CLEANSPARK, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. Company Overview We are in the business of providing advanced software and controls technology solutions to solve modern energy challenges. We have a suite of software solutions that provide end-to-end microgrid energy modeling, energy market communications, and energy management solutions. Our offerings consist of intelligent energy monitoring and controls, intelligent microgrid design software, middleware communications protocols for the energy industry, energy system engineering, and software consulting services. The software platforms (the “Platforms”) which are integral to our business are summarized as follows: • mVSO Platform: Energy modeling software for microgrid design and sales • mPulse Platform: Patented, proprietary controls platform that enables integration and optimization of multiple energy sources. • Canvas: Middleware used by Grid Operators and Aggregators to administrate load shifting programs. • Plaid: Middleware used by Controls and IoT Product Companies to participate in load shifting programs In addition, following our acquisition of Solar Watt Solutions, Inc. (“Solar Watt”) in February 2021, we are in the process of developing our mVoult platform, which we expect will be a proprietary platform that would enable integration and optimization of solar, energy storage and back-up generators for residential applications. The Platforms are designed to allow customers to design, build, and operate distributed energy systems and microgrids which efficiently manage energy generation assets, energy storage assets, and energy consumption assets. Our software products enable users to implement software solutions to execute on these strategies. These strategies are generally targeted to operate distributed energy assets in a manner that provides resiliency and economic optimization and/or revenue generation through wholesale market activities. We also own patented gasification technologies. Our technology converts any organic material into SynGas, which can be used as fuel for a variety of applications and as feedstock for the generation of DME (Di-Methyl Ether). As previously disclosed, we plan to continue to focus on our other product offerings, as opposed to expending significant efforts on the Gasifier side of the business. 4 Table of Contents Distributed Energy Management and Microgrid Industry Integral to our business is our Distributed Energy Management (or “DER”) business. The main assets of our DER business include our proprietary software systems (“Systems”) and our engineering and methodology trade secrets. The distributed energy systems and microgrids that utilize our Systems are capable of providing secure, sustainable energy with significant cost savings for energy customers. Through the Systems, customers are able to design, engineer, and then efficiently communicate with and manage renewable energy generation, storage and consumption. By having autonomous control over the multiple facets of energy usage and storage, customers are able to reduce their dependency on utilities, thereby keeping energy costs relatively constant over time. The overall aim is to transform energy consumers into intelligent energy producers that supply and manage power in a manner that avoids interruptions. Around the world, aging energy grids are becoming unstable and unreliable due to increases in loads and the widespread lack of new large-scale generation facilities. This inherent instability in existing energy grids is compounded by pressure to integrate a growing number and variety of renewable but intermittent energy generation assets and advanced technologies into outdated electrical grid systems. Simultaneously, defense installations, industrial complexes, communities, campuses and other aggregators across the world are turning to virtual power plants and microgrids as a means to decrease their reliance on existing energy grid, reduce utility costs, utilize cleaner power and enhance energy security and surety. The convergence of these factors has created, and is expected to continue to create significant opportunities in the power supply optimization and energy management industry. Efficiently operating and managing the distributed energy management systems and microgrids of tomorrow, while maximizing the use of sustainable energy to produce affordable, stable, predictable and reliable power on a large scale, is a significant opportunity that early-movers can leverage to capture a large share of this emerging global industry. A microgrid is comprised of any number of energy generation, energy storage, and smart distribution assets that serve a single or multiple load, both connected to the utility grid and “islanded,” separate from the utility grid. In the past, distributed energy management systems and microgrids have consisted of off-grid generators organized with controls to provide power where utility lines cannot run. Today, modern distributed energy management systems and microgrids integrate renewable energy generation systems (REGS) with advanced energy storage devices and interoperate with the local utility grid. Advanced autonomous cyber-secure microgrid controls relay information between intelligent hardware and servers to make decisions in real-time that deliver optimum power where it is needed, when it is needed. mPulse Software Suite mPulse is a modular platform that provides intelligent control of a Microgrid based on a system’s operational goals, energy assets and forecasted energy load and generation. mPulse performs high-frequency calculations, threshold-based alarming, execution of domain-specific business rules, internal and external health monitoring, historical data persistence, and system-to-operator notifications. The modular design of mPulse increases system flexibility and extensibility. In addition, the deployment of the mPulse system follows a security-conscious posture by deploying hardware-based firewalls as well as encryption across communication channels. mPulse allows configuration for site-specific equipment and operation and provides a clean, informative user interface to allow customers to monitor and analyze the data streams that describe how their microgrid is operating. Our mPulse software also serves as an integrated distributed energy management control platform that seamlessly integrates and controls all forms of energy generation with energy storage devices to provide energy security in real time, free of cyber threats to service facility loads. As a DER system, mPulse is able to interoperate with the local utility grid and bring users the ability to choose when to buy or sell power to and from the utility grid. mPulse is designed and intended for commercial, industrial, defense, campus and residential users and ranges in capacity from 4 kilowatts to 100 megawatts and beyond. 5 Table of Contents mPulse supports our innovative fractal approach to microgrid design, which enables multiple microgrids on a single site to interact in a number of different ways, including as peers, in a parent-child relationship, and in parallel or completely disconnected. Each grid can have different operational objectives, and those operational objectives can change over time. Any microgrid can be islanded from the rest of the microgrid as well as the larger utility grid. The mPulse software can control the workflow required in both the islanding steps as well as the reconnecting steps of this maneuver and coordinate connected equipment such that connections are only made when it is safe to do so. mVoult — Residential Platform mVoult is a smart power system that is under development and is expected to provide a single solution for resilient, reliable and cost-effective energy for residential properties of all sizes. Our systems will be able to be configured to a homeowner’s needs upon installation, with flexibility for future expansion. Our mVoult software will direct microgrid system operations to manage solar, battery, and utility power. It will be capable of providing resilient, sustainable and low-cost energy for a residential microgrid, allowing a home to stay powered during utility outages or during events, such as fires and natural disasters, when a utility may otherwise shut down or be unable to provide service. Microgrid Value Stream Optimizer (mVSO) Our Microgrid Value Stream Optimizer (mVSO) software platform provides a robust distributed energy and microgrid system modeling solution. mVSO takes utility rate data and load data for our customers’ sites and helps automate the sizing and analysis of potential microgrid solutions, as well as providing a financial analysis around each grid configuration. mVSO uses historical data to generate projected energy performance of generation assets and models the way in which energy storage responds to varying operational modes and command logics based upon predicted generation and load curves. mVSO analyzes multiple equipment combinations and operational situations to determine the optimal configuration for a customer’s site based on factors, including, among others, the financial and economic results, equipment outlay and utility cost savings, to arrive at payback and internal rate of return values. This ultimately provides our customers with data to design a distributed energy and/or microgrid system that will meet the customers’ performance benchmarks. The mVSO also provides users with business development and proposal generation tools to more efficiently present the results to end-customers. Critical power switchgear and hardware solutions — CleanSpark Critical Power Systems Through our wholly-owned subsidiary, CleanSpark Critical Power Systems, Inc., we provide parallel switchgear, automatic transfer switches and related control and circuit protective equipment solutions for commercial, industrial, defense, campus and residential users. We utilize Pioneer Power Solutions, Inc. for contract manufacturing of our parallel switchgear, automatic transfer switches and related control and circuit protective equipment. OpenADR and communication protocol software solutions — GridFabric Through our wholly-owned subsidiary, GridFabric, LLC , (“GridFabric”) we offer Open Automated Demand Response (or OpenADR) solutions to commercial and utility customers. We provide middleware software solutions for utilities and IoT products that manage energy loads. OpenADR 2.0b is now the basis for the standard to be developed by the International Electrotechnical Commission, which is an organization that prepares and publishes international standards for all electrical, electronic and related technologies. Our core products in this area of our business are Canvas and Plaid. Canvas is an OpenADR 2.0b Virtual Top Node (or VTN) built for testing and managing Virtual End Nodes (or VENs) that pilot and run load shifting programs. Canvas is offered to customers in the cloud as a software as a service (SaaS) solution or as a licensed software. 6 Table of Contents Plaid Plaid is a licensed software solution that allows any internet-connected product that uses energy (i.e., solar, storage & inverters, demand response, electric vehicle charging, lighting, industrial controls and building management systems) to add load shifting capabilities by translating load shifting protocols into their existing application programing interface (or API). Companies that implement Plaid receive a Certified OpenADR 2.0b Virtual End Node upon completion of the implementation process. Bitcoin Mining — ATL Data Centers and CleanBlok Through our wholly-owned subsidiaries, ATL Data Centers LLC (“ATL”) and our recently-formed subsidiary, CleanBlok, LLC, we mine bitcoin. Bitcoin was first introduced in 2008 with the goal of serving as a means of exchanging and storing value. Bitcoin is a new form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain,” which contains a record of every bitcoin transaction ever processed. The bitcoin network was the first decentralized peer-to-peer payment network powered by those users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation. The authenticity of each bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive bitcoin. Users have full control over remitting bitcoin from their own sending addresses. All transactions on the bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. In order to be recorded on the blockchain, each bitcoin transaction is validated through a proof-of-work consensus method, which entails solving complex mathematical problems to validate transactions and post them on the blockchain, which is often called “mining.” For successfully solving the problems and providing computing power to the network, the computer is rewarded with bitcoins, both in the form of newly-created bitcoins and fees in bitcoin. Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play an important role in mining. Our current facilities are capable of producing an over 300 PH/s in hash rate capacity. In cryptocurrency mining, “hash rate” is a measure of the processing capacity and speed by a mining computer to mine and process transactions on the bitcoin network. Our activities in this area, in addition to generating revenue in the form of bitcoin, creates an advantageous business opportunity for us to operate a full-scale, demonstration facility of our energy-related products and solutions. We plan to deploy our energy technologies and trade secrets in our bitcoin mining operations with the goal of maximizing energy savings, expanding total power capacity, providing resilient electricity, and reducing greenhouse gas emissions. We anticipate that implementing this strategy will involve the design and installation of multiple microgrids at the ATL Data Center facility. We are in the process of actively expanding this aspect of our business and are working toward expanding our hash rate capacity, with the goal of exceeding 1.0 EH/s in hash rate capacity in fiscal year 2021. As a result of our mining operations, we acquire bitcoin, and, while we have to date retained a significant portion of the bitcoin from our mining operations (typically maintaining the bitcoin at a digital asset exchange), we have sold, and may from time to time sell, bitcoin from our inventory. We do not currently plan to engage in regular trading of bitcoin (other than as necessary to convert our bitcoin to U.S. dollars) or to engage in hedging activities related to our holding of bitcoin; however, our decisions to hold or sell bitcoin at any given time may be impacted by the bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell bitcoin that we hold, or the number of bitcoins we will sell. Rather, decisions to hold or sell bitcoins in our inventory are currently determined by individuals analyzing forecasts and monitoring the market in real time. As with many new and emerging technologies, our bitcoin mining activities present potentially significant risks to our business. Businesses (including ours) that seek to develop, promote, adopt, transact or rely upon blockchain technologies and bitcoin may have a limited track record and operate within novel and developing environments. These risks are not only related to the businesses we are pursuing, but also the industry as a whole and the concept behind blockchain and cryptocurrency as value creation. In addition, our holding and selling of bitcoin may subject us to additional risks, including the possibility that our activities may become subject to additional regulation or regulatory scrutiny. 7 Table of Contents Energy system integration and installation — Solar Watt Solutions Following our acquisition of Solar Watt Solutions, Inc. in February 2021, we provide solar and alternative energy solutions for homeowners and commercial businesses in Southern California. These energy solutions include implementation and installation services for solar panels, energy storage and electric vehicle charging station systems. Solar Watt has historically been focused on serving the communities throughout California, and we intend to work to further expand those services to other regions outside of Southern California. Through these efforts, we expect to leverage those services and capacities to further expand our residential and commercial initiatives, including our mVoult product line for residential microgrids and our mPulse product line for commercial microgrids. Digital Agency Products and Services — p2kLabs Through our wholly-owned subsidiary, p2kLabs, Inc., we provide a suite of digital services from creative design to technical development for products and services through the entire product/service lifecycle. Such services are provided through “labs,” with each lab containing its own unique offering, including design, marketing/digital content, engineering and SalesForce development, and strategy services. Legacy Gasifier Business We own patented gasification technologies that convert any organic material into synthesis gas (“SynGas”). Our patents protect our gasification technology and process for using feedstock comprising gaseous fuel. Our patented process involves the grinding, drying, separating, mixing, and then pelletizing of solid waste. These pellets constitute the feedstock for the gasifier. Gasifying feedstock using our technology converts waste and organic material into SynGas, which can then be converted into multiple forms of fuel for power plants, motor vehicles, jets, duel-fuel diesel engines, gas turbines, and steam boilers and as feedstock for the generation of DME (Di-Methyl Ether). The SynGas produced is mostly hydrogen and carbon monoxide, which are primary building blocks for many fuels and chemicals. SynGas is sufficiently clean that, if processed directly, it generally does not require costly hot-gas cleanup. Our gasification technologies and prototype will require additional testing to further establish their commercial capability of producing large volumes of clean, renewable energy from any carbon compound (municipal solid waste (MSW), coal, sewage sludge) into clean SynGas. Our prototype gasifier is still under development and a commercially viable gasifier is not expected to be viable for sale until we expend additional resources on its testing and development. A third-party consulting firm has independently tested the gasifier’s performance and certified the results of its performance. Upon completion of the testing, an initial white paper was published outlining the results and suggested improvements for commercialization. We anticipate that the investment to complete these improvements would be approximately $500,000. Upon completion of the improvements, we would be required to conduct an extended test run with an independent third party to verify the results needed to prove its commercial viability, at which time we could begin to actively market our gasifier units. We do not anticipate deploying significant resources on the gasification business at this time. As opportunities arise, we may utilize the gasification assets and intellectual properties through licensing or sales agreements. At this time, we are not engaged in any negotiations to sell or license our gasifier products to any customers. Government Regulation As described above, following our acquisition of ATL Data Centers in December 2020, we are engaged in the business of mining and selling bitcoin. As a result, we may become subject to government regulation of blockchain and cryptocurrency, including bitcoin, which has been developing rapidly in the United States federal government through a number of federal agencies and regulatory bodies, as well as in other countries by similar entities. State government regulations also may apply to our current operations and activities as well as other activities in which we participate or may participate in the future. Furthermore, transnational organizations and semi-governmental agencies have shown an interest in regulating or investigating companies engaged in the blockchain or cryptocurrency business. We expect regulation in this space to continue to evolve. 8 Table of Contents These and other regulations, including regulations that may become applicable to our business in the future, may substantially change in the future, and it is presently not possible to know how or when any such regulations will apply to our businesses. We may also become subject to new laws and further regulation by the SEC and other agencies. Various bills have been proposed in Congress related to the industries in which we operate, which, if adopted, may have a significant impact on us. For additional discussion regarding our beliefs about the potential risks existing and future regulation as well as other conditions pose to our business, see the “Risk Factors” section below and in the documents incorporated by reference therein. Results of operations for the three months ended March 31, 2021 and 2020 Revenues Revenues increased to $8,119,688 during the three months ended March 31, 2021, as compared with $3,658,283 in revenues for the same period ended 2020 primarily due to revenues from our digital agency and digital currency mining segments. Loss from Operation Our cost and expenses were $10,616,660 for the three months ended March 31, 2021, resulting in loss from operations of ($2,496,972), as compared with cost and expenses of $5,930,335 for the three months ended March 31, 2020, resulting in loss from operations of $(2,272,052). The decrease in our cost of revenues for the three months ended March 31, 2021 was mainly the result of a decrease in manufacturing and hardware expenses. Professional fees increased to $2,456,554 for the three months ended March 31, 2021, from $1,005,991 for the same period ended March 31, 2020. Our professional fees expenses for the three months ended March 31, 2021 consisted mainly of legal fees of $1,625,715, consulting fees of $469,029, external marketing fees of $206,923, and accounting, audit and review fees of $149,872. Our professional fees expenses for the three months ended March 31, 2020 consisted mainly of officers and directors’ consulting fees of $184,115, consulting fees of $286,903, and accounting, audit and review fees of $77,684 and stock-based compensation of $245,231. Payroll expenses increased to $3,262,097 for the three months ended March 31, 2021, from $984,380 for the same period ended 2020. Our payroll expenses for the three months ended March 31, 2021 consisted mainly of salary and wages expense of $2,428,083 and employee stock-based compensation of $834,014. Our payroll expenses for the three months ended March 31, 2020 consisted mainly of salary and wages expense of $955,680 and employee stock-based compensation of $28,700. 9 Table of Contents General and administrative fees increased to $1,243,154 for the three months ended March 31, 2021, from $311,131 for the same period ended 2020. The increase in our general and administrative expenses for the three months ended March 31, 2021 consisted mainly as a result of an increase in our marketing expenses of $87,276, dues and subscriptions of $233,608, insurance expenses of $172,482, and rent expenses of $286,904. Our general and administrative expenses for the three months ended March 31, 2020 consisted mainly of travel expenses of $48,378, rent expenses of $27,141, insurance expenses of $50,785, dues and subscriptions of $117,671 and office expense of $10,755. Depreciation and amortization expense increased to $2,117,172 for the three months ended March 31, 2021, from $715,005 for the same period ended 2020 mainly due to the depreciation expense related to the equipment used in the data center and digital currency miners. We expect that our professional fees, payroll expenses, and general and administrative fees will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs. Other income (expenses) Other income/(expenses) increased to $9,897,012 for the three months ended March 31, 2021, from ($3,543,046) for the same period ended March 31, 2020. Our other income for the three months ended March 31, 2021 consisted mainly of income related to the forgiveness of debt of $541,576, realized gain on sales of digital currency of $585,709, an unrealized gain on equity securities of $343,000, derivative gain of $8,400,629, and net interest income of $26,098. Our other (expenses) for the three months ended March 31, 2020 consisted mainly of an unrealized loss on equity securities of ($210,000), derivative loss of ($1,441,763) and interest expense of ($1,891,283). Net Income/(Loss) We recorded net income of $7,400,040 for the three months ended March 31, 2021, as compared with a net loss of ($5,815,098) for the same period ended March 31, 2020 mainly due to an increase in revenues and unrealized gains on equity and derivative securities. Results of operations for the six months ended March 31, 2021 and 2020 Revenues Revenues increased to $10,377,258 during the six months ended March 31, 2020, as compared with $4,635,107 in revenues for the same period ended 2020 primarily due to revenue from our Cryptocurrency mining. Loss from Operation Our cost and expenses were $19,044,328 for the six months ended March 31, 2021, resulting in loss from operations of ($8,667,070), as compared with cost and expenses of $9,898,620 for the six months ended March 31, 2020, resulting in loss from operations of ($5,263,513). The decrease in our cost of revenues for the six months ended March 31, 2021 was mainly the result of a decrease in manufacturing and hardware expenses. 10 Table of Contents Professional fees increased to $4,169,277 for the six months ended March 31, 2021, from $2,522,578 for the same period ended March 31, 2020. Our professional fees expenses for the six months ended March 31, 2021 consisted mainly of legal fees of $2,856,077, consulting fees of $620,063, external marketing fees of $327,761, accounting, audit and review fees of $303,882. Our professional fees expenses for the six months ended March 31, 2020 consisted mainly of officers and directors’ consulting fees of $466,154, consulting fees of $755,858, and accounting, audit and review fees of $94,160 and stock-based compensation of $831,412. Professional fees increased in 2021 mainly as a result of increased legal fees. Payroll expenses increased to $6,576,298 for the six months ended March 31, 2021, from $1,695,919 for the same period ended 2020. Our payroll expenses for the six months ended March 31, 2021 consisted mainly of salary and wages expense of $4,810,244 and employee stock-based compensation of $1,766,054. Our payroll expenses for the six months ended March 31, 2020 consisted mainly of salary and wages expense of $1,636,231 and employee stock-based compensation of $59,688. General and administrative fees increased to $2,193,293 for the six months ended March 31, 2021, from $541,792 for the same period ended 2020. The increase in our general and administrative expenses for the six months ended March 31, 2021 consisted mainly as a result of an increase in our marketing expenses of $688,662, dues and subscriptions of $405,600, insurance expenses of $244,641, rent expenses of $317,297, and bad debt expenses of $231,932. Our general and administrative expenses for the six months ended March 31, 2020 consisted mainly of travel expenses of $79,963, rent expenses of $48,459, insurance expenses of $93,686, dues and subscriptions of $169,038 and office expense of $21,200. Depreciation and amortization expense increased to $3,226,263 for the six months ended March 31, 2021, from $1,381,069 for the same period ended 2020. We expect that our operating expenses will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs. Other income (Expenses) Other income/(expenses) increased to $8,899,580 for the six months ended March 31, 2021, from ($2,467,839) for the same period ended March 31, 2020. Our other income for the six months ended March 31, 2021 consisted mainly of income related to the forgiveness of debt of $541,576, realized gain on sales of digital currency of $635,627, an unrealized gain on equity securities of $269,500, derivative gain of $7,380,135, and net interest income of $72,742. Our other (expenses) for the six months ended March 31, 2020 consisted mainly of an unrealized gain on equity securities of $158,868, derivative gain of $824,891 and interest expense of ($3,451,598). Net Income/(Loss) We recorded net income of $232,510 for the six months ended March 31, 2021, as compared with a net loss of ($7,731,352) for the same period ended March 31, 2020. 11 Table of Contents Liquidity and Capital Resources As of March 31, 2021, we had total current assets of $178,459,063, consisting of cash, digital currency, accounts receivable, and prepaid expenses and other current assets, and total assets in the amount of $292,612,596. Our total current and total liabilities as of March 31, 2021 were $7,340,445 and $8,892,137 respectively. We had working capital of $171,296,123 as of March 31, 2021. Operating Activities Operating activities used $11,686,460 in cash for the six months ended March 31, 2021, as compared with $1,263,055 for the same period ended March 31, 2020. Our use of net cash in operating activities were primarily driven by gain on derivative asset of $7,380,135, realized gain on sale of digital currency of $635,627, and PPA loan forgiveness of $531,169, offset mainly by stock based compensation of $5,199,658, depreciation and amortization of $3,226,263, and bad debt provision of $231,932. Other components of our negative operating cash flow are the changes in operating assets and liabilities including increase in prepaid expenses and other current assets of $(1,130,741), decrease in accounts payable of ($2,890,270), increase in digital currency of ($7,449,202), increase in contract liabilities of $487,779, decrease in accounts receivable of $114,285, and increase in inventory of ($793,945). Our net loss of $7,731,352 was the main component of our negative operating cash flow for the six months ended March 31, 2020, offset mainly by unrealized gain on equity security of ($158,868), gain on derivative asset of ($824,891), depreciation and amortization of $1,381,069, amortization of debt discounts of $3,000,959, stock-based compensation of $910,200, and change in operating and assets and liabilities of $2,138,102. Investing Activities Investing activities used ($55,909,101) during the six months ended March 31, 2021, as compared with ($2,001,825) for the same period ended March 31, 2020. Our increase in deposits on mining equipment of 45,488,258 was the main component of our negative investing cash flow for the six months ended March 31, 2021. Our sale of digital currencies of $2,422,282, acquisition of ATL Data Centers, LLC of $45,783, acquisition of Solar Watt Solutions, Inc. of ($1,000,337), investment in infrastructure development of ($2,830,860), and purchase of property and equipment of ($9,058,011) were the main components of our investing cash flow for the six months ended March 31, 2021. Our acquisition of p2K of ($1,141,990) and investment in debt and equity securities of $(750,000) were the main components of our negative investing cash flow for the six months ended March 31, 2020. Financing Activities Cash flows received from financing activities during the six months ended March 31, 2021 amounted to $221,743,901, as compared with ($67,467) for the six months ended March 31, 2020. Our cash flows from financing activities for the six months ended March 31, 2021 consisted of repayments of ($5,865,476) on promissory notes, proceeds from exercise of warrants of $3,346,559, and proceeds from underwritten offerings of $224,262,818. Our negative cash flows from financing activities for the six months ended March 31, 2020 consisted of repayments of ($67,467) on promissory notes. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing, the timing of new product introductions and the continuing market acceptance of our products and services. Management believes that the Company has sufficient liquidity to satisfy its anticipated cash requirements for the next twelve months and beyond. The Company’s management prepares budgets and monitors the financial results of the Company as a tool to align liquidity needs to the recurring business requirements. Off Balance Sheet Arrangements As of March 31, 2021, there were no off-balance sheet arrangements. Recently Issued Accounting Pronouncements The Company has evaluated all 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. 12 Table of Contents Critical Accounting Policies In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are discussed in detail in the footnotes to our financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2020. However, we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, accounts receivable, fair value of financial instruments, cash and cash equivalents, accounts receivable, warranty liability and stock-based compensation. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.