UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

☐	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

CleanSpark, Inc.

(Exact name of Registrant as specified in its charter)

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

1185 S. 1800 W., Suite 3

Woods Cross, Utah 84087

(Address of principal executive offices)

(702) 941-8047

(Registrant’s telephone number, including area code)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.001 per share

CLSK

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (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.

[X] Yes [ ] No

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). Yes [X] No [ ]

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.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 34,017,796 shares as of May 6, 2021.

Table of Contents

	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	13
Item 4:	Controls and Procedures	13
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	14
Item 1A:	Risk Factors	15
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3:	Defaults Upon Senior Securities	16
Item 4:	Mine Safety Disclosures	16
Item 5:	Other Information	16
Item 6:	Exhibits	16

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:

F-1

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and September 30, 2020;

F-2

Consolidated Statements of Operations for the three and six months ended March 31, 2021 and 2020 (unaudited);

F-3

Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2021 and 2020 (unaudited);

F-4

Consolidated Statements of Cash Flows for the six months ended March 31, 2021 and 2020 (unaudited);

F-5

Notes to Consolidated Financial Statements (unaudited).

This report on Form 10-Q for the quarter ended March 31, 2021, should be read in conjunction with the Company's annual report on Form 10-K for the year ended September 30, 2020, filed with the Securities and Exchange Commission (“SEC”) on December 17, 2020.

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 March 31, 2021 are not necessarily indicative of the results that can be expected for the full year.

Table of Contents

CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2021				September 30, 2020
ASSETS
Current assets
Cash and cash equivalents		$	157,274,542			$	3,126,202
Accounts receivable, net			1,756,112				1,047,353
Contract assets			—				4,103
Inventory			856,095				—
Prepaid expense and other current assets			2,184,863				998,931
Digital currency			5,662,547				—
Derivative investment asset			9,495,404				2,115,269
Investment equity security			729,500				460,000
Investment debt security, AFS, at fair value			500,000				500,000
Total current assets		$	178,459,063				8,251,858

Property and equipment, net			14,861,958				117,994
Operating lease right of use asset			713,158				40,711
Capitalized software, net			892,220				976,203
Intangible assets, net			17,332,820				7,049,656
Deposits on mining equipment and related assets			45,488,258				—
Other long-term asset			2,830,560				—
Goodwill			32,034,559				5,903,641
Total assets		$	292,612,596			$	22,340,063

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	2,947,099			$	4,527,037
Contract liabilities			551,977				64,198
Operating lease liability, current portion			611,040				41,294
Finance lease liability, current portion			336,157				—
Acquisition liability			300,000				—
Contingent consideration, current portion			2,416,667				750,000
Dividends payable			177,505				—
Total current liabilities		$	7,340,445			$	5,382,529

Long-term liabilities
Loans payable			—				531,169
Operating lease liability, net of current portion			101,983				—
Finance lease liability, net of current portion			616,376				—
Contingent consideration, net of current portion			833,333				—
Total liabilities		$	8,892,137			$	5,913,698

Stockholders' equity
Common stock; $0.001 par value; 50,000,000 shares authorized; 33,874,152 and 17,390,979 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively			33,874				17,391
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 March 31, 2021 and September 30, 2020, respectively			1,750				1,750
Additional paid-in capital			400,032,436				132,809,830
Accumulated deficit			(116,347,601	)			(116,402,606)
Total stockholders' equity			283,720,459				16,426,365

Total liabilities and stockholders' equity		$	292,612,596			$	22,340,063

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-1

Table of Contents

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For the Three Months Ended						For the Six Months Ended
	March 31, 2021			March 31, 2020			March 31, 2021			March 31, 2020

Revenues, net
Sale of goods revenues	$	891,965		$	3,352,098		$	1,979,999		$	4,277,494
Service, software and related revenues	$	511,931		$	306,185		$	948,057		$	357,613
Cryptocurrency mining revenue	$	6,715,792			—		$	7,449,202			—
Total revenues, net		8,119,688			3,658,283			10,377,258			4,635,107

Costs and expenses
Cost of revenues (exclusive of depreciation and amortization shown below)		1,537,683			2,913,828			2,879,197			3,757,262
Professional fees		2,456,554			1,005,991			4,169,277			2,522,578
Payroll expenses		3,262,097			984,380			6,576,298			1,695,919
General and administrative expenses		1,243,154			311,131			2,193,293			541,792
Depreciation and amortization		2,117,172			715,005			3,226,263			1,381,069
Total costs and expenses		10,616,660			5,930,335			19,044,328			9,898,620

Loss from operations		(2,496,972	)		(2,272,052	)		(8,667,070	)		(5,263,513)

Other income (expense)
Other income		541,576			—			541,576			—
Realized gain on sale of digital currency		585,709			—			635,627			—
Unrealized gain/(loss) on equity security		343,000			(210,000	)		269,500			158,868
Unrealized gain on derivative security		8,400,629			(1,441,763	)		7,380,135			824,891
Interest income (expense), net		26,098			(1,891,283	)		72,742			(3,451,598)
Total other income (expense)		9,897,012			(3,543,046	)		8,899,580			(2,467,839)

Net Income/(loss) attributable to the Company	$	7,400,040		$	(5,815,098	)	$	232,510		$	(7,731,352)

Preferred stock dividends	$	177,505		$	—		$	177,505		$	—

Net Income (loss) attributable to the Company’s common shareholders	$	7,222,535		$	(5,815,098	)	$	55,005		$	(7,731,352)

Earnings/(loss) per common share - basic	$	0.28		$	(1.13	)	$	0.00		$	(1.56)

Weighted average common shares outstanding - basic		25,925,259			5,135,802			24,025,557			4,957,491

Earnings/(loss) per common share - diluted	$	0.22		$	(1.13	)	$	0.00		$	(1.56)

Fully diluted weighted average common shares outstanding		32,697,863			5,135,802			30,798,161			4,957,491

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-2

Table of Contents

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)


For the Six Months ended March 31, 2021
	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
Shares issued for services		—		—		19,429			19			71,478		—			71,497
Options and warrants issued for services		—		—		—			—			777,517		—			777,517
Shares issued for business acquisition		—		—		477,703			478			13,246,226		—			13,246,704
Exercise of options and warrants		—		—		223,650			223			3,153,680		—			3,153,903
Shares issued under underwritten offering, net of offering costs		—		—		9,090,910			9,091			187,204,122		—			187,213,213
Shares returned in relation to business acquisition		—		—		(8,072	)		(8	)		8		—			(0)
Preferred stock dividends accrued		—		—		—			—			—		(177,505	)		(177,505)
Net income		—		—		—			—			—		7,400,040			7,400,040
Balance, March 31, 2021		1,750,000		1,750		33,874,151			33,874			400,032,436		(116,347,601	)		283,720,459

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
Beneficial conversion feature and shares issued with convertible debt		—		—		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
Beneficial conversion feature and shares issued with convertible debt		—		—		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

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-3

Table of Contents

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Six Months Ended
	March 31, 2021			March 31, 2020
Cash Flows from Operating Activities
Net income (loss)	$	232,510		$	(7,731,352)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock based compensation		5,199,658			910,200
Unrealized gain on equity security		(269,500	)		(158,868)
Realized gain on sale of digital currency		(635,627	)		—
Amortization of operating lease right of use asset		166,460			21,726
Depreciation and amortization		3,226,263			1,381,069
Provision for bad debts		231,932			—
Gain on derivative asset		(7,380,135	)		(824,891)
PPP loan forgiveness		(531,169	)		—
Amortization of debt discount		—			3,000,959
Changes in operating assets and liabilities
(Increase) decrease in prepaid expenses and other current assets		(1,130,741	)		618,614
Decrease in contract assets		4,103			52,795
Increase in contract liabilities		487,779			90,840
Decrease (increase) in accounts receivable		114,285			(588,229)
(Decrease) increase in accounts payable		(2,890,270	)		2,052,295
Increase in digital currency from mining		(7,449,202	)		—
Decrease in lease liability		(268,861	)		(21,247)
Increase in inventory		(793,945	)		—
Increase (decrease) in due to related parties		—			(66,966)
Net cash used in operating activities		(11,686,460	)		(1,263,055)

Cash Flows from investing
Increase in deposits on mining equipment and related assets		(45,488,258	)		—
Sale of digital currencies		2,422,282			—
Investment in infrastructure development		(2,830,560	)		—
Purchase of property and equipment		(9,058,011	)		(24,910)
Acquisition of ATL Data Center, net of cash received		45,783			—
Acquisition of p2KLabs, net of cash received		—			(1,141,990)
Acquisition of Solar Watt Solutions, net of cash received		(1,000,337	)		—
Investment in capitalized software		—			(84,925)
Investment in debt and equity securities		—			(750,000)
Net cash used in investing activities		(55,909,101	)		(2,001,825)

Cash Flows from Financing Activities
Payments on promissory notes		(5,865,476	)		(67,467)
Proceeds from exercise of options and warrants		3,346,559			—
Proceeds from underwritten offerings		224,262,818			—
Net cash received/(provided) by financing activities		221,743,901			(67,467)

Net increase (decrease) in cash and cash equivalents		154,148,340			(3,332,347)

Cash and cash equivalents, beginning of period		3,126,202			7,838,857

Cash and cash equivalents, end of period	$	157,274,542		$	4,506,510

Supplemental disclosure of cash flow information
Cash paid for interest	$	31,846		$	7,606
Cash paid for tax	$	—		$	—

Non-cash investing and financing transactions
Day one recognition of right of use asset and liability	$	—		$	85,280
Shares issued for conversion of debt	$	—		$	998
Shares and options issued for business acquisition	$	34,430,055		$	533,935
Shares issued as collateral returned to treasury	$	—		$	30
Preferred stock dividends accrued	$	177,505		$	—
Cashless exercise of options/warrants	$	74		$	—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-4

Table of Contents

CLEANSPARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND LINE OF BUSINESS

Organization

The Company - CleanSpark, Inc.

CleanSpark, Inc. (“CleanSpark”, “we”, “our”, the "Company") was incorporated in the state of Nevada on October 15, 1987 under the name, SmartData Corporation. In October 2016, the Company changed its name to CleanSpark, Inc. in order to better reflect the Company’s brand identity.

The Company, through itself and its wholly owned subsidiaries, has operated in the alternative energy sector since March 2014, and in the digital currency mining sector since December 2020.

Acquisitions Related to Subsidiaries and/or Assets of the Company

CleanSpark, LLC

On July 1, 2016, the Company entered into an Asset Purchase Agreement, as amended (the “Purchase Agreement”), with CleanSpark Holdings LLC, CleanSpark LLC, CleanSpark Technologies LLC, and Specialized Energy Solutions, Inc. (together, the “Seller”). Pursuant to the Purchase Agreement, the Company acquired CleanSpark, LLC and all the assets related to the Seller and its line of business.

CleanSpark Critical Power Systems, Inc.

On January 22, 2019, CleanSpark entered into an agreement with Pioneer Critical Power, Inc., whereby it acquired certain intellectual property assets and client lists. As a result of the transaction, Pioneer Critical Power Inc. became a wholly owned subsidiary of the Company. On February 1, 2019, Pioneer Critical Power, Inc. was renamed to CleanSpark Critical Power Systems, Inc.

p2klabs, Inc.

On January 31, 2020, the Company entered into a Stock Purchase Agreement with p2klabs, Inc (“p2k”), and its sole stockholder, whereby the Company purchased all of the issued and outstanding shares of p2k from its sole stockholder. As a result of the transaction, p2k became a wholly owned subsidiary of the Company.

GridFabric, LLC

On August 31, 2020, the Company entered into a Membership Interest Purchase Agreement with GridFabric, LLC, (“GridFabric”), and its sole member, whereby the Company purchased all of the issued and outstanding membership units of GridFabric from its sole member. As a result of the transaction, GridFabric a wholly owned subsidiary of the Company.

ATL Data Centers LLC

On December 9, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger”) with ATL Data Centers LLC (“ATL”), and its members whereby the Company purchased all of the issued and outstanding membership units of ATL from its members. As a result of the transaction, ATL became a wholly owned subsidiary of the Company. (See Note 3 for details.)

Solar Watt Solutions, Inc.

On February 23, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger”) with Solar Watt Solutions, Inc. (“SWS”), and its owners whereby the Company purchased all of the issued and outstanding shares of SWS from its owners. As a result of the transaction, SWS became a wholly owned subsidiary of the Company. (See Note 3 for details.)

F-5

Table of Contents

Lines of Business

Energy Business Segment

Through CleanSpark, LLC, we provide microgrid engineering, design and software solutions to military, commercial and residential customers. Our services consist of distributed energy microgrid system engineering and design, and project consulting services. The work is generally performed under fixed price bid contracts and negotiated price contracts.

Through CleanSpark Critical Power Systems, Inc., we provide custom hardware solutions for distributed energy systems that serve military and commercial residential properties. The equipment is generally sold under negotiated fixed price contracts.

Through GridFabric, LLC, we provide Open Automated Demand Response (“OpenADR”) and other middleware communication protocol software solutions to commercial and utility customers.

Through Solar Watt Solutions, Inc., which we acquired in February 2021, we provide solar and alternative energy solutions for homeowners and commercial businesses in Southern California.

Through ATL Data Centers LLC, we 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.

Digital Agency Segment

Through p2kLabs, Inc., the Company provides design, software development, and other technology-based consulting services. The services provided are generally an hourly arrangement or fixed-fee project-based arrangements.

Digital Currency Mining Segment

Through ATL Data Centers LLC and our recently formed subsidiary, CleanBlok, LLC, we mine Bitcoin. We entered the Bitcoin mining industry through our recent acquisition of ATL Data Centers LLC, and we have recently acquired additional equipment and infrastructure capacity in order to expand our Bitcoin mining operations.

2. SUMMARY OF SIGNIFICANT POLICIES

Basis of Presentation and Liquidity

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, 2020, filed with the SEC on December 17, 2020 (“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 Company has incurred losses in the past while it developed its infrastructure and software platforms. As shown in the accompanying unaudited consolidated financial statements, the Company incurred operating losses of $

SEC Form 10-Q filed by CleanSpark, Inc.