CLEANSPARK, INC. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2020 ☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number: 001-39187 CLEANSPARK, INC. (Exact name of Registrant as specified in its charter) Nevada 87-0449945 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 1185 S. 1800 W. , Suite 3 Woods Cross , Utah 84087 (Address of principal executive offices) (702) 941-8047 (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 per share CLSK The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ☐ Large accelerated filer ☒ Accelerated Filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 17,354,277 shares as of July 30, 2020. 1 Table of Contents TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1: Financial Statements 3 Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4 Item 3: Quantitative and Qualitative Disclosures About Market Risk 11 Item 4: Controls and Procedures 11 PART II – OTHER INFORMATION Item 1: Legal Proceedings 12 Item 1A: Risk Factors 12 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 12 Item 3: Defaults Upon Senior Securities 12 Item 4: Mine Safety Disclosures 13 Item 5: Other Information 13 Item 6: Exhibits 13 2 Table of Contents PART I - FINANCIAL INFORMATION Item 1. Financial Statements Our consolidated financial statements included in this Form 10-Q are as follows: F-1 Consolidated Balance Sheets as of June 30, 2020 (unaudited) and September 30, 2019; F-2 Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019 (unaudited); F-3 Consolidated Statements of Stockholders’ Equity for the nine months ended June 30, 2020 and 2019 (unaudited); F-4 Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019 (unaudited); F-5 Notes to Consolidated Financial Statements (unaudited). These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2020 are not necessarily indicative of the results that can be expected for the full year. 3 Table of Contents CLEANSPARK, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2020 September 30, 2019 ASSETS Current assets Cash $ 1,955,776 $ 7,838,857 Accounts receivable, net 1,744,704 777,716 Contract assets — 57,077 Prepaid expense and other current assets 1,066,091 1,210,395 Derivative investment asset 1,544,185 — Investment equity security 421,500 — Investment debt security, AFS, at fair value 487,788 — Total current assets 7,220,044 9,884,045 Fixed assets, net 129,891 145,070 Operating lease right of use asset 52,280 — Capitalized software, net 1,018,540 1,055,197 Intangible assets, net 6,645,303 7,430,082 Goodwill 5,562,246 4,919,858 Total assets $ 20,628,304 $ 23,434,252 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 1,366,388 $ 848,756 Contract liabilities 149,493 499,401 Lease liability 52,999 — Due to related parties 20,000 86,966 Loans payable, net of unamortized discounts — 67,467 Total current liabilities 1,588,880 1,502,590 Long- term liabilities Convertible notes, net of unamortized discounts — 2,896,321 Loans payable 681,169 150,000 Total liabilities 2,270,049 4,548,911 Stockholders' equity Common stock; $ 0.001 par value; 20,000,000 shares authorized; 16,123,507 and 4,679,018 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively 16,124 4,679 Preferred stock; $ 0.001 par value; 10,000,000 shares authorized; Series A shares; 2,000,000 authorized; 1,750,000 and 1,000,000 issued and outstanding as of June 30, 2020 and September 30, 2019, respectively 1,750 1,000 Additional paid-in capital 127,679,497 111,936,125 Accumulated deficit ( 109,339,116 ) ( 93,056,463 ) Total stockholders' equity 18,358,255 18,885,341 Total liabilities and stockholders' equity $ 20,628,304 $ 23,434,252 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 1 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended For the Nine Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Revenues, net Sale of goods revenues $ 2,995,332 $ 1,142,448 $ 7,272,826 $ 1,516,016 Service, software and related revenues 443,342 80,288 800,955 693,526 Total revenues, net 3,438,674 1,222,736 8,073,781 2,209,542 Cost of revenues Cost of goods sold 2,751,964 914,220 6,458,086 1,245,102 Cost of services 141,975 91,924 272,820 576,386 Total cost of revenues 2,893,939 1,006,144 6,730,906 1,821,488 Gross profit 544,735 216,592 1,342,875 388,054 Operating expenses Professional fees 709,367 1,296,993 3,231,945 3,719,269 Payroll expenses 996,555 211,129 2,692,474 684,650 Product development — 344,871 — 1,034,612 General and administrative expenses 279,045 222,167 820,837 478,564 Depreciation and amortization 703,367 618,130 2,004,731 1,275,249 Total operating expenses 2,688,334 2,693,290 8,749,987 7,192,344 Loss from operations ( 2,143,599 ) ( 2,476,698 ) ( 7,407,112 ) ( 6,804,290 ) Other income (expense) Other income 20,000 — 20,000 — Loss on settlement of debt — — — ( 19,425 ) Unrealized gain/(loss) on equity security ( 80,500 ) — 78,368 — Unrealized gain on derivative asset 719,294 — 1,544,185 — Interest expense, net ( 7,066,496 ) ( 1,495,213 ) ( 10,518,094 ) ( 7,196,287 ) Total other income (expense) ( 6,407,702 ) ( 1,495,213 ) ( 8,875,541 ) ( 7,215,712 ) Net loss $ ( 8,551,301 ) $ ( 3,971,911 ) $ ( 16,282,653 ) $ ( 14,020,002 ) Loss per common share - basic and diluted $ ( 0.77 ) $ ( 0.90 ) $ ( 2.32 ) $ ( 3.45 ) Weighted average common shares outstanding - basic and diluted 11,119,288 4,418,344 7,003,927 4,059,527 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 2 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) Accumulated Deficit For the Nine Months Ended June 30, 2020 Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Balance, September 30, 2019 1,000,000 $ 1,000 4,679,018 $ 4,679 $ 111,936,125 $ ( 93,056,463 ) $ 18,885,341 Shares issued for services 750,000 750 2,000 2 33,348 — 34,100 Options and warrants issued for services — — — — 602,169 — 602,169 Shares issued upon conversion of debt and accrued interest — — 187,100 187 ( 187 ) — — Rounding shares issued for stock split — — 793 1 ( 1 ) — — Net loss — — — — — ( 1,916,254 ) ( 1,916,254 ) Balance, December 31, 2019 1,750,000 $ 1,750 4,868,911 $ 4,869 $ 112,571,454 $ ( 94,972,717 ) $ 17,605,356 Shares returned and cancelled — — ( 30,000 ) ( 30 ) 30 — — Options issued for business acquisition — — — — 88,935 — 88,935 Options and warrants issued for services — — — — 273,931 — 273,931 Shares issued for business acquisition — — 95,699 96 444,904 — 445,000 Shares issued upon conversion of debt and accrued interest — — 810,505 810 ( 810 ) — — Net loss — — — — — ( 5,815,098 ) ( 5,815,098 ) Balance, March 31, 2020 1,750,000 1,750 5,745,115 5,745 113,378,444 ( 100,787,815 ) 12,598,124 Shares issued for services — — 45,019 45 91,455 — 91,500 Options and warrants issued for services — — — — 169,932 — 169,932 Shares issued upon conversion of debt and accrued interest — — 10,333,373 10,334 14,039,666 — 14,050,000 Net loss — — — — — ( 8,551,301 ) ( 8,551,301 ) Balance, June 30, 2020 1,750,000 1,750 16,123,507 16,124 127,679,497 ( 109,339,116 ) 18,358,255 For the Nine Months Ended June 30, 2019 Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity Balance, September 30, 2018 1,000,000 $ 1,000 3,611,645 $ 3,612 $ 82,990,994 $ ( 66,939,531 ) $ 16,056,075 Shares issued for services — — 12,000 12 271,719 — 271,731 Options and warrants issued for services — — — — 377,475 — 377,475 Shares issued upon exercise of warrants — — 300 — 1,088 — 1,088 Beneficial conversion feature and shares and warrants issued with convertible debt — — 10,000 10 4,994,990 — 4,995,000 Shares issued for direct investment — — 45,225 45 361,755 — 361,800 Shares issued for settlement of debt — — 2,500 3 51,222 — 51,225 Commitment shares returned and cancelled — — ( 13,750 ) ( 14 ) 14 — — Net loss — — — ( 2,283,551 ) ( 2,283,551 ) Balance, December 31, 2018 1,000,000 $ 1,000 3,667,920 $ 3,668 $ 89,049,257 $ ( 69,223,082 ) $ 19,830,843 Shares issued for services — — 9,000 9 328,679 — 328,688 Options and warrants issued for services — — — 350,888 — 350,888 Shares issued upon exercise of warrants — — 217,896 218 ( 218 ) — — Shares issued upon conversion of debt — — 249,862 250 4,724,750 — 4,725,000 Shares and warrants issued under asset purchase agreement — — 175,000 175 6,071,849 — 6,072,024 Commitment shares returned and cancelled — — ( 13,750 ) ( 14 ) 14 — — Net loss — — — ( 7,764,540 ) ( 7,764,540 ) Balance, March 31, 2019 1,000,000 1,000 4,305,928 4,306 100,525,219 $ ( 76,987,622 ) $ 23,542,903 Shares issued for services — — 34,000 34 295,192 — 295,226 Options and warrants issued for services — — — — 161,495 — 161,495 Shares issued upon exercise of warrants — — 900 1 3,266 — 3,267 Beneficial conversion feature and shares and warrants issued with convertible debt — — 125,000 125 9,999,875 — 10,000,000 Net loss — — — ( 3,971,911 ) ( 3,971,911 ) Balance, June 30, 2019 1,000,000 1,000 4,465,828 4,466 110,985,047 $ ( 80,959,533 ) $ 30,030,980 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 3 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended June 30, 2020 June 30, 2019 Cash Flows from Operating Activities Net loss ( 16,282,653 ) $ ( 14,020,002 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 1,171,632 1,716,753 Unrealized gain on equity security ( 78,368 ) — Amortization of operating lease right of use asset 33,000 — Depreciation and amortization 2,004,731 1,275,249 Amortization of capitalized software 121,582 1,034,612 Loss on settlement of debt — 19,425 Provision for bad debts 27,456 — Gain on derivative asset ( 1,544,185 ) — Amortization of debt discount 9,022,759 5,674,800 Changes in operating assets and liabilities (Increase) decrease in prepaid expenses and other current assets 808,354 ( 2,621,680 ) Increase in contract assets 57,077 48,157 Increase (decrease) in contract liabilities, net ( 349,908 ) 428,042 Increase in accounts receivable ( 918,877 ) ( 749,999 ) Increase in accounts payable 2,347,566 1,653,821 Decrease in lease liability ( 32,281 ) — Decrease in due to related parties ( 66,966 ) ( 251,206 ) Net cash used in operating activities ( 3,679,081 ) ( 5,792,028 ) Cash Flows from Investing Activities Purchase of intangible assets — ( 2,150 ) Purchase of fixed assets ( 30,787 ) ( 27,570 ) Acquisition of p2kLabs ( 1,141,990 ) — Investment in capitalized software ( 84,925 ) ( 569,043 ) Investment in debt and equity securities ( 750,000 ) — Investment in contractual joint venture ( 660,000 ) Net cash used in investing activities ( 2,667,702 ) ( 598,763 ) Cash Flows from Financing Activities Payments on promissory notes ( 67,467 ) ( 507,876 ) Proceeds from promissory notes 531,169 78,603 Proceeds from related party debts — 75,030 Payments on related party debts — ( 457,820 ) Proceeds from convertible debt, net of issuance costs — 14,995,000 Payments on convertible debts — ( 555,000 ) Proceeds from exercise of warrants — 4,355 Proceeds from issuance of common stock — 361,800 Net cash provided by financing activities 463,702 13,994,092 Net increase (decrease) in Cash ( 5,883,081 ) 7,603,301 Cash, beginning of period 7,838,857 412,777 Cash, end of period $ 1,955,776 $ 8,016,078 Supplemental disclosure of cash flow information Cash paid for interest $ 11,010 $ 49,750 Cash paid for tax $ — $ — Non-cash investing and financing transactions Day one recognition of right of use asset and liability $ 85,280 $ — Shares and options issued for business acquisition $ 533,935 $ — Shares issued as collateral returned to treasury $ 30 $ 275 Stock issued to promissory notes $ — $ 51,225 Debt discount on convertible debt $ — $ 14,995,000 Shares and warrants issued for asset acquisition $ — $ 6,070,274 Shares issued for conversion of debt and accrued interest $ 14,054,876 $ 4,725,000 Cashless exercise of options $ — $ 2,179 Option expense capitalized as software development costs $ — $ 68,750 The accompanying notes are an integral part of these unaudited consolidated financial statements. F- 4 Table of Contents CLEANSPARK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND LINE OF BUSINESS Organization & History CleanSpark, Inc. (“CleanSpark”, “we”, “our”, the "Company") was incorporated in the State of Nevada on October 15, 1987 as SmartData Corporation (“SmartData”). SmartData conducted a 504-public offering in the State of Nevada in December 1987 and began trading publicly in January 1988. Due to a series of unfortunate events, including the untimely death of the founding CEO, SmartData discontinued active business operations in 1992. On March 25, 2014, we began operations in the alternative energy sector. In December 2014, the Company changed its name to Stratean Inc. through a short-form merger in order to better reflect its new business plan. On July 1, 2016, the Company entered into an Asset Purchase Agreement, as amended (the “Purchase Agreement”), with CleanSpark Holdings LLC, CleanSpark LLC, CleanSpark Technologies LLC, and Specialized Energy Solutions, Inc. (together, the “Seller”). Pursuant to the Purchase Agreement, the Company acquired CleanSpark, LLC and all the assets related to the Seller and its line of business and assumed $ 200,000 in liabilities. In October 2016, the Company changed its name to CleanSpark, Inc. through a short-form merger in order to better reflect the brand identity. On January 22, 2019, CleanSpark entered into an Agreement and Plan of Merger with Pioneer Critical Power, Inc. (“Pioneer”), whereby the Company acquired certain intellectual property assets and a customer list. As consideration, the Company issued to Pioneer’s sole shareholder (i) 175,000 shares of common stock of CleanSpark, (ii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $ 16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $ 20.00 per share. As a result of the transaction, Pioneer became a wholly owned subsidiary of CleanSpark. On February 1, 2019, Pioneer was renamed to CleanSpark Critical Power Systems, Inc. On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved a 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in this report and included in the financial statements and notes thereto as of and for the period ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented. On January 31, 2020, the Company entered into a Stock Purchase Agreement (the “Agreement”) with p2klabs, Inc., a Nevada corporation (“p2k”), and its sole stockholder, Amer Tadayon (“Seller”), whereby the Company purchased all of the issued and outstanding shares of p2k from the Seller (the “Transaction”) in exchange for an aggregate purchase price of cash and equity of $ 1,688,935 . The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020. As a result of the Transaction, p2k, is a wholly-owned subsidiary of the Company. (See note 3 for details.) Line of Business Through CleanSpark, LLC, the Company provides microgrid solutions to military, commercial, and residential properties. The services offered consist of microgrid design and engineering, and project development consulting services. The work is generally performed under fixed price bid contracts and negotiated price contracts. Through CleanSpark Critical Power Systems, Inc., the Company provides custom hardware solutions for distributed energy systems that serve military and commercial residential properties. The equipment is generally sold under negotiated fixed price contracts. Through p2kLabs, Inc., the Company provides design, software development, and other technology-based consulting services. The services provided are generally an hourly arrangement or fixed-fee project-based arrangements. F- 5 Table of Contents 2. SUMMARY OF SIGNIFICANT POLICIES Basis of Presentation and Liquidity The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted. The Company has incurred losses for the past several years while developing infrastructure and its software platforms. As shown in the accompanying unaudited consolidated financial statements, the Company incurred net losses of $ 16,282,653 during the nine months ended June 30, 2020. In response to these conditions and to ensure the Company has sufficient capital for ongoing operations for a minimum of 12 months, we have raised additional capital through the sale of debt and equity securities pursuant to a registration statement on Form S-3. (See Note 10 and Note 18 for additional details.) As of June 30, 2020, the Company had working capital of $ 5,631,164 . Principles of Consolidation The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II LLC, CleanSpark Critical Power Systems Inc. and p2kLabs, Inc. All material intercompany transactions have been eliminated upon consolidation of these entities. Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill impairment, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s operations and financial results during 2020 as such impact will depend on the ultimate severity and scope of the COVID-19 pandemic. We are not able to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020 and beyond, but developments related to COVID-19 could affect the Company’s financial performance in 2020. Revenue Recognition Upon adoption of ASC Topic 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2019. The revised accounting policy on revenue recognition is provided below. The Company accounts for revenue contracts with customers through the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, the Company satisfies a performance obligation F- 6 Table of Contents Engineering, Service & Installation or Construction Contracts The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract. For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract. Revenues from Sale of Equipment Performance Obligations Satisfied at a point in time. We recognize revenue on agreements for non-customized equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery). In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer. Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities. F- 7 Table of Contents Service Performance obligations satisfied over time. We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods; these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided. Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) of $ 0 and contract work in progress (typically for fixed-price contracts) of $ 0 and $ 57,077 as of June 30, 2020 and September 30, 2019, respectively. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. Advances that are payments on account of contract assets of $ 321,000 and $ 360,000 as of June 30, 2020 and September 30, 2019, respectively, have been deducted from contract assets. Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded $ 149,493 and $ 499,401 in contract liabilities as of June 30, 2020 and September 30, 2019, respectively. Revenues from software The Company derives its revenue from subscription fees from customers for access to its mVSO platform. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements. The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. Revenues from design, software development and other technology-based consulting services For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer. Variable Consideration The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied. F- 8 Table of Contents The C ompany generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred. Practical Expedients If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed. The Company does not adjust the contract price for the effects of a significant financing component if the company expects, at contract inception, that the period between when the company transfers a service to a customer and when the customer pays for that service will be one year or less. The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes). For the nine months ended June 30, 2020 and 2019, the Company reported revenues of $ 8,073,781 and $ 2,209,542 , respectively. Cash and cash equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. There was $ 1,955,776 and $ 7,838,857 in cash and no cash equivalents as of June 30, 2020 and September 30, 2019, respectively. Accounts receivable Is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $ 400,741 and $ 254,570 at June 30, 2020, and September 30, 2019, respectively. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $ 171,513 and $ 159,989 were included in the balance of trade accounts receivable as of June 30, 2020 and September 30, 2019, respectively. Investment securities Investment securities include debt securities and equity securities. Debt securities are classified as available for sale (“AFS”) and are reported as an asset in the Consolidated Balance Sheet at their estimated fair value. As the fair values of AFS debt securities change, the changes are reported net of income tax as an element of OCI, except for other-than-temporarily-impaired securities. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations. Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid over the contractual life of the security. F- 9 Table of Contents For individual debt securities where the Company either intends to sell the security or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security's cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized in income on a cash basis. The Company holds investments in both publicly held and privately held equity securities. Privately held equity securities are recorded at cost and adjusted for observable transactions for same or similar investments of the issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized or unrealized, are recorded through gains or losses on equity securities on the consolidated statement of operations. Publicly held equity securities are based on fair value accounting with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statement of operations. Concentration Risk At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of June 30, 2020, the cash balance in excess of the FDIC limits was $ 1,705,776 . The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue. (See Note 17 for details.) Warranty Liability The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business. Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s general counsel and outside counsel retained to handle specific product liability cases. The Company’s manufacturers and service providers currently provide substantial warranties between ten to twenty-five years with full reimbursement to replace and install replacement parts. Warranty costs and associated liabilities were $ 0 and $ 0 at June 30, 2020 and September 30, 2019, respectively. Stock-based compensation The Company follows the guidelines in FASB Codification Topic ASC 718-10 “ Compensation-Stock Compensation, ” which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services. Earnings (loss) per share The Company reports earnings (loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 “ Earnings Per Share, ” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of June 30, 2020, there are 1,503,639 shares issuable upon exercise of outstanding options and warrants which have been excluded as anti-dilutive. Fair value of financial instruments and derivative asset The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 9 & 10) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s long-term debt is also stated at fair value of $ 681,169 since the stated rate of interest approximates market rates. F- 10 Table of Contents Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. • Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. • Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments. • Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of June 30, 2020: Amount Level 1 Level 2 Level 3 Derivative asset $ 1,544,185 $ — $ — $ 1,544,185 Investment in equity security 421,500 421,500 — $ — Investment in debt security 487,788 — — 487,788 Total $ 2,453,473 $ 421,500 $ — $ 2,031,973 The below table presents the change in the fair value of the derivative asset and investment in debt security during the nine months ended June 30, 2020: Amount Balance at September 30, 2019 $ — Fair value at issuance, net of premium 487,788 Gain on derivative asset 1,544,185 Balance at June 30, 2020 $ 2,031,973 Reclassifications Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company. Recently issued accounting pronouncements In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows. In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. F- 11 Table of Contents In February 2016, the FASB issued guidance within ASU 2016-02, Leases . The amendments in ASU 2016-02 to Topic 842, Leases , require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements , which allows entities to continue to apply the legacy guidance in ASC 840, Leases , to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows. In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. In June, 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. The Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. 3. ACQUISITION OF P2KLABS, INC. On January 31, 2020, the Company, entered into an Agreement with p2k, and its sole stockholder, Amer Tadayon, whereby the Company purchased all of the issued and outstanding shares of p2k in exchange for an aggregate purchase price of cash and equity of $ 1,688,935 . The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020. As a result of the Transaction, p2k is a wholly-owned subsidiary of the Company. Pursuant to the terms of the Agreement, the purchase price was as follows: a) $ 1,039,500 in cash was paid to the Seller; b) 31,183 restricted shares of the Company’s common stock, valued at $ 145,000 , were issued to the Seller (the “Shares”). The Shares are subject to certain lock-up and leak-out provisions whereby the Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”); c) $ 115,500 in cash was paid to an independent third-party escrow agent where such cash is subject to offset for adjustments to the purchase price and indemnification purposes; F- 12 Table of Contents d) 64,516 restricted shares of the Company’s common stock, valued at $ 300,000 , were issued to an independent third-party escrow agent (the “Holdback Shares”). The Holdback Shares will be released to Seller once p2k achieves certain revenue milestones for the future performance of p2k. The Holdback Shares will also be subject to the Leak-Out Terms once they are released from escrow 12 months from closing. The Shares and Holdback Shares were deemed to have a fair market value of $ 4.65 per share which was the closing price of the Company’s common stock on January 31, 2020. e) 26,950 Common Stock options which were deemed to have a fair market value of $ 88,935 on the date of the closing of the Transaction. The Company accounted for the acquisition of p2k as an acquisition of a business under ASC 805. The Company determined the fair value of the consideration given to the Seller in connection with the Transaction in accordance with ASC 820 was as follows: Consideration: Fair Value Cash $ 1,155,000 95,699 shares of common stock $ 445,000 26,950 common stock options $ 88,935 Total Consideration $ 1,688,935 The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, of the Company’s acquisition of p2k, based on their estimated fair values as indicated below. The business combination accounting is not yet complete, and the amounts assigned to the assets acquired and the liabilities assumed are provisional. Therefore, this may result in future adjustments to the provisional amounts as new information is obtained about the facts and circumstances that existed at the acquisition date. Purchase Price Allocation: Customer list $ 1,045,000 Design and other assets $ 123,000 Goodwill $ 642,388 Other assets and liabilities assumed, net $ ( 121,453 ) Total $ 1,688,935 The following is the unaudited pro forma information assuming the acquisition of p2k occurred on October 1, 2018: For the Three Months Ended For the Nine months ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net sales $ 3,438,674 $ 1,432,942 $ 8,445,480 $ 2,842,848 Net loss $ ( 8,551,301 ) $ ( 3,948,319 ) $ ( 16,402,974 ) $ ( 13,993,029 ) Loss per common share - basic and diluted $ ( 0.77 ) $ ( 0.87 ) $ ( 2.33 ) $ ( 3.37 ) Weighted average common shares outstanding - basic and diluted 11,119,288 4,514,043 7,053,523 4,155,226 The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. All transitions that would be considered inter-company transactions for proforma purposes have been eliminated. F- 13 Table of Contents 4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE International Land Alliance, Inc. On November 5, 2019, CleanSpark entered into a binding Memorandum of Understanding (the “MOU”) with International Land Alliance, Inc., a Wyoming corporation (“ILAL”), in order to lay a foundational framework where the Company will deploy its energy solutions products and services to ILAL, its energy projects, and its customers. Pursuant to the terms of the MOU, the parties will work in good faith and pursue the following priorities over the next twelve (12) months: 1) The Company will perform feasibility studies to outline the details and scope of developing microgrid energy solutions to support ILAL projects. 2) ILAL will (a) exclusively sell the Company’s products and services as part of ILAL’s power solution for its offering of off-grid properties, and (b) include the Company’s mPulse DER Energy Manager within the off-grid energy project bids; 3) The Company will provide on-site testing, training, and support services to ILAL’s projects and operations In connection with the MOU, and in order to support the power and energy needs of ILAL’s development and construction of certain projects, the Company entered into a Securities Purchase Agreement, dated as of November 6, 2019, with ILAL (the “ILAL SPA”). Pursuant to the terms of the ILAL SPA, ILAL sold, and the Company purchased 1,000 shares of Series B Preferred Stock (the “Preferred Stock”) of ILAL for an aggregate purchase price of US $ 500,000 (the “Stock Transaction”), less certain expenses and fees. The Series B Preferred Stock will accrue cumulative in kind accruals at a rate of 12% per annum and shall increase by 10% per annum upon the occurrence of any trigger event. ILAL may redeem by paying in cash within 9 months from the issuance date. The Preferred Stock becomes convertible into common stock after 9 months or when certain triggering events occur. In the event of a conversion of any shares of the Preferred Stock, the number of conversion shares is equal to the face value of the Preferred Stock divided by the applicable Conversion Price (defined at 65% of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.05 per share, but no less than the Floor Price ($0.01). While the Preferred Stock is outstanding if triggering events occur, the Conversion Rate may be decreased by 10% and the accrual rate increased by 10% for each triggering event. The Company believes that, pursuant to the terms and conditions of the ILAL SPA, at least two triggering events have occurred. Under this good faith belief, the Company believes that as a result of the occurrence of these triggering events, the Series B Preferred stock should be convertible at the Company’s option, and the interest and conversion rate should be adjusted by 10% for each such occurrence. The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of June 30, 2020. As of June 30, 2020, the Company has identified a derivative instrument in accordance with ASC Topic No. 815 due to the variable conversion feature upon certain triggering events that occurred during the period. Topic No. 815 requires the Company to account for the conversion feature on its balance sheet at fair value and account for changes in fair value as a derivative gain or loss. The Black-Scholes model utilized the following inputs to value the derivative asset at the date in which the derivative asset was determined through June 30, 2020. Fair value assumptions: June 30, 2020 Risk free interest rate 0.13 % Expected term (months) 1 Expected volatility 131 % Expected dividends 0 % In connection with the Stock Transaction, ILAL issued 350,000 shares of its common stock to the Company as commitment shares. The commitment shares are recorded at $ 171,500 , or $ 0.49 per share, which was the quoted price of the shares on June 30, 2020. F- 14 Table of Contents 5. CONTRACTUAL JOINT VENTURE On April 6, 2020, the Company entered into a joint venture agreement with third party partners to procure, distribute, and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020, unless otherwise extended by mutual consent. The Company contributed capital in the amount of $ 660,000 on April 6, 2020 to assist with the procurement of these products, with the potential for additional monies to be lent by the Company to the contractual joint venture, upon mutual consent if necessary. The resulting income is reported net of all other costs, and CleanSpark recognized $ 20,000 in other income from the agreement for the period ended June 30, 2020. As of June 30, 2020, the balance of CleanSpark funds held in the joint venture (“JV”) account for future orders was $ 660,000 and is accounted for as a receivable from the third party partner since the Company considers itself as a passive investor in the JV. The receivable is reported in prepaid expenses and other current assets in the consolidated balance sheet. On July 7, 2020, the Company received its $ 660,000 in initial capital from the JV. The Company plans to continue to evaluate opportunities under the JV and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise. 6. CAPITALIZED SOFTWARE Capitalized software consists of the following as of June 30, 2020 and September 30, 2019: June 30, 2020 September 30, 2019 mVSO software $ 437,136 $ 352,211 mPulse software 741,846 741,846 Capitalized Software: 1,178,982 1,094,057 Less: accumulated amortization ( 160,442 ) ( 38,860 ) Capitalized Software, net $ 1,018,540 $ 1,055,197 Capitalized software amortization recorded as cost of revenues and product development expense for the nine months ended June 30, 2020 and 2019 was $ 121,582 and $ 1,034,612 , respectively. 7. INTANGIBLE ASSETS Intangible assets consist of the following as of June 30, 2020 and September 30, 2019: June 30, 2020 September 30, 2019 Patents $ 74,112 $ 74,112 Websites 8,115 16,482 Customer list and non-compete agreement 6,767,024 5,722,024 Design assets 123,000 — Trademarks 5,928 5,928 Trade secrets 4,370,269 4,370,269 Intangible assets: 11,348,448 10,188,815 Less: accumulated amortization ( 4,703,145 ) ( 2,758,733 ) Intangible assets, net $ 6,645,303 $ 7,430,082 Amortization expense for the nine months ended June 30, 2020 and 2019 was $ 1,952,779 and $ 1,243,610 , respectively. F- 15 Table of Contents 8. FIXED ASSETS Fixed assets consist of the following as of June 30, 2020 and September 30, 2019: June 30, 2020 September 30, 2019 Machinery and equipment $ 201,856 $ 212,082 Leasehold improvements 17,965 — Furniture and fixtures 104,155 75,121 Total 323,976 287,203 Less: accumulated depreciation ( 194,085 ) ( 142,133 ) Fixed assets, net $ 129,891 $ 145,070 Depreciation expense for the nine months ended June 30, 2020 and 2019 was $ 51,952 and $ 31,639 , respectively. 9. LOANS Long term Long-term loans payable consist of the following: June 30, 2020 September 30, 2019 Promissory notes $ 681,169 $ 150,000 Total $ 681,169 $ 150,000 Current Current loans payable consist of the following: June 30, 2020 September 30, 2019 Promissory notes $ — $ 50,000 Insurance financing loans — 17,467 Current loans payable: — 67,467 Unamortized debt discount — — Total, net of unamortized discount $ — $ 67,467 Promissory Notes On September 5, 2017, the Company executed a 9 % secured promissory note with a face value of $ 150,000 with an investor. Under the terms of the promissory note, the Company received $ 150,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. On September 5, 2019, the investor extended the maturity date to September 5, 2021 and the modification was not deemed substantial. The note is secured by 15,000 shares which are held in escrow and would be issued to the note holder only in the case of an uncured default. As of June 30, 2020, the Company owed $ 150,000 in principal and $ 0 in accrued interest under the terms of the agreement and recorded interest expense of $ 10,133 and $ 10,096 during the nine months ended June 30, 2020 and 2019, respectively. On November 11, 2017, the Company executed a 10 % secured promissory note with a face value of $ 100,000 with an investor. Under the terms of the promissory note the Company received $ 100,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 10,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on August 13, 2019 and the 10,000 shares of common stock held as collateral were returned to treasury and cancelled on August 26, 2019. The Company recorded interest expense of $ 0 and $ 7,478 for the nine months ended June 30, 2020 and 2019, respectively. F- 16 Table of Contents On December 5, 2017, the Company executed a 9 % secured promissory note with a face value of $ 50,000 with an investor. Under the terms of the promissory note the Company received $ 50,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 5,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on December 5, 2019 and the 5,000 shares of common stock held as collateral were returned to treasury and cancelled on January 13, 2020. The Company recorded interest expense of $ 802 and $ 3,367 for the nine months ended June 30, 2020 and 2019, respectively. May 7, 2020, the Company applied for a loan from Celtic Bank Corporation, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). On May 15, 2020, the loan was approved and the Company received the proceeds from the loan in the amount of $ 531,169 (the “PPP Loan”). The PPP Loan took the form of a promissory note issued by the Company that matures on May 7, 2022 and bears interest at a rate of 1.0 % per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence on December 7, 2020. The PPP Loan provides for customary events of default, including, among others, those relating to failure to make payments thereunder. Borrower may prepay the principal of the PPP Loan at any time without incurring any prepayment penalties. The PPP Loan is non-recourse against any individual shareholder, except to the extent that such party uses the loan proceeds for an unauthorized purpose. All or a portion of the PPP Loan may be forgiven by the SBA and lender upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the applicable period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company recorded interest expense of $ 3,987 and $ 0 for the nine months ended June 30, 2020 and 2019, respectively. Insurance financing loans On February 11, 2019, the Company executed an unsecured 5.6% installment loan with a total face value of $ 78,603 with a financial institutional to finance its insurance policies. Under the terms of the installment notes the Company received $ 76,800 and agreed to make equal payments and repay the note 10 months from the date of issuance. As of September 30, 2019, $ 17,467 in principal remained outstanding. The Company repaid all principal and outstanding interest on November 4th, 2019. 10. CONVERTIBLE NOTES PAYABLE Short-Term convertible notes Securities Purchase Agreement – December 31, 2018 On December 31, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company issued to the Investor a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $ 5,250,000 . The note was secured by all assets of the Company. The Debenture has a maturity date of two years from the issuance date and the Company agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5 % per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock. The transactions described above closed on December 31, 2018. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued to the Investor 10,000 shares of common stock and a Common Stock Purchase Warrant to acquire up to 308,333 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $ 20.00 per share with respect to 125,000 Warrant Shares, $ 25.00 with respect to 100,000 Warrant Shares, $ 50.00 with respect to 50,000 Warrant Shares and $ 75.00 with respect to 33,333 Warrant Shares. The warrants and shares issued were fair valued and a debt discount of $ 4,995,000 was recorded as a result of the issuance of the warrants and shares and the recognition of a beneficial conversion feature on the Debenture. The Company also paid a $ 5,000 due diligence fee prior to receiving the funding which was also recorded as a debt discount. F- 17 Table of Contents Pursuant to the terms of the SPA, the Investor agreed to tender to the Company the sum of $ 5,000,000 , of which the Company received the full amount as of the closing. Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 140% of the of the portion of the Debenture being redeemed. The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.50 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company. While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares. On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor. The Amendments amended the SPA and Debenture, as follows: 1) A Floor Price of $ 1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, with the Floor Price on the First Debenture not applying in the occurrence of an event of default; 2) Lowered the closing price of the Common Stock which may trigger an event of default from $ 5.00 per share to $ 1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020; 3) Deleted the requirement that the Investor convert the Debenture at maturity and 4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020. On January 7, 2019, the Investor converted $ 2,500,000 in principal and $ 875,000 in interest as a conversion premium, for 178,473 shares of the Company common stock at an effective conversion price of $ 18.90 , due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. On March 6, 2019, the Investor converted $ 1,000,000 in principal and $ 350,000 in interest as a conversion premium, for 71,389 shares of the Company common stock at an effective conversion price of $ 18.90 , due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. On July 9, 2019, in accordance with the terms of the agreement the Investor was issued an additional 45,614 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 15.06 . On July 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 18,246 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 15.06 . On July 19, 2019, the Investor converted $ 500,000 in principal and $ 175,000 in interest as a conversion premium, for 45,109 shares of the Company common stock at an effective conversion price of $ 15.00 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. F- 18 Table of Contents On August 23, 2019, in accordance with the terms of the agreement the Investor was issued an additional 43,721 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 7.60 . On September 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 61,500 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 7.30 . On October 17, 2019, in accordance with the terms of the agreement the Investor was issued an additional 90,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 3.74 . On December 5, 2019, in accordance with the terms of the agreement the Investor was issued an additional 97,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 3.15 . On February 10, 2020, in accordance with the terms of the agreement the Investor was issued an additional 100,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 3.15 . On February 21, 2020, in accordance with the terms of the agreement the Investor was issued an additional 108,770 shares of common stock due to the decrease in stock price resulting in an effective conversion price of 2.69 . On March 2, 2020, in accordance with the terms of the agreement the Investor was issued an additional 167,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 1.87 . On March 5, 2020, in accordance with the terms of the agreement the Investor was issued an additional 154,835 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 1.83 . On March 13, 2020, in accordance with the terms of the agreement the Investor was issued an additional 116,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 1.50 . On March 20, 2020, in accordance with the terms of the agreement the Investor was issued an additional 163,800 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 1.50 . On April 15, 2020, the Investor converted $ 1,250,000 in principal and $ 437,500 in interest, for 1,125,000 shares of the Company common stock at an effective conversion price of $ 1.50 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $ 783,474 during the nine months ended June 30, 2020. Securities Purchase Agreement – April 17, 2019 On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Agreement”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor a $ 10,750,000 face value Senior Secured Redeemable Convertible Promissory Note (the “Debenture”) with a 7.5 % original issue discount, 215 shares of our Series B Preferred Stock with a 7.5 % original issue discount, a Common Stock Purchase Warrant (the “Warrant”) on a cash-only basis to acquire up to 230,000 shares (the “Warrant Shares”) of our common stock and 125,000 shares of our Common Stock. The aggregate purchase price for the Debenture, the Series B Preferred Stock the Warrant and the Common Stock is $ 20,000,000 . (See Notes 13 and 14 for additional details.) The Debenture was secured by all assets of the Company. Pursuant to the first closing of the Agreement, which occurred on April 18, 2019, the Investor agreed to tender to the Company the sum of $ 10,000,000 , for the Debenture, the Common Stock and the Warrant. No additional closings to sell the preferred stock have occurred and the Series B preferred stock was removed under the amendments to the Agreement discussed below. F- 19 Table of Contents The Debenture has a maturity date of two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5 % per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock. Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Debenture being redeemed. The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.75 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company. While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares. On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor. The Amendments amended the SPA and Debenture, as follows: 1) A Floor Price of $ 1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, not applying in the occurrence of an event of default; 2) Lowered the closing price of the Common Stock which may trigger an event of default from $ 5.00 per share to $ 1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020; 3) Deleted the requirement that the Investor convert the Debenture at maturity and 4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020. 5) The Company and the Investor also agreed to remove the Second Closing and Company Option to sell an aggregate of an additional $10,000,000 in securities under the Debenture. As a result of these changes, the Company was authorized to terminate any and all documentation related to the 100,000 shares of Series B Preferred Stock that the Company's Board of Directors had previously voted to designate back on April 16, 2019. On May 5, 2020, the Investor converted $ 750,000 in principal and $ 112,500 in interest, for 575,000 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 6, 2020, the Investor converted $ 600,000 in principal and $ 90,000 in interest, for 460,000 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 7, 2020, the Investor converted $ 595,000 in principal and $ 89,250 in interest, for 456,167 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 8, 2020, the Investor converted $ 350,000 in principal and $ 52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 11, 2020, the Investor converted $ 350,000 in principal and $ 52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $ 1.50 . F- 20 Table of Contents On May 12, 2020, the Investor converted $ 730,000 in principal and $ 109,500 in interest, for 559,667 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 13, 2020, the Investor converted $ 375,000 in principal and $ 56,250 in interest, for 287,500 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 18, 2020, the Investor converted $ 360,000 in principal and $ 54,000 in interest, for 276,000 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 19, 2020, the Investor converted $ 1,020,000 in principal and $ 153,000 in interest, for 782,000 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 20, 2020, the Investor converted $ 380,000 in principal and $ 57,000 in interest, for 291,333 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 21, 2020, the Investor converted $ 2,140,000 in principal and $ 321,000 in interest, for 1,640,667 shares of the Company common stock at an effective conversion price of $ 1.50 . On May 22, 2020, the Investor converted $ 3,100,000 in principal and $ 465,000 in interest, for 2,376,667 shares of the Company common stock at an effective conversion price of $ 1.50 . As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $ 8,320,205 during the nine months ended June 30, 2020. 11. LEASES On October 1, 2019, the Company adopted the amendments to ASC 842, Leases , which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet. The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements , allowing entities to continue to apply the legacy guidance in ASC 840, Leases , to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company has operating leases under which it leases its branch offices and corporate headquarters, one of which is with a related party. Upon adoption of the new lease guidance, on October 1, 2019, the Company recorded a right of use asset and corresponding lease liability of $ 85,280 and $ 85,280 , respectively, on the consolidated balance sheet. As of June 30, 2020, the Company's operating lease right of use asset and operating lease liability totaled $ 52,280 and $ 52,999 , respectively. A weighted average discount rate of 10 % was used in the measurement of the right of use asset and lease liability as of October 1, 2019. As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable Company collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company's leases have remaining lease terms between one year to two years , with a weighted average lease term of 0.7 years at June 30, 2020. Some leases include multiple year renewal options. The Company’s decision to exercise these renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. Currently, the Company has no leases for which the option to renew is reasonably certain and therefore, options to renew were not factored into the calculation of its right of use asset and lease liability as of October 1, 2019. F- 21 Table of Contents The following is a schedule of the Company's operating lease liabilities by contractual maturity as of June 30, 2020: Fiscal year ending September 30, 2020 $ 12,912 Fiscal year ending September 30, 2021 43,170 Total Lease Payments 56,082 Less: imputed interest ( 3,083 ) Total present value of lease liabilities $ 52,999 Total operating lease costs of $ 38,328 and $ 38,523 the nine months ended June 30, 2020 and 2019, respectively, were included as part of administrative expense. 12. RELATED PARTY TRANSACTIONS Zachary Bradford – Chief Executive Officer, Director and Former Chief Financial Officer During the nine months ended June 30, 2019, the Company had a consulting agreement with ZRB Holdings, Inc., an entity wholly owned by Zachary Bradford, our Chief Executive Officer and director, for management services. In accordance with this agreement, as amended, Mr. Bradford earned $ 353,140 during the nine months ended June 30, 2019. The agreement was terminated in October 2019 when Mr. Bradford stepped down as the CFO and took the position of CEO and accepted the associated employment agreement. During the nine months ended June 30, 2020, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $ 86,658 for accounting, tax, administrative services and reimbursement for office supplies. Blue Chip is 50 % beneficially owned by Mr. Bradford. Blue Chip performed all services at discounted rates and none of the charges were associated with work performed by Mr. Bradford. The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance. The Company also sub-leases office space from Blue Chip (see note 11 for additional details). During the nine months ended June 30, 2020, $ 10,150 was paid to Blue Chip for rent. Bryan Huber – Former Officer and Director On August 28, 2018, the Company executed an agreement with Zero Positive, LLC an entity controlled by Mr. Huber. In accordance with the agreement with Zero Positive, LLC, Mr. Huber earned $ 125,154 and $ 127,772 , during the nine months ended June 30, 2020 and 2019. On March 12, 2019, the Agreement was terminated upon the execution of a separation agreement. All amounts owed from all agreements totaling $ 90,000 were paid in full. On September 28, 2018, in connection with the consulting agreement executed with Zero Positive, LLC, the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $ 8.00 per share to Zero Positive. The warrants were valued at $ 2,607,096 using the Black Scholes option pricing model based upon the following assumptions: term of 10 years , risk free interest rate of 3.05 % , a dividend yield of 0 % and volatility rate of 191 % . The warrants vest as follows: 30,000 vested immediately, the balance vest evenly on the last day of each month over forty-two months beginning August 31, 2018 . As of June 30, 2020, 62,857 warrants had vested, and the Company recorded an expense of $ 372,442 and 372,442 during the nine months ended June 30, 2020 and 2019. Matthew Schultz- Chairman of the Board and Former Chief Executive Officer The Company has a consulting agreement with Matthew Schultz, our former Chief Executive Officer, for management services. In accordance with this agreement, as amended, Mr. Schultz earned $ 0 and $ 353,140 , respectively during the nine months ended June 30, 2020 and 2019. The agreement was terminated on October 7, 2019 when Mr. Schultz stepped down as the CEO and took the position of Chairman of the Board. Mr. Schultz received $ 189,000 as compensation for his services as chairman of the board during the nine months ended June 30, 2020. The Company additionally entered into an agreement on November 15, 2019 with an organization to provide general investor relations and consulting services that Mr. Schultz is affiliated with. The Company paid the organization $ 49,500 in fees plus $ 176,000 in expense reimbursements for the nine months ended June 30, 2020. The agreement was terminated in March 2020. Larry McNeill, Roger Beynon, Dr. Tom Wood –Directors Effective January 1, 2019, the Company agreed to pay non-executive independent board members $ 2,500 per month. Mr. McNeill earned $ 22,500 and $ 15,000 in Board compensation during the nine months ended June 30, 2020 and 2019. Mr. Beynon and Dr. Wood each earned $ 22,500 and $ 0 in Board compensation during the nine months ended June 30, 2020 and 2019. F- 22 Table of Contents 13. STOCKHOLDERS EQUITY Overview The Company’s authorized capital stock consists of 20,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $ 0.001 per share. As of June 30, 2020, there were 16,123,507 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding. On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved the Company’s 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in the consolidated financial statements and notes thereto as of and for the periods ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Amendment to Articles of Incorporation On August 9, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from 100,000,000 to 200,000,000 . The amendment was previously approved by written consent of the Company’s Board and more than a majority of the voting power of its stockholders and delivered to stockholders of record as of the close of business July 2, 2019 pursuant to a Definitive Information Statement on Schedule 14C. As a result of the reverse split mentioned above, the effect of the filed amendment reduced the authorized shares to 20,000,000 . On October 4, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to increase the number of shares of preferred stock designated as Series A Preferred Stock from one million ( 1,000,000 ) shares to two million ( 2,000,000 ) shares, par value $ 0.001 . Under the Certificate of Designation, holders of Series A Preferred Stock will be entitled to quarterly dividends on 2% of our earnings before interest, taxes and amortization. The dividends are payable in cash or common stock. The holders will also have a liquidation preference on the state value of $0.02 per share plus any accumulated but unpaid dividends. The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held. The rights of the holders of Series A Preferred Stock are defined in the relevant Amendment to the Certificate of Designation filed with the Nevada Secretary of State on October 9, 2019. Certificate of Preferred Stock Designation On April 16, 2019, pursuant to Article IV of our Articles of Incorporation, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up to one hundred thousand ( 100,000 ) shares, par value $ 0.001 . Under the Certificate of Designation, the holders of Series B Preferred Stock are entitled to the following powers, designations, preferences and relative participating, optional and other special rights, and the following qualifications, limitations and restrictions, among others as set forth in the Certificate of Designation: § The holders of shares of Series B Preferred Stock will have no right to vote on any matters, questions or proceedings of the Company including, without limitation, the election of directors; § Commencing on the date of issuance, the Series B Preferred Stock will accrue cumulative in kind accruals (“the Accruals”) at the rate of 7.5 % per annum; F- 23 Table of Contents § Upon any liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series B Preferred Stock equal to $ 5,000.00 (the “Face Value”), plus an amount equal to any accrued but unpaid Accruals thereon (the “Liquidation Value”); § On maturity, the Company may redeem the Series B Preferred Stock by paying the holder the Liquidation Value; § Before maturity, the Company may redeem the Series B Preferred stock on 30 days’ notice by paying 145 % of the outstanding Face Value per share; § If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will, within three trading days of such determination and prior to effectuating any such action, redeem all outstanding shares of Series B Preferred Stock; § In the event of a conversion of any shares of Series B Preferred Stock, the Company will (a) satisfy the payment of the Conversion Premium, which is defined as the Face Value of the shares converted multiplied by the product of 7.5% and the number of whole years between issuance and maturity, and (b) issue to the holder of the shares of Series B Preferred Stock a number of conversion shares equal to the Face Value divided by the applicable Conversion Price (defined as 90% of the of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.75 per share, but no less than the Floor Price ($3.50) with respect to the number of shares converted; While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. In the event of certain defaults, conversion price may not be subject to a floor. § if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which holder could have acquired if holder had held the number of shares of Common Stock acquirable upon conversion of Series B Preferred Stock; § At maturity ( 2 years from issuance), all outstanding shares of Series B Preferred Stock shall automatically convert into common stock at the Conversion Price; and ▪ At no time may the holders of Series B Preferred Stock own more than 4.99 % of the outstanding common stock in the Company. On March 6, 2020, the Company withdrew the Certificate of Designation for the Series B Preferred Stock. At the time of withdrawal, no shares of Series B Preferred Stock were issued and outstanding. Common Stock issuances during the nine months ended June 30, 2020 The Company issued 1,964,313 shares of common stock in accordance with the terms of the convertible debt agreement due to the decrease in stock price. (See Note 10 for additional details.) The Company issued 22,000 shares of common stock for services rendered to independent consultants at a fair value of $ 54,000 . The Company issued 793 shares of common stock as a result of rounding related to the reverse stock split. The Company issued 95,699 shares of common stock in relation to the acquisition of p2k (See note 3 for additional details.) In relation to the Securities Purchase Agreement dated December 31, 2018, the Company issued 1,125,000 shares of common stock for the conversion of $ 1,250,000 in principal and $ 437,500 in interest at an effective conversion price of $ 1.50 . (See Note 10 for additional details) F- 24 Table of Contents In relation to the Securities Purchase Agreement dated April 17, 2019, the Company issued 8,241,665 shares of common stock for the conversion of $ 10,750,000 in principal and $ 1,612,500 in interest as a conversion premium at an effective conversion price of $ 1.50 . (See Note 10 for additional details) The Company issued 25,019 shares of common stock as board and executive compensation at a fair value of $ 57,500 . Common stock returned during the nine months ended June 30, 2020 As a result of a note payoff on December 5, 2019, 5,000 shares common stock were returned to treasury and cancelled on January 13, 2020. As a result of the cancellation of an investor relations services contract, 25,000 shares were returned to treasury and cancelled on February 10, 2020. Series A Preferred Stock issuances during the nine months ended June 30, 2020 On October 4, 2019, the Company authorized the issuance of a total of seven hundred and fifty thousand ( 750,000 ) shares of its designated Series A Preferred Stock to members of its board of directors for services rendered. A fair value of $ 0.02 per share was determined by the Company. Director fees of $ 15,000 was recorded as a result of the stock issued. Common Stock issuances during the nine months ended June 30, 2019 During the period commencing October 1, 2018 through June 30, 2019, the Company received $ 361,800 from 14 investors pursuant to private placement agreements with the investors to purchase 45,225 shares of the Company’s common stock at a purchase price equal to $ 8.00 for each share of common stock. On September 11, 2018, the Company entered into an agreement with Regal Consulting, LLC for investor relations services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock per month as compensation for services plus additional cash compensation. During the nine months ended June 30, 2019, the Company issued a total of 18,000 shares of its common stock in accordance with the agreement. Stock compensation of $ 531,600 was recorded as a result of the stock issued under the agreement. On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock which vest evenly over a six month period from the agreement date. During the nine months ended June 30, 2019, the Company recorded stock compensation of $ 68,819 was recorded as a result of the stock issued under the agreement. On October 2, 2018, an investor exercised warrants to purchase 300 shares of the Company’s $0.001 par value common stock at a purchase price equal to $ 3.63 for each share of Common stock. The Company receive $ 1,088 as a result of this exercise. The Company issued 10,000 shares in relation to a Securities purchase agreement executed on December 31, 2018. (See Note 10 for additional details.) On December 31, 2018, the Company settled $ 25,000 of a promissory note through the issuance of 2,500 shares of the Company’s common stock. The shares were valued at $ 51,225 and a $ 26,225 loss on settlement of debt was recorded as a result of the issuance. On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $ 0.83 . On January 7, 2019, an investor converted $ 2,500,000 in principal and $ 875,000 in interest, for 178,472 shares of the Company’s common stock at an effective conversion price of $ 18.90 . On January 22, 2019, in accordance with a merger agreement, the Company issued 175,000 shares of the Company’s common stock. F- 25 Table of Contents On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $ 0.83 . On March 6, 2019, the investor converted $ 1,000,000 in principal and $ 350,000 in interest as a conversion premium, for 71,389 shares of the Company’s common stock at an effective conversion price of $ 18.90 . On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $ 0.83 . On April 9, 2019, an investor exercised warrants to purchase 900 shares of the Company’s common stock at a purchase price equal to $ 3.63 . The Company received $ 3,267 as a result of this exercise. The Company issued 125,000 shares in relation to the Securities purchase agreement executed on April 17, 2019. On June 12, 2019, the Company entered into an agreement with SylvaCap Media for investor relations services. Under this agreement, the Company agreed to issue 25,000 shares of the Company’s common stock as compensation for services for a six month period plus additional cash considerations. The 25,000 shares vest upon issuance but if the agreement is terminated within 90 days of execution, the shares are to be returned and cancelled. The Company terminated the agreement and the shares were returned on February 10, 2020. Common stock returned during the nine months ended June 30, 2019 As a result of a conversion of a note on September 21, 2018, 13,750 shares common stock which were previously issued as a commitment fee were returned to treasury and cancelled on December 21, 2018. As a result of a note payoff on January 3, 2019, 13,750 shares of common stock which were previously issued as a commitment fee returned to treasury and cancelled on January 8, 2019. 14. STOCK WARRANTS The following is a summary of stock warrant activity during the nine months ended June 30, 2020. Number of Warrant Shares Weighted Average Exercise Price Balance, September 30, 2019 1,314,065 $ 21.62 Warrants granted — $ — Warrants expired — — Warrants cancelled — — Warrants exercised — — Balance, June 30, 2020 1,314,065 $ 21.62 As of June 30, 2020, the outstanding warrants have a weighted average remaining term of 2.17 years and an intrinsic value of $ 194,250 . As of June 30, 2020, there are warrants exercisable to purchase 1,286,922 shares of common stock in the Company and 27,143 unvested warrants outstanding that cannot be exercised until vesting conditions are met. 996,198 of the warrants require a cash investment to exercise as follows, 5,000 required a cash investment of $ 8.00 per share, 449,865 require a cash investment of $ 15.00 per share, 125,000 require a cash investment of $ 20.00 per share, 103,000 require a cash investment of $ 25.00 per share, 200,000 require an investment of $ 35.00 per share, 10,000 require an investment of $ 40.00 per share, 60,000 require an investment of $ 50.00 per share, 38,333 require a cash investment of $ 75.00 per share and 5,000 require a cash investment of $ 100.00 per share. 317,867 of the outstanding warrants contain provisions allowing a cashless exercise at their respective exercise prices. F- 26 Table of Contents Warrant activity for the nine months ended June 30, 2019 On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 warrants to purchase shares of the Company’s common stock at an exercise price of $ 25.00 for a period of five years which vest evenly over a six-month period from the agreement date. During the nine months ended June 30, 2020 and 2019 the Company recorded stock compensation of $ 0 and $ 68,643 as a result of the stock issued under the agreement. The warrants were valued using the black-Scholes valuation model. On December 31, 2018, in connection with a Securities purchase agreement (see Note 10 for additional details) the Company issued Common Stock Purchase Warrants to acquire up to 308,333 shares of common stock for a term of three years on a cash-only basis at an exercise price of $ 20.00 per share with respect to 125,000 Warrant Shares, $ 25.00 with respect to 100,000 Warrant Shares, $ 50.00 with respect to 50,000 Warrant Shares and $ 75.00 with respect to 33,333 Warrant Shares. On August 28, 2018, in connection with the Consulting agreement executed with Zero Positive, LLC the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $ 8.00 per share to Zero Positive. The warrants were valued at $ 2,607,096 using the Black Scholes option pricing model. The warrants vest as follows: 30,000 warrants vested immediately, the balance vest evenly on the last day of each month over the forty-two months beginning August 31, 2018 . As of June 30, 2020, 58,571 warrants had vested, and the Company recorded an expense of $ 372,442 and 372,442 during the nine months ended June 30, 2020 and 2019. (See Note 10 for additional details.) On January 22, 2019, in accordance with a merger agreement, CleanSpark issued; a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $ 16.00 per share, and a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $ 20.00 per share. The warrants were valued at $ 1,102,417 and $ 1,102,107 , respectively. On April 18, 2019, in connection with a Securities purchase agreement, the Company issued Common Stock Purchase Warrants to acquire up to 230,000 shares of common stock for a term of three years on a cash-only basis at an exercise price of $ 35.00 per share with respect to 200,000 Warrant Shares, $ 40.00 with respect to 10,000 Warrant Shares, $ 50.00 with respect to 10,000 Warrant Shares, $ 75.00 with respect to 5,000 Warrant Shares and $ 100.00 with respect to 5,000 Warrant Shares. The Black-Scholes model utilized the following inputs to value the warrants granted during the nine months ended June 30, 2019: Fair value assumptions – Warrants: June 30, 2019 Risk free interest rate 2.36 % - 3.01 % Expected term (years) 3 - 5 Expected volatility 254 % - 268 % Expected dividends 0 % On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $ 0.83 . On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $ 0.83 . On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $ 0.83 . As of June 30, 2020, the Company expects to recognize $ 786,415 of stock-based compensation for the non-vested outstanding warrants over a weighted-average period of 1.5 years . F- 27 Table of Contents 15. STOCK OPTIONS The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”), which was established by the Board of Directors of the Company on June 19, 2017. A total of 300,000 shares were initially reserved for issuance under the Plan. As of June 30, 2020, there were 21,360 shares available for issuance under the plan. The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation right, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Board believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan. The following is a summary of stock option activity during the nine months ended June 30, 2020. Number of Option Shares Weighted Average Exercise Price Balance, September 30, 2019 81,254 $ 11.82 Options granted 233,233 5.28 Options expired 25,000 8.00 Options cancelled ( 10,847 ) 19.04 Options exercised — — Balance, June 30, 2020 278,640 $ 6.41 As of June 30, 2020, there are options exercisable to purchase 216,717 shares of common stock in the Company. As of June 30, 2020, the outstanding options have a weighted average remaining term of was 2.59 years and an intrinsic value of $ 0 . F- 28 Table of Contents Option activity for the nine months ended June 30, 2020 During the nine months ended June 30, 2020, the Company issued 233,233 options to purchase shares of common stock to employees; the shares were granted at quoted market prices ranging from $ 4.50 to $ 8.50 . The options were valued at issuance using the Black Scholes model and stock compensation expense of $ 673,590 was recorded as a result of the issuances. The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2020: Fair value assumptions – Options: June 30, 2020 Risk free interest rate 0.85 % - 1.73 % Expected term (years) 3 - 5 Expected volatility 124 % - 209 % Expected dividends 0% As of June 30, 2020, the Company expects to recognize $ 245,300 of stock-based compensation for the non- vested outstanding options over a weighted-average period of 2.17 years . Option activity for the nine months ended June 30, 2019 During the nine months ended June 30, 2019, the Company issued 12,788 options to purchase shares of common stock to employees, the shares were granted at quoted market prices ranging from $ 15.10 to $ 59.00 . The options were valued at issuance using the Black Scholes model and stock compensation expense of $ 245,000 was recorded as a result of the issuances. On March 10, 2018 the Company issued a total of 25,000 options to four consultants for advisory services. The options vest evenly 12 months from issuance. The options expire 24 months after issuance and require a cash investment to exercise. The options were valued at issuance using the Black Scholes model at $ 342,500 and amortized of the term of the agreement. During the nine months ended June 30, 2019, $ 191,425 was expensed as stock-based compensation. The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2019: Fair value assumptions – Options: June 30, 2019 Risk free interest rate 2.21 % - 2.91 % Expected term (years) 3 Expected volatility 239 % - 271 % Expected dividends 0% 16. COMMITMENTS AND CONTINGENCIES Office leases Utah Corporate Office On November 22, 2019, the company entered into a lease to relocate the corporate office to 1185 South 1800 West, Suite 3, Woods Cross, UT 84047. The agreement calls for the Company to make payments of $ 2,300 in base rent per month through February 28, 2021. The lease term is on an annual basis beginning on March 1, 2020. San Diego Office On May 15, 2018, the Company executed a 37 month lease agreement, which commenced on July 1, 2018 at 4360 Viewridge Avenue, Suite C, San Diego, California. The agreement calls for the Company to make payments of $ 4,057 in base rent per month through July 31, 2021 subject to an annual 3 % rent escalation. Future minimum lease payments under the operating leases for the facilities as of June 30, 2020, are as follows: Fiscal year ending (three months remaining) September 30, 2020 $ 12,912 Fiscal year ending September 30, 2021 $ 43,170 Las Vegas Offices On January 2, 2020, the Company entered into a sublease agreement for office space at 8475 S. Eastern Ave., Suite 200, Las Vegas, NV 89123. The agreement calls for the Company to make monthly payments of $ 1,575 in base rent through January 1, 2021. The lease term is on an annual basis beginning January 2, 2020. The Company assumed p2k’s lease agreement entered into on October 17, 2017 at 7955 W. Badura Ave., Suite 1040, Las Vegas, NV 89113. The agreement calls for $ 1,801 in base rent through October 31, 2020. The lease expires on October 31, 2020. The Company does not expect to renew. Legal contingencies From time to time we may be subject to litigation. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We have acquired liability insurance to reduce such risk exposure to the Company. Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in continent liabilities. F- 29 Table of Contents 17. MAJOR CUSTOMERS AND VENDORS For the nine months ended June 30, 2020 and 2019, the Company had the following customers that represented more than 10% of sales. June 30, 2020 June 30, 2019 Customer A 60.3 % 33.9 % Customer B 14.1 % 1.2 % Customer C — 21.9 % Customer D — 21.4 % For the nine months ended June 30, 2020 and 2019, the Company had the following suppliers that represented more than 10% of direct material costs. Internally developed product costs and labor for services rendered are excluded from the calculation. June 30, 2020 June 30, 2019 Vendor A 85.7 % 90.1 % 18. SUBSEQUENT EVENTS On July 7, 2020, the Company received its $ 660,000 in initial capital from the Contractual joint venture. The Company plans to continue to evaluate opportunities under the joint venture and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise. (See note 5 for details). On July 16, 2020, the Company filed a preliminary information statement wherein the Company’s shareholders approved to grant the Board authority to effectuate an increase in the number of authorized shares of Common Stock from 20,000,000 to no more than 50,000,000 and amend the Company’s 2017 Incentive Plan to increase the number of shares issuable from 300,000 to 1,500,000. The effective date of these actions is determined by the Board in its sole discretion. On July 20, 2020, the Company sold 1,230,770 shares to an existing accredited investor at a price of $ 3.25 per share for gross proceeds of $ 4,000,000 . An investor has advised us that it considers the July 21, 2020 filing of the Form 8-K without that investor’s prior review to be a contractual breach. We believe the investor’s position is without merit given that the governing contract does not provide that investor any right to prior review of the Form 8-K. We intend to vigorously defend against any claims brought by the investor related to the filing of the Form 8-K. We are not in a position to estimate potential impact at this time. F- 30 Table of Contents Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. Company Overview We are in the business of providing advanced energy software and control technology that enables a plug-and-play enterprise solution to modern energy challenges. Our services consist of intelligent energy monitoring and controls, microgrid design and engineering and consulting services. Our software allows energy users to obtain resiliency and economic optimization. Our software is uniquely capable of enabling a microgrid to be scaled to the user's specific needs and can be widely implemented across commercial, industrial, military and municipal deployment. We refer to the operations surrounding the above plug-and-play energy solution as our Distributed Energy Management Business (the “DER Business”). The main assets of our DER Business include our propriety software systems (“Systems”) and also our engineering and methodology trade secrets. The Distributed Energy Systems and microgrids that utilize our Systems are capable of providing secure, sustainable energy with significant cost savings for our energy customers. The Systems allow customers to design, engineer, construct and then efficiently manage renewable energy generation, storage and consumption. Integral to our business is our mPulse and mVSO software platforms (the “Platforms”). When the Platforms are implemented on a customer’s power system, they are able to control the distributed energy resources on site to provide secure, sustainable energy often at significant cost savings for our energy customers. The Platforms allows customers to efficiently manage renewable energy generation, other distributed energy generation technologies including energy generation assets, energy storage assets, and energy consumption assets. By having autonomous control over the distributed facets of energy usage and energy storage, customers are able to reduce their dependency on utilities, thereby keeping energy costs relatively constant over time. The overall aim is to transform energy consumers into energy producers by supplying power that anticipates their routine instead of interrupting it. Our Switchgear Acquisition As an energy technology company, part of our business model is to assess our technologies, product offerings and business direction and determine whether any strategic acquisitions would benefit us. In line with our focus, on January 22, 2019, we acquired the outstanding capital stock of Pioneer Critical Power, Inc., a Delaware corporation (“Pioneer”), which we have since renamed and redomiciled to the State of Nevada and changed the name to CleanSpark Critical Power Systems Inc. 4 Table of Contents As consideration for the transaction, we issued to its sole shareholder Pioneer Power Solutions, Inc. (“Pioneer Power”) a total of 175,000 shares of our common stock, a 5-year warrant to purchase 50,000 shares of our common stock at an exercise price of $16.00 per share and a 5-year warrant to purchase 50,000 shares of our common stock at an exercise price of $20.00 per share. The parties also signed additional agreements in connection with the transaction, as previously disclosed in our SEC filings, mainly requiring Pioneer Power to indemnify us in certain circumstances and restricting Pioneer Power from engaging in a competing business. We also signed a Contract Manufacturing Agreement, whereby Pioneer Power shall exclusively manufacture parallel switchgears, automatic transfer switches and related control and circuit protective equipment for us, for a period of eighteen months. We plan to utilize the new intellectual property we gained from the acquisition and the manufacturing agreement in place to enter into the switchgear equipment sales industry. We acquired executed contracts and purchase orders, which we expect will result in significant gross sales, as well as hired personnel to operate this new line of business. As a result of this transaction, the parties terminated a contemplated asset purchase arrangement previously disclosed in our SEC filings. Our acquisition of p2kLabs, Inc. As CleanSpark continues to drive towards profitability and further market and sell CleanSpark software and controls, our acquisition of p2kLabs, Inc. not only contributes additional revenues, but also adds depth to our team in sales, marketing, design and software development. We plan to maximize the value of our offering, internalize what would otherwise be expenses, and diversify our ability to better serve our valued clients. As consideration for the transaction, we issued to its sole shareholder, Amer Tadayon, a total of 95,699 shares of our common stock and paid $1,155,000 in cash. The parties also signed additional agreements in connection with the transaction, as previously disclosed in our SEC filings, mainly an employment agreement with Amer Tadayon. See note 3 for details. Nasdaq Listing On January 24, 2020, the Company was approved for listing on the Nasdaq Capital Market (“Nasdaq”). Our Contractual Joint Venture CleanSpark entered into an agreement with partners to procure, distribute and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020, unless otherwise extended by mutual consent. The Company contributed capital in the amount of $660,000 on April 6, 2020 to assist with the procurement of these products, with the potential for additional monies to be lent by the Company to the contractual joint venture, upon mutual consent if necessary. Under the agreement, the Company will receive $0.20 per unit for each mask sold and a mutually agreeable amount for other types of PPE’s sold through the use of its funds. Such proceeds are distributed to the Company as soon as commercially reasonable after receipt from such customer or at the Company’s option reinvested for additional purchases. 5 Table of Contents CleanSpark recognized and received $20,000 in other income from this agreement for the period ended June 30, 2020. See note 5 for details. On July 7, 2020, the Company received its $660,000 in initial capital from the JV. The Company plans to continue to evaluate opportunities under the JV and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise. Results of operations for the three months ended June 30, 2020 and 2019 Revenues Revenues increased to $3,438,674 during the three months ended June 30, 2020, as compared with $1,222,736 in revenues for the same period ended 2019 primarily due to revenue from our switchgear products and mPulse sales. Gross Profit Our cost of revenues was $2,893,939 for the three months ended June 30, 2020, resulting in gross profit of $544,735, as compared with cost of revenues of $1,006,144 for the three months ended June 30, 2019, resulting in gross profit of $216,592. Our cost of revenues for the three months ended June 30, 2020 was mainly the result of manufacturing, hardware, and service expenses. Cost of goods sold increased to $2,751,964 for the three months ended June 30, 2020, from $914,220 for the same period ended 2019. Our product sale expense consisted mainly of the cost of contract manufacturing for our switchgear products and hardware costs. Our cost of services increased to 141,975 for the three months ended June 30, 2020, from $91,924 for the same period ended 2019. Our service, software and related revenues expenses for the three months ended June 30, 2020, and 2019 consisted mainly of allocated payroll costs of employees and consultants and subcontractors for services rendered from our acquisition of p2k and installation of solar panels and energy storage. Operating Expenses We had operating expenses of $2,688,334 for the three months ended June 30, 2020, as compared with $2,693,290 for the three months ended June 30, 2019. Professional fees decreased to $709,367 for the three months ended June 30, 2020, from $1,296,993 for the same period ended June 30, 2019. Our professional fees expenses for the three months ended June 30, 2020 consisted mainly of officers and directors’ consulting fees of $105,500, consulting fees of $434,236, and accounting, audit and review fees of $25,900 and stock-based compensation of $143,731. Our professional fees expenses for the three months ended June 30, 2019 consisted mainly of officers’ consulting fees of $375,500, consulting fees of $436,653, and audit and review fees of $11,000 and stock-based compensation of $431,721. Professional fees decreased in 2020 mainly as a result of decreased stock-based compensation and officers and directors’ consulting fees. Payroll expenses increased to $996,555 for the three months ended June 30, 2020, from $211,129 for the same period ended 2019. Our payroll expenses for the three months ended June 30, 2020 consisted mainly of salary and wages expense of $967,355 and employee stock-based compensation of $29,200. Our payroll expenses for the three months ended June 30, 2019 consisted mainly of salary and wages expense of $209,879 and employee stock-based compensation of $1,250. General and administrative fees increased to $279,045 for the three months ended June 30, 2020, from $222,167 for the same period ended 2019. Our general and administrative expenses for the three months ended June 30, 2020 consisted mainly of marketing expenses of $32,322, rent expenses of $34,445, insurance expenses of $65,833, dues and subscriptions of $61,675 and office expense of $6,267. Our general and administrative expenses for the three months ended June 30, 2019 consisted mainly of travel expenses of $32,994, rent expenses of $17,575, insurance expenses of $36,626, dues and subscriptions of $37,093 and office expense of $17,391. 6 Table of Contents Product development expense decreased to $0 for the three months ended June 30, 2020, from $344,871 for the same period ended 2019. Our product development expenses for the three months ended June 30, 2020 and 2019 consisted mainly of amortization of capitalized software. Depreciation and amortization expense increased to $703,367 for the three months ended June 30, 2020, from $618,130 for the same period ended 2019. We expect that our operating expenses will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs. Other income (expenses) Other income/(expenses) increased to ($6,407,702) for the three months ended June 30, 2020, from ($1,495,213) for the same period ended June 30, 2019. Our other income/(expenses) for the three months ended June 30, 2020 consisted mainly of an unrealized loss on equity securities of ($80,500), derivative gain of $719,294 and interest expense of ($7,066,496). Our other expenses for the three months ended June 30, 2019 consisted of interest expense of ($1,495,213). Net Loss We recorded a net loss of $8,551,301 for the three months ended June 30, 2020, as compared with a net loss of $3,971,911 for the same period ended June 30, 2019. Results of operations for the nine months ended June 30, 2020 and 2019 Revenues Revenues increased to $8,073,781 during the nine months ended June 30, 2020, as compared with $2,209,542 in revenues for the same period ended 2019 primarily due to revenue from our switchgear products and mPulse sales. Gross Profit Our cost of revenues was $6,730,906 for the nine months ended June 30, 2020, resulting in gross profit of $1,342,875, as compared with cost of revenues of $1,821,488 for the nine months ended June 30, 2019, resulting in gross profit of $388,054. Our cost of revenues for the nine months ended June 30, 2020 was mainly the result of product sale and service, software and related revenues expenses. Cost of goods sold increased to $6,458,086 for the nine months ended June 30, 2020, from $1,245,102 for the same period ended 2019. Our product sale expense for the nine months ended June 30, 2020 consisted mainly of the cost of contract manufacturing for our switchgear products. Cost of services decreased to $272,820 for the nine months ended June 30, 2020, from $576,386 for the same period ended 2019. Our service, software and related revenues expenses for the nine months ended June 30, 2020, and 2019 consisted mainly of allocated payroll costs of employees and consultants and subcontractors for services rendered from our acquisition of p2k and installation of solar panels and energy storage. Operating Expenses We had operating expenses of $8,749,987 for the nine months ended June 30, 2020, as compared with $7,192,344 for the nine months ended June 30, 2019. 7 Table of Contents Professional fees increased to $3,231,945 for the nine months ended June 30, 2020, from $3,719,269 for the same period ended June 30, 2019. Our professional fees expenses for the nine months ended June 30, 2020 consisted mainly of officers and directors’ consulting fees of $571,654, consulting fees of $1,233,008, legal fees of $332,020 and accounting, audit and review fees of $120,060 and stock-based compensation of $975,143. Our professional fees expenses for the nine months ended June 30, 2019 consisted mainly of officers’ consulting fees of $848,489, consulting fees of $1,071,107, legal fees of $146,682, and audit and review fees of $95,349 and stock-based compensation of $1,540,503. Professional fees increased in 2019 mainly as a result of increased stock-based compensation and other consulting related to increased business development efforts and audit and legal fees in connection with our SEC reporting obligations. Payroll expenses increased to $2,692,474 for the nine months ended June 30, 2020, from $684,650 for the same period ended 2019. Our payroll expenses for the nine months ended June 30, 2020 consisted mainly of salary and wages expense of $2,606,586 and employee stock-based compensation of $85,888. Our payroll expenses for the nine months ended June 30, 2019 consisted mainly of salary and wages expense of $508,400 and employee stock-based compensation of $176,250. General and administrative fees increased to $820,837 for the nine months ended June 30, 2020, from $478,564 for the same period ended 2019. Our general and administrative expenses for the nine months ended June 30, 2020 consisted mainly of marketing expenses of $108,869, travel expenses of $80,648, rent expenses of $82,904, insurance expenses of $159,519, dues and subscriptions of $230,713 and office expense of $27,467. Our general and administrative expenses for the nine months ended June 30, 2019 consisted mainly of travel expenses of $60,028, rent expenses of $52,378, insurance expenses of $79,939, dues and subscriptions of $136,092 and office expense of $30,116. Product development expense decreased to $0 for the nine months ended June 30, 2020, from $1,034,612 for the same period ended 2019. Our product development expenses for the nine months ended June 30, 2020 and 2019 consisted mainly of amortization of capitalized software. Depreciation and amortization expense increased to $2,004,731 for the nine months ended June 30, 2020, from $1,275,249 for the same period ended 2019. We expect that our operating expenses will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs. Other income (Expenses) Other income/(expenses) increased to ($8,875,541) for the nine months ended June 30, 2020, from ($7,215,712) for the same period ended June 30, 2019. Our other income/(expenses) for the nine months ended June 30, 2020 consisted mainly of an unrealized gain on equity securities of $78,368, derivative gain of $1,544,185 and interest expense of ($10,518,094). Our other expenses for the nine months ended June 30, 2019 consisted of interest expense of ($7,196,287), and loss on settlement of debt of (19,425). Net Loss We recorded a net loss of $16,282,653 for the nine months ended June 30, 2020, as compared with a net loss of $14,020,002 for the same period ended June 30, 2019. Liquidity and Capital Resources As of June 30, 2020, we had total current assets of $7,220,044, consisting of cash, accounts receivable, and prepaid expenses and other current assets, and total assets in the amount of $20,628,304. Our total current and total liabilities as of June 30, 2020 were $1,588,880 and $2,270,049, respectively. We had working capital of $5,631,164 as of June 30, 2020. 8 Table of Contents Operating activities used $3,679,081 in cash for the nine months ended June 30, 2020, as compared with $5,792,028 for the same period ended June 30, 2019. Our net loss of $16,282,653 was the main component of our negative operating cash flow for the nine months ended June 30, 2020, offset mainly by unrealized gain on equity security of ($78,368), gain on derivative asset of ($1,544,185), depreciation and amortization of $2,004,731, amortization of capitalized software of $121,582, amortization of debt discounts of $9,022,759, accounts payable of $2,347,566, and stock-based compensation of $1,171,632. Our net loss of $14,020,002 was the main component of our negative operating cash flow for the nine months ended June 30, 2019, offset mainly by loss on settlement of debt of $19,425, depreciation and amortization of $1,275,249, amortization of capitalized software of $1,034,612, amortization of debt discounts of $5,674,800, stock based compensation of $1,716,753 and an increase in accounts payable of $1,653,821. Cash flows used by investing activities during the nine months ended June 30, 2020 was $2,667,702, as compared with $598,763 for the same period ended June 30, 2019. Our acquisition of p2kLabs, Inc. of $1,141,990, investment in International Land Alliance and other equity securities of $750,000, investment in Contractual Joint Venture of $660,000, and purchase of fixed assets of $30,787 were the main components of our negative investing cash flow for the nine months ended June 30, 2020. Our investment in the capitalized software of $569,043 and purchase of fixed assets of $27,570 were the main components of our negative investing cash flow for the nine months ended June 30, 2019. Cash flows provided by financing activities during the nine months ended June 30, 2020 amounted to $463,702, as compared with $13,994,092 for the nine months ended June 30, 2019. Our cash flows from financing activities for the nine months ended June 30, 2020 consisted of repayments of ($67,467) on promissory note and proceeds from promissory notes of $531,169. Our positive cash flows from financing activities for the nine months ended June 30, 2019 consisted of $361,800 in proceeds from the sale of common stock, $14,995,000 in net proceeds from convertible notes and $75,030 from related party debts off-set by repayments of $507,876 on promissory note, repayments of $555,000 on convertible debts and repayments of $457,820 on related party debts. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing, the timing of new product introductions and the continuing market acceptance of our products and services. Management believes that the Company has sufficient liquidity to satisfy its anticipated cash requirements for the next twelve months. However, there can be no assurance that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and on terms acceptable to us, or at all. The Company’s management prepares budgets and monitors the financial results of the Company as a tool to align liquidity needs to the recurring business requirements. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise monies on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected. Off Balance Sheet Arrangements As of June 30, 2020, there were no off-balance sheet arrangements. Recently Issued Accounting Pronouncements In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows. 9 Table of Contents In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. In February 2016, the FASB issued guidance within ASU 2016-02, Leases . The amendments in ASU 2016-02 to Topic 842, Leases , require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements , which allows entities to continue to apply the legacy guidance in ASC 840, Leases , to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows. In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. In June 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations. The Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are discussed in detail in the footnotes to our financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2019, however we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, accounts receivable, fair value of financial instruments, cash and cash equivalents, accounts receivable, warranty liability and stock-based compensation. 10 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Item 4. Controls and Procedures Disclosure Controls and Procedures We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2020. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified material weaknesses in the design of internal control related to the following areas: (i) Lack of documentation around the components of internal control and inadequate risk assessment process over the Company’s internal controls; and (ii) Inadequate controls over information technology. Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting Management has implemented and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) we intend to adopt a different financial reporting software that has increased controls built into the system functionality by the end of the current fiscal year, in the interim we plan to implement additional controls to mitigate existing controls risks inherent to our existing accounting software; (ii) additional controls to improve risk assessment procedures to ensure all risks have been addressed. We believe that these actions will remediate the material weaknesses, once management has performed its assessment of our internal controls over financial reporting including the remedial measures described above. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2020. Changes in Internal Control over Financial Reporting Other than continuing with the remediation actions described above related to the material weakness in our internal controls, there has been no change in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 11 Table of Contents PART II – OTHER INFORMATION Item 1. Legal Proceedings We are not a party to any pending legal proceeding which would have a material impact to the Company. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us. Item 1A. Risk Factors Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item I A. of our Annual Report on Form 10-K for the year ended September 30, 2019, which could materially affect our business, financial condition or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Our business may be subject to risks arising from pandemic, epidemic, or an outbreak of diseases, such as the recent outbreak of the COVID-19 illness. The recent outbreak of the novel strain of coronavirus, or COVID-19, which has been declared by the World Health Organization to be a “public health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain and adversely impact our business, financial condition or results of operations. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in an Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K. During the period commencing October 1, 2019 through June 30, 2020, the Company issued 47,019 shares of common stock and 750,000 shares of preferred stock, as compensation for services. These securities were issued pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock. Item 3. Defaults upon Senior Securities None. 12 Table of Contents Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None. Item 6. Exhibits Exhibit Number Description of Exhibit 10.1 Joint Venture agreement, dated April 6, 2020 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101 INS XBRL Instance Document 101 SCH XBRL Schema Document 101 CAL XBRL Calculation Linkbase Document 101 LAB XBRL Labels Linkbase Document 101 PRE XBRL Presentation Linkbase Document 101 DEF XBRL Definition Linkbase Document * These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 13 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 4, 2020 By: /s/ Zachary K. Bradford Zachary K. Bradford Title: Chief Executive Officer (Principal Executive Officer) Date: August 4, 2020 By: /s/Lori L. Love Lori L. Love Title: Chief Financial Officer (Principal Financial and Accounting Officer) 14