Cleanspark, Inc 10-Q for FY2020 Q2

Cleanspark, Inc. (CLSK)

10-Q 2020-05-11 For: 2020-03-31

Added on April 12, 2026

About this 10-Q

Cleanspark, Inc filed this 10-Q on May 11, 2020, covering the quarter ended March 31, 2020 (FY2020 Q2).

Headline figures

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

Revenue: $3.66M; up 405.4% from $723.9K a year earlier
Net loss: $5.82M; compared with a net loss of $7.76M a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →

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

For the quarterly period ended March 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)	(IRS Employer Identification No.)

[ ] Large accelerated filer	[X] Accelerated filer
[ ] Non-accelerated filer	[X] 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	9
Item 4:	Controls and Procedures	10
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	11
Item 1A:	Risk Factors	11
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3:	Defaults Upon Senior Securities	11
Item 4:	Mine Safety Disclosures	11
Item 5:	Other Information	11
Item 6:	Exhibits	12

	March 31, 2020			September 30, 2019
ASSETS
Current assets
Cash	$	4,506,510		$	7,838,857
Accounts receivable, net		1,441,512			777,716
Contract assets		4,282			57,077
Prepaid expense and other current assets		595,831			1,210,395
Derivative asset		824,891			—
Investment in equity securities		502,000			—
Investment available for sale debt security, at fair value		456,744			—
Total current assets		8,331,770			9,884,045

Fixed assets, net		143,895			145,070
Operating lease right of use asset		63,554			—
Capitalized Software, net		1,060,417			1,055,197
Intangible assets, net		7,328,789			7,430,082
Goodwill		5,562,246			4,919,858

Total assets	$	22,490,671		$	23,434,252

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	3,121,117		$	848,756
Contract liabilities		590,241			499,401
Lease liability		64,033			—
Due to related parties		20,000			86,966
Convertible note, net of unamortized discounts		822,498			—
Loans payable, net of unamortized discounts		—			67,467
Total current liabilities		4,617,889			1, 502,590

Long- term liabilities
Convertible notes, net of unamortized discounts		5,124,658			2,896,321
Loans payable		150,000			150,000

Total liabilities		9,892,547			4,548,911

Stockholders' equity
Common stock; $0.001 par value; 20,000,000 shares authorized; 5,745,115 and 4,679,018 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively		5,745			4,679
Preferred stock; $0.001 par value; 10,000,000 shares authorized; 1,750,000 and 1,000,000 Series A shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively		1,750			1,000
Additional paid-in capital		113,378,444			111,936,125
Accumulated deficit		(100,787,815	)		(93,056,463)
Total stockholders' equity		12,598,124			18,885,341

Total liabilities and stockholders' equity	$	22,490,671		$	23,434,252

	For the Three Months Ended						For the Six Months Ended
	March 31, 2020			March 31, 2019			March 31, 2020			March 31, 2019

Revenues, net
Sale of goods revenues	$	3,352,098		$	373,568		$	4,277,494		$	373,568
Service, software and related revenues		306,185			350,331			357,613			613,238
Total revenues, net		3,658,283			723,899			4,635,107			986,806

Cost of revenues
Cost of goods sold		2,921,548			330,882			3,706,122			330,882
Cost of services		32,698			261,136			130,845			484,462
Total cost of revenues		2,954,246			592,018			3,836,967			815,344

Gross profit		704,037			131,881			798,140			171,462

Operating expenses
Professional fees		1,005,991			1,406,269			2,522,578			2,422,276
Payroll expenses		984,380			313,170			1,695,919			473,521
Product development		—			341,081			—			689,741
General and administrative expenses		311,131			159,408			541,792			256,397
Depreciation and amortization		674,587			499,636			1,301,364			657,119
Total operating expenses		2,976,089			2,719,564			6,061,653			4,499,054

Loss from operations		(2,272,052	)		(2,587,683	)		(5,263,513	)		(4,327,592)

Other income (expense)
Gain/(Loss) on settlement of debt		—			6,800			—			(19,425)
Unrealized gain/(loss) on equity securities		(210,000	)		—			158,868			—
Gain/(loss) on derivative asset		(1,441,763	)		—			824,891			—
Interest expense (net)		(1,891,283	)		(5,183,657	)		(3,451,598	)		(5,701,074)
Total other income (expense)		(3,543,046	)		(5,176,857	)		(2,467,839	)		(5,720,499)

Net loss	$	(5,815,098	)	$	(7,764,540	)	$	(7,731,352	)	$	(10,048,091)

Loss per common share - basic and diluted	$	(1.13	)	$	(1.88	)	$	(1.56	)	$	(2.59)

Weighted average common shares outstanding - basic and diluted		5,135,802			4,121,963			4,957,491			3,884,818

For the Six Months Ended March 31, 2020
	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2019		1,000,000	$	1,000		4,679,018		$	4,679		$	111,936,125		$	(93,056,463	)	$	18,885,341
Shares issued for services		750,000		750		2,000			2			33,348			—			34,100
Options and warrants issued for services		—		—		—			—			602,169			—			602,169
Shares issued upon conversion of debt and accrued interest		—		—		187,100			187			(187	)		—			—
Rounding shares issued for stock split		—		—		793			1			(1	)		—			—
Net loss		—		—		—			—			—			(1,916,254	)		(1,916,254)
Balance, December 31, 2019		1,750,000	$	1,750		4,868,911		$	4,869		$	112,571,454		$	(94,972,717	)	$	17,605,356
Shares returned and cancelled		—		—		(30,000	)		(30	)		30			—			—
Options issued for business acquisition		—		—		—			—			88,935			—			88,935
Options and warrants issued for services		—		—								273,931			—			273,931
Shares issued for business acquisition		—		—		95,699			96			444,904			—			445,000
Shares issued upon conversion of debt and accrued interest		—		—		810,505			810			(810	)		—			—
Net loss		—		—		—			—			—			(5,815,098	)		(5,815,098)
Balance, March 31, 2020		1,750,000	$	1,750		5,745,115		$	5,745		$	113,378,444		$	(100,787,815	)	$	12,598,124

For the Six Months Ended March 31, 2019
	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2018		1,000,000	$	1,000		3,611,645		$	3,612		$	82,990,994		$	(66,939,531	)	$	16,056,075
Shares issued for services		—		—		12,000			12			271,719			—			271,731
Options and warrants issued for services		—		—		—			—			377,475			—			377,475
Shares issued upon exercise of warrants		—		—		300			—			1,088			—			1,088
Beneficial conversion feature and shares and warrants issued with convertible debt		—		—		10,000			10			4,994,990			—			4,995,000
Shares issued for direct investment		—		—		45,225			45			361,755			—			361,800
Shares issued for settlement of debt		—		—		2,500			3			51,222			—			51,225
Commitment shares returned and cancelled		—		—		(13,750	)		(14	)		14			—			—
Net loss		—		—		—			—			—			(2,283,551	)		(2,283,551)
Balance, December 31, 2018		1,000,000	$	1,000		3,667,920		$	3,668		$	89,049,257		$	(69,223,082	)	$	19,830,843
Shares issued for services		—		—		9,000			9			328,679			—			328,688
Options and warrants issued for services		—		—								350,888			—			350,888
Shares issued upon exercise of warrants		—		—		217,896			218			(218	)		—			—
Shares issued upon conversion of debt		—		—		249,862			250			4,724,750			—			4,725,000
Shares and warrants issued under asset purchase agreement		—		—		175,000			175			6,071,849			—			6,072,024
Commitment shares returned and cancelled		—		—		(13,750	)		(14	)		14			—			—
Net loss		—		—		—			—			—			(7,764,540	)		(7,764,540)
Balance, March 31, 2019		1,000,000	$	1,000		4,305,928		$	4,306		$	100,525,219		$	(76,987,622	)	$	23,542,903

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	824,891	$	—	$	—	$	824,891
Investment in equity security		252,000		252,000		—	$	—
Investment debt security		456,744		—		—		456,744
Total	$	1,533,635	$	252,000	$	—	$	1,281,635

	Amount
Balance at September 30, 2019	$	—
Fair value at issuance, net of premium		456,744
Gain on derivative asset		824,891
Balance at March 31, 2020	$	1,281,635

	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.

Consideration:	Fair Value
Cash	$	1,155,000
95,699 shares of common stock	$	445,000
26,950 common stock options	$	88,935
Total Consideration	$	1,688,935

Purchase Price Allocation:
Customer list	$	1,045,000
Design and other assets	$	123,000
Goodwill	$	642,388
Other assets and liabilities assumed, net	$	(121,453)
Total	$	1,688,935

Fair value assumptions:	March 31, 2020
Risk free interest rate		0.17%
Expected term (months)		4
Expected volatility		152%
Expected dividends		0%

	March 31, 2020			September 30, 2019
mVSO software	$	437,136		$	352,211
mPulse software		741,846			741,846
Capitalized Software:		1,178,982			1,094,057
Less: accumulated amortization		(118,565	)		(38,860)
Capitalized Software, net	$	1,060,417		$	1,055,197

	March 31, 2020			September 30, 2019
Patents	$	74,112		$	74,112
Websites		8,115			16,482
Customer list and non-compete agreement		6,767,024			5,722,024
Design assets		123,000			—
Trademarks		5,928			5,928
Trade secrets		4,370,269			4,370,269
Intangible assets:		11,348,448			10,188,815
Less: accumulated amortization		(4,019,659	)		(2,758,733)
Intangible assets, net	$	7,328,789		$	7,430,082

	March 31, 2020			September 30, 2019
Machinery and equipment	$	201,856		$	212,082
Leasehold improvements		17,965			—
Furniture and fixtures		110,586			75,121
Total		330,407			287,203
Less: accumulated depreciation		(186,512	)		(142,133)
Fixed assets, net	$	143,895		$	145,070

Long-term loans payable consist of the following:	March 31, 2020		September 30, 2019

Promissory notes	$	150,000	$	150,000

Total	$	150,000	$	150,000

Current loans payable consist of the following:	March 31, 2020		September 30, 2019

Promissory notes	$	—	$	50,000
Insurance financing loans		—		17,467
Current loans payable:		—		67,467
Unamortized debt discount		—		—

Total, net of unamortized discount	$	—	$	67,467

Principal	$	1,250,000
Unamortized debt discount		(427,502)
Total, net of unamortized discount		822,498

	1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, with the Floor Price on the First Debenture not applying in the occurrence of an event of default;
	2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after June 11, 2020;

Principal	$	10,750,000
Unamortized debt discount		(5,625,342)
Total, net of unamortized discount	$	5,124,658

Fiscal year ending September 30, 2020	$	25,448
Fiscal year ending September 30, 2021		43,170
Total Lease Payments		68,618
Less: imputed interest		(4,585)
Total present value of lease liabilities	$	64,033

	§	The holders of shares of Series B Preferred Stock will have no right to vote on any matters, questions or proceedings of the Company including, without limitation, the election of directors;

	§	Commencing on the date of issuance, the Series B Preferred Stock will accrue cumulative in kind accruals (“the Accruals”) at the rate of 7.5% per annum;


	§	Upon any liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series B Preferred Stock equal to $5,000.00 (the “Face Value”), plus an amount equal to any accrued but unpaid Accruals thereon (the “Liquidation Value”);

	§	On maturity, the Company may redeem the Series B Preferred Stock by paying the holder the Liquidation Value;

	§	Before maturity, the Company may redeem the Series B Preferred stock on 30 days’ notice by paying 145% of the outstanding Face Value per share;

	§	If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will, within three trading days of such determination and prior to effectuating any such action, redeem all outstanding shares of Series B Preferred Stock;

	§	In the event of a conversion of any shares of Series B Preferred Stock, the Company will (a) satisfy the payment of the Conversion Premium, which is defined as the Face Value of the shares converted multiplied by the product of 7.5% and the number of whole years between issuance and maturity, and (b) issue to the holder of the shares of Series B Preferred Stock a number of conversion shares equal to the Face Value divided by the applicable Conversion Price (defined as 90% of the of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.75 per share, but no less than the Floor Price ($3.50) with respect to the number of shares converted; While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. In the event of certain defaults, conversion price may not be subject to a floor.

	§	if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which holder could have acquired if holder had held the number of shares of Common Stock acquirable upon conversion of Series B Preferred Stock;

	§	At maturity (2 years from issuance), all outstanding shares of Series B Preferred Stock shall automatically convert into common stock at the Conversion Price; and

	▪	At no time may the holders of Series B Preferred Stock own more than 4.99% of the outstanding common stock in the Company.

	Number of Warrant Shares		Weighted Average Exercise Price
Balance, September 30, 2019		1,314,063	$	21.62
Warrants granted		—	$	—
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		—		—
Balance, March 31, 2020		1,314,063	$	21.62

Fair value assumptions – Warrants:		March 31, 2019
Risk free interest rate		2.46% -3.01%
Expected term (years)		3-5
Expected volatility		265-268%
Expected dividends		0%

	Number of Option Shares		Weighted Average Exercise Price
Balance, September 30, 2019		81,254	$	11.82
Options granted		233,233	$	5.28
Options expired		25,000		8.00
Options cancelled		—		—
Options exercised		—		—
Balance, March 31, 2020		289,487	$	6.88

Fair value assumptions – Options:	March 31, 2020
Risk free interest rate		0.85-1.73%
Expected term (years)		3-5
Expected volatility		124%-209%
Expected dividends		0%

	March 31, 2020			March 31, 2019
Customer A		55.5	%		35.8%
Customer B		24.4	%		—
Customer C		—			44%
Customer D		—			14.2%

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: May 11, 2020	By: /s/ Zachary K. Bradford Zachary K. Bradford Title: Chief Executive Officer (Principal Executive Officer)



Date: May 11, 2020	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:	May 11, 2020

By:	/s/ Lori Love
Name:	Lori Love
Title:	Chief Financial Officer
Date:	May 11, 2020