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Item 7. Management’s Discussion and Analysis

2021-12-14 compared with 2020-12-17 · 384 added, 209 removed, 22 unchanged (96% of the section changed)

Management’s Discussion

and Analysis of Financial Condition and Results of Operations

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion of our

financial condition and results of operations for the years ended September 30, 2020 and 2019 should be read in conjunction with

our consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,

such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially from

those anticipated in these forward-looking statements as a result of a number of factors.

We use words such as “anticipate”,

“estimate”, “plan”, “project”, “continuing”, “ongoing”, “expect”,

“believe”, “intend”, “may”, “will”, “should”, “could”,

and similar expressions to identify forward-looking statements.

Results of Operations for the Year

Ended September 30, 2020 and 2019

We earned $10,028,701 in revenues

during the year ended September 30, 2020, as compared with $4,532,782 in revenues for the year ended September 30, 2019.

For the year ended September 30, 2020

and 2019 our revenue was derived from of the sale of equipment, design, engineering and services revenue.

This income from our

Energy segment is the result of contracts to sell switchgear equipment, perform engineering design, and provide software for distributed

energy and microgrid systems.

For the year ended September 30, 2020, we also generated services revenue from our January 2020

acquisition of p2kLabs, Inc.

We hope to generate more significant revenue from customers through the sale and licensing of our

Software platforms and services in the future.

However, we are unable to estimate

with any degree of certainty the amount of future revenues, from existing or future software contracts.

do not anticipate earning significant revenues from our Gasifier business until such time that we

have fully developed our technology and are able to market our products.

Our cost of revenues were $7,907,849

for the year ended September 30, 2020 resulting in gross profit of $2,120,852, as compared with cost of revenues of $3,861,086

for the year ended September 30, 2019 resulting in gross profits of $671,696.

Our cost of revenues in 2020 was mainly

the result of contract manufacturing expense, hardware materials, subcontractors and direct labor expense.

Contract manufacturing expense increased

to $6,704,075 for the year ended September 30, 2020, from $3,220,480 for the year ended 2019.

Our manufacturing expense consisted

of the cost of contract manufacturing of switchgear equipment.

Hardware material expenses increased

to $824,665 for the year ended September 30, 2020, from $125,782 for the year ended 2019.

Our materials expense for the years ended

September 30, 2020 and 2019 consisted mainly of the cost of energy storage.

Direct labor decreased to $4,029 for

the year ended September 30, 2020, from $86,125 for the year ended 2019.

Our direct labor expenses for the year ended September

30, 2020 consisted mainly of allocated payroll costs of employees and consultants.

Subcontractor expenses decreased to

$325,232 for the year ended September 30, 2020, from $366,523 for the year ended 2019.

Our subcontractor expenses for the year

ended September 30, 2019 consisted mainly of fees charged by subcontractors for services delivery and installation of energy assets.

Operating Expenses

We had operating expenses of $17,263,968

for the year ended September 30, 2020, as compared with $17,285,541 for the year ended September 30, 2019.

The following discussion of our financial

condition and results of operations for the years ended September 30, 2021 and 2020 should be read in conjunction with our consolidated

financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K.

Our discussion

includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,

expectations and intentions.

Actual results and the timing of events could differ materially from those anticipated in these forward-looking

statements as a result of a number of factors.

We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect,

believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements.

Results of Operations for the Year Ended

September 30, 2021 and 2020

We earned $49,438,115 in revenues during the

year ended September 30, 2021, as compared with $10,028,701 in revenues for the year ended September 30, 2020.

For the year ended September 30, 2021, our

revenue was derived from cryptocurrency mining revenues, the sale of equipment, solar panels, batteries, design, engineering, and services

Income from our mining segment is a result of bitcoin mining activities in the United States.

Income from our Energy segment

is the result of contracts to sell switchgear equipment, perform engineering design, and provide software for distributed energy and microgrid

For the year ended September 30, 2021, we also generated services revenue from p2kLabs.

We hope to generate more significant

revenue from customers through the sale and licensing of our Software platforms and services in the future.

are unable to estimate with any degree of certainty the amount of future revenues, from existing or future software contracts.

Also, we do not anticipate earning significant revenues from our Gasifier business until

such time that we have fully developed our technology and are able to market our products.

Costs and Expenses

We had costs and expenses of $78,015,168 for

the year ended September 30, 2021, as compared with $25,171,817 for the year ended September 30, 2020.

Our cost of revenues were $13,964,711 for

the year ended September 30, 2021, as compared with cost of revenues of $7,907,849 for the year ended September 30, 2020.

Our cost of revenues in 2021 was mainly the

result of mining energy costs, hosting fees, contract manufacturing expenses, and hardware materials.

Our cost of revenues in 2020 was

mainly the result of contract manufacturing expenses and hardware materials.

Mining expenses incurred during the year ended

September 30, 2021 is $4,889,996.

It consisted mainly of energy costs and hosting fees paid to Coinmint.

manufacturing expenses decreased to $3,926,060 for

the year ended September 30, 2021, from $6,704,075 for

the year ended 2020.

Our manufacturing expense consisted of the cost of contract manufacturing of switchgear equipment.

material purchases increased to $3,205,547 for the year ended September 30, 2021, from $824,665

in hardware expenses for the

year ended September 30, 2020.

Our materials expense for the years ended September 30, 2021 and 2020 consisted mainly of the cost of energy

storage and solar panels.

Professional fees increased to $8,272,966

for the year ended September 30, 2021 from $6,521,016 for the same period ended September 30, 2020.

Our professional fees expenses

for the year ended September 30, 2020 consisted mainly of consulting fees of $607,392 paid to management of the Company, stock-based

compensation for consulting of $2,265,194, sales consulting of $278,547, legal fees of $1,472,421, investor relations and external

marketing consulting of $725,347, director fees of $442,000, consulting for software and engineering of $82,031, accounting and

tax fees of $186,969 and audit and review fees of $135,060.

Our professional fees expenses for the year ended September 30, 2019

consisted mainly of consulting fees of $1,032,076 paid to management of the Company, stock-based compensation for consulting of

$1,735,693, sales consulting of $202,963, legal fees of $220,163, investor relations consulting of $1,253,903, consulting for

public relations of $52,740, consulting for software and engineering of $15,680 and audit and review fees of $141,349.

Our professional fees expenses for

the year ended September 30, 2021 consisted mainly of legal fees of $4,570,216, accounting and tax fees of $1,070,174 consulting fees

of $818,741, investor relations and external marketing consulting fees of $959,717, director fees of $177,084, recruitment and conference

fees of $251,183, subcontract fees of $185,980 and audit and review fees of $214,100.

Our professional fees expenses for the year

ended September 30, 2020 consisted mainly of consulting fees of $607,392 paid to management of the Company, stock-based compensation for

consulting of $2,265,194, sales consulting of $278,547, legal fees of $1,472,421, investor relations and external marketing consulting

of $725,347, director fees of $442,000, consulting for software and engineering of $82,031, accounting and tax fees of $186,969 and audit

and review fees of $135,060.

Payroll expenses increased to $25,355,684

for the year ended September 30, 2021 from $6,813,641 for the same period ended September 30, 2020.

Our payroll expenses for the

year ended September 30, 2020 consisted mainly of salary and wages expense of $4,293,558 and employee and officer stock-based compensation

Our payroll expenses for the year

ended September 30, 2021 consisted mainly of salary and wages expense of $17,624,078 and employee and officer stock-based compensation

and related bonuses of $7,731,605.

Our payroll expenses for the year ended September 30, 2019 consisted mainly of salary and wages

expense of $1,010,054 and employee and officer stock-based compensation of $257,349.

Our payroll expenses for the year ended September 30, 2020 consisted mainly of salary and wages expense

of $4,293,559 and employee and officer stock-based compensation of $2,520,083.

and administrative fees increased to $5,291,652 for

1 unchanged sentence

Our general and administrative expenses

for the year ended September 30, 2020 consisted mainly of travel expenses of $82,407, rent expenses of $117,223 insurance expenses

of $232,043, dues and subscriptions of $362,887, marketing related expenses of $153,091, and bad debt expense of $36,924.

and administrative expenses for the year ended September 30, 2019 consisted mainly of travel expenses of $95,151, rent expenses

of $76,220 insurance expenses of $123,499, dues and subscriptions of $184,402, marketing related expenses of $95,690, and bad debt

expense of $258,255.

development expense decreased to $163,918 for

the year ended September 30, 2020 from $1,453,635 for the same period ended September 30, 2019.

Our product development expenses

for the year ended September 30, 2020 consisted of amortization of capitalized software of $163,91 8.

Our product development expenses for the year ended September 30, 2019 consisted of amortization of capitalized software of $1,453,635.

Depreciation and amortization expense

increased to $2,672,331 for the year ended September 30, 2020 from $1,902,981 for the same period ended September 30, 2019.

No impairment expenses were recorded

for the year ended September 30, 2020 and $6,915,186 for the same period ended September 30, 2019.

for the year ended September 30, 2021 consisted mainly of marketing related expenses of $1,488,933, travel expenses of $367,632, rent

expenses of $445,944, insurance expenses of $720,053, dues and subscriptions of $1,129,963, repairs and maintenance of $174,192, supplies

of $134,163, utilities of $184,232 and bad debt expense of $246,453.

Our general and administrative expenses for the year ended September

30, 2020 consisted mainly of travel expenses of $82,407, rent expenses of $117,223, insurance expenses of $232,043, dues and subscriptions

of $362,887, marketing related expenses of $153,091, and bad debt expense of $36,924.

Depreciation and amortization expense increased

to $12,244,368 for the year ended September 30, 2021, from $2,836,249 for the same period ended September 30, 2020.

Impairment expenses were recorded for the

year ended September 30, 2021 for $12,885,776, and no impairment expenses were recorded for the same period ended September 30, 2020.

Impairment expense for the year ended September 30, 2021 consisted primarily of bitcoin impairment of $6,608,076, goodwill impairment

of $5,723,388 and software impairment of $554,322, which represents a write down of our GridFabric product line of $250,000 and our mVSO

platform of $304,322.

Other Income/Expenses

We had net other expenses of $8,203,027

for the year ended September 30, 2020, compared with other expenses of $9,503,087 for the year ended September 30, 2019.

income/expenses for the year ended September 30, 2020 consisted mainly of other income of 20,000, unrealized gains on equity security

and derivative security of $116,868 and $2,115,269 respectively, and interest expense of $10,449,946.

Our other expenses for the

year ended September 30, 2019 consisted mainly of loss on settlement of debts of $19,425, and interest expense of $9,483,662.

had net other income of $6,765,043 for the year ended September 30, 2021, compared with other expenses of $8,203,027 for the year ended

September 30, 2020.

Other income for the year ended September 30, 2021 consisted mainly of other income of $544,778, change in fair value

of contingent consideration of $84,198, gains on derivative assets of $2,790,387, realized gains on the sale of digital currency of $3,104,378,

realized gains on the sale of equity securities of

$179,046, interest income of $221,488 and interest expense of $154,079.

Our other income/expenses for the year ended September 30, 2020

consisted mainly of other income of $20,000, unrealized gains on equity security and derivative security of $116,868 and $2,115,269 respectively,

interest income of $308,804, and interest expense of $10,758,750.

Net loss for the year ended September 30,

2021 was $21,812,010 compared to net loss of $23,346,143 for the year ended September 30, 2020.

Non-GAAP Measures

Adjusted EBITDA and Adjusted EPS is not a measurement

of financial performance under generally accepted accounting principles in the United States, or GAAP.

Because of varying available

valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company's non-cash operating expenses,

CleanSpark management believes that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for

meaningful comparisons between the Company's core business operating results and those of other companies, as well as providing the Company

with an important tool for financial and operational decision making and for evaluating its own core business operating results over different

periods of time.

The Company's adjusted EBITDA measure may not provide

information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate

non-GAAP financial results differently, particularly related to non-recurring, unusual items.

The Company's adjusted EBITDA is not a measurement

of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating

performance or any other measure of performance derived in accordance with GAAP.

Our management does not consider adjusted EBITDA to be

a substitute for, or superior to, the information provided by GAAP financial results.

We are providing supplemental financial measures for

(i) non-GAAP adjusted earnings before interest, taxes, depreciation and amortization, or (“adjusted EBITDA”) that excludes

the impact of interest, taxes, depreciation, amortization, our share-based compensation expense, and impairment of assets, unrealized

gains/losses on securities, certain financing costs, other non-cash items, certain non-recurring expenses, and impacts related to discontinued

and (ii) non-GAAP adjusted EBITDA and non-GAAP earnings per share that excludes the impact of interest, taxes, depreciation,

amortization, our share-based compensation expense, and impairment of assets, unrealized gains/losses on securities, certain financing

costs, other non-cash items, and impacts related to discontinued operations.

These supplemental financial measures are not measurements

of financial performance under generally accepted accounting principles in the United States (“GAAP”) and, as a result, these

supplemental financial measures may not be comparable to similarly titled measures of other companies.

Management uses these non-GAAP

financial measures internally to help understand, manage, and evaluate our business performance and to help make operating decisions.

We believe that these non-GAAP financial measures

are also useful to investors and analysts in comparing our performance across reporting periods on a consistent basis.

The first supplemental

financial measure excludes (i) impacts of interest, taxes, and depreciation;

(ii) significant non-cash expenses such as our share-based

compensation expense, unrealized gains/losses on securities, certain financing costs, other non-cash items that we believe are not reflective

of our general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary

significantly in comparison to other companies;

(iii) significant impairment losses related to long-lived and digital assets, which include

our bitcoin for which the accounting requires significant estimates and judgment, and the resulting expenses could vary significantly

in comparison to other companies;

and (iv) and impacts related to discontinued operations that would not be applicable to our future business

Non-GAAP financial measures are subject to material

limitations as they are not in accordance with, or a substitute for, measurements prepared in accordance with GAAP.

For example, we expect

that share-based compensation expense, which is excluded from the first two non-GAAP financial measures, will continue to be a significant

recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, and directors.

We have also excluded impairment losses on assets,

including impairments of our digital currency our non-GAAP financial measures, which may continue to occur in future periods as a result

of our continued holdings of significant amounts of bitcoin.

Our non-GAAP financial measures are not meant to be considered in isolation

and should be read only in conjunction with our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

rely primarily on such Consolidated Financial Statements to understand, manage, and evaluate our business performance and use the non-GAAP

financial measures only supplementally.

The following is a reconciliation of our non-GAAP

adjusted EBITDA to the most directly comparable financial measure stated in accordance with GAAP, which excludes the impact of (i) interest,

taxes, depreciation, amortization;

(ii) our share-based compensation expense;

(iii) impairment expense;

(iv) unrealized gains/losses on

(v) and (vi) impacts related to discontinued operations, to its most directly comparable GAAP measures for the periods indicated:

Years Ended September 30,

Reconciliation

of non-GAAP adjusted EBITDA

$ (21,812,010 )

$ (23,346,143)

Interest and taxes

Depreciation and amortization

Share-based compensation

Digital asset impairment

Energy & other goodwill

impairment losses

Unrealized (gains)/losses

of securities and derivatives

adjusted EBITDA

The following is a reconciliation of our non-GAAP

adjusted EBITDA earnings per share, in each case excluding the impact of (i) interest, taxes, depreciation, amortization;

(ii) our share-based

compensation expense;

(iii) impairment expense;

(iv) unrealized gains/losses on securities;

(v) certain financing costs and other non-cash

(vi) certain non-recurring expenses;

and (vii) impacts related to discontinued operations:

Reconciliation of non-GAAP adjusted EBITDA per share:

Non-GAAP adjusted EBITDA

$ (10,238,853)

Interest and taxes (per diluted share)

Depreciation and amortization (per share)

Share-based compensation expense

Digital asset impairment losses (per share)

Energy & other goodwill impairment losses

Unrealized (gains)/losses of securities and derivatives (per share)

Discontinued operations

Non-GAAP EBITDA per share

The following is a reconciliation of fair

market value of our digital currency holdings to the current carrying value at September 30, 2021.

We did not hold any digital currency

as of September 30, 2020:

Carrying Value (1)

Fair Market Value (2)

Number of Bitcoins held

Value per coin (1) (2)

(1) Value per coin is the average book value

per coin determined by the number of coins held as of the balance sheet date divided by the carrying value.

(2) Value per coin is the quoted market price

as of the balance sheet date.

Liquidity and Capital Resources

the year ended September 30, 2020, our primary sources of liquidity came from existing cash, and proceeds from a securities purchase

On October 6, 2020 ,

the Company completed a share offering which resulted in net cash proceeds of approximately $37,000,000.

Based on our current plans

and business conditions, we believe that existing cash and cash generated from operations will be sufficient to satisfy our anticipated

cash requirements until the Company reaches profitability, and we are not aware of any trends or demands, commitments, events or

uncertainties that are reasonably likely to result in a decrease in liquidity of our assets.

However, 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.

If cash generated from operations is insufficient to satisfy our capital requirements, we may open a revolving line of credit with

a bank, or we may have to sell additional equity or debt securities or obtain credit facilities.

In the event such financing is

needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be

in amounts and on terms acceptable to us.

If cash flows from operations became insufficient to continue operations at the current

level, and if no additional financing was obtained, our business, operating results and financial condition would be adversely

As of September 30, 2020, we had total

current assets of $8,251,858, consisting of cash, accounts receivable, contract assets and prepaid expenses and other current

For the year ended September 30, 2021, our

primary sources of liquidity came from existing cash and proceeds from share offerings.

On March 18, 2021, the Company consummated a

fully underwritten public offering of shares of its common stock, which resulted in net proceeds to the Company of approximately $187,200,000.

On June 3, 2021, the Company entered into an At the Market Offering Agreement (the “ATM”) with H.C.

Wainwright & Co.,

LLC (“HCW”), pursuant to which it may, from time to time, offer and sell up to an aggregate of $500,000,000 of shares of

its common stock to or through HCW.

During the fiscal year ended September 30, 2021, the Company issued an aggregate of 3,443,379 shares

of the Company’s common stock under the ATM for net proceeds of $46.4 million.

The shares were sold pursuant to a prospectus dated

March 15, 2021 and a prospectus supplement dated June 3, 2021 filed with the SEC.

Based on our current plans and business conditions,

we believe that existing cash, cash generated from operations and our ATM will be sufficient to satisfy our anticipated cash requirements

until we reach profitability, and we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably

likely to result in a decrease in liquidity of our assets.

However, 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.

If cash generated from operations is

insufficient to satisfy our capital requirements, we may open a revolving line of credit with a bank, or we may have to sell additional

equity or debt securities or obtain credit facilities.

In the event such financing is needed in the future, there can be no assurance

that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us.

If cash flows

from operations became insufficient to continue operations at the current level, and if no additional financing was obtained, our business,

operating results and financial condition would be adversely affected.

As of September 30, 2021, we had total current

assets of $57,726,321, consisting of cash, accounts receivable, inventory, digital currency, investments, prepaid expenses and other current

assets, and total assets in the amount of $317,473,121.

Our total current liabilities as of September 30, 2021 were $10,063,022.

We had a working capital surplus of $2,869,329 as of September 30, 2020.

Operating activities used $6,642,734 in cash for the year

ended September 30, 2019, as compared with $5,697,989 for the same period ended September 30, 2019.

Our net loss of $23,346,143

was the main component of our negative operating cash flow for the year ended September 30, 2020, offset mainly by amortization

of debt discount of $9,010,547, depreciation and amortization of $2,672,331, shares issued as interest of $2,050,000, amortization

of capitalized software of $163,918 and stock-based compensation of $2,053,232.

Our net loss of $26,116,932 was the main component

of our negative operating cash flow for the year ended September 30, 2019, offset mainly by impairment expense of $6,915,186, depreciation

and amortization of $1,902,981, shares issued as interest of $1,400,000, amortization of capitalized software of $1,453,635 and

stock-based compensation of $1,993,043.

Cash flows used by investing activities

during the year ended September 30, 2020 was $2,383,623, as compared with $673,953 for the year ended September 30, 2019.

acquisitions of p2kLabs & GridFabric of $1,513,802, investments in the capitalized software of $84,924, purchase of fixed

assets of $34,897 and the investment in debt and equity securities of $750,000 were the main components of our negative investing

a working capital surplus of $47,663,299 as of September 30, 2021.

activities used $35,429,342 in cash for the year ended September 30, 2021, as compared with $6,642,734 for the same period ended September

Our net loss of $21,812,010 was the main component of our negative operating cash flow for the year ended September 30, 2021,

offset mainly by stock-based compensation of $8,546,712, impairment expense of $12,885,786 and depreciation and amortization of $12,244,368.

Our net loss of $23,346,143 was the main component of our negative operating cash flow for the year ended September 30, 2020, offset mainly

by amortization of debt discount of $9,010,547, depreciation and amortization of $2,672,331, shares issued as interest of $2,050,000,

amortization of capitalized software of $163,918 and stock-based compensation of $2,053,232.

flows used by investing activities during the year ended September 30, 2021 was $217,714,926, as compared with $2,383,623 for the year

ended September 30, 2020.

Our acquisitions of Solar watt Solutions for $1,000,136,

purchase of fixed assets of $139,234,948, and deposits on mining equipment of $87,959,910 were the main components of our negative investing

cash flow for the year ended September 30, 2021.

Our investment in the capitalized software of $569,042, purchase of fixed assets

of $102,761 and the purchase of intangible assets of $2,150 were the main components of our negative investing cash flow for the

year ended September 30, 2019.

Cash flows provided by financing activities

during the year ended September 30, 2020 amounted to $4,313,702, as compared with $13,798,022 for the year ended September 30,

Our positive cash flows from financing activities for the year ended September 30, 2020 consisted of $4,000,000 in proceeds

from the sale of common stock, $531,169 in proceeds from promissory notes off-set by repayments of $217,467 on promissory notes.

Our positive cash flows from financing activities for the year ended September 30, 2019 consisted of $361,800 in proceeds from

the sale of common stock, 14,995,000 in proceeds from convertible notes and $75,030 from related party debts off-set by repayments

of $625,344 on promissory notes repayments of $457,820 on related party debt, and repayments of $555,000 on convertible debts.

The negative cash flow from investing activities is offset by sale of digital currencies

of $11,443,132, acquisition of ATL Data

Center, net of cash received of $45,783 and sale of equity securities of $373,121.

For the year ended September 30, 2020, our

investment in the capitalized software of $84,924, acquisition of P2K Labs of $1,141,990, acquisition of Grid Fabric of $371,812, purchase

of fixed assets of $34,897, and investment in equity and debt security of $750,000 were the main components of our negative investing

flows provided by financing activities during the year ended September 30, 2021 amounted to $268,058,393, as compared with $4,313,702

for the year ended September 30, 2020.

Our positive cash flows from financing activities for the year ended September 30, 2021 consisted

of $270,656,118 in proceeds from offerings, $3,750,932 in proceeds from the exercise of warrants and

options offset by repayments of $5,882,553 on promissory notes and $288,602 in finance leases.

Our positive cash flows from financing

activities for the year ended September 30, 2020 consisted of $4,000,000 in proceeds from the sale of common stock, $531,169 in proceeds

from promissory notes offset by repayments of $217,467 on promissory notes.

Contractual Obligations

Company has purchase commitments for approximately $203.6 million related to purchase of miners as of September 30, 2021, and the Company

has paid $144.7 million

towards these commitments as of the end of this period.

Company has purchase commitments for infrastructure assets and other mining equipment of approximately $6,512,000 as of September 30,

2021 and the Company has paid $4,576,000 towards these commitments during this

The following table sets forth certain information

concerning our obligations to make contractual future payments towards our agreements as of September 30, 2021:

contractual obligations:

lease obligations

Lease obligations

Infrastructure

Contingent consideration

On August 31, 2020, the Company acquired GridFabric, LLC.

to the terms of the purchase agreement, additional shares of the Company’s common stock valued at up to $750,000 were issuable if

GridFabric achieves certain revenue and product release milestones.

On September 30, 2021, the contingent consideration was re-measured

Subsequent to September 30, 2021, the Company settled all contingent consideration

due to GridFabric resulting in the issuance of 8,404 shares of Company common stock valued at $150,000.

Solar Watt Solutions:

On February 24, 2021, the Company acquired Solar

Watt Solutions, Inc.

Pursuant to the terms of the purchase agreement, additional cash consideration of up to $2,500,000 and up to 310,018

shares of the Company’s common stock may be payable if Solar Watt Solutions achieves certain revenue milestones.

As of September

30 2021, none of the contingent consideration had been earned.

Known Trends or Uncertainties

1 unchanged sentence

reduction in revenues to date, we have seen some consolidation in our industry during economic downturns.

These consolidations

have not had a negative effect on our total sales;

however, should consolidations and downsizing in the industry continue to occur,

those events could adversely impact our revenues and earnings going forward.

As discussed in the Risk Factors section

of this Annual Report on Form 10-K, the world has been affected due to the COVID-19 pandemic.

Until the pandemic has passed, there

remains uncertainty as to the effect of COVID-19 on our business in both the short and long-term.

We believe that the need for improved

productivity in the research and development activities directed toward developing new products and/or software will continue to

result in increasing adoption of energy solution tools such as those we produce.

New product and/or software developments in the

energy business segment could result in increased revenues and earnings if they are accepted by our markets;

however, there can

be no assurances that new products and/or software will result in significant improvements to revenues or earnings.

For competitive

reasons, we do not disclose all of our new product development activities.

Our continued quest for acquisitions

could result in a significant change to revenues and earnings if one or more such acquisitions are completed.

The potential for growth in new markets

is uncertain.

We will continue to explore these opportunities until such time as we either generate sales or determine that resources

would be more efficiently used elsewhere.

We have not been affected materially

by inflation during the periods presented, and no material effect is expected in the near future.

These consolidations have not

had a negative effect on our total sales;

however, should consolidations and downsizing in the industry continue to occur, those events

could adversely impact our revenues and earnings going forward.

As discussed in the Risk Factors section of

this Annual Report on Form 10-K, the world has been affected due to the COVID-19 pandemic.

Until the pandemic has passed, there remains

uncertainty as to the effect of COVID-19 on our business in both the short and long-term.

We believe that the need for improved productivity

in the research and development activities directed toward developing new products and/or software will continue to result in increasing

adoption of energy solution tools such as those we produce.

New product and/or software developments in the energy business segment could

result in increased revenues and earnings if they are accepted by our markets;

however, there can be no assurances that new products and/or

software will result in significant improvements to revenues or earnings.

For competitive reasons, we do not disclose all of our new product

development activities.

Our continued quest for acquisitions could

result in a significant change to revenues and earnings if one or more such acquisitions are completed.

The potential for growth in new markets is

We will continue to explore these opportunities until such time as we either generate sales or determine that resources would

be more efficiently used elsewhere.

We have not been affected materially by inflation

during the periods presented, and no material effect is expected in the near future.

Issued Accounting Pronouncements

Recently issued accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock

Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based

payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees.

ASU 2018-07 is effective for us for annual periods beginning October 1, 2019.

The new standard did not have a material impact on

the Company’s results of operations or cash flows.

In August 2018, the FASB issued ASU

2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation

Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain

implementation costs incurred in a hosting arrangement that is a service contract.

ASU 2018-15 allows for either retrospective

adoption or prospective adoption to all implementation costs incurred after the date of adoption.

ASU 2018-15 is effective for

fiscal years beginning after December 15, 2019.

We are currently evaluating the impact the adoption of this new standard will have

on our financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, "Leases"

The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset

and a lease liability.

For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either

operating or finance.

Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee

model and the new revenue recognition standard.

Existing sale-leaseback guidance, including guidance for real estate, is replaced

with a new model applicable to both lessees and lessors.

ASC 842 is effective for fiscal years beginning after December 15, 2018.

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

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.

October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities

from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized

and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it

had originated the contracts.

Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer

at fair value on the acquisition date.

This new guidance is effective for the Company for its fiscal year beginning February 1, 2023 and

interim periods within that fiscal year, and early adoption is permitted.

The Company is evaluating its potential impact but

does not expect the new standard to have a material impact on the Company's results of operations or cash flows .

In March 2020, the FASB issued ASU 2020-04,

Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting and issued subsequent amendments

to the initial guidance (collectively, “Topic 848”).

Topic 848 became effective immediately and expires on December 21, 2022.

Topic 848 allows eligible contracts that are modified to be accounted for as a continuation of those contracts, permits companies to preserve

their hedging accounting during the transition period and enables companies to make a one-time election to transfer or sell held-to-maturity

debt securities that are affected by rate reform.

Topic 848 provides optional expedients and exceptions for contracts, hedging relationships

and other transactions that reference the London Inter-Bank Offered Rate (“LIBOR”) or another reference rate expected to be

discontinued because of reference rate reform if certain criteria are met.

The adoption of ASU 2020-04 is not expected to have a material

impact on the Company’s financial statements or disclosures.

The Company adopted ASU 2016-13, Financial

Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments on October 1, 2020 (“ASU 2016-13”).

ASU 2016-13 requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including

credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to

inform credit loss estimates, which generally will result in the earlier recognition of allowances for losses.

As the Company was a Smaller

Reporting Company at the time of issuance of the ASU, the Company expects to adopt the ASU effective October 1, 2023, including the interim

periods within the fiscal year.

In August 2020, the FASB issued ASU2020-06, “Debt - Debt with Conversion and Other Options (subtopic

470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting

models in ASC 470-20 that require separate accounting for embedded conversion features.

As a result, a convertible debt instrument will

be accounted for as a single liability measured at its amortized cost as long as no other features require bifurcation and recognition

as derivatives.

By removing those separation models, the effective interest rate of convertible debt instruments will be closer to the

coupon interest rate.

Further, the diluted net income per share calculation for convertible instruments will require the Company to use

the if-converted method.

The treasury stock method should no longer be used to calculate diluted net income per share for convertible

The amendment will be effective for the Company with annual periods beginning January 1, 2022 and early adoption is permitted.

The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or disclosures.

In August 2020, the FASB issued Account Standard

Update (“ASU”) 2020-06, “Debt - Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging

- Contracts in Entity’s Own Equity (subtopic 815-40),” which reduces the number of accounting models in ASC 470-20 that require

separate accounting for embedded conversion features.

As a result, a convertible debt instrument will be accounted for as a single liability

measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives.

By removing those separation

models, the effective interest rate of convertible debt instruments will be closer to the coupon interest rate.

Further, the diluted net

income per share calculation for convertible instruments will require the Company to use the if-converted method.

The treasury stock method

should no longer be used to calculate diluted net income per share for convertible instruments.

The amendment will be effective for the

Company with annual periods beginning January 1, 2022 and early adoption is permitted.

The adoption of ASU 2020-06 is not expected to

have a material impact on the Company’s financial statements or disclosures.

The Company has evaluated all other recent

accounting pronouncements and believes that none of them will have a material effect on the Company's financial position, results of operations

or cash flows.

Critical Accounting Policies

In December 2001, the SEC requested

that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis.

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 this Annual Report on Form 10-K for the year ended September

30, 2019, however we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, accounts

receivable, fair value of financial instruments, cash and cash equivalents, accounts receivable, warranty liability and stock-based

compensation.

In December 2001, the SEC requested that all

registrants list their most critical accounting policies 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 managements

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 this Annual Report on Form 10-K for the year ended September 30, 2021 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, digital currency and stock-based compensation.

significant estimates include estimates used to review the Company’s goodwill and digital currency impairment, intangible assets

acquired, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, revenue recognition

from digital currency mining, valuation of derivative assets and liabilities, available-for-sale investments, allowances for uncollectible

accounts, valuation of digital currencies, valuation of contingent consideration, warranty, and the valuations of share based awards.

The Company bases its estimates on historical experience and on various other

assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the

carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates

under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s

Off Balance Sheet Arrangements

As of September 30, 2020, there were

no off balance sheet arrangements.

Quantitative and Qualitative

Disclosures About Market Risk

As a smaller reporting company,

we are not required to provide the information required by this Item.

As of September 30, 2021, there were no off-balance

sheet arrangements.

Quantitative and Qualitative Disclosures

About Market Risk

As a first time large accelerated filer, we

are not required to provide the information required by this Item until the first quarter after the fiscal year in which it is first determined

that we have become a large accelerated filer.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis