Cleanspark, Inc 10-Q for FY2021 Q1

Cleanspark, Inc. (CLSK)

10-Q 2021-02-12 For: 2020-12-31

Added on April 12, 2026

About this 10-Q

Cleanspark, Inc filed this 10-Q on February 12, 2021, covering the quarter ended December 31, 2020 (FY2021 Q1).

Headline figures

Quarter ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.26M; up 131.1% from $976.82K a year earlier
Net loss: $7.17M; compared with a net loss of $1.92M a year earlier

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☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2020

☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number: 001-39187

Nevada	87-0449945
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

☐ Large accelerated filer	☐ Accelerated filer
☒ Non-accelerated Filer	☒ Smaller reporting company
	☐ Emerging growth company

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	10
Item 4:	Controls and Procedures	10
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	11
Item 1A:	Risk Factors	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3:	Defaults Upon Senior Securities	13
Item 4:	Mine Safety Disclosures	13
Item 5:	Other Information	13
Item 6:	Exhibits	13

	December 31, 2020			September 30, 2020
ASSETS
Current assets
Cash	$	25,631,913		$	3,126,202
Accounts receivable, net		1,624,648			1,047,353
Contract assets		906			4,103
Inventory		276,750			—
Prepaid expense and other current assets		3,383,440			998,931
Digital Currency		407,441			—
Derivative investment asset		1,094,775			2,115,269
Investment equity security		386,500			460,000
Investment debt security, AFS, at fair value		500,000			500,000
Total current assets	$	33,306,373			8,251,858

Fixed assets, net		6,484,137			117,994
Operating lease right of use asset		865,441			40,711
Capitalized software, net		936,917			976,203
Intangible assets, net		13,640,421			7,049,656
Other long-term asset		2,830,560			—
Goodwill		20,108,887			5,903,641

Total assets	$	78,172,736		$	22,340,063

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	2,936,049		$	4,527,037
Contract liabilities		63,603			64,198
Operating lease liability		609,475			41,294
Finance lease liability		235,688			—
Contingent consideration		750,000			750,000
Total current liabilities	$	4,594,815			5,382,529

Long-term liabilities
Loans payable		531,169			531,169
Operating lease liability, non-current		255,966			—
Finance lease liability, non-current		755,696			—

Total liabilities	$	6,137,646			5,913,698

Stockholders' equity
Preferred stock; $0.001 par value; 10,000,000 shares authorized; Series A shares; 2,000,000 authorized; 1,750,000 and 1,750,000 issued and outstanding as of December 31, 2020 and September 30, 2020, respectively		1,750			1,750
Common stock; $0.001 par value; 35,000,000 shares authorized; 24,070,531 and 17,390,979 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively		24,071			17,391
Additional paid-in capital		195,579,405			132,809,830
Accumulated deficit		(123,570,136	)		(116,402,606)
Total stockholders' equity		72,035,090			16,426,365

Total liabilities and stockholders' equity	$	78,172,736		$	22,340,063


	For the Three Months Ended
	December 31, 2020			December 31, 2019

Revenues, net
Sale of goods revenues		1,088,034		$	925,396
Service, software and related revenues	$	436,126			51,428
Digital currency mining revenue	$	733,410			—
Total revenues, net		2,257,570			976,824

Cost of revenues
Product sale revenues		1,014,931			784,574
Service, software and related revenues		148,913			98,147
Cost of mining and data center revenue		169,046			—
Total cost of revenues		1,332,890			882,721

Gross profit		924,680			94,103

Operating expenses
Professional fees		1,712,723			1,516,587
Payroll expenses		3,314,201			711,539
Product development		39,286			39,287
General and administrative expenses		950,139			230,661
Depreciation and amortization		1,078,429			587,490
Total operating expenses		7,094,778			3,085,564

Loss from operations		(6,170,098	)		(2,991,461)

Other income (expense)
Other income		—			—
Realized gain on sale of digital currency		49,918			—
Unrealized gain/(loss) on equity security		(73,500	)		368,868
Unrealized gain/(loss) on derivative security		(1,020,494	)		2,266,654
Interest income (expense) (net)		46,644			(1,560,315)
Total other income (expense)		(997,432	)		1,075,207

Net loss	$	(7,167,530	)	$	(1,916,254)

Loss per common share - basic and diluted	$	(0.32	)	$	(0.40)


Weighted average common shares outstanding - basic and diluted		22,146,992			4,781,075


For the Three months Ended December 31, 2020
	Preferred Stock			Common Stock
	Shares		Amount	Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2020	1,750,000	$	1,750	17,390,979	$	17,391	$	132,809,830	$	(116,402,606	)	$	16,426,365
Shares issued for services	—		—	501,437		501		3,011,133		—			3,011,634
Options and warrants issued for services	—		—	—		—		1,339,009		—			1,339,009
Shares issued for business acquisition	—		—	1,618,285		1,618		21,181,733		—			21,183,351
Exercise of options and warrants	—		—	115,385		116		192,540		—			192,656
Shares issued under underwritten offering, net of offering costs	—		—	4,444,445		4,445		37,045,160		—			37,049,605
Net loss	—		—	—		—		—		(7,167,530	)		(7,167,530)
Balance, December 31, 2020	1,750,000	$	1,750	24,070,531	$	24,071	$	195,579,405	$	(123,570,136	)	$	72,035,090

	Amount
Balance at September 30, 2020	$	—
Additions of digital currencies		733,410
Realized gain on sale of digital currencies		49,918
Sale of digital currencies		(375,887)
Balance at December 31, 2020	$	407,441

	Useful life
Machinery and equipment		3 - 5 years
Mining equipment		3 years
Leasehold improvements		Shorter of estimated lease term or 5 years
Furniture and fixtures		3 - 5 years

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	1,094,775	$	—	$	—	$	1,094,775
Investment in equity security		136,500		136,500		—	$	—
Investment debt security		500,000		—		—		500,000
Total	$	1,731,275	$	136,500	$	—	$	1,594,775

	Amount
Balance at September 30, 2020	$	2,615,269
Gain/(loss) on derivative asset		(1,020,494)
Balance at December 31, 2020	$	1,594,775

Consideration:	Fair Value
1,618,285 shares of common stock	$	21,183,351
Total Consideration	$	21,183,351

Purchase Price Allocation:
Strategic contract	$	7,457,970
Goodwill	$	14,205,245
Other assets and liabilities assumed, net	$	(479,864)
Total	$	21,183,351


	For the Three Months Ended
	December 31, 2020			December 30, 2019
Net sales	$	4,343,169		$	1,289,810

Net loss	$	(6,458,903	)	$	(1,890,994)

Loss per common share - basic and diluted	$	(0.27	)	$	(0.29)

Weighted average common shares outstanding - basic and diluted		23,765,277			6,521,486

	a)	$1,039,500 in cash was paid to the Seller;

	b)	31,183 restricted shares of the Company’s common stock, valued at $145,000, were issued to the Seller (the “Shares”). The Shares are subject to certain lock-up and leak-out provisions whereby the Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”);

	c)	$115,500 in cash was paid to an independent third-party escrow where such cash is subject to offset for adjustments to the purchase price and indemnification purposes; and


	d)	64,516 restricted shares of the Company’s common stock, valued at $300,000, were issued to an independent third-party escrow (the “Holdback Shares”). The Holdback Shares will be released to Seller once p2k achieves certain revenue milestones for the future performance of p2k. The Holdback Shares will also be subject to the Leak-Out Terms once they are released from escrow 12 months from closing. The Shares and Holdback Shares were deemed to have a fair market value of $4.65 per share which was the closing price of the Company’s common stock on January 31, 2020.

	e)	26,950 common stock options which were deemed to have a fair market value of $88,935 on the date of the closing of the Transaction.

Purchase Price Allocation:
Customer list	$	730,000
Design and other assets	$	123,000
Goodwill	$	957,388
Other assets and liabilities assumed, net	$	(121,453)
Total	$	1,688,935

	a)	$360,000 in cash was paid to the Seller at closing;
	b)	$400,000 in cash was delivered to an independent third-party escrow where such cash is subject to offset for adjustments to the Purchase Price and indemnification purposes for a period of 12 months;
	c)	26,427 restricted shares of the Company’s common stock, valued at $250,000, were issued to the Seller (the “Shares”). The Shares are subject to certain leak-out provisions whereby the Seller may sell an amount of Shares equal to no more than ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”); and
	d)	additional shares of the Company’s common stock, valued at up to $750,000, will be issuable to Seller if GridFabric achieves certain revenue and product release milestones related to the future performance of GridFabric (the “Earn-out Shares”). The Earn-Out Shares are also subject to the Leak-Out Terms.

Purchase Price Allocation:
Software	$	1,120,000
Customer list	$	60,000
Non-compete	$	190,000
Goodwill	$	26,395
Net Assets	$	3,605
Total	$	1,400,000

Fair value assumptions:	December 31, 2020
Risk free interest rate		0.09%
Expected term (months)		—
Expected volatility		147.25%
Expected dividends		0%

	December 31, 2020			September 30, 2020
mVSO software	$	437,135		$	437,135
mPulse software		741,846			741,846
Less: accumulated amortization		(242,064	)		(202,778)
Capitalized Software, net	$	936,917		$	976,203

	Useful life
Patents		15-20 years
Websites		3 years
Customer list and non-compete agreement		3-4 years
Design assets		2 years
Trademarks		14 years
Engineering trade secrets		7 years
Strategic contract		5 years
Software		2–3 years


2021	$	3,224,597
2022		4,003,379
2023		2,486,842
2024		2,100,124
2025		1,491,800
Thereafter		333,679
Total	$	13,640,421


Long-term loans payable consists of the following:	December 31, 2020		September 30, 2020

Promissory notes	$	531,169	$	531,169

Total	$	531,169	$	531,169


Fiscal year ending September 30, 2021		506,880
Fiscal year ending September 30, 2022		420,904
Total Lease Payments		930,545
Less: imputed interest		(62,343)
Total present value of lease liabilities	$	865,441


Fiscal year ending September 30, 2021		303,988
Fiscal year ending September 30, 2022		405,317
Fiscal year ending September 30, 2023		312,781
Fiscal year ending September 30, 2024		127,784
Total Lease Payments		1,149,870
Less: imputed interest		(158,486)
Total present value of lease liabilities	$	991,384

	Number of Warrant Shares		Weighted Average Exercise Price
Balance, September 30, 2020		1,299,065	$	21.78
Warrants granted		—		—
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		107,296		1.77
Balance, December 31, 2020		1,191,769	$	23.63

	Number of Option Shares		Weighted Average Exercise Price
Balance, September 30, 2020		277,948	$	6.34
Options granted		291,500		8.68
Options expired		11,008		7.93
Options cancelled		—		—
Options exercised		10,383		—
Balance, December 31, 2020		548,057	$	7.66

Fair value assumptions – Options:	December 31, 2020
Risk free interest rate		0.18-0.22%
Expected term (years)		3
Expected volatility		167%-172%
Expected dividends		0%

	December 31, 2020			December 31, 2019
Customer A		37.7	%		91.2%
Customer B		10.3	%		—

	December 31, 2020			December 31, 2019
Vendor A		57.8	%		93.0%
Vendor B		16.3	%		—


December 31, 2020

		Energy			Digital Agency		Digital Currency Mining		Inter-segment			Consolidated

Revenues	$	1,224,622		$	381,326	$	733,410	$	(81,788	)	$	2,257,570

Cost of revenues		1,074,495			89,349		169,046		—			1,332,890

Gross profit		150,127			291,976		564,364		(81,788	)		924,680

Operating expenses		6,779,393			287,562		109,611		(81,788	)		7,094,778
					—				—			—
Income/(loss) from operations		(6,629,266	)		4,415		454,753		—			(6,170,098)


Capital expenditures		15,175			3,907		—		—			19,082

Depreciation and amortization	$	717,677		$	76,408	$	284,344		—		$	1,078,429

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 INS	XBRL Instance Document
101 SCH	XBRL Schema Document
101 CAL	XBRL Calculation Linkbase Document
101 LAB	XBRL Labels Linkbase Document
101 PRE	XBRL Presentation Linkbase Document
101 DEF	XBRL Definition Linkbase Document
*	These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.


Date: February 11, 2021	By: /s/ Zachary K. Bradford Zachary K. Bradford Title: Chief Executive Officer (Principal Executive Officer)



Date: February 11, 2021	By: /s/Lori L. Love Lori L. Love Title: Chief Financial Officer (Principal Financial and Accounting Officer)

By:	/s/ Zachary Bradord
Name:	Zachary Bradford
Title:	Chief Executive Officer
Date:	February 12, 2020

By:	/s/ Lori Love
Name:	Lori Love
Title:	Chief Financial Officer
Date:	February 12, 2020