10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 31, 2016
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from __________  to __________
	Commission File Number: 000-53498

CleanSpark, Inc.

(Exact name of Registrant as specified in its charter)

Nevada	87-0449945
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

70 North Main Street, Ste. 105

Bountiful, Utah 84010

(Address of principal executive offices)

(801) 244-4405

(Registrant’s telephone number)

 _______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

[  ] Large accelerated filer	[  ] Accelerated filer
[  ] Non-accelerated filer	[X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 32,487,221 common shares as of February 13, 2016.

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4:	Controls and Procedures	7
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	8
Item 1A:	Risk Factors	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	8
Item 4:	Mine Safety Disclosure	8
Item 5:	Other Information	9
Item 6:	Exhibits	9

2

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:

F-1   Consolidated Balance Sheets as of December 31, 2016 and September 30, 2016 (unaudited);

F-2   Consolidated Statements of Operations for the three months ended December 31, 2016 and 2015 (unaudited);

F-3   Consolidated Statements of Cash Flow for the three months ended December 31, 2016 and 2015 (unaudited);

F-4   Notes to Consolidated Financial Statements.

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended December 31, 2016 are not necessarily indicative of the results that can be expected for the full year.

3

 CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	December 31, 2016				September 30, 2016
ASSETS
Current assets
Cash		$	205,392			$	436,529
Accounts receivable			75,107				57,095
Due from Shareholder			49,000				53,020
Prepaid expense			38,212				57,722
Total current assets			367,711				604,366
Flexpower system			19,358,056				19,675,986
Goodwill			4,919,858				4,919,858
Microgrid Assets			4,509,705				4,567,838
Intangible assets			2,418,485				2,467,930
Fixed Assets			736,938				782,975
Deposits			6,331				589
Total assets			32,317,084				33,019,542
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities		$	266,401			$	291,187
Customer deposits			21,650			$	—
Due to related parties			91,554				63,973
Loans			—				2,261
Total current liabilities			379,605				357,421
Total liabilities			379,605				357,421
Stockholders' equity (deficit)
Common stock; $0.001 par value; 100,000,000 shares authorized; 32,318,471 and 27,834,415 shares issued and outstanding as of December 31, 2016 and  September 30, 2016, respectively			32,318				27,834
Preferred stock;  $0.001 par value; 10,000,000 shares authorized; 1,000,000 and 1,000,000 shares issued and outstanding as of December 31, 2016 and September 30, 2016, respectively			1,000				1,000
Additional paid-in capital			39,131,643				39,068,127
Accumulated earnings (deficit)			(7,227,482	)			(6,434,840)
Total stockholders' equity (deficit)			31,937,479				32,662,121
Total liabilities and stockholders' equity (deficit)		$	32,317,084			$	33,019,542

The accompanying notes are an integral part of these financial statements.

F-1

CLEANSPARK, INC.

CONSOLIDATED  STATEMENT OF OPERATIONS

 (UNAUDITED)

	For the Quarter Ended
	December 31, 2016			December 31, 2015
Revenues	$	83,884		$	—
Cost of revenues		17,974			—
Gross profit		65,910			—
Operating expenses
Professional fees		289,344			46,362
Research and development		368			1,458
General and administrative expenses		67,265			17,068
Depreciation and amortization		488,758			7,128
Total operating expenses		845,735			72,016
Loss from operations		(779,825	)		(72,016	)
Other income (expense)
Loss on disposal of assets		(12,817	)		—
Total other income (expense)		(12,817	)		—
Net income (loss)	$	(792,642	)	$	(72,016	)
Basic income (loss) per common share	$	(0.03	)	$	(0.00	)
Basic weighted average common shares outstanding		29,725,302			20,502,002

The accompanying notes are an integral part of these financial statements.

F-2

CLEANSPARK, INC.  

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED) 

	For the Quarter Ended
	December 31, 2016			December 31, 2015
Cash Flows from Operating Activities
Net loss	$	(792,642	)	$	(72,016	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based consulting		41,518			13,836
Depreciation and amortization		488,758			7,128
Changes in assets and liabilities
(Increase) decrease in prepaid expense		(22,008	)		—
(Increase) decrease in deposits		(5,742	)		—
Increase in accounts receivable		(18,012	)		—
Increase in shareholder receivable		4,020			—
Increase in customer deposits		21,650
Increase (decrease) in accounts payable		(24,786	)		(15,752	)
Increase (decrease) in accounts payable related party		27,581			—
Net cash from operating activities		(279,663	)		(66,804	)
Cash Flows from investing
Purchase of intangible assets		(19,387	)		(2,275	)
Purchase of fixed assets		32,634			(9,444	)
Investment in Flexpower system		(17,643	)		—
Loss on disposal of fixed assets		(12,817	)		—
Net cash used in investing activities		(17,213	)		(11,719	)
Cash Flows from Financing Activities
Payments on short-term loans		(2,261	)		—
Proceeds from issuance of common stock		68,000			130,000
Net cash from financing activities		65,739			130,000
Net increase (decrease) in Cash		(231,137	)		51,477
Beginning cash balance		436,529			88,533
Ending cash balance	$	205,392		$	140,010
Supplemental disclosure of cash flow information
Cash paid for interest	$	—		$	—
Cash paid for tax	$	—		$	—
Non-Cash investing and financing transactions
Cashless exercise of options	$	4,399		$	—

The accompanying notes are an integral part of these financial statements.

F-3

CLEANSPARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 
1. ORGANIZATION AND LINE OF BUSINESS

Organization

CleanSpark, Inc. (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, the Company entered into an Asset and Intellectual Property Purchase Agreement pursuant to which the Company acquired: (i) all Intellectual Property rights, title and interest in Patent # 8,105,401 'Parallel Path, Downdraft Gasifier Apparatus and Method' and Patent # 8,518,133 'Parallel Path, Downdraft Gasifier Apparatus and Method' and (ii) all of the Property rights, title and interest in a 32 inch Downdraft Gasifier ("Gasifier”) and (iii) assumed of $156,900 in liabilities.

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 Seller and its line of business and assumed $200,000 in liabilities.

In October 2016, the Company changed its name to CleanSpark, Inc. through a short-form merger in order to better reflect the brand identity.

Line of Business

Through the acquisition of CleanSpark, LLC, the Company provides microgrid solutions to military, commercial and residential properties.

The services offered consist of turn-key microgrid implementation services, microgrid design and engineering, project development consulting services and solar photovoltaic installation and consulting. The work is performed under fixed price bid contracts, and negotiated price contracts. The Company performed all of its work in California during 2016.

The Company also continues to pursue the development of its gasification technologies for commercial deployment. The Company has been granted multiple patents protecting what it believe to be a breakthrough design for the next generation in waste-to-energy technology. The increased efficiency compared to existing solutions results in a significantly lower cost per watt of electricity produced. The Company has completed a commercial prototype and has completed preliminary testing and it is currently working with its manufacturing partners to improve durability and efficiency. Upon completion of product development, The Company intends to deploy its gasification solutions to the Company’s pipeline of commercial microgrid customers in order maximize the conversion of its customer waste streams into electricity.

2. BASIS OF PRESENTATION AND GOING CONCERN

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

F-4

Going concern – The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $7,227,482 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 3. SUMMARY OF SIGNIFICANT POLICIES

This summary of significant accounting policies of CleanSpark Inc. 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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, and CleanSpark, II, 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, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, 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.

Revenue Recognition – The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended December 31, 2016 and 2015 the Company reported revenues of $83,884 and $0, respectively.

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

F-5

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts, which require the revision, become known.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billings in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016 and September 30, 2016, the costs in excess of billings balance were $0 and $0, and the billings in excess of costs balance were $0 and $0, respectively.

Accounts receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts.  Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract.  General and administrative expenses are charged to operations as incurred and are not allocated to contract costs. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $0 and $0 were included in the balance of trade accounts receivable as of December 31, 2016 and September 30, 2016, respectively.

Accounts Receivable – 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 $0 and $0 at December 31, 2016, and September 30, 2016, respectively.

Cash and cash equivalents – For purposes of the statement 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 $205,392 and $436,529 in cash and cash equivalents as of December 31, 2016 and September 30, 2016, respectively.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2016, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

F-6

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Warranty Liability – The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s general counsel and outside counsel retained to handle specific product liability cases.  The Company’s manufacturers and service providers currently provide substantial warranties between ten to twenty-five years with full reimbursement to replace and install replacement parts.  Warranty costs and associated liabilities for the periods ended December 31, 2016 and 2015 were $0 and $0, respectively.

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of December 31, 2016, the Company has not implemented an employee stock based compensation plan.

Non-Employee Stock Based Compensation – The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. 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 for 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.

F-7

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.

Indefinite Lived Intangibles and Goodwill Assets

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 tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and 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 a qualitative assessment of indefinite lived intangibles and goodwill at September 30, 2016, and determined there was no impairment of indefinite lived intangibles and goodwill.

Business Combinations

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Income taxes – The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

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 one reportable segment for financial reporting purposes, which represents the Company's core business.

Recently Issued Accounting Pronouncements –The Company has evaluated the all recent accounting pronouncements through ASU 2017-04, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. 

F-8

4.     BUSINESS ACQUISITION

On July 1, 2016, the Company entered into the Purchase Agreement with Seller. Pursuant to the Purchase Agreement, the Company acquired all the assets related to Seller and its line of business and assumed certain liabilities.

The Assets the Company purchased from Seller include:

• Equipment and other tangible assets;

• Domain names, websites and intellectual property;

• All rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by the Seller;

• Contracts to which Seller is bound;

• Current and future customer accounts, including accounts receivable;

• The holdings that CleanSpark Holdings LLC has in CleanSpark LLC, and any investments it has as well; and

• Any other assets of any nature whatsoever that are related to or used in connection with the business of Seller and its goodwill.

On July 20, 2016, the parties to the Purchase Agreement entered into an amendment (the “Amendment”) that revised the assets to be acquired under the Purchase Agreement. Specifically, the parties decided on the following:

• Specialized Energy Solutions, Inc. would transfer and assign the ability to use its name and all of its Intellectual Property to CleanSpark II, LLC, and thereafter Specialized Energy Solutions, Inc. will not be included in the Assets acquired; and

• Clean Spark Technologies, LLC agrees to transfer and assign all of its Intellectual Property to CleanSpark II, LLC, and thereafter Clean Spark Technologies, LLC will not be included in the Assets acquired.

The Amendment also included an option to acquire Specialized Energy Solutions, Inc. and Clean Spark Technologies, LLC, which the parties agreed upon as follows:

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Specialized Energy Solutions, Inc. for 1,000 shares of CleanSpark Inc. Common Stock; and

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Clean Spark Technologies, LLC for 1,000 shares of CleanSpark Inc. Common Stock.

F-9

On August 19, 2016, the parties to the Purchase Agreement entered into a second amendment that revised the Closing Date of the transaction.

The Assumed Liabilities, consisted of certain accounts payable amounting to approximately $262,873 arising out of the Assets. Per the agreement the liabilities were to be limited to $200,000 therefore $62,873 must be reimbursed by CleanSpark Holdings, LLC.

As consideration, the Company issued to Seller six million (6,000,000) shares of common stock with a fair value of $18,420,000 and five-year warrants to purchase four million five hundred thousand (4,500,000) shares of common stock at an exercise price of $1.50 per share. The warrants were valued at $13,675,500 using the Black Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 1.0%, a dividend yield of 0% and volatility rate of 218%. The warrants were fully earned and vested on July 1, 2016. 

Simultaneously with the Purchase Agreement, the Company entered into certain ancillary agreements (the “Ancillary Agreements”) with Seller, consisting of a bill of sale, intellectual property assignment and lock-up agreement. The lock-up agreement prevents Seller from selling the Company’s securities in the public market for a year.

The Purchase Agreement contained customary representations, warranties and covenants. In addition, the Company and Seller agreed to appoint one (1) candidate chosen by Seller to the board of directors of the Company. As a result, Bryan Huber was appointed as a member of the board of directors. The term of the appointment of shall be in accordance with the Company’s bylaws.

CleanSpark provides microgrid, design, engineering, installation and consulting services to military, commercial and residential customers. The acquisition is designed to enhance the Company’s services for renewable technology and provide a pipeline for deployment of its gasification technology. As a result of the Purchase Agreement, CleanSpark, LLC became a wholly-owned subsidiary of the Company.

The acquisition was accounted for under ASC 805 and the transaction was valued for accounting purposes at $32,095,500, which was the fair value of the Assets acquired at time of acquisition. The assets and liabilities of the Seller were recorded at their respective fair values as of the date of acquisition. Since the Company determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following:

Shares of Common Stock	$	18,420,000
Stock warrants		13,675,500
Total purchase price	$	32,095,500
Tangible assets acquired	$	4,911,367
Liabilities assumed		(262,573)
Net tangible assets		4,648,794
Intangible assets acquired		22,526,847
Goodwill		4,919,859
Total purchase price	$	32,095,500

F-10

Key factors that make up the goodwill created by the transaction include knowledge and experience of the acquired team and infrastructure.

Pro forma results

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of Seller had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

	Three Months  ended, December 31, 2015
Total revenues	$	1,863,727
Net Income (loss)		(957,158	)
Basic net income (loss) per common share	$	(0.04	)

5. FIXED ASSETS

During the quarter ending December 31, 2016, the Company disposed of fixed assets with a net book value of $19,817 in exchange for consideration of $7,000. As a result, the company reported a $12,817 loss on disposal of assets for the three months ending December 31, 2016.

Fixed assets consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
Machinery and equipment	$	747,931		$	769,276
Furniture and fixtures		72,253			72,484
Total		820,184			841,760
Less: accumulated depreciation		(83,246	)		(58,785	)
Fixed assets, net	$	736,938		$	782,975

Depreciation expense for the three months ended December 31, 2016 and 2015 was $26,220 and $6,451, respectively.

6. MICROGRID ASSETS

Microgrid assets consist of the combined assets at CleanSpark’s FractalGrid Demonstration facility located at Camp Pendleton Marine Corps Base. The California Energy Commission awarded a grant to Harper Construction Company, Inc. in July 2013 to support a microgrid technology demonstration project. CleanSpark was subcontracted to provided design, development, integration, and installation services for the FractalGrid at the School of Infantry in the 52 Area of Marine Corps Base Camp Pendleton. The Microgrid control infrastructure and related components of the Project was subsequently transferred to CleanSpark for consideration and an agreement to indemnify Harper Construction for all future responsibilities of maintenance, operations and warranty.

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The project included integration of CleanSpark’s proprietary software and controls platform with a variety of energy storage technologies. The system utilizes solar energy generated by the Marine Corps fixed-tilt solar photovoltaic panels and fifteen dual axis tracking concentrated photovoltaic units. CleanSpark’s distributed controls combine the generation with energy storage technologies to create four separate microgrids that self-align together to create a larger microgrid that ties directly into the larger utility grid at the 12kV level, allowing the base to consume energy from the most reliable, affordable source at any given time. The system provides a 100% renewable and sustainable solution to energy security.

In the event of an outage or other energy surety threat, the software can autonomously separate the microgrids from the utility and the controls operate them independently in “island” mode, without interrupting service to critical circuits. Once energy from the grid is stabilized, CleanSpark’s platform reconnects the microgrid to the utility. Each individual fractal microgrid can work independently or in concert as the larger 1.1MW FractalGrid, sharing data and energy throughout the group to improve efficiency, protect critical circuits, manage supply and demand, and allow for maintenance or repairs, as needed. The entire installation provides the Marine Corps and Department of the Navy with reliable energy security with built in cyber defense.

The microgrid assets were acquired as part of the CleanSpark acquisition and have been capitalized at $4,625,339, which was the fair value of the assets at the time of the acquisition.

The microgrid assets consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
Camp Pendleton FractalGrid	$	4,625,339		$	4,625,339
Less: accumulated depreciation		(115,634	)		(57,501	)
Fixed assets, net	$	4,509,705		$	4,567,838

Depreciation expense for the three months ended December 31, 2016 and 2015 was $58,133 and $0, respectively.

7.    FLEXPOWER SYSTEM

A microgrid is comprised of any number of generation, energy storage, and smart distribution assets that serve single or multiple loads, both connected to the grid and islanded. The FlexPower system is an integrated microgrid control platform that seamlessly integrates energy generation with energy storage devices and controls facility loads to provide energy security in real time. The system is able to interoperated with the local utility grid and allows users the ability to obtain the most cost effective power for a facility. The FlexPower system is ideal for commercial, industrial, mining, defense, campus and community users ranging from 4 kw to 100 MW and beyond and can deliver power at or below the current cost of utility power.

The FlexPower System proprietary software and methodology was acquired as part of the CleanSpark acquisition and the project was capitalized at $20,007,624, which was the fair value of the assets at the time of the acquisition.

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The FlexPower system consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
FlexPower System	$	20,025,267		$	20,007,624
Less: accumulated amortization		(667,211	)		(331,638	)
Intangible assets, net	$	19,358,056		$	19,675,986

Amortization expense for the three months ended December 31, 2016 and 2015 was $335,573 and $0, respectively.

8.    INTANGIBLE AND OTHER ASSETS

Intangible assets consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
Patents	$	83,841		$	82,641
Websites		10,632			9,777
Brand and Client lists		2,497,472			2,497,472
Trademarks		5,928			4,858
Software		26,990			10,728
Less: accumulated amortization		(206,378	)		(137,546	)
Intangible assets, net	$	2,418,485		$	2,467,930

Amortization expense for the three months ended December 31, 2016 and 2015 was $68,832 and $677, respectively.

9. RELATED PARTY TRANSACTIONS

On October 1, 2014, the Company entered into a Consulting agreement with Matthew Schultz, its Chief Executive Officer for management services. In accordance with this agreement, Mr. Schultz provides services to the Company in exchange for $7,500 to $15,000 per month plus additional reimbursable expenses incurred. The term of the agreement was one month and automatically renewed each month until cancelled by either party. During the quarter ending December 31, 2016, Mr. Schultz was paid $30,076 in accordance with this agreement and is owed $29,924 in accrued compensation as of December 31, 2016.

On July 1, 2016, the Company entered into a Consulting agreement with Zachary Bradford, its President and Chief Financial Officer for management services. In accordance with this agreement, Mr. Bradford provides services to the Company in exchange for $15,000 per month plus reimbursable expenses incurred. During the quarter ending December 31, 2016, Mr. Bradford was paid $25,000 under this this agreement and was owed $50,000 in accrued compensation as of December 31, 2016.

On July 1, 2016, the Company entered into a Consulting agreement with Bryan Huber, its Chief Operating Officer for management services. In accordance with this agreement, Mr. Huber provided services to the Company in exchange for $2,000 per week plus reimbursable expenses incurred. During the quarter ending December 31, 2016, Mr. Huber was paid $32,000 under this this agreement and was owed $6,000 in accrued compensation as of December 31, 2016.

On July 1, 2016, as part of the acquisition of the assets of CleanSpark, LLC, the Company agreed to assume certain trade payables not to exceed $200,000 associated with the ongoing business. On the date of the acquisition, the Company assumed $262,573 in liabilities and, as a result, $62,573 became reimbursable by CleanSpark Holdings, LLC who is now a shareholder. $49,000 was due from CleanSpark Holdings as of December 31, 2016. During the quarter ending December 31, 2016, the Company received net reimbursements of $4,020 related to this balance.

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10. PREPAID EXPENSES

Prepaid expenses consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016		September 30, 2016
Prepaid stock compensation	$	8,612	$	50,130
Prepaid rents		3,400		850
Prepaid dues and subscriptions		10,000
Prepaid materials		15,526
Prepaid insurance		674		6,742
Total prepaid expenses	$	38,212	$	57,722

On January 22, 2016, the Company appointed Mr. Greg Gohlinghorst as a member of the Company’s board of advisors. He was issued 35,000 shares of common stock for his appointment.  The shares were valued at $105,000 or $3.00 per share. The amount was capitalized as a prepaid expense and is being amortized over a twelve-month term; during the three months ended December 31, 2016, the Company recorded an expense of $26,394. 

On January 15, 2016, the Company entered into an Investor Relations Consulting Agreement with Hayden IR (“HIR”) to serve as our investor relations firm for a period of twelve months. Under the Agreement, HIR’s responsibilities include: implementing and maintaining an ongoing market support system to expand awareness of the Company in the investment community; arranging conference calls and interviews; providing feedback on expectations of results and company value; assisting with the presentation of periodic results of operations; monitoring newswires and industry publications; drafting and coordinating press releases, among other services.

As compensation for the services under the Agreement, the Company agreed to pay HIR a cash monthly fee of $3,500 for the first six months of the agreement. The monthly fee increased to $6,500 starting in the seventh month. The Company also agreed to issue to HIR 20,000 shares of restricted common stock within 30 days of execution. The shares were valued at $60,000 or $3.00 per share. The Stock compensation has been recorded as a prepaid expense and is being amortized evenly over the twelve-month service period. During the three months ending December 31, 2016, the Company recorded $15,124 in stock based compensation associated with this agreement.

On October 1, 2016, the Company executed a six-month lease agreement for warehouse space that calls for the Company to make payments of $850 per month. The Company prepaid the entire lease term. The prepaid lease is being amortized over the six-month term; during the three months ended December 31, 2016, the Company recorded an expense of $2,550. 

11. STOCKHOLDERS’ EQUITY (DEFICIT)

Overview

The Company’s authorized capital stock consists of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2016, there were 32,318,471 shares of common stock issued and outstanding and 1,000,000 shares of preferred stock issued and outstanding. 

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Description of Common Stock

The Company’s common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by the Company’s board of directors with respect to any series of preferred stock, the holders of common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of the Company’s common stock representing fifty percent (50%) of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company’s outstanding shares is required to effectuate certain fundamental corporate changes such as a liquidation, merger or an amendment to the Company’s articles of incorporation.

Subject to any preferential rights of any outstanding series of preferred stock created by the Company’s board of directors from time to time, the holders of shares of common stock will be entitled to such cash dividends as may be declared from time to time by the Company’s board of directors from funds available therefor.

Subject to any preferential rights of any outstanding series of preferred stock created from time to time by the Company’s board of directors, upon liquidation, dissolution or winding up, the holders of shares of common stock will be entitled to receive pro rata all assets available for distribution to such holders.

In the event of any merger or consolidation of the Company with or into another company in connection with which shares of the Company’s common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of the Company’s common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of the Company’s common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company’s common stock.

Description of Preferred Stock

The Company’s board of directors is authorized to divide the authorized shares of the Company’s preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. The Company’s board of directors is authorized, within any limitations prescribed by law and the Company’s articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock, including, but not limited to, the following:

• the rate of dividend, the time of payment of dividends, whether dividends are cumulative, and the date from which any dividends accrue;

• whether shares may be redeemed, and, if so, the redemption price and the terms and conditions of redemption;

• the amount payable upon shares in the event of voluntary or involuntary liquidation;

• sinking fund or other provisions, if any, for the redemption or purchase of shares;

• the terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;

• voting powers, if any, provided that if any of the preferred stock or series thereof have voting rights, such preferred stock or series shall vote only on a share for share basis with the common stock on any matter, including, but not limited to, the election of directors, for which such preferred stock or series has such rights; and,

• subject to the foregoing, such other terms, qualifications, privileges, limitations, options, restrictions, and special or relative rights and preferences, if any, of shares or such series as the board of directors may, at the time so acting, lawfully fix and determine under the laws of the State of Nevada.

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On April 15, 2015, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State. The Certificate of Amendment authorized ten million (10,000,000) shares of preferred stock. The Company’s Board of Directors and a majority of its shareholders approved the Certificate of Amendment.

On April 15, 2015, 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 A Preferred Stock, consisting of up to one million (1,000,000) 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 the Company 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 the Company’s common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

Common Stock issuances

During the period commencing October 1, 2016 through December 31, 2016, the Company received $68,000 from 4 investors pursuant to private placement agreements with the investors to purchase 85,000 shares of the Company’s $0.001 par value common stock at a purchase price equal to $0.80 for each share of Common stock.

In November of 2016, the Company issued 2,932,704 shares of common stock to two officers for the cashless exercise of 3,000,000 options.

In December of 2016, the Company issued 1,466,352 shares of common stock to a director for the cashless exercise of 1,500,000 options.

12. STOCK WARRANTS

The following is a summary of stock warrants activity during the year ended September 30, 2016 and 2015. 

	Number of Shares		Weighted Average Exercise Price
Balance, September 30, 2014		8,097,600	$	0.10
Warrants granted and assumed		5,014,500	$	1.38
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		—		—
Balance, September 30, 2015		13,112,100	$	0.59
Warrants granted and assumed		—	$	—
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		4,500,000		0.083
Balance, September 30, 2016		8,612,100	$	0.85

As of September 30, 2016, there are warrants exercisable to purchase 8,612,100 shares of common stock in the Company.

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13. COMMITMENTS AND CONTINGENCIES

On January 22, 2016, the Company relocated its corporate office to 70 North Main Street, Suite 105, Bountiful, Utah 84010. The Company executed a one-year lease agreement that calls for the Company to make payments of $850 per month. The Company has prepaid rent for January 2017. Future minimum lease payments under the operating leases for the facilities as of December 31, 2016, are $0. At the conclusion of the lease term the Company intends to continue occupying the leased space on a month to month basis.

CleanSpark, LLC has agreed to warranty and maintain the microgrid assets located on the fractalgrid demonstration facility to Camp Pendleton Marine Corp Base. In exchange, the Company has been granted the permission to locate its system on the base and the access to conduct guided tours of the fractalgrid demonstration facility for the Company’s potential customers.

On December 16, 2016, the Company executed an 18-month lease agreement at 6365 Nancy  Ridge Drive, 2^nd Floor, San Diego California. The Company executed a one-year lease agreement that calls for the Company to make payments of $2,375 per month through December 31, 2017 and $2,446 per month from January 1, 2018 through May 31, 2018. Future minimum lease payments under the operating leases for the facilities as of December 31, 2016, are $28,500 and $12,230 for the fiscal years ending December 31, 2017 and 2018, respectively.

14.   MAJOR CUSTOMER

For the three months ended December 31, 2016 and 2015, the Company had the following customers that represented more than 10% of sales.

	December 31, 2016			December 31, 2015
Bethel-Webcor JV-1		38.1	%		—
Jacobs/ HDR a joint venture		46.7	%		—
Considine Companies		4.5	%		—
Sungevity		10.7	%		—

For the quarters ended December 31, 2016 and 2015, the Company had no suppliers that represented more than 10% of direct material costs.

15.    SUBSEQUENT EVENTS

During the period commencing January 1, 2017 through February 9, 2017, the Company received $95,000 from 4 investors pursuant to private placement agreements with the investors to purchase 118,750 shares of the Company’s $0.001 par value common stock at a purchase price equal to $0.80 for each share of Common stock.

On February 9, 2017, the Company entered into a Debt Settlement Agreement with Webcor Construction LP (“Webcor”) to settle $158,753 in debt owed to Webcor. The Company agreed to pay Webcor $58,000 on or before February 28, 2017 and to issue 50,000 shares of the Company’s common stock within 4 days of execution. Upon receipt of payment, Webcor agreed to release the full amount of the debt. As of the date of this filing, the shares have been issued and the Company intends to pay the $58,000 in cash prior to February 28, 2017. The shares issued were deemed to have a fair value of $212,500 on the date of the transaction and a loss on settlement of debt of $111,747 was recorded as a result of the Debt Settlement Agreement.

On February 6, 2017, the Company and CleanSpark Holdings, LLC (“Holdings”) entered into an Assumption of Debt Agreement to settle Debts Holdings owed the Company related to the June, 30, 2016 Purchase Agreement. Pursuant to the Purchase Agreement, the Company agreed to assume up to $200,000 in liabilities arising out of the assets. In the course of due diligence, CleanSpark discovered that they had actually assumed $275,586 in liabilities. As a result of the overage in assumed liabilities, Holdings had paid the Company $25,000 and remained indebted to CleanSpark for the overage amount of $50,586. Holdings agreed to reassume $44,919 in settlement of the full amount of the debt overage and the Company agreed to accept the assumption of $44,919 in settlement of the full amount of the Debt overage. A loss on settlement of debt of $5,667 was recorded by the Company as a result of the agreement.

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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 affect 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 acquiring, licensing and marketing patents and technology to create sustainable energy for our energy customers. Our mission is to lead a revolution in transforming global energy into a clean, affordable, and sustainable infrastructure that promotes socio-economic upliftment.

We recently entered into an asset purchase agreement and amendment thereto (the “Purchase Agreement”), and acquired substantially all of the assets of CleanSpark Holdings, LLC. As a result of the Purchase Agreement and the acquisition of the assets, we have taken over the CleanSpark business as another opportunity in the energy sector, along with our existing Gasifier business. We believe that that synergies created from these businesses will strengthen our overall capacity to obtain financing, increase our customer base, open new distribution channels and increase our competitive strength in the energy market, all to the ultimate benefit of our shareholders.

Integral to CleanSpark’s business is the Flex Power System (the “System”), which we acquired in the acquisition of the assets. The System provides secure, sustainable energy with significant cost savings for its energy customers. The System allows customers to efficiently manage renewable energy generation, other distributed energy generation technologies including waste to energy, energy storage systems, and consumption. By having autonomous control over the facets of energy usage and energy storage, customers are able to reduce their dependency on utilities, thereby keeping energy costs relatively constant over time. The overall aim is to transform energy consumers into energy producers by supplying power that anticipates their routine instead of interrupting it.

Integral to our existing business is the Gasifier. Our technology converts any organic material into SynGas. SynGas can be used as clean, renewable, environmentally friendly, warming fuel for power plants, motor vehicles, and as feedstock for the generation of DME (Di-Methyl Ether).

We have focused much our efforts in late 2016 and into 2017 on upgrades to our System software, negotiating contracts to settle outstanding debt obligations, working with existing customers and marketing our business on the CleanSpark side. We plan to continue our focus on the CleanSpark side of the business in 2017, as we continue our efforts to better our technology, service existing customers and market our System to prospective clients. We feel that this focus would provide the best opportunity for our shareholders.

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Conversely, while we have experienced interest in our Gasifier business, we do not, as of yet, have a working version that is commercially ready for sale. If we are able to generate revenues from the CleanSpark side of the business, sufficient to cover expenses with enough left over, we intend to complete the development of our Gasifier. For now, we are still dependent on financing to move forward with the CleanSpark business and all use of proceeds from our financing efforts, if available, will be used on that side of the business.

Results of operations for the three months ended December 31, 2016 and 2015

Revenues

We earned revenues of $83,884 during the three months ending December 31, 2016, as compared with no revenues for the same period ended 2015. Most of our revenue in 2016 was in the form of design income from the CleanSpark side of our business. This income was the result of a contract to perform engineering designs for a microgrid layout. While we benefit from the revenues generated from this type of service, we hope to generate more significant revenue from customers that hire us to construct, operate and maintain our System. We hope to have more news on these efforts in future reports. However, because we only just acquired CleanSpark and given the contractual contingencies with CleanSpark’s customers and its early stage of operation, we are unable to estimate with any degree of certainty the amount of future revenues, if any, from existing or future 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.

Operating Expenses

We had operating expenses of $845,735 for the three months ended December 31, 2016, as compared with $72,016 for the three months ended December 31, 2015.

Professional fees increased to $289,344 for the three months ended December 31, 2016 from $46,362 for the same period ended December 31, 2015. Our professional fees expenses for the three months ended December 31, 2016 consisted mainly of $90,000 for officer consulting fees, $54,885 for consulting on our software, $41,518 in stock-based fees for consulting, sales fees of $23,680, internal management consulting fees of $21,920, audit and review fees of $20,115 and investor relations fees of $19,500. Our professional fees expenses for the three months ended December 31, 2015 consisted mainly of legal and accounting fees and consulting fees paid to an officer of our company.

Research and development fees decreased to $368 for the three months ended December 31, 2016 from $1,458 for the same period ended December 31, 2015. Our research and development expenses for the three months ended December 31, 2016 and 2015 consisted mainly of expenses incurred during the independent testing of our Gasifier.

General and administrative fees increased to $67,265 for the three months ended December 31, 2016 from $17,068 for the same period ended December 31, 2015. Our general and administrative expenses for the three months ended December 31, 2016 consisted mainly of $17,628 in travel and entertainment expenses, $9,452 in utilities, $6,537 in rent, $6,068 in insurance, $5,150 in training and seminars and $4,303 in office expenses. Our general and administrative expenses for the three months ended December 31, 2015 consisted mainly of office and rent expenses and general expenses incurred as a result of fundraising efforts.

Depreciation and amortization expense increased to $488,758 for the three months ended December 31, 2016 from $7,128 for the same period ended December 31, 2015.

Other Expenses

We had other expenses of $12,817 for the three months ended December 31, 2016, compared with no other expenses for the three months ended December 31, 2015. Our other expense for the three months ended December 31, 2016 consisted of a loss on the disposal of assets.

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Net Loss

We recorded a net loss of $792,642 for the three months ended December 31, 2016, as compared with a net loss of $72,016 for the three months ended December 31, 2015.

Liquidity and Capital Resources

As of December 31, 2016, we had total current assets of $367,711, consisting of cash, accounts receivable, a receivable from a shareholderand prepaid expenses, and total assets in the amount of $32,317,084. Our total current liabilities as of December 31, 2016 were $379,605. We had a working capital deficit of $11,894 as of December 31, 2016.

Operating activities used $279,663 in cash for the three months ended December 31, 2016. Our net loss of $792,642 was the main component of our negative operating cash flow, offset mainly by depreciation and amortization of $488,758.

Cash flows used by investing activities during the three months ended December 31, 2016 was $17,213 as a result of the purchase of fixed and intangible assets, investments in our System and a loss on the disposal of fixed assets, offset by the purchase of fixed assets.

Cash flows provided by financing activities during the nine months ended December 31, 2016 amounted to $67,739 and consisted of $68,000 in proceeds from our private offering of securities offset by $2,261 in payments on short-term loans.

Despite the efforts we have made to raise money and to settle debt, based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

Off Balance Sheet Arrangements

As of December 31, 2016, there were no off balance sheet arrangements.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred cumulative net losses of $7,227,482 since our inception and require capital for our contemplated operational and marketing activities to take place. Our ability to raise additional capital through future issuances of common stock is unknown. The obtainment of additional financing, the successful development of our contemplated plan of operations, and our transition, ultimately, to the attainment of profitable operations are necessary for us to continue operations. The ability to successfully resolve these factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

Recently Issued Accounting Pronouncements

We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

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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 this Annual Report on Form 10-K for the year ended September 30, 2016, 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, stock-based compensation, non-employee stock based compensation.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4.     Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2016. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of December 31, 2016, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending September 30, 2017: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended December 31, 2016 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A. Risk Factors

See risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 2016 for 2016.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a an Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K.

On February 9, 2017, we entered into a Debt Settlement Agreement with Webcor Construction LP (“Webcor”) to settle $158,753 in debt owed to Webcor. As partial consideration under Debt Settlement Agreement, we issued to Webcor 50,000 shares of our common stock.

During the period commencing January 1, 2017 through February 9, 2017, we received $95,000 from 4 investors pursuant to private placement agreements with the investors to purchase 118,750 shares of our common stock at a purchase price equal to $0.80 for each share of common stock.

During the period commencing October 1, 2016 through December 31, 2016, we received $68,000 from 4 investors pursuant to private placement agreements with the investors to purchase 85,000 shares of our common stock at a purchase price equal to $0.80 for each share of common stock.

In December of 2016, we issued 1,466,352 shares of common stock to a director for the cashless exercise of 1,500,000 options.

In November of 2016, we issued 2,932,704 shares of common stock to two officers for the cashless exercise of 3,000,000 options.

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Item 3.     Defaults upon Senior Securities

None

Item 4.     Mine Safety Disclosures

Not applicable.

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Item 5.     Other Information

On February 9, 2017, we entered into a Debt Settlement Agreement with Webcor Construction LP (“Webcor”) to settle $158,753 in debt owed to Webcor. We agreed to pay Webcor $58,000 on or before February 28, 2017 and to issue 50,000 shares of our common stock within 4 days of execution. Upon receipt of payment, Webcor agreed to release the full amount of the debt. As of the date of this filing, the shares have been issued and we intend to pay the $58,000 in cash prior to February 28, 2017.

On February 6, 2017, we and CleanSpark Holdings, LLC (“Holdings”) entered into an Assumption of Debt Agreement to settle Debts Holdings owed to us related to the June, 30, 2016 Purchase Agreement. Pursuant to the Purchase Agreement, we agreed to assume up to $200,000 in liabilities arising out of the assets. In the course of due diligence, CleanSpark discovered that they had actually assumed $275,586 in liabilities. As a result of the overage in assumed liabilities, Holdings had paid to us $25,000 and remained indebted to CleanSpark for the overage amount of $50,586. Holdings agreed to reassume $44,919 in settlement of the full amount of the debt overage and we agreed to accept the assumption of $44,919 in settlement of the full amount of the Debt overage.

Item 6.      Exhibits

Exhibit Number	Description of Exhibit
10.1	Debt Settlement Agreement
10.2	Assumption of Debt Agreement
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016 formatted in Extensible Business Reporting Language (XBRL).
**Provided herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	February 14, 2017
	By: /s/ S. Matthew Schultz S. Matthew Schultz Title:    Chief Executive Officer
Date:	February 14, 2017
	By: /s/Zachary K. Bradford Zachary K Bradford Title:    Chief Financial Officer

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EX-10.1

DEBT SETTLEMENT AGREEMENT

This Debt Settlement Agreement (“Agreement”) is entered into on this __th day of February, 2017 (the “Effective Date”), by and between Webcor Construction LP, dba Webcor Builders, a California limited partnership, (“Webcor”) and CleanSpark, Inc., a Nevada corporation, and CleanSpark, LLC, a California limited liability company (together “CleanSpark”) (individually, a “Party”, and all collectively, the “Parties”).

RECITALS

WHEREAS, in 2016, Webcor paid $158,753.49 on behalf of CleanSpark, LLC to various subcontractors, which amount remains due and owing to Webcor (the “Debt”);

WHEREAS, CleanSpark, LLC committed to repay the Debt as soon as it was financially capable. Subsequent to this commitment, CleanSpark, LLC was acquired by CleanSpark, Inc. (f.k.a. Stratean Inc.);

WHEREAS, CleanSpark wishes to repay the Debt under the terms and conditions of this Agreement; and

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS SET FORTH BELOW:

1.        Recitals. The foregoing recitals are true and incorporated herein, as though set forth in full.

2.       Payment to Webcor.

a.       CleanSpark shall pay and deliver to Webcor the following payment (the “Payment”):

i.                    USD $58,000.00 on or before February 28, 2017; and

ii.                  50,000 shares of common stock in CleanSpark, Inc., to be issued within 4 days of execution of the Debt Conversion Agreement.

b.       In connection with the obligation set forth in Section 2.a.ii. above, Webcor and CleanSpark, Inc. shall execute the accompanying Debt Conversion Agreement attached hereto as Exhibit “A.”

c.       Upon execution of this Agreement and the Debt Conversion Agreement and upon receipt of the Payment, Webcor shall accept the same as full payment and satisfaction of the Debt and the release contained in Section 4 shall be in full force and effect.

3.        Definitions used in Section 4. For purpose of Section 4 of this Agreement, the term “Releasors” shall mean and include the following persons and/or entities: Webcor and its affiliated and/or subsidiary companies and partnerships, together with any and all past and present trustees, receivers, board members, employees, officers, directors, shareholders, partners, agents, representatives, subsidiaries, unincorporated divisions, insurance carriers, sureties, consultants, attorneys, successors, assigns, heirs, executors, administrators, tenants, licensees, invitees, joint venturers, subcontractors, members, and related persons, predecessors, entities or companies.

For purpose of Section 4 of this Agreement, the term “CleanSpark” shall mean and include the following persons and/or entities: the named Party (as defined in this Agreement) individually, jointly, severally, and on behalf of its respective affiliated and/or subsidiary companies and partnerships, together with any and all past and present partners, associates, managers, employees, members, agents, representatives, subsidiaries, unincorporated divisions, insurance carriers, sureties, consultants, attorneys, successors, assigns, administrators, tenants, licensees, invitees, joint venturers, subcontractors, and related persons, predecessors, entities or companies.

4.       Release of CleanSpark. Releasors hereby fully release and discharge CleanSpark of and from all claims, actions, causes of action, demands, rights, agreements, promises, liabilities, losses, damages, costs and expenses, of every nature and character, description and amount, either known or unknown, without limitation or exceptions, whether based on theories of contract, breach of contract, breach of the covenant of good faith and fair dealing, breach of professional and/or fiduciary duty, tort, violation of statute, ordinance, or any other theory of liability or declaration of rights whatsoever, which Releasors may now have or may hereafter acquire against CleanSpark, whether asserted or not, arising directly or indirectly from or based on any cause, event, transaction, act, omission, occurrence, condition or matter, of any kind or nature whatsoever, which has occurred to date or may hereafter occur relating to or arising out of the Debt. Nothing contained herein is intended to limit Releasors rights as shareholders of Cleanspark, Inc. upon issuance of the stock noted in Section 2.a.ii., above.

It is understood by the Parties that the facts with respect to which the foregoing release is given may hereafter turn out to be other than or different from the facts in that connection now known to it or believed by them to be true, and they therefore expressly assume the risk of the facts turning out to be so different and agree that the foregoing general release shall be in all respects effective and not subject to termination or rescission by any such difference in facts.

5.        Representations and Warranties.

a.        This Agreement is executed by the Parties without reliance upon any statement or representation by the persons or parties herein released, or their attorneys or representatives, other than those set forth in this Agreement.

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b.        Each of the Parties represents and warrants that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby has been duly authorized by all necessary and appropriate corporate action.

c.        Each of the persons signing this Agreement represents and warrants that he or she has the right and full authority to sign on behalf of the party designated immediately above his or her signed name.

6.        General Provisions.

a.        No Admission of Liability. Each of the Parties agrees that this Agreement is a compromise relating to the matters released herein, and shall never be treated as an admission of liability of any Party for any purpose, and that liability therefor is expressly denied by each of the Parties.

b.        Execution of Additional Documents. Each of the Parties hereby agrees to perform any and all acts and to execute and deliver any and all documents reasonably necessary or convenient to carry out the intent and the provisions of this Agreement and the Debt Conversion Agreement.

c.        Entire Agreement. This Agreement and the accompanying Debt Conversion Agreement constitute the entire agreement among all of the Parties relative to the subject matter hereof. All negotiations, proposals, modifications and agreements prior to the date hereof among the Parties are merged into this Agreement and Debt Conversion Agreement and superseded hereby. There are no other terms, conditions, promises, understandings, statements, or representations, express or implied, among all of the Parties concerning this Agreement and the Debt Conversion Agreement unless set forth in writing and signed by all of the Parties.

d.        No Waiver. No action or want of action on the part of any Party at any time to execute any rights or remedies conferred upon it under this Agreement shall be, or shall be asserted to be, a waiver on the part of any party hereto of its rights or remedies hereunder.

e.        Amendments. This Agreement may only be modified by an instrument in writing executed by the parties hereto.

f.        Law of California. This Agreement shall be construed in accordance with the law of the State of California, and the parties hereto agree that the state or federal courts located in Los Angeles County, California, shall be the sole and exclusive venue of any action which may arise out of or be filed with respect to this Agreement. Further, all parties hereto irrevocably consent to personal jurisdiction in the state of California in connection with any action which may arise out of or be filed with respect to this Agreement.

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g.        Attorneys' Fees. Should any action (at law or in equity, including but not limited to an action for declaratory relief) or proceeding be brought arising out of, relating to or seeking the interpretation or enforcement of the terms of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with the terms of this Agreement, the prevailing party thereto, as decided by the Court, shall be entitled to reasonable attorneys' fees and costs incurred in addition to any other relief or damages which may be awarded.

h.        No Third Party Beneficiary. This Agreement is for the benefit of the Parties and those persons included in the definition of “CleanSpark” in section 3 and released in section 4. This Agreement confers no rights, benefits or causes of action in favor of any other third parties or entities.

i.        Severance. Should any term, part, portion or provision of this Agreement be decided or declared by the Courts to be, or otherwise found to be, illegal or in conflict with any law of the State of Nevada or the United States, or otherwise be rendered unenforceable or ineffectual, the validity of the remaining parts, terms, portions and provision shall be deemed severable and shall not be affected thereby, providing such remaining parts, terms, portions or provisions can be construed in substance to constitute the agreement that the Parties intended to enter into in the first instance.

j.        Pronouns, Headings. All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, or neuter, and to the singular or plural, as the identity of the person may require. Paragraph titles or captions are used in this Agreement for convenience or reference, and in no way define, limit, extend or describe the scope or intent of this Agreement or any of its provisions.

k.        Successors and Assigns. This Agreement shall be binding and inure to the benefit of the parties hereto, their predecessors, parents, subsidiaries and affiliated corporations, all officers, directors, shareholders, agents, employees, attorneys, assigns, successors, heirs, executors, administrators, and legal representatives of whatsoever kind or character in privity therewith.

l.        Counterparts. This Agreement may be executed in counterparts, one or more of which may be facsimiles, but all of which shall constitute one and the same Agreement. Facsimile signatures of this Agreement shall be accepted by the parties to this Agreement as valid and binding in lieu of original signatures.

m.        Time for Performance. The Parties understand that time is of the essence with respect to each and every act required by this Agreement. Failure to perform any provision hereof in strict accordance with the Agreement shall be deemed a material breach of the Agreement.

n.        Understanding of Agreement. The Parties acknowledge that they have fully read the contents of this Agreement and that they have had the opportunity to obtain the advice of counsel of their choice, and that they have full, complete and total comprehension of the provisions hereof and

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are in full agreement with each and every one of the terms, conditions and provisions of this Agreement. As such, the Parties agree to waive any and all rights to apply an interpretation of any and all terms, conditions or provisions hereof, including the rule of construction that such ambiguities are to be resolved against the drafter of this Agreement. For the purpose of this instrument, the Parties agree that ambiguities, if any, are to be resolved in the same manner as would have been the case had this instrument been jointly conceived and drafted.

IN WITNESS WHEREOF, each of the parties has executed this Agreement effective as of the date first written above.

WEBCOR CONSTRUCTION LP DBA WEBCOR BUILDERS

By: / s/ Matthew R. Reece

Print name: Matthew R. Reece

Its: EVP & CEO

CLEANSPARK, INC.

By: /s/ Zachary Bradford

Print name: Zachary Bradford

Its: President and CFO

CLEANSPARK, LLC

By: /s/ Zachary Bradford

Print name: Zachary Bradford

*Its: Authorized Representative

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Exhibit A

NONE OF THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT (THE "SUBSCRIPTION AGREEMENT") RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

DEBT CONVERSION AGREEMENT

TO: Webcor Construction, LP dba Webcor Builders

FROM: CleanSpark, Inc. (the “Company”)

PURCHASE OF SHARES

1.        Subscription

1.1.       On the basis of the representations and warranties and subject to the terms and conditions set forth herein, the undersigned (the “Subscriber”) hereby irrevocably agrees to convert $100,000 of the outstanding $158,753.49 (the “Debt”) into shares of Common Stock of the Company (such subscription and agreement to convert being the “Subscription”), for an aggregate of 50,000 shares of Common Stock of the Company (the “Shares”).

1.2.       On the basis of the representations and warranties and subject to the terms and conditions set forth herein, the Company hereby irrevocably agrees to issue the Shares to the Subscriber in exchange for and upon the conversion of the Debt.

1.3.       Unless otherwise provided, all dollar amounts referred to in this Subscription Agreement are in lawful money of the United States of America.

2.        Payment

2.1.       The Subscriber agrees to convert the Debt into Shares of the Company as provided herein.

3.        Documents Required from Subscriber

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3.1.       The Subscriber must complete, sign and return to the Company two (2) executed copies of this Subscription Agreement.

3.2.       The Subscriber shall complete, sign and return to the Company as soon as possible, on request by the Company, any additional documents, questionnaires, notices and undertakings as may be required by any regulatory authorities and applicable law.

4.       Closing

4.1.       Closing of the transactions contemplated by this Subscription Agreement shall occur on such date as may be mutually agreed by the Company and Subscriber (the “Closing Date”).

5.       Acknowledgements and Agreements of Subscriber

5.1 The Subscriber acknowledges and agrees that:

(a)       the Shares are “restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), the resale of the Shares is restricted by federal and state securities laws and, accordingly, the Shares must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale;

(b)       Other than as contemplated herein, the Subscriber acknowledges that the Company has not undertaken, and will have no obligation, to register any of the Shares under the 1933 Act;

(c)       The Subscriber is representing and warranting that the Subscriber is an accredited investor as the term is defined in Rule 501 of Regulation D;

(d)       The decision to execute this Subscription Agreement and acquire the Shares agreed to be purchased hereunder has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company;

(e)       The Subscriber and the Subscriber’s advisor(s) have had a reasonable opportunity to ask questions of and receive answers from the Company in connection with the issuance of the Shares hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about the Company;

(f)       The books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Subscriber during reasonable business hours at its principal place of business, and all documents, records and books in connection

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with the distribution of the Shares hereunder have been made available for inspection by the Subscriber, the Subscriber's lawyer and/or advisor(s);

(g)       The Company is entitled to rely on the representations and warranties of the Subscriber contained in this Subscription Agreement and the Subscriber will hold harmless the Company from any loss or damage it or they may suffer as a result of the Subscriber's failure to correctly complete this Subscription Agreement;

(h)       The Subscriber will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Subscriber contained in this Subscription Agreement or in any document furnished by the Subscriber to the Company in connection herewith being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber to the Company in connection therewith;

(i)       The Subscriber has been advised to consult the Subscriber's own legal, tax and other advisors with respect to the merits and risks of an investment in the Shares and with respect to applicable resale restrictions, and it is solely responsible (and the Company is not in any way responsible) for compliance with: (i) any applicable laws of the jurisdiction in which the Subscriber is resident in connection with the distribution of the Shares hereunder, and (ii) applicable resale restrictions;

(j)       Neither the Commission nor any other securities commission or similar regulatory authority has reviewed or passed on the merits of any of the Shares;

(k)       No documents in connection with the sale of the Shares hereunder have been reviewed by the Commission or any state securities administrators;

(l)       There is no government or other insurance covering any of the Shares;

(m)       This Subscription Agreement is not enforceable by the Subscriber unless it has been accepted by the Company.

6.       Representations, Warranties and Covenants of the Subscriber

6.1.       The Subscriber hereby represents and warrants to and covenants with the Company (which representations, warranties and covenants shall survive the Closing) that:

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(a)       It has the legal capacity and competence to enter into and execute this Subscription Agreement and to take all actions required pursuant hereto and, if the Subscriber is a corporate entity, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Subscription Agreement on behalf of the Subscriber;

(b)       The entering into of this Subscription Agreement and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or, if the Subscriber is a corporate entity, the documents of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber is or may be bound;

(c)       The Subscriber has duly executed and delivered this Subscription Agreement and it constitutes a valid and binding agreement of the Subscriber enforceable against the Subscriber;

(d)       The Subscriber has received and carefully read this Subscription Agreement;

(e)       The Subscriber is resident in the jurisdiction set out under the heading "Name and Address of Subscriber" on the signature page of this Subscription Agreement;

(f)       The Subscriber is purchasing the Shares pursuant to exemptions from prospectus or equivalent requirements under applicable securities laws;

(g)       The Subscriber is acquiring the Shares as principal for investment only and not with a view to resale or distribution;

(h)       The Subscriber is aware that an investment in the Company is speculative and involves certain risks, including the possible loss of the entire investment;

(i)       The Subscriber has made an independent examination and investigation of an investment in the Shares and the Company and has depended on the advice of its legal and financial advisors and agrees that the Company will not be responsible in any way whatsoever for the Subscriber's decision to invest in the Shares and the Company;

(j)       The Subscriber (i) has adequate net worth and means of providing for its current financial needs and possible personal contingencies, (ii) has no need for liquidity in this investment, and (iii) is able to bear the economic risks of an investment in the Shares for an indefinite period of time;

(k)       The Subscriber understands and agrees that the Company and others will rely upon the truth and accuracy of the acknowledgements, representations and agreements contained in this Subscription Agreement and agrees that if any of such acknowledgements, representations and

9

agreements are no longer accurate or have been breached, the Subscriber shall promptly notify the Company;

(l)       The Subscriber (i) is able to fend for him/her/itself in the Subscription; (ii) has such knowledge and experience in business matters as to be capable of evaluating the merits and risks of its prospective investment in the Shares; and (iii) has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment;

(m)       The Subscriber understands and agrees that the Shares are “restricted securities” as that term is defined in Rule 144 promulgated by the Commission under the Securities Act, the resale of the Shares is restricted by federal and state securities laws and, accordingly, the Shares must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale;

(n)       The Subscriber is representing and warranting that it is an "accredited investor" as that term is defined in Rule 501 of Regulation D of the 1933 Act;

(o)       The Subscriber will notify the Company immediately of any material change in any such information occurring prior to the closing of the purchase of the Shares;

(p)       The Subscriber is not an underwriter of, or dealer in, the common shares of the Company, nor is the Subscriber participating, pursuant to a contractual agreement or otherwise, in the distribution of the Shares;

(q)       The Subscriber is not aware of any advertisement of any of the Shares and is not acquiring the Shares as a result of any form of general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and

(r)       The Subscriber acknowledges and agrees that the Company shall not consider the Subscriber's Subscription for acceptance unless the undersigned provides to the Company, along with an executed copy of this Subscription Agreement such other supporting documentation that the Company or its legal counsel may request to establish the Subscriber's qualification as a qualified investor.

7.       Representations and Warranties Will be relied upon by the Company

7.1.       The Subscriber acknowledges that the representations and warranties contained herein are made by it with the intention that such representations and warranties may be relied upon by the Company and its legal counsel in determining the Subscriber's eligibility to acquire the Shares under applicable securities legislation, or (if applicable) the eligibility of others on whose behalf it is

10

contracting hereunder to purchase the Shares under applicable securities legislation. The Subscriber further agrees that by accepting delivery of the certificates representing the Shares on the Closing Date, it will be representing and warranting that the representations and warranties contained herein are true and correct as at the Closing Date with the same force and effect as if they had been made by the Subscriber on the Closing Date and that they will survive the acquisition by the Subscriber of the Shares and will continue in full force and effect notwithstanding any subsequent disposition by the Subscriber of such securities.

8.        Resale Restrictions

8.1.       The Subscriber acknowledges that any resale of the Shares will be subject to resale restrictions contained in the securities legislation applicable to the Subscriber or proposed transferee. The Subscriber acknowledges that none of the Shares have been registered under the Securities Act or the securities laws of any state of the United States.

9.       Acknowledgement and Waiver

9.1.       The Subscriber has acknowledged that the decision to acquire the Shares was solely made on the basis of publicly available information. The Subscriber hereby waives, to the fullest extent permitted by law, any rights of withdrawal, rescission or compensation for damages to which the Subscriber might be entitled in connection with the distribution of any of the Shares.

10.       Legending and Registration of Subject Securities

10.1.       The Subscriber hereby acknowledges that a legend may be placed on the certificates representing the Shares to the effect that the Shares represented by such certificates are subject to a hold period and may not be traded until the expiry of such hold period except as permitted by applicable securities legislation.

10.2.       The Subscriber hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Agreement.

11.       Governing Law

11.1.       This Subscription Agreement is governed by the laws of the State of Nevada.

12.        Survival

12.1.       This Subscription Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the parties hereto notwithstanding the completion of the purchase of the Shares by the Subscriber pursuant hereto.

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13.       Assignment

13.1.       This Subscription Agreement is not transferable or assignable.

14.       Severability

14.1.       The invalidity or unenforceability of any particular provision of this Subscription Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Subscription Agreement.

15.       Entire Agreement

15.1.       Except as expressly provided in this Subscription Agreement and in the agreements, instruments and other documents contemplated or provided for herein, this Subscription Agreement contains the entire agreement between the parties with respect to the sale of the Shares and there are no other terms, conditions, representations or warranties, whether expressed, implied, oral or written, by statute or common law, by the Company or by anyone else.

16.       Counterparts and Electronic Means

16.1.       This Subscription Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall constitute an original and all of which together shall constitute one instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date hereinafter set forth.

[The balance of this page intentionally left blank]

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IN WITNESS WHEREOF the Subscriber has duly executed this Subscription Agreement as of the date of acceptance by the Company.

Webcor Construction LP dba Webcor Builders

By: /s/ Matthew R. Reece

Its: EVP & CEO

1751 Harbor Bay Pkwy, Suite 200

(Address of Subscriber)

Alameda, CA 94502

(City, State or Province, Postal Code of Subscriber)

20-8399744

(Tax ID of Subscriber)

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ACCEPTANCE

The foregoing Subscription Agreement is hereby accepted by CleanSpark, Inc.

DATED the 9th day of February, 2017.

CleanSpark, Inc.

By: /s/ Zachary Bradford

Its: President and CFO

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EX-10.2

ASSUMPTION OF DEBT AGREEMENT

THIS ASSUMPTION OF DEBT AGREEMENT (this “Agreement”) dated the 6th day of February, 2017 is by and among CLEANSPARK HOLDINGS, LLC (the “HOLDINGS”), CLEANSPARK, INC. (the “CLEANSPARK”) and CLEANSPARK, LLC (the “DEBTOR”)

WHEREAS:

A.       On June 30, 2016, CleanSpark and Cleanspark II, LLC, a wholly-owned subsidiary of CleanSpark, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Holdings, the Debtor, CleanSpark Technologies LLC and Specialized Energy Solutions, Inc. (collectively, the “Seller”)

B.       Pursuant to the Purchase Agreement, CleanSpark acquired all the assets and assume certain liabilities (the “Assumed Liabilities”) related to the Seller’s line of business.

C.       The Assumed Liabilities, as agreed, was to consist of certain accounts payable amounting to approximately $200,000 arising out of the assets.

D.       In the course of due diligence, CleanSpark discovered that the Debtor had actually assumed $275,586.53 in liabilities which exceeded the $200,000 in liabilities as agreed.

E.       As a result of the overage in Assumed Liabilities, Holdings has paid to CleanSpark the sum of $25,000.

F.       Holdings remains indebted to CleanSpark for the overage amount of $50,586.53 (the “Debt”).

G.       Holdings is willing to reassume $44,919.08 (the “Settlement Amount”) in settlement of the full amount of the Debt overage and CleanSpark is willing to accept the assumption of $44,919.08 in settlement of the full amount of the Debt overage.

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the mutual promises, covenants, conditions, representations and warranties hereinafter contained and the sum of Ten ($10.00) Dollars now paid by CleanSpark to Holdings and for other good and valuable consideration as set forth in the Purchase Agreement, the receipt of which are acknowledged, and subject to the terms and conditions hereinafter set out, the parties agree as follows:

1.       REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR

The Debtor represents, warrants and covenants to Holdings that: (a) the above recitals are true and complete; and (b) the full amount of the Debt is due and owing by the Debtor to certain creditors of the Debtor.

2.        ASSUMPTION OF THE DEBT

2.1 Holdings hereby assumes the Settlement Amount from the Debtor as identified in Exhibit A, including, without limitation, all burdens, obligations and liabilities to be derived thereunder.

2.2 Upon the assumption of the Settlement Amount, CleanSpark hereby releases Holdings from any responsibility for the remaining portion of the Debt overage under the Purchase Agreement.

1

2.3 Holdings agrees to take all action to repay the Settlement Amount as the same comes due from the creditors of the Debtor and further agrees to contact the creditors of Debtor to resolve the obligations under the Settlement Amount as soon as possible following execution of this Agreement.

3.       COUNTERPART

This agreement may be signed in one or more counterparts, each of which when so signed will be deemed an original, and such counterparts together will constitute one in the same instrument.

4.       GOVERNING LAW.

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the Laws of any jurisdiction other than the State of Nevada.

IN WITNESS WHEREOF this agreement was signed by the parties hereto as of the day and year first above written.

CleanSpark, Inc.

By: /s/ S. Matthew Schultz
Name: S. Matthew Schultz
Title: CEO

CleanSpark Holdings LLC

By:.s. Bryan Huber
Name: Bryan Huber
Title: Authorized Agent

CleanSpark LLC

By: /s/ S. Matthew Schultz
Name: S. Matthew Schultz

Title: Authorized Agent

2

EXHIBIT A

Outstanding Invoices reassumed

The “Settlement Amount”

EX-31.1

CERTIFICATIONS

I, S. Matthew Schultz, certify that;

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended December 31, 2016 of CleanSpark, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2017

/s/ S. Matthew Schultz

By: S. Matthew Schultz

Title: Chief Executive Officer

EX-31.2

CERTIFICATIONS

I, Zachary Bradford, certify that;

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended December 31, 2016 of CleanSpark, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2017

/s/ Zachary Bradford

By: Zachary Bradford

Title: Chief Financial Officer

EX-32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly Report of CleanSpark, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2016 filed with the Securities and Exchange Commission (the “Report”), I, S. Matthew Schultz, Chief Executive Office, and I, Zachary Bradford, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

By:	/s/ S. Matthew Schultz
Name:	S. Matthew Schultz
Title:	Principal Executive Officer, and Director
Date:	February 14, 2017
By:	/s/ Zachary Bradford
Name:	Zachary Bradford
Title:	Principal Financial Officer
Date:	February 14, 2017

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XML

Document and Entity Information - shares	3 Months Ended
	Dec. 31, 2016	Feb. 13, 2017
Document And Entity Information
Entity Registrant Name	Cleanspark, Inc.
Entity Central Index Key	0000827876
Document Type	10-Q
Document Period End Date	Dec. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	No
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		32,487,221
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2016

XML

Balance Sheets - USD ($)	Dec. 31, 2016	Mar. 25, 2014
Current assets
Accounts receivable	$ 75,107	$ 57,095
Due from Shareholder	49,000	53,020
Cash	205,392	436,529
Prepaid expense	38,212	57,722
Flexpower system	19,358,056	19,675,986
Goodwill	4,919,858	4,919,858
Total current assets	367,711	604,366
Microgrid Assets	4,509,705	4,567,838
Intangible assets	2,418,485	2,467,930
Fixed Assets	736,938	782,975
Deposits	(6,331)	(589)
Total assets	32,317,084	33,019,542
Current liabilities
Customer deposits	21,650
Due to related parties	91,554	63,973
Accounts payable and accrued liabilities	266,401	291,187
Loans		2,261
Total current liabilities	379,605	357,421
Total liabilities	379,605	357,421
Stockholders' equity (deficit)
Common stock; $0.001 par value; 100,000,000 shares authorized; 32,318,471 and 27,834,415 shares issued and outstanding as of December 31, 2016 and September 30, 2016, respectively	32,318	27,834
Preferred stock; $0.001 par value; 10,000,000 shares authorized; 1,000,000 and 1,000,000 shares issued and outstanding as of December 31, 2016 and September 30, 2016, respectively	1,000	1,000
Additional paid-in capital	39,131,643	39,068,127
Accumulated earnings (deficit)	(7,227,482)
Total stockholders' equity (deficit)	31,937,479	32,662,121
Total liabilities and stockholders' equity (deficit)	$ 32,317,084	$ 33,019,542

XML

Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2016	Mar. 25, 2014
Statement of Financial Position [Abstract]
Common Stock, par value	$ 0.001
Common Stock, Shares authorized	100,000,000	100,000,000
Common Stock, shares issued	32,318,471	27,834,415
Preferred Stock, par value	$ 0.001	$ 0.001
Preferred Stock, Shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	400,000	1,000,000

XML

Statements of Operations - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Income Statement [Abstract]
Revenues	$ 83,884
Cost of revenues	17,974
Gross profit	65,910
Operating expenses
Professional fees	289,344	46,362
Research and development	368	1,458
General and administrative expenses	67,265	17,068
Depreciation and amortization	488,758	7,128
Total operating expenses	845,735	72,016
Loss from operations	(779,825)	(72,016)
Other income (expense)
Loss on disposal of assets	(12,817)
Total other income (expense)	12,817
Net income (loss)	$ (792,642)	$ (72,016)
Basic income (loss) per common share	$ (0.03)	$ (0.00)
Basic weighted average common shares outstanding	29,725,302	20,502,002

XML

Statements of Cash Flows - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash Flows from Operating Activities
Net loss	$ (792,642)	$ (72,016)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based consulting	41,518	13,836
Depreciation and amortization	488,758	7,128
Changes in assets and liabilities
(Increase) decrease in prepaid expense	(22,008)
(Increase) decrease in deposits	(5,742)
Increase in accounts receivable	(18,012)
Increase in shareholder receivable	4,020
Increase in customer deposits	21,650
Increase (decrease) in accounts payable	(24,786)	(15,752)
Increase (decrease) in accounts payable related party	27,581
Net cash from operating activities	(279,663)	(66,804)
Cash Flows from investing
Purchase of intangible assets	(19,387)	(2,275)
Purchase of fixed assets	(32,634)	(9,444)
Investment in Flexpower system	(17,643)
Loss on disposal of fixed assets	(12,817)
Net cash used in investing activities	(17,213)	(11,719)
Cash Flows from Financing Activities
Payments on short-term loans	(2,261)
Proceeds from issuance of common stock	68,000	130,000
Net cash from financing activities	65,739	130,000
Net increase (decrease) in Cash	(231,137)	51,477
Ending cash balance	205,392	140,010
Supplemental disclosure of cash flow information
Cash paid for interest
Cash paid for tax
Non-Cash investing and financing transactions
Cashless exercise of options	$ 4,399

XML

ORGANIZATION AND LINE OF BUSINESS

3 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Line of Business

1. ORGANIZATION AND LINE OF BUSINESS

Organization

CleanSpark, Inc. (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, the Company entered into an Asset and Intellectual Property Purchase Agreement pursuant to which the Company acquired: (i) all Intellectual Property rights, title and interest in Patent # 8,105,401 'Parallel Path, Downdraft Gasifier Apparatus and Method' and Patent # 8,518,133 'Parallel Path, Downdraft Gasifier Apparatus and Method' and (ii) all of the Property rights, title and interest in a 32 inch Downdraft Gasifier ("Gasifier”) and (iii) assumed of $156,900 in liabilities.

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 Seller and its line of business and assumed $200,000 in liabilities.

In October 2016, the Company changed its name to CleanSpark, Inc. through a short-form merger in order to better reflect the brand identity.

Line of Business

Through the acquisition of CleanSpark, LLC, the Company provides microgrid solutions to military, commercial and residential properties.

The services offered consist of turn-key microgrid implementation services, microgrid design and engineering, project development consulting services and solar photovoltaic installation and consulting. The work is performed under fixed price bid contracts, and negotiated price contracts. The Company performed all of its work in California during 2016.

The Company also continues to pursue the development of its gasification technologies for commercial deployment. The Company has been granted multiple patents protecting what it believe to be a breakthrough design for the next generation in waste-to-energy technology. The increased efficiency compared to existing solutions results in a significantly lower cost per watt of electricity produced. The Company has completed a commercial prototype and has completed preliminary testing and it is currently working with its manufacturing partners to improve durability and efficiency. Upon completion of product development, The Company intends to deploy its gasification solutions to the Company’s pipeline of commercial microgrid customers in order maximize the conversion of its customer waste streams into electricity.

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BASIS OF PRESENTATION AND GOING CONCERN

3 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION AND GOING CONCERN

2. BASIS OF PRESENTATION AND GOING CONCERN

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

Going concern – The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $7,227,482 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

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SUMMARY OF SIGNIFICANT POLICIES

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT POLICIES

 3. SUMMARY OF SIGNIFICANT POLICIES

This summary of significant accounting policies of CleanSpark Inc. 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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, and CleanSpark, II, 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, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, 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.

Revenue Recognition – The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended December 31, 2016 and 2015 the Company reported revenues of $83,884 and $0, respectively.

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts, which require the revision, become known.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billings in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016 and September 30, 2016, the costs in excess of billings balance were $0 and $0, and the billings in excess of costs balance were $0 and $0, respectively.

Accounts receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts.  Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract.  General and administrative expenses are charged to operations as incurred and are not allocated to contract costs. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $0 and $0 were included in the balance of trade accounts receivable as of December 31, 2016 and September 30, 2016, respectively.

Accounts Receivable – 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 $0 and $0 at December 31, 2016, and September 30, 2016, respectively.

Cash and cash equivalents – For purposes of the statement 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 $205,392 and $436,529 in cash and cash equivalents as of December 31, 2016 and September 30, 2016, respectively.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2016, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Warranty Liability – The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s general counsel and outside counsel retained to handle specific product liability cases.  The Company’s manufacturers and service providers currently provide substantial warranties between ten to twenty-five years with full reimbursement to replace and install replacement parts.  Warranty costs and associated liabilities for the periods ended December 31, 2016 and 2015 were $0 and $0, respectively.

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of December 31, 2016, the Company has not implemented an employee stock based compensation plan.

Non-Employee Stock Based Compensation – The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. 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 for 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.

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.

Indefinite Lived Intangibles and Goodwill Assets

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 tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and 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 a qualitative assessment of indefinite lived intangibles and goodwill at September 30, 2016, and determined there was no impairment of indefinite lived intangibles and goodwill.

Business Combinations

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Income taxes – The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

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 one reportable segment for financial reporting purposes, which represents the Company's core business.

Recently Issued Accounting Pronouncements –The Company has evaluated the all recent accounting pronouncements through ASU 2017-04, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. 

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BUSINESS ACQUISITION

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Business Acquisition

4.     BUSINESS ACQUISITION

On July 1, 2016, the Company entered into the Purchase Agreement with Seller. Pursuant to the Purchase Agreement, the Company acquired all the assets related to Seller and its line of business and assumed certain liabilities.

The Assets the Company purchased from Seller include:

• Equipment and other tangible assets;

• Domain names, websites and intellectual property;

• All rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by the Seller;

• Contracts to which Seller is bound;

• Current and future customer accounts, including accounts receivable;

• The holdings that CleanSpark Holdings LLC has in CleanSpark LLC, and any investments it has as well; and

• Any other assets of any nature whatsoever that are related to or used in connection with the business of Seller and its goodwill.

On July 20, 2016, the parties to the Purchase Agreement entered into an amendment (the “Amendment”) that revised the assets to be acquired under the Purchase Agreement. Specifically, the parties decided on the following:

• Specialized Energy Solutions, Inc. would transfer and assign the ability to use its name and all of its Intellectual Property to CleanSpark II, LLC, and thereafter Specialized Energy Solutions, Inc. will not be included in the Assets acquired; and

• Clean Spark Technologies, LLC agrees to transfer and assign all of its Intellectual Property to CleanSpark II, LLC, and thereafter Clean Spark Technologies, LLC will not be included in the Assets acquired.

The Amendment also included an option to acquire Specialized Energy Solutions, Inc. and Clean Spark Technologies, LLC, which the parties agreed upon as follows:

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Specialized Energy Solutions, Inc. for 1,000 shares of CleanSpark Inc. Common Stock; and

• CleanSpark II, LLC is hereby granted a 3-year exclusive option to purchase Clean Spark Technologies, LLC for 1,000 shares of CleanSpark Inc. Common Stock.

On August 19, 2016, the parties to the Purchase Agreement entered into a second amendment that revised the Closing Date of the transaction.

The Assumed Liabilities, consisted of certain accounts payable amounting to approximately $262,873 arising out of the Assets. Per the agreement the liabilities were to be limited to $200,000 therefore $62,873 must be reimbursed by CleanSpark Holdings, LLC.

As consideration, the Company issued to Seller six million (6,000,000) shares of common stock with a fair value of $18,420,000 and five-year warrants to purchase four million five hundred thousand (4,500,000) shares of common stock at an exercise price of $1.50 per share. The warrants were valued at $13,675,500 using the Black Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 1.0%, a dividend yield of 0% and volatility rate of 218%. The warrants were fully earned and vested on July 1, 2016. 

Simultaneously with the Purchase Agreement, the Company entered into certain ancillary agreements (the “Ancillary Agreements”) with Seller, consisting of a bill of sale, intellectual property assignment and lock-up agreement. The lock-up agreement prevents Seller from selling the Company’s securities in the public market for a year.

The Purchase Agreement contained customary representations, warranties and covenants. In addition, the Company and Seller agreed to appoint one (1) candidate chosen by Seller to the board of directors of the Company. As a result, Bryan Huber was appointed as a member of the board of directors. The term of the appointment of shall be in accordance with the Company’s bylaws.

CleanSpark provides microgrid, design, engineering, installation and consulting services to military, commercial and residential customers. The acquisition is designed to enhance the Company’s services for renewable technology and provide a pipeline for deployment of its gasification technology. As a result of the Purchase Agreement, CleanSpark, LLC became a wholly-owned subsidiary of the Company.

The acquisition was accounted for under ASC 805 and the transaction was valued for accounting purposes at $32,095,500, which was the fair value of the Assets acquired at time of acquisition. The assets and liabilities of the Seller were recorded at their respective fair values as of the date of acquisition. Since the Company determined there were no other separately identifiable intangible assets, any difference between the cost of the acquired entity and the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The acquisition date estimated fair value of the consideration transferred consisted of the following:

Shares of Common Stock	$	18,420,000
Stock warrants		13,675,500
Total purchase price	$	32,095,500
Tangible assets acquired	$	4,911,367
Liabilities assumed		(262,573)
Net tangible assets		4,648,794
Intangible assets acquired		22,526,847
Goodwill		4,919,859
Total purchase price	$	32,095,500

Key factors that make up the goodwill created by the transaction include knowledge and experience of the acquired team and infrastructure.

Pro forma results

The following tables set forth the unaudited pro forma results of the Company as if the acquisition of Seller had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the periods presented.

	Three Months  ended, December 31, 2015
Total revenues	$	1,863,727
Net Income (loss)		(957,158	)
Basic net income (loss) per common share	$	(0.04	)

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FIXED ASSETS

3 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

FIXED ASSETS

5. FIXED ASSETS

During the quarter ending December 31, 2016, the Company disposed of fixed assets with a net book value of $19,817 in exchange for consideration of $7,000. As a result, the company reported a $12,817 loss on disposal of assets for the three months ending December 31, 2016.

Fixed assets consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
Machinery and equipment	$	747,931		$	769,276
Furniture and fixtures		72,253			72,484
Total		820,184			841,760
Less: accumulated depreciation		(83,246	)		(58,785	)
Fixed assets, net	$	736,938		$	782,975

Depreciation expense for the three months ended December 31, 2016 and 2015 was $26,220 and $6,451, respectively.

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MICROGRID ASSETS

3 Months Ended

Dec. 31, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

MicroGrid Assets

10. PREPAID EXPENSES

Prepaid expenses consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016		September 30, 2016
Prepaid stock compensation	$	8,612	$	50,130
Prepaid rents		3,400		850
Prepaid dues and subscriptions		10,000
Prepaid materials		15,526
Prepaid insurance		674		6,742
Total prepaid expenses	$	38,212	$	57,722

On January 22, 2016, the Company appointed Mr. Greg Gohlinghorst as a member of the Company’s board of advisors. He was issued 35,000 shares of common stock for his appointment.  The shares were valued at $105,000 or $3.00 per share. The amount was capitalized as a prepaid expense and is being amortized over a twelve-month term; during the three months ended December 31, 2016, the Company recorded an expense of $26,394. 

On January 15, 2016, the Company entered into an Investor Relations Consulting Agreement with Hayden IR (“HIR”) to serve as our investor relations firm for a period of twelve months. Under the Agreement, HIR’s responsibilities include: implementing and maintaining an ongoing market support system to expand awareness of the Company in the investment community; arranging conference calls and interviews; providing feedback on expectations of results and company value; assisting with the presentation of periodic results of operations; monitoring newswires and industry publications; drafting and coordinating press releases, among other services.

As compensation for the services under the Agreement, the Company agreed to pay HIR a cash monthly fee of $3,500 for the first six months of the agreement. The monthly fee increased to $6,500 starting in the seventh month. The Company also agreed to issue to HIR 20,000 shares of restricted common stock within 30 days of execution. The shares were valued at $60,000 or $3.00 per share. The Stock compensation has been recorded as a prepaid expense and is being amortized evenly over the twelve-month service period. During the three months ending December 31, 2016, the Company recorded $15,124 in stock based compensation associated with this agreement.

On October 1, 2016, the Company executed a six-month lease agreement for warehouse space that calls for the Company to make payments of $850 per month. The Company prepaid the entire lease term. The prepaid lease is being amortized over the six-month term; during the three months ended December 31, 2016, the Company recorded an expense of $2,550. 

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FLEXPOWER SYSTEM

3 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Flexpower System

7.    FLEXPOWER SYSTEM

A microgrid is comprised of any number of generation, energy storage, and smart distribution assets that serve single or multiple loads, both connected to the grid and islanded. The FlexPower system is an integrated microgrid control platform that seamlessly integrates energy generation with energy storage devices and controls facility loads to provide energy security in real time. The system is able to interoperated with the local utility grid and allows users the ability to obtain the most cost effective power for a facility. The FlexPower system is ideal for commercial, industrial, mining, defense, campus and community users ranging from 4 kw to 100 MW and beyond and can deliver power at or below the current cost of utility power.

The FlexPower System proprietary software and methodology was acquired as part of the CleanSpark acquisition and the project was capitalized at $20,007,624, which was the fair value of the assets at the time of the acquisition.

The FlexPower system consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
FlexPower System	$	20,025,267		$	20,007,624
Less: accumulated amortization		(667,211	)		(331,638	)
Intangible assets, net	$	19,358,056		$	19,675,986

Amortization expense for the three months ended December 31, 2016 and 2015 was $335,573 and $0, respectively.

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INTANGIBLE AND OTHER ASSETS

3 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE AND OTHER ASSETS

8.    INTANGIBLE AND OTHER ASSETS

Intangible assets consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016			September 30, 2016
Patents	$	83,841		$	82,641
Websites		10,632			9,777
Brand and Client lists		2,497,472			2,497,472
Trademarks		5,928			4,858
Software		26,990			10,728
Less: accumulated amortization		(206,378	)		(137,546	)
Intangible assets, net	$	2,418,485		$	2,467,930

Amortization expense for the three months ended December 31, 2016 and 2015 was $68,832 and $677, respectively.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

9. RELATED PARTY TRANSACTIONS

On October 1, 2014, the Company entered into a Consulting agreement with Matthew Schultz, its Chief Executive Officer for management services. In accordance with this agreement, Mr. Schultz provides services to the Company in exchange for $7,500 to $15,000 per month plus additional reimbursable expenses incurred. The term of the agreement was one month and automatically renewed each month until cancelled by either party. During the quarter ending December 31, 2016, Mr. Schultz was paid $30,076 in accordance with this agreement and is owed $29,924 in accrued compensation as of December 31, 2016.

On July 1, 2016, the Company entered into a Consulting agreement with Zachary Bradford, its President and Chief Financial Officer for management services. In accordance with this agreement, Mr. Bradford provides services to the Company in exchange for $15,000 per month plus reimbursable expenses incurred. During the quarter ending December 31, 2016, Mr. Bradford was paid $25,000 under this this agreement and was owed $50,000 in accrued compensation as of December 31, 2016.

On July 1, 2016, the Company entered into a Consulting agreement with Bryan Huber, its Chief Operating Officer for management services. In accordance with this agreement, Mr. Huber provided services to the Company in exchange for $2,000 per week plus reimbursable expenses incurred. During the quarter ending December 31, 2016, Mr. Huber was paid $32,000 under this this agreement and was owed $6,000 in accrued compensation as of December 31, 2016.

On July 1, 2016, as part of the acquisition of the assets of CleanSpark, LLC, the Company agreed to assume certain trade payables not to exceed $200,000 associated with the ongoing business. On the date of the acquisition, the Company assumed $262,573 in liabilities and, as a result, $62,573 became reimbursable by CleanSpark Holdings, LLC who is now a shareholder. $49,000 was due from CleanSpark Holdings as of December 31, 2016. During the quarter ending December 31, 2016, the Company received net reimbursements of $4,020 related to this balance.

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PREPAID EXPENSES

3 Months Ended

Dec. 31, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

PREPAID EXPENSES

10. PREPAID EXPENSES

Prepaid expenses consist of the following as of December 31, 2016 and September 30, 2016:

	December 31, 2016		September 30, 2016
Prepaid stock compensation	$	8,612	$	50,130
Prepaid rents		3,400		850
Prepaid dues and subscriptions		10,000
Prepaid materials		15,526
Prepaid insurance		674		6,742
Total prepaid expenses	$	38,212	$	57,722

On January 22, 2016, the Company appointed Mr. Greg Gohlinghorst as a member of the Company’s board of advisors. He was issued 35,000 shares of common stock for his appointment.  The shares were valued at $105,000 or $3.00 per share. The amount was capitalized as a prepaid expense and is being amortized over a twelve-month term; during the three months ended December 31, 2016, the Company recorded an expense of $26,394. 

On January 15, 2016, the Company entered into an Investor Relations Consulting Agreement with Hayden IR (“HIR”) to serve as our investor relations firm for a period of twelve months. Under the Agreement, HIR’s responsibilities include: implementing and maintaining an ongoing market support system to expand awareness of the Company in the investment community; arranging conference calls and interviews; providing feedback on expectations of results and company value; assisting with the presentation of periodic results of operations; monitoring newswires and industry publications; drafting and coordinating press releases, among other services.

As compensation for the services under the Agreement, the Company agreed to pay HIR a cash monthly fee of $3,500 for the first six months of the agreement. The monthly fee increased to $6,500 starting in the seventh month. The Company also agreed to issue to HIR 20,000 shares of restricted common stock within 30 days of execution. The shares were valued at $60,000 or $3.00 per share. The Stock compensation has been recorded as a prepaid expense and is being amortized evenly over the twelve-month service period. During the three months ending December 31, 2016, the Company recorded $15,124 in stock based compensation associated with this agreement.

On October 1, 2016, the Company executed a six-month lease agreement for warehouse space that calls for the Company to make payments of $850 per month. The Company prepaid the entire lease term. The prepaid lease is being amortized over the six-month term; during the three months ended December 31, 2016, the Company recorded an expense of $2,550. 

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STOCKHOLDERS EQUITY (DEFICIT)

3 Months Ended

Dec. 31, 2016

Equity [Abstract]

STOCKHOLDERS EQUITY (DEFICIT)

11. STOCKHOLDERS’ EQUITY (DEFICIT)

Overview

The Company’s authorized capital stock consists of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2016, there were 32,318,471 shares of common stock issued and outstanding and 1,000,000 shares of preferred stock issued and outstanding. 

Description of Common Stock

The Company’s common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by the Company’s board of directors with respect to any series of preferred stock, the holders of common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of the Company’s common stock representing fifty percent (50%) of the Company’s capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of the Company’s outstanding shares is required to effectuate certain fundamental corporate changes such as a liquidation, merger or an amendment to the Company’s articles of incorporation.

Subject to any preferential rights of any outstanding series of preferred stock created by the Company’s board of directors from time to time, the holders of shares of common stock will be entitled to such cash dividends as may be declared from time to time by the Company’s board of directors from funds available therefor.

Subject to any preferential rights of any outstanding series of preferred stock created from time to time by the Company’s board of directors, upon liquidation, dissolution or winding up, the holders of shares of common stock will be entitled to receive pro rata all assets available for distribution to such holders.

In the event of any merger or consolidation of the Company with or into another company in connection with which shares of the Company’s common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of the Company’s common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of the Company’s common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company’s common stock.

Description of Preferred Stock

The Company’s board of directors is authorized to divide the authorized shares of the Company’s preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. The Company’s board of directors is authorized, within any limitations prescribed by law and the Company’s articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock, including, but not limited to, the following:

• the rate of dividend, the time of payment of dividends, whether dividends are cumulative, and the date from which any dividends accrue;

• whether shares may be redeemed, and, if so, the redemption price and the terms and conditions of redemption;

• the amount payable upon shares in the event of voluntary or involuntary liquidation;

• sinking fund or other provisions, if any, for the redemption or purchase of shares;

• the terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;

• voting powers, if any, provided that if any of the preferred stock or series thereof have voting rights, such preferred stock or series shall vote only on a share for share basis with the common stock on any matter, including, but not limited to, the election of directors, for which such preferred stock or series has such rights; and,

• subject to the foregoing, such other terms, qualifications, privileges, limitations, options, restrictions, and special or relative rights and preferences, if any, of shares or such series as the board of directors may, at the time so acting, lawfully fix and determine under the laws of the State of Nevada.

On April 15, 2015, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State. The Certificate of Amendment authorized ten million (10,000,000) shares of preferred stock. The Company’s Board of Directors and a majority of its shareholders approved the Certificate of Amendment.

On April 15, 2015, 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 A Preferred Stock, consisting of up to one million (1,000,000) 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 the Company 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 the Company’s common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

Common Stock issuances

During the period commencing October 1, 2016 through December 31, 2016, the Company received $68,000 from 4 investors pursuant to private placement agreements with the investors to purchase 85,000 shares of the Company’s $0.001 par value common stock at a purchase price equal to $0.80 for each share of Common stock.

In November of 2016, the Company issued 2,932,704 shares of common stock to two officers for the cashless exercise of 3,000,000 options.

In December of 2016, the Company issued 1,466,352 shares of common stock to a director for the cashless exercise of 1,500,000 options.

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STOCK WARRANTS

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

STOCK WARRANTS

12. STOCK WARRANTS

The following is a summary of stock warrants activity during the year ended September 30, 2016 and 2015. 

	Number of Shares		Weighted Average Exercise Price
Balance, September 30, 2014		8,097,600	$	0.10
Warrants granted and assumed		5,014,500	$	1.38
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		—		—
Balance, September 30, 2015		13,112,100	$	0.59
Warrants granted and assumed		—	$	—
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		4,500,000		0.083
Balance, September 30, 2016		8,612,100	$	0.85

As of September 30, 2016, there are warrants exercisable to purchase 8,612,100 shares of common stock in the Company.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

13. COMMITMENTS AND CONTINGENCIES

On January 22, 2016, the Company relocated its corporate office to 70 North Main Street, Suite 105, Bountiful, Utah 84010. The Company executed a one-year lease agreement that calls for the Company to make payments of $850 per month. The Company has prepaid rent for January 2017. Future minimum lease payments under the operating leases for the facilities as of December 31, 2016, are $0. At the conclusion of the lease term the Company intends to continue occupying the leased space on a month to month basis.

CleanSpark, LLC has agreed to warranty and maintain the microgrid assets located on the fractalgrid demonstration facility to Camp Pendleton Marine Corp Base. In exchange, the Company has been granted the permission to locate its system on the base and the access to conduct guided tours of the fractalgrid demonstration facility for the Company’s potential customers.

On December 16, 2016, the Company executed an 18-month lease agreement at 6365 Nancy  Ridge Drive, 2^nd Floor, San Diego California. The Company executed a one-year lease agreement that calls for the Company to make payments of $2,375 per month through December 31, 2017 and $2,446 per month from January 1, 2018 through May 31, 2018. Future minimum lease payments under the operating leases for the facilities as of December 31, 2016, are $28,500 and $12,230 for the fiscal years ending December 31, 2017 and 2018, respectively.

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MAJOR CUSTOMER

3 Months Ended

Dec. 31, 2016

Notes to Financial Statements

MAJOR CUSTOMER

14.   MAJOR CUSTOMER

For the three months ended December 31, 2016 and 2015, the Company had the following customers that represented more than 10% of sales.

	December 31, 2016			December 31, 2015
Bethel-Webcor JV-1		38.1	%		—
Jacobs/ HDR a joint venture		46.7	%		—
Considine Companies		4.5	%		—
Sungevity		10.7	%		—

For the quarters ended December 31, 2016 and 2015, the Company had no suppliers that represented more than 10% of direct material costs.

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SUBSEQUENT EVENTS

3 Months Ended

Dec. 31, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

15.    SUBSEQUENT EVENTS

During the period commencing January 1, 2017 through February 9, 2017, the Company received $95,000 from 4 investors pursuant to private placement agreements with the investors to purchase 118,750 shares of the Company’s $0.001 par value common stock at a purchase price equal to $0.80 for each share of Common stock.

On February 9, 2017, the Company entered into a Debt Settlement Agreement with Webcor Construction LP (“Webcor”) to settle $158,753 in debt owed to Webcor. The Company agreed to pay Webcor $58,000 on or before February 28, 2017 and to issue 50,000 shares of the Company’s common stock within 4 days of execution. Upon receipt of payment, Webcor agreed to release the full amount of the debt. As of the date of this filing, the shares have been issued and the Company intends to pay the $58,000 in cash prior to February 28, 2017. The shares issued were deemed to have a fair value of $212,500 on the date of the transaction and a loss on settlement of debt of $111,747 was recorded as a result of the Debt Settlement Agreement.

On February 6, 2017, the Company and CleanSpark Holdings, LLC (“Holdings”) entered into an Assumption of Debt Agreement to settle Debts Holdings owed the Company related to the June, 30, 2016 Purchase Agreement. Pursuant to the Purchase Agreement, the Company agreed to assume up to $200,000 in liabilities arising out of the assets. In the course of due diligence, CleanSpark discovered that they had actually assumed $275,586 in liabilities. As a result of the overage in assumed liabilities, Holdings had paid the Company $25,000 and remained indebted to CleanSpark for the overage amount of $50,586. Holdings agreed to reassume $44,919 in settlement of the full amount of the debt overage and the Company agreed to accept the assumption of $44,919 in settlement of the full amount of the Debt overage. A loss on settlement of debt of $5,667 was recorded by the Company as a result of the agreement.

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BUSINESS ACQUISITION (Tables)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Fair Value of the consideration transferred

Shares of Common Stock	$	18,420,000
Stock warrants		13,675,500
Total purchase price	$	32,095,500
Tangible assets acquired	$	4,911,367
Liabilities assumed		(262,573)
Net tangible assets		4,648,794
Intangible assets acquired		22,526,847
Goodwill		4,919,859
Total purchase price	$	32,095,500

Pro Forma Results

	Three Months  ended, December 31, 2015
Total revenues	$	1,863,727
Net Income (loss)		(957,158	)
Basic net income (loss) per common share	$	(0.04	)

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FIXED ASSETS (Tables)

3 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Schedule of Fixed Assets

	December 31, 2016			September 30, 2016
Machinery and equipment	$	747,931		$	769,276
Furniture and fixtures		72,253			72,484
Total		820,184			841,760
Less: accumulated depreciation		(83,246	)		(58,785	)
Fixed assets, net	$	736,938		$	782,975

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MICROGRID ASSETS (Tables)

3 Months Ended

Dec. 31, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Microgrid Assets

	December 31, 2016			September 30, 2016
Camp Pendleton FractalGrid	$	4,625,339		$	4,625,339
Less: accumulated depreciation		(115,634	)		(57,501	)
Fixed assets, net	$	4,509,705		$	4,567,838

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FlEXPOWER SYSTEM (Tables)

3 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Flexpower System

	December 31, 2016			September 30, 2016
FlexPower System	$	20,025,267		$	20,007,624
Less: accumulated amortization		(667,211	)		(331,638	)
Intangible assets, net	$	19,358,056		$	19,675,986

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INTANGIBLE AND OTHER ASSETS (Tables)

3 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

	December 31, 2016			September 30, 2016
Patents	$	83,841		$	82,641
Websites		10,632			9,777
Brand and Client lists		2,497,472			2,497,472
Trademarks		5,928			4,858
Software		26,990			10,728
Less: accumulated amortization		(206,378	)		(137,546	)
Intangible assets, net	$	2,418,485		$	2,467,930

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PREPAID EXPENSES (Tables)

3 Months Ended

Dec. 31, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Prepaid Expenses

	December 31, 2016		September 30, 2016
Prepaid stock compensation	$	8,612	$	50,130
Prepaid rents		3,400		850
Prepaid dues and subscriptions		10,000
Prepaid materials		15,526
Prepaid insurance		674		6,742
Total prepaid expenses	$	38,212	$	57,722

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STOCK WARRANTS (Tables)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Warrant Summary

	Number of Shares		Weighted Average Exercise Price
Balance, September 30, 2014		8,097,600	$	0.10
Warrants granted and assumed		5,014,500	$	1.38
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		—		—
Balance, September 30, 2015		13,112,100	$	0.59
Warrants granted and assumed		—	$	—
Warrants expired		—		—
Warrants canceled		—		—
Warrants exercised		4,500,000		0.083
Balance, September 30, 2016		8,612,100	$	0.85

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MAJOR CUSTOMER (Tables)

3 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Major Customers

	December 31, 2016			December 31, 2015
Bethel-Webcor JV-1		38.1	%		—
Jacobs/ HDR a joint venture		46.7	%		—
Considine Companies		4.5	%		—
Sungevity		10.7	%		—

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ORGANIZATION AND LINE OF BUSINESS (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2016	Jul. 01, 2016	Mar. 25, 2014
Date of Incorporation	Oct. 15, 1987
Date began publically trading	Jan. 22, 2016
Common Stock, par value	$ 0.001
Liabilities Assumed		$ 200,000	$ 156,900

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GOING CONCERN (Details Narrative)	Dec. 31, 2016 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accumulated earnings (deficit)	$ (7,227,482)

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SUMMARY OF SIGNIFICANT POLICIES (Details)

3 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, and CleanSpark, II, LLC. All material intercompany transactions have been eliminated upon consolidation of these entities.

Use of Estimates

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, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, 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.

Cash And Cash Equivelents

Cash and cash equivalents – For purposes of the statement 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 $205,392 and $436,529 in cash and cash equivalents as of December 31, 2016 and September 30, 2016, respectively.

Accounts Receivable

Accounts Receivable – 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 $0 and $0 at December 31, 2016, and September 30, 2016, respectively.

Fair Value of Financial Instruments

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Revenue recognition

Revenue Recognition – The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended December 31, 2016 and 2015 the Company reported revenues of $83,884 and $0, respectively.

Revenues and related costs on construction contracts are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (“ASC 605-35”). Under this method, contract revenues and related expenses are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and any allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as it is determined.

Revisions in cost and profit estimates during the course of the contract are reflected in the accounting period in which the facts, which require the revision, become known.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

The Asset, “Costs in excess of billings”, represents revenues recognized in excess of amounts billed on contracts in progress. The Liability, “Billings in excess of costs”, represents billings in excess of revenues recognized on contracts in progress. At December 31, 2016 and September 30, 2016, the costs in excess of billings balance were $0 and $0, and the billings in excess of costs balance were $0 and $0, respectively.

Accounts receivables are recorded on contracts for amounts currently due based upon progress billings, as well as retention, which are collectible upon completion of the contracts.  Accounts payable to material suppliers and subcontractors are recorded for amounts currently due based upon work completed or materials received, as are retention due subcontractors, which are payable upon completion of the contract.  General and administrative expenses are charged to operations as incurred and are not allocated to contract costs. Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $0 and $0 were included in the balance of trade accounts receivable as of December 31, 2016 and September 30, 2016, respectively.

Accounts Receivable – 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 $0 and $0 at December 31, 2016, and September 30, 2016, respectively.

Cash and cash equivalents – For purposes of the statement 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 $205,392 and $436,529 in cash and cash equivalents as of December 31, 2016 and September 30, 2016, respectively.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2016, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

Long-lived Assets

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.

Stock-based compensation

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of December 31, 2016, the Company has not implemented an employee stock based compensation plan.

Income taxes

Income taxes – The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

Non-Employee Stock Based Compensation

Non-Employee Stock Based Compensation – The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. 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

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 for 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.

Recent Accounting Pronouncements

The Company has evaluated all other recent accounting pronouncements through September 30, 2015, and believes that none of them will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

Warranty Liability

Warranty Liability – The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with the Company’s general counsel and outside counsel retained to handle specific product liability cases.  The Company’s manufacturers and service providers currently provide substantial warranties between ten to twenty-five years with full reimbursement to replace and install replacement parts.  Warranty costs and associated liabilities for the periods ended December 31, 2016 and 2015 were $0 and $0, respectively.

Goodwill

Indefinite Lived Intangibles and Goodwill Assets

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 tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and 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 a qualitative assessment of indefinite lived intangibles and goodwill at September 30, 2016, and determined there was no impairment of indefinite lived intangibles and goodwill.

Business Combinations

Business Combinations

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Segment Reporting

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 one reportable segment for financial reporting purposes, which represents the Company's core business.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements –The Company has evaluated the all recent accounting pronouncements through ASU 2017-04, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. 

Concentration Risk

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of December 31, 2016, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

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SUMMARY OF SIGNIFICANT POLICIES (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Mar. 25, 2014
Accounting Policies [Abstract]
Cash	$ 205,392	$ 436,529	$ 436,529
Revenues	$ 83,884

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BUSINESS ACQUISITION (Details)	3 Months Ended
	Dec. 31, 2016 USD ($) shares
Accounting Policies [Abstract]
Shares of Common Stock | shares	18,420,000
Stock Warrants | shares	13,675,500
Total Purchase Price	$ 32,095,500
Tangible Assets Acquired	4,911,367
Liabilities Assumed	(262,573)
Net Tangible Assets	4,648,794
Intangible Assets Acquired	22,526,847
Goodwill	4,919,589
Total Purchase Price	32,095,500
Total Revenues	1,863,727
Net Income (Loss)	$ (957,158)
Basic and dilutedincome (loss) per common share	(4.00%)

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BUSINESS ACQUISITION (Details narrative)

3 Months Ended

Dec. 31, 2016

USD ($)

$ / shares

shares

Accounting Policies [Abstract]

Date of Transaction

Aug. 19, 2016

Accounts Payable

$ 262,873

Liabilities limited to

200,000

Liabilities to be Reimbursed

$ 62,873

Shares issued to Seller | shares

6,000,000

Fair Value of Shares Issued

$ 18,420,000

Exercise Price Per Share | $ / shares

$ 1.5

Warrants to purchase shares | shares

4,500,000

Value of Warrants Issued

$ 13,675,500

details

As consideration, the Company issued to Seller six million (6,000,000) shares of common stock with a fair value of $18,420,000 and five-year warrants to purchase four million five hundred thousand (4,500,000) shares of common stock at an exercise price of $1.50 per share. The warrants were valued at $13,675,500 using the Black Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 1.0%, a dividend yield of 0% and volatility rate of 218%. The warrants were fully earned and vested on July 1, 2016. 

Fair Value of Asset Acquired

$ 32,095,500

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FIXED ASSETS - Schedule of Property Pant and Equipment (Details) - USD ($)	Dec. 31, 2016	Sep. 30, 2016	Mar. 25, 2014
Property, Plant and Equipment [Abstract]
Machinery and equipment	$ 747,931	$ 769,276
Tenat improvements		1,533
Furniture and fixtures	72,253	72,484
Total	820,184	841,760
Less: accumulated depreciation	(83,246)	(58,785)
Fixed assets, net of accumulated depreciation	$ 736,938	$ 782,975	$ 782,975

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FIXED ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Accounting Policies [Abstract]
Depreciation Expense	$ 26,220	$ 6,451

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MICROGRID ASSETS (Details) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Camp Pedleton FractalGrid	$ 4,625,339	$ 4,625,339
Less Accumulated Depreciation	(115,634)	(57,501)
Fixed Assets, net	$ 4,509,705	$ 4,567,838

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MICROGRID ASSETS (Details narrative) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Capitalization of Project	$ 4,625,339
Depreciation Expense	$ 58,133	$ 0

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FLEXPOWER SYSTEM (Details) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016
Fair Value Disclosures [Abstract]
FlexPower System	$ 20,025,267	$ 20,007,624
Less: Accumulated Depreciation	(667,211)	(331,638)
Intangible Assets Net	$ 19,358,056	$ 19,675,986

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FLEXPOWER SYSTEM (Details Narrative)	3 Months Ended
	Dec. 31, 2016 USD ($)
Fair Value Disclosures [Abstract]
Project Capitalization	$ 20,007,624
Amortization Expense	$ 331,638

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INTANGIBLE AND OTHER ASSETS - Schedule of Intangible Assets (Details) - USD ($)	Dec. 31, 2016	Sep. 30, 2016	Mar. 25, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Patents	$ 83,841	$ 82,641
Websites	10,632	9,777
Brand and Client List	2,497,472	2,497,472
Trademarks	5,928	4,858
Software	26,990	10,728
Less: accumulated depreciation	(206,378)	(137,546)
Fixed assets, net of accumulated depreciation	$ 2,418,485	$ 2,467,930	$ 2,467,930

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INTANGIBLE AND OTHER ASSETS (Details Narrative) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Amortization Expense	$ 68,832	$ 677

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Sep. 30, 2016	Sep. 30, 2015	Mar. 25, 2014
Professional fees	$ 289,344	$ 46,362		$ 3,377,956
Common Stock, Issued	85,000
Common Stock, Par Value	$ 0.001
Common Stock, Fair Value	$ 32,318		$ 27,834	$ 20,378	$ 27,834
Reimbursements Received			$ 9,553
Acquisition
Date of Agreement				Dec. 31, 2014
Common Stock, Issued				57,474
Trade Payables not to exceed				$ 200,000
Assumed Liabilities				262,573
Reimbursable Liabilities				$ 62,573
Consulting Agmt 2
Date of Agreement			Jul. 01, 2016
Professional fees			$ 15,000
Professional fees owed			$ 30,000
Consulting Agmt
Date of Agreement			Oct. 01, 2014
Monthly Fee			$ 7,500
Term of Agreement			1 month
Professional fees			$ 97,500
Professional fees owed			$ 15,000

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PREPAID EXPENSES - (Details) - USD ($)	Dec. 31, 2016	Sep. 30, 2016
Prepaid Expenses - Schedule Of Fixed Assets Details
Prepaid Stock Compensation	$ 8,612	$ 50,130
Prepaid rents	3,400	850
Prepaid Dues and Subcription	10,000
Prepaid Materials	1,526
Prepaid Insurance	674	6,742
Total prepaid expenses	$ 38,212	$ 57,722

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PREPAID EXPENSES (Details Narrative)	3 Months Ended
	Dec. 31, 2016 USD ($) $ / shares shares
Date of Agreement	Jan. 22, 2016
Stock Based Compensation	$ 42,575
Board Member
Date Vested	Mar. 15, 2015
Options Granted, Shares | shares	180,000
Strike Price | $ / shares	$ 0.083
Options Granted, Fair Value	$ 54,411
Prepaid expense	$ 24,232
Options Term	5 years
Risk Free Interest Rate	2.11%
Dividend Yield	0.00%
Volatility Rate	11000.00%
Consulting Agmt
Date of Agreement	Jan. 15, 2016
Options Granted, Fair Value	$ 6,720
Value Per Share | $ / shares	$ 0.33
Options Term	1 year
Shares Issued | shares	20,000
Cash Monthly Fee First Six Months	$ 3,500
Cash Monthly Fee First Last Months	$ 6,500
Board Advisor
Date of Agreement	Jan. 22, 2016
Strike Price | $ / shares	$ 0.33
Options Granted, Fair Value	$ 11,666
Prepaid expense	$ 7,299
Shares Issued | shares	35,000
Consulting Agmt
Stock Based Compensation	$ 3,075

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STOCKHOLDERS EQUITY (DEFICIT) (Details Narrative) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2016	Sep. 30, 2014	Mar. 25, 2014
Common Stock, Shares authorized	100,000,000		100,000,000
Common Stock, par value	$ 0.001
Preferred Stock, Shares authorized	10,000,000		10,000,000
Preferred Stock, par value	$ 0.001		$ 0.001
Common Stock, shares issued	32,318,471		27,834,415
Preferred Stock, Shares issued	400,000		1,000,000
Series A Preferred Stock, Shares	1,000,000
Series A Preferred Stock, Par Value	$ .001
Shares issued for direct investment	85,000
Shares issued for direct investment, value	$ 68,000	$ 200,000
Dividend Rate	2.00%
Liquidation Preference Per Share	$ .02
Date of Certificate of Amendment	Apr. 15, 2015
Voting rates for shareholders	45

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STOCK WARRANTS - Schedule of Warrant Summary (Details) - $ / shares	12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Stock Warrants - Schedule Of Warrant Summary Details
Beginning Balance, number of shares	8,097,600	60,000
Beginning Balance, weighted average exercise price	$ 0.10	$ 0.36
Warrants Granted and Assumed, number of shares	514,500	13,112,100
Warrants Granted and Assumed, weighted average exercise price	$ 0.36	$ 0.10
Warrants exercised, weighted average exercise price		$ .083
Warrants expired, number of shares		4,500,000
Ending Balance, number of shares	8,612,100	8,097,600
Ending Balance, weighted average exercise price	$ 0.11	$ 0.10

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - Lease Agreements	3 Months Ended
	Dec. 31, 2016 USD ($)
Monthly Rent Expense	$ 850
Term of Agreement	1 year
Date of Lease Termination	Jan. 22, 2016

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MAJOR CUSTOMER (Details)	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
Bethel-Webcor	3810.00%
Jacobs/HDR a joint venture	4670.00%
Considine Companies	450.00%
Sungevity	1070.00%

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MAJOR CUSTOMER (Details Narrative)	3 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Notes to Financial Statements
Customer Representation Percentage	1000.00%	1000.00%
Supplier Representaion Percentage	0.00%	0.00%

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SUBSEQUENT EVENTS (Details Narrative) - USD ($)	3 Months Ended
	Dec. 31, 2016	Dec. 29, 2016	Feb. 09, 2017	Feb. 06, 2017
Issuance of Shares	2,932,704
Webcor Construction Settment			$ 158,753
Agreement to pay before Feburary 8			$ 58,000
Stock to be issued to Webcor			50,000
Fair Value of Shares			$ 212,500
Loss on debt to Webcor			$ 111,747
Assumption of Liabilities				$ 200,000
Actual Liabilities Incurred				275,586
Liabilities Paid back				25,000
Indebted to Cleanspark				50,586
Settlement				44,919
Loss on settlement of debt				$ 5,667
Private Placement
Issuance of Shares		95,000
Shares purchased by investors		118,750
Par Value Per Share		$ 0.001
Purchase Price Per Share Value		80.00%
Cash Received on Investment		$ 95,000

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Label	Element	Value
Cash and Cash Equivalents, at Carrying Value	us-gaap_CashAndCashEquivalentsAtCarryingValue	$ 436,529
Cash and Cash Equivalents, at Carrying Value	us-gaap_CashAndCashEquivalentsAtCarryingValue	$ 88,533