CLEANSPARK, INC. 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Required by Article 8 of Regulation S-X: Audited Consolidated Financial Statements: F-1 Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of September 30, 2020 and 2019; F-3 Consolidated Statements of Operations for the years ended September 30, 2020 and 2019; F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows for the years ended September 30, 2020 and 2019; F-6 Notes to Consolidated Financial Statements 27 Table of Contents To the Shareholders and Board of Directors of CleanSpark, Inc. Woods Cross, Utah Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CleanSpark, Inc. and its subsidiaries (collectively, the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company's auditor since 2018. Houston, Texas December 16, 2020 F- 1 Table of Contents CLEANSPARK, INC. CONSOLIDATED BALANCE SHEETS September 30, 2020 September 30, 2019 ASSETS Current assets Cash $ 3,126,202 $ 7,838,857 Accounts receivable, net 1,047,353 777,716 Contract assets 4,103 57,077 Prepaid expense and other current assets 998,931 1,210,395 Derivative investment asset 2,115,269 — Investment in equity securities 460,000 — Investment in debt security, AFS, at fair value 500,000 — Total current assets 8,251,858 9,884,045 Fixed assets, net 117,994 145,070 Operating lease right of use asset 40,711 — Capitalized software, net 976,203 1,055,197 Intangible assets, net 7,049,656 7,430,082 Goodwill 5,903,641 4,919,858 Total assets $ 22,340,063 $ 23,434,252 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 4,527,037 $ 848,756 Contract liabilities 64,198 499,401 Lease liability 41,294 — Due to related parties — 86,966 Contingent consideration 750,000 — Loans payable, net of unamortized discounts — 67,467 Total current liabilities 5,382,529 1,502,590 Long- term liabilities Convertible notes, net of unamortized discounts — 2,896,321 Loans payable 531,169 150,000 Total liabilities 5,913,698 4,548,911 Stockholders' equity Common stock; $ 0.001 par value; 35,000,000 shares authorized; 17,390,979 and 4,679,018 shares issued and outstanding as of September 30, 2020 and September 30, 2019, respectively 17,391 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 September 30, 2020 and September 30, 2019, respectively 1,750 1,000 Additional paid-in capital 132,809,830 111,936,125 Accumulated deficit ( 116,402,606 ) ( 93,056,463 Total stockholders' equity 16,426,365 18,885,341 Total liabilities and stockholders' equity $ 22,340,063 $ 23,434,252 The accompanying notes are an integral part of these consolidated financial statements. F- 2 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS September 30, 2020 September 30, 2019 Revenues, net Sale of goods revenues $ 8,620,574 $ 3,752,987 Service, software and related revenues 1,408,127 779,795 Total revenues, net 10,028,701 4,532,782 Cost of revenues Product sale revenues 7,558,075 3,231,704 Service, software and related revenues 349,774 629,382 Total cost of revenues 7,907,849 3,861,086 Gross profit 2,120,852 671,696 Operating expenses Professional fees 6,521,016 4,829,038 Payroll expenses 6,813,641 1,267,403 Product development 163,918 1,453,635 General and administrative expenses 1,093,062 917,298 Impairment expense — 6,915,186 Depreciation and amortization 2,672,331 1,902,981 Total operating expenses 17,263,968 17,285,541 Loss from operations ( 15,143,116 ) ( 16,613,845 ) Other income (expense) Other income 20,000 — Loss on settlement of debt — ( 19,425 ) Unrealized gain/(loss) on equity security 116,868 — Unrealized gain on derivative security 2,115,269 — Loss on disposal of assets ( 5,218 ) — Interest expense (net) ( 10,449,946 ) ( 9,483,662 ) Total other income (expense) ( 8,203,027 ) ( 9,503,087 ) Net loss $ ( 23,346,143 ) $ ( 26,116,932 ) Loss per common share - basic and diluted $ ( 2.44 ) $ ( 6.25 ) Weighted average common shares outstanding - basic and diluted $ 9,550,626 $ 4,177,402 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the Year ended September 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 50,381 50 139,800 — 140,600 Options and warrants issued for services — — — — 1,912,632 — 1,912,632 Shares issued upon conversion of debt and accrued interest — — 11,330,978 11,331 14,038,669 — 14,050,000 Rounding shares issued for stock split — — 793 1 ( 1 ) — — Shares returned and cancelled — — ( 30,000 ) ( 30 ) 30 — — Options issued for business acquisition — — — — 88,935 — 88,935 Shares issued for business acquisition — — 122,126 122 694,878 — 695,000 Shares issued upon exercise of warrants — — 6,913 7 ( 7 ) — — Shares issued under registered direct offering — — 1,230,770 1,231 3,998,769 — 4,000,000 Net loss — — — — — ( 23,346,143 ) ( 23,346,143 ) Balance, September 30, 2020 1,750,000 $ 1,750 17,390,979 $ 17,391 $ 132,809,830 $ ( 116,402,606 ) $ 16,426,365 For the Year Ended September 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 — — 64,000 64 966,624 — 966,688 Options and warrants issued for services — — — — 1,095,105 — 1,095,105 Shares issued upon exercise of warrants — — 219,096 219 4,137 — 4,356 Beneficial conversion feature and shares and warrants issued with convertible debt — — 135,000 135 14,994,865 — 14,995,000 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 — — ( 37,500 ) ( 38 ) 38 — — Shares issued upon conversion of debt and accrued interest — — 464,052 464 5,399,536 — 5,400,000 Shares and warrants issued under asset purchase agreement — — 175,000 175 6,071,849 — 6,072,024 Net loss — — — — — ( 26,116,932 ) ( 26,116,932 ) Balance, September 30, 2019 1,000,000 $ 1,000 4,679,018 $ 4,679 $ 111,936,125 $ ( 93,056,463 ) $ 18,885,341 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Table of Contents CLEANSPARK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended September 30, 2020 September 30, 2019 Cash Flows from Operating Activities Net loss $ ( 23,346,143 ) $ ( 26,116,932 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation 2,053,232 1,993,043 Impairment expense — 6,915,186 Unrealized gain on equity security ( 116,868 ) — Amortization of operating lease right of use asset 44,569 — Depreciation and amortization 2,672,331 1,902,981 Amortization of capitalized software 163,918 1,453,635 Loss on settlement of debt — 19,425 Provision for bad debts 27,456 258,255 Gain on derivative asset ( 2,115,269 ) — Amortization of debt discount 9,010,547 7,563,829 Shares issued as interest 2,050,000 1,400,000 Loss on asset disposal 5,218 — Changes in operating assets and liabilities Decrease (increase) in prepaid expenses and other current assets 215,514 ( 1,082,769 ) Decrease (increase) in contract assets 52,974 ( 4,638 ) (Increase) decrease in contract liabilities, net ( 435,203 ) 499,401 Increase in accounts receivable ( 209,226 ) ( 1,001,830 ) Increase in accounts payable and accrued liabilities 3,415,168 723,832 Decrease in lease liability ( 43,986 ) — Decrease in due to related parties ( 86,966 ) ( 221,407 ) Net cash used in operating activities ( 6,642,734 ) ( 5,697,989 ) Cash Flows from investing Purchase of intangible assets — ( 2,150 ) Purchase of fixed assets ( 34,897 ) ( 102,761 ) Cash consideration for acquisition of p2kLabs, net of cash acquired ( 1,141,990 ) — Cash consideration for acquisition of GridFabric, net of cash acquired ( 371,812 ) — Investment in capitalized software ( 84,924 ) ( 569,042 ) Investment in debt and equity securities ( 750,000 ) — Net cash used in investing activities ( 2,383,623 ) ( 673,953 ) Cash Flows from Financing Activities Payments on promissory notes ( 217,467 ) ( 625,344 ) Proceeds from promissory notes 531,169 — 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 — 4,356 Proceeds from issuance of common stock 4,000,000 361,800 Net cash provided by financing activities 4,313,702 13,798,022 Net increase (decrease) in Cash ( 4,712,655 ) 7,426,080 Cash, beginning of period 7,838,857 412,777 Cash, end of period $ 3,126,202 $ 7,838,857 Supplemental disclosure of cash flow information Cash paid for interest $ 14,162 $ 55,493 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 $ 783,935 $ — Shares issued as collateral returned to treasury $ 30 $ 38 Stock issued to promissory notes $ — $ 51,225 Debt discount on convertible debt $ — $ 14,995,000 Shares and warrants issued for asset acquisition $ — $ 6,072,024 Shares issued for conversion of debt and accrued interest $ 14,050,000 $ 5,400,000 Financing of prepaid insurance $ — $ 78,603 Cashless exercise of options/warrants $ 7 $ 218 Option expense capitalized as software development costs $ — $ 68,750 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents CLEANSPARK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND LINE OF BUSINESS Organization CleanSpark, Inc. (“CleanSpark”, “we”, “our”, the "Company") was incorporated in the state of Nevada on October 15, 1987 as SmartData Corporation. 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 the 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. 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 with Pioneer Critical Power, Inc., whereby it acquired certain intellectual property assets and client lists. As a result of the transaction Pioneer Critical Power Inc. became a wholly owned subsidiary of CleanSpark Inc. On February 1, 2019, Pioneer Critical Power, Inc. was renamed CleanSpark Critical Power Systems, Inc. On December 5, 2019, the Board of Directors approved a reverse stock split of the Company’s common stock, par value $ 0.001 per share. 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 fiscal years ended September 30, 2020 and 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 with p2klabs, Inc (“p2k”), and its sole stockholder, (“Seller”), whereby the Company purchased all of the issued and outstanding shares of p2k from the Seller. As a result of the transaction, p2k, is now a wholly-owned subsidiary of the Company. (See note 5 for details.) On August 31, 2020, the Company entered into a Membership Interest Purchase Agreement with GridFabric, LLC, (“GridFabric”), and its sole member (“Seller”), whereby the Company purchased all of the issued and outstanding membership units of GridFabric from the Seller. As a result of the transaction, GridFabric, is now a wholly-owned subsidiary of the Company. (See note 3 for details.) Lines of Business Energy business Segment Through CleanSpark, LLC, the Company provides microgrid engineering, design and software solutions to military, commercial and residential customers. Our services consist of distributed energy microgrid system engineering and design, and project consulting services. F- 6 Table of Contents Through CleanSpark Critical Power Systems, Inc., the Company provides custom hardware solutions for distributed energy systems that serve military and commercial residential properties. Through GridFabric, LLC the Company provides Open Automated Demand response (“OpenADR”) and other middleware communication protocol software solutions to commercial and utility customers. Digital Agency Segment Through p2kLabs, Inc., the Company provides design, software development and other technology-based consulting services. 2. SUMMARY OF SIGNIFICANT POLICIES This summary of significant accounting policies of CleanSpark is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. Liquidity The Company has incurred losses for the past several years while developing infrastructure and its software platforms. As shown in the accompanying consolidated financial statements, the Company incurred net losses of $ 23,346,143 and $ 26,116,932 during the years ended September 30, 2020 and September 30, 2019, respectively. 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. As of September 30, 2020, the Company had working capital of approximately $ 2,869,329 . 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, p2kLabs, Inc, and GridFabric, LLC. 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, intangible assets acquired, 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-10 may have on the Company’s operations. Revenue Recognition We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board's (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation. We did not have a cumulative impact as of October 1, 2019 due to the adoption of Topic 606. F- 7 Table of Contents Our accounting policy on revenue recognition by type of revenue is provided below. Engineering & Construction Contracts and Service 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). Generally, shipping costs are included in the price of equipment unless the customer requests a non-standard shipment. In situations where an alternative shipment arrangement has been made, the Company recognizes the shipping revenue upon customer receipt of the shipment. 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. Due to the customized nature of the equipment, the Company does not allow for customer returns. F- 8 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 $ 4,103 and $ 57,077 as of September 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 $ 0 and $ 0 as of September 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 $ 64,198 and $ 499,401 in contract liabilities as of September 30, 2020 and September 30, 2019, respectively. Revenues from software The Company derives its software revenue from both subscription fees from customers for access to its energy software offerings and software license sales and support services. Revenues from software licenses are generally recognized upfront when the software is made available to the customer and revenues from the related support is generally recognized ratably over the contract term. 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 F- 9 Table of Contents 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. 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 year ended September 30, 2020 and 2019, the Company reported revenues of $ 10,028,701 and $ 4,532,782 , respectively. Cash and cash equivalents For purposes of the 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 $ 3,126,202 and $ 7,838,857 in cash and no cash equivalents as of September 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 $ 42,970 and $ 254,570 at September 30, 2020, and September 30, 2019, respectively. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $ 615 and $ 159,989 were included in the balance of trade accounts receivable as of September 30, 2020 and September 30, 2019, respectively. F- 10 Table of Contents 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. 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 statements 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 September 30, 2020, the cash balance in excess of the FDIC limits was $ 2,876,202 . 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 18 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 F- 11 Table of Contents 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 for the years ended September 30, 2020 and 2019 were $ 0 and $ 0 , 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 September 30, 2020, there are 1,577,013 shares issuable upon exercise of outstanding options and warrants which have been excluded as anti-dilutive. Property and equipment Property and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Useful life Machinery and equipment 3 - 5 years Leasehold improvements Shorter of estimated lease term or 5 years Furniture and fixtures 3 - 5 years Long-lived Assets In accordance with the Financial Accounting Standards Board ("FASB") Accounts Standard Codification (ASC) ASC 360-10, "Property, Plant and Equipment," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the year ended September 30, 2020 the Company did not record an impairment expense and during the year ended September 30, 2019 the Company recorded an impairment expense of $ 6,915,186 related to software acquired in 2016 which the Company does not anticipate utilizing in future periods. Intangible Assets and Goodwill The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill. The Company reviews its indefinite lived intangibles and goodwill for impairment annually or whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed an assessment of indefinite lived intangibles and goodwill and determined there was no impairment for the years ended September 30, 2020 and 2019. Software Development Costs The Company capitalizes software development costs under guidance of ASC 985-20 “Costs of Software to be Sold, Leased or Marketed” for our mPulse platform and under ASC 350-40 “Internal Use Software” for our mVSO, Canvas & Plaid products. Software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product requires both technical design documentation and infrastructure design documentation, or the completed and F- 12 Table of Contents tested product design and a working model. Significant management judgments and estimates are utilized in the assessment of when technological feasibility is established, and the evaluation is performed on a product-by-product basis. For products where proven technology exists, this may occur early in the development cycle. Prior to a product's release, if and when we believe capitalized costs are not recoverable, we expense the amounts as part of "Product development." Capitalized costs for products that are cancelled or are expected to be abandoned are charged to "Product development" in the period of cancellation. Amounts related to software development, such as product enhancements to existing features, which are not capitalized are charged immediately to "Product development." Commencing upon a product's release, capitalized software development costs are amortized to "Cost of revenues—software amortization " based on the ratio of current revenues to total projected revenues for the specific product, generally resulting in an amortization period of seven years for our current product offerings. In recognition of the uncertainties involved in estimating future revenue, amortization will never be less than straight-line amortization of the products remaining estimated economic life. We evaluate the future recoverability of capitalized software development costs on a quarterly basis. For products that have been released in prior periods, the primary evaluation criterion is the actual performance of the software platform to which the costs relate. For products that are scheduled to be released in future periods, recoverability is evaluated based on the expected performance of the specific products to which the costs relate. Criteria used to evaluate expected product performance include: historical performance of comparable products developed with comparable technology; market performance of comparable software; orders for the product prior to its release; pending contracts and general market conditions. Significant management judgments and estimates are utilized in assessing the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected product performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If revised forecasted or actual product sales are less than the originally forecasted amounts utilized in the initial recoverability analysis, the net realizable value may be lower than originally estimated in any given quarter, which could result in an impairment charge. Material differences may result in the amount and timing of expenses for any period if matters resolve in a manner that is inconsistent with management's expectations. If an impairment occurs the reduced amount of the capitalized software costs that have been written down to the net realizable value at the close of each annual fiscal period will be considered the cost for subsequent accounting purposes. 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 convertible debt is also stated at fair value since the stated rate of interest approximates market rates. 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. F- 13 Table of Contents 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 September 30, 2020: Amount Level 1 Level 2 Level 3 Derivative asset $ 2,115,269 $ — $ — $ 2,115,269 Investment in equity security 210,000 210,000 — $ — Investment in debt security 500,000 — — 500,000 Total $ 2,825,269 $ 210,000 $ — $ 2,615,269 The below table presents the change in the fair value of the derivative asset and investment in debt security during the year ended September 30, 2020: Amount Balance at September 30, 2019 $ — Fair value at issuance, net of premium 500,000 Gain on derivative asset 2,115,269 Balance at September 30, 2020 $ 2,615,269 Income taxes The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of September 30, 2020 and 2019. Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operation in the provision for income taxes. As of September 30, 2020, and 2019, the Company had no accrued interest or penalties related to uncertain tax positions. 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. Segment Reporting Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company currently has two reportable segments for financial reporting purposes. 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. F- 14 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 August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of the standard is to improve the overall usefulness of fair value disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. ASU 2018-13 is effective for for fiscal years beginning after December 15, 2019 and requires the application of the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements for (1) changes in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 also requires prospective application to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty. The effects of all other amendments made by ASU 2018-13 must be applied retrospectively to all periods presented. We are currently in the process of evaluating the impact of adoption on our Consolidated Financial Statements. 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, 2022. 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. F- 15 Table of Contents 3. ACQUISITION OF GRIDFABRIC, LLC. On August 31, 2020, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with GridFabric, LLC, (“GridFabric”), and its sole member, Dupont Hale Holdings, LLC (“Seller”), whereby the Company purchased all of the issued and outstanding membership units of GridFabric from the Seller (the “Transaction”) in exchange for an aggregate purchase price of cash and stock of up to $ 1,400,000 (the “Purchase Price”). The Transaction closed simultaneously with execution on August 31, 2020. As a result of the Transaction, GridFabric, an OpenADR software solutions provider, is now a wholly-owned subsidiary of the Company. Pursuant to the terms of the Agreement, the Purchase Price was as follows: a) $ 360,000 in cash was paid to the Seller at closing; b) $ 400,000 in cash was delivered to an independent third-party escrow where such cash is subject to offset for adjustments to the Purchase Price and indemnification purposes for a period of 12 months; c) 26,427 restricted shares of the Company’s common stock, valued at $ 250,000 , were issued to the Seller (the “Shares”). The Shares are subject to certain leak-out provisions whereby the Seller may sell an amount of Shares equal to no more than 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”); and d) additional shares of the Company’s common stock, valued at up to $ 750,000 , will be issuable to Seller if GridFabric achieves certain revenue and product release milestones related to the future performance of GridFabric (the “Earn-out Shares”). The Earn-Out Shares are also subject to the Leak-Out Terms. The Shares were issued at a fair market value of $ 9.46 per share . The Earn-Out Shares are accounted for as contingent consideration and the number of shares to be issued will be determined based on the closing price of the Company’s common stock on the date such milestone event occurs. The Agreement contains standard representations, warranties, covenants, indemnification and other terms customary in similar transactions. In connection with the transaction, the Company also entered into employment relationships and non-compete agreements with GridFabric’s key employees for a period of 36 months and plans to issue future equity compensation to said employees, subject to approval of the Company’s board of directors. The Company accounted for the acquisition of GridFabric 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 $ 400,000 26,427 shares of common stock $ 250,000 Contingent consideration - common stock issuable upon achievement of milestone(s) $ 750,000 Total Consideration $ 1,400,000 The total purchase price of the Company’s acquisition of GridFabric was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values as indicated below. Purchase Price Allocation: Software $ 1,120,000 Customer list $ 60,000 Non-compete $ 190,000 Goodwill $ 26,395 Net Assets $ 3,605 Total $ 1,400,000 F- 16 Table of Contents The following is the unaudited pro forma information assuming the acquisition of GridFabric occurred on October 1, 2018: For the Year Ended September 30, 2020 September 30, 2019 Net sales $ 10,220,286 $ 4,532,782 Net loss ( 23,272,538 ) $ ( 26,116,932 Loss per common share - basic and diluted $ ( 2.43 ) $ ( 6.21 ) Weighted average common shares outstanding - basic and diluted 9,577,053 4,203,829 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. 4. 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 now 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 where such cash is subject to offset for adjustments to the purchase price and indemnification purposes; and F- 17 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 (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 of the Company’s acquisition of p2k was allocated to identifiable assets deemed acquired, and liabilities assumed, based on their estimated fair values as indicated below. Purchase Price Allocation: Customer list $ 730,000 Design and other assets $ 123,000 Goodwill $ 957,388 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 Year Ended September 30, 2020 September 30, 2019 Net sales $ 10,296,510 $ 5,454,972 Net loss ( 23,353,924 ) ( 26,003,965 ) Loss per common share - basic and diluted $ ( 2.42 ) $ ( 6.08 ) Weighted average common shares outstanding - basic and diluted 9,646,325 4,273,101 F- 18 Table of Contents 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. 5. INVESTMENT IN INTERNATION AL LAND ALLIANCE International Land Alliance, Inc. On November 5, 2019, the Company 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. 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 “SPA”). Pursuant to the terms of the SPA, ILAL sold, and the Company purchased 1,000 shares of Series B Preferred Stock (the “Preferred Stock”) for an aggregate purchase price of US $ 500,000 (the “Stock Transaction”), less certain expenses and fees. The Company also received 350,000 shares (“commitment shares”) of ILAL’s common stock. The Series B Preferred Stock will accrue cumulative in-kind accruals at a rate of 12% per annum and may increase upon the occurrence of certain events. The Preferred Stock is now convertible into common stock at a variable rate as calculated under the agreement terms. The commitment shares are recorded at fair value as of September 30, 2020 of $ 210,000 . The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of September 30, 2020. As of September 30, 2020, the Company has identified a derivative instrument in accordance with ASC Topic No. 815 due to the variable conversion feature. 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 September 30, 2020. Fair value assumptions: September 30, 2020 Risk free interest rate 1.58 % Expected term (months) — Expected volatility 190 % Expected dividends 0 % F- 19 Table of Contents 6. CAPITALIZED SOFTWARE Capitalized software consists of the following as of September 30, 2020 and September 30, 2019: September 30, 2020 September 30, 2019 mVSO software $ 437,135 $ 352,211 MPulse software 741,846 741,846 Less: accumulated amortization ( 202,778 ) ( 38,860 ) Capitalized Software, net $ 976,203 $ 1,055,197 The Company capitalized $ 84,924 in enhancements to its mVSO software during the year ended September 30, 2020. Capitalized software amortization recorded as product development expense for the years ended September 30, 2020 and 2019 was $ 163,918 and $ 1,453,635 , respectively. During the year ended September 30, 2019, the Company recorded an impairment of $ 6,915,186 related directly to components of our original software that was replaced. 7. INTANGIBLE ASSETS The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between two and twenty years as follows: Useful life Patents 15 - 20 years Websites 3 years Customer list and non-compete agreement 3 - 4 years Design assets 2 years Trademarks 14 years Engineering trade secrets 7 years Software 2 – 3 years Intangible assets consist of the following as of September 30, 2020 and September 30, 2019: September 30, 2020 September 30, 2019 Patents $ 74,112 $ 74,112 Websites 8,115 16,482 Customer list and non-compete agreement 6,702,024 5,722,024 Design assets 123,000 — Trademarks 5,928 5,928 Engineering trade secrets 4,370,269 4,370,269 Software 1,120,000 — Intangible assets: 12,403,448 10,188,815 Less: accumulated amortization ( 5,353,792 ) ( 2,758,733 ) Intangible assets, net $ 7,049,656 $ 7,430,082 Amortization expense for the years ended September 30, 2020 and 2019 was $ 2,603,427 and $ 1,858,559 , respectively. The Company expects to record amortization expense of intangible assets over the next 5 years and thereafter as follows: 2021 $ 2,909,648 2022 2,526,034 2023 1,010,126 2024 567,260 2025 4,294 Thereafter 32,294 Total $ 7,049,656 8. FIXED ASSETS Fixed assets consist of the following as of September 30, 2020 and September 30, 2019: September 30, 2020 September 30, 2019 Machinery and equipment $ 193,042 $ 212,082 Leasehold improvements 17,965 — Furniture and fixtures 82,547 75,121 Total 293,554 287,203 Less: accumulated depreciation ( 175,560 ) ( 142,133 ) Fixed assets, net $ 117,994 $ 145,070 Depreciation expense for the years ended September 30, 2020 and 2019 was $ 68,904 and $ 44,422 , respectively. During the year ended September 30, 2020, the Company disposed of $ 48,898 of fixed assets resulting in a loss on disposal of $ 5,218 . F- 20 Table of Contents 9. LOANS Long term September 30, 2020 September 30, 2019 Long-term loans payable consist of the following: Promissory notes $ 531,169 $ 150,000 Total $ 531,169 $ 150,000 Current September 30, 2020 September 30, 2019 Current loans payable consist of the following: 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 September 30, 2020, the Company owed $ 0 in principal and $ 0 in accrued interest under the terms of the agreement and recorded interest expense of $ 12,426 and $ 10,096 during the years ended September 30, 2020 and 2019, respectively. 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 years ended September 30, 2020 and 2019, respectively. F- 21 Table of Contents On 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 $ 2,125 and $ 0 for the years ended September 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 4, 2019. 10. CONVERTIBLE NOTES PAYABLE 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 is secured by all assets of the Company. 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. 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- 22 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- 23 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 7, 2020, in accordance with the terms of the agreement the Investor was issued an additional 172,400 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $ 1.50 . On April 9, 2020, in accordance with the terms of the agreement the Investor was issued an additional 794,308 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 September 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 and $ 4,466,526 during the year ended September 30, 2020 and 2019, respectively. 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 “Note”) 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 Note, the Series B Preferred Stock the Warrant and the Common Stock is $ 20,000,000 . (See Notes 13 and 14 for additional details.) The Note 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 Note, 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- 24 Table of Contents The Note 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 Note 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 Note then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Note being redeemed. The Investor may convert the Note 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 Note. In no event shall the Note 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 Agreement and Note, as follows: 1) A Floor Price of $ 1.50 per share of Common Stock was placed on conversions by the Investor under the Note, 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 Note 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 Note. 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. During the year ended September 30, 2020, the Investor converted $ 10,750,000 in principal and $ 1,612,500 in interest, for 8,241,665 shares of the Company common stock at an effective conversion price of $ 1.50 . As of September 30, 2020, the Note 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 and $ 2,429,795 during the year ended September 30, 2020 and 2019, respectively. 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. F- 25 Table of Contents 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 September 30, 2020, the Company's operating lease right of use asset and operating lease liability totaled $ 40,711 and $ 41,294 , 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 0.4 years at September 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. The following is a schedule of the Company's operating lease liabilities by contractual maturity as of September 30, 2020: Fiscal year ending September 30, 2021 43,170 Total Lease Payments 43,170 Less: imputed interest ( 1,876 ) Total present value of lease liabilities $ 41,294 Total operating lease costs of $ 117,223 and $ 76,220 the years ended September 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 Fiscal year ending September 30, 2019 Agreement - During the year ended September 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 $ 430,437 during the year ended September 30, 2019. The agreement was terminated in at the end of the fiscal year ending September 30, 2019 when Mr. Bradford took the position of CEO and accepted the associated employment agreement. During the year ended September 30, 2020, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $ 131,248 for accounting, tax, administrative services and reimbursement for office supplies. Blue Chip is 50 % beneficially owned by Mr. Bradford. None of the services 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 year ended September 30, 2020, $ 14,725 was paid to Blue Chip for rent. F- 26 Table of Contents 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 $ 171,202 , during the year ended September 30, 2020 and 2019. On March 12, 2020, 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 September 30, 2020, 62,857 warrants had vested, and the Company recorded an expense of $ 1,158,709 and 496,590 during the year ended September 30, 2020 and 2019, respectively. Matthew Schultz- Executive Chairman of the Board and Former Chief Executive Officer The Company had 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 $ 445,437 , respectively during years ended September 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 $ 1,086,200 as compensation for his services as chairman of the board during the year ended September 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 year ended September 30, 2020. The agreement was terminated in March 2020. 13. STOCKHOLDERS’ EQUITY Overview The Company’s authorized capital stock consists of 35,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $ 0.001 per share. As of September 30, 2020, there were 17,390,979 shares of common stock issued and outstanding and 100,000 shares of preferred stock issued and outstanding. Amendment(s) 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 . F- 27 Table of Contents 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. On October 2, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to increase its authorized shares of common stock to 35,000,000 . 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 . Shares of the Series B Preferred Stock were never issued and 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 year ended September 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 5 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) 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 28,381 shares of common stock as board and executive compensation at a fair value of $ 71,600 . The Company issued 1,230,770 shares of common stock as a result of a registered direct offering resulting in total consideration of $ 4,000,000 . F- 28 Table of Contents The Company issued 6,913 shares of common stock as a result of a cashless exercise of 15,000 common stock warrants. The Company issued 26,427 shares of common stock in relation to the acquisition of GridFabric (See Note 3 for additional details.) Common stock returned during the year ended September 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 year ended September 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 year ended September 30, 2019 During the period commencing October 1, 2018 through December 31, 2018, 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 $ 0.001 par value 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 year ended September 30, 2019, the Company issued a total of 36,000 shares of its common stock in accordance with the agreement. Stock compensation of $ 897,870 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 year ended September 30, 2019, the Company recorded stock compensation of $ 68,818 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. During the year ended September 30, 2019, the Company issued 217,896 shares of common stock to three investors in connection with the cashless exercise of 225,000 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 as a conversion premium, for 178,473 shares of the Company common stock at an effective conversion price of $ 18.90 . F- 29 Table of Contents On January 22, 2019, in accordance with a merger agreement the Company issued 175,000 shares of the Company’s common stock. On March 6, 2019, an 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 . (See Note 10 for additional details.) On April 9, 2019, an investor exercised warrants to purchase 900 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 received $ 3,268 as a result of this exercise. The Company issued 125,000 shares in relation to a Securities purchase agreement executed on April 17, 2019. (See Note 10 for additional details.) 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 compensation. 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. On September 10, 2019, the Company terminated the agreement and as a result the shares are required to be returned and cancelled. No stock compensation expense has been recognized as the shares did not vest as a result of the termination. As of September 30, 2019, the shares had not yet been returned. 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 . (See Note 10 for additional details.) 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 . (See Note 10 for additional details.) On July 19, 2019, an 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 $ 14.96 . (See Note 10 for additional details.) 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 . (See Note 10 for additional details.) 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 . (See Note 10 for additional details.) Common stock returned during the year ended September 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 note payoffs, 23,750 shares of common stock which were previously issued as a commitment fee returned to treasury and cancelled. F- 30 Table of Contents 14. STOCK WARRANTS The following is a summary of stock warrant activity during the years ended September 30, 2020 and September 30, 2019. Number of Warrant Shares Weighted Average Exercise Price Balance, September 30, 2018 898,930 $ 8.90 Warrants granted 641,335 32.20 Warrants expired — — Warrants canceled — — Warrants exercised ( 226,200 ) 0.80 Balance, September 30, 2019 1,314,065 $ 21.70 Warrants granted — $ — Warrants expired — — Warrants canceled — — Warrants exercised ( 15,000 ) 8.00 Balance, September 30, 2020 1,299,065 $ 21.78 As of September 30, 2020, the outstanding warrants have a weighted average remaining term of was 1.96 years and an intrinsic value of $ 1,702,464 . As of September 30, 2020, there are warrants exercisable to purchase 1,276,208 shares of common stock in the Company and 22,857 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. 302,867 of the outstanding warrants contain provisions allowing a cashless exercise at their respective exercise prices. During the year ended September 30, 2020, the Company recognized $ 1,158,709 in stock-based compensation for the outstanding warrants. As of September 30, 2020, there was no remaining unamortized stock-based compensation related to outstanding warrants. Warrant activity for the year ended September 30, 2020 On September 25, 2020, a total of 6,913 shares of the Company’s common stock were issued in connection with the cashless exercise of 15,000 common stock warrants at an exercise price of $ 8.00 . Warrant activity for the year ended September 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 year ended September 30, 2019, the Company recorded stock compensation of $ 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. F- 31 Table of Contents 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 September 30, 2019, 50,000 warrants had vested, and the Company recorded an expense of $ 496,590 during the year ended September 30, 2019. 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 (see Note 10 for additional details) 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 year ended September 30, 2019: Fair value assumptions – Warrants: September 30, 2019 Risk free interest rate 2.36 % - 3.01 % Expected term (years) 3 - 5 Expected volatility 254 % - 268 % Expected dividends 0 % During the year ended September 30, 2019, the Company issued 217,896 shares of common stock in connection with the cashless exercise of 225,000 common stock warrants at an exercise price of $ 0.83 . 15. STOCK OPTIONS The Company adopted 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 September 30, 2020, there were 22,052 shares available for issuance under the plan. Amendment to 2017 Incentive Plan On October 7, 2020, the Company executed that certain first amendment to the 2017 Equity Incentive Plan to increase its option pool from 300,000 to 1,500,000 shares of common stock. (See Note 20 for additional details) 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. F- 32 Table of Contents The following is a summary of stock option activity during the years ended September 30, 2020 and year ended September 30, 2019. Number of Option Shares Weighted Average Exercise Price Balance, September 30, 2018 31,920 $ 11.80 Options granted 49,324 $ 11.80 Options expired — — Options canceled — — Options exercised — — Balance, September 30, 2019 81,254 $ 11.82 Options granted 233,233 $ 5.28 Options expired 25,692 8.71 Options canceled 10,847 19.04 Options exercised — — Balance, September 30, 2020 277,948 $ 6.34 As of September 30, 2020, there are options exercisable to purchase 225,451 shares of common stock in the Company and 52,497 unvested options outstanding that cannot be exercised until vesting conditions are met. As of September 30, 2020, the outstanding options have a weighted average remaining term of 2.37 years and an intrinsic value of $ 1,808,181 . During the year ended September 30, 2020, the Company recognized $ 753,923 in stock-based compensation for the outstanding stock options. Option activity for the year ended September 30, 2020 During the year ended September 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 $ 716,740 was recorded as a result of the issuances. The Black-Scholes model utilized the following inputs to value the options granted during year ended September 30, 2020: Fair value assumptions – Options: September 30, 2020 Risk free interest rate 0.85 - 1.73 % Expected term (years) 3 - 5 Expected volatility 124 % - 209 % Expected dividends 0% As of September 30, 2020, the Company expects to recognize $ 180,334 of stock-based compensation for the non- vested outstanding options over a weighted-average period of 2.37 years. Option activity for the year ended September 30, 2019 During the year ended September 30, 2019, the Company issued 49,321 options to purchase shares of common stock to employees, the shares were granted at quoted market prices ranging from $ 8.50 to $ 59.00 . The options were valued at issuance using the Black Scholes model and stock compensation expense of $ 326,100 was recorded as a result of the issuances. F- 33 Table of Contents The Black-Scholes model utilized the following inputs to value the options granted during the year ended September 30, 2019: Fair value assumptions – Options: September 30, 2019 Risk free interest rate 1.56 % - 2.91 % Expected term (years) 3 Expected volatility 145 % - 271 % Expected dividends 0% 16. INCOME TAXES The Company provides for income taxes under FASB ASC 740, Accounting for Income Taxes. FASB ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect currently. FASB ASC 740 requires the reduction of deferred tax assets by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is approximately $ 11.0 million as of September 30, 2020 which is calculated by multiplying a 21 % estimated tax rate by the cumulative net operating loss (NOL) of approximately $ 52.5 million. Due to the enactment of the Tax Reform Act of 2017, we have calculated our deferred tax assets using an estimated corporate tax rate of 21 % . US Tax codes and laws may be subject to further reform or adjustment which may have a material impact to the Company’s deferred tax assets and liabilities. The significant components of the Company's deferred tax assets and liabilities as of September 30, 2020 and 2019 are as follows: As of September 30, 2020 2019 Cumulative tax net operating losses (in millions) $ 52.5 $ 42.3 Deferred tax asset (in millions) $ 11.0 $ 8.7 Valuation allowance (in millions) ( 11.0 ) ( 8.7 ) Current taxes payable — — Income tax expense $ — $ — As of September 30, 2020, and 2019, the Company had gross federal net operating loss carryforwards of approximately $ 52.5 million and $ 42.3 million, respectively. The Company plans to file its U.S. federal return for the year ended September 30, 2020 upon the issuance of this filing. Upon filing of the tax return for the year ended September 30, 2020 the actual deferred tax asset and associated valuation allowance available to the Company may differ from management’s estimates. The tax years 2015-2019 remained open to examination for federal income tax purposes by the major tax jurisdictions to which the Company is subject. No tax returns are currently under examination by any tax authorities. F- 34 Table of Contents 17. 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 September 30, 2020, are as follows: 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 cal ls 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 expired on October 31, 2020. The Company did not renew this lease. Contractual contingencies On April 6, 2020, the Company entered into a joint venture agreement with a third party to procure, distribute, and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020. The Company contributed capital in the amount of $ 660,000 to assist with the procurement of these products. The agreement resulted in income of $ 20,000 for the year ended September 30, 2020 and the return of all capital contributed. The income is reported as other income, net of all other costs. Contingent consideration On August 31, 2020, the Company acquired GridFabric, LLC. Pursuant to the terms of the purchase agreement, additional shares of the Company’s common stock valued at up to $ 750,000 will be issuable if GridFabric achieves certain revenue and product release milestones. (See note 3 for additional details.) 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 contingent liabilities. For a description of our material pending legal proceedings, please see Part I, Item III of this Annual Report on Form 10-K. F- 35 Table of Contents 18. MAJOR CUSTOMERS AND VENDORS For the years ended September 30, 2020 and 2019, the Company had the following customers that represented more than 10% of sales. September 30, 2020 September 30, 2019 Customer A 58.31 % 34.78 % Customer B 11.56 % 27.79 % Customer C 0.03 % 10.74 % Customer D — 10.42 % For the years ended September 30, 2020 and 2019, the Company had the following suppliers that represented more than 10% of direct material costs. September 30, 2020 September 30, 2019 Vendor A 85.55 % 84.06 % 19. SEGMENT REPORTING We disclose segment information that is consistent with the way in which management operates and views the business. Our operating structure contains the following reportable segments: Energy Segment – Consisting of our CleanSpark, LLC., CleanSpark Critical Power Systems, Inc. and GridFabric, LLC lines of business, this segment provides services, equipment and software to the energy industry. Digital Agency Segment – p2kLabs, Inc. provides design, software development and other technology-based consulting services. SEGMENT REPORTING - Segmnent Reporting Assets For the Year Ended September 30, 2020 Energy p2kLabs, Inc Inter-segment Consolidated Revenues $ 9,018,023 $ 1,130,233 $ ( 119,555 ) $ 10,028,701 Cost of revenues 7,643,136 264,713 — 7,907,849 Gross profit 1,374,887 865,520 ( 119,555 ) 2,120,852 Operating expenses 16,750,467 633,056 ( 119,555 ) 17,263,968 Segment Income/(loss) from operations ( 15,375,581 ) 232,465 — ( 15,143,116 ) Capital expenditures 30,990 3,907 — 34,897 Depreciation and amortization $ 2,465,877 $ 206,454 $ — $ 2,672,331 F- 36 Table of Contents As of September 30, 2020 Energy p2kLabs, Inc Consolidated Accounts Receivable $ 919,499 $ 127,854 $ 1,047,353 Goodwill $ 4,946,253 $ 957,388 $ 5,903,641 Total assets $ 20,212,873 $ 2,127,190 $ 22,340,063 20. SUBSEQUENT EVENTS On October 2, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State to increase its authorized shares of common stock to 35,000,000 . On October 7, 2020, the Company executed a first amendment to its 2017 Equity Incentive Plan to increase its option pool from 300,000 to 1,500,000 shares of common stock. On November 9, 2020, we filed a registration statement on Form S-8 to register the additional shares under the first amendment to the 2017 Equity Incentive Plan. On October 6, 2020, the Company, issued 4,444,445 shares of the Company’s common stock in connection with a firm commitment underwritten public offering at a price to the public of $ 9.00 per share. The Company received net proceeds from the sale of the shares, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, of $ 37.2 million. The offering closed on October 9, 2020. On October 26, 2020, the Company issued 236,000 shares to employees, officers and directors with a fair value of $ 1,904,520 and 142,500 fully vested options with a fair value of $ 987,675 for performance during the 2020 fiscal year. The options have exercise prices ranging from $ 8.07 to $ 9.00 and terms of 3 years . In addition, the Company granted 222,250 shares and 84,000 options to purchase common stock to officers which are subject to future vesting conditions in accordance with Company goals and milestones. On December 9, 2020, the Company, entered into an Agreement and Plan of Merger with ATL Data Centers LLC, (“ATL”), CLSK Merger Sub, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”), and Sellers. The Merger closed on December 10, 2020. At the closing, Merger Sub merged with and into ATL, and ATL survived the Merger, continuing its existence as a wholly-owned subsidiary of the Company. In exchange, at closing, the Company issued 1,618,285 shares of restricted common stock of the Company valued at $ 19.4 million based on the average closing price of the common stock for the five trading days including and immediately preceding the closing date of $11.988 per share, to the Sellers, of which: (i) 642,309 Shares valued at $7.7 million would be fully earned on closing, and (ii) an additional 975,976 Shares valued at $11.7 million being issued to escrow and subject to holdback pending satisfaction of certain future milestones, with all such shares subject to a lock up of no less than 180 days and a leak out of no more than 10% of average daily trading value of the prior 30 days. The Company also assumed approximately $6.9 million in existing debt of ATL at closing. In connection with the acquisition, the Company issued 41,708 shares to the broker of the transaction and has agreed to issue an additional 10,427 shares upon achievement of certain revenue milestones. F- 37 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.