CleanSpark, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2020. The request metadata says “2019 Q4,” but the supplied filing is the FY2020 annual report, not a 2019 quarterly filing.
Business context
CleanSpark provided microgrid engineering, energy-management software, equipment and related services, alongside digital agency services through p2kLabs. It acquired p2kLabs in January 2020 and OpenADR middleware provider GridFabric in August 2020. The legacy gasification business remained under development, with no significant commercialization expected without further investment. The December 2020 ATL data-center and bitcoin-mining acquisition occurred after the reporting period.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $10.03 million | $4.53 million |
| Gross profit / margin | $2.12 million / 21.1% | $0.67 million / 14.8% |
| Operating loss | $15.14 million | $16.61 million |
| Net loss | $23.35 million | $26.12 million |
| Net loss per share | $2.44 | $6.25 |
| Cash used in operating activities | $6.64 million | $5.70 million |
Revenue more than doubled, driven mainly by equipment sales and acquired operations. Gross margin improved, but the company remained deeply loss-making. Operating expenses were $17.26 million, broadly flat year over year; payroll rose substantially while FY2019 included a $6.92 million impairment charge that did not recur. Net interest expense was $10.45 million, including substantial non-cash debt-discount amortization.
At September 30, 2020, cash was $3.13 million, current assets $8.25 million, current liabilities $5.38 million, working capital $2.87 million, total assets $22.34 million and total liabilities $5.91 million. Long-term loans were $531,169, consisting of the PPP loan; the convertible notes were fully converted into common shares by year-end. The filing reports no off-balance-sheet arrangements. Operating cash burn and investing outflows of $2.38 million were partly funded by $4.31 million of financing cash inflows.
Material changes and notable items
- Revenue increased 121% year over year; common shares outstanding rose from 4.68 million to 17.39 million, substantially reflecting conversion of debt and equity issuance.
- One customer accounted for 58.3% of FY2020 revenue, up from 34.8% in FY2019. One supplier represented 85.6% of direct material costs.
- After year-end, an underwritten offering closed October 9, 2020, generating approximately $37.2 million net proceeds. The company also acquired ATL in December 2020, issuing shares valued at about $19.4 million and assuming approximately $6.9 million of debt.
- Management cited uncertain COVID-19 effects, evolving energy markets, competition, reliance on incentives and utility-rate structures, supplier concentration, and the need for additional revenue to support growth. No specific revenue or profitability guidance was provided.
- A material weakness in IT-related internal controls led management to conclude disclosure controls and ICFR were ineffective at September 30, 2020. Management began implementing new financial-reporting software; the auditor gave an unqualified opinion on the financial statements but did not audit ICFR.
- A dispute with Discover Growth Fund proceeded to arbitration over financing agreements, conversion notices and a right-of-first-refusal claim. The arbitrator granted interim relief to CleanSpark; the final outcome remained uncertain.
Important facts for investors to verify
- Whether revenue growth can translate into improved operating cash flow and a path to profitability.
- The durability of the largest customer relationship and access to the concentrated switchgear supplier.
- Post-year-end offering proceeds, share dilution, ATL’s assumed debt and mining operations, and the economics of that acquisition.
- Resolution and potential financial impact of the Discover Growth Fund arbitration.
- Progress in remediating the disclosed IT-controls material weakness.
- Whether acquisitions and software investment generate measurable recurring revenue, and whether the gasifier requires further funding.