PREPAID EXPENSES

12 Months Ended

Sep. 30, 2017

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

PREPAID EXPENSES

Microgrid assets consisted 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.

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 were initially capitalized at $4,625,339.

In March of 2017, CleanSpark was contacted by the USMC regarding the Microgrid Assets and was informed that in order to comply with legal regulations the Company would need to obtain a land lease for the land occupied by CleanSpark’s Microgrid assets. The Company entered into discussions with the intent of obtaining the required land lease but was unable to reach a resolution with the USMC. The Company was subsequently notified that the assets would need to be assigned to the USMC or be removed and the site restored to its original condition.

In September of 2017, after determining it was unlikely to prevail on the required land lease the Company evaluated the costs to remove the assets and restore the site and determined that the costs were excessive and created a need to assume unnecessary risks. The Company also wanted to ensure the Microgrid continued to operate as a proving ground for its mPulse software which has operated continuously since 2014.

As a result, on October 13, 2017 the Company notified the USMC that they would agree to assign the ownership of the assets to the USMC under certain conditions. The Company expects the Microgrid will continue to operate under the direction of the USMC. As of the date of this filing the assignment has not been executed. An impairment expense of $2,971,468 was recorded as a result of this pending agreement for the year ending September 30, 2017.

The microgrid assets consist of the following as of September 30, 2017 and September 30, 2016:

	September 30, 2017		September 30, 2016
Camp Pendleton FractalGrid	$	—	$	4,625,339
Less: accumulated depreciation		—		(57,501)
Fixed assets, net	$	—	$	4,567,838

Depreciation expense for the year ended September 30, 2017 and 2016 was $1,601,936 and $57,501, respectively.