CleanSpark, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2017, compared with fiscal 2016. The request metadata says “2016 Q4,” but the filing is an annual report for fiscal 2017, not a quarterly filing.
Business context
CleanSpark develops and provides microgrid software, engineering, installation and consulting services, and is also developing patented gasification technology. The microgrid business was acquired in 2016; the gasifier remained under development and had no product sales. The company reported 14 revenue-generating customers in fiscal 2017. Its Camp Pendleton installation serves as a demonstration site, while commercial deployment and software upgrades remain in progress.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $447,963 | $82,031 |
| Gross profit | $151,668 | $50,767 |
| Gross margin | 33.9% | 61.9% |
| Operating expenses | $4,965,747 | $2,592,018 |
| Operating loss | $(4,814,079) | $(2,541,251) |
| Net loss | $(13,498,526) | $(2,540,562) |
| Cash used in operating activities | $(1,361,865) | $(438,165) |
| Cash at year-end | $57,128 | $436,529 |
Revenue increased substantially, largely from microgrid design and residential grid work, but gross margin declined as project costs grew. The net loss widened sharply, principally due to $8,551,321 of impairment expense and higher depreciation and amortization. The filing reports no clear standalone adjusted or recurring profitability measure.
At September 30, 2017, total assets were $20,792,802, total liabilities were $451,291, and stockholders’ equity was $20,341,511. Current assets of $128,631 were below current liabilities of $301,291, producing a $172,660 working-capital deficit. Total debt and related-party borrowings included a $150,000 long-term note, a $73,333 related-party loan, and other current loans; the filing does not present a single consolidated debt metric beyond the balance-sheet liability amounts. The company raised $880,000 from common-stock sales and received loan and related-party funding during the year.
Changes, outlook and key risks
- Revenue rose from $82,031 to $447,963, while net loss increased from $2,540,562 to $13,498,526. Operating cash use also increased.
- The company recorded $8.55 million in impairment charges: $5.04 million related to software components expected to be replaced in mPulse 2.0/DNA 2.0, $2.97 million related to the Camp Pendleton microgrid assets, and approximately $541,000 for machinery and equipment. Goodwill and indefinite-lived intangibles were reported as unimpaired.
- Management planned an initial release of mPulse 2.0 and DNA 2.0 in the third fiscal quarter of 2018. These plans, and anticipated customer savings, are forward-looking and not assured.
- A $900,000 Camp Pendleton construction subcontract had been awarded, with on-site work anticipated from February 2018. The company estimated it would need $150,000 of project financing or credit to complete the project. It also anticipated up to $750,000 in short-term project financing over the next 12 months for other opportunities.
- The filing says the company lacked sufficient cash to operate at its then-current level for the next 12 months. Management sought additional financing, estimated at $2 million to $4 million for near-term plans and a further $2.5 million approximately 12–18 months later. The auditor cited recurring losses, negative operating cash flow and negative working capital as raising substantial doubt about the company’s ability to continue as a going concern.
- Gasifier commercialization remained uncertain: testing and improvements were still needed, the company had no gasifier customers, and it estimated $150,000–$250,000 for prototype improvements plus at least $500,000 in financing over the next 12 months to execute its business plans. Management anticipated commercial availability no earlier than the fourth quarter of 2018.
- Customer and supplier concentration, dependence on external financing, competition, technology execution, utility rates and incentives, intellectual-property disputes, and potential dilution are material risks. The filing also describes a potential intellectual-property dispute involving former CleanSpark employees who started a competing firm.
- Disclosure controls and internal control over financial reporting were deemed ineffective. Management identified material weaknesses in segregation of duties/risk assessment and written accounting and reporting procedures; remediation depended partly on obtaining financing. The auditor did not attest to internal controls.
Important facts for investors to verify
- Current cash, funding runway, subsequent borrowings and equity issuance, and the terms and potential dilution of future financing.
- Whether the $900,000 Camp Pendleton contract proceeded as planned, its financing, costs, collections and realized margin.
- Whether ownership of the Camp Pendleton demonstration assets was formally transferred; the filing said the assignment had not yet been executed as of its date.
- Progress, customer adoption and costs for mPulse 2.0/DNA 2.0, and whether anticipated project savings and performance can be demonstrated.
- Independent test results and financing, customer and commercialization milestones for the gasifier.
- Revenue quality and concentration: the filing identifies four customers each exceeding 10% of fiscal 2017 sales, with Macerich the largest at 24.4%.
- Share-count changes, outstanding warrants and preferred-stock terms. Series A preferred shares carry 45 votes per share and a stated entitlement to quarterly dividends equal to 2% of earnings before interest, taxes and amortization.
The financial statements received an unqualified audit opinion, accompanied by a going-concern emphasis. The filing reports no pending legal proceedings and no off-balance-sheet arrangements as of September 30, 2017.