CleanSpark, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2020 (the first quarter of CleanSpark’s fiscal 2021); filed February 11, 2021. The filing’s interim results are unaudited and are not necessarily indicative of full-year performance.
Business context
CleanSpark operates energy engineering, equipment and software businesses, a digital agency, and—following its December 2020 acquisition of ATL Data Centers—data center services and Bitcoin mining. Mining began in December 2020. The company reported three segments: Energy, Digital Agency, and Digital Currency Mining.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2020 | Prior-year comparable period |
|---|---|---|
| Revenue | $2.26 million | $0.98 million |
| Gross profit / gross margin | $0.92 million / 41.0% | $0.09 million / 9.6% |
| Operating expenses | $7.09 million | $3.09 million |
| Operating loss | $(6.17) million | $(2.99) million |
| Net loss | $(7.17) million | $(1.92) million |
| Basic and diluted loss per share | $(0.32) | $(0.40) |
| Cash used in operating activities | $(6.83) million | $(0.89) million |
Revenue rose about 131%, mainly reflecting digital agency and new mining revenue. Mining contributed $733,410 of revenue and $564,364 of segment gross profit; Energy generated $1.22 million of revenue and $150,127 of gross profit; Digital Agency generated $381,326 of revenue and $291,976 of gross profit, before intersegment eliminations.
At December 31, 2020, cash was $25.63 million, current assets $33.31 million, current liabilities $4.59 million, and working capital $28.71 million. Total assets were $78.17 million; total liabilities were $6.14 million; and stockholders’ equity was $72.04 million. The balance sheet showed $531,169 of long-term PPP loan debt. Lease liabilities totaled approximately $1.86 million, including operating and finance leases.
Investing activities used $2.43 million, including $2.83 million for infrastructure development. Financing activities provided $31.77 million, principally from $37.05 million net proceeds from an underwritten stock offering, partly offset by $5.48 million of promissory-note repayments. Cash increased from $3.13 million to $25.63 million.
Material changes and notable items
- Operating expenses more than doubled, driven by payroll, general and administrative costs, and depreciation and amortization. Stock-based compensation was $4.35 million for the quarter.
- Other expense was $997,432, including a $1.02 million unrealized derivative loss; the comparable prior-year period included a $2.27 million derivative gain.
- ATL was acquired on December 9 for consideration valued at $21.18 million, paid in CleanSpark shares; the company also reported assuming approximately $6.9 million of ATL debt at closing. Purchase accounting remained provisional. ATL added mining equipment and a strategic supply contract.
- Common shares outstanding increased from 17.39 million at September 30 to 24.07 million at December 31, reflecting the offering, acquisition shares, and other issuances. The filing reported 24.23 million shares outstanding on February 11, 2021.
- Customer concentration remained material: two customers represented 37.7% and 10.3% of quarterly revenue. Two vendors represented 57.8% and 16.3% of direct material costs.
Outlook, risks and contingencies
Management stated that available liquidity was sufficient for anticipated cash needs for at least the next 12 months, while cautioning that profitability is not assured and additional financing may be needed. No formal financial guidance was provided. Management expected operating expenses to rise as it implements its business plan. The company said its Bitcoin mining fleet produced over 200 PH/s and expected capacity to exceed 300 PH/s in early 2021.
- Controls: Management concluded disclosure controls were not effective as of December 31, 2020, citing ATL’s ongoing adoption of company controls and procedures.
- Litigation: The company was involved in arbitration with Discover Growth Fund over prior financing agreements and offering-related claims. A separate securities class action filed January 20, 2021 alleged misleading statements concerning customer and contract figures and acquisition-related transactions. The company disputed the claims; outcomes were uncertain.
- Other risks: The filing highlighted COVID-19 and supply-chain disruption, access to capital, concentrated customers and suppliers, and the volatility and accounting uncertainty associated with digital currencies and Level 3 fair-value instruments.
- PPP loan: The $531,169 loan bore 1% interest and was due in 2022. The company intended to seek forgiveness, but gave no assurance that any amount would be forgiven.
- Acquisition and asset estimates: Goodwill and intangible assets increased significantly, including $14.21 million of goodwill and a $7.46 million strategic contract attributed to ATL; management reported no impairment for the quarter.
Most important facts for investors to verify
- Whether mining capacity expanded as expected and whether mining revenue and margins are sustainable as digital-asset prices and network conditions change.
- Whether the ATL acquisition’s provisional purchase-price allocation, assumed obligations, and strategic supply contract perform as expected.
- Whether cash burn, rising operating costs, and future financing needs remain consistent with management’s 12-month liquidity assessment.
- Developments and potential financial effects of the Discover Growth Fund arbitration and securities class action.
- Progress in integrating ATL’s controls, customer and supplier concentration, and any changes in reported share count or dilution.