Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2014, for SmartData Corporation (referred to as CleanSpark, Inc. in metadata, but identified as SmartData Corporation in the filing). The Company, incorporated in Nevada in 1987, previously operated in computer hardware and software before discontinuing operations in 1992. On March 25, 2014, the Company ceased to be a shell company by entering into an Asset and Intellectual Property Purchase Agreement to acquire green energy technology, specifically a "Parallel Path, Downdraft Gasifier" and related patents, intended to convert solid waste into renewable energy (SynGas).
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2014 | Six Months Ended Mar 31, 2014 | Balance Sheet (Mar 31, 2014) |
|---|---|---|---|
| Revenues | $0 | $0 | N/A |
| Net Loss | $(50,560) | $(60,775) | N/A |
| Operating Expenses | $7,523 | $15,810 | N/A |
| Interest Expense | $(43,037) | $(44,965) | N/A |
| Cash and Cash Equivalents | N/A | N/A | $2,770 |
| Total Assets | N/A | N/A | $628,378 |
| Total Liabilities | N/A | N/A | $210,915 |
| Working Capital | N/A | N/A | $(158,145) Deficit |
| Shares Outstanding | 2,081,218 (Wtd Avg) | 1,509,741 (Wtd Avg) | 5,543,305 |
Note: The Company reported no revenue for the periods presented. Significant non-cash items included $40,000 in amortization of debt discount and shares issued for services and assets.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss for the three months ended March 31, 2014, increased to $(50,560) from $(6,055) in the prior year period. The six-month loss increased to $(60,775) from $(15,799).
- Interest Expense Surge: Other expenses, primarily interest expense, jumped to $(43,037) for the quarter (from $(1,645) prior year) due largely to the amortization of debt discounts on convertible notes.
- Asset Acquisition: Total assets increased significantly from $270 (Sept 30, 2013) to $628,378 (March 31, 2014). This is driven by the acquisition of fixed assets ($580,973) and intangible assets ($44,635) via the March 25, 2014 purchase agreement, paid for largely through stock issuance and assumption of liabilities.
- Liabilities: Current liabilities increased to $160,915 from $105,568, primarily due to accounts payable and accrued liabilities rising to $157,425.
- Equity: Stockholders' equity turned from a deficit of $(105,298) to a positive balance of $417,463, driven by the capitalization of assets acquired through stock issuance.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The filing explicitly states substantial doubt about the Company's ability to continue as a going concern. Cumulative net losses since inception are $(424,905), and the Company lacks sufficient cash to operate for the next twelve months without additional financing.
- Capital Needs: Management intends to fund operations through debt and/or equity financing. There is no assurance that such funding will be available on acceptable terms.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of March 31, 2014, citing material weaknesses including inadequate segregation of duties and insufficient written accounting policies.
- Unusual Items:
- Related Party Transactions: Significant debt settlements occurred with former officers (Burkeley J. Priest and Munson Family Limited Partnership) involving cash payments and new promissory notes. New officers (CEO, CFO, COO) were appointed and compensated with large blocks of common stock.
- Asset Purchase: The Company assumed $156,900 in liabilities to Petersen Incorporated related to the gasifier engineering and construction as part of the asset acquisition.
- Subsequent Event: On May 5, 2014, the Company raised $40,000 via a private placement of 40,000 shares and 4,000 warrants at $1.00 per share.
Investor Verification Checklist
- Capital Sufficiency: Verify the Company's ability to secure the additional financing required to sustain operations, given the explicit "going concern" warning and minimal cash on hand ($2,770).
- Asset Valuation: Confirm the fair value and operational readiness of the acquired gasifier and patents, which constitute the vast majority of the Company's assets but have not yet generated revenue.
- Debt Obligations: Review the terms of the new promissory notes issued to settle related party debts and the remaining convertible notes payable to understand future cash flow requirements.
- Internal Controls: Assess the remediation plan for the identified material weaknesses in internal controls, which poses a risk to the reliability of future financial reporting.
- Related Party Conflicts: Scrutinize the transactions involving the new management team and SMS Management Services, LLC, which controlled a significant portion of the asset purchase and received substantial equity.