10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________  to __________
Commission File Number: 001-39187

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.)

1185 S. 1800 W., Suite 3

Woods Cross, Utah 84087

(Address of principal executive offices)

(702) 941-8047

(Registrant’s telephone number, including area code)

 N/A

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CLSK	The Nasdaq Stock Market LLC

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

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☐ Large accelerated filer	☒   Accelerated Filer
☐ Non-accelerated filer	☒ Smaller reporting company
	☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 17,354,277 shares as of July 30, 2020.

1

	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	11
Item 4:	Controls and Procedures	11
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	12
Item 1A:	Risk Factors	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3:	Defaults Upon Senior Securities	12
Item 4:	Mine Safety Disclosures	13
Item 5:	Other Information	13
Item 6:	Exhibits	13

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 June 30, 2020 (unaudited) and September 30, 2019;

F-2 Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019 (unaudited);

F-3 Consolidated Statements of Stockholders’ Equity for the nine months ended June 30, 2020 and 2019 (unaudited);

F-4 Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019 (unaudited);

F-5 Notes to Consolidated Financial Statements (unaudited).

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 June 30, 2020 are not necessarily indicative of the results that can be expected for the full year.

3

CLEANSPARK, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) 

	June 30, 2020			September 30, 2019
ASSETS
Current assets
Cash	$	1,955,776		$	7,838,857
Accounts receivable, net		1,744,704			777,716
Contract assets		—			57,077
Prepaid expense and other current assets		1,066,091			1,210,395
Derivative investment asset		1,544,185			—
Investment equity security		421,500			—
Investment debt security, AFS, at fair value		487,788			—
Total current assets		7,220,044			9,884,045
Fixed assets, net		129,891			145,070
Operating lease right of use asset		52,280			—
Capitalized software, net		1,018,540			1,055,197
Intangible assets, net		6,645,303			7,430,082
Goodwill		5,562,246			4,919,858
Total assets	$	20,628,304		$	23,434,252
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	1,366,388		$	848,756
Contract liabilities		149,493			499,401
Lease liability		52,999			—
Due to related parties		20,000			86,966
Loans payable, net of unamortized discounts		—			67,467
Total current liabilities		1,588,880			1,502,590
Long- term liabilities
Convertible notes, net of unamortized discounts		—			2,896,321
Loans payable		681,169			150,000
Total liabilities		2,270,049			4,548,911
Stockholders' equity
Common stock; $0.001 par value; 20,000,000 shares authorized; 16,123,507 and 4,679,018 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively		16,124			4,679
Preferred stock;  $0.001 par value; 10,000,000 shares authorized; Series A shares; 2,000,000 authorized; 1,750,000 and 1,000,000  issued and outstanding as of June 30, 2020 and September 30, 2019, respectively		1,750			1,000
Additional paid-in capital		127,679,497			111,936,125
Accumulated deficit		(109,339,116	)		(93,056,463)
Total stockholders' equity		18,358,255			18,885,341
Total liabilities and stockholders' equity	$	20,628,304		$	23,434,252

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

F-1

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

	For the Three Months Ended						For the Nine Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Revenues, net
Sale of goods revenues	$	2,995,332		$	1,142,448		$	7,272,826		$	1,516,016
Service, software and related revenues		443,342			80,288			800,955			693,526
Total revenues, net		3,438,674			1,222,736			8,073,781			2,209,542
Cost of revenues
Cost of goods sold		2,751,964			914,220			6,458,086			1,245,102
Cost of services		141,975			91,924			272,820			576,386
Total cost of revenues		2,893,939			1,006,144			6,730,906			1,821,488
Gross profit		544,735			216,592			1,342,875			388,054
Operating expenses
Professional fees		709,367			1,296,993			3,231,945			3,719,269
Payroll expenses		996,555			211,129			2,692,474			684,650
Product development		—			344,871			—			1,034,612
General and administrative expenses		279,045			222,167			820,837			478,564
Depreciation and amortization		703,367			618,130			2,004,731			1,275,249
Total operating expenses		2,688,334			2,693,290			8,749,987			7,192,344
Loss from operations		(2,143,599	)		(2,476,698	)		(7,407,112	)		(6,804,290)
Other income (expense)
Other income		20,000			—			20,000			—
Loss on settlement of debt		—			—			—			(19,425)
Unrealized gain/(loss) on equity security		(80,500	)		—			78,368			—
Unrealized gain on derivative asset		719,294			—			1,544,185			—
Interest expense, net		(7,066,496	)		(1,495,213	)		(10,518,094	)		(7,196,287)
Total other income (expense)		(6,407,702	)		(1,495,213	)		(8,875,541	)		(7,215,712)
Net loss	$	(8,551,301	)	$	(3,971,911	)	$	(16,282,653	)	$	(14,020,002)
Loss per common share - basic and diluted	$	(0.77	)	$	(0.90	)	$	(2.32	)	$	(3.45)
Weighted average common shares outstanding - basic and diluted		11,119,288			4,418,344			7,003,927			4,059,527

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

F-2

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the Nine Months Ended June 30, 2020
	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2019		1,000,000	$	1,000		4,679,018		$	4,679		$	111,936,125		$	(93,056,463	)	$	18,885,341
Shares issued for services		750,000		750		2,000			2			33,348			—			34,100
Options and warrants issued for services		—		—		—			—			602,169			—			602,169
Shares issued upon conversion of debt and accrued interest		—		—		187,100			187			(187	)		—			—
Rounding shares issued for stock split		—		—		793			1			(1	)		—			—
Net loss		—		—		—			—			—			(1,916,254	)		(1,916,254)
Balance, December 31, 2019		1,750,000	$	1,750		4,868,911		$	4,869		$	112,571,454		$	(94,972,717	)	$	17,605,356
Shares returned and cancelled		—		—		(30,000	)		(30	)		30			—			—
Options issued for business acquisition		—		—		—			—			88,935			—			88,935
Options and warrants issued for services		—		—		—			—			273,931			—			273,931
Shares issued for business acquisition		—		—		95,699			96			444,904			—			445,000
Shares issued upon conversion of debt and accrued interest		—		—		810,505			810			(810	)		—			—
Net loss		—		—		—			—			—			(5,815,098	)		(5,815,098)
Balance, March 31, 2020		1,750,000		1,750		5,745,115			5,745			113,378,444			(100,787,815	)		12,598,124
Shares issued for services		—		—		45,019			45			91,455			—			91,500
Options and warrants issued for services		—		—		—			—			169,932			—			169,932
Shares issued upon conversion of debt and accrued interest		—		—		10,333,373			10,334			14,039,666			—			14,050,000
Net loss		—		—		—			—			—			(8,551,301	)		(8,551,301)
Balance, June 30, 2020		1,750,000		1,750		16,123,507			16,124			127,679,497			(109,339,116	)		18,358,255

For the Nine Months Ended June 30, 2019
	Preferred Stock				Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Total Stockholders' Equity
Balance, September 30, 2018		1,000,000	$	1,000		3,611,645		$	3,612		$	82,990,994		$	(66,939,531	)	$	16,056,075
Shares issued for services		—		—		12,000			12			271,719			—			271,731
Options and warrants issued for services		—		—		—			—			377,475			—			377,475
Shares issued upon exercise of warrants		—		—		300			—			1,088			—			1,088
Beneficial conversion feature and shares and warrants issued with convertible debt		—		—		10,000			10			4,994,990			—			4,995,000
Shares issued for direct investment		—		—		45,225			45			361,755			—			361,800
Shares issued for settlement of debt		—		—		2,500			3			51,222			—			51,225
Commitment shares returned and cancelled		—		—		(13,750	)		(14	)		14			—			—
Net loss				—					—			—			(2,283,551	)		(2,283,551)
Balance, December 31, 2018		1,000,000	$	1,000		3,667,920		$	3,668		$	89,049,257		$	(69,223,082	)	$	19,830,843
Shares issued for services		—		—		9,000			9			328,679			—			328,688
Options and warrants issued for services		—		—		—						350,888			—			350,888
Shares issued upon exercise of warrants		—		—		217,896			218			(218	)		—			—
Shares issued upon conversion of debt		—		—		249,862			250			4,724,750			—			4,725,000
Shares and warrants issued under asset purchase agreement		—		—		175,000			175			6,071,849			—			6,072,024
Commitment shares returned and cancelled		—		—		(13,750	)		(14	)		14			—			—
Net loss				—					—			—			(7,764,540	)		(7,764,540)
Balance, March 31, 2019		1,000,000		1,000		4,305,928			4,306			100,525,219		$	(76,987,622	)	$	23,542,903
Shares issued for services		—		—		34,000			34			295,192			—			295,226
Options and warrants issued for services		—		—		—			—			161,495			—			161,495
Shares issued upon exercise of warrants		—		—		900			1			3,266			—			3,267
Beneficial conversion feature and shares and warrants issued with convertible debt		—		—		125,000			125			9,999,875			—			10,000,000
Net loss				—					—			—			(3,971,911	)		(3,971,911)
Balance, June 30, 2019		1,000,000		1,000		4,465,828			4,466			110,985,047		$	(80,959,533	)	$	30,030,980

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

F-3

CLEANSPARK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	June 30, 2020			June 30, 2019
Cash Flows from Operating Activities
Net loss		(16,282,653	)	$	(14,020,002)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		1,171,632			1,716,753
Unrealized gain on equity security		(78,368	)		—
Amortization of operating lease right of use asset		33,000			—
Depreciation and amortization		2,004,731			1,275,249
Amortization of capitalized software		121,582			1,034,612
Loss on settlement of debt		—			19,425
Provision for bad debts		27,456			—
Gain on derivative asset		(1,544,185	)		—
Amortization of debt discount		9,022,759			5,674,800
Changes in operating assets and liabilities
(Increase) decrease in prepaid expenses and other current assets		808,354			(2,621,680)
Increase in contract assets		57,077			48,157
Increase (decrease) in contract liabilities, net		(349,908	)		428,042
Increase in accounts receivable		(918,877	)		(749,999)
Increase in accounts payable		2,347,566			1,653,821
Decrease in lease liability		(32,281	)		—
Decrease in due to related parties		(66,966	)		(251,206)
Net cash used in operating activities		(3,679,081	)		(5,792,028)
Cash Flows from Investing Activities
Purchase of intangible assets		—			(2,150)
Purchase of fixed assets		(30,787	)		(27,570)
Acquisition of p2kLabs		(1,141,990	)		—
Investment in capitalized software		(84,925	)		(569,043)
Investment in debt and equity securities		(750,000	)		—
Investment in contractual joint venture		(660,000	)
Net cash used in investing activities		(2,667,702	)		(598,763)
Cash Flows from Financing Activities
Payments on promissory notes		(67,467	)		(507,876)
Proceeds from promissory notes		531,169			78,603
Proceeds from related party debts		—			75,030
Payments on related party debts		—			(457,820)
Proceeds from convertible debt, net of issuance costs		—			14,995,000
Payments on convertible debts		—			(555,000)
Proceeds from exercise of warrants		—			4,355
Proceeds from issuance of common stock		—			361,800
Net cash provided by financing activities		463,702			13,994,092
Net increase (decrease) in Cash		(5,883,081	)		7,603,301
Cash, beginning of period		7,838,857			412,777
Cash, end of period	$	1,955,776		$	8,016,078
Supplemental disclosure of cash flow information
Cash paid for interest	$	11,010		$	49,750
Cash paid for tax	$	—		$	—
Non-cash investing and financing transactions
Day one recognition of right of use asset and liability	$	85,280		$	—
Shares and options issued for business acquisition	$	533,935		$	—
Shares issued as collateral returned to treasury	$	30		$	275
Stock issued to promissory notes	$	—		$	51,225
Debt discount on convertible debt	$	—		$	14,995,000
Shares and warrants issued for asset acquisition	$	—		$	6,070,274
Shares issued for conversion of debt and accrued interest	$	14,054,876		$	4,725,000
Cashless exercise of options	$	—		$	2,179
Option expense capitalized as software development costs	$	—		$	68,750

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

F-4

CLEANSPARK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND LINE OF BUSINESS

Organization & History

CleanSpark, Inc. (“CleanSpark”, “we”, “our”, the "Company") was incorporated in the State of Nevada on October 15, 1987 as SmartData Corporation (“SmartData”). SmartData conducted a 504-public offering in the State of Nevada in December 1987 and began trading publicly in January 1988. Due to a series of unfortunate events, including the untimely death of the founding CEO, SmartData discontinued active business operations in 1992.

On March 25, 2014, we began operations in the alternative energy sector.

In December 2014, the Company changed its name to Stratean Inc. through a short-form merger in order to better reflect its new business plan.

On July 1, 2016, the Company entered into an Asset Purchase Agreement, as amended (the “Purchase Agreement”), with CleanSpark Holdings LLC, CleanSpark LLC, CleanSpark Technologies LLC, and Specialized Energy Solutions, Inc. (together, the “Seller”). Pursuant to the Purchase Agreement, the Company acquired CleanSpark, LLC and all the assets related to the Seller and its line of business 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.

On January 22, 2019, CleanSpark entered into an Agreement and Plan of Merger with Pioneer Critical Power, Inc. (“Pioneer”), whereby the Company acquired certain intellectual property assets and a customer list. As consideration, the Company issued to Pioneer’s sole shareholder (i) 175,000 shares of common stock of CleanSpark, (ii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $20.00 per share. As a result of the transaction, Pioneer became a wholly owned subsidiary of CleanSpark. On February 1, 2019, Pioneer was renamed to CleanSpark Critical Power Systems, Inc.

On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved a 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in this report and included in the financial statements and notes thereto as of and for the period ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented.

On January 31, 2020, the Company entered into a Stock Purchase Agreement (the “Agreement”) with p2klabs, Inc., a Nevada corporation (“p2k”), and its sole stockholder, Amer Tadayon (“Seller”), whereby the Company purchased all of the issued and outstanding shares of p2k from the Seller (the “Transaction”) in exchange for an aggregate purchase price of cash and equity of $1,688,935. The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020. As a result of the Transaction, p2k, is a wholly-owned subsidiary of the Company. (See note 3 for details.)

Line of Business

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

The services offered consist of microgrid design and engineering, and project development consulting services. The work is generally performed under fixed price bid contracts and negotiated price contracts.

Through CleanSpark Critical Power Systems, Inc., the Company provides custom hardware solutions for distributed energy systems that serve military and commercial residential properties. The equipment is generally sold under negotiated fixed price contracts.

Through p2kLabs, Inc., the Company provides design, software development, and other technology-based consulting services. The services provided are generally an hourly arrangement or fixed-fee project-based arrangements.

F-5

2. SUMMARY OF SIGNIFICANT POLICIES

Basis of Presentation and Liquidity

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.

The Company has incurred losses for the past several years while developing infrastructure and its software platforms. As shown in the accompanying unaudited consolidated financial statements, the Company incurred net losses of $16,282,653 during the nine months ended June 30, 2020. In response to these conditions and to ensure the Company has sufficient capital for ongoing operations for a minimum of 12 months, we have raised additional capital through the sale of debt and equity securities pursuant to a registration statement on Form S-3. (See Note 10 and Note 18 for additional details.) As of June 30, 2020, the Company had working capital of $5,631,164.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II LLC, CleanSpark Critical Power Systems Inc. and p2kLabs, Inc. All material intercompany transactions have been eliminated upon consolidation of these entities.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill impairment, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s operations and financial results during 2020 as such impact will depend on the ultimate severity and scope of the COVID-19 pandemic. We are not able to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020 and beyond, but developments related to COVID-19 could affect the Company’s financial performance in 2020.

Revenue Recognition

Upon adoption of ASC Topic 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2019. The revised accounting policy on revenue recognition is provided below. The Company accounts for revenue contracts with customers through the following steps:

• Identification of the contract, or contracts, with a customer

• Identification of the performance obligations in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Recognition of revenue when, or as, the Company satisfies a performance obligation

F-6

Engineering, Service & Installation or Construction Contracts

The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract.

For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract.

Revenues from Sale of Equipment

Performance Obligations Satisfied at a point in time.

We recognize revenue on agreements for non-customized equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).

In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.

Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities.

F-7

Service Performance obligations satisfied over time.

We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods; these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) of $0 and contract work in progress (typically for fixed-price contracts) of $0 and $57,077 as of June 30, 2020 and September 30, 2019, respectively. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. Advances that are payments on account of contract assets of $321,000 and $360,000 as of June 30, 2020 and September 30, 2019, respectively, have been deducted from contract assets. Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded $149,493 and $499,401 in contract liabilities as of June 30, 2020 and September 30, 2019, respectively.

Revenues from software 

The Company derives its revenue from subscription fees from customers for access to its mVSO platform. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements.  

The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time.

Revenues from design, software development and other technology-based consulting services

For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer.

Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

F-8

 The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Practical Expedients

If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.

The Company does not adjust the contract price for the effects of a significant financing component if the company expects, at contract inception, that the period between when the company transfers a service to a customer and when the customer pays for that service will be one year or less.

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes).

For the nine months ended June 30, 2020 and 2019, the Company reported revenues of $8,073,781 and $2,209,542, respectively.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. There was $1,955,776 and $7,838,857 in cash and no cash equivalents as of June 30, 2020 and September 30, 2019, respectively.

Accounts receivable

Is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $400,741 and $254,570 at June 30, 2020, and September 30, 2019, respectively.

Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $171,513 and $159,989 were included in the balance of trade accounts receivable as of June 30, 2020 and September 30, 2019, respectively.

Investment securities

Investment securities include debt securities and equity securities. Debt securities are classified as available for sale (“AFS”) and are reported as an asset in the Consolidated Balance Sheet at their estimated fair value. As the fair values of AFS debt securities change, the changes are reported net of income tax as an element of OCI, except for other-than-temporarily-impaired securities. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid over the contractual life of the security.

F-9

For individual debt securities where the Company either intends to sell the security or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security's cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized in income on a cash basis.

The Company holds investments in both publicly held and privately held equity securities.

Privately held equity securities are recorded at cost and adjusted for observable transactions for same or similar investments of the issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized or unrealized, are recorded through gains or losses on equity securities on the consolidated statement of operations.

Publicly held equity securities are based on fair value accounting with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statement of operations.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of June 30, 2020, the cash balance in excess of the FDIC limits was $1,705,776. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue. (See Note 17 for details.)

Warranty Liability

The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business. Liability estimates are 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 were $0 and $0 at June 30, 2020 and September 30, 2019, respectively.

Stock-based compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

Earnings (loss) per share

The Company reports earnings (loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of June 30, 2020, there are 1,503,639 shares issuable upon exercise of outstanding options and warrants which have been excluded as anti-dilutive.

Fair value of financial instruments and derivative asset

The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 9 & 10) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s long-term debt is also stated at fair value of $681,169 since the stated rate of interest approximates market rates.

F-10

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.  

The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of June 30, 2020:

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	1,544,185	$	—	$	—	$	1,544,185
Investment in equity security		421,500		421,500		—	$	—
Investment in debt security		487,788		—		—		487,788
Total	$	2,453,473	$	421,500	$	—	$	2,031,973

The below table presents the change in the fair value of the derivative asset and investment in debt security during the nine months ended June 30, 2020:

	Amount
Balance at September 30, 2019	$	—
Fair value at issuance, net of premium		487,788
Gain on derivative asset		1,544,185
Balance at June 30, 2020	$	2,031,973

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company.

Recently issued accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

F-11

In February 2016, the FASB issued guidance within ASU 2016-02, Leases. The amendments in ASU 2016-02 to Topic 842, Leases, require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In June, 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

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

3. ACQUISITION OF P2KLABS, INC.

On January 31, 2020, the Company, entered into an Agreement with p2k, and its sole stockholder, Amer Tadayon, whereby the Company purchased all of the issued and outstanding shares of p2k in exchange for an aggregate purchase price of cash and equity of $1,688,935. The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020.

As a result of the Transaction, p2k is a wholly-owned subsidiary of the Company.

Pursuant to the terms of the Agreement, the purchase price was as follows:

a)	$1,039,500 in cash was paid to the Seller;
b)	31,183 restricted shares of the Company’s common stock, valued at $145,000, were issued to the Seller (the “Shares”). The Shares are subject to certain lock-up and leak-out provisions whereby the Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”);
c)	$115,500 in cash was paid to an independent third-party escrow agent where such cash is subject to offset for adjustments to the purchase price and indemnification purposes;

F-12

d)

64,516 restricted shares of the Company’s common stock, valued at $300,000, were issued to an independent third-party escrow agent (the “Holdback Shares”). The Holdback Shares will be released to Seller once p2k achieves certain revenue milestones for the future performance of p2k.  The Holdback Shares will also be subject to the Leak-Out Terms once they are released from escrow 12 months from closing. The Shares and Holdback Shares were deemed to have a fair market value of $4.65 per share which was the closing price of the Company’s common stock on January 31, 2020.

e)

26,950 Common Stock options which were deemed to have a fair market value of $88,935 on the date of the closing of the Transaction.

The Company accounted for the acquisition of p2k as an acquisition of a business under ASC 805.

The Company determined the fair value of the consideration given to the Seller in connection with the Transaction in accordance with ASC 820 was as follows:

Consideration:	Fair Value
Cash	$	1,155,000
95,699 shares of common stock	$	445,000
26,950 common stock options	$	88,935
Total Consideration	$	1,688,935

The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, of the Company’s acquisition of p2k, based on their estimated fair values as indicated below. The business combination accounting is not yet complete, and the amounts assigned to the assets acquired and the liabilities assumed are provisional. Therefore, this may result in future adjustments to the provisional amounts as new information is obtained about the facts and circumstances that existed at the acquisition date.

Purchase Price Allocation:
Customer list	$	1,045,000
Design and other assets	$	123,000
Goodwill	$	642,388
Other assets and liabilities assumed, net	$	(121,453)
Total	$	1,688,935

The following is the unaudited pro forma information assuming the acquisition of p2k occurred on October 1, 2018:  

	For the Three Months Ended						For the Nine months ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net sales	$	3,438,674		$	1,432,942		$	8,445,480		$	2,842,848
Net loss	$	(8,551,301	)	$	(3,948,319	)	$	(16,402,974	)	$	(13,993,029)
Loss per common share - basic and diluted	$	(0.77	)	$	(0.87	)	$	(2.33	)	$	(3.37)
Weighted average common shares outstanding - basic and diluted		11,119,288			4,514,043			7,053,523			4,155,226

The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. All transitions that would be considered inter-company transactions for proforma purposes have been eliminated.

F-13

4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE

International Land Alliance, Inc.

On November 5, 2019, CleanSpark entered into a binding Memorandum of Understanding (the “MOU”) with International Land Alliance, Inc., a Wyoming corporation (“ILAL”), in order to lay a foundational framework where the Company will deploy its energy solutions products and services to ILAL, its energy projects, and its customers.

Pursuant to the terms of the MOU, the parties will work in good faith and pursue the following priorities over the next twelve (12) months:

1) The Company will perform feasibility studies to outline the details and scope of developing microgrid energy solutions to support ILAL projects.

2) ILAL will (a) exclusively sell the Company’s products and services as part of ILAL’s power solution for its offering of off-grid properties, and (b) include the Company’s mPulse DER Energy Manager within the off-grid energy project bids;

3) The Company will provide on-site testing, training, and support services to ILAL’s projects and operations

In connection with the MOU, and in order to support the power and energy needs of ILAL’s development and construction of certain projects, the Company entered into a Securities Purchase Agreement, dated as of November 6, 2019, with ILAL (the “ILAL SPA”).

Pursuant to the terms of the ILAL SPA, ILAL sold, and the Company purchased 1,000 shares of Series B Preferred Stock (the “Preferred Stock”) of ILAL for an aggregate purchase price of US $500,000 (the “Stock Transaction”), less certain expenses and fees. The Series B Preferred Stock will accrue cumulative in kind accruals at a rate of 12% per annum and shall increase by 10% per annum upon the occurrence of any trigger event. ILAL may redeem by paying in cash within 9 months from the issuance date. The Preferred Stock becomes convertible into common stock after 9 months or when certain triggering events occur. In the event of a conversion of any shares of the Preferred Stock, the number of conversion shares is equal to the face value of the Preferred Stock divided by the applicable Conversion Price (defined at 65% of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.05 per share, but no less than the Floor Price ($0.01). While the Preferred Stock is outstanding if triggering events occur, the Conversion Rate may be decreased by 10% and the accrual rate increased by 10% for each triggering event.

The Company believes that, pursuant to the terms and conditions of the ILAL SPA, at least two triggering events have occurred. Under this good faith belief, the Company believes that as a result of the occurrence of these triggering events, the Series B Preferred stock should be convertible at the Company’s option, and the interest and conversion rate should be adjusted by 10% for each such occurrence.

The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of June 30, 2020. As of June 30, 2020, the Company has identified a derivative instrument in accordance with ASC Topic No. 815 due to the variable conversion feature upon certain triggering events that occurred during the period. Topic No. 815 requires the Company to account for the conversion feature on its balance sheet at fair value and account for changes in fair value as a derivative gain or loss.

The Black-Scholes model utilized the following inputs to value the derivative asset at the date in which the derivative asset was determined through June 30, 2020.

Fair value assumptions:	June 30, 2020
Risk free interest rate		0.13%
Expected term (months)		1
Expected volatility		131%
Expected dividends		0%

In connection with the Stock Transaction, ILAL issued 350,000 shares of its common stock to the Company as commitment shares. The commitment shares are recorded at $171,500, or $0.49 per share, which was the quoted price of the shares on June 30, 2020. 

F-14

5. CONTRACTUAL JOINT VENTURE

On April 6, 2020, the Company entered into a joint venture agreement with third party partners to procure, distribute, and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020, unless otherwise extended by mutual consent.

The Company contributed capital in the amount of $660,000 on April 6, 2020 to assist with the procurement of these products, with the potential for additional monies to be lent by the Company to the contractual joint venture, upon mutual consent if necessary.

The resulting income is reported net of all other costs, and CleanSpark recognized $20,000 in other income from the agreement for the period ended June 30, 2020. As of June 30, 2020, the balance of CleanSpark funds held in the joint venture (“JV”) account for future orders was $660,000  and is accounted for as a receivable from the third party partner since the Company considers itself as a passive investor in the JV. The receivable is reported in prepaid expenses and other current assets in the consolidated balance sheet.

On July 7, 2020, the Company received its $660,000 in initial capital from the JV. The Company plans to continue to evaluate opportunities under the JV and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise.

6. CAPITALIZED SOFTWARE

Capitalized software consists of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
mVSO software	$	437,136		$	352,211
mPulse software		741,846			741,846
Capitalized Software:		1,178,982			1,094,057
Less: accumulated amortization		(160,442	)		(38,860)
Capitalized Software, net	$	1,018,540		$	1,055,197

Capitalized software amortization recorded as cost of revenues and product development expense for the nine months ended June 30, 2020 and 2019 was $121,582 and $1,034,612, respectively.  

7. INTANGIBLE ASSETS

Intangible assets consist of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
Patents	$	74,112		$	74,112
Websites		8,115			16,482
Customer list and non-compete agreement		6,767,024			5,722,024
Design assets		123,000			—
Trademarks		5,928			5,928
Trade secrets		4,370,269			4,370,269
Intangible assets:		11,348,448			10,188,815
Less: accumulated amortization		(4,703,145	)		(2,758,733)
Intangible assets, net	$	6,645,303		$	7,430,082

Amortization expense for the nine months ended June 30, 2020 and 2019 was $1,952,779 and $1,243,610, respectively.

F-15

8. FIXED ASSETS

Fixed assets consist of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
Machinery and equipment	$	201,856		$	212,082
Leasehold improvements		17,965			—
Furniture and fixtures		104,155			75,121
Total		323,976			287,203
Less: accumulated depreciation		(194,085	)		(142,133)
Fixed assets, net	$	129,891		$	145,070

Depreciation expense for the nine months ended June 30, 2020 and 2019 was $51,952 and $31,639, respectively.

9. LOANS

Long term

Long-term loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	681,169	$	150,000
Total	$	681,169	$	150,000

Current

Current loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	—	$	50,000
Insurance financing loans		—		17,467
Current loans payable:		—		67,467
Unamortized debt discount		—		—
Total, net of unamortized discount	$	—	$	67,467

Promissory Notes

On September 5, 2017, the Company executed a 9% secured promissory note with a face value of $150,000 with an investor. Under the terms of the promissory note, the Company received $150,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. On September 5, 2019, the investor extended the maturity date to September 5, 2021 and the modification was not deemed substantial. The note is secured by 15,000 shares which are held in escrow and would be issued to the note holder only in the case of an uncured default. As of June 30, 2020, the Company owed $150,000 in principal and $0 in accrued interest under the terms of the agreement and recorded interest expense of $10,133 and $10,096 during the nine months ended June 30, 2020 and 2019, respectively. 

On November 11, 2017, the Company executed a 10% secured promissory note with a face value of $100,000 with an investor. Under the terms of the promissory note the Company received $100,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 10,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on August 13, 2019 and the 10,000 shares of common stock held as collateral were returned to treasury and cancelled on August 26, 2019. The Company recorded interest expense of $0 and $7,478 for the nine months ended June 30, 2020 and 2019, respectively.

F-16

On December 5, 2017, the Company executed a 9% secured promissory note with a face value of $50,000 with an investor. Under the terms of the promissory note the Company received $50,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 5,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on December 5, 2019 and the 5,000 shares of common stock held as collateral were returned to treasury and cancelled on January 13, 2020. The Company recorded interest expense of $802 and $3,367 for the nine months ended June 30, 2020 and 2019, respectively.

May 7, 2020, the Company applied for a loan from Celtic Bank Corporation, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). On May 15, 2020, the loan was approved and the Company  received the proceeds from the loan in the amount of $531,169 (the “PPP Loan”). The PPP Loan took the form of a promissory note issued by the Company that matures on May 7, 2022 and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence on December 7, 2020. The PPP Loan provides for customary events of default, including, among others, those relating to failure to make payments thereunder. Borrower may prepay the principal of the PPP Loan at any time without incurring any prepayment penalties. The PPP Loan is non-recourse against any individual shareholder, except to the extent that such party uses the loan proceeds for an unauthorized purpose.

All or a portion of the PPP Loan  may be forgiven by the SBA and lender upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the applicable period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company recorded interest expense of $3,987 and $0 for the nine months ended June 30, 2020 and 2019, respectively.

Insurance financing loans

On February 11, 2019, the Company executed an unsecured 5.6% installment loan with a total face value of $78,603 with a financial institutional to finance its insurance policies. Under the terms of the installment notes the Company received $76,800 and agreed to make equal payments and repay the note 10 months from the date of issuance. As of September 30, 2019, $17,467 in principal remained outstanding. The Company repaid all principal and outstanding interest on November 4th, 2019.

10. CONVERTIBLE NOTES PAYABLE

Short-Term convertible notes

Securities Purchase Agreement – December 31, 2018

On December 31, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company issued to the Investor a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $5,250,000. The note was secured by all assets of the Company. The Debenture has a maturity date of two years from the issuance date and the Company agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5%  per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

The transactions described above closed on December 31, 2018. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued to the Investor 10,000 shares of common stock and a Common Stock Purchase Warrant to acquire up to 308,333 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $20.00 per share with respect to 125,000 Warrant Shares, $25.00 with respect to 100,000 Warrant Shares, $50.00 with respect to 50,000 Warrant Shares and $75.00 with respect to 33,333 Warrant Shares. The warrants and shares issued were fair valued and a debt discount of $4,995,000 was recorded as a result of the issuance of the warrants and shares and the recognition of a beneficial conversion feature on the Debenture. The Company also paid a $5,000 due diligence fee prior to receiving the funding which was also recorded as a debt discount.

F-17

Pursuant to the terms of the SPA, the Investor agreed to tender to the Company the sum of $5,000,000, of which the Company received the full amount as of the closing.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 140% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.50 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, with the Floor Price on the First Debenture not applying in the occurrence of an event of default;
2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

3) Deleted the requirement that the Investor convert the Debenture at maturity and

4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

On January 7, 2019, the Investor converted $2,500,000 in principal and $875,000 in interest as a conversion premium, for 178,473 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

On March 6, 2019, the Investor converted $1,000,000 in principal and $350,000 in interest as a conversion premium, for 71,389 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. 

On July 9, 2019, in accordance with the terms of the agreement the Investor was issued an additional 45,614 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 18,246 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 19, 2019, the Investor converted $500,000 in principal and $175,000 in interest as a conversion premium, for 45,109 shares of the Company common stock at an effective conversion price of $15.00 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

F-18

On August 23, 2019, in accordance with the terms of the agreement the Investor was issued an additional 43,721 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.60.

On September 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 61,500 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.30.

On October 17, 2019, in accordance with the terms of the agreement the Investor was issued an additional 90,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.74.

On December 5, 2019, in accordance with the terms of the agreement the Investor was issued an additional 97,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15. 

On February 10, 2020, in accordance with the terms of the agreement the Investor was issued an additional 100,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15. 

On February 21, 2020, in accordance with the terms of the agreement the Investor was issued an additional 108,770 shares of common stock due to the decrease in stock price resulting in an effective conversion price of 2.69. 

On March 2, 2020, in accordance with the terms of the agreement the Investor was issued an additional 167,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.87. 

On March 5, 2020, in accordance with the terms of the agreement the Investor was issued an additional 154,835 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.83. 

On March 13, 2020, in accordance with the terms of the agreement the Investor was issued an additional 116,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50. 

On March 20, 2020, in accordance with the terms of the agreement the Investor was issued an additional 163,800 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50. 

On April 15, 2020, the Investor converted $1,250,000 in principal and $437,500 in interest, for 1,125,000 shares of the Company common stock at an effective conversion price of $1.50 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $783,474 during the nine months ended June 30, 2020.

Securities Purchase Agreement – April 17, 2019

On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Agreement”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor a $10,750,000 face value Senior Secured Redeemable Convertible Promissory Note (the “Debenture”) with a 7.5% original issue discount, 215 shares of our Series B Preferred Stock with a 7.5% original issue discount, a Common Stock Purchase Warrant (the “Warrant”) on a cash-only basis to acquire up to 230,000 shares (the “Warrant Shares”) of our common stock and 125,000 shares of our Common Stock. The aggregate purchase price for the Debenture, the Series B Preferred Stock the Warrant and the Common Stock is $20,000,000. (See Notes 13 and 14 for additional details.)  The Debenture was secured by all assets of the Company.

Pursuant to the first closing of the Agreement, which occurred on April 18, 2019, the Investor agreed to tender to the Company the sum of $10,000,000, for the Debenture, the Common Stock and the Warrant. No additional closings to sell the preferred stock have occurred and the Series B preferred stock was removed under the amendments to the Agreement discussed below.

F-19

The Debenture has a maturity date of two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5% per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.75 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, not applying in the occurrence of an event of default;
2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

3) Deleted the requirement that the Investor convert the Debenture at maturity and

4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

5) The Company and the Investor also agreed to remove the Second Closing and Company Option to sell an aggregate of an additional $10,000,000 in securities under the Debenture. As a result of these changes, the Company was authorized to terminate any and all documentation related to the 100,000 shares of Series B Preferred Stock that the Company's Board of Directors had previously voted to designate back on April 16, 2019.

On May 5, 2020, the Investor converted $750,000 in principal and $112,500 in interest, for  575,000   shares of the Company common stock at an effective conversion price of $1.50.

On May 6, 2020, the Investor converted $600,000 in principal and $90,000 in interest, for 460,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 7, 2020, the Investor converted $595,000 in principal and $89,250 in interest, for 456,167 shares of the Company common stock at an effective conversion price of $1.50.

On May 8, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 11, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

F-20

On May 12, 2020, the Investor converted $730,000 in principal and $109,500 in interest, for 559,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 13, 2020, the Investor converted $375,000 in principal and $56,250 in interest, for 287,500 shares of the Company common stock at an effective conversion price of $1.50.

On May 18, 2020, the Investor converted $360,000 in principal and $54,000 in interest, for 276,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 19, 2020, the Investor converted $1,020,000 in principal and $153,000 in interest, for 782,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 20, 2020, the Investor converted $380,000 in principal and $57,000 in interest, for 291,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 21, 2020, the Investor converted $2,140,000 in principal and $321,000 in interest, for 1,640,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 22, 2020, the Investor converted $3,100,000 in principal and $465,000 in interest, for 2,376,667 shares of the Company common stock at an effective conversion price of $1.50.

As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $8,320,205 during the nine months ended June 30, 2020.

11. LEASES

On October 1, 2019, the Company adopted the amendments to ASC 842, Leases, which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet. The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted.

The Company has operating leases under which it leases its branch offices and corporate headquarters, one of which is with a related party. Upon adoption of the new lease guidance, on October 1, 2019, the Company recorded a right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the consolidated balance sheet. As of June 30, 2020, the Company's operating lease right of use asset and operating lease liability totaled $52,280 and $52,999, respectively. A weighted average discount rate of 10% was used in the measurement of the right of use asset and lease liability as of October 1, 2019. As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable Company collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis.

The Company's leases have remaining lease terms between one year to two years, with a weighted average lease term of 0.7 years at June 30, 2020. Some leases include multiple year renewal options.  The Company’s decision to exercise these renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. Currently, the Company has no leases for which the option to renew is reasonably certain and therefore, options to renew were not factored into the calculation of its right of use asset and lease liability as of October 1, 2019.

F-21

The following is a schedule of the Company's operating lease liabilities by contractual maturity as of June 30, 2020:

Fiscal year ending September 30, 2020	$	12,912
Fiscal year ending September 30, 2021		43,170
Total Lease Payments		56,082
Less: imputed interest		(3,083)
Total present value of lease liabilities	$	52,999

Total operating lease costs of $38,328 and $38,523 the nine months ended June 30, 2020 and 2019, respectively, were included as part of administrative expense.

12. RELATED PARTY TRANSACTIONS 

Zachary Bradford – Chief Executive Officer, Director and Former Chief Financial Officer

During the nine months ended June 30, 2019, the Company had a consulting agreement with ZRB Holdings, Inc., an entity wholly owned by Zachary Bradford, our Chief Executive Officer and director, for management services. In accordance with this agreement, as amended, Mr. Bradford earned $353,140 during the nine months ended June 30, 2019. The agreement was terminated in October 2019 when Mr. Bradford stepped down as the CFO and took the position of CEO and accepted the associated employment agreement.

During the nine months ended June 30, 2020, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $86,658 for accounting, tax, administrative services and reimbursement for office supplies. Blue Chip is 50% beneficially owned by Mr. Bradford. Blue Chip performed all services at discounted rates and none of the charges were associated with work performed by Mr. Bradford. The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance. The Company also sub-leases office space from Blue Chip (see note 11 for additional details). During the nine months ended June 30, 2020, $10,150 was paid to Blue Chip for rent.

Bryan Huber – Former Officer and Director

On August 28, 2018, the Company executed an agreement with Zero Positive, LLC an entity controlled by Mr. Huber. In accordance with the agreement with Zero Positive, LLC, Mr. Huber earned $125,154 and $127,772, during the nine months ended June 30, 2020 and 2019.

On March 12, 2019, the Agreement was terminated upon the execution of a separation agreement. All amounts owed from all agreements totaling $90,000 were paid in full. 

On September 28, 2018, in connection with the consulting agreement executed with Zero Positive, LLC, the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $8.00 per share to Zero Positive. The warrants were valued at $2,607,096 using the Black Scholes option pricing model based upon the following assumptions: term of 10 years, risk free interest rate of 3.05%, a dividend yield of 0% and volatility rate of 191%. The warrants vest as follows: 30,000 vested immediately, the balance vest evenly on the last day of each month over forty-two months beginning August 31, 2018. As of June 30, 2020, 62,857 warrants had vested, and the Company recorded an expense of $372,442 and 372,442 during the nine months ended June 30, 2020 and 2019.

Matthew Schultz- Chairman of the Board and Former Chief Executive Officer

The Company has a consulting agreement with Matthew Schultz, our former Chief Executive Officer, for management services. In accordance with this agreement, as amended, Mr. Schultz earned $0 and $353,140, respectively during the nine months ended June 30, 2020 and 2019. The agreement was terminated on October 7, 2019 when Mr. Schultz stepped down as the CEO and took the position of Chairman of the Board. Mr. Schultz received $189,000 as compensation for his services as chairman of the board during the nine months ended June 30, 2020.

The Company additionally entered into an agreement on November 15, 2019 with an organization to provide general investor relations and consulting services that Mr. Schultz is affiliated with. The Company paid the organization $49,500 in fees plus $176,000 in expense reimbursements for the nine months ended June 30, 2020. The agreement was terminated in March 2020.

Larry McNeill, Roger Beynon, Dr. Tom Wood –Directors

Effective January 1, 2019, the Company agreed to pay non-executive independent board members $2,500 per month. Mr. McNeill earned $22,500 and $15,000 in Board compensation during the nine months ended June 30, 2020 and 2019. Mr. Beynon and Dr. Wood each earned $22,500 and $0 in Board compensation during the nine months ended June 30, 2020 and 2019.

F-22

13. STOCKHOLDERS EQUITY

Overview

The Company’s authorized capital stock consists of 20,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of June 30, 2020, there were 16,123,507 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding.

On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved the Company’s 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in the consolidated financial statements and notes thereto as of and for the periods ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented.

Amendment to Articles of Incorporation

On August 9, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from 100,000,000 to 200,000,000. The amendment was previously approved by written consent of the Company’s Board and more than a majority of the voting power of its stockholders and delivered to stockholders of record as of the close of business July 2, 2019 pursuant to a Definitive Information Statement on Schedule 14C. As a result of the reverse split mentioned above, the effect of the filed amendment reduced the authorized shares to 20,000,000.

On October 4, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to increase the number of shares of preferred stock designated as Series A Preferred Stock from one million (1,000,000) shares to two million (2,000,000) shares, par value $0.001.

Under the Certificate of Designation, holders of Series A Preferred Stock will be entitled to quarterly dividends on 2% of our earnings before interest, taxes and amortization. The dividends are payable in cash or common stock. The holders will also have a liquidation preference on the state value of $0.02 per share plus any accumulated but unpaid dividends. The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

The rights of the holders of Series A Preferred Stock are defined in the relevant Amendment to the Certificate of Designation filed with the Nevada Secretary of State on October 9, 2019.

Certificate of Preferred Stock Designation

On April 16, 2019, pursuant to Article IV of our Articles of Incorporation, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up to one hundred thousand (100,000) shares, par value $0.001. Under the Certificate of Designation, the holders of Series B Preferred Stock are entitled to the following powers, designations, preferences and relative participating, optional and other special rights, and the following qualifications, limitations and restrictions, among others as set forth in the Certificate of Designation:

§	The holders of shares of Series B Preferred Stock will have no right to vote on any matters, questions or proceedings of the Company including, without limitation, the election of directors;
§	Commencing on the date of issuance, the Series B Preferred Stock will accrue cumulative in kind accruals (“the Accruals”) at the rate of 7.5% per annum;

F-23

§	Upon any liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series B Preferred Stock equal to $5,000.00 (the “Face Value”), plus an amount equal to any accrued but unpaid Accruals thereon (the “Liquidation Value”);
§	On maturity, the Company may redeem the Series B Preferred Stock by paying the holder the Liquidation Value;
§	Before maturity, the Company may redeem the Series B Preferred stock on 30 days’ notice by paying 145% of the outstanding Face Value per share;
§	If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will, within three trading days of such determination and prior to effectuating any such action, redeem all outstanding shares of Series B Preferred Stock;
§	In the event of a conversion of any shares of Series B Preferred Stock, the Company will (a) satisfy the payment of the Conversion Premium, which is defined as the Face Value of the shares converted multiplied by the product of 7.5% and the number of whole years between issuance and maturity, and (b) issue to the holder of the shares of Series B Preferred Stock a number of conversion shares equal to the Face Value divided by the applicable Conversion Price (defined as 90% of the of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.75 per share, but no less than the Floor Price ($3.50) with respect to the number of shares converted; While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. In the event of certain defaults, conversion price may not be subject to a floor.

§	if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which holder could have acquired if holder had held the number of shares of Common Stock acquirable upon conversion of Series B Preferred Stock;
§	At maturity (2 years from issuance), all outstanding shares of Series B Preferred Stock shall automatically convert into common stock at the Conversion Price; and
▪	At no time may the holders of Series B Preferred Stock own more than 4.99% of the outstanding common stock in the Company.

On March 6, 2020, the Company withdrew the Certificate of Designation for the Series B Preferred Stock. At the time of withdrawal, no shares of Series B Preferred Stock were issued and outstanding.

Common Stock issuances during the nine months ended June 30, 2020

The Company issued 1,964,313 shares of common stock in accordance with the terms of the convertible debt agreement due to the decrease in stock price. (See Note 10 for additional details.)

The Company issued 22,000 shares of common stock for services rendered to independent consultants at a fair value of $54,000.

The Company issued 793 shares of common stock as a result of rounding related to the reverse stock split.

The Company issued 95,699 shares of common stock in relation to the acquisition of p2k (See note 3 for additional details.)

In relation to the Securities Purchase Agreement dated December 31, 2018, the Company issued 1,125,000 shares of common stock for the conversion of $1,250,000 in principal and $437,500 in interest at an effective conversion price of $1.50. (See Note 10 for additional details)

F-24

In relation to the Securities Purchase Agreement dated April 17, 2019, the Company issued 8,241,665 shares of common stock for the conversion of $10,750,000 in principal and $1,612,500 in interest as a conversion premium at an effective conversion price of $1.50. (See Note 10 for additional details)

The Company issued 25,019 shares of common stock as board and executive compensation at a fair value of $57,500. 

Common stock returned during the nine months ended June 30, 2020 

As a result of a note payoff on December 5, 2019, 5,000 shares common stock were returned to treasury and cancelled on January 13, 2020.

As a result of the cancellation of an investor relations services contract, 25,000 shares were returned to treasury and cancelled on February 10, 2020.

Series A Preferred Stock issuances during the nine months ended June 30, 2020

On October 4, 2019, the Company authorized the issuance of a total of seven hundred and fifty thousand (750,000) shares of its designated Series A Preferred Stock to members of its board of directors for services rendered.  A fair value of $0.02 per share was determined by the Company. Director fees of $15,000 was recorded as a result of the stock issued.

Common Stock issuances during the nine months ended June 30, 2019

During the period commencing October 1, 2018 through June 30, 2019, the Company received $361,800 from 14 investors pursuant to private placement agreements with the investors to purchase 45,225 shares of the Company’s common stock at a purchase price equal to $8.00 for each share of common stock.

On September 11, 2018, the Company entered into an agreement with Regal Consulting, LLC for investor relations services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock per month as compensation for services plus additional cash compensation. During the nine months ended June 30, 2019, the Company issued a total of 18,000 shares of its common stock in accordance with the agreement. Stock compensation of $531,600 was recorded as a result of the stock issued under the agreement.

On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock which vest evenly over a six month period from the agreement date. During the nine months ended June 30, 2019, the Company recorded stock compensation of $68,819 was recorded as a result of the stock issued under the agreement.

On October 2, 2018, an investor exercised warrants to purchase 300 shares of the Company’s $0.001 par value common stock at a purchase price equal to $3.63 for each share of Common stock. The Company receive $1,088 as a result of this exercise.

The Company issued 10,000 shares in relation to a Securities purchase agreement executed on December 31, 2018. (See Note 10 for additional details.)

On December 31, 2018, the Company settled $25,000 of a promissory note through the issuance of 2,500 shares of the Company’s common stock. The shares were valued at $51,225 and a $26,225 loss on settlement of debt was recorded as a result of the issuance.

On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $0.83.

On January 7, 2019, an investor converted $2,500,000 in principal and $875,000 in interest,  for 178,472 shares of the Company’s common stock at an effective conversion price of $18.90.

On January 22, 2019, in accordance with a merger agreement, the Company issued 175,000 shares of the Company’s common stock.

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On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $0.83.

On March 6, 2019, the investor converted $1,000,000 in principal and $350,000 in interest as a conversion premium, for 71,389 shares of the Company’s common stock at an effective conversion price of $18.90.

On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $0.83.

On April 9, 2019, an investor exercised warrants to purchase 900 shares of the Company’s common stock at a purchase price equal to $3.63. The Company received $3,267 as a result of this exercise.

The Company issued 125,000 shares in relation to the Securities purchase agreement executed on April 17, 2019.

On June 12, 2019, the Company entered into an agreement with SylvaCap Media for investor relations services. Under this agreement, the Company agreed to issue 25,000 shares of the Company’s common stock as compensation for services for a six month period plus additional cash considerations. The 25,000 shares vest upon issuance but if the agreement is terminated within 90 days of execution, the shares are to be returned and cancelled. The Company terminated the agreement and the shares were returned on February 10, 2020.

Common stock returned during the nine months ended June 30, 2019 

As a result of a conversion of a note on September 21, 2018, 13,750 shares common stock which were previously issued as a commitment fee were returned to treasury and cancelled on December 21, 2018.

As a result of a note payoff on January 3, 2019, 13,750 shares of common stock which were previously issued as a commitment fee returned to treasury and cancelled on January 8, 2019.

14. STOCK WARRANTS

The following is a summary of stock warrant activity during the nine months ended June 30, 2020.

	Number of Warrant Shares		Weighted Average Exercise Price
Balance, September 30, 2019		1,314,065	$	21.62
Warrants granted		—	$	—
Warrants expired		—		—
Warrants cancelled		—		—
Warrants exercised		—		—
Balance, June 30, 2020		1,314,065	$	21.62

As of June 30, 2020, the outstanding warrants have a weighted average remaining term of 2.17 years and an intrinsic value of $194,250.

As of June 30, 2020, there are warrants exercisable to purchase 1,286,922 shares of common stock in the Company and 27,143 unvested warrants outstanding that cannot be exercised until vesting conditions are met. 996,198 of the warrants require a cash investment to exercise as follows, 5,000 required a cash investment of $8.00 per share, 449,865 require a cash investment of $15.00 per share, 125,000 require a cash investment of $20.00 per share, 103,000 require a cash investment of $25.00 per share, 200,000 require an investment of $35.00 per share, 10,000 require an investment of $40.00 per share, 60,000 require an investment of $50.00 per share, 38,333 require a cash investment of $75.00 per share and 5,000 require a cash investment of $100.00 per share. 317,867 of the outstanding warrants contain provisions allowing a cashless exercise at their respective exercise prices.

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Warrant activity for the nine months ended June 30, 2019

On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 warrants to purchase shares of the Company’s common stock at an exercise price of $25.00 for a period of five years which vest evenly over a six-month period from the agreement date. During the nine months ended June 30, 2020 and 2019 the Company recorded stock compensation of $0 and $68,643 as a result of the stock issued under the agreement. The warrants were valued using the black-Scholes valuation model.

On December 31, 2018, in connection with a Securities purchase agreement (see Note 10 for additional details) the Company issued Common Stock Purchase Warrants to acquire up to 308,333 shares of common stock for a term of three years on a cash-only basis at an exercise price of $20.00 per share with respect to 125,000 Warrant Shares, $25.00 with respect to 100,000 Warrant Shares, $50.00 with respect to 50,000 Warrant Shares and $75.00 with respect to 33,333 Warrant Shares.

On August 28, 2018, in connection with the Consulting agreement executed with Zero Positive, LLC the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $8.00 per share to Zero Positive. The warrants were valued at $2,607,096 using the Black Scholes option pricing model. The warrants vest as follows: 30,000 warrants vested immediately, the balance vest evenly on the last day of each month over the forty-two months beginning August 31, 2018. As of June 30, 2020, 58,571 warrants had vested, and the Company recorded an expense of $372,442 and 372,442 during the nine months ended June 30, 2020 and 2019. (See Note 10 for additional details.)

On January 22, 2019, in accordance with a merger agreement, CleanSpark issued; a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $16.00 per share, and a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $20.00 per share.  The warrants were valued at $1,102,417 and $1,102,107, respectively.

On April 18, 2019, in connection with a Securities purchase agreement, the Company issued Common Stock Purchase Warrants to acquire up to 230,000 shares of common stock for a term of three years on a cash-only basis at an exercise price of $35.00 per share with respect to 200,000 Warrant Shares, $40.00 with respect to 10,000 Warrant Shares, $50.00 with respect to 10,000 Warrant Shares, $75.00 with respect to 5,000 Warrant Shares and $100.00 with respect to 5,000 Warrant Shares.

The Black-Scholes model utilized the following inputs to value the warrants granted during the nine months ended June 30, 2019:

Fair value assumptions – Warrants:	June 30, 2019
Risk free interest rate	2.36% -3.01%
Expected term (years)	3-5
Expected volatility	254%-268%
Expected dividends	0%

On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $0.83.

On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $0.83.

On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $0.83.

As of June 30, 2020, the Company expects to recognize $786,415 of stock-based compensation for the non-vested outstanding warrants over a weighted-average period of 1.5 years.

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15. STOCK OPTIONS

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”), which was established by the Board of Directors of the Company on June 19, 2017. A total of 300,000 shares were initially reserved for issuance under the Plan. As of June 30, 2020, there were 21,360 shares available for issuance under the plan.

The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation right, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Board believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.

The following is a summary of stock option activity during the nine months ended June 30, 2020.

	Number of Option Shares			Weighted Average Exercise Price
Balance, September 30, 2019		81,254		$	11.82
Options granted		233,233			5.28
Options expired		25,000			8.00
Options cancelled		(10,847	)		19.04
Options exercised		—			—
Balance, June 30, 2020		278,640		$	6.41

As of June 30, 2020, there are options exercisable to purchase 216,717 shares of common stock in the Company. As of June 30, 2020, the outstanding options have a weighted average remaining term of was 2.59 years and an intrinsic value of $0.

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Option activity for the nine months ended June 30, 2020

During the nine months ended June 30, 2020, the Company issued 233,233 options to purchase shares of common stock to employees; the shares were granted at quoted market prices ranging from $4.50 to $8.50. The options were valued at issuance using the Black Scholes model and stock compensation expense of $673,590 was recorded as a result of the issuances.

The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2020:

Fair value assumptions – Options:	June 30, 2020
Risk free interest rate		0.85%-1.73%
Expected term (years)		3-5
Expected volatility		124%-209%
Expected dividends		0%

As of June 30, 2020, the Company expects to recognize $245,300  of stock-based compensation for the non- vested outstanding options over a weighted-average period of 2.17 years.

Option activity for the nine months ended June 30, 2019

During the nine months ended June 30, 2019, the Company issued 12,788 options to purchase shares of common stock to employees, the shares were granted at quoted market prices ranging from $15.10 to $59.00. The options were valued at issuance using the Black Scholes model and stock compensation expense of $245,000 was recorded as a result of the issuances.

On March 10, 2018 the Company issued a total of 25,000 options to four consultants for advisory services. The options vest evenly 12 months from issuance. The options expire 24 months after issuance and require a cash investment to exercise. The options were valued at issuance using the Black Scholes model at $342,500 and amortized of the term of the agreement. During the nine months ended June 30, 2019, $191,425 was expensed as stock-based compensation.

The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2019:

Fair value assumptions – Options:	June 30, 2019
Risk free interest rate		2.21%-2.91%
Expected term (years)		3
Expected volatility		239%-271%
Expected dividends		0%

16. COMMITMENTS AND CONTINGENCIES

Office leases

Utah Corporate Office

On November 22, 2019, the company entered into a lease to relocate the corporate office to 1185 South 1800 West, Suite 3, Woods Cross, UT 84047. The agreement calls for the Company to make payments of $2,300 in base rent per month through February 28, 2021. The lease term is on an annual basis beginning on March 1, 2020. 

San Diego Office

On May 15, 2018, the Company executed a 37 month lease agreement, which commenced on July 1, 2018 at 4360 Viewridge Avenue, Suite C, San Diego, California. The agreement calls for the Company to make payments of $4,057 in base rent per month through July 31, 2021 subject to an annual 3% rent escalation. Future minimum lease payments under the operating leases for the facilities as of June 30, 2020, are as follows:

Fiscal year ending (three months remaining) September 30, 2020	$12,912
Fiscal year ending September 30, 2021	$43,170

Las Vegas Offices

On January 2, 2020, the Company entered into a sublease agreement for office space at 8475 S. Eastern Ave., Suite 200, Las Vegas, NV 89123. The agreement calls for the Company to make monthly payments of $1,575 in base rent through January 1, 2021. The lease term is on an annual basis beginning January 2, 2020.

The Company assumed p2k’s lease agreement entered into on October 17, 2017 at 7955 W. Badura Ave., Suite 1040, Las Vegas, NV 89113. The agreement calls for $1,801 in base rent through October 31, 2020. The lease expires on October 31, 2020.  The Company does not expect to renew.

Legal contingencies

From time to time we may be subject to litigation. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We have acquired liability insurance to reduce such risk exposure to the Company. Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in continent liabilities.

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17. MAJOR CUSTOMERS AND VENDORS

For the nine months ended June 30, 2020 and 2019, the Company had the following customers that represented more than 10% of sales.

	June 30, 2020			June 30, 2019
Customer A		60.3	%		33.9%
Customer B		14.1	%		1.2%
Customer C		—			21.9%
Customer D		—			21.4%

For the nine months ended June 30, 2020 and 2019, the Company had the following suppliers that represented more than 10% of direct material costs. Internally developed product costs and labor for services rendered are excluded from the calculation.

	June 30, 2020			June 30, 2019
Vendor A		85.7	%		90.1%

18. SUBSEQUENT EVENTS

On July 7, 2020, the Company received its $660,000 in initial capital from the Contractual joint venture. The Company plans to continue to evaluate opportunities under the joint venture and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise. (See note 5 for details).

On July 16, 2020, the Company filed a preliminary information statement wherein the Company’s shareholders approved to grant the Board authority to effectuate an increase in the number of authorized shares of Common Stock from 20,000,000 to no more than 50,000,000 and amend the Company’s 2017 Incentive Plan to increase the number of shares issuable from 300,000 to 1,500,000. The effective date of these actions is determined by the Board in its sole discretion.

On July 20, 2020, the Company sold 1,230,770 shares to an existing accredited investor at a price of $3.25 per share for gross proceeds of $4,000,000.

An investor has advised us that it considers the July 21, 2020 filing of the Form 8-K without that investor’s prior review to be a contractual breach. We believe the investor’s position is without merit given that the governing contract does not provide that investor any right to prior review of the Form 8-K. We intend to vigorously defend against any claims brought by the investor related to the filing of the Form 8-K. We are not in a position to estimate potential impact at this time.

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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 effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Company Overview

We are in the business of providing advanced energy software and control technology that enables a plug-and-play enterprise solution to modern energy challenges. Our services consist of intelligent energy monitoring and controls, microgrid design and engineering and consulting services. Our software allows energy users to obtain resiliency and economic optimization. Our software is uniquely capable of enabling a microgrid to be scaled to the user's specific needs and can be widely implemented across commercial, industrial, military and municipal deployment.

 We refer to the operations surrounding the above plug-and-play energy solution as our Distributed Energy Management Business (the “DER Business”). The main assets of our DER Business include our propriety software systems (“Systems”) and also our engineering and methodology trade secrets. The Distributed Energy Systems and microgrids that utilize our Systems are capable of providing secure, sustainable energy with significant cost savings for our energy customers. The Systems allow customers to design, engineer, construct and then efficiently manage renewable energy generation, storage and consumption.

Integral to our business is our mPulse and mVSO software platforms (the “Platforms”). When the Platforms are implemented on a customer’s power system, they are able to control the distributed energy resources on site to provide secure, sustainable energy often at significant cost savings for our energy customers. The Platforms allows customers to efficiently manage renewable energy generation, other distributed energy generation technologies including energy generation assets, energy storage assets, and energy consumption assets. By having autonomous control over the distributed 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.

Our Switchgear Acquisition

As an energy technology company, part of our business model is to assess our technologies, product offerings and business direction and determine whether any strategic acquisitions would benefit us. In line with our focus, on January 22, 2019, we acquired the outstanding capital stock of Pioneer Critical Power, Inc., a Delaware corporation (“Pioneer”), which we have since renamed and redomiciled to the State of Nevada and changed the name to CleanSpark Critical Power Systems Inc.

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As consideration for the transaction, we issued to its sole shareholder Pioneer Power Solutions, Inc. (“Pioneer Power”) a total of 175,000 shares of our common stock, a 5-year warrant to purchase 50,000 shares of our common stock at an exercise price of $16.00 per share and a 5-year warrant to purchase 50,000 shares of our common stock at an exercise price of $20.00 per share. 

The parties also signed additional agreements in connection with the transaction, as previously disclosed in our SEC filings, mainly requiring Pioneer Power to indemnify us in certain circumstances and restricting Pioneer Power from engaging in a competing business.

We also signed a Contract Manufacturing Agreement, whereby Pioneer Power shall exclusively manufacture parallel switchgears, automatic transfer switches and related control and circuit protective equipment for us, for a period of eighteen months.

We plan to utilize the new intellectual property we gained from the acquisition and the manufacturing agreement in place to enter into the switchgear equipment sales industry. We acquired executed contracts and purchase orders, which we expect will result in significant gross sales, as well as hired personnel to operate this new line of business.

As a result of this transaction, the parties terminated a contemplated asset purchase arrangement previously disclosed in our SEC filings.

Our acquisition of p2kLabs, Inc.

As CleanSpark continues to drive towards profitability and further market and sell CleanSpark software and controls, our acquisition of p2kLabs, Inc. not only contributes additional revenues, but also adds depth to our team in sales, marketing, design and software development.

We plan to maximize the value of our offering, internalize what would otherwise be expenses, and diversify our ability to better serve our valued clients.

As consideration for the transaction, we issued to its sole shareholder, Amer Tadayon, a total of 95,699 shares of our common stock and paid $1,155,000 in cash.

The parties also signed additional agreements in connection with the transaction, as previously disclosed in our SEC filings, mainly an employment agreement with Amer Tadayon. See note 3 for details. 

Nasdaq Listing

On January 24, 2020, the Company was approved for listing on the Nasdaq Capital Market (“Nasdaq”). 

Our Contractual Joint Venture 

CleanSpark entered into an agreement with partners to procure, distribute and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020, unless otherwise extended by mutual consent.

The Company contributed capital in the amount of $660,000 on April 6, 2020 to assist with the procurement of these products, with the potential for additional monies to be lent by the Company to the contractual joint venture, upon mutual consent if necessary.

Under the agreement, the Company will receive $0.20 per unit for each mask sold and a mutually agreeable amount for other types of PPE’s sold through the use of its funds. Such proceeds are distributed to the Company as soon as commercially reasonable after receipt from such customer or at the Company’s option reinvested for additional purchases.

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CleanSpark recognized and received $20,000 in other income from this agreement for the period ended June 30, 2020.  See note 5 for details. 

On July 7, 2020, the Company received its $660,000 in initial capital from the JV. The Company plans to continue to evaluate opportunities under the JV and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise.

Results of operations for the three months ended June 30, 2020 and 2019

Revenues

Revenues increased to $3,438,674 during the three months ended June 30, 2020, as compared with $1,222,736 in revenues for the same period ended 2019 primarily due to revenue from our switchgear products and mPulse sales. 

Gross Profit

Our cost of revenues was $2,893,939 for the three months ended June 30, 2020, resulting in gross profit of $544,735, as compared with cost of revenues of $1,006,144 for the three months ended June 30, 2019, resulting in gross profit of $216,592.

Our cost of revenues for the three months ended June 30, 2020 was mainly the result of manufacturing, hardware, and service expenses.

Cost of goods sold increased to $2,751,964 for the three months ended June 30, 2020, from $914,220 for the same period ended 2019. Our product sale expense consisted mainly of the cost of contract manufacturing for our switchgear products and hardware costs. 

Our cost of services increased to 141,975 for the three months ended June 30, 2020, from $91,924 for the same period ended 2019. Our service, software and related revenues expenses for the three months ended June 30, 2020, and 2019 consisted mainly of allocated payroll costs of employees and consultants and subcontractors for services rendered from our acquisition of p2k and installation of solar panels and energy storage. 

Operating Expenses

We had operating expenses of $2,688,334 for the three months ended June 30, 2020, as compared with $2,693,290 for the three months ended June 30, 2019.

Professional fees decreased to $709,367 for the three months ended June 30, 2020, from $1,296,993 for the same period ended June 30, 2019. Our professional fees expenses for the three months ended June 30, 2020 consisted mainly of officers and directors’ consulting fees of $105,500, consulting fees of $434,236, and accounting, audit and review fees of $25,900 and stock-based compensation of $143,731. Our professional fees expenses for the three months ended June 30, 2019 consisted mainly of officers’ consulting fees of $375,500, consulting fees of $436,653, and audit and review fees of $11,000 and stock-based compensation of $431,721. Professional fees decreased in 2020 mainly as a result of decreased stock-based compensation and officers and directors’ consulting fees.

Payroll expenses increased to $996,555 for the three months ended June 30, 2020, from $211,129 for the same period ended 2019. Our payroll expenses for the three months ended June 30, 2020 consisted mainly of salary and wages expense of $967,355 and employee stock-based compensation of $29,200. Our payroll expenses for the three months ended June 30, 2019 consisted mainly of salary and wages expense of $209,879 and employee stock-based compensation of $1,250.

General and administrative fees increased to $279,045 for the three months ended June 30, 2020, from $222,167 for the same period ended 2019. Our general and administrative expenses for the three months ended June 30, 2020 consisted mainly of marketing expenses of $32,322, rent expenses of $34,445, insurance expenses of $65,833, dues and subscriptions of $61,675 and office expense of $6,267. Our general and administrative expenses for the three months ended June 30, 2019 consisted mainly of travel expenses of $32,994, rent expenses of $17,575, insurance expenses of $36,626, dues and subscriptions of $37,093 and office expense of $17,391. 

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Product development expense decreased to $0 for the three months ended June 30, 2020, from $344,871 for the same period ended 2019. Our product development expenses for the three months ended June 30, 2020 and 2019 consisted mainly of amortization of capitalized software. 

Depreciation and amortization expense increased to $703,367 for the three months ended June 30, 2020, from $618,130 for the same period ended 2019.

We expect that our operating expenses will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs.

Other income (expenses)

Other income/(expenses) increased to ($6,407,702) for the three months ended June 30, 2020, from ($1,495,213) for the same period ended June 30, 2019. Our other income/(expenses) for the three months ended June 30, 2020 consisted mainly of an unrealized loss on equity securities of ($80,500), derivative gain of $719,294 and interest expense of ($7,066,496). Our other expenses for the three months ended June 30, 2019 consisted of interest expense of ($1,495,213).

Net Loss

We recorded a net loss of $8,551,301 for the three months ended June 30, 2020, as compared with a net loss of $3,971,911 for the same period ended June 30, 2019.

Results of operations for the nine months ended June 30, 2020 and 2019

Revenues

Revenues increased to $8,073,781 during the nine months ended June 30, 2020, as compared with $2,209,542 in revenues for the same period ended 2019 primarily due to revenue from our switchgear products and mPulse sales. 

Gross Profit

Our cost of revenues was $6,730,906 for the nine months ended June 30, 2020, resulting in gross profit of $1,342,875, as compared with cost of revenues of $1,821,488 for the nine months ended June 30, 2019, resulting in gross profit of $388,054.

Our cost of revenues for the nine months ended June 30, 2020 was mainly the result of product sale and service, software and related revenues expenses.

Cost of goods sold   increased to $6,458,086 for the nine months ended June 30, 2020, from $1,245,102 for the same period ended 2019. Our product sale expense for the nine months ended June 30, 2020 consisted mainly of the cost of contract manufacturing for our switchgear products.

Cost of services  decreased to $272,820  for the nine months ended June 30, 2020, from $576,386 for the same period ended 2019. Our service, software and related revenues expenses for the nine months ended June 30, 2020, and 2019 consisted mainly of allocated payroll costs of employees and consultants and subcontractors for services rendered from our acquisition of p2k and installation of solar panels and energy storage. 

Operating Expenses

We had operating expenses of $8,749,987 for the nine months ended June 30, 2020, as compared with $7,192,344 for the nine months ended June 30, 2019.

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Professional fees increased to $3,231,945 for the nine months ended June 30, 2020, from $3,719,269 for the same period ended June 30, 2019. Our professional fees expenses for the nine months ended June 30, 2020 consisted mainly of officers and directors’ consulting fees of $571,654, consulting fees of $1,233,008, legal fees of $332,020 and accounting, audit and review fees of $120,060 and stock-based compensation of $975,143. Our professional fees expenses for the nine months ended June 30, 2019 consisted mainly of officers’ consulting fees of $848,489, consulting fees of $1,071,107, legal fees of $146,682, and audit and review fees of $95,349 and stock-based compensation of $1,540,503. Professional fees increased in 2019 mainly as a result of increased stock-based compensation and other consulting related to increased business development efforts and audit and legal fees in connection with our SEC reporting obligations.

Payroll expenses increased to $2,692,474 for the nine months ended June 30, 2020, from $684,650 for the same period ended 2019. Our payroll expenses for the nine months ended June 30, 2020 consisted mainly of salary and wages expense of $2,606,586 and employee stock-based compensation of $85,888. Our payroll expenses for the nine months ended June 30, 2019 consisted mainly of salary and wages expense of $508,400 and employee stock-based compensation of $176,250.

General and administrative fees increased to $820,837 for the nine months ended June 30, 2020, from $478,564 for the same period ended 2019. Our general and administrative expenses for the nine months ended June 30, 2020 consisted mainly of marketing expenses of $108,869, travel expenses of $80,648, rent expenses of $82,904, insurance expenses of $159,519, dues and subscriptions of $230,713 and office expense of $27,467. Our general and administrative expenses for the nine months ended June 30, 2019 consisted mainly of travel expenses of $60,028, rent expenses of $52,378, insurance expenses of $79,939, dues and subscriptions of $136,092 and office expense of $30,116. 

Product development expense decreased to $0 for the nine months ended June 30, 2020, from $1,034,612 for the same period ended 2019. Our product development expenses for the nine months ended June 30, 2020 and 2019 consisted mainly of amortization of capitalized software. 

Depreciation and amortization expense increased to $2,004,731 for the nine months ended June 30, 2020, from $1,275,249 for the same period ended 2019.

We expect that our operating expenses will increase in future quarters as we further implement our business plan. As we execute on customer contracts we may be required to hire and compensate additional personnel and support increased operational costs.

Other income (Expenses)

Other income/(expenses) increased  to ($8,875,541) for the nine months ended June 30, 2020, from ($7,215,712) for the same period ended June 30, 2019. Our other income/(expenses) for the nine months ended June 30, 2020 consisted mainly of an unrealized gain on equity securities of $78,368, derivative gain of $1,544,185 and interest expense of ($10,518,094).  Our other expenses for the nine months ended June 30, 2019 consisted of interest expense of ($7,196,287), and loss on settlement of debt of (19,425).

Net Loss

We recorded a net loss of $16,282,653 for the nine months ended June 30, 2020, as compared with a net loss of $14,020,002 for the same period ended June 30, 2019.

Liquidity and Capital Resources

As of June 30, 2020, we had total current assets of $7,220,044, consisting of cash, accounts receivable, and prepaid expenses and other current assets, and total assets in the amount of $20,628,304. Our total current and total liabilities as of June 30, 2020 were $1,588,880 and $2,270,049, respectively. We had working capital of $5,631,164 as of June 30, 2020.

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Operating activities used $3,679,081 in cash for the nine months ended June 30, 2020, as compared with $5,792,028 for the same period ended June 30, 2019. Our net loss of $16,282,653  was the main component of our negative operating cash flow for the nine months ended June 30, 2020, offset mainly by unrealized gain on equity security of ($78,368), gain on derivative asset of ($1,544,185), depreciation and amortization of $2,004,731, amortization of capitalized software of $121,582, amortization of debt discounts of $9,022,759, accounts payable of $2,347,566, and stock-based compensation of $1,171,632. Our net loss of $14,020,002 was the main component of our negative operating cash flow for the nine months ended June 30, 2019, offset mainly by loss on settlement of debt of $19,425, depreciation and amortization of $1,275,249, amortization of capitalized software of $1,034,612, amortization of debt discounts of $5,674,800, stock based compensation of $1,716,753 and an increase in accounts payable of $1,653,821. 

Cash flows used by investing activities during the nine months ended June 30, 2020 was $2,667,702, as compared with $598,763 for the same period ended June 30, 2019. Our acquisition of p2kLabs, Inc. of $1,141,990, investment in International Land Alliance and other equity securities of $750,000, investment in Contractual Joint Venture of $660,000, and purchase of fixed assets of $30,787 were the main components of our negative investing cash flow for the nine months ended June 30, 2020. Our investment in the capitalized software of $569,043 and purchase of fixed assets of $27,570 were the main components of our negative investing cash flow for the nine months ended June 30, 2019.

Cash flows provided by financing activities during the nine months ended June 30, 2020 amounted to $463,702, as compared with $13,994,092 for the nine months ended June 30, 2019. Our cash flows from financing activities for the nine months ended June 30, 2020 consisted of repayments of ($67,467) on promissory note and proceeds from promissory notes of $531,169. Our positive cash flows from financing activities for the nine months ended June 30, 2019 consisted of $361,800  in proceeds from the sale of common stock, $14,995,000 in net proceeds from convertible notes and $75,030 from related party debts off-set by repayments of $507,876 on promissory note, repayments of $555,000 on convertible debts and repayments of $457,820 on related party debts.

Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing, the timing of new product introductions and the continuing market acceptance of our products and services.

Management believes that the Company has sufficient liquidity to satisfy its anticipated cash requirements for the next twelve months. However, there can be no assurance that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and on terms acceptable to us, or at all.  The Company’s management prepares budgets and monitors the financial results of the Company as a tool to align liquidity needs to the recurring business requirements.    

We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise monies on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

Off Balance Sheet Arrangements

As of June 30, 2020, there were no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows.

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In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

 In February 2016, the FASB issued guidance within ASU 2016-02, Leases. The amendments in ASU 2016-02 to Topic 842, Leases, require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In June 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

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

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our accounting policies are discussed in detail in the footnotes to our financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2019, however we consider our critical accounting policies to be those related to revenue recognition, long-lived assets, accounts receivable, fair value of financial instruments, cash and cash equivalents, accounts receivable, warranty liability and stock-based compensation.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

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 June 30, 2020. 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 June 30, 2020, 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 material weaknesses in the design of internal control related to the following areas: (i) Lack of documentation around the components of internal control and inadequate risk assessment process over the Company’s internal controls; and (ii) Inadequate controls over information technology.   

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

Management has implemented and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) we intend to adopt a different financial reporting software that has increased controls built into the system functionality by the end of the current fiscal year, in the interim we plan to implement additional controls to mitigate existing controls risks inherent to our existing accounting software; (ii) additional controls to improve risk assessment procedures to ensure all risks have been addressed.

We believe that these actions will remediate the material weaknesses, once management has performed its assessment of our internal controls over financial reporting including the remedial measures described above. The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2020.

Changes in Internal Control over Financial Reporting

Other than continuing with the remediation actions described above related to the material weakness in our internal controls, there has been no change in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably 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 which would have a material impact to the Company. 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

Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, Item I A. of our Annual Report on Form 10-K for the year ended September 30, 2019, which could materially affect our business, financial condition or future results. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as updated by our subsequent filings under the Exchange Act. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Our business may be subject to risks arising from pandemic, epidemic, or an outbreak of diseases, such as the recent outbreak of the COVID-19 illness.

The recent outbreak of the novel strain of coronavirus, or COVID-19, which has been declared by the World Health Organization to be a “public health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain and adversely impact our business, financial condition or results of operations. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

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 an Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

During the period commencing October 1, 2019 through June 30, 2020, the Company issued 47,019 shares of common stock and 750,000 shares of preferred stock, as compensation for services.

These securities were issued pursuant to Section 4(a)(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.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description of Exhibit
10.1	Joint Venture agreement, dated April 6, 2020
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 INS	XBRL Instance Document
101 SCH	XBRL Schema Document
101 CAL	XBRL Calculation Linkbase Document
101 LAB	XBRL Labels Linkbase Document
101 PRE	XBRL Presentation Linkbase Document
101 DEF	XBRL Definition Linkbase Document
*	These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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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: August 4, 2020	By: /s/ Zachary K. Bradford Zachary K. Bradford Title:    Chief Executive Officer (Principal Executive Officer)
Date: August 4, 2020	By: /s/Lori L. Love Lori L. Love Title:    Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.1

JOINT VENTURE AGREEMENT

THIS JOINT VENTURE AGREEMENT (the "Agreement") made and entered into this 6th day of April, 2020 (the "Execution Date"),

BETWEEN:

CleanSpark Inc. (“CleanSpark”) of 8475 S. Eastern Ave. Suite 200, Las Vegas, NV 89123, and
Cross Country Media and Sourcing Inc. (“CCMS”)of 2400 Kinkora Rd. Bordentown, NJ 08505
(individually the "Member" and collectively the "Members").

BACKGROUND:

A. The Members wish to enter into an association of mutual benefit and agree to jointly invest and set up a joint venture enterprise.

B. This Agreement sets out the terms and conditions governing this association.

IN CONSIDERATION OF and as a condition of the Members entering into this Agreement and other valuable consideration, the receipt and sufficiency of which consideration is acknowledged, the Members agree as follows:

Formation

1. By this Agreement the Members enter into a joint venture (the "Venture") in accordance with the laws of the State of Nevada. The rights and obligations of the Members will be as stated in the applicable legislation of the State of Nevada (the "Act") except as otherwise provided here.

Name

2. The business name of the Venture will be CLSK COVID-19 Assistance but operating under the CCMS banner without additional companies, entities or accounts set up.

Purpose

3. The exclusive purpose of the Venture (the "Purpose") will be Procurement and sales of supplies and materials.

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Term

4. The duration of this Venture (the "Term") will begin on April 3, 2020 and continue in full force and effect until December 31, 2020 or as otherwise provided in this Agreement.

5. The Term may be extended with the unanimous consent of all Members.

Place of Business

6. The principal office of the business of the Venture will be located at 2400 Kinkora Rd. Bordentown, NJ 08505 or such other place as the Members may from time to time designate.

Business Management

7. The Members have appointed CCMS to act as manager (the "Manager") for the Venture.

8. Except as otherwise provided in this Agreement, the Manager may be appointed, replaced, or removed upon unanimous consent of the Members.

9. The Manager will have a primary duty to the best interest of the Venture and not directly to any individual Member.

10. Within the limits of the Purpose of the Venture and the terms of this Agreement, the Manager will have full authority to bind the Members in all matters relating to the direction, control and management of the Venture. Conduct and actions of the Manager will be dictated by policy and procedure established by the Members. Authority to bind the Venture in contract or in any third party business relation lies exclusively with the Manager.

11. The Manager will decide major issues concerning the Venture.

Management Duties

12. Except as otherwise specified in this agreement, the duties and obligations of the Manager in relation to the Venture will include the following:

a. managing the day to day business of the Venture;

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b. monitoring, controlling and directing the financial, business and operational affairs of the Venture;

c. proper maintenance of books of account and financial records according to accepted accounting practices;

d. monitoring, analyzing and acting on all issues over which it would have express or implied authority according to this Agreement; and

e. all responsibilities attached to hiring of production and administration staff including any required labor negotiations, and all responsibilities attached to hiring of third party contractors.

Member Duties

13. Each Member will be responsible for its respective duties as follows:

Member	Duties Description
CleanSpark Inc	To provide the necessary capital for FDA certified products to be imported into the United States
Cross Country Media and Sourcing	To manage (re: Manager) the procurement, shipment and sale of the FDA certified masks, including quality control and all daily operations of the venture.

14. Duties of Members may be amended, from time to time, by decision of the Members, provided that the Members' interests are not affected except with the unanimous consent of the Members.

Capital Contributions

15. Each of the Members has contributed to the capital of the Venture, in cash or property in agreed upon value, as follows (the "Capital Contribution"):

Member	Contribution Description	Agreed Value
CleanSpark Inc	$660,000 in capital funding on a best efforts basis with the intent to turn the funds four or more times in as short a term as possible.	$660,000.00 USD
Cross Country Media and Sourcing	Procurement of products and Management and services	$10,000 USD

16. All Members will contribute their respective Capital Contributions fully and on time.

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Withdrawal of Capital

17. No Member will have the right to demand or withdraw any portion of their capital contribution without the express written consent of the remaining Members.

18. The Members will not be personally liable for the return of all or part of the Capital Contributions of a Member, except as otherwise provided in this Agreement.

Additional Capital

19. Capital Contributions may be amended from time to time, according to the requirements of the Venture, by decision of the Members as recommended by the Manager. Where Members' interests are affected, additional capital contributions (the "Additional Capital Contributions") must have the unanimous consent of the Members.

20. Any advance of money to the Venture by any Member in excess of the amounts provided for in this Agreement or subsequently agreed to as an Additional Capital Contribution will be deemed a debt due from the Venture rather than an increase in Capital Contribution of the Member. This liability will be repaid with interest at such rates and times to be determined by a majority of the Members. This liability will not entitle the lending Member to a greater voting power. Such debts may have preference or priority over any other payments to Members as may be determined by a majority of the Members.

Capital Accounts

21. Currently the capital will be maintained through the CCMS capital account. Any additional, approved contributions to the Venture's capital made by a Member will be credited to that Member's individual Capital Account.

Interest on Capital

22. No borrowing charge or loan interest will be due or payable to any Member on any Capital Contribution or on their Capital Account despite any disproportion that may from time to time arise among the Capital Accounts of the Members.

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Books of Account

23. Accurate and complete books of account of the transactions of the Venture will be kept in accordance with generally accepted accounting principles (GAAP) and at all reasonable times will be available and open to inspection and examination by any Member. The books and records of the Venture will reflect all the Venture’s transactions and will be appropriate and adequate for the business conducted by the Venture.

Banking and Venture Funds

24. The funds of the Venture will be placed in such investments and banking accounts as will be designated by the CCMS. Venture funds will be held in the name of CCMS in its general accounts.

Member Meetings

25. Regular Member briefings will be held only as required, updatesmay be furnished on a daily basis, upon request. Minutes of the special meetings will be maintained on file.

26. Any Member can call a special meeting to resolve urgent issues that require a vote and that cannot wait for the next regularly scheduled meeting. When calling a special meeting, all Members must be provided with reasonable notice. Where a special meeting has been called, the meeting will be restricted to the specific purpose for which the meeting was called.

27. All meetings will be held at a time and in a location that is reasonable, convenient and practical considering the situation of all Members.

28. Any vote required by the Members will be determined such that each Member receives a vote proportional in weight to that Member's Capital Contributions.

Amendments

29. This Agreement may be amended only with the unanimous consent of all Members.

Admitting a new Member

30. New Members may be admitted into the Venture only with the unanimous consent of the existing Members. The new Member agrees to be bound by all the covenants, terms, and conditions of this Agreement, inclusive of all current and future amendments. Further, a new Member will execute such documents as are needed or required for this admission. Any new Member will receive a business interest in the Venture as determined by all other Members.

Dissociation of a Member

31. Where a Member is in breach of this Agreement and that Member has not remedied the breach on notice from the Venture and after a reasonable period then the remaining Members will have the right to terminate this Agreement with regard to that individual defaulting Member (an "Involuntary Withdrawal") and take whatever action necessary to protect the interests of the Venture.

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32. If the Venture is harmed as the result of an individual Member's action or failure to act, then that individual Member will be liable for that harm. If more than one Member is at fault then they will be jointly and severally liable for that harm.

33. Each Member will indemnify the remaining Members against all losses, costs and claims that may arise in the event of the Venture being terminated as a result of breach of the Agreement by that Member.

34. If a Member is placed in bankruptcy, or withdraws voluntarily from the Venture, or if there is an Operation of Law against a Member, the other Members will be entitled to proceed as if the Member had breached this Agreement.

35. Distribution of any amount owing to a dissociated Member will be made according to the percentage of ownership as described in the Valuation of Interest or as otherwise may be agreed in writing.

Dissolution of the Joint Venture

36. The Venture will be dissolved and its assets liquidated in the event of any of the following:

a. the Term expires and is not extended;

b. a unanimous vote by the Members to dissolve the Venture;

c. on satisfaction of the Purpose;

d. loss or incapacity through any means of substantially all of the Venture's assets; or

e. where only one Member remains.

Liquidation

37. On dissolution, the Venture will be liquidated promptly and within a reasonable time.

38. On the liquidation of the Venture assets, distribution of any amounts to Members will be made in proportion to their respective capital accounts or as otherwise may be agreed in writing.

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Valuation of Interest

39. In the absence of a written agreement setting a value, the value of the Venture will be determined based on the fair market value appraisal of all Venture assets (less liabilities) in accordance with generally accepted accounting principles (GAAP) by an independent accounting firm agreed to by all Members. An appraiser will be appointed within a reasonable period of the date of withdrawal or dissolution. The results of the appraisal will be binding on all Members. A withdrawing Member's interest will be based on the proportion of their respective capital account less any outstanding liabilities a Member may have to the Venture. The intent of this section is to ensure the survival of the Venture despite the withdrawal of any individual Member.

40. No allowance will be made for goodwill, trade name, patents or other intangible assets, except where those assets have been reflected on the Venture books immediately prior to valuation.

Transfer of Member Interest

41. A Member may assign their proprietary assets and their rights in distribution interest in the Venture. Such assignment will only include that Member's economic rights and interests and will not include any other rights of that Member nor will it include an automatic admission as a Member of the Venture or the right to exercise any management or voting interests. A Member who assigns any or all of their Venture interest to any third party will relinquish their status as Member including all management and voting rights. Assignment of Member status, under this clause, including any management and voting interests, will require the consent of all the remaining Members.

Force Majeure

42. A Member will be free of liability to the Venture where the Member is prevented from executing their obligations under this Agreement in whole or in part due to force majeure where the Member has communicated the circumstance of that event to any and all other Members and taken any and all appropriate action to mitigate that event. Force majeure will include, but not be limited to, earthquake, typhoon, flood, fire, and war or any other unforeseen and uncontrollable event.

Duty of Loyalty

43. Provided a Member has the consent of the majority of the other Members, the Members to this Agreement and their respective affiliates may have interests in businesses other than the Venture. Neither the Venture nor any other Member will have any rights to the assets, income or profits of any such business, venture or transaction. Any and all businesses, ventures or transactions with any appearance of conflict of interest must be fully disclosed to all other Members. Failure to disclose any potential conflicts of interest will be deemed an Involuntary Withdrawal by the offending Member and may be treated accordingly by the remaining Members.

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Confidentiality

44. All matters relating to this Agreement and the Venture will be treated by the Members as confidential and no Member will disclose or allow to be disclosed any Venture matter or matters, directly or indirectly, to any third party without the prior written approval of all Members except where the information properly comes into the public domain.

45. This section will survive for one year after the expiration or termination of this Agreement or dissolution of the Venture.

Language

46. The Members expressly state that the English language is to be the language of choice for this Agreement and all other notices and agreements required by the Venture.

Insurance

47. Cross Country Media Sourcing will insure all its assets against loss where reasonable and standard practice in the industry. Such insured losses shall be limited to the initial $660,000 investment.

Indemnification

48. Each Member will be indemnified and held harmless by the Venture from any and all harm or damages of any nature relating to the Member's participation in Venture affairs except where such harm or damages results from gross negligence or willful misconduct on the part of the Member.

Liability

49. No Member will be liable to the Venture or to any other Member for any error in judgment or any act or failure to act where made in good faith. The Member will be liable for any and all acts or failures to act resulting from gross negligence or willful misconduct.

Liability Insurance

50. The Venture may acquire insurance on behalf of any Member, employee, agent or other person engaged in the business interest of the Venture against any liability asserted against them or incurred by them while acting in good faith on behalf of the Venture.

Covenant of Good Faith

51. Members will use their best efforts, fairly and in good faith to facilitate the success of the Venture.

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Joint Venture Property

52. Where allowed by statute, title to all Venture property, including intellectual property, will remain in the name of the Venture. Where joint ventures are not recognized by statute as separate legal entities, Venture property, including intellectual property, will be held in the name of one or more Members. In all cases Venture property will be applied by the Members exclusively for the benefit and purposes of the Venture and in accordance with this Agreement.

Jurisdiction

53. The Members submit to the jurisdiction of the courts of the State of New Jersey for the enforcement of this Agreement and for any arbitration award or decision arising from this Agreement.

Mediation and Arbitration

54. In the event a dispute arises out of, or in connection with, this Agreement, the Members will attempt to resolve the dispute through friendly consultation.

55. If the dispute is not resolved within a reasonable period then any or all outstanding issues may be submitted to mediation in accordance with any statutory rules of mediation. If mediation is not successful in resolving the entire dispute or is unavailable, any outstanding issues will be submitted to final and binding arbitration in accordance with the laws of the State of New Jersey. The arbitrator's award will be final, and judgment may be entered upon it by any court having jurisdiction within the State of New Jersey.

Warranties

56. All Members represent and warrant that they have all authority, licenses and permits to execute and perform this Agreement and their obligations under this Agreement and that the representative of each Member has been fully authorized to execute this Agreement.

57. Each Member represents and warrants that this Agreement is not in violation of any and all agreements and constitutional documents of the individual Member.

9

Definitions

58. CleanSpark will receive $0.20 (the “Profit”)per mask sold through use of their funds, with the intent to turn the funds four (4) times as stated in section in 15 over the agreed upon term also stated in section 15. Profits will be distributed to CleanSpark as soon as commercially reasonable after receipt from Customer, or at its sole discretion CleanSpark my roll Profits into its Capital Account for the sole purpose of procurement and sale of additional units. Or using best efforts. Once the agreed upon term or results have been satisfied that the term may extended or modified with mutual consent of all parties. CleanSpark recognizes that CCMS has already been importing masks and will continue to do so with their own funds and appropriate credit lines.

59. For the purpose of this Agreement, the following terms are defined as follows:

a. "Capital Contributions" The capital contribution to the Venture actually made by the Members, including property, cash and any additional capital contributions made.

b. "Majority Vote" A Majority Vote is any amount greater than one-half of the authorized votes.

c. "Operation of Law" The Operation of Law means rights or duties that are cast upon a party by the law, without any act or agreement on the part of the individual including but not limited to an assignment for the benefit of creditors, a divorce, or a bankruptcy.

Miscellaneous

60. This Venture is termed a contractual joint venture and will not constitute a partnership. Members will provide services to one another on an arms' length basis while remaining independent business entities. There will be no pooling of profits and losses. Each Member is responsible only for its own actions and no Member is an agent for any other Member. Members will not be jointly or severally liable for the actions of the other Members.

61. Time is of the essence in this Agreement.

62. This Agreement may be executed in counterparts. Facsimile signatures are binding and are considered to be original signatures.

10

63. Headings are inserted for the convenience of the Members only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine gender include the feminine gender and vice versa. Words in the neuter gender include the masculine gender and the feminine gender and vice versa.

64. If any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, it is the Members' intent that such provision be reduced in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable and the remainder of the provisions of this Agreement will in no way be affected, impaired or invalidated as a result.

65. This Agreement contains the entire agreement between the Members. All negotiations and understandings have been included in this Agreement. Statements or representations which may have been made by any Member in the negotiation stages of this Agreement may in some way be inconsistent with this final written Agreement. All such statements are declared to be of no value in this Agreement. Only the written terms of this Agreement will bind the Members.

66. This Agreement and the terms and conditions contained in this Agreement apply to and are binding upon the Member's successors, assigns, executors, administrators, beneficiaries, and representatives.

67. Any notices or delivery required here will be deemed completed when hand-delivered, delivered by agent, or seven (7) days after being placed in the post, postage prepaid, to the Members at the addresses contained in this Agreement or as the Members may later designate in writing.

68. All of the rights, remedies and benefits provided by this Agreement will be cumulative and will not be exclusive of any other such rights, remedies and benefits allowed by law.

11

IN WITNESS WHEREOF the Members have duly affixed their signatures under hand and seal on this 6th day of April, 2020.

CleanSpark Inc (Member)

Per:_________________________ (SEAL)

Cross Country Media and Sourcing (Member)

Per:_________________________ (SEAL)

12

EX-31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I, Zachary Bradford, certify that;

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 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: August 4, 2020

/s/ Zachary Bradford

By: Zachary Bradford

Title: Chief Executive Officer

EX-31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, Lori Love, certify that;

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 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: August 4, 2020

/s/ Lori Love

By: Lori Love

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 June 30, 2020 filed with the Securities and Exchange Commission (the “Report”), I, Zachary Bradford, Chief Executive Officer of the Company, and I, Lori Love, 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/ Zachary Bradord
Name:	Zachary Bradford
Title:	Chief Executive Officer
Date:	August 4, 2020
By:	/s/ Lori Love
Name:	Lori Love
Title:	Chief Financial Officer
Date:	August 4, 2020

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

XML

Cover - shares	9 Months Ended
	Jun. 30, 2020	Jul. 30, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--09-30
Entity File Number	001-39187
Entity Registrant Name	CLEANSPARK, INC.
Entity Central Index Key	0000827876
Entity Tax Identification Number	87-0449945
Entity Incorporation, State or Country Code	NV
Entity Address, Address Line One	1185 S. 1800 W.
Entity Address, Address Line Two	Suite 3
Entity Address, City or Town	Woods Cross
Entity Address, State or Province	UT
Entity Address, Postal Zip Code	84087
City Area Code	(702)
Local Phone Number	941-8047
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	CLSK
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		17,354,277

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Current assets
Cash	$ 1,955,776	$ 7,838,857
Accounts receivable, net	1,744,704	777,716
Contract assets		57,077
Prepaid expense and other current assets	1,066,091	1,210,395
Derivative investment asset	1,544,185
Investment equity security	421,500
Investment debt security, AFS, at fair value	487,788
Total current assets	7,220,044	9,884,045
Fixed assets, net	129,891	145,070
Operating lease right of use asset	52,280
Capitalized software, net	1,018,540	1,055,197
Intangible assets, net	6,645,303	7,430,082
Goodwill	5,562,246	4,919,858
Total assets	20,628,304	23,434,252
Current liabilities
Accounts payable and accrued liabilities	1,366,388	848,756
Contract liabilities	149,493	499,401
Lease liability	52,999
Due to related parties	20,000	86,966
Loans payable, net of unamortized discounts		67,467
Total current liabilities	1,588,880	1,502,590
Long- term liabilities
Convertible notes, net of unamortized discounts		2,896,321
Loans payable	681,169	150,000
Total liabilities	2,270,049	4,548,911
Stockholders' equity
Common stock; $0.001 par value; 20,000,000 shares authorized; 16,123,507 and 4,679,018 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively	16,124	4,679
Preferred stock;  $0.001 par value; 10,000,000 shares authorized; Series A shares; 2,000,000 authorized; 1,750,000 and 1,000,000  issued and outstanding as of June 30, 2020 and September 30, 2019, respectively	1,750	1,000
Additional paid-in capital	127,679,497	111,936,125
Accumulated deficit	(109,339,116)	(93,056,463)
Total stockholders' equity	18,358,255	18,885,341
Total liabilities and stockholders' equity	$ 20,628,304	$ 23,434,252

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2020	Sep. 30, 2019
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	20,000,000	20,000,000
Common stock, issued	16,123,507	4,679,018
Common stock, outstanding	16,123,507	4,679,018
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, issued	1,750,000
Common Class A [Member]
Preferred stock, authorized	2,000,000	2,000,000
Preferred stock, issued	1,750,000	1,000,000
Preferred stock, outstanding	1,750,000	1,000,000

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues, net
Sale of goods revenues	$ 2,995,332	$ 1,142,448	$ 7,272,826	$ 1,516,016
Service, software and related revenues	443,342	80,288	800,955	693,526
Total revenues, net	3,438,674	1,222,736	8,073,781	2,209,542
Cost of revenues
Cost of goods sold	2,751,964	914,220	6,458,086	1,245,102
Cost of services	141,975	91,924	272,820	576,386
Total cost of revenues	2,893,939	1,006,144	6,730,906	1,821,488
Gross profit	544,735	216,592	1,342,875	388,054
Operating expenses
Professional fees	709,367	1,296,993	3,231,945	3,719,269
Payroll expenses	996,555	211,129	2,692,474	684,650
Product development		344,871		1,034,612
General and administrative expenses	279,045	222,167	820,837	478,564
Depreciation and amortization	703,367	618,130	2,004,731	1,275,249
Total operating expenses	2,688,334	2,693,290	8,749,987	7,192,344
Loss from operations	(2,143,599)	(2,476,698)	(7,407,112)	(6,804,290)
Other income (expense)
Other income	20,000		20,000
Loss on settlement of debt				(19,425)
Unrealized gain/(loss) on equity security	(80,500)		78,368
Unrealized gain on derivative asset	719,294		1,544,185
Interest expense, net	(7,066,496)	(1,495,213)	(10,518,094)	(7,196,287)
Total other income (expense)	(6,407,702)	(1,495,213)	(8,875,541)	(7,215,712)
Net loss	$ (8,551,301)	$ (3,971,911)	$ (16,282,653)	$ (14,020,002)
Loss per common share - basic and diluted	$ (0.77)	$ (0.90)	$ (2.32)	$ (3.45)
Weighted average common shares outstanding - basic and diluted	11,119,288	4,418,344	7,003,927	4,059,527

XML

CONSOLIDATED STATEMETNS OF STOCKHOLDERS EQUITY - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit	Total
Beginning balance, value at Sep. 30, 2018	$ 1,000	$ 3,612	$ 82,990,994	$ (66,939,531)	$ 16,056,075
Beginning Balance, Shares at Sep. 30, 2018	1,000,000	3,611,645
Shares issued for services		$ 12	271,719		271,731
Shares issued for services, shares		12,000
Options and warrants issued for services			377,475		377,475
Options and warrants issued for services
Net loss				(2,283,551)	(2,283,551)
Commitment shares returned and cancelled		$ (14)	14
Commitment shares returned and cancelled		(13,750)
Ending balance, value at Dec. 31, 2018	$ 1,000	$ 3,668	89,049,257	(69,223,082)	19,830,843
Shares, Issued, Ending Balance at Dec. 31, 2018	1,000,000	3,667,920
Shares issued upon exercise of warrants			1,088		1,088
Shares issued upon exercise of warrants		300
Beneficial conversion feature and shares and warrants issued with convertible debt		$ 10	4,994,990		4,995,000
Debt Conversion, Converted Instrument, Warrants or Options Issued		10,000
Shares issued for direct investment		$ 45	361,755		361,800
Stock Issued During Period, Shares, New Issues		45,225
Shares issued for settlement of debt		$ 3	51,222		51,225
Stock issued during period settlement of debt, shares		2,500
Beginning balance, value at Sep. 30, 2018	$ 1,000	$ 3,612	82,990,994	(66,939,531)	16,056,075
Beginning Balance, Shares at Sep. 30, 2018	1,000,000	3,611,645
Shares issued upon conversion of debt and accrued interest					4,725,000
Net loss					(14,020,002)
Ending balance, value at Jun. 30, 2019	$ 1,000	$ 4,466	110,985,047	(80,959,533)	30,030,980
Shares, Issued, Ending Balance at Jun. 30, 2019	1,000,000	4,465,828
Beneficial conversion feature and shares and warrants issued with convertible debt					275
Beginning balance, value at Dec. 31, 2018	$ 1,000	$ 3,668	89,049,257	(69,223,082)	19,830,843
Beginning Balance, Shares at Dec. 31, 2018	1,000,000	3,667,920
Shares issued for services		$ 9	$ 328,679		$ 328,688
Shares issued for services, shares		9,000
Options and warrants issued for services
Options and warrants issued for services			350,888		350,888
Shares issued upon conversion of debt and accrued interest		$ 249,862
Shares issued upon conversion of debt		250	4,724,750		4,725,000
Net loss				$ (7,764,540)	$ (7,764,540)
Commitment shares returned and cancelled		$ (13,750)
Commitment shares returned and cancelled		(14)	14
Ending balance, value at Mar. 31, 2019	$ 1,000	$ 4,306	$ 100,525,219	$ (76,987,622)	$ 23,542,903
Shares, Issued, Ending Balance at Mar. 31, 2019	1,000,000	4,305,928
Shares issued upon exercise of warrants		$ 217,896
Shares issued upon exercise of warrants		218	(218)
Shares and warrants issued under asset purchase agreement		175	6,071,849		6,072,024
Stock Issued During Period, Value, Purchase of Assets		$ 175,000
Shares issued for services		$ 34	$ 295,192		$ 295,226
Shares issued for services, shares		34,000
Options and warrants issued for services			161,495		161,495
Options and warrants issued for services
Net loss				(3,971,911)	(3,971,911)
Ending balance, value at Jun. 30, 2019	$ 1,000	$ 4,466	110,985,047	(80,959,533)	30,030,980
Shares, Issued, Ending Balance at Jun. 30, 2019	1,000,000	4,465,828
Shares issued upon exercise of warrants		$ 1	3,266		3,267
Shares issued upon exercise of warrants		900
Beneficial conversion feature and shares and warrants issued with convertible debt		$ 125	9,999,875		10,000,000
Debt Conversion, Converted Instrument, Warrants or Options Issued		125,000
Beginning balance, value at Sep. 30, 2019	$ 1,000	$ 4,679	111,936,125	(93,056,463)	18,885,341
Beginning Balance, Shares at Sep. 30, 2019	1,000,000	4,679,018
Shares issued for services	$ 750	$ 2	33,348		34,100
Shares issued for services, shares	750,000	2,000
Options and warrants issued for services			602,169		602,169
Options and warrants issued for services
Shares issued upon conversion of debt and accrued interest		$ 187	(187)
Shares issued upon conversion of debt		187,100
Rounding shares issued for stock split		$ 1	(1)
Stock issued during period for stock split		793
Net loss				(1,916,254)	(1,916,254)
Ending balance, value at Dec. 31, 2019	$ 1,750	$ 4,869	112,571,454	(94,972,717)	17,605,356
Shares, Issued, Ending Balance at Dec. 31, 2019	1,750,000	4,868,911
Beginning balance, value at Sep. 30, 2019	$ 1,000	$ 4,679	111,936,125	(93,056,463)	18,885,341
Beginning Balance, Shares at Sep. 30, 2019	1,000,000	4,679,018
Shares issued upon conversion of debt and accrued interest					14,054,876
Net loss					(16,282,653)
Ending balance, value at Jun. 30, 2020	$ 1,750	$ 16,124	127,679,497	(109,339,116)	18,358,255
Shares, Issued, Ending Balance at Jun. 30, 2020	1,750,000	16,123,507
Beneficial conversion feature and shares and warrants issued with convertible debt					30
Beginning balance, value at Dec. 31, 2019	$ 1,750	$ 4,869	112,571,454	(94,972,717)	17,605,356
Beginning Balance, Shares at Dec. 31, 2019	1,750,000	4,868,911
Options and warrants issued for services			273,931		273,931
Options and warrants issued for services
Shares issued upon conversion of debt and accrued interest		$ 810	(810)
Shares issued upon conversion of debt		810,505
Net loss				(5,815,098)	(5,815,098)
Commitment shares returned and cancelled		$ (30)	30
Commitment shares returned and cancelled		(30,000)
Options issued for business acquisition			88,935		88,935
Options issued during period business acquisition, shares
Shares issued for business acquisition		$ 96	444,904		445,000
Stock Issued During Period, Shares, Acquisitions		95,699
Ending balance, value at Mar. 31, 2020	$ 1,750	$ 5,745	113,378,444	(100,787,815)	12,598,124
Shares, Issued, Ending Balance at Mar. 31, 2020	1,750,000	5,745,115
Shares issued for services		$ 45	91,455		91,500
Shares issued for services, shares		45,019
Options and warrants issued for services			169,932		169,932
Options and warrants issued for services
Shares issued upon conversion of debt and accrued interest		$ 10,334	14,039,666		14,050,000
Shares issued upon conversion of debt		10,333,373
Net loss				(8,551,301)	(8,551,301)
Ending balance, value at Jun. 30, 2020	$ 1,750	$ 16,124	$ 127,679,497	$ (109,339,116)	$ 18,358,255
Shares, Issued, Ending Balance at Jun. 30, 2020	1,750,000	16,123,507

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash Flows from Operating Activities
Net loss	$ (16,282,653)	$ (14,020,002)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation	1,171,632	1,716,753
Unrealized gain on equity security	(78,368)
Amortization of operating lease right of use asset	33,000
Depreciation and amortization	2,004,731	1,275,249
Amortization of capitalized software	121,582	1,034,612
Loss on settlement of debt		19,425
Provision for bad debts	27,456
Gain on derivative asset	(1,544,185)
Amortization of debt discount	9,022,759	5,674,800
Changes in operating assets and liabilities
(Increase) decrease in prepaid expenses and other current assets	808,354	(2,621,680)
Increase in contract assets	57,077	48,157
Increase (decrease) in contract liabilities, net	(349,908)	428,042
Increase in accounts receivable	(918,877)	(749,999)
Increase in accounts payable	2,347,566	1,653,821
Decrease in lease liability	(32,281)
Decrease in due to related parties	(66,966)	(251,206)
Net cash used in operating activities	(3,679,081)	(5,792,028)
Cash Flows from Investing Activities
Purchase of intangible assets		(2,150)
Purchase of fixed assets	(30,787)	(27,570)
Acquisition of p2kLabs	(1,141,990)
Investment in capitalized software	(84,925)	(569,043)
Investment in debt and equity securities	(750,000)
Investment in contractual joint venture	(660,000)
Net cash used in investing activities	(2,667,702)	(598,763)
Cash Flows from Financing Activities
Payments on promissory notes	(67,467)	(507,876)
Proceeds from promissory notes	531,169	78,603
Proceeds from related party debts		75,030
Payments on related party debts		(457,820)
Proceeds from convertible debt, net of issuance costs		14,995,000
Payments on convertible debts		(555,000)
Proceeds from exercise of warrants		4,355
Proceeds from issuance of common stock		361,800
Net cash provided by financing activities	463,702	13,994,092
Net increase (decrease) in Cash	(5,883,081)	7,603,301
Cash, beginning of period	7,838,857	412,777
Cash, end of period	1,955,776	8,016,078
Supplemental disclosure of cash flow information
Cash paid for interest	11,010	49,750
Cash paid for tax
Non-cash investing and financing transactions
Day one recognition of right of use asset and liability	85,280
Shares and options issued for business acquisition	533,935
Shares issued as collateral returned to treasury	30	275
Stock issued to promissory notes		51,225
Debt discount on convertible debt		14,995,000
Shares and warrants issued for asset acquisition		6,070,274
Shares issued for conversion of debt and accrued interest	14,054,876	4,725,000
Cashless exercise of options		2,179
Option expense capitalized as software development costs		$ 68,750

XML

1. ORGANIZATION AND LINE OF BUSINESS

9 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1. ORGANIZATION AND LINE OF BUSINESS

1. ORGANIZATION AND LINE OF BUSINESS

Organization & History

CleanSpark, Inc. (“CleanSpark”, “we”, “our”, the "Company") was incorporated in the State of Nevada on October 15, 1987 as SmartData Corporation (“SmartData”). SmartData conducted a 504-public offering in the State of Nevada in December 1987 and began trading publicly in January 1988. Due to a series of unfortunate events, including the untimely death of the founding CEO, SmartData discontinued active business operations in 1992.

On March 25, 2014, we began operations in the alternative energy sector.

In December 2014, the Company changed its name to Stratean Inc. through a short-form merger in order to better reflect its new business plan.

On July 1, 2016, the Company entered into an Asset Purchase Agreement, as amended (the “Purchase Agreement”), with CleanSpark Holdings LLC, CleanSpark LLC, CleanSpark Technologies LLC, and Specialized Energy Solutions, Inc. (together, the “Seller”). Pursuant to the Purchase Agreement, the Company acquired CleanSpark, LLC and all the assets related to the Seller and its line of business 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.

On January 22, 2019, CleanSpark entered into an Agreement and Plan of Merger with Pioneer Critical Power, Inc. (“Pioneer”), whereby the Company acquired certain intellectual property assets and a customer list. As consideration, the Company issued to Pioneer’s sole shareholder (i) 175,000 shares of common stock of CleanSpark, (ii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $16.00 per share, and (iii) a five-year warrant to purchase 50,000 shares of common stock of CleanSpark at an exercise price of $20.00 per share. As a result of the transaction, Pioneer became a wholly owned subsidiary of CleanSpark. On February 1, 2019, Pioneer was renamed to CleanSpark Critical Power Systems, Inc.

On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved a 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in this report and included in the financial statements and notes thereto as of and for the period ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented.

On January 31, 2020, the Company entered into a Stock Purchase Agreement (the “Agreement”) with p2klabs, Inc., a Nevada corporation (“p2k”), and its sole stockholder, Amer Tadayon (“Seller”), whereby the Company purchased all of the issued and outstanding shares of p2k from the Seller (the “Transaction”) in exchange for an aggregate purchase price of cash and equity of $1,688,935. The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020. As a result of the Transaction, p2k, is a wholly-owned subsidiary of the Company. (See note 3 for details.)

Line of Business

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

The services offered consist of microgrid design and engineering, and project development consulting services. The work is generally performed under fixed price bid contracts and negotiated price contracts.

Through CleanSpark Critical Power Systems, Inc., the Company provides custom hardware solutions for distributed energy systems that serve military and commercial residential properties. The equipment is generally sold under negotiated fixed price contracts.

Through p2kLabs, Inc., the Company provides design, software development, and other technology-based consulting services. The services provided are generally an hourly arrangement or fixed-fee project-based arrangements.

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2. SUMMARY OF SIGNIFICANT POLICIES

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

2. SUMMARY OF SIGNIFICANT POLICIES

2. SUMMARY OF SIGNIFICANT POLICIES

Basis of Presentation and Liquidity

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.

The Company has incurred losses for the past several years while developing infrastructure and its software platforms. As shown in the accompanying unaudited consolidated financial statements, the Company incurred net losses of $16,282,653 during the nine months ended June 30, 2020. In response to these conditions and to ensure the Company has sufficient capital for ongoing operations for a minimum of 12 months, we have raised additional capital through the sale of debt and equity securities pursuant to a registration statement on Form S-3. (See Note 10 and Note 18 for additional details.) As of June 30, 2020, the Company had working capital of $5,631,164.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CleanSpark, Inc., and its wholly owned operating subsidiaries, CleanSpark, LLC, CleanSpark II LLC, CleanSpark Critical Power Systems Inc. and p2kLabs, Inc. All material intercompany transactions have been eliminated upon consolidation of these entities.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill impairment, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s operations and financial results during 2020 as such impact will depend on the ultimate severity and scope of the COVID-19 pandemic. We are not able to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020 and beyond, but developments related to COVID-19 could affect the Company’s financial performance in 2020.

Revenue Recognition

Upon adoption of ASC Topic 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2019. The revised accounting policy on revenue recognition is provided below. The Company accounts for revenue contracts with customers through the following steps:

• Identification of the contract, or contracts, with a customer

• Identification of the performance obligations in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Recognition of revenue when, or as, the Company satisfies a performance obligation

Engineering, Service & Installation or Construction Contracts

The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract.

For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract.

Revenues from Sale of Equipment

Performance Obligations Satisfied at a point in time.

We recognize revenue on agreements for non-customized equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).

In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.

Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities.

Service Performance obligations satisfied over time.

We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods; these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) of $0 and contract work in progress (typically for fixed-price contracts) of $0 and $57,077 as of June 30, 2020 and September 30, 2019, respectively. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. Advances that are payments on account of contract assets of $321,000 and $360,000 as of June 30, 2020 and September 30, 2019, respectively, have been deducted from contract assets. Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded $149,493 and $499,401 in contract liabilities as of June 30, 2020 and September 30, 2019, respectively.

Revenues from software 

The Company derives its revenue from subscription fees from customers for access to its mVSO platform. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements.  

The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time.

Revenues from design, software development and other technology-based consulting services

For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer.

Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

 The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Practical Expedients

If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.

The Company does not adjust the contract price for the effects of a significant financing component if the company expects, at contract inception, that the period between when the company transfers a service to a customer and when the customer pays for that service will be one year or less.

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes).

For the nine months ended June 30, 2020 and 2019, the Company reported revenues of $8,073,781 and $2,209,542, respectively.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. There was $1,955,776 and $7,838,857 in cash and no cash equivalents as of June 30, 2020 and September 30, 2019, respectively.

Accounts receivable

Is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $400,741 and $254,570 at June 30, 2020, and September 30, 2019, respectively.

Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $171,513 and $159,989 were included in the balance of trade accounts receivable as of June 30, 2020 and September 30, 2019, respectively.

Investment securities

Investment securities include debt securities and equity securities. Debt securities are classified as available for sale (“AFS”) and are reported as an asset in the Consolidated Balance Sheet at their estimated fair value. As the fair values of AFS debt securities change, the changes are reported net of income tax as an element of OCI, except for other-than-temporarily-impaired securities. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid over the contractual life of the security.

For individual debt securities where the Company either intends to sell the security or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security's cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized in income on a cash basis.

The Company holds investments in both publicly held and privately held equity securities.

Privately held equity securities are recorded at cost and adjusted for observable transactions for same or similar investments of the issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized or unrealized, are recorded through gains or losses on equity securities on the consolidated statement of operations.

Publicly held equity securities are based on fair value accounting with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statement of operations.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of June 30, 2020, the cash balance in excess of the FDIC limits was $1,705,776. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue. (See Note 17 for details.)

Warranty Liability

The Company establishes warranty liability reserves to provide for estimated future expenses as a result of installation and product defects, product recalls and litigation incidental to the Company’s business. Liability estimates are 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 were $0 and $0 at June 30, 2020 and September 30, 2019, respectively.

Stock-based compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

Earnings (loss) per share

The Company reports earnings (loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of June 30, 2020, there are 1,503,639 shares issuable upon exercise of outstanding options and warrants which have been excluded as anti-dilutive.

Fair value of financial instruments and derivative asset

The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 9 & 10) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s long-term debt is also stated at fair value of $681,169 since the stated rate of interest approximates market rates.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.  

The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of June 30, 2020:

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	1,544,185	$	—	$	—	$	1,544,185
Investment in equity security		421,500		421,500		—	$	—
Investment in debt security		487,788		—		—		487,788
Total	$	2,453,473	$	421,500	$	—	$	2,031,973

The below table presents the change in the fair value of the derivative asset and investment in debt security during the nine months ended June 30, 2020:

	Amount
Balance at September 30, 2019	$	—
Fair value at issuance, net of premium		487,788
Gain on derivative asset		1,544,185
Balance at June 30, 2020	$	2,031,973

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company.

Recently issued accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In February 2016, the FASB issued guidance within ASU 2016-02, Leases. The amendments in ASU 2016-02 to Topic 842, Leases, require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In June, 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

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

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3. ACQUISITION OF P2KLABS, INC.

9 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

3. ACQUISITION OF P2KLABS, INC.

3. ACQUISITION OF P2KLABS, INC.

On January 31, 2020, the Company, entered into an Agreement with p2k, and its sole stockholder, Amer Tadayon, whereby the Company purchased all of the issued and outstanding shares of p2k in exchange for an aggregate purchase price of cash and equity of $1,688,935. The Transaction closed simultaneously upon the execution of the Agreement by the parties on January 31, 2020.

As a result of the Transaction, p2k is a wholly-owned subsidiary of the Company.

Pursuant to the terms of the Agreement, the purchase price was as follows:

a)	$1,039,500 in cash was paid to the Seller;
b)	31,183 restricted shares of the Company’s common stock, valued at $145,000, were issued to the Seller (the “Shares”). The Shares are subject to certain lock-up and leak-out provisions whereby the Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days (the “Leak-Out Terms”);
c)	$115,500 in cash was paid to an independent third-party escrow agent where such cash is subject to offset for adjustments to the purchase price and indemnification purposes;

d)

64,516 restricted shares of the Company’s common stock, valued at $300,000, were issued to an independent third-party escrow agent (the “Holdback Shares”). The Holdback Shares will be released to Seller once p2k achieves certain revenue milestones for the future performance of p2k.  The Holdback Shares will also be subject to the Leak-Out Terms once they are released from escrow 12 months from closing. The Shares and Holdback Shares were deemed to have a fair market value of $4.65 per share which was the closing price of the Company’s common stock on January 31, 2020.

e)

26,950 Common Stock options which were deemed to have a fair market value of $88,935 on the date of the closing of the Transaction.

The Company accounted for the acquisition of p2k as an acquisition of a business under ASC 805.

The Company determined the fair value of the consideration given to the Seller in connection with the Transaction in accordance with ASC 820 was as follows:

Consideration:	Fair Value
Cash	$	1,155,000
95,699 shares of common stock	$	445,000
26,950 common stock options	$	88,935
Total Consideration	$	1,688,935

The total purchase price was allocated to identifiable assets deemed acquired, and liabilities assumed, of the Company’s acquisition of p2k, based on their estimated fair values as indicated below. The business combination accounting is not yet complete, and the amounts assigned to the assets acquired and the liabilities assumed are provisional. Therefore, this may result in future adjustments to the provisional amounts as new information is obtained about the facts and circumstances that existed at the acquisition date.

Purchase Price Allocation:
Customer list	$	1,045,000
Design and other assets	$	123,000
Goodwill	$	642,388
Other assets and liabilities assumed, net	$	(121,453)
Total	$	1,688,935

The following is the unaudited pro forma information assuming the acquisition of p2k occurred on October 1, 2018:  

	For the Three Months Ended						For the Nine months ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net sales	$	3,438,674		$	1,432,942		$	8,445,480		$	2,842,848
Net loss	$	(8,551,301	)	$	(3,948,319	)	$	(16,402,974	)	$	(13,993,029)
Loss per common share - basic and diluted	$	(0.77	)	$	(0.87	)	$	(2.33	)	$	(3.37)
Weighted average common shares outstanding - basic and diluted		11,119,288			4,514,043			7,053,523			4,155,226

The unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisition. All transitions that would be considered inter-company transactions for proforma purposes have been eliminated.

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4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE

9 Months Ended

Jun. 30, 2020

Schedule of Investments [Abstract]

4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE

4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE

International Land Alliance, Inc.

On November 5, 2019, CleanSpark entered into a binding Memorandum of Understanding (the “MOU”) with International Land Alliance, Inc., a Wyoming corporation (“ILAL”), in order to lay a foundational framework where the Company will deploy its energy solutions products and services to ILAL, its energy projects, and its customers.

Pursuant to the terms of the MOU, the parties will work in good faith and pursue the following priorities over the next twelve (12) months:

1) The Company will perform feasibility studies to outline the details and scope of developing microgrid energy solutions to support ILAL projects.

2) ILAL will (a) exclusively sell the Company’s products and services as part of ILAL’s power solution for its offering of off-grid properties, and (b) include the Company’s mPulse DER Energy Manager within the off-grid energy project bids;

3) The Company will provide on-site testing, training, and support services to ILAL’s projects and operations

In connection with the MOU, and in order to support the power and energy needs of ILAL’s development and construction of certain projects, the Company entered into a Securities Purchase Agreement, dated as of November 6, 2019, with ILAL (the “ILAL SPA”).

Pursuant to the terms of the ILAL SPA, ILAL sold, and the Company purchased 1,000 shares of Series B Preferred Stock (the “Preferred Stock”) of ILAL for an aggregate purchase price of US $500,000 (the “Stock Transaction”), less certain expenses and fees. The Series B Preferred Stock will accrue cumulative in kind accruals at a rate of 12% per annum and shall increase by 10% per annum upon the occurrence of any trigger event. ILAL may redeem by paying in cash within 9 months from the issuance date. The Preferred Stock becomes convertible into common stock after 9 months or when certain triggering events occur. In the event of a conversion of any shares of the Preferred Stock, the number of conversion shares is equal to the face value of the Preferred Stock divided by the applicable Conversion Price (defined at 65% of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.05 per share, but no less than the Floor Price ($0.01). While the Preferred Stock is outstanding if triggering events occur, the Conversion Rate may be decreased by 10% and the accrual rate increased by 10% for each triggering event.

The Company believes that, pursuant to the terms and conditions of the ILAL SPA, at least two triggering events have occurred. Under this good faith belief, the Company believes that as a result of the occurrence of these triggering events, the Series B Preferred stock should be convertible at the Company’s option, and the interest and conversion rate should be adjusted by 10% for each such occurrence.

The Preferred Stock is recorded as an AFS debt security and is reported at its estimated fair value as of June 30, 2020. As of June 30, 2020, the Company has identified a derivative instrument in accordance with ASC Topic No. 815 due to the variable conversion feature upon certain triggering events that occurred during the period. Topic No. 815 requires the Company to account for the conversion feature on its balance sheet at fair value and account for changes in fair value as a derivative gain or loss.

The Black-Scholes model utilized the following inputs to value the derivative asset at the date in which the derivative asset was determined through June 30, 2020.

Fair value assumptions:	June 30, 2020
Risk free interest rate		0.13%
Expected term (months)		1
Expected volatility		131%
Expected dividends		0%

In connection with the Stock Transaction, ILAL issued 350,000 shares of its common stock to the Company as commitment shares. The commitment shares are recorded at $171,500, or $0.49 per share, which was the quoted price of the shares on June 30, 2020. 

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5. CONTRACTUAL JOINT VENTURE

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

5. CONTRACTUAL JOINT VENTURE

5. CONTRACTUAL JOINT VENTURE

On April 6, 2020, the Company entered into a joint venture agreement with third party partners to procure, distribute, and supply Personal Protective Equipment (PPE) for hospitals and frontline medical personnel. The agreement is effective until December 31, 2020, unless otherwise extended by mutual consent.

The Company contributed capital in the amount of $660,000 on April 6, 2020 to assist with the procurement of these products, with the potential for additional monies to be lent by the Company to the contractual joint venture, upon mutual consent if necessary.

The resulting income is reported net of all other costs, and CleanSpark recognized $20,000 in other income from the agreement for the period ended June 30, 2020. As of June 30, 2020, the balance of CleanSpark funds held in the joint venture (“JV”) account for future orders was $660,000  and is accounted for as a receivable from the third party partner since the Company considers itself as a passive investor in the JV. The receivable is reported in prepaid expenses and other current assets in the consolidated balance sheet.

On July 7, 2020, the Company received its $660,000 in initial capital from the JV. The Company plans to continue to evaluate opportunities under the JV and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise.

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6. CAPITALIZED SOFTWARE

9 Months Ended

Jun. 30, 2020

Research and Development [Abstract]

6. CAPITALIZED SOFTWARE

6. CAPITALIZED SOFTWARE

Capitalized software consists of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
mVSO software	$	437,136		$	352,211
mPulse software		741,846			741,846
Capitalized Software:		1,178,982			1,094,057
Less: accumulated amortization		(160,442	)		(38,860)
Capitalized Software, net	$	1,018,540		$	1,055,197

Capitalized software amortization recorded as cost of revenues and product development expense for the nine months ended June 30, 2020 and 2019 was $121,582 and $1,034,612, respectively.  

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7. INTANGIBLE ASSETS

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

7. INTANGIBLE ASSETS

7. INTANGIBLE ASSETS

Intangible assets consist of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
Patents	$	74,112		$	74,112
Websites		8,115			16,482
Customer list and non-compete agreement		6,767,024			5,722,024
Design assets		123,000			—
Trademarks		5,928			5,928
Trade secrets		4,370,269			4,370,269
Intangible assets:		11,348,448			10,188,815
Less: accumulated amortization		(4,703,145	)		(2,758,733)
Intangible assets, net	$	6,645,303		$	7,430,082

Amortization expense for the nine months ended June 30, 2020 and 2019 was $1,952,779 and $1,243,610, respectively.

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8. FIXED ASSETS

9 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

8. FIXED ASSETS

8. FIXED ASSETS

Fixed assets consist of the following as of June 30, 2020 and September 30, 2019:

	June 30, 2020			September 30, 2019
Machinery and equipment	$	201,856		$	212,082
Leasehold improvements		17,965			—
Furniture and fixtures		104,155			75,121
Total		323,976			287,203
Less: accumulated depreciation		(194,085	)		(142,133)
Fixed assets, net	$	129,891		$	145,070

Depreciation expense for the nine months ended June 30, 2020 and 2019 was $51,952 and $31,639, respectively.

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9. LOANS

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

9. LOANS

9. LOANS

Long term

Long-term loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	681,169	$	150,000
Total	$	681,169	$	150,000

Current

Current loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	—	$	50,000
Insurance financing loans		—		17,467
Current loans payable:		—		67,467
Unamortized debt discount		—		—
Total, net of unamortized discount	$	—	$	67,467

Promissory Notes

On September 5, 2017, the Company executed a 9% secured promissory note with a face value of $150,000 with an investor. Under the terms of the promissory note, the Company received $150,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. On September 5, 2019, the investor extended the maturity date to September 5, 2021 and the modification was not deemed substantial. The note is secured by 15,000 shares which are held in escrow and would be issued to the note holder only in the case of an uncured default. As of June 30, 2020, the Company owed $150,000 in principal and $0 in accrued interest under the terms of the agreement and recorded interest expense of $10,133 and $10,096 during the nine months ended June 30, 2020 and 2019, respectively. 

On November 11, 2017, the Company executed a 10% secured promissory note with a face value of $100,000 with an investor. Under the terms of the promissory note the Company received $100,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 10,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on August 13, 2019 and the 10,000 shares of common stock held as collateral were returned to treasury and cancelled on August 26, 2019. The Company recorded interest expense of $0 and $7,478 for the nine months ended June 30, 2020 and 2019, respectively.

On December 5, 2017, the Company executed a 9% secured promissory note with a face value of $50,000 with an investor. Under the terms of the promissory note the Company received $50,000 and agreed to make monthly interest payments and repay the note principal 24 months from the date of issuance. The note was secured by 5,000 shares which would be issued to the note holder only in the case of an uncured default. The Company repaid all principal and outstanding interest on December 5, 2019 and the 5,000 shares of common stock held as collateral were returned to treasury and cancelled on January 13, 2020. The Company recorded interest expense of $802 and $3,367 for the nine months ended June 30, 2020 and 2019, respectively.

May 7, 2020, the Company applied for a loan from Celtic Bank Corporation, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). On May 15, 2020, the loan was approved and the Company  received the proceeds from the loan in the amount of $531,169 (the “PPP Loan”). The PPP Loan took the form of a promissory note issued by the Company that matures on May 7, 2022 and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence on December 7, 2020. The PPP Loan provides for customary events of default, including, among others, those relating to failure to make payments thereunder. Borrower may prepay the principal of the PPP Loan at any time without incurring any prepayment penalties. The PPP Loan is non-recourse against any individual shareholder, except to the extent that such party uses the loan proceeds for an unauthorized purpose.

All or a portion of the PPP Loan  may be forgiven by the SBA and lender upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the applicable period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company recorded interest expense of $3,987 and $0 for the nine months ended June 30, 2020 and 2019, respectively.

Insurance financing loans

On February 11, 2019, the Company executed an unsecured 5.6% installment loan with a total face value of $78,603 with a financial institutional to finance its insurance policies. Under the terms of the installment notes the Company received $76,800 and agreed to make equal payments and repay the note 10 months from the date of issuance. As of September 30, 2019, $17,467 in principal remained outstanding. The Company repaid all principal and outstanding interest on November 4th, 2019.

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10. CONVERTIBLE NOTES PAYABLE

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

10. CONVERTIBLE NOTES PAYABLE

10. CONVERTIBLE NOTES PAYABLE

Short-Term convertible notes

Securities Purchase Agreement – December 31, 2018

On December 31, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company issued to the Investor a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $5,250,000. The note was secured by all assets of the Company. The Debenture has a maturity date of two years from the issuance date and the Company agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5%  per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

The transactions described above closed on December 31, 2018. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued to the Investor 10,000 shares of common stock and a Common Stock Purchase Warrant to acquire up to 308,333 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $20.00 per share with respect to 125,000 Warrant Shares, $25.00 with respect to 100,000 Warrant Shares, $50.00 with respect to 50,000 Warrant Shares and $75.00 with respect to 33,333 Warrant Shares. The warrants and shares issued were fair valued and a debt discount of $4,995,000 was recorded as a result of the issuance of the warrants and shares and the recognition of a beneficial conversion feature on the Debenture. The Company also paid a $5,000 due diligence fee prior to receiving the funding which was also recorded as a debt discount.

Pursuant to the terms of the SPA, the Investor agreed to tender to the Company the sum of $5,000,000, of which the Company received the full amount as of the closing.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 140% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.50 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, with the Floor Price on the First Debenture not applying in the occurrence of an event of default;
2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

3) Deleted the requirement that the Investor convert the Debenture at maturity and

4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

On January 7, 2019, the Investor converted $2,500,000 in principal and $875,000 in interest as a conversion premium, for 178,473 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

On March 6, 2019, the Investor converted $1,000,000 in principal and $350,000 in interest as a conversion premium, for 71,389 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. 

On July 9, 2019, in accordance with the terms of the agreement the Investor was issued an additional 45,614 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 18,246 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 19, 2019, the Investor converted $500,000 in principal and $175,000 in interest as a conversion premium, for 45,109 shares of the Company common stock at an effective conversion price of $15.00 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

On August 23, 2019, in accordance with the terms of the agreement the Investor was issued an additional 43,721 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.60.

On September 16, 2019, in accordance with the terms of the agreement the Investor was issued an additional 61,500 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.30.

On October 17, 2019, in accordance with the terms of the agreement the Investor was issued an additional 90,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.74.

On December 5, 2019, in accordance with the terms of the agreement the Investor was issued an additional 97,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15. 

On February 10, 2020, in accordance with the terms of the agreement the Investor was issued an additional 100,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15. 

On February 21, 2020, in accordance with the terms of the agreement the Investor was issued an additional 108,770 shares of common stock due to the decrease in stock price resulting in an effective conversion price of 2.69. 

On March 2, 2020, in accordance with the terms of the agreement the Investor was issued an additional 167,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.87. 

On March 5, 2020, in accordance with the terms of the agreement the Investor was issued an additional 154,835 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.83. 

On March 13, 2020, in accordance with the terms of the agreement the Investor was issued an additional 116,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50. 

On March 20, 2020, in accordance with the terms of the agreement the Investor was issued an additional 163,800 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50. 

On April 15, 2020, the Investor converted $1,250,000 in principal and $437,500 in interest, for 1,125,000 shares of the Company common stock at an effective conversion price of $1.50 due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018. As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $783,474 during the nine months ended June 30, 2020.

Securities Purchase Agreement – April 17, 2019

On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Agreement”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor a $10,750,000 face value Senior Secured Redeemable Convertible Promissory Note (the “Debenture”) with a 7.5% original issue discount, 215 shares of our Series B Preferred Stock with a 7.5% original issue discount, a Common Stock Purchase Warrant (the “Warrant”) on a cash-only basis to acquire up to 230,000 shares (the “Warrant Shares”) of our common stock and 125,000 shares of our Common Stock. The aggregate purchase price for the Debenture, the Series B Preferred Stock the Warrant and the Common Stock is $20,000,000. (See Notes 13 and 14 for additional details.)  The Debenture was secured by all assets of the Company.

Pursuant to the first closing of the Agreement, which occurred on April 18, 2019, the Investor agreed to tender to the Company the sum of $10,000,000, for the Debenture, the Common Stock and the Warrant. No additional closings to sell the preferred stock have occurred and the Series B preferred stock was removed under the amendments to the Agreement discussed below.

The Debenture has a maturity date of two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5% per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.75 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, not applying in the occurrence of an event of default;
2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

3) Deleted the requirement that the Investor convert the Debenture at maturity and

4) Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

5) The Company and the Investor also agreed to remove the Second Closing and Company Option to sell an aggregate of an additional $10,000,000 in securities under the Debenture. As a result of these changes, the Company was authorized to terminate any and all documentation related to the 100,000 shares of Series B Preferred Stock that the Company's Board of Directors had previously voted to designate back on April 16, 2019.

On May 5, 2020, the Investor converted $750,000 in principal and $112,500 in interest, for  575,000   shares of the Company common stock at an effective conversion price of $1.50.

On May 6, 2020, the Investor converted $600,000 in principal and $90,000 in interest, for 460,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 7, 2020, the Investor converted $595,000 in principal and $89,250 in interest, for 456,167 shares of the Company common stock at an effective conversion price of $1.50.

On May 8, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 11, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 12, 2020, the Investor converted $730,000 in principal and $109,500 in interest, for 559,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 13, 2020, the Investor converted $375,000 in principal and $56,250 in interest, for 287,500 shares of the Company common stock at an effective conversion price of $1.50.

On May 18, 2020, the Investor converted $360,000 in principal and $54,000 in interest, for 276,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 19, 2020, the Investor converted $1,020,000 in principal and $153,000 in interest, for 782,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 20, 2020, the Investor converted $380,000 in principal and $57,000 in interest, for 291,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 21, 2020, the Investor converted $2,140,000 in principal and $321,000 in interest, for 1,640,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 22, 2020, the Investor converted $3,100,000 in principal and $465,000 in interest, for 2,376,667 shares of the Company common stock at an effective conversion price of $1.50.

As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $8,320,205 during the nine months ended June 30, 2020.

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11. LEASES

9 Months Ended

Jun. 30, 2020

Leases [Abstract]

11. LEASES

11. LEASES

On October 1, 2019, the Company adopted the amendments to ASC 842, Leases, which requires lessees to recognize lease assets and liabilities arising from operating leases on the balance sheet. The Company adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted.

The Company has operating leases under which it leases its branch offices and corporate headquarters, one of which is with a related party. Upon adoption of the new lease guidance, on October 1, 2019, the Company recorded a right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the consolidated balance sheet. As of June 30, 2020, the Company's operating lease right of use asset and operating lease liability totaled $52,280 and $52,999, respectively. A weighted average discount rate of 10% was used in the measurement of the right of use asset and lease liability as of October 1, 2019. As the rate implicit in the lease is not readily determinable, the Company's incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable Company collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis.

The Company's leases have remaining lease terms between one year to two years, with a weighted average lease term of 0.7 years at June 30, 2020. Some leases include multiple year renewal options.  The Company’s decision to exercise these renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. Currently, the Company has no leases for which the option to renew is reasonably certain and therefore, options to renew were not factored into the calculation of its right of use asset and lease liability as of October 1, 2019.

The following is a schedule of the Company's operating lease liabilities by contractual maturity as of June 30, 2020:

Fiscal year ending September 30, 2020	$	12,912
Fiscal year ending September 30, 2021		43,170
Total Lease Payments		56,082
Less: imputed interest		(3,083)
Total present value of lease liabilities	$	52,999

Total operating lease costs of $38,328 and $38,523 the nine months ended June 30, 2020 and 2019, respectively, were included as part of administrative expense.

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12. RELATED PARTY TRANSACTIONS

9 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

12. RELATED PARTY TRANSACTIONS

12. RELATED PARTY TRANSACTIONS 

Zachary Bradford – Chief Executive Officer, Director and Former Chief Financial Officer

During the nine months ended June 30, 2019, the Company had a consulting agreement with ZRB Holdings, Inc., an entity wholly owned by Zachary Bradford, our Chief Executive Officer and director, for management services. In accordance with this agreement, as amended, Mr. Bradford earned $353,140 during the nine months ended June 30, 2019. The agreement was terminated in October 2019 when Mr. Bradford stepped down as the CFO and took the position of CEO and accepted the associated employment agreement.

During the nine months ended June 30, 2020, the Company paid Blue Chip Accounting, LLC (“Blue Chip”) $86,658 for accounting, tax, administrative services and reimbursement for office supplies. Blue Chip is 50% beneficially owned by Mr. Bradford. Blue Chip performed all services at discounted rates and none of the charges were associated with work performed by Mr. Bradford. The services consisted of preparing and filing tax returns, bookkeeping, accounting and administrative support assistance. The Company also sub-leases office space from Blue Chip (see note 11 for additional details). During the nine months ended June 30, 2020, $10,150 was paid to Blue Chip for rent.

Bryan Huber – Former Officer and Director

On August 28, 2018, the Company executed an agreement with Zero Positive, LLC an entity controlled by Mr. Huber. In accordance with the agreement with Zero Positive, LLC, Mr. Huber earned $125,154 and $127,772, during the nine months ended June 30, 2020 and 2019.

On March 12, 2019, the Agreement was terminated upon the execution of a separation agreement. All amounts owed from all agreements totaling $90,000 were paid in full. 

On September 28, 2018, in connection with the consulting agreement executed with Zero Positive, LLC, the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $8.00 per share to Zero Positive. The warrants were valued at $2,607,096 using the Black Scholes option pricing model based upon the following assumptions: term of 10 years, risk free interest rate of 3.05%, a dividend yield of 0% and volatility rate of 191%. The warrants vest as follows: 30,000 vested immediately, the balance vest evenly on the last day of each month over forty-two months beginning August 31, 2018. As of June 30, 2020, 62,857 warrants had vested, and the Company recorded an expense of $372,442 and 372,442 during the nine months ended June 30, 2020 and 2019.

Matthew Schultz- Chairman of the Board and Former Chief Executive Officer

The Company has a consulting agreement with Matthew Schultz, our former Chief Executive Officer, for management services. In accordance with this agreement, as amended, Mr. Schultz earned $0 and $353,140, respectively during the nine months ended June 30, 2020 and 2019. The agreement was terminated on October 7, 2019 when Mr. Schultz stepped down as the CEO and took the position of Chairman of the Board. Mr. Schultz received $189,000 as compensation for his services as chairman of the board during the nine months ended June 30, 2020.

The Company additionally entered into an agreement on November 15, 2019 with an organization to provide general investor relations and consulting services that Mr. Schultz is affiliated with. The Company paid the organization $49,500 in fees plus $176,000 in expense reimbursements for the nine months ended June 30, 2020. The agreement was terminated in March 2020.

Larry McNeill, Roger Beynon, Dr. Tom Wood –Directors

Effective January 1, 2019, the Company agreed to pay non-executive independent board members $2,500 per month. Mr. McNeill earned $22,500 and $15,000 in Board compensation during the nine months ended June 30, 2020 and 2019. Mr. Beynon and Dr. Wood each earned $22,500 and $0 in Board compensation during the nine months ended June 30, 2020 and 2019.

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13. STOCKHOLDERS EQUITY

9 Months Ended

Jun. 30, 2020

Equity [Abstract]

13. STOCKHOLDERS EQUITY

13. STOCKHOLDERS EQUITY

Overview

The Company’s authorized capital stock consists of 20,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of June 30, 2020, there were 16,123,507 shares of common stock issued and outstanding and 1,750,000 shares of preferred stock issued and outstanding.

On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved the Company’s 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in the consolidated financial statements and notes thereto as of and for the periods ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented.

Amendment to Articles of Incorporation

On August 9, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock from 100,000,000 to 200,000,000. The amendment was previously approved by written consent of the Company’s Board and more than a majority of the voting power of its stockholders and delivered to stockholders of record as of the close of business July 2, 2019 pursuant to a Definitive Information Statement on Schedule 14C. As a result of the reverse split mentioned above, the effect of the filed amendment reduced the authorized shares to 20,000,000.

On October 4, 2019, pursuant to Article IV of our Articles of Incorporation, our Board of Directors voted to increase the number of shares of preferred stock designated as Series A Preferred Stock from one million (1,000,000) shares to two million (2,000,000) shares, par value $0.001.

Under the Certificate of Designation, holders of Series A Preferred Stock will be entitled to quarterly dividends on 2% of our earnings before interest, taxes and amortization. The dividends are payable in cash or common stock. The holders will also have a liquidation preference on the state value of $0.02 per share plus any accumulated but unpaid dividends. The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

The rights of the holders of Series A Preferred Stock are defined in the relevant Amendment to the Certificate of Designation filed with the Nevada Secretary of State on October 9, 2019.

Certificate of Preferred Stock Designation

On April 16, 2019, pursuant to Article IV of our Articles of Incorporation, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B Preferred Stock, consisting of up to one hundred thousand (100,000) shares, par value $0.001. Under the Certificate of Designation, the holders of Series B Preferred Stock are entitled to the following powers, designations, preferences and relative participating, optional and other special rights, and the following qualifications, limitations and restrictions, among others as set forth in the Certificate of Designation:

§	The holders of shares of Series B Preferred Stock will have no right to vote on any matters, questions or proceedings of the Company including, without limitation, the election of directors;
§	Commencing on the date of issuance, the Series B Preferred Stock will accrue cumulative in kind accruals (“the Accruals”) at the rate of 7.5% per annum;

§	Upon any liquidation, dissolution or winding up of the Company, the holders of the Series B Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series B Preferred Stock equal to $5,000.00 (the “Face Value”), plus an amount equal to any accrued but unpaid Accruals thereon (the “Liquidation Value”);
§	On maturity, the Company may redeem the Series B Preferred Stock by paying the holder the Liquidation Value;
§	Before maturity, the Company may redeem the Series B Preferred stock on 30 days’ notice by paying 145% of the outstanding Face Value per share;
§	If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will, within three trading days of such determination and prior to effectuating any such action, redeem all outstanding shares of Series B Preferred Stock;
§	In the event of a conversion of any shares of Series B Preferred Stock, the Company will (a) satisfy the payment of the Conversion Premium, which is defined as the Face Value of the shares converted multiplied by the product of 7.5% and the number of whole years between issuance and maturity, and (b) issue to the holder of the shares of Series B Preferred Stock a number of conversion shares equal to the Face Value divided by the applicable Conversion Price (defined as 90% of the of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.75 per share, but no less than the Floor Price ($3.50) with respect to the number of shares converted; While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. In the event of certain defaults, conversion price may not be subject to a floor.

§	if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which holder could have acquired if holder had held the number of shares of Common Stock acquirable upon conversion of Series B Preferred Stock;
§	At maturity (2 years from issuance), all outstanding shares of Series B Preferred Stock shall automatically convert into common stock at the Conversion Price; and
▪	At no time may the holders of Series B Preferred Stock own more than 4.99% of the outstanding common stock in the Company.

On March 6, 2020, the Company withdrew the Certificate of Designation for the Series B Preferred Stock. At the time of withdrawal, no shares of Series B Preferred Stock were issued and outstanding.

Common Stock issuances during the nine months ended June 30, 2020

The Company issued 1,964,313 shares of common stock in accordance with the terms of the convertible debt agreement due to the decrease in stock price. (See Note 10 for additional details.)

The Company issued 22,000 shares of common stock for services rendered to independent consultants at a fair value of $54,000.

The Company issued 793 shares of common stock as a result of rounding related to the reverse stock split.

The Company issued 95,699 shares of common stock in relation to the acquisition of p2k (See note 3 for additional details.)

In relation to the Securities Purchase Agreement dated December 31, 2018, the Company issued 1,125,000 shares of common stock for the conversion of $1,250,000 in principal and $437,500 in interest at an effective conversion price of $1.50. (See Note 10 for additional details)

In relation to the Securities Purchase Agreement dated April 17, 2019, the Company issued 8,241,665 shares of common stock for the conversion of $10,750,000 in principal and $1,612,500 in interest as a conversion premium at an effective conversion price of $1.50. (See Note 10 for additional details)

The Company issued 25,019 shares of common stock as board and executive compensation at a fair value of $57,500. 

Common stock returned during the nine months ended June 30, 2020 

As a result of a note payoff on December 5, 2019, 5,000 shares common stock were returned to treasury and cancelled on January 13, 2020.

As a result of the cancellation of an investor relations services contract, 25,000 shares were returned to treasury and cancelled on February 10, 2020.

Series A Preferred Stock issuances during the nine months ended June 30, 2020

On October 4, 2019, the Company authorized the issuance of a total of seven hundred and fifty thousand (750,000) shares of its designated Series A Preferred Stock to members of its board of directors for services rendered.  A fair value of $0.02 per share was determined by the Company. Director fees of $15,000 was recorded as a result of the stock issued.

Common Stock issuances during the nine months ended June 30, 2019

During the period commencing October 1, 2018 through June 30, 2019, the Company received $361,800 from 14 investors pursuant to private placement agreements with the investors to purchase 45,225 shares of the Company’s common stock at a purchase price equal to $8.00 for each share of common stock.

On September 11, 2018, the Company entered into an agreement with Regal Consulting, LLC for investor relations services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock per month as compensation for services plus additional cash compensation. During the nine months ended June 30, 2019, the Company issued a total of 18,000 shares of its common stock in accordance with the agreement. Stock compensation of $531,600 was recorded as a result of the stock issued under the agreement.

On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 shares of the Company’s common stock which vest evenly over a six month period from the agreement date. During the nine months ended June 30, 2019, the Company recorded stock compensation of $68,819 was recorded as a result of the stock issued under the agreement.

On October 2, 2018, an investor exercised warrants to purchase 300 shares of the Company’s $0.001 par value common stock at a purchase price equal to $3.63 for each share of Common stock. The Company receive $1,088 as a result of this exercise.

The Company issued 10,000 shares in relation to a Securities purchase agreement executed on December 31, 2018. (See Note 10 for additional details.)

On December 31, 2018, the Company settled $25,000 of a promissory note through the issuance of 2,500 shares of the Company’s common stock. The shares were valued at $51,225 and a $26,225 loss on settlement of debt was recorded as a result of the issuance.

On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $0.83.

On January 7, 2019, an investor converted $2,500,000 in principal and $875,000 in interest,  for 178,472 shares of the Company’s common stock at an effective conversion price of $18.90.

On January 22, 2019, in accordance with a merger agreement, the Company issued 175,000 shares of the Company’s common stock.

On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $0.83.

On March 6, 2019, the investor converted $1,000,000 in principal and $350,000 in interest as a conversion premium, for 71,389 shares of the Company’s common stock at an effective conversion price of $18.90.

On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $0.83.

On April 9, 2019, an investor exercised warrants to purchase 900 shares of the Company’s common stock at a purchase price equal to $3.63. The Company received $3,267 as a result of this exercise.

The Company issued 125,000 shares in relation to the Securities purchase agreement executed on April 17, 2019.

On June 12, 2019, the Company entered into an agreement with SylvaCap Media for investor relations services. Under this agreement, the Company agreed to issue 25,000 shares of the Company’s common stock as compensation for services for a six month period plus additional cash considerations. The 25,000 shares vest upon issuance but if the agreement is terminated within 90 days of execution, the shares are to be returned and cancelled. The Company terminated the agreement and the shares were returned on February 10, 2020.

Common stock returned during the nine months ended June 30, 2019 

As a result of a conversion of a note on September 21, 2018, 13,750 shares common stock which were previously issued as a commitment fee were returned to treasury and cancelled on December 21, 2018.

As a result of a note payoff on January 3, 2019, 13,750 shares of common stock which were previously issued as a commitment fee returned to treasury and cancelled on January 8, 2019.

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14. STOCK WARRANTS

9 Months Ended

Jun. 30, 2020

Stock Warrants

14. STOCK WARRANTS

14. STOCK WARRANTS

The following is a summary of stock warrant activity during the nine months ended June 30, 2020.

	Number of Warrant Shares		Weighted Average Exercise Price
Balance, September 30, 2019		1,314,065	$	21.62
Warrants granted		—	$	—
Warrants expired		—		—
Warrants cancelled		—		—
Warrants exercised		—		—
Balance, June 30, 2020		1,314,065	$	21.62

As of June 30, 2020, the outstanding warrants have a weighted average remaining term of 2.17 years and an intrinsic value of $194,250.

As of June 30, 2020, there are warrants exercisable to purchase 1,286,922 shares of common stock in the Company and 27,143 unvested warrants outstanding that cannot be exercised until vesting conditions are met. 996,198 of the warrants require a cash investment to exercise as follows, 5,000 required a cash investment of $8.00 per share, 449,865 require a cash investment of $15.00 per share, 125,000 require a cash investment of $20.00 per share, 103,000 require a cash investment of $25.00 per share, 200,000 require an investment of $35.00 per share, 10,000 require an investment of $40.00 per share, 60,000 require an investment of $50.00 per share, 38,333 require a cash investment of $75.00 per share and 5,000 require a cash investment of $100.00 per share. 317,867 of the outstanding warrants contain provisions allowing a cashless exercise at their respective exercise prices.

Warrant activity for the nine months ended June 30, 2019

On October 15, 2018, the Company entered into an agreement with a consultant for services. Under this agreement the Company agreed to issue 3,000 warrants to purchase shares of the Company’s common stock at an exercise price of $25.00 for a period of five years which vest evenly over a six-month period from the agreement date. During the nine months ended June 30, 2020 and 2019 the Company recorded stock compensation of $0 and $68,643 as a result of the stock issued under the agreement. The warrants were valued using the black-Scholes valuation model.

On December 31, 2018, in connection with a Securities purchase agreement (see Note 10 for additional details) the Company issued Common Stock Purchase Warrants to acquire up to 308,333 shares of common stock for a term of three years on a cash-only basis at an exercise price of $20.00 per share with respect to 125,000 Warrant Shares, $25.00 with respect to 100,000 Warrant Shares, $50.00 with respect to 50,000 Warrant Shares and $75.00 with respect to 33,333 Warrant Shares.

On August 28, 2018, in connection with the Consulting agreement executed with Zero Positive, LLC the Company issued warrants to purchase 90,000 shares of common stock at an exercise price of $8.00 per share to Zero Positive. The warrants were valued at $2,607,096 using the Black Scholes option pricing model. The warrants vest as follows: 30,000 warrants vested immediately, the balance vest evenly on the last day of each month over the forty-two months beginning August 31, 2018. As of June 30, 2020, 58,571 warrants had vested, and the Company recorded an expense of $372,442 and 372,442 during the nine months ended June 30, 2020 and 2019. (See Note 10 for additional details.)

On January 22, 2019, in accordance with a merger agreement, CleanSpark issued; a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $16.00 per share, and a five year warrant to purchase 50,000 shares of CleanSpark common stock at an exercise price of $20.00 per share.  The warrants were valued at $1,102,417 and $1,102,107, respectively.

On April 18, 2019, in connection with a Securities purchase agreement, the Company issued Common Stock Purchase Warrants to acquire up to 230,000 shares of common stock for a term of three years on a cash-only basis at an exercise price of $35.00 per share with respect to 200,000 Warrant Shares, $40.00 with respect to 10,000 Warrant Shares, $50.00 with respect to 10,000 Warrant Shares, $75.00 with respect to 5,000 Warrant Shares and $100.00 with respect to 5,000 Warrant Shares.

The Black-Scholes model utilized the following inputs to value the warrants granted during the nine months ended June 30, 2019:

Fair value assumptions – Warrants:	June 30, 2019
Risk free interest rate	2.36% -3.01%
Expected term (years)	3-5
Expected volatility	254%-268%
Expected dividends	0%

On January 7, 2019, a total of 144,417 shares of the Company’s common stock were issued in connection with the cashless exercise of 150,000 common stock warrants at an exercise price of $0.83.

On February 26, 2019, a total of 24,628 shares of the Company’s common stock were issued in connection with the cashless exercise of 25,000 common stock warrants at an exercise price of $0.83.

On March 26, 2019, a total of 48,857 shares of the Company’s common stock were issued in connection with the cashless exercise of 50,000 common stock warrants at an exercise price of $0.83.

As of June 30, 2020, the Company expects to recognize $786,415 of stock-based compensation for the non-vested outstanding warrants over a weighted-average period of 1.5 years.

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15. STOCK OPTIONS

9 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

15. STOCK OPTIONS

15. STOCK OPTIONS

The Company sponsors a stock-based incentive compensation plan known as the 2017 Incentive Plan (the “Plan”), which was established by the Board of Directors of the Company on June 19, 2017. A total of 300,000 shares were initially reserved for issuance under the Plan. As of June 30, 2020, there were 21,360 shares available for issuance under the plan.

The Plan allows the Company to grant incentive stock options, non-qualified stock options, stock appreciation right, or restricted stock. The incentive stock options are exercisable for up to ten years, at an option price per share not less than the fair market value on the date the option is granted. The incentive stock options are limited to persons who are regular full-time employees of the Company at the date of the grant of the option. Non-qualified options may be granted to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Company’s Board believes have contributed, or will contribute, to the success of the Company. Non-qualified options may be issued at option prices of less than fair market value on the date of grant and may be exercisable for up to ten years from date of grant. The option vesting schedule for options granted is determined by the Board of Directors at the time of the grant. The Plan provides for accelerated vesting of unvested options if there is a change in control, as defined in the Plan.

The following is a summary of stock option activity during the nine months ended June 30, 2020.

	Number of Option Shares			Weighted Average Exercise Price
Balance, September 30, 2019		81,254		$	11.82
Options granted		233,233			5.28
Options expired		25,000			8.00
Options cancelled		(10,847	)		19.04
Options exercised		—			—
Balance, June 30, 2020		278,640		$	6.41

As of June 30, 2020, there are options exercisable to purchase 216,717 shares of common stock in the Company. As of June 30, 2020, the outstanding options have a weighted average remaining term of was 2.59 years and an intrinsic value of $0.

Option activity for the nine months ended June 30, 2020

During the nine months ended June 30, 2020, the Company issued 233,233 options to purchase shares of common stock to employees; the shares were granted at quoted market prices ranging from $4.50 to $8.50. The options were valued at issuance using the Black Scholes model and stock compensation expense of $673,590 was recorded as a result of the issuances.

The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2020:

Fair value assumptions – Options:	June 30, 2020
Risk free interest rate		0.85%-1.73%
Expected term (years)		3-5
Expected volatility		124%-209%
Expected dividends		0%

As of June 30, 2020, the Company expects to recognize $245,300  of stock-based compensation for the non- vested outstanding options over a weighted-average period of 2.17 years.

Option activity for the nine months ended June 30, 2019

During the nine months ended June 30, 2019, the Company issued 12,788 options to purchase shares of common stock to employees, the shares were granted at quoted market prices ranging from $15.10 to $59.00. The options were valued at issuance using the Black Scholes model and stock compensation expense of $245,000 was recorded as a result of the issuances.

On March 10, 2018 the Company issued a total of 25,000 options to four consultants for advisory services. The options vest evenly 12 months from issuance. The options expire 24 months after issuance and require a cash investment to exercise. The options were valued at issuance using the Black Scholes model at $342,500 and amortized of the term of the agreement. During the nine months ended June 30, 2019, $191,425 was expensed as stock-based compensation.

The Black-Scholes model utilized the following inputs to value the options granted during the nine months ended June 30, 2019:

Fair value assumptions – Options:	June 30, 2019
Risk free interest rate		2.21%-2.91%
Expected term (years)		3
Expected volatility		239%-271%
Expected dividends		0%

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16. COMMITMENTS AND CONTINGENCIES

9 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

16. COMMITMENTS AND CONTINGENCIES

16. COMMITMENTS AND CONTINGENCIES

Office leases

Utah Corporate Office

On November 22, 2019, the company entered into a lease to relocate the corporate office to 1185 South 1800 West, Suite 3, Woods Cross, UT 84047. The agreement calls for the Company to make payments of $2,300 in base rent per month through February 28, 2021. The lease term is on an annual basis beginning on March 1, 2020. 

San Diego Office

On May 15, 2018, the Company executed a 37 month lease agreement, which commenced on July 1, 2018 at 4360 Viewridge Avenue, Suite C, San Diego, California. The agreement calls for the Company to make payments of $4,057 in base rent per month through July 31, 2021 subject to an annual 3% rent escalation. Future minimum lease payments under the operating leases for the facilities as of June 30, 2020, are as follows:

Fiscal year ending (three months remaining) September 30, 2020	$12,912
Fiscal year ending September 30, 2021	$43,170

Las Vegas Offices

On January 2, 2020, the Company entered into a sublease agreement for office space at 8475 S. Eastern Ave., Suite 200, Las Vegas, NV 89123. The agreement calls for the Company to make monthly payments of $1,575 in base rent through January 1, 2021. The lease term is on an annual basis beginning January 2, 2020.

The Company assumed p2k’s lease agreement entered into on October 17, 2017 at 7955 W. Badura Ave., Suite 1040, Las Vegas, NV 89113. The agreement calls for $1,801 in base rent through October 31, 2020. The lease expires on October 31, 2020.  The Company does not expect to renew.

Legal contingencies

From time to time we may be subject to litigation. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. We have acquired liability insurance to reduce such risk exposure to the Company. Despite the measures taken, such policies may not cover future litigation, or the damages claimed may exceed our coverage which could result in continent liabilities.

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17. MAJOR CUSTOMERS AND VENDORS

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

17. MAJOR CUSTOMERS AND VENDORS

17. MAJOR CUSTOMERS AND VENDORS

For the nine months ended June 30, 2020 and 2019, the Company had the following customers that represented more than 10% of sales.

	June 30, 2020			June 30, 2019
Customer A		60.3	%		33.9%
Customer B		14.1	%		1.2%
Customer C		—			21.9%
Customer D		—			21.4%

For the nine months ended June 30, 2020 and 2019, the Company had the following suppliers that represented more than 10% of direct material costs. Internally developed product costs and labor for services rendered are excluded from the calculation.

	June 30, 2020			June 30, 2019
Vendor A		85.7	%		90.1%

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18. SUBSEQUENT EVENTS

9 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

18. SUBSEQUENT EVENTS

18. SUBSEQUENT EVENTS

On July 7, 2020, the Company received its $660,000 in initial capital from the Contractual joint venture. The Company plans to continue to evaluate opportunities under the joint venture and will continue to provide capital for the procurement of PPE under this agreement as future opportunities continue to arise. (See note 5 for details).

On July 16, 2020, the Company filed a preliminary information statement wherein the Company’s shareholders approved to grant the Board authority to effectuate an increase in the number of authorized shares of Common Stock from 20,000,000 to no more than 50,000,000 and amend the Company’s 2017 Incentive Plan to increase the number of shares issuable from 300,000 to 1,500,000. The effective date of these actions is determined by the Board in its sole discretion.

On July 20, 2020, the Company sold 1,230,770 shares to an existing accredited investor at a price of $3.25 per share for gross proceeds of $4,000,000.

An investor has advised us that it considers the July 21, 2020 filing of the Form 8-K without that investor’s prior review to be a contractual breach. We believe the investor’s position is without merit given that the governing contract does not provide that investor any right to prior review of the Form 8-K. We intend to vigorously defend against any claims brought by the investor related to the filing of the Form 8-K. We are not in a position to estimate potential impact at this time.

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2. SUMMARY OF SIGNIFICANT POLICIES (Policies)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation and Liquidity

Basis of Presentation and Liquidity

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.

The Company has incurred losses for the past several years while developing infrastructure and its software platforms. As shown in the accompanying unaudited consolidated financial statements, the Company incurred net losses of $16,282,653 during the nine months ended June 30, 2020. In response to these conditions and to ensure the Company has sufficient capital for ongoing operations for a minimum of 12 months, we have raised additional capital through the sale of debt and equity securities pursuant to a registration statement on Form S-3. (See Note 10 and Note 18 for additional details.) As of June 30, 2020, the Company had working capital of $5,631,164.

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, CleanSpark II LLC, CleanSpark Critical Power Systems Inc. and p2kLabs, Inc. 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 impairment, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions including, but not limited to, the ultimate impact that COVID-19 may have on the Company’s operations and financial results during 2020 as such impact will depend on the ultimate severity and scope of the COVID-19 pandemic. We are not able to fully quantify the impact that the COVID-19 pandemic will have on our financial results during 2020 and beyond, but developments related to COVID-19 could affect the Company’s financial performance in 2020.

Revenue Recognition

Revenue Recognition

Upon adoption of ASC Topic 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2019. The revised accounting policy on revenue recognition is provided below. The Company accounts for revenue contracts with customers through the following steps:

• Identification of the contract, or contracts, with a customer

• Identification of the performance obligations in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Recognition of revenue when, or as, the Company satisfies a performance obligation

Engineering, Service & Installation or Construction Contracts

The Company recognizes engineering and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Engineering and construction contracts are generally accounted for as a single unit of account (a single performance obligation) and are not segmented between types of services. The Company recognizes revenue based primarily on contract cost incurred to date compared to total estimated contract cost (an input method). The input method is the most faithful depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Customer-furnished materials, labor and equipment and, in certain cases, subcontractor materials, labor and equipment, are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (i.e., the company integrates the materials, labor and equipment into the deliverables promised to the customer). Customer-furnished materials are only included in revenue and cost when the contract includes construction activity and the Company has visibility into the amount the customer is paying for the materials or there is a reasonable basis for estimating the amount. The Company recognizes revenue, but not profit, on certain uninstalled materials that are not specifically produced, fabricated, or constructed for a project. Revenue on these uninstalled materials is recognized when the cost is incurred (when control is transferred). Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined as assessed at the contract level. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. Project mobilization costs are generally charged to project costs as incurred when they are an integrated part of the performance obligation being transferred to the client. Customer payments on engineering and construction contracts are typically due within 30 to 45 days of billing, depending on the contract.

For service contracts (including maintenance contracts) in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed and contractually billable. Service contracts that include multiple performance obligations are segmented between types of services. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using an estimate of the stand-alone selling price of each distinct service in the contract. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the Consolidated Balance Sheets. Amounts billed to clients in excess of revenue recognized on service contracts to date are classified as a current liability under contract liabilities. Customer payments on service contracts are typically due within 30 days of billing, depending on the contract.

Revenues from Sale of Equipment

Performance Obligations Satisfied at a point in time.

We recognize revenue on agreements for non-customized equipment we sell on a standardized basis to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good, which is generally upon shipment or when the customer has physical possession of the product depending on contract terms. We use proof of delivery for certain large equipment with more complex logistics, whereas the delivery of other equipment is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).

In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.

Our billing terms for these point in time equipment contracts vary and generally coincide with shipment to the customer; however, within certain businesses, we receive progress payments from customers for large equipment purchases, which is generally to reserve production slots with our manufacturing partners, which are recorded as contract liabilities.

Service Performance obligations satisfied over time.

We enter into long-term product service agreements with our customers primarily within our microgrid segment. These agreements require us to provide preventative maintenance, and standby support services that include certain levels of assurance regarding system performance throughout the contract periods; these contracts will generally range from 1 to 10 years. We account for items that are integral to the maintenance of the equipment as part of our service-related performance obligation, unless the customer has a substantive right to make a separate purchasing decision (e.g., equipment upgrade). Contract modifications that extend or revise contract terms are not uncommon and generally result in our recognizing the impact of the revised terms prospectively over the remaining life of the modified contract (i.e., effectively like a new contract). Revenues are recognized for these arrangements on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to routine maintenance and as needed product repairs. Our billing terms for these contracts vary, but we generally invoice periodically as services are provided.

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) of $0 and contract work in progress (typically for fixed-price contracts) of $0 and $57,077 as of June 30, 2020 and September 30, 2019, respectively. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. Advances that are payments on account of contract assets of $321,000 and $360,000 as of June 30, 2020 and September 30, 2019, respectively, have been deducted from contract assets. Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The Company recorded $149,493 and $499,401 in contract liabilities as of June 30, 2020 and September 30, 2019, respectively.

Revenues from software 

The Company derives its revenue from subscription fees from customers for access to its mVSO platform. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements.  

The Company’s subscription agreements generally have monthly or annual contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time.

Revenues from design, software development and other technology-based consulting services

For service contracts performed under Master Services Agreements (“MSA”) and accompanying Statement(s) of Work (“SOW”), revenue is recognized based on the performance obligation(s) outlined in the SOW which is typically hours worked or specific deliverable milestones. In the case of a milestone-based SOW, the Company recognizes revenues as each deliverable is signed off by the customer.

Variable Consideration

The nature of the Company’s contracts gives rise to several types of variable consideration, including claims and unpriced change orders; awards and incentive fees; and liquidated damages and penalties. The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regard to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. If the requirements for recognizing revenue for claims or unapproved change orders are met, revenue is recorded only when the costs associated with the claims or unapproved change orders have been incurred. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable, and the amounts can be reliably estimated. Disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied.

 The Company generally provides limited warranties for work performed under its engineering and construction contracts. The warranty periods typically extend for a limited duration following substantial completion of the Company’s work on a project. Historically, warranty claims have not resulted in material costs incurred.

Practical Expedients

If the Company has a right to consideration from a customer in an amount that corresponds directly with the value of the Company’s performance completed to date (a service contract in which the company bills a fixed amount for each hour of service provided), the Company recognizes revenue in the amount to which it has a right to invoice for services performed.

The Company does not adjust the contract price for the effects of a significant financing component if the company expects, at contract inception, that the period between when the company transfers a service to a customer and when the customer pays for that service will be one year or less.

The Company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the Company from its customers (use taxes, value added taxes, some excise taxes).

For the nine months ended June 30, 2020 and 2019, the Company reported revenues of $8,073,781 and $2,209,542, respectively.

Cash and cash equivalents

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. There was $1,955,776 and $7,838,857 in cash and no cash equivalents as of June 30, 2020 and September 30, 2019, 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 $400,741 and $254,570 at June 30, 2020, and September 30, 2019, respectively.

Retention receivable is the amount withheld by a customer until a contract is completed. Retention receivables of $171,513 and $159,989 were included in the balance of trade accounts receivable as of June 30, 2020 and September 30, 2019, respectively.

Investment securities

Investment securities

Investment securities include debt securities and equity securities. Debt securities are classified as available for sale (“AFS”) and are reported as an asset in the Consolidated Balance Sheet at their estimated fair value. As the fair values of AFS debt securities change, the changes are reported net of income tax as an element of OCI, except for other-than-temporarily-impaired securities. When AFS debt securities are sold, the unrealized gains or losses are reclassified from OCI to non-interest income. Securities classified as AFS are securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, decline in credit quality, and regulatory capital considerations.

Interest income is recognized based on the coupon rate and increased by accretion of discounts earned or decreased by the amortization of premiums paid over the contractual life of the security.

For individual debt securities where the Company either intends to sell the security or more likely than not will not recover all of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security's cost basis and its fair value at the balance sheet date. For individual debt securities for which a credit loss has been recognized in earnings, interest accruals and amortization and accretion of premiums and discounts are suspended when the credit loss is recognized. Interest received after accruals have been suspended is recognized in income on a cash basis.

The Company holds investments in both publicly held and privately held equity securities.

Privately held equity securities are recorded at cost and adjusted for observable transactions for same or similar investments of the issuer (referred to as the measurement alternative) or impairment. All gains and losses on privately held equity securities, realized or unrealized, are recorded through gains or losses on equity securities on the consolidated statement of operations.

Publicly held equity securities are based on fair value accounting with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statement of operations.

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 June 30, 2020, the cash balance in excess of the FDIC limits was $1,705,776. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue. (See Note 17 for details.)

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 were $0 and $0 at June 30, 2020 and September 30, 2019, respectively.

Stock-based compensation

Stock-based compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which requires companies to measure the cost of employee and non-employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

Earnings (loss) per share

Earnings (loss) per share

The Company reports earnings (loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive. As of June 30, 2020, there are 1,503,639 shares issuable upon exercise of outstanding options and warrants which have been excluded as anti-dilutive.

Fair value of financial instruments and derivative asset

Fair value of financial instruments and derivative asset

The carrying value of cash, accounts payable and accrued expenses, and debt (See Notes 9 & 10) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s long-term debt is also stated at fair value of $681,169 since the stated rate of interest approximates market rates.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.  

The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of June 30, 2020:

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	1,544,185	$	—	$	—	$	1,544,185
Investment in equity security		421,500		421,500		—	$	—
Investment in debt security		487,788		—		—		487,788
Total	$	2,453,473	$	421,500	$	—	$	2,031,973

The below table presents the change in the fair value of the derivative asset and investment in debt security during the nine months ended June 30, 2020:

	Amount
Balance at September 30, 2019	$	—
Fair value at issuance, net of premium		487,788
Gain on derivative asset		1,544,185
Balance at June 30, 2020	$	2,031,973

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or net assets of the Company.

Recently issued accounting pronouncements

Recently issued accounting pronouncements

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In February 2016, the FASB issued guidance within ASU 2016-02, Leases. The amendments in ASU 2016-02 to Topic 842, Leases, require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company adopted the amendments to Topic 842 on October 1, 2019 using the modified retrospective approach. The Company elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. The Company also elected to apply the package of practical expedients permitting entities to forgo reassessment of: 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. The Company has also elected to apply the short term lease measurement and recognition exemption to leases with an initial term of 12 months or less. The most significant impact of the new standard on the Company’s Consolidated Financial Statements was the recognition of a right of use asset and lease liability for operating leases for which the Company is the lessee. Upon adoption of this guidance, on October 1, 2019, the Company recorded a Right of use asset and corresponding lease liability of $85,280 and $85,280, respectively, on the Consolidated Balance Sheet. No cumulative effect adjustment to retained earnings resulted from adoption of this guidance. The new standard did not have a material impact on the Company’s results of operations or cash flows.

In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In June, 2016, the FASB issued guidance within ASU 2016-13, Financial Instruments – Credit Losses. The amendments in ASU 2016-13 require assets measured at amortized cost and establishes an allowance of credit losses for available for sale debt securities. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

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

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2. SUMMARY OF SIGNIFICANT POLICIES (Tables)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT POLICIES - Fair Value of Financial Instruments

	Amount		Level 1		Level 2		Level 3
Derivative asset	$	1,544,185	$	—	$	—	$	1,544,185
Investment in equity security		421,500		421,500		—	$	—
Investment in debt security		487,788		—		—		487,788
Total	$	2,453,473	$	421,500	$	—	$	2,031,973

SUMMARY OF SIGNIFICANT POLICIES - Fair Value of Drivative Asset

	Amount
Balance at September 30, 2019	$	—
Fair value at issuance, net of premium		487,788
Gain on derivative asset		1,544,185
Balance at June 30, 2020	$	2,031,973

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3. ACQUISITION OF P2KLABS, INC. (Tables)

9 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

ACQUISITION OF P2K LABS, INC. - Consideration

Consideration:	Fair Value
Cash	$	1,155,000
95,699 shares of common stock	$	445,000
26,950 common stock options	$	88,935
Total Consideration	$	1,688,935

ACQUISITION OF P2K LABS, INC. - Purchase Price Allocation

Purchase Price Allocation:
Customer list	$	1,045,000
Design and other assets	$	123,000
Goodwill	$	642,388
Other assets and liabilities assumed, net	$	(121,453)
Total	$	1,688,935

ACQUISITION OF P2K LABS, INC. - Pro Forma Information

	For the Three Months Ended						For the Nine months ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net sales	$	3,438,674		$	1,432,942		$	8,445,480		$	2,842,848
Net loss	$	(8,551,301	)	$	(3,948,319	)	$	(16,402,974	)	$	(13,993,029)
Loss per common share - basic and diluted	$	(0.77	)	$	(0.87	)	$	(2.33	)	$	(3.37)
Weighted average common shares outstanding - basic and diluted		11,119,288			4,514,043			7,053,523			4,155,226

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4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE (Tables)

9 Months Ended

Jun. 30, 2020

Schedule of Investments [Abstract]

INVESTMENTS IN INTERNATIONAL LAND ALLIANCE -

Fair value assumptions:	June 30, 2020
Risk free interest rate		0.13%
Expected term (months)		1
Expected volatility		131%
Expected dividends		0%

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6. CAPITALIZED SOFTWARE (Tables)

9 Months Ended

Jun. 30, 2020

Research and Development [Abstract]

CAPITALIZED SOFTWARE

	June 30, 2020			September 30, 2019
mVSO software	$	437,136		$	352,211
mPulse software		741,846			741,846
Capitalized Software:		1,178,982			1,094,057
Less: accumulated amortization		(160,442	)		(38,860)
Capitalized Software, net	$	1,018,540		$	1,055,197

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7. INTANGIBLE ASSETS (Tables)

9 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS - Schedule of Intangible Assets

	June 30, 2020			September 30, 2019
Patents	$	74,112		$	74,112
Websites		8,115			16,482
Customer list and non-compete agreement		6,767,024			5,722,024
Design assets		123,000			—
Trademarks		5,928			5,928
Trade secrets		4,370,269			4,370,269
Intangible assets:		11,348,448			10,188,815
Less: accumulated amortization		(4,703,145	)		(2,758,733)
Intangible assets, net	$	6,645,303		$	7,430,082

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8. FIXED ASSETS (Tables)

9 Months Ended

Jun. 30, 2020

Property, Plant and Equipment [Abstract]

FIXED ASSETS - Schedule of Property Pant and Equipment

	June 30, 2020			September 30, 2019
Machinery and equipment	$	201,856		$	212,082
Leasehold improvements		17,965			—
Furniture and fixtures		104,155			75,121
Total		323,976			287,203
Less: accumulated depreciation		(194,085	)		(142,133)
Fixed assets, net	$	129,891		$	145,070

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9. LOANS (Tables)

9 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

LOANS - Long Term

Long-term loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	681,169	$	150,000
Total	$	681,169	$	150,000

LOANS - Current

Current loans payable consist of the following:	June 30, 2020		September 30, 2019
Promissory notes	$	—	$	50,000
Insurance financing loans		—		17,467
Current loans payable:		—		67,467
Unamortized debt discount		—		—
Total, net of unamortized discount	$	—	$	67,467

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11. LEASES (Tables)

9 Months Ended

Jun. 30, 2020

Leases [Abstract]

LEASES

Fiscal year ending September 30, 2020	$	12,912
Fiscal year ending September 30, 2021		43,170
Total Lease Payments		56,082
Less: imputed interest		(3,083)
Total present value of lease liabilities	$	52,999

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14. STOCK WARRANTS (Tables)

9 Months Ended

Jun. 30, 2020

Stock Warrants

STOCK WARRANTS - Schedule of Warrant Summary

	Number of Warrant Shares		Weighted Average Exercise Price
Balance, September 30, 2019		1,314,065	$	21.62
Warrants granted		—	$	—
Warrants expired		—		—
Warrants cancelled		—		—
Warrants exercised		—		—
Balance, June 30, 2020		1,314,065	$	21.62

STOCK WARRANTS - Fair Value Assumptions

Fair value assumptions – Warrants:	June 30, 2019
Risk free interest rate	2.36% -3.01%
Expected term (years)	3-5
Expected volatility	254%-268%
Expected dividends	0%

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15. STOCK OPTIONS (Tables)

9 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

STOCK OPTIONS - Schedule of Option Summary

	Number of Option Shares			Weighted Average Exercise Price
Balance, September 30, 2019		81,254		$	11.82
Options granted		233,233			5.28
Options expired		25,000			8.00
Options cancelled		(10,847	)		19.04
Options exercised		—			—
Balance, June 30, 2020		278,640		$	6.41

STOCK OPTIONS - Fair Value Assumptions 2020

Fair value assumptions – Options:	June 30, 2020
Risk free interest rate		0.85%-1.73%
Expected term (years)		3-5
Expected volatility		124%-209%
Expected dividends		0%

STOCK OPTIONS - Fair Value Assumptions 2019

Fair value assumptions – Options:	June 30, 2019
Risk free interest rate		2.21%-2.91%
Expected term (years)		3
Expected volatility		239%-271%
Expected dividends		0%

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17. MAJOR CUSTOMERS AND VENDORS (Tables)

9 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

MAJOR CUSTOMERS AND VENDORS - Customers

	June 30, 2020			June 30, 2019
Customer A		60.3	%		33.9%
Customer B		14.1	%		1.2%
Customer C		—			21.9%
Customer D		—			21.4%

MAJOR CUSTOMERS AND VENDORS - Suppliers

	June 30, 2020			June 30, 2019
Vendor A		85.7	%		90.1%

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1. ORGANIZATION AND LINE OF BUSINESS (Details Narrative)	9 Months Ended
	Jun. 30, 2020 $ / shares shares	Jan. 31, 2020 USD ($) shares	Sep. 30, 2019 $ / shares shares	Jan. 22, 2019 $ / shares shares	Jul. 01, 2016 USD ($)
Acquired Indefinite-lived Intangible Assets [Line Items]
Date of Incorporation	Oct. 15, 1987
Liabilities Assumed | $					$ 200,000
Common stock issued as consideration for acquisition	16,123,507	95,699	4,679,018	175,000
Warrant, exercise price | $ / shares	$ 21.62		$ 21.62
Stockholders' Equity Note, Stock Split, Conversion Ratio	0.1
Aggregate purchase price | $		$ 1,688,935
Warrant One
Acquired Indefinite-lived Intangible Assets [Line Items]
Term of warrant				5 years
Warrant issued as consideration for acquisition				50,000
Warrant, exercise price | $ / shares				$ 16.00
Warrant Two
Acquired Indefinite-lived Intangible Assets [Line Items]
Term of warrant				5 years
Warrant issued as consideration for acquisition				50,000
Warrant, exercise price | $ / shares				$ 20.00
P2K
Acquired Indefinite-lived Intangible Assets [Line Items]
Common stock issued as consideration for acquisition		31,183
Aggregate purchase price | $		$ 1,688,935

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SUMMARY OF SIGNIFICANT POLICIES - Fair Value of Financial Instruments (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Derivative asset	$ 1,544,185
Investment in equity security	421,500
Investment debt security	487,788
Total financial instruments	2,453,473
Level 1
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Derivative asset
Investment in equity security	421,500
Investment debt security
Total financial instruments	421,500
Level 2
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Derivative asset
Investment in equity security
Investment debt security
Total financial instruments
Level 3
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Derivative asset	1,544,185
Investment in equity security
Investment debt security	487,788
Total financial instruments	$ 2,031,973

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SUMMARY OF SIGNIFICANT POLICIES - Fair Value of Drivative Asset (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Accounting Policies [Abstract]
Fair Value balance	$ 2,031,973
Fair value at issuance,net of premium	487,788
Gain on derivative asset	$ 1,544,185

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2. SUMMARY OF SIGNIFICANT POLICIES (Details Narrative) - USD ($)	3 Months Ended						9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019
Accounting Policies [Abstract]
Net loss	$ 8,551,301	$ 5,815,098	$ 1,916,254	$ 3,971,911	$ 7,764,540	$ 2,283,551	$ 16,282,653	$ 14,020,002
Woking Capital	(5,631,164)						(5,631,164)
Contracts Receivable, Claims and Uncertain Amounts	0						0
Contract work in progress	0						0		$ 57,077
Contract assets	321,000						321,000		360,000
Contract liablilities	149,493						149,493		499,401
Revenues	3,438,674			$ 1,222,736			8,073,781	$ 2,209,542
Cash and no cash equivalents	1,955,776						1,955,776		7,838,857
Allowance for doubtful accounts. net of	400,741						400,741		254,570
Retention Receivables	171,513						171,513		159,989
FDIC Indemnification Asset, Period Increase (Decrease)							1,705,776
Warranty costs and associated liabilities	0						0		$ 0
Shares issuable upon excercise of outstanding options	1,503,639						1,503,639
Long term convertible debt at fair value	$ 681,169						$ 681,169

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ACQUISITION OF P2K LABS, INC. - Consideration (Details) - USD ($)	1 Months Ended
	Jan. 31, 2020	Jun. 30, 2020	Sep. 30, 2019	Jan. 22, 2019	Mar. 10, 2018
Business Combinations [Abstract]
Cash	$ 1,155,000
Common stock, shares issued	95,699	16,123,507	4,679,018	175,000
Common stock issued, value	$ 445,000	$ 16,124	$ 4,679
Common stock options, shares issued	26,950
Common stock options, value	$ 88,935	$ 0			$ 342,500
Total Consideration	$ 1,688,935

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ACQUISITION OF P2K LABS, INC. - Purchase Price Allocation (Details) - USD ($)	Jun. 30, 2020	Jan. 31, 2020	Sep. 30, 2019
Business Combinations [Abstract]
Customer list	$ 6,767,024	$ 1,045,000	$ 5,722,024
Design and other assets	660,000	123,000
Goodwill	$ 5,562,246	642,388	$ 4,919,858
Other assets and liabilities assumed, net		121,453
Total		$ 1,688,935

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ACQUISITION OF P2K LABS, INC. - Pro Forma Information (Details) - USD ($)	3 Months Ended						9 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2020	Jun. 30, 2019
Business Acquisition [Line Items]
Net sales	$ 3,438,674			$ 1,222,736			$ 8,073,781	$ 2,209,542
Net loss	$ (8,551,301)	$ (5,815,098)	$ (1,916,254)	$ (3,971,911)	$ (7,764,540)	$ (2,283,551)	$ (16,282,653)	$ (14,020,002)
Weighted average common shares outstanding - basic and diluted	11,119,288			4,418,344			7,003,927	4,059,527
P2K
Business Acquisition [Line Items]
Net sales	$ 3,438,674			$ 1,432,942			$ 8,445,480	$ 2,842,848
Net loss	$ (8,551,301)			$ (3,948,319)			$ (16,402,974)	$ (13,993,029)
Loss per common share - basic and diluted	$ (0.77)			$ (0.87)			$ (2.33)	$ (3.37)
Weighted average common shares outstanding - basic and diluted	11,119,288			4,514,043			7,053,523	4,155,226

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3. ACQUISITION OF P2KLABS, INC. (Details Narrative) - USD ($)	1 Months Ended	9 Months Ended
	Jan. 31, 2020	Jun. 30, 2020	Sep. 30, 2019	Jan. 22, 2019	Mar. 10, 2018
Business Acquisition [Line Items]
Aggregate purchase price	$ 1,688,935
Cash paid for acquisition	$ 1,155,000
Common stock, shares issued	95,699	16,123,507	4,679,018	175,000
Common stock issued, value	$ 445,000	$ 16,124	$ 4,679
Common stock options, shares issued	26,950
Common stock options, value	$ 88,935	$ 0			$ 342,500
P2K
Business Acquisition [Line Items]
Aggregate purchase price	1,688,935
Cash paid for acquisition	$ 1,039,500
Common stock, shares issued	31,183
Common stock issued, value	$ 145,000
Closed Block, Description		Seller may sell an amount of Shares equal to ten percent (10%) of the daily dollar trading volume of the Company’s common stock on its principal market for the prior 30 days
Common stock options, shares issued	26,950
Common stock options, value	$ 88,935
Third Party
Business Acquisition [Line Items]
Cash paid for acquisition	$ 115,500
Common stock, shares issued	64,516
Common stock issued, value	$ 300,000
Common stock, value per share	$ 4.65

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INVESTMENTS IN INTERNATIONAL LAND ALLIANCE - (Details)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Schedule of Investments [Abstract]
Risk free interest rate	0.13%
Expected term (months)	1 month
Expected volatility	131.00%
Expected dividends	0.00%	0.00%

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4. INVESTMENT IN INTERNATIONAL LAND ALLIANCE (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jan. 31, 2020	Nov. 05, 2019	Sep. 30, 2019
Investment Holdings [Line Items]
Common stock issued, value	$ 16,124	$ 445,000		$ 4,679
Common stock received , value per share	$ 0.001			$ 0.001
Commitment Shares
Investment Holdings [Line Items]
Common stock received as commitment			$ 350,000
Common stock issued, value	$ 171,500
Common stock received , value per share	$ 0.49
International Land Alliance
Investment Holdings [Line Items]
Investment Owned, Balance, Shares			1,000
Investment Owned, Face Amount			$ 500,000
Debt Instrument, Convertible, Terms of Conversion Feature	The Series B Preferred Stock will

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5. CONTRACTUAL JOINT VENTURE (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jul. 07, 2020	Apr. 06, 2020	Jan. 31, 2020
Debt Disclosure [Abstract]
Limited Partners' Contributed Capital			$ 660,000
Other Comprehensive Income, Other, Net of Tax	$ 20,000
Receivable from third party	$ 660,000			$ 123,000
Limited Partners' Capital Account		$ 660,000

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CAPITALIZED SOFTWARE (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Research and Development [Abstract]
mVSO software	$ 437,136	$ 352,211
mPulse software	741,846	741,846
Capitalized Software:	1,178,982	1,094,057
Less: accumulated amortization	(160,442)	(38,860)
Capitalized Software, net	$ 1,018,540	$ 1,055,197

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6. CAPITALIZED SOFTWARE (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Research and Development [Abstract]
Cost of revenues and product development expense	$ 121,582	$ 1,034,612

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INTANGIBLE ASSETS - Schedule of Intangible Assets (Details) - USD ($)	Jun. 30, 2020	Jan. 31, 2020	Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Patents	$ 74,112		$ 74,112
Websites	8,115		16,482
Customer list and non-compete agreement	6,767,024	$ 1,045,000	5,722,024
Design assets	123,000
Trademarks	5,928		5,928
Trade secrets	4,370,269		4,370,269
Intangible assets:	11,348,448		10,188,815
Less: accumulated amortization	(4,703,145)		(2,758,733)
Intangible assets, net	$ 6,645,303		$ 7,430,082

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7. INTANGIBLE ASSETS (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization Expense	$ 1,952,779	$ 1,243,610

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FIXED ASSETS - Schedule of Property Pant and Equipment (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Property, Plant and Equipment [Abstract]
Machinery and equipment	$ 201,856	$ 212,082
Leasehold improvements	17,965
Furniture and fixtures	104,155	75,121
Total	323,976	287,203
Less: accumulated depreciation	(194,085)	(142,133)
Fixed assets, net	$ 129,891	$ 145,070

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8. FIXED ASSETS (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Property, Plant and Equipment [Abstract]
Depreciation Expense	$ 51,952	$ 31,639

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LOANS - Long Term (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Promissory notes	$ 681,169	$ 150,000
Total	$ 681,169	$ 150,000

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LOANS - Current (Details) - USD ($)	Jun. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Promissory notes		$ 50,000
Insurance financing loans		17,467
Current loans payable:		67,467
Unamortized debt discount
Total, net of unamortized discount		$ 67,467

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9. LOANS (Details Narrative) - USD ($)						9 Months Ended
	May 15, 2020	Feb. 11, 2019	Dec. 05, 2017	Nov. 11, 2017	Sep. 05, 2017	Jun. 30, 2020	Jun. 30, 2019	Jan. 13, 2020	Sep. 30, 2019	Aug. 13, 2019
Debt Instrument [Line Items]
Collateral shares returned to treasury and cancelled								5,000		10,000
Loan Payable One
Debt Instrument [Line Items]
Maturity Date					Sep. 05, 2021
Installment Loan
Debt Instrument [Line Items]
Promissory note, face value		$ 78,603
Proceeds from promissory note		$ 76,800
Term of repayment		10 months
Owed in principal									$ 17,467
Loan Payable One
Debt Instrument [Line Items]
Promissory note, interest rate					9.00%
Promissory note, face value					$ 150,000
Proceeds from promissory note					$ 150,000
Term of repayment					24 months
Shares used to secure note					15,000
Owed in principal					$ 150,000
Promissory note, accrued interest payable					$ 0
Interest Expense						$ 10,133	$ 10,096
Loans Payable Two
Debt Instrument [Line Items]
Promissory note, interest rate				10.00%
Promissory note, face value				$ 100,000
Proceeds from promissory note				$ 100,000
Term of repayment				24 months
Shares used to secure note				10,000
Interest Expense						0	7,478
Loans Payable Three
Debt Instrument [Line Items]
Promissory note, interest rate			900.00%
Promissory note, face value			$ 50,000
Proceeds from promissory note			$ 50,000
Term of repayment			24 months
Shares used to secure note			5,000
Interest Expense						802	3,367
PPP Loan
Debt Instrument [Line Items]
Promissory note, interest rate	100.00%
Proceeds from promissory note	$ 531,169
Maturity Date	May 07, 2022
Interest Expense						$ 3,987	$ 0
Long-term Debt, Description	Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the applicable period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

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10. CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($)																	1 Months Ended																9 Months Ended
	May 13, 2020	May 12, 2020	May 11, 2020	May 08, 2020	May 07, 2020	May 06, 2020	May 05, 2020	Mar. 13, 2020	Mar. 05, 2020	Mar. 04, 2020	Mar. 02, 2020	Feb. 10, 2020	Dec. 05, 2019	Jul. 09, 2019	Mar. 06, 2019	Jan. 07, 2019	May 22, 2020	May 21, 2020	May 20, 2020	May 19, 2020	May 18, 2020	Apr. 15, 2020	Mar. 20, 2020	Feb. 21, 2020	Oct. 17, 2019	Sep. 16, 2019	Aug. 23, 2019	Jul. 19, 2019	Jul. 16, 2019	Apr. 17, 2019	Apr. 16, 2019	Dec. 31, 2018	Jun. 30, 2020	Jan. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Jan. 22, 2019
Short-term Debt [Line Items]
Common stock, shares issued																																	16,123,507	95,699	4,679,018		175,000
Warrant, exercise price																																	$ 21.62		$ 21.62
Series B preferred shares issued																																	1,750,000
Series B Preferred
Short-term Debt [Line Items]
Maturity period																															2 years
$20 per share
Short-term Debt [Line Items]
Warrant, exercise price																																	$ 20.00
$25 per share
Short-term Debt [Line Items]
Warrant, exercise price																																	25.00
$50 per share
Short-term Debt [Line Items]
Warrant, exercise price																																	50.00
$75 per share
Short-term Debt [Line Items]
Warrant, exercise price																																	$ 75.00
SPA 1
Short-term Debt [Line Items]
Aggregate Face Value																																$ 5,250,000
Maturity period																																2 years
Interest Rate																																7.50%
Common stock, shares issued																																10,000
Purchase warrant, shares of common stock																																308,333
Warrant, term																																3 years
Debt discount																																$ 4,995,000
Due diligence fees paid																																5,000
Tendered to company																																$ 5,000,000
Redemption terms																																Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 140% of the of the portion of the Debenture being redeemed.
Conversion terms																																The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.50 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.
Trigger event terms																																While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.
Floor price										$ 1.50
Debt discount charged as financing expense																																	$ 783,474
SPA 1 | Conversion One
Short-term Debt [Line Items]
Principal converted																$ 2,500,000
Interest converted																$ 875,000
Common stock issued in conversion																178,473
Effective conversion price per share																$ 18.90
SPA 1 | Conversion Two
Short-term Debt [Line Items]
Principal converted															$ 1,000,000
Interest converted															$ 350,000
Common stock issued in conversion															71,389
Effective conversion price per share															$ 18.90
SPA 1 | Issuance One
Short-term Debt [Line Items]
Common stock issued in conversion														45,614
Effective conversion price per share														$ 15.06
SPA 1 | Issuance Two
Short-term Debt [Line Items]
Common stock issued in conversion																													18,246
Effective conversion price per share																													$ 15.06
SPA 1 | Conversion Three
Short-term Debt [Line Items]
Principal converted																												$ 500,000
Interest converted																												$ 175,000
Common stock issued in conversion																												45,109
Effective conversion price per share																												$ 15.00
SPA 1 | Issuance 3
Short-term Debt [Line Items]
Common stock issued in conversion																											43,721
Effective conversion price per share																											$ 7.60
SPA 1 | Issuance Four
Short-term Debt [Line Items]
Common stock issued in conversion																										61,500
Effective conversion price per share																										$ 7.30
SPA 1 | Issuance Five
Short-term Debt [Line Items]
Common stock issued in conversion																									90,000
Effective conversion price per share																									$ 3.74
SPA 1 | Issuance Six
Short-term Debt [Line Items]
Common stock issued in conversion													97,100
Effective conversion price per share													$ 3.15
SPA 1 | Issuance Seven
Short-term Debt [Line Items]
Common stock issued in conversion												100,000
Effective conversion price per share												$ 3.15
SPA 1 | Issuance Eight
Short-term Debt [Line Items]
Common stock issued in conversion																								108,770
Effective conversion price per share																								$ 2.69
SPA 1 | Issuance Nine
Short-term Debt [Line Items]
Common stock issued in conversion											167,100
Effective conversion price per share											$ 1.87
SPA 1 | Issuance Ten
Short-term Debt [Line Items]
Common stock issued in conversion									154,835
Effective conversion price per share									$ 1.83
SPA 1 | Issuance Eleven
Short-term Debt [Line Items]
Common stock issued in conversion								116,000
Effective conversion price per share								$ 1.50
SPA 1 | Issuance Twelve
Short-term Debt [Line Items]
Common stock issued in conversion																							163,800
Effective conversion price per share																							$ 1.50
SPA 1 | Conversion Four
Short-term Debt [Line Items]
Principal converted																						$ 1,250,000
Interest converted																						$ 437,500
Common stock issued in conversion																						1,125,000
Effective conversion price per share																						$ 1.50
SPA 1 | $20 per share
Short-term Debt [Line Items]
Purchase warrant, shares of common stock																																				125,000
Warrant, exercise price																																				$ 20.00
SPA 1 | $25 per share
Short-term Debt [Line Items]
Purchase warrant, shares of common stock																																				100,000
Warrant, exercise price																																				$ 25.00
SPA 1 | $50 per share
Short-term Debt [Line Items]
Purchase warrant, shares of common stock																																				50,000
Warrant, exercise price																																				$ 50.00
SPA 1 | $75 per share
Short-term Debt [Line Items]
Purchase warrant, shares of common stock																																				33,333
Warrant, exercise price																																				$ 75.00
SPA 1 | Default Trigger Original
Short-term Debt [Line Items]
Closing price of common stock default trigger										500.00%
SPA 1 | Default Trigger Amended
Short-term Debt [Line Items]
Closing price of common stock default trigger										175.00%
SPA Two
Short-term Debt [Line Items]
Aggregate Face Value																														$ 10,750,000
Maturity period																														2 years
Interest Rate																														7.50%
Common stock, shares issued																														125,000
Purchase warrant, shares of common stock																														230,000
Tendered to company																														$ 10,000,000
Redemption terms																														Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Debenture being redeemed.
Conversion terms																														The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.75 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.
Trigger event terms																														While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event which may result in the issuance of additional shares.
Floor price										$ 1.50
Debt discount charged as financing expense																																	$ 8,320,205
Aggregate purchase price																														$ 20,000,000
Compounded interest rate on unpaid principal balance																														7.50%
Company option terms as amended																																	The Company and the Investor also agreed to remove the Second Closing and Company Option to sell an aggregate of an additional $10,000,000 in securities under the Debenture. As a result of these changes, the Company was authorized to terminate any and all documentation related to the 100,000 shares of Series B Preferred Stock that the Company's Board of Directors had previously voted to designate back on April 16, 2019.
SPA Two | Series B Preferred
Short-term Debt [Line Items]
Series B preferred shares issued																														215
Series B preferred shares issued, original issue discount																														$ 7.05
SPA Two | Conversion One
Short-term Debt [Line Items]
Principal converted							$ 750,000
Interest converted							$ 112,500
Common stock issued in conversion							575,000
Effective conversion price per share							$ 1.50
SPA Two | Conversion Two
Short-term Debt [Line Items]
Principal converted						$ 600,000
Interest converted						$ 90,000
Common stock issued in conversion						460,000
Effective conversion price per share						$ 1.50
SPA Two | Conversion Three
Short-term Debt [Line Items]
Principal converted					$ 595,000
Interest converted					$ 89,250
Common stock issued in conversion					456,167
Effective conversion price per share					$ 1.50
SPA Two | Conversion Four
Short-term Debt [Line Items]
Principal converted				$ 350,000
Interest converted				$ 52,500
Common stock issued in conversion				268,333
Effective conversion price per share				$ 1.50
SPA Two | Conversion Five
Short-term Debt [Line Items]
Principal converted			$ 350,000
Interest converted			$ 52,500
Common stock issued in conversion			268,333
Effective conversion price per share			$ 1.50
SPA Two | Conversion Six
Short-term Debt [Line Items]
Principal converted		$ 730,000
Interest converted		$ 109,500
Common stock issued in conversion		559,667
Effective conversion price per share		$ 1.50
SPA Two | Conversion Seven
Short-term Debt [Line Items]
Principal converted	$ 375,000
Interest converted	$ 56,250
Common stock issued in conversion	287,500
Effective conversion price per share	$ 1.50
SPA Two | Conversion Eight
Short-term Debt [Line Items]
Principal converted																					$ 360,000
Interest converted																					$ 54,000
Common stock issued in conversion																					276,000
Effective conversion price per share																					$ 1.50
SPA Two | Conversion Nine
Short-term Debt [Line Items]
Principal converted																				$ 1,020,000
Interest converted																				$ 153,000
Common stock issued in conversion																				782,000
Effective conversion price per share																				$ 1.50
SPA Two | Conversion Ten
Short-term Debt [Line Items]
Principal converted																			$ 380,000
Interest converted																			$ 57,000
Common stock issued in conversion																			291,333
Effective conversion price per share																			$ 1.50
SPA Two | Conversion Eleven
Short-term Debt [Line Items]
Principal converted																		$ 2,140,000
Interest converted																		$ 321,000
Common stock issued in conversion																		1,640,667
Effective conversion price per share																		$ 1.50
SPA Two | Conversion Twelve
Short-term Debt [Line Items]
Principal converted																	$ 3,100,000
Interest converted																	$ 465,000
Common stock issued in conversion																	2,376,667
Effective conversion price per share																	$ 1.50
SPA 2 | Default Trigger Original
Short-term Debt [Line Items]
Closing price of common stock default trigger										500.00%
SPA 2 | Default Trigger Amended
Short-term Debt [Line Items]
Closing price of common stock default trigger										175.00%

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LEASES (Details) - USD ($)	Sep. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Oct. 01, 2019	Sep. 30, 2019
Leases [Abstract]
Lease liabilities	$ 43,170	$ 12,912	$ 52,999	$ 85,280
Operating Leases, Future Minimum Payments Due			56,082
Less: imputed interest			3,083
Total present value of lease liabilities			$ 52,999

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11. LEASES (Details Narrative) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2021	Sep. 30, 2020	Oct. 01, 2019	Sep. 30, 2019
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]
Operating lease right of use	$ 52,280				$ 85,280
Operating lease liability	$ 52,999		$ 43,170	$ 12,912	$ 85,280
Weighted average discount rate					10.00%
Weighted average lease term	8 months 12 days
Operating lease costs	$ 38,328	$ 38,523
Lease Term Minimum
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]
Lease terms	1 year
Lease Term Maximum
SEC Schedule, 12-18, Supplemental Information, Property-Casualty Insurance Underwriters [Line Items]
Lease terms	2 years

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12. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)		1 Months Ended	9 Months Ended
	Mar. 12, 2019	Sep. 28, 2018	Jun. 30, 2020	Jun. 30, 2019	Sep. 30, 2019	Jan. 01, 2019
Related Party Transaction [Line Items]
Warrant, exercise price			$ 21.62		$ 21.62
Risk free interest rate			0.13%
Dividend Yield			0.00%	0.00%
Volatility Rate			131.00%
Zachary Bradford Ownership
Related Party Transaction [Line Items]
Limited Liability Company or Limited Partnership, Members or Limited Partners, Ownership Interest			50.00%
Zachary Bradford
Related Party Transaction [Line Items]
Officer wages				$ 353,140
Blue Chip Accounting
Related Party Transaction [Line Items]
Payment for Administrative Fees			$ 86,658
Payments for Rent			10,150
Bryan Huber
Related Party Transaction [Line Items]
Officer wages	$ 90,000		$ 125,154	127,772
Warrant shares issued		90,000
Warrant, exercise price		$ 8.00
Warrants issued, value		$ 2,607,096
Term of Warrant		10 years
Risk free interest rate		3.05%
Dividend Yield		0.00%
Volatility Rate		191.00%
Warrants issued, vesting description		The warrants vest as follows: 30,000 vested immediately, the balance vest evenly on the last day of each month over forty-two months beginning August 31, 2018
Warrants vested			62,857
Interest Expense			$ 372,442	372,442
Schultz Consulting Agreement
Related Party Transaction [Line Items]
Officer wages			0	353,140
Director compensation			189,000
Investor Relations
Related Party Transaction [Line Items]
Payments for consulting services			49,500
Payment for reimbursement			176,000
Non Executive Board Member
Related Party Transaction [Line Items]
Board member annual wage						$ 2,500
McNeill Consulting Agreement
Related Party Transaction [Line Items]
Director compensation			22,500	15,000
Beynon and Dr. Wood
Related Party Transaction [Line Items]
Director compensation			$ 22,500	$ 0

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13. STOCKHOLDERS EQUITY (Details Narrative) - USD ($)										1 Months Ended					3 Months Ended				9 Months Ended
	Feb. 10, 2020	Jan. 13, 2020	Dec. 11, 2019	Oct. 04, 2019	Apr. 09, 2019	Mar. 06, 2019	Jan. 08, 2019	Jan. 07, 2019	Sep. 11, 2018	Apr. 16, 2019	Mar. 26, 2019	Feb. 26, 2019	Dec. 31, 2018	Dec. 21, 2018	Jun. 30, 2020	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2020	Jun. 30, 2019	Jan. 31, 2020	Oct. 03, 2019	Sep. 30, 2019	Aug. 09, 2019	Aug. 08, 2019	Jan. 22, 2019	Oct. 02, 2018
Class of Stock [Line Items]
Common Stock authorized															20,000,000				20,000,000				20,000,000	200,000,000	100,000,000
Preferred stock authorized															10,000,000				10,000,000				10,000,000
Series B preferred stock, par value per share															$ 0.001				$ 0.001				$ 0.001
Common stock, shares issued															16,123,507				16,123,507		95,699		4,679,018			175,000
Preferred Stock, shares issued and outstanding															1,750,000				1,750,000
Common stock issued for services				750,000
Common stock issued, value															$ 16,124				$ 16,124		$ 445,000		$ 4,679
Shares returned to treasury							13,750							13,750
Stock issued, fair value per share				$ 0.02
Director fees				$ 15,000
Payments received for stock issuance																				$ 361,800
Common stock issued for direct investment																	350,888
Warrant, exercise price															$ 21.62				$ 21.62				$ 21.62
Shares issued for direct investment, value																		$ 361,800
Loss on settlement of debt																				$ 19,425
Convertible Debt Agreement
Class of Stock [Line Items]
Common stock issued during period																			1,964,313
Independent Consultant
Class of Stock [Line Items]
Common stock issued for services																			22,000
Common stock issued, value															54,000				$ 54,000
SPA
Class of Stock [Line Items]
Common stock issued during period																				10,000
Common stock issued in conversion																			1,125,000
Principal converted																			$ 1,250,000
Interest converted																			$ 437,500
Conversion price per share																			$ 1.50
SPA 2
Class of Stock [Line Items]
Common stock issued during period																			125,000
Common stock issued in conversion																			8,241,665
Principal converted																			$ 10,750,000
Interest converted																			$ 1,612,500
Conversion price per share																			$ 1.50
Board and Executive Compensation
Class of Stock [Line Items]
Common stock issued during period																			25,019
Common stock issued, value															$ 57,500				$ 57,500
Note Payoff
Class of Stock [Line Items]
Shares returned to treasury		5,000
Contract Cancellation
Class of Stock [Line Items]
Shares returned to treasury	25,000
Fourteen Investors
Class of Stock [Line Items]
Payments received for stock issuance																				$ 361,800
Common stock issued for direct investment																				45,225
Common stock, value per share															$ 8.00				$ 8.00
Regal Consulting
Class of Stock [Line Items]
Common stock issued during period																				18,000
Commitment fees									$ 3,000
Stock Compensation									$ 531,600
Consultant
Class of Stock [Line Items]
Commitment fees																				$ 3,000
Stock Compensation																				$ 68,819
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period																				6 months
Warrant One
Class of Stock [Line Items]
Warrant exercised to purchase shares																				300
Warrant, exercise price																											$ 3.63
Warrant value to company																				$ 1,088
Promissory Note
Class of Stock [Line Items]
Common stock issued during period													2,500
Debt Instrument, Face Amount													$ 25,000					$ 25,000
Shares issued for direct investment, value													51,225
Loss on settlement of debt													$ 26,225
Cashless Exercise One
Class of Stock [Line Items]
Common stock issued during period								144,417
Warrant exercised to purchase shares								150,000
Warrant, exercise price								$ 0.83
Investor Conversion One
Class of Stock [Line Items]
Common stock issued in conversion								178,472
Principal converted								$ 2,500,000
Interest converted								$ 875,000
Conversion price per share								$ 18.90
Merger Agreement
Class of Stock [Line Items]
Common stock, shares issued																										175,000
Cashless Exercise 2 [Member]
Class of Stock [Line Items]
Common stock issued during period												24,628
Warrant exercised to purchase shares												25,000
Warrant, exercise price												$ 0.83
Investor Conversion Two
Class of Stock [Line Items]
Common stock issued in conversion						71,389
Principal converted						$ 1,000,000
Interest converted						$ 350,000
Conversion price per share						$ 18.90
Cashless Exercise Three
Class of Stock [Line Items]
Common stock issued during period											48,857
Warrant exercised to purchase shares											50,000
Warrant, exercise price											$ 0.83
Warrants Two
Class of Stock [Line Items]
Warrant exercised to purchase shares					900
Warrant, exercise price					$ 3.63
Warrant value to company					$ 3,267
SylvaCap Media
Class of Stock [Line Items]
Common stock issued for services																			25,000
Terms of agreement																			The 25,000 shares vest upon issuance but if the agreement is terminated within 90 days of execution, the shares are to be returned and cancelled. The Company terminated the agreement and the shares were returned on February 10, 2020.
Reverse Split
Class of Stock [Line Items]
Common Stock authorized																								20,000,000
Reverse stock split			On December 10, 2019, the Financial Industry Regulatory Authority (“FINRA”) approved the Company’s 1:10 reverse stock split of the Company’s common stock. The reverse stock split took effect on December 11, 2019. Unless otherwise noted, impacted amounts and share information in the consolidated financial statements and notes thereto as of and for the periods ended June 30, 2020 and September 30, 2019, have been adjusted for the stock split as if such stock split occurred on the first day of the first period presented.
Common stock issued during period																			793
Series A Preferred
Class of Stock [Line Items]
Preferred stock authorized				2,000,000																		1,000,000
Series B preferred stock, par value per share																						$ 0.001
Preferred stock rights																			Under the Certificate of Designation, holders of Series A Preferred Stock will be entitled to quarterly dividends on 2% of our earnings before interest, taxes and amortization. The dividends are payable in cash or common stock. The holders will also have a liquidation preference on the state value of $0.02 per share plus any accumulated but unpaid dividends. The holders are further entitled to have us redeem their Series A Preferred Stock for three shares of common stock in the event of a change of control and they are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.
Series B Preferred
Class of Stock [Line Items]
Preferred stock authorized										100,000
Series B preferred stock, par value per share										$ 0.001
Cumulative accrual rate										7.50%
Liquidation payout										$ 5,000.00
Early redemption percent of face value option										145.00%
Terms of Conversion										In the event of a conversion of any shares of Series B Preferred Stock, the Company will (a) satisfy the payment of the Conversion Premium, which is defined as the Face Value of the shares converted multiplied by the product of 7.5% and the number of whole years between issuance and maturity, and (b) issue to the holder of the shares of Series B Preferred Stock a number of conversion shares equal to the Face Value divided by the applicable Conversion Price (defined as 90% of the of the 5 lowest individual daily volume weighted average prices of the Common Stock from issuance to conversion less $0.75 per share, but no less than the Floor Price ($3.50) with respect to the number of shares converted; While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event. In the event of certain defaults, conversion price may not be subject to a floor.
Maturity term from issuance										2 years
Max percent holders may own of series B preferred										4.99%
P2K
Class of Stock [Line Items]
Common stock issued during period																			95,699

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STOCK WARRANTS - Schedule of Warrant Summary (Details) - $ / shares	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Stock Warrants
Warrants, ending balance	1,314,065	1,314,065
Warrants, weighted average exercise price	$ 21.62	$ 21.62
Warrants granted, number of shares
Warrants granted, weighted average exercise price
Warrants expired, number of shares
Warrants expired, weighted average exercise price
Warrants cancelled , number of shares
Warrants cancelled, weighted average exercise price
Warrants exercised, number of shares
Warrants exercised, weighted average exercise price

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STOCK WARRANTS - Fair Value Assumptions (Details)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Schedule of Capitalization, Long-term Debt [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Minimum	0.85%	2.21%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum	1.73%	2.91%
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms	2 years 2 months 1 day
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Minimum		254.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Maximum		268.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%
Expected Term Minimum
Schedule of Capitalization, Long-term Debt [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms		3 years
Expected Term Maximum
Schedule of Capitalization, Long-term Debt [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms		5 years
Warrants
Schedule of Capitalization, Long-term Debt [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Minimum		2.36%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum		3.01%

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14. STOCK WARRANTS (Details Narrative) - USD ($)			1 Months Ended					9 Months Ended
	Jan. 07, 2019	Oct. 15, 2018	Mar. 26, 2019	Feb. 26, 2019	Jan. 22, 2019	Dec. 31, 2018	Aug. 28, 2018	Jun. 30, 2020	Jun. 30, 2019	Jul. 20, 2020	Sep. 30, 2019	Apr. 18, 2019	Feb. 01, 2019
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants weighted average remaining term								2 years 2 months 1 day
Intrinsic Value of outstanding warrants								$ 194,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number								1,286,922
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number								27,143
Warrants requiring cash investment								$ 996,198
Warrant to acquire common stock, exercise price per share								$ 21.62			$ 21.62
Noncash or Part Noncash Acquisition, Noncash Financial or Equity Instrument Consideration, Warrants Issued								317,867
Warrant price per share										$ 3.25
Stock based compensation								$ 1,171,632	$ 1,716,753
Weighted Average remaining term of warrants								1 year 6 months
Warrants
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Stock based compensation								$ 786,415
Consultants
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Common stock issued		3,000
Warrant price per share		$ 25.00
Consultants One
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Term of Warrant		5 years
Stock based compensation								$ 0	68,643
SPA 1
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant issued, shares						308,333
Zero Positive LLC
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant issued, shares							90,000
Warrants issued, value							$ 2,607,096
Warrants vested description							The warrants vest as follows: 30,000 warrants vested immediately, the balance vest evenly on the last day of each month over the forty-two months beginning August 31, 2018
Warrants vested								58,571
Interest expense								$ 372,442	372,442
Zero Positive LLC
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant price per share							$ 8.00
Merger Agreement One
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant issued, shares					50,000
Warrants issued, value					$ 1,102,417
Term of Warrant					5 years
Warants issued, exercise price					$ 16.00
Merger Agreement Two
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant issued, shares					50,000
Warrants issued, value					$ 1,102,107
Term of Warrant					5 years
Warants issued, exercise price					$ 20.00
SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Common stock issued								125,000
Warrants issued, value									$ 230,000
Term of Warrant								3 years
Cashless Exercise One [Member]
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant to acquire common stock, exercise price per share	$ 0.83
Common stock issued	144,417
Warrant exercised to purchase shares	150,000
Cashless Exercise Two
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant to acquire common stock, exercise price per share													$ 0.83
Common stock issued				24,628
Warrant exercised to purchase shares				25,000
Cashless Exercise Three
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrant to acquire common stock, exercise price per share			$ 0.83
Common stock issued			48,857
Warrant exercised to purchase shares			50,000
$8 Per Share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 5,000
Warrant to acquire common stock, exercise price per share								$ 8.00
$15 Per Share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 449,865
Warrant to acquire common stock, exercise price per share								$ 15.00
$20 per share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 125,000
Warrant to acquire common stock, exercise price per share								$ 20.00
$20 per share | SPA 1
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment						$ 125,000
Warrant to acquire common stock, exercise price per share						$ 20.00
$25 per share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 103,000
Warrant to acquire common stock, exercise price per share								$ 25.00
$25 per share | SPA 1
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment						$ 100,000
Warrant to acquire common stock, exercise price per share						$ 25.00
$35 Per Share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 200,000
Warrant to acquire common stock, exercise price per share								$ 35.00
$35 Per Share | SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment												$ 200,000
Warrant to acquire common stock, exercise price per share												$ 35.00
$40 Per Share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 10,000
Warrant to acquire common stock, exercise price per share								$ 40.00
$40 Per Share | SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment												$ 10,000
Warrant to acquire common stock, exercise price per share												$ 40.00
$50 per share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 60,000
Warrant to acquire common stock, exercise price per share								$ 50.00
$50 per share | SPA 1
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment						$ 50,000
Warrant to acquire common stock, exercise price per share						$ 50.00
$50 per share | SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment												$ 10,000
Warrant to acquire common stock, exercise price per share												$ 50.00
$75 per share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 38,333
Warrant to acquire common stock, exercise price per share								$ 75.00
$75 per share | SPA 1
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment						$ 33,333
Warrant to acquire common stock, exercise price per share						$ 75.00
$75 per share | SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment												$ 5,000
Warrant to acquire common stock, exercise price per share												$ 75.00
$100 Per Share
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment								$ 5,000
Warrant to acquire common stock, exercise price per share								$ 100.00
$100 Per Share | SPA 2
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Warrants requiring cash investment												$ 5,000
Warrant to acquire common stock, exercise price per share												$ 100.00

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STOCK OPTIONS - Schedule of Option Summary (Details) - $ / shares	9 Months Ended
	Jun. 30, 2020	Sep. 30, 2019
Share-based Payment Arrangement [Abstract]
Options, ending balance	278,640	81,254
Options, weighted average exercise price	$ 6.41	$ 11.82
Options granted, number of shares	233,233
Options granted, weighted average exercise price	$ 5.28
Options expired, number of shares	25,000
Options expired, , weighted average exercise price	$ 8.00
Options cancelled, number of shares	10,847
Options cancelled, weighted average exercise price	$ 19.04
Options exercised, number of shares
Options exercised, weighted average exercise price

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STOCK OPTIONS - Fair Value Assumptions 2020 (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk Free Interest Rate Min	0.85%	2.21%
Risk Free Interest Rate Max	1.73%	2.91%
Exptected term (years)		3 years
Expected volatility	131.00%
Expected dividends	$ 0	$ 0
Expected Term Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exptected term (years)	3 years
Expected Term Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exptected term (years)	5 years
Expected Volatility Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility	124.00%	239.00%
Expected Volatility Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected volatility	209.00%	271.00%

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STOCK OPTIONS - Fair Value Assumptions 2019 (Details) - USD ($)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk Free Interest Rate Min	0.85%	2.21%
Risk Free Interest Rate Max	1.73%	2.91%
Exptected term (years)		3 years
Expected Volatility	131.00%
Expected dividends	$ 0	$ 0
Expected Volatility Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Volatility	124.00%	239.00%
Expected Volatility Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Volatility	209.00%	271.00%

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15. STOCK OPTIONS (Details Narrative) - USD ($)		9 Months Ended
	Mar. 10, 2018	Jun. 30, 2020	Jun. 30, 2019	Jan. 31, 2020	Jun. 19, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for issuance					300,000
Shares available for issuance		21,360
Options exercisable to purchase		216,717
Weighted Average remaining term options		2 years 215 days 8 hours 24 minutes
Intrinsic value	$ 342,500	$ 0		$ 88,935
Stock based compensation		$ 1,171,632	$ 1,716,753
Weighted average period for non vested options		2 years 62 days 1 hour 12 minutes
Minimum Market Price
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market Price		$ 4.50	$ 15.10
Maximum Market Price
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market Price		$ 8.50	$ 59.00
Employees
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options issued		233,233	12,788
Compensation expense		$ 673,590	$ 245,000
Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation		$ 245,300
Four Consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options issued	25,000
Stock based compensation			$ 191,425
Vesting Period	12 months
Expiration of Options Period	24 months

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16. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)	1 Months Ended	9 Months Ended
	Oct. 17, 2017	Jun. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	May 15, 2018
Utah Corporate Office
Monthly Rent Expense		$ 2,300
San Diego Office
Monthly Rent Expense		4,057
Term of Agreement					37 months
Annual Rent Escalation					3.00%
Future minimum lease payments			$ 43,170	$ 12,912
Las Vegas Office
Monthly Rent Expense		$ 1,575
P2K Labs
Monthly Rent Expense	$ 1,801

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MAJOR CUSTOMERS AND VENDORS - Customers (Details)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Customer A
Policyholder Account Balance [Line Items]
Percent of sales	6030.00%	33.90%
Customer B
Policyholder Account Balance [Line Items]
Percent of sales	1410.00%	1.20%
Customer C
Policyholder Account Balance [Line Items]
Percent of sales		21.90%
Customer D
Policyholder Account Balance [Line Items]
Percent of sales		21.40%

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MAJOR CUSTOMERS AND VENDORS - Suppliers (Details)	9 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Vendor
Policyholder Account Balance [Line Items]
Percent supplies provided	8570.00%	90.10%

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18. SUBSEQUENT EVENTS (Details Narrative) - USD ($)	1 Months Ended
	Jul. 20, 2020	Jul. 16, 2020	Jul. 07, 2020
Subsequent Events [Abstract]
Limited Partners' Capital Account			$ 660,000
Board authority to effectuate changes to common stock authorized and incentive plan		On July 16, 2020, the Company filed a preliminary information statement wherein the Company’s shareholders approved to grant the Board authority to effectuate an increase in the number of authorized shares of Common Stock from 20,000,000 to no more than 50,000,000 and amend the Company’s 2017 Incentive Plan to increase the number of shares issuable from 300,000 to 1,500,000. The effective date of these actions is determined by the Board in its sole discretion.
Sale of Stock, Number of Shares Issued in Transaction	1,230,770
Sale of Stock, Price Per Share	$ 3.25
Sale of Stock, Consideration Received Per Transaction	$ 4,000,000