months ended December 31, 2021, offset mainly by realized gain on digital currency $(9,994,791). Other components of our operating cash flow are the changes in operating assets and liabilities including production of digital currency $(36,974,578), increase in prepaid expenses and other current assets $(6,682,127), increase in accounts receivables $(2,002,045), and decrease in accounts payable and accrued liabilities $(911,848). Our net loss of $(7,167,530) was the main component of our negative operating cash flow for the three months ended December 31, 2020, offset mainly by unrealized loss on derivative assets of $1,020,494, stock based compensation of $4,350,643, and depreciation and amortization of $1,117,715.
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Investing Activities
Investing activities used $(60,037,647) during the three months ended December 31, 2021, as compared with $(2,427,972) for the three month period ended December 31, 2020. Our sale of digital currencies of $33,965,188, payments on miner deposits of $(70,633,823), purchase of fixed assets of $(21,429,893), and investment in infrastructure development of $(1,948,709) were the main components of our investing cash flow for the three months ended December 31, 2021. Our investment in infrastructure development of $(2,830,560) was the main component of our negative investing cash flow for the three months ended December 31, 2020.
Financing Activities
Cash flows generated from financing activities during the three months ended December 31, 2021 amounted to $68,178,970, when compared to $31,767,261 for the three months ended December 31, 2020. Our cash flows from financing activities for the three months ended December 31, 2021 consisted of proceeds from exercise of options and warrants of $281,616, and proceeds from underwritten offering of $67,988,999. Our positive cash flows from financing activities for the three months ended December 31, 2020 consisted of proceeds from exercise of options and warrants of $192,656 and proceeds from underwritten offering of $37,049,605, offset by payments on promissory notes of $(5,475,000).
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We evaluate our estimates and assumptions on an ongoing basis, and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for the judgments we make about the carrying value of assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows.
There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our 2021 10-K. For a description of our critical accounting policies and estimates, see Part I, Item 1, Note 2, "Summary of Significant Accounting Policies" in our notes to the consolidated financial statements in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our market risk exposure involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. See “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q[YI(1] .
The Company is exposed to several market risks in its normal business activities. The types of market risks the Company is exposed to are the market price of bitcoin, banking, costs of mining, and liquidity risk.
Market Price Risk of Bitcoin. We acquire bitcoin from our daily operations of mining and, as of December 31, 2021, we held approximately 649.87 bitcoins. The carrying value of our bitcoins as of December 31, 2021 was $30,203,387 on our Consolidated Balance Sheet. We account for our bitcoin as indefinite-lived intangible assets, which are subject to impairment losses if the fair value of our bitcoin decreases below their carrying value at any time since their acquisition. Impairment losses cannot be recovered for any subsequent increase in fair value. For example, the market price of one bitcoin in our principal market ranged from $46,421.20 - $68,205.40 during the three months ended December 31, 2021, but the carrying value of each bitcoin we held at the end of the reporting period reflects the lowest price of one bitcoin quoted on the active exchange at any time since its acquisition. Therefore, negative swings in the market price of bitcoin could have a material impact on our earnings and on the carrying value of our digital assets.
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Positive swings in the market price of bitcoin are not reflected in the carrying value of our digital assets and impact earnings only when the bitcoin is sold at a gain. For the three months ended December 31, 2021, we incurred an impairment loss of $6,222,346 on our bitcoin.
Banking Risk. A number of companies that engage in bitcoin and/or other cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Similarly, a number of companies and individuals or businesses associated with cryptocurrencies may have had and may continue to have their existing bank accounts closed or services discontinued with financial institutions. To the extent that such events may happen to us, they could have a material adverse effect on our business, prospects or operations and potentially the value of any bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.
Costs of Mining Risk. Mining operations are costly and our expenses may increase in the future. Increases in mining expenses may not be offset by corresponding increases in revenue. Our expenses may become greater than we anticipate, and our investments to make our business more cost-efficient may not succeed. Bitcoin mining operations are also subject to increased costs as a result of the periodically increasing mining difficulty rates. Increases in our costs without corresponding increases in our revenue would adversely affect our profitability and could seriously harm our business and an investment in us.
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Liquidity Risk. Liquidity risk arises from the general funding needs of the Company's activities and in the management of the Company's assets and liabilities.
Item 4. Controls and Procedures
Limitation on Effectiveness of Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below.
Material Weakness and Remediation Plan
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in
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management assessment: (1) The Company did not adequately implement or properly maintain controls over its financial close and reporting process and its process over the recording of energy and other services revenue and (2) the Company did not adequately design and maintain effective general information technology controls over third-party information systems and applications that are relevant to the preparation of the Company’s financial statements:
Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include the following:
While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period, we are committed to continuous improvement and will continue to diligently review our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Other than remediation actions related to the material weakness in our internal controls described above, there has been no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time subject to various claims, lawsuits, and other legal and administrative proceedings arising in the ordinary course of business. See Note 12 - Commitments and Contingencies to our consolidated financial statements in Item 1. Part I of this Report.
Item 1A. Risk Factors
Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item I A. of our Annual Report on Form 10-K for the year ended September 30, 2021, which could materially affect our business, financial condition or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
101 INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101 SCH |
Inline XBRL Taxonomy Extension Schema Document |
101 CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101 DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101 LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
101 PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Filed herewith. |
** |
Furnished herewith. |
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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 thereunto duly authorized.
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Date: February 9, 2022 |
By: /s/ Zachary K. Bradford Zachary K. Bradford Title: Chief Executive Officer (Principal Executive Officer) |
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Date: February 9, 2022 |
By: /s/Gary A. Vecchiarelli Gary A. Vecchiarelli Title: Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this “Agreement”), dated as of December 15, 2021 (the “Effective Date”), is entered into by and between CleanSpark, Inc., a Nevada corporation (the “Company”), and Gary Vecchiarelli (the “Employee”). This Agreement supersedes and replaces any previous agreements, express or implied, between the parties concerning employment terms.
RECITALS
WHEREAS, the Employee desires to enter into this Agreement, to be effective as of the Effective Date, which sets forth the terms and conditions of the Employee’s employment with the Company from and after the Effective Date;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENT
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plans (“Employee Benefits”); (ii) the perquisites and other fringe benefits that are from time to time made available by the Company generally to its employees; and (iii) such perquisites and fringe benefits that are from time to time made available by the Company to the Employee in particular, subject to any applicable terms and conditions of any specific perquisite or other fringe benefit; provided, however, that nothing contained herein shall be deemed to require the Company to adopt, maintain or provide any particular plan, program, arrangement, policy, perquisite or fringe benefit. The Employee shall be required to comply with the conditions attendant to coverage by such plans and shall comply with and be entitled to benefits only in accordance with the terms and conditions of such plans as they may be amended from time to time. The Employee agrees to cooperate and participate in any medical or physical examinations as may be required in connection with the applications for such life and/or disability insurance policies.
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In addition to any other compensation outlined herein, the following compensation shall be paid upon termination of employment under the following circumstances:
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regardless of the vesting or termination provisions of such Unvested Securities. For purposes of clarity, to the extent the vesting or other provisions of any Unvested Securities conflict with the terms of this Paragraph 7(a), the terms of this Paragraph 7(a) shall govern.
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If to the Company, at:
CleanSpark, Inc.
Attn: General Counsel
2370 Corporate Circle, Suite 160, Henderson, NV 89074 E-mail: legal@cleanspark.com
If to the Employee, at: the Employee’s then-current home address on file with the Company.
Notice so given shall, in the case of overnight courier, be deemed to be given and received on the date of actual delivery and, in the case of personal delivery, on the date of delivery.
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legal representatives, successors, and assigns. The Employee shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.
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[Signatures on following page.]
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IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement effective as of the Effective Date.
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Company: |
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CLEANSPARK, INC., |
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A Nevada Corporation |
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Dated: Dec 14, 2021 |
By: |
/s/ Zachary Bradford |
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Zachary Bradford, CEO |
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EMPLOYEE: |
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Dated: Dec 14, 2021 |
By: |
/s/ Gary A. Vecchiarelli |
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Gary A. Vecchiarelli |
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ADDRESS: |
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11093 Gammila Drive |
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Las Vegas, NV 89141 |
[Signature Page to Employment Agreement]
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zachary Bradford, certify that;
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 of CleanSpark, Inc. (the “registrant”); |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 9, 2022 |
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By: |
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/s/ Zachary K. Bradford |
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Zachary K. Bradford |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lori Love, certify that;
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I have reviewed this Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 of CleanSpark, Inc. (the “registrant”); |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 9, 2022 |
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By: |
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/s/ Gary A. Vecchiarelli |
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Gary A. Vecchiarelli |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CleanSpark, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zachary Bradford, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: February 9, 2022 |
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By: |
/s/ Zachary K. Bradford |
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Zachary K. Bradford |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CleanSpark, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lori Love, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: February 9, 2021 |
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By: |
/s/ Gary A. Vecchiarelli |
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Gary A. Vecchiarelli |
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Chief Financial Officer |