Filing summary
Important identity and period discrepancy: The supplied filing is for SmartData Corporation, not CLEANSPARK, INC. It covers the quarter ended June 30, 2014 (the company’s fiscal third quarter) and was signed August 12, 2014. Investors should confirm this is the intended filing before relying on the figures.
Business context and reporting period
SmartData had been inactive since 1992, then shifted toward acquiring, licensing, and marketing renewable-energy technology. On March 25, 2014, it acquired two downdraft-gasifier patents and a 32-inch gasifier from SMS Management Services, an entity partly controlled by the company’s CEO and a director. Consideration included 715,320 shares and assumption of $156,900 in liabilities. The company described its business plan as converting organic waste into synthesis gas and related energy products.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Nine months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $2,555 | $2,555 | $0 |
| Cost of revenue | $700 | $700 | $0 |
| Gross profit / margin | $1,855 / approximately 73% | $1,855 / approximately 73% | $0 |
| Operating expenses | $11,757 | $27,567 | $3,837 / $16,423 |
| Operating loss | $(9,902) | $(25,712) | $(3,837) / $(16,423) |
| Interest expense | $(997) | $(45,962) | $(1,697) / $(4,910) |
| Net loss | $(10,899) | $(71,674) | $(5,534) / $(21,333) |
At June 30, 2014, cash was $62,335; current assets were $65,335; total assets were $690,151; current liabilities were $157,590; and total liabilities were $207,590. Working capital was negative $92,255. The balance sheet reported $50,000 of non-current notes payable and no current convertible notes or shareholder payable. Stockholders’ equity was $482,561, versus a deficit of $105,298 at September 30, 2013. Shares outstanding rose from 950,687 to 5,618,305.
For the nine months, operating activities used $34,185 in cash, investing activities used $2,250, and financing activities provided $98,500. Ending cash increased from $270 at September 30, 2013 to $62,335. Non-cash transactions included $424,073 of shares issued to acquire fixed assets (net of liabilities assumed), $42,385 of shares issued for intangible assets, and $40,000 of stock issued for debt.
Material changes, outlook, and risks
- Revenue began at a very small level, while the company remained loss-making. Nine-month net loss increased substantially year over year, primarily reflecting $40,000 of debt-discount amortization included in interest expense.
- Management said the gasifier was not yet in service and anticipated placing it into service during the quarter ending September 30, 2014. No quantified revenue or earnings guidance was provided.
- Management stated that available cash was insufficient to operate at the current level for the next 12 months. The company planned to seek additional private equity or debt financing and increase sales, but gave no assurance that funding would be available or that its plan would succeed.
- The filing disclosed substantial doubt about the company’s ability to continue as a going concern, citing cumulative losses of $435,804, dependence on additional capital, and the need to develop profitable operations.
- Disclosure controls were deemed ineffective due to material weaknesses, including inadequate segregation of duties and insufficient written accounting and reporting procedures. Remediation depended partly on obtaining financing.
- The gasifier and patent acquisition was a related-party transaction. Management’s technology and market claims are forward-looking and depend on successful development, commercialization, financing, and market acceptance.
- The filing reports no pending legal proceedings and no off-balance-sheet arrangements. It also describes July 2014 private placements after the quarter end, although the subsequent-events note says no events required disclosure.
Most important facts to verify
- Confirm the issuer: the filing identifies SmartData Corporation, not CLEANSPARK, INC.
- Reconcile the July 12 and July 13 private-placement share counts: the notes report 30,000 and 5,000 shares, respectively, while the unregistered-sales section reports 40,000 shares for each date.
- Clarify the treatment and balance-sheet classification of the $156,900 assumed gasifier liabilities and reconcile the acquisition consideration with the recorded asset values.
- Verify the significant non-cash asset and debt transactions, the $40,000 debt-discount amortization, and the reported interest expense.
- Assess cash runway, financing availability, gasifier commissioning progress, and whether the disclosed internal-control remediation was completed.