The Rating: Buy CleanSpark, Inc. (CLSK) Amit Dayal Initiating …innovativestockreport.com/wp-content/uploads/2019/08/... · 2019-08-29 · energy consumption and generates customized

Initiating CoverageClean Technology

August 27, 2019

CleanSpark, Inc. (CLSK)Rating: Buy

Amit Dayal212-356-0517

[email protected] Joshi212-356-0538

[email protected]

Leveraging Software to Improve Energy Management;Initiating Coverage With a Buy and a $4.00 Price Target

Stock Data 08/26/2019Price $0.97Exchange OTCPrice Target $4.0052-Week High $15.0152-Week Low $0.77Enterprise Value (M) $38Market Cap (M) $44Shares Outstanding (M) 45.83 Month Avg Volume 89,123Balance Sheet MetricsCash (M) $8.0Total Debt (M) $1.8Total Cash/Share $0.17

EPS DilutedFull Year - Sep 2018A 2019E 2020E1Q (0.03) (0.06)A (0.08)2Q (0.03) (0.19)A (0.06)3Q (0.18) (0.09)A (0.06)4Q (1.12) (0.17) (0.06)FY (1.36) (0.51) (0.26)Revenue ($M)Full Year - Sep 2018A 2019E 2020E1Q 0.0 0.3A 2.82Q 0.1 0.7A 3.43Q 0.3 1.2A 4.04Q 0.1 2.2 4.6FY 0.6 4.4 14.8

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Enabling intelligent microgrids. CleanSpark Inc. provides softwareand controls that allow its industrial, commercial, residential, and militarycustomers to lower their energy costs. The company’s services rangefrom modeling effective energy solutions to designing, deploying, andmanaging microgrids. The company aims to compete in the microgridmarket by delivering solutions that facilitate up to 80% reductionin energy-related costs while providing resilience for mission-criticalapplications. CleanSpark’s mPulse and mVSO software platformsfacilitate the integration of numerous energy sources including solar,wind, batteries, and diesel generators and can operate in parallel orislanded from the utility grid.

Positioned to earn software margins in energy industry. Thecompany’s revenues currently are primarily comprised of distributedenergy resource (DER) project and equipment sales. However,investors should note that equipment sales include software revenues,and we believe this mix should shift more favorably towards software,with software contribution expected to eclipse project and equipmentrevenues within three years. We believe margins for its software andcontrols solutions on a standalone basis range between 85-90%. Thecompany is implementing a software as a service (SaaS) type revenuemodel with recurring annual revenues, which in our opinion is still fairlyunique for the energy industry, but a trend that is gaining traction. Webelieve the shift in the company’s revenue and margins should positivelyimpact valuation.

Backlog is building. The bulk of the company’s growing backlog iscurrently stemming from demand for its equipment. The company, inJune 2019, reported that its contracted backlog for equipment salesgrew to $6.1M, increasing by over $2.0M since March 31, 2019.Investors should note that software is delivered more quickly and shouldbe a smaller portion of this backlog.

Project deployment accelerated with $20.0M financing. In April2019, the company announced securing $20.0M in financing to supportmicrogrid deployments for commercial customers. The companyintends to use this facility to roll out an Energy Savings Agreement (ESA)financing model that provides greater flexibility for customers to benefitfrom and potentially owning energy-controlling assets outright. We viewthis as a stealth way to accelerate the adoption of the company’smicrogrid solutions without having to rely on third party energy servicecompanies.

Pursuing an uplisting to Nasdaq. CleanSpark is currently listed on theOTC BB exchange. The company has applied for a Nasdaq listing. Amove to a senior exchange should be viewed as a positive catalyst thatimproves compliance and institutional interest.

For definitions and the distribution of analyst ratings, analyst certifications, and other disclosures, please refer to pages 21 - 22 of this report.

Distributed energy generation fosters need for software driven solutions. Lowered reliability from outdated gridinfrastructure is triggering a global shift towards distributed power generation and microgrid deployment. In our opinion, thecontinued drop in renewable power generation prices and storage costs are providing a significant draw for adoption. Webelieve combining local power generation with appropriate storage technology will be crucial for this trend to fully realize itspotential. In this scenario, we believe there should be a strong demand for software and controls to appropriately manage localenergy infrastructure, consumption, and costs.

Valuation. We are estimating CleanSpark’s revenues from project development, project sale, and ESA contracts, to beapproximately $9.5M in FY2020 and expect these to grow to over $90.0M in FY2025. We are projecting switchgear businessto generate $5.0M in FY2020 and grow to nearly $13.0M in FY2025. We expect revenues from software contracts to beapproximately $332K from roughly 40 controller boxes in FY2020, and expect these to grow to over $40.0M from an installedbase of over 950 boxes in FY2025. As a result, we expect overall topline revenues for CleanSpark to be $14.8M in FY2020,rising to $148.1M in FY2025, at a five-year CAGR of 58.5%. We are projecting blended gross margins to be a little over 25.0%during FY2020 and expect these to grow to over 50.0% in FY2025 boosted in later years by higher software revenues. Ouroperating expense estimates for FY 2019 is $10.5M in FY2019 and expect these to rise to $13.4M in FY2020 driven mainlyby higher payroll and G&A expenses. We expect operating expenses to grow to $22.2M in FY2025. We arrive at our $4.00 PTusing a discounted cash flow (DCF) model that uses a discount rate of 13.7%, derived from the company’s weighted averagecost of capital (WACC).

Risks. (1) Execution risk; (2) dilution risk; (3) technology risk; (4) regulatory risk; (5) competition risk; and (6) Intellectual property(IP) risk.

CleanSpark, Inc. August 27, 2019

H.C. WAINWRIGHT & CO. EQUITY RESEARCH 2

Company Overview CleanSpark, Inc., a Nevada corporation, delivers microgrid solutions for deployment in military, commercial, industrial, municipal, and residential properties. A microgrid is a collection of interconnected sources of electricity (distributed energy resources, or DERs), energy storage devices, and loads that collectively may or may not be connected to traditional electric grids. CleanSpark’s active intelligence-driven microgrid solutions are designed to acquire energy from DERs when costs are low (depending on time of day, and relative to utility electricity costs), store that energy, and retrieve it during expensive peak hours. CleanSpark’s energy software and control technology offers a plug-and-play solution to energy challenges resulting from unstable and unreliable utility grids and inherently intermittent renewable sources of energy. The software also helps in addressing the complex tasks of integrating advanced grid technologies into conventional electrical systems. CleanSpark offers a range of customizable services, including smart energy monitoring and controls, microgrid design and engineering, microgrid consulting, and turn-key microgrid implementation.

CleanSpark Microgrid

Source: Company pamphlets.

CleanSpark’s software platform consists of: (1) the Microgrid Value Stream Optimizer, or mVSO, that analyzes microgrid system components, equipment performance, costs, utility rate models, and actual energy consumption and generates customized system design outlines for maximizing ROI; and (2) the mPulse Energy Operating Software, that seamlessly integrates various DER components and allows real-time monitoring and control by collecting and analyzing the microgrid’s energy data 24/7. These software platforms also allow customers to decide when and if to buy from or sell to the utility grid. Customers can purchase and store energy at off-peak rates and use that stored energy during peak periods, thereby avoiding peak utility electricity rates.



mVSO and mPulse Software Platforms


The mPulse software platform is hosted at customers’ sites in a controller box that runs the mPulse DER Energy Manager software, which is an Energy Management System (EMS) and a Supervisory Control and Data Acquisition (SCADA) system. This system utilizes open source software coupled with CleanSpark controls that leverage standard protocols and interfaces (such as SunSpec, Modbus, DNP3, TCP/IP, XMPP, OpenADR 2.0b, and JSON). The system is designed to be technology agnostic and to integrate with renewable generation assets, storage, conventional or legacy generation, and controllable loads. In addition, cyber and physical security is built into all levels of CleanSpark’s technology.



CleanSpark’s Controller


In January 2019, CleanSpark acquired IP of Pioneer Critical Power, Inc. (PCPI), which has enabled the company’s foray into the switchgear equipment market. CleanSpark has formed a fully-owned subsidiary called CleanSpark Critical Power Systems, Inc. to run this business. Concurrent with the purchase of the IP, CleanSpark entered into an agreement with PCPI’s parent company to contract manufacture switchgear, automatic transfer switches, and related equipment for a minimum period of eighteen months.



Products and Services CleanSpark provides turnkey microgrid implementation services, microgrid design and engineering services, project development consulting, and solar photovoltaic installation and consulting services. The company also has a gasifier technology that is under development, but CleanSpark does not expect commercial revenues from this business in the near-to-mid term. The Microgrid Value Stream Optimizer (mVSO) and mPulse software suite are the core software platforms of CleanSpark’s DER business. 1. Microgrid Value Stream Optimizer (mVSO). The mVSO software is an intelligent analytics platform that serves as a guide for customers to minimize payback period and maximize the ROI of their energy project. The software analyzes various parameters such as real costs, precise utility rate models, equipment performance, actual energy consumption, and historical weather data, and the modeling tool highlights the type, cost, and performance characteristics of energy resources to be built. 2. mPulse Software Suite. The mPulse software facilitates fine-grained control of a microgrid based on the customer’s operational goals, equipment, load forecasts, and generation estimates. mPulse seamlessly integrates data from various distributed energy resources such as energy storage, renewables, and fossil fuel technologies. This software collects, archives, and analyzes data 24/7, and allows real-time control and reporting. The modular nature of the software offers flexibility and extensibility. In real time, mPulse optimizes the microgrid system by calculating the effects of changing electricity rates, grid outages, and varying operational parameters. The interactive platform performs high-frequency calculations, offers threshold-based alarming, implements domain-specific business rules, monitors internal and external system health, and provides system-to-operator notifications. mPulse allows multiple microgrids on a single site to interact in numerous ways including as peers, in parallel, in a parent-child relationship, or disconnected. This software can control the workflow steps required in the islanding as well as the reconnecting steps and can synchronize connected equipment. 3. mVSO and mPulse Version 2.0. In 2017, CleanSpark launched version 2.0 of the mVSO and mPulse software platforms. The earlier version of these two software platforms focused on security and resiliency for military and critical infrastructure system applications. The new versions of the software focus on flexibility and cost savings and are designed for commercial and industrial customers that are looking to generate higher ROI’s and quicker paybacks. 4. Engineering, consulting, and grid development services. CleanSpark provides design, engineering, consulting, and grid development services to aid the deployment of turnkey microgrid projects. CleanSpark designs and develops plans for projects using the mVSO software. The company’s expert implementation service personnel perform critical feasibility tests on these plans in terms of engineering, design, construction, finance, energy policy, and regulations.



Investment Overview

Our bullish view on CleanSpark is driven by these ten salient points: (1) building a software company; (2) SaaS model also targets energy project developers; (3) Pioneer Critical Power, Inc. (PCPI) acquisition helped to accelerate revenue ramp; (4) backlog trending favorably; (5) development support favorably positioned post $20.0M financing; (6) uplisting to senior exchange; (7) positioning to meet energy needs of the cannabis sector; (8) expecting contribution from Latin America partnerships; (9) growth in energy storage solutions implies greater demand for software tools; and (10) legacy gasification business not material to outlook. 1. Building a software company. We view the company’s energy management software as being the core value proposition that provides it with a competitive differentiation and supports its long-term growth and profitability. CleanSpark’s revenues currently are primarily comprised of project and equipment sales. However, investors should note that equipment sales include software revenues, and we believe this mix should shift more favorably towards software, with software contribution expected to eclipse project and equipment revenues within three years. Importantly, these software revenues are expected to be recurring in nature, positioning the company, in our opinion, as an energy or microgrid SaaS (software as a service) play. Management has highlighted that margins for its software and controls solutions range between 80-95%. The company’s software and controls solution come in the form of: (1) microgrid Value Stream Optimizer (mVSO); and (2) mPulse Software Suite. The mVSO offering is an analytics platform that serves as a guide to minimize the payback period and maximize the ROI of the customer’s energy project. The built-in parameter modelling tools in the mVSO, including equipment type, energy source, and utility costs, helps customers perform financial analysis across various grid configurations and determine the best performing configuration. To help ensure that the energy project is performing in line with the initial plan, the mPulse software collects, archives, and analyzes data 24/7, thereby offering real-time control and reporting. Both mVSO and mPulse are available in version 2.0, which include expanded features emphasizing economic optimization on top of the original security and resiliency features designed for military and critical infrastructure system applications. 2. SaaS model also targets energy project developers. On July 1, 2019, the company launched a new monthly subscription membership service for energy project developers that combines the mVSO solution with the engineering and analytics service offerings in a single package. Membership to this service provides customers with access to CleanSpark’s platform for use in modeling their solar and/or storage system configuration, and also provides them with access to industry professionals to support complex proposals. We believe this membership is an innovative way to capture another layer of recurring revenues with EPC (Engineering, Procurement, and Construction) type customers that are an important part of the deployment value chain. We believe energy project developers can leverage this tool to improve their customer service needs and it provides another channel for CleanSpark to drive its own software sales growth with end customers. 3. Pioneer Critical Power, Inc. (PCPI) acquisition helped to accelerate revenue ramp. In January 2019, CleanSpark entered the switchgear equipment sales market when with the acquisition of PCPI in exchange for 1.75M shares of its common stock and warrants to purchase 1.0M shares of its common stock. In February 2019, PCPI was renamed to CleanSpark Critical Power Systems, Inc. Through this acquisition, CleanSpark gained access to PCPI’s strategic IP, customer base, and an Underwriters Laboratories (UL) file portfolio. Concurrent with the purchase of the IP, CleanSpark entered into an agreement with PCPI’s parent company, Pioneer Power Solutions, Inc. (PPSI; not rated), to contract manufacture switchgear, automatic transfer switches, and related equipment for a minimum period of eighteen months. Post this period, we believe the company could either bring the switch gear manufacturing in-house, or find another external provider. This strategic acquisition has allowed CleanSpark to accelerate revenue generation in the near term, without the need to incur upfront large capital expenditures related to facility, equipment, and inventory. CleanSpark’s switchgear products are employed in the company’s installations and sold to third parties either as a complete package or separately. We believe, the integration of these switchgear products provides a faster market path to CleanSpark’s software offerings, as the company eliminates reliance on third party providers to demonstrate the value of its offerings.



4. Backlog trending favorably. The company’s YoY revenue improvements are being underpinned by a strong backlog buildup. In June, 2019, the company reported that its contracted backlog for equipment sales grew to $6.1M, increasing by over $2.0M since March 31, 2019. In line with this, management expects equipment sales for 2019 to exceed $4.0M. On the DER front, the company over the last month has announced several wins, including: (1) the integration of a scalable 40 kW solar photovoltaic system with a 32 kWh battery storage, for a hotel in Costa Rica; (2) an award of $287K to provide software controls and energy storage for an industrial equipment sales facility, also in Costa Rica; and (3) a strategic partnership agreement to provide its controls and software solutions for integration into existing and new energy assets within the global Tuna industry. Investors should note that backlog for the company should typically be expected to be project and equipment heavy. We believe future backlog should comprise of 40% projects, 40% equipment, and 10-20% of other services and software. 5. Development support favorably positioned post $20.0M financing. In April 2019, the company announced securing $20.0M in financing to support microgrid deployments for commercial customers. We believe, the underlying objective here is to leverage microgrid installations to accelerate the uptake of CleanSpark's DER solutions to continue building a recurring, high-margin revenue base. The company intends to use this facility to roll out an Energy Savings Agreement (ESA) financing model that provides greater flexibility for customers in benefitting from, and potentially owning these assets. Once a microgrid is deployed, the customer could choose to take complete ownership right away, or CleanSpark could operate it for a few years while passing around 10% of the annual energy savings to the customers, with an eventual sale to the customer or a third party. We believe the company should have a few ESA contracts secured by the end of 2019. We believe the company has already pulled down $10.0M of this facility and could draw an additional $5.0M by the end of the year. 6. Uplisting to senior exchange. CleanSpark is currently listed on the OTC BB exchange. We believe the company qualifies on all the key requirements to pursue an uplisting to a senior U.S. exchange. In line with this, the company in May 2019, filed an application to list on Nasdaq. The company is currently in the process of answering various inquiries from the Nasdaq with respect to this. We view this as an important catalyst in positioning the company to attract institutional investor interest with the improved visibility, transparency and compliance. We believe an uplisting should also support improvement in the stock’s liquidity. 7. Positioning to meet energy needs of cannabis sector. We believe the recent growth in the cannabis industry is creating derivative opportunities for the ‘picks and shovels’ providers such as CleanSpark. Cannabis cultivation is an energy intensive effort requiring very precise growing environments that involve heating, lighting, air conditioning, and ventilation. A 2018 Cannabis Energy Report estimated that the U.S. cannabis cultivation consumes 1.1 terawatt hours (TWh) of electricity per year. We are already seeing traction for Tecogen (TGEN; Buy), a provider of cogeneration solutions, within the cannabis space over the last twelve months. In line with this, CleanSpark has entered into various partnerships to improve its distribution within this market. We believe the company’s solutions can effectively serve the industry’s efforts to lower costs as demand charges alone can account for 50% of the utility charges for a grow facility. We believe news flow related to cannabis deals will bring more investor attention to the name. 8. Expecting contribution from Latin America partnerships. The company has put in place partnership agreements with energy service providers in Brazil and Mexico for deployment of its mPulse DER solution and the mVSO offering. The company is expecting to integrate its software solution, on a standalone basis, with an iron-flow battery manufacturer in Brazil, in the very near term. Investors, should note that software as a standalone sale would represent 85% or higher margins. We believe the company’s offerings should gain relevance in international markets as the energy trading model supported by distributed generation capabilities becomes more widespread. 9. Growth in energy storage solutions imply greater demand for software tools. The growing adoption of renewable energy sources such as solar and wind has created a new challenge (or opportunity) in how to effectively store, and use energy from these sources. A Bloomberg New Energy Finance (BNEF) report highlights that wind and solar will account for 64% of the 8.6 terawatts (TW) of new power generating capacity expected to be added worldwide over the next 25 years. In this context, we believe, energy storage solutions can be expected to be increasingly designed into future industrial and residential energy distribution infrastructure as the transition to wind and solar takes place. BNEF



expects the energy storage market to exceed $250B by 2040, with 25 gigawatts (GW) of storage devices deployed over the next 12 years. Though we believe these estimates may be a little aggressive, we are witnessing increasing evidence of customers seeking microgrid like applications such as solar-plus-storage as a combined offering to reduce reliance on the central grid. We believe solar as a standalone solution does not always seem financially attractive when electricity rates are higher at different points of the day. We believe adding storage to the equation can help improve the end customer’s ROI by lowering system peak charges and deploying these systems for other energy cost savings and local balancing applications. In line with this, we believe energy project developers will seek intelligent tools with which to compare the possible value of a system against the costs of execution. Similarly, software should be expected to play a bigger role in managing how and when various energy sources are engaged to optimize for cost. We believe CleanSpark should benefit from this trend. 10. Legacy gasification business not material to outlook. CleanSpark’s legacy gasifier technology helps to convert a variety of organic material into Syngas, a clean, renewable, environment-friendly, warming fuel for power plants and the transportation industry, and could also be used as feedstock for the generation of DME (dimethyl ether). DME is a potential energy carrier with several benefits such as clean burning, low cost of production, and low transportation costs. Though the company could potentially target customers in the electric utility, municipal waste, and processing plants markets with this technology, we believe the overall solution is not yet commercially viable. Accordingly, we are not anticipating any material revenue contribution from this segment, nor are we expecting any material cost burdens associated with it. We believe management is exploring options on how to best monetize this offering either through a sale or some partnership.



Stock Performance CleanSpark’s stock has underperformed the market during the last 52-week period, from approximately $2.90 levels in end-August 2018 to approximately $1.00 levels currently, marking a roughly 66.0% decrease vs. increases of 0.9% and 1.8% for Nasdaq Composite and S&P, respectively, during the same period. The spike in the company’s stock to $7.00 level following the release of its modeling tool in September 2018 was followed by a steady decline to approximately $2.00 level reached in January 2019; we believe this can be attributed to a lack of visibility related to sales traction. The stock jumped again to $6.00 level following the acquisition of Pioneer Critical Power on January 28, 2019. Despite a flurry of announcements related to new orders and deliveries, the stock stagnated between $2.00 and $3.00 during May-June 2019. Despite QoQ growth rates of 175.3% and 68.9% for F2Q19 and F3Q19, respectively, the company’s stock has not been able to recover and has dropped to $1.00 level during August 2019. We believe that as the company ramps up its IR efforts, and if it continues to deliver QoQ growth, investor awareness should increase.

52-Week Stock Performance

Source: Yahoo Finance as of August 22, 2019.

Listed below are select news items that may have affected the stock over the last year: 1. September 27, 2018. CleanSpark releases best-in-class distributed energy modeling tool 2. January 28, 2019. CleanSpark completes acquisition of Pioneer Critical Power, Inc. 3. February 13, 2019. CleanSpark expands into international markets 4. March 26, 2019. CleanSpark announces increases in new orders and backlog driven by recent IP

acquisition 5. April 22, 2019. CleanSpark announces $20M financing to support microgrid solutions for commercial

customers including cannabis growers 6. May 2, 2019. CleanSpark announces production version of Microgrid Value Stream Optimizer

(mVSO) 7. May 3, 2019. CleanSpark completes military microgrid offering perpetual 100% renewable driven

energy security 8. May 9, 2019. CleanSpark announces $2.5M in orders for its intelligent ATS switchgear 9. May 16, 2019. CleanSpark delivers record quarterly revenue 10. June 3, 2019. CleanSpark announces record May equipment sales and shipments, and Increase in

backlog 11. July 25, 2019. CleanSpark signs a strategic partnership agreement to provide its solution to the

global tuna industry 12. August 1, 2019. CleanSpark awarded contract as system integrator for a high-end boutique hotel in

Costa Rica 13. August 6, 2019. CleanSpark awarded $287,000 software controls and energy storage contract 14. August 15, 2019. CleanSpark adds support for Central American markets



Industry The aging traditional grid. The conventional transmission grid is the backbone of the global electricity distribution system. However, this system has several drawbacks, including deteriorating equipment, lack of security, high energy losses, and difficulty in integrating intermittent energy sources such as solar and wind. With increasing loads, there are frequent occurrences of grid disturbances, outages, frequency changes, voltage fluctuations, blackouts, and brownouts. Moreover, according to the International Energy Agency, nearly 840M people in remote and underserved regions of the worldwide do not have access to the utility grid. The United Nations has set a goal of universal electricity access by 2030. Microgrids have the potential to address the issues afflicting the traditional grid system, as well as to meet the global electrification targets. Microgrids. Microgrids are scaled down versions of the centralized utility grids. These systems generate, distribute, and control power in a small geographic area. A typical microgrid consists of energy generation, energy storage, and energy management systems. Microgrids utilize energy produced locally using various sources like photovoltaic panels, wind turbines, combined heat and power (CHP) systems, heat pumps, biomass plants, hydroelectric turbines, batteries, and other distributed systems. Microgrids can either run standalone or in parallel to the traditional grid. In parallel configurations, in the event of utility power outages or cyberattacks, microgrids can be isolated from the grid and can continue to power connected loads. Benefits of microgrids over traditional utility grids include:

higher reliability and flexibility;

lower transmission losses;

better security against cyber threats;

cost savings resulting from smart energy management systems; and

access to power in off-grid locations; According to the IMARC group, a third-party market research company, the global microgrid market was $19.3B in 2018 and is expected to reach $36.3B in 2024, at a six-year CAGR of 11.1%. The major players in the market include Lockheed Martin, Eaton (ETN; not rated), S&C Electric, Power Analytics, General Electric (GE; not rated), ABB (ABB; not rated), Siemens (SIEGY; not rated), and Exelon (EXC; not rated).

Global microgrid market ($B)

Source: IMARC Group.

The U.S. market leads the microgrid revolution. North America enjoys the leading position in the global microgrid market, followed by Asia Pacific, Europe, Middle East and Africa, and Latin America. According to a 2017 report from GlobalData, a third-party research firm, the U.S. dominated the global microgrid market with a market size of $4.6B. Although a majority of the microgrid installations in the U.S. have been deployed by the military to ensure resilience and reliability, other market segments are adopting microgrids as well and driving growth.

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According to Navigant Research, the North American market accounted for the largest installed base of 2,874MW in 2014.

Global Microgrid Installations by Region in MW (2014)

Source: Navigant Research.

The global microgrid control systems market. According to ResearchandMarkets, a third-party research firm, the market for microgrid control systems is expected to grow from $2.0B in 2018 to $3.6B in 2023, at a five-year CAGR of 12.5%. The main growth drivers for this market include rising demand for reliable power supply, increasing government investments in microgrids, and growing use of new energy sources.

Global microgrid control systems market ($B)

Source: ResearchandMarkets.

Parallel switchgear market is showcasing growth trends. Parallel switchgear products help in the control and distribution of multiple power sources by integrating metering, protection, communication, and controls. By providing controls to operate different power generators in parallel with one another or with the utility, these systems help in delivering peak performance, reliability, and cost effectiveness. According to MarketsandMarkets, a third-party research firm, the global paralleling switchgear market is expected to grow from $1.2B in 2018 to $1.6B in 2023, at a five-year CAGR of approximately 5.8%.

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2018 2019E 2020E 2021E 2022E 2023E



Valuation CleanSpark generates revenues from: (1) sale of its services, including turnkey microgrid implementation services, microgrid design and engineering, project development consulting services, and solar photovoltaic installation and consulting; (2) sale of microgrid projects that it develops; (3) Energy Savings Agreements (ESAs) with customers for projects that CleanSpark partially owns; (4) sale of its controller hardware and software; (5) recurring software revenues from long-term service contracts; and (6) sale of switchgear equipment. The company has thus far developed and sold over 30 projects of varying sizes and is in the process of executing on 3-4 ESA projects. Under the ESA model, during the development stage, a special purpose entity (SPE) is formed with at least 51% investment from CleanSpark with the rest coming from a tax equity investor. During the deployment stage, customers have the option to either purchase the system outright to avail 100% of energy savings (and not participate in the ESA), or to purchase the system at a discounted price at a later date after the tax equity benefits have been used up, while availing a small percentage of energy savings before the buyout. Because of the low upfront costs and payment mechanism that is based on actual energy savings, we believe that the ESA financing model should benefit commercial customers that do not have tax equity appetite and may want to deploy available capital in their core businesses. We are projecting the company to develop a total of 32 projects during FY2020 and expect the pace of project development to continue to grow year over year, with nearly 300 projects developed during FY2025. During the next few quarters, as the company establishes itself in the commercial and residential markets, we expect 25-30% of the total projects to be partially owned by CleanSpark under the ESA model. But eventually we expect the company to reduce its participation in the ESA model and to focus on project development and sale; we are estimating that the share of ESA projects should fall to 20% of total projects during FY2020 and decline to approximately 3-5% by FY2025. Based on an estimated average project size of approximately $750K, and CleanSpark’s 51% ownership of ESA projects, we expect the company to invest approximately $2.5M in ESA projects during the FY2020. We expect the company to invest less than $18.0-20.0M in this business cumulatively through FY2025. We are estimating total revenues from project development, project sale, and ESA contracts, to be approximately $9.5M in FY2020 and expect these to grow to over $90.0M in FY2025, at a five-year CAGR of approximately 57.0%. CleanSpark generates recurring revenues from long-term contracts for providing software support and service under a software as a service (SaaS) model. We expect the company to be able to sell this service for each controller box that it sells, with initial basic service costing the customer approximately $1,000 per box per month. The company is in the process of developing advanced software solutions that it expects to charge as much as $5,000-6,000 per month per box. We are conservatively estimating that the weighted average monthly revenue per box to ramp from the current $1,000 to approximately $3,500 in FY2025. We expect revenues from these contracts to be approximately $332K from roughly 40 controller boxes in FY2020, and expect these to grow to over $40.0M from an installed base of over 950 boxes in FY2025. The company believes that its switchgear business can generate baseline annual revenues of approximately $7.0M. We are conservatively projecting this business to generate $5.0M in FY2020 and grow to nearly $13.0M in FY2025. We are not expecting any revenues from the company’s gasifier business until FY2023, during which year we expect the company to generate revenues of approximately $1.5M. We are projecting this business to grow to approximately $3.4M in FY2025. We are projecting CleanSpark’s overall revenues, including revenues from projects, recurring software, and switchgear, to increase from $14.8M in FY2020 to $148.1M in FY2025, at a five-year CAGR of approximately 58.5%. CleanSpark estimates gross margins of 10-40% from project development, 9-25% from hardware sales, and 80-95% from software sales. We have estimated gross margins of 15-30% from project development, 10-13% from hardware sales, and 85-90% from software sales. We are projecting blended gross margins



to be a little over 25.0% during FY2020 and expect these to grow to over 50.0% in FY2025 based on a higher software revenue. We are projecting operating expenses to grow from $10.5M in FY2019 to $13.4M in FY2020 driven mainly by higher payroll and G&A expenses. We expect operating expenses to grow to $22.2M in FY2025. Since the company is not yet profitable, we have used a DCF analysis to arrive at our valuation. Our analysis leads us to conclude that CleanSpark should be fairly valued at $4.00 per share over the next 12 months. As with all DCF models, the results are highly sensitive to a wide range of input assumptions. For our analysis, these assumptions include:

- We have modelled cash flows till FY2025. From FY2025 onwards, we have assumed free cash flows to grow at a stable 2.0% per year.

- We are projecting that the company’s revenues will increase from $14.8M in FY2020 to $148.1M in FY2025, growing at a five-year CAGR of approximately 58.5%.

- We expect modest growth in operating expenses at a five-year CAGR of 10.7% from $13.4M in FY2020 to $22.2M in FY2025.

- We expect the company to begin generating positive EBITDA as well as positive net income during FY2022.

- Discount rate of approximately 13.7% derived using the company’s weighted average cost of capital (WACC).

DCF Analysis

Source: H.C. Wainwright & Co. estimates.

Sensitivity Analysis. Below, we have shown the sensitivity of our fair value/share estimate to both the discount rate and the terminal free cash flow growth rate.

Sensitivity Analysis




Latest Financials F3Q19 results overview. CleanSpark reported its F3Q19 results on August 14, 2019. During the quarter, the company reported revenues of $1.2M, compared to a $0.3M in F3Q18. Gross profit during the period rose to $0.2M from $40.0K in F3Q18. Operating expenses during the quarter were $2.7M, compared to $1.1M in F3Q18. Increase in operating loss was attributable to higher stock-based compensation and other consulting fees related to increased business development efforts. Net loss for the quarter was $4.0M, or $0.09 per share compared to that of $6.2M, or $0.18 per share in F3Q18. The company ended the quarter with $8.0M in cash and cash equivalents. As of June 30, 2019, total debt on the balance sheet was $1.8M.

Peers Some of CleanSpark’s competitors are well-established players in the broader energy and electric industry, including Lockheed Martin (LMT; not rated), Eaton, Exelon, General Electric, ABB, Siemens, and Schneider Electric (SBGSY; not rated). Other competitors include Geli, Green Energy Corp., Spirae, S&C Electric, and Power Analytics. With respect to distributed energy and microgrid control technologies, currently there are eight technologies in the market primarily targeted towards commercial applications including: (1) Virdity (control platform); (2) Lotus (power monitoring); (3) GridBridge (power monitoring); (4) Schneider (intelligence and automation); (5) Spirae (intelligence, automation, and project proposal tool); (6) Energy Toolbase (project proposal tool); (7) Homer (project proposal tool); and (8) Growing Energy Labs Inc. (modeling & control). These technologies are not hardware agnostic, which results in higher implementation costs. In contrast, CleanSpark’s technology is hardware agnostic, which allows flexibility and lower costs.



Management Profile

Name Description

S. Matthew Schultz Chief Executive Officer & Co-founder

Mr. Schultz is the co-founder of CleanSpark and is currently the CEO of the company.

He served as the President and CEO of Amerigo Energy, Inc., where he shaped multiple syndicated offerings of developmental production programs and supervised operations from permitting through production.

He has also served as the President of Wexford Capital Ventures, Inc., where he helped fund domestic as well as foreign companies.

During his tenure as the Chairman of Pali Financial Group, Inc., he supported the market development efforts of dozens of public corporations.

He has helped in raising funds for numerous developments and early-stage companies since 1999.

Mr. Schultz was the founding member and Vice President of the Utah Consumer Lending Association.

He has studied management and finance at Weber State University.

Zachary K. Bradford Chief Financial Officer and President

Mr. Bradford serves as the CFO and President of the company.

Previously, he was a managing partner at a public accounting and consulting firm in Henderson, Nevada, offering outsourced CFO and accounting services to several public and private companies.

Mr. Bradford has also served as a board member and CFO of Epic Stores Corp (EPSC; not rated).

He holds a B.S. in accounting and a Master of Accountancy from Southern Utah University.

Bryan Huber Chief Operations Officer, Co-founder

A co-founder of CleanSpark, Mr. Huber has more than 13 years of experience in the design-build construction and energy industry; he is currently the COO of the company.

His skills include sustainable energy design and implementation, sustainable building design and construction, energy efficiency program design and development, renewable energy design and integration, project management, quality assurance, and project inspection.

He has been involved in renewable energy project deal structuring, design, forecasting, financial modelling, incentive monetization, project financing, and deployment.

He is involved in CleanSpark’s technology development, management, refinement, and implementation. He also closely monitors the company’s energy operating platform.

He holds a B.S. in construction engineering and management from Purdue University’s School of Civil Engineering and is finalizing his Master of Science degree in architecture. His Master’s coursework focused on the integration of distributed energy resource systems into the built environment. Mr. Huber is also a LEED accredited professional through the U.S. Green Building Council.



Risks Execution risk. CleanSpark’s historical sales have been low in volume and the company has a limited operating history with few customers. Moreover, the company has been suffering from losses since inception. In the absence of a substantial and stable revenue base, the company may continue to suffer from extended losses in the future. Though the company is sufficiently funded at present, its loss-making status may hinder its ability to raise funds in the future, jeopardizing the company’s growth plans. Dilution risk. Given that the company is in its early stages of sales traction for its DER business, we believe the company may need to raise additional capital before it starts generating profits, resulting in dilution for existing shareholders. Technology risk. The markets in which the company operates are continuously evolving. If CleanSpark is not able to keep up with the changing market dynamics may render its technology obsolete, adversely affecting its business plan and operating metrics. Regulatory risk. CleanSpark’s operations are dependent on regulations that govern utilities, rules formulated to curb emissions, and incentives designed to promote renewable sources of energy. Any adverse changes to these rules, regulations, and incentives, may negatively impact the company’s business plan and profitability. Competition risk. CleanSpark faces intensive competition in its operating markets. Many of the competitors have substantially greater financial and marketing resources. These companies may be better placed to survive an extended low-price environment that CleanSpark may struggle to compete in. Intellectual property (IP) risk. The company relies on a combination of intellectual property protections, trade secrets, and confidentiality agreements to protect its technology. Claims by litigant lawyers and larger competitors may not only distract management from executing on its core business, but may also result in increased legal expenses. In the event of adverse legal outcomes, the company may not be able to continue to sell affected products, which can adversely affect the company’s business plan.



CLSK Income Statement (US$'000)

Particulars FY2016A FY2017A Dec '17A Mar'18A Jun '18A Sep'18A FY2018A Dec '18A Mar'19A June '19A Sep '19E FY2019E Dec '19E Mar'20E Jun'20E Sep'20E FY2020E FY2021E FY2022E FY2023E FY2024E FY2025E

Revenue 82 448 18 120 329 112 579 263 724 1,223 2,239 4,449 2,792 3,385 4,000 4,629 14,805 27,536 48,138 76,875 109,137 148,072

Revenue Growth Y/Y (%) NA 446.1% (78.4%) (40.1%) 216.2% 88.0% 29.2% 1354.1% 501.9% 272.1% 1904.5% 668.8% 961.8% 367.6% 227.1% 106.7% 232.8% 86.0% 74.8% 59.7% 42.0% 35.7%

Revenue Growth Q/Q (%) (69.6%) 565.2% 173.2% (66.0%) 135.4% 175.3% 68.9% 83.1% 24.7% 21.3% 18.2% 15.7%

Cost of revenues 31 296 6 77 288 19 391 223 592 1,006 1,804 3,625 2,175 2,529 2,890 3,258 10,852 19,042 29,371 42,981 55,746 68,989

% of Revenue 38.1% 66.1% 35.8% 64.3% 87.8% 16.7% 67.5% 84.9% 78.5% 78.5% 80.6% 81.5% 77.9% 74.7% 72.2% 70.4% 73.3% 69.2% 61.0% 55.9% 51.1% 46.6%

Gross Profit / (Loss) 51 152 12 43 40 93 188 40 132 217 435 823 616 856 1,110 1,371 3,953 8,494 18,767 33,894 53,391 79,083

Gross Margin (%) 61.9% 33.9% 64.2% 35.7% 12.2% 83.3% 32.5% 15.1% 18.2% 17.7% 19.4% 18.5% 22.1% 25.3% 27.8% 29.6% 26.7% 30.8% 39.0% 44.1% 48.9% 53.4%

Gross Profit Growth Y/Y (%) NA 198.8% (82.4%) 64.5% 23.3% 244.5% 23.9% 240.9% 206.8% 439.0% 367.6% 338.2% 1457.1% 548.9% 412.5% 215.1% 380.2% 114.9% 120.9% 80.6% 57.5% 48.1%

Gross Profit Growth Q/Q (%) (57.0%) 270.2% (6.5%) 131.6% (57.5%) 233.2% 64.2% 100.9% 41.6% 38.9% 29.7% 23.5%

Operating Expenses:

Professional fees 1,926 1,017 155 332 365 419 1,271 1,016 1,406 1,297 1,492 5,211 1,521 1,552 1,583 1,614 6,271 6,772 7,314 7,680 8,064 8,467

% of Revenue 2347.4% 227.0% 857.3% 276.0% 111.0% 375.3% 219.7% 386.5% 194.3% 106.1% 66.6% 117.1% 54.5% 45.8% 39.6% 34.9% 42.4% 24.6% 15.2% 10.0% 7.4% 5.7%

Growth (y-y) (43.0%) (47.2%) (46.4%) 47.1% 33.2% 83.9% 25.0% 555.5% 323.7% 255.5% 255.8% 310.0% 49.7% 10.3% 22.0% 8.2% 20.3% 8.0% 8.0% 5.0% 5.0% 5.0%

Growth (q-q) (32.0%) 114.1% 9.9% 14.9% 142.3% 10.6% 27.7% 15.0% 2.0% 2.0% 2.0% 2.0%

Payroll Expenses - 264 258 108 129 1,085 1,579 160 313 211 326 1,010 332 339 346 353 1,370 1,644 1,890 2,079 2,246 2,358

% of Revenue 0.0% 58.9% 1428.1% 89.6% 39.1% 971.0% 272.9% 61.0% 43.3% 17.3% 14.6% 22.7% 11.9% 10.0% 8.6% 7.6% 9.3% 6.0% 3.9% 2.7% 2.1% 1.6%

Growth (y-y) NA NA NA 1060.2% 37.8% 571.8% 498.0% (37.9%) 190.6% 64.2% (70.0%) (36.0%) 107.3% 8.2% 63.8% 8.2% 35.6% 20.0% 15.0% 10.0% 8.0% 5.0%

Growth (q-q) 59.9% (58.3%) 19.3% 743.4% (85.2%) (80.2%) 31.7% 54.3% 2.0% 2.0% 2.0% 2.0%

Product Development - 1,068 345 358 329 344 1,376 349 341 345 369 1,404 384 399 415 432 1,629 1,792 1,971 2,169 2,385 2,624

% of Revenue 0.0% 238.3% 1907.5% 297.5% 100.2% 307.7% 237.7% 132.6% 47.1% 28.2% 16.5% 31.5% 13.7% 11.8% 10.4% 9.3% 11.0% 6.5% 4.1% 2.8% 2.2% 1.8%

Growth (y-y) NA NA NA 8.8% 147.8% (43.3%) 28.9% 1.1% (4.7%) 4.7% 7.3% 2.0% 10.0% 17.0% 20.3% 17.0% 16.1% 10.0% 10.0% 10.0% 10.0% 10.0%

Growth (q-q) (43.1%) 3.7% (8.0%) 4.4% 1.4% (75.2%) (1.1%) 7.0% 4.0% 4.0% 4.0% 4.0%

Research and development 2 1 2 1 4 0 7 - - - 5 5 5 5 6 6 22 24 27 29 31 32

% of Revenue 2.2% 0.1% 12.8% 0.5% 1.2% 0.3% 1.2% 0.0% 0.0% 0.0% 0.2% 0.1% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0%

Growth (y-y) (96.5%) (67.6%) 529.1% NA 12833.3% 80.8% 1116.6% NA NA NA 1332.7% (30.5%) NA NA NA 14.7% 338.3% 10.0% 10.0% 8.0% 8.0% 5.0%

Growth (q-q) 1099.5% (72.1%) 500.6% (91.0%) NA NA NA 4.0% 4.0% 3.0% 3.0%

General and administrative expenses 86 366 76 65 59 81 280 97 159 222 244 723 252 259 267 275 1,053 1,158 1,274 1,376 1,486 1,561

% of Revenue 105.0% 81.7% 420.0% 53.7% 17.8% 72.2% 48.3% 36.9% 22.0% 18.2% 10.9% 16.3% 9.0% 7.7% 6.7% 5.9% 7.1% 4.2% 2.6% 1.8% 1.4% 1.1%

Growth (y-y) 84.0% 324.7% 12.9% (17.4%) (46.9%) (26.7%) (23.5%) 27.7% 146.9% 279.5% 203.1% 158.5% 159.5% 62.6% 20.2% 12.6% 45.7% 10.0% 10.0% 8.0% 8.0% 5.0%

Growth (q-q) (31.0%) (15.0%) (9.3%) 37.7% 20.3% (43.0%) 129.1% 10.0% 3.0% 3.0% 3.0% 3.0%

Loss on disposal of asset - 13 - - - - - - - - - - - - - - - - - - - -

% of Revenue 0.0% 2.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Growth (y-y) NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 10.0% 10.0% 8.0% 8.0% 5.0%

Growth (q-q) NA NA NA NA NA NA NA 3.0% 3.0% 3.0% 3.0% 3.0%

Impairment expense - 8,551 - - - 1,896 1,896 - - - - - - - - - - - - - - -

% of Revenue 0.0% 1908.9% 0.0% 0.0% 0.0% 1697.4% 327.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Growth (y-y) NA NA NA NA NA (77.8%) (77.8%) NA NA NA NA NA NA NA NA NA NA 10.0% 10.0% 8.0% 8.0% 5.0%

Growth (q-q) NA NA NA NA NA NA NA 3.0% 3.0% 3.0% 3.0% 3.0%

Depreciation and amortization 578 2,251 216 207 210 222 855 157 500 618 777 2,052 703 739 779 819 3,040 3,244 3,934 4,804 5,949 7,204

% of Revenue 705.2% 502.4% 1192.9% 172.2% 63.9% 199.0% 147.8% 59.9% 69.0% 50.6% 34.7% 46.1% 25.2% 21.8% 19.5% 17.7% 20.5% 11.8% 8.2% 6.2% 5.5% 4.9%

Total operating expenses 2,592 13,530 1,052 1,070 1,095 4,047 7,264 1,779 2,720 2,693 3,213 10,405 3,198 3,294 3,395 3,498 13,385 14,634 16,411 18,136 20,161 22,246

% of Revenue 3159.8% 3020.3% 5818.6% 889.5% 333.3% 3622.9% 1255.3% 676.9% 375.7% 220.3% 143.5% 233.9% 114.5% 97.3% 84.9% 75.6% 90.4% 53.1% 34.1% 23.6% 18.5% 15.0%

Growth (y-y) (25.5%) 422.0% 24.4% (4.7%) (26.1%) (59.8%) (46.3%) 69.2% 154.2% 145.9% (20.6%) 43.2% 79.7% 21.1% 26.1% 8.9% 28.6% 9.3% 12.1% 10.5% 11.2% 10.3%

Growth (q-q) (89.6%) 1.7% 2.4% 269.5% (56.0%) 52.8% (1.0%) 19.3% (0.5%) 3.0% 3.1% 3.0%

Profit / (Loss) from operations (EBIT) (2,541) (13,378) (1,040) (1,027) (1,055) (3,954) (7,076) (1,740) (2,588) (2,477) (2,777) (9,582) (2,581) (2,438) (2,285) (2,127) (9,431) (6,140) 2,356 15,757 33,230 56,837

EBIT Margin (%) (3097.9%) (2986.5%) (5754.3%) (853.7%) (321.1%) (3539.6%) (1222.9%) (661.8%) (357.5%) (202.6%) (124.0%) (215.4%) (92.5%) (72.0%) (57.1%) (46.0%) (63.7%) (22.3%) 4.9% 20.5% 30.4% 38.4%

EBIT Growth Y/Y (%) NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 568.7% 110.9% 71.0%

EBIT Growth Q/Q (%) NA NA NA NA NA NA NA NA NA NA NA NA

Depreciation and amortization 578 2,251 216 207 210 222 855 157 500 963 777 2,397 703 739 779 819 3,040 3,244 3,934 4,804 5,949 7,204

EBITDA (1,963) (11,127) (825) (820) (845) (3,732) (6,221) (1,582) (2,088) (1,514) (2,000) (7,185) (1,878) (1,699) (1,506) (1,308) (6,391) (2,896) 6,291 20,562 39,179 64,041

EBITDA Margin (%) (2392.7%) (2484.0%) (4561.5%) (681.6%) (257.2%) (3340.6%) (1075.1%) (601.9%) (288.4%) (123.8%) (89.3%) (161.5%) (67.3%) (50.2%) (37.7%) (28.3%) (43.2%) (10.5%) 13.1% 26.7% 35.9% 43.3%

EBITDA Growth Y/Y (%) NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 226.9% 90.5% 63.5%

EBITDA Growth Q/Q (%) NA NA NA NA NA NA NA NA NA NA NA NA

Other Income/expense

Gain/Loss on settlement of debt 1 (117) - - (41) - (41) (26) 7 - - (19) - - - - - - - - - -

Loss on derivative liability - - - (65) (4,689) (34,211) (38,965) - - - - - - - - - - - - - - -

Interest expense (0) (3) (16) (33) (369) (506) (924) (517) (5,184) (1,495) (5,234) (12,431) (1,118) (1,118) (1,118) (1,118) (4,471) (3,604) (138) (138) (138) (138)

Loss on disposal of asset - - - - - - - - - - - - - - - - - - - - - -

Total other income/expense 1 (120) (16) (98) (5,099) (34,717) (39,930) (544) (5,177) (1,495) (5,234) (12,450) (1,118) (1,118) (1,118) (1,118) (4,471) (3,604) (138) (138) (138) (138)

Profit / (Loss) before taxes (2,541) (13,499) (1,057) (1,125) (6,154) (38,671) (47,006) (2,284) (7,765) (3,972) (8,012) (22,032) (3,699) (3,556) (3,403) (3,245) (13,902) (9,744) 2,219 15,620 33,092 56,699

Income tax expense/ (benefit) - - - - - - - - - - - - - - - - - - 444 3,124 6,618 11,340

Net profit/(loss) (2,541) (13,499) (1,057) (1,125) (6,154) (38,671) (47,006) (2,284) (7,765) (3,972) (8,012) (22,032) (3,699) (3,556) (3,403) (3,245) (13,902) (9,744) 1,775 12,496 26,474 45,359

Profit Margin (%) (3097.1%) (3013.3%) (5843.6%) (935.2%) (1872.8%) (34619.2%) (8123.6%) (868.6%) (1072.6%) (324.8%) (357.8%) (495.2%) (132.5%) (105.0%) (85.1%) (70.1%) (93.9%) (35.4%) 3.7% 16.3% 24.3% 30.6%

Profit Growth Y/Y (%) NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 604.0% 111.9% 71.3%

Profit Growth Q/Q (%) NA NA NA NA NA NA NA NA NA NA NA NA

Basic & diluted profit/(loss) per common share (US$) (0.11) (0.42) (0.03) (0.03) (0.18) (1.12) (1.36) (0.06) (0.19) (0.09) (0.17) (0.51) (0.08) (0.06) (0.06) (0.06) (0.26) (0.17) 0.03 0.22 0.46 0.78

Weighted average shares outstanding; basic & diluted 22,528,668 32,182,107 33,500,391 33,766,781 34,864,997 34,517,986 34,517,986 36,528,279 41,219,633 44,183,436 47,807,964 42,434,828 47,807,964 55,307,964 55,307,964 55,307,964 53,432,964 57,807,964 57,807,964 57,807,964 57,807,964 57,807,964


FY2020EFY2018A FY2019E



CLSK Balance Sheet (US$'000)

Particulars FY2017A Dec '17A Mar'18A Jun '18A Sep'18A FY2018A Dec '18A Mar'19A June '19A Sep '19E FY2019E Dec '19E Mar'20E Jun'20E Sep'20E FY2020E FY2021E FY2022E FY2023E FY2024E FY2025E

Assets

Current assets

Cash and cash equivalents 57 42 172 17 413 413 4,623 1,565 8,016 6,382 6,382 2,870 14,202 10,694 7,432 7,432 6,366 7,661 17,806 42,198 86,124

Other Current Assets

Deposits - 33 339 9 - - - - - - - - - - - - - - - - -

Due from Shareholders - - - - - - - - - - - - - - - - - - - - -

Cost in excess of the bills - - - - 52 52 - - 4 - - - - - - - - - - - -

Accounts receivable 42 26 55 34 34 34 149 430 784 1,350 1,350 1,683 2,040 2,411 2,790 2,790 3,772 5,935 9,478 13,455 18,255

Prepaid expenses and other current assets 30 28 510 52 49 49 27 309 2,671 221 221 306 371 438 507 507 1,132 1,978 3,159 4,485 6,085

Total current assets 129 129 1,076 113 548 548 4,798 2,304 11,475 7,953 7,953 4,859 16,613 13,543 10,729 10,729 11,269 15,574 30,443 60,138 110,464

Fixed Assets 125 114 113 99 87 87 79 91 83 531 531 1,067 1,676 2,276 2,789 2,789 5,012 6,521 8,947 10,962 11,968

Intangible Assets 5,904 2,151 5,514 5,317 3,214 3,214 3,068 8,651 8,045 7,641 7,641 7,337 7,028 6,716 6,398 6,398 5,292 4,116 2,845 1,430 (176)

Capitalized Software 9,709 - 9,158 8,988 8,786 8,786 8,577 8,473 8,389 8,039 8,039 7,689 7,338 6,988 6,637 6,637 5,469 4,301 3,133 1,965 797

Flexpower system - 12,931 - - - - - - - - - - - - - - - - - - -

Goodwill 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920 4,920

Microgrid Assets - - - - - - - - - - - - - - - - - - - - -

Deposits 6 - - - - - - - - - - - - - - - - - - - -

Other long-term assets - - - - - - - - - - - - - - - - - - - - -

Total Assets 20,793 20,245 20,781 19,438 17,556 17,556 21,441 24,438 32,912 29,083 29,083 25,871 37,576 34,442 31,473 31,473 31,963 35,431 50,289 79,414 127,974

Liabilities

Current liabilities

Accounts payable and accrued liabilities 143 169 319 164 132 132 385 253 554 736 736 1,224 1,484 1,753 2,029 2,029 2,263 3,957 6,319 8,970 12,170

Contract Liabilities - - - - - - - 2 428 428 428 428 428 428 428 428 428 428 428 428 428

Customer Deposits 16 18 16 15 - - - - - - - - - - - - - - - - -

Convertible notes, net of unamortized discounts - - - 69 69 354 - - - - - - - - - - - - - -

Convertible notes payable - 10 121 - - - - - - - - - - - - - - - - -

Derivative Liability - - 249 17,704 - - - - - - - - - - - - - - - - -

Due to related parties 61 130 211 271 308 308 86 66 57 57 57 57 57 57 57 57 57 57 57 57 57

Loan from related party 73 53 177 233 383 383 245 - - - - - - - - - - - - - -

Loans 8 118 277 - - - - - - - - - - - - - - - - - -

Loans payable - - - 285 458 458 541 361 335 335 335 335 335 335 335 335 335 335 335 335 335

Total Current Liabilities 301 488 1,259 18,793 1,350 1,350 1,610 683 1,374 1,556 1,556 2,044 2,304 2,573 2,849 2,849 3,083 4,777 7,139 9,790 12,990

Convertible notes, net of unamortized discounts - - - - - - - 213 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507 1,507

Notes payable - - - - - - - - - - - - - - - - - - - - -

Loan payable - - - 300 150 150 - - - - - - - - - - - - - - -

Loan 150 300 300 - - - - - - - - - - - - - - - - - -

Total Liabilities 451 788 1,559 19,093 1,500 1,500 1,610 895 2,881 3,064 3,064 3,551 3,811 4,081 4,357 4,357 4,591 6,284 8,646 11,298 14,498

Shareholders' Equity

Common stock - Share Capital -

Opening 28 33 34 34 35 33 36 37 43 45 36 45 45 45 45 45 45 45 45 45 45

Additional Capital 6 0 1 0 1 3 1 6 2 - 9 - - - - - - - - - -

Closing 33 34 34 35 36 36 37 43 45 45 45 45 45 45 45 45 45 45 45 45 45

Preferred Stock 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Additional paid-in capital

Opening 39,068 40,240 40,413 41,301 28,782 40,240 82,958 89,016 100,486 110,945 82,958 114,945 114,945 129,945 129,945 114,945 129,945 139,945 139,945 139,945 139,945

Additional Capital 1,172 172 888 (12,519) 54,177 42,718 6,058 11,470 10,458 4,000 31,986 - 15,000 - - 15,000 10,000 - - - -

Closing 40,240 40,413 41,301 28,782 82,958 82,958 89,016 100,486 110,945 114,945 114,945 114,945 129,945 129,945 129,945 129,945 139,945 139,945 139,945 139,945 139,945

Accumulated earnings (deficit) (19,933) (20,990) (22,115) (28,473) (66,940) (66,940) (69,223) (76,988) (80,960) (88,971) (88,971) (92,670) (96,226) (99,629) (102,874) (102,874) (112,618) (110,843) (98,348) (71,874) (26,515)

Total shareholders’ equity 20,342 19,457 19,221 345 16,056 16,056 19,831 23,543 30,031 26,019 26,019 22,320 33,764 30,361 27,117 27,117 27,372 29,147 41,643 68,117 113,476

Total Liabilities 20,793 20,245 20,781 19,438 17,556 17,556 21,441 24,438 32,912 29,083 29,083 25,871 37,576 34,442 31,473 31,473 31,963 35,431 50,289 79,414 127,974


FY2020EFY2018A FY2019E



CLSK Cash Flow Statement (US$'000)

Particulars FY2017A Dec '17A Mar'18A Jun '18A Sep'18A FY2018A Dec '18A Mar'19A June '19A Sep '19E FY2019E Dec '19E Mar'20E Jun'20E Sep'20E FY2020E FY2021E FY2022E FY2023E FY2024E FY2025E

Cashflow from Operating Activities

Net Profit(Loss) (13,499) (1,057) (1,125) (6,358) (38,467) (47,006) (2,284) (7,765) (3,972) (8,012) (22,032) (3,699) (3,556) (3,403) (3,245) (13,902) (9,744) 1,775 12,496 26,474 45,359

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of fixed asset 13 - - - - - - - - - - - - - - - - - - - -

Imputed interest on related party debt - - - - - - - - - - - - - - - - - - - - -

Commitment shares issued with debt financing - - - 219 0 219 - - - - - - - - - - - - - - -

Impairment expense 8,551 - - - 1,896 1,896 - - - - - - - - - - - - - - -

Amortization of capitalized software 1,068 345 346 340 349 1,379 349 341 345 350 1,385 350 350 350 350 1,402 1,168 1,168 1,168 1,168 1,168

Loss on derivative liability - - 65 4,893 34,007 38,965 - - - - - - - - - - - - - - -

Loss on settlement of debt 117 - - 41 - 41 26 (7) - - 19 - - - - - - - - - -

Amortization of debt discount - - 8 128 502 638 466 5,139 70 - 5,675 - - - - - - - - - -

Ammortization of debt issuance cost - - 1 (1) - - - - - - - - - - - - - - - - -

Ammortization of original issue discount - - 2 (2) - - - - - - - - - - - - - - - - -

Gain on settlement of debt - - - - - - - - - - - - - - - - - - - - -

Stock based consulting/compensation 136 25 144 206 1,127 1,502 628 656 433 - 1,717 - - - - - - - - - -

Depreciation and amortization 2,251 216 207 210 222 855 157 500 618 427 1,702 353 389 429 468 1,639 2,076 2,766 3,636 4,781 6,036

Cash received in acquisition - - - - - - - - - - - - - - - - - - - - -

Shares issued for interest expense - - - - - - - - 1,225 - 1,225 - - - - - - - - - -

Changes in operating assets and liabilities:

Prepaid expense (22) (24) (17) 18 36 13 22 (282) -2,362 2,450 (172) (85) (65) (67) (69) (286) (624) (847) (1,181) (1,326) (1,600)

Accounts receivables 15 16 (29) 21 (0) 8 (114) (282) (354) (565) (1,315) (333) (358) (371) (379) (1,440) (982) (2,163) (3,543) (3,978) (4,800)

Deposits (5) - (115) 111 9 6 - - - - - - - - - - - - - - -

Increase in costs in excess buildings - - - - (52) (52) 52 2 (7) 4 52 - - - - - - - - - -

Shareholder receivables - - - - - - - - - - - - - - - - - - - - -

Accounts payable 0 25 162 (133) (10) 45 253 (125) 301 182 611 488 260 270 276 1,293 234 1,693 2,362 2,652 3,200

Accounts payable related party - - 150 60 (210) - - - - - - - - - - - - - - - -

Customer Deposits 16 - - (1) (15) (16) - - - - - - - - - - - - - - -

Contract liabilities - - - - - - - - 428 428 - - - - - - - - - -

Due to related party (3) 69 (69) - 247 247 (223) (20) (9) - (251) - - - - - - - - - -

Net cash used in operating activities (1,362) (385) (268) (248) (359) (1,261) (666) (1,841) (3,284) (5,164) (10,956) (2,926) (2,979) (2,792) (2,598) (11,296) (7,873) 4,393 14,938 29,771 49,363

Cashflow from Investing Activities

Purchase of intangible assets (29) (3) (3) - (2) (8) - - (2) - (2) - - - - - - - - - -

Purchase of fixed assets (5) (2) (12) - (1) (15) (3) (23) (2) (470) (498) (585) (689) (716) (664) (2,654) (3,193) (3,098) (4,792) (5,380) (5,437)

Investment in microgrid assets (6) - - - - - - - - - - - - - - - - - - - -

Investment in capitalized software (94) (13) (110) (148) (125) (396) (118) (213) (238) - (569) - - - - - - - - - -

Investment in Flexpower system - - - - - - - - - - - - - - - - - - - - -

Loss on disposal of fixed assets - - - - - - - - - - - - - - - - - - - - -

Cash received in asset sale 7 - - - - - - - - - - - - - - - - - - - - Net cash used in investing activities (126) (18) (125) (148) (128) (419) (121) (236) (242) (470) (1,069) (585) (689) (716) (664) (2,654) (3,193) (3,098) (4,792) (5,380) (5,437)

Cashflow from Financing Activities

Payment on promissory notes (20) (15) (20) (30) (36) (101) (223) (259) (26) - (508) - - - - - - - - - -

Proceeds from promissory notes 26 125 328 135 85 673 - 79 - - 79 - - - - - - - - - -

Proceeds from issuance of common stock 880 138 66 48 20 272 362 (0) - 4,000 4,362 - 15,000 - - 15,000 10,000 - - - -

Proceeds from long-term loans 150 150 (150) - - - - - - - - - - - - - - - - - -

Proceeds from short term notes - - - - - - - - - - - - - - - - - - - - -

Proceeds from related party debt 80 - 144 76 163 383 75 - - - 75 - - - - - - - - - -

Proceeds from convertible debt, net of issuance costs - - 184 - 654 838 4,995 - 10,000 - 14,995 - - - - - - - - - -

Payments on short-term loans - - - - - - - - - - - - - - - - - - - - -

Proceeds from exercise of warrants - 10 (10) 34 11 45 1 (0) 3 - 4 - - - - - - - - - -

Payments on related party debt (7) (20) (20) (20) (13) (73) (213) (245) - - (458) - - - - - - - - - -

Proceeds from convertible notes payable - - - - - - - - - - - - - - - - - - - - -

Payments on convertible notes payable - - - - - - - - - - - - - - - - - - - - -

Payments on convertible debt - - - - - - - (555) - - (555) - - - - - - - - - -

Net cash provided by financing activities 1,109 387 523 242 883 2,035 4,997 (980) 9,977 4,000 17,994 - 15,000 - - 15,000 10,000 - - - -

Increase / (Decrease) in Cash during the year (379) (15) 130 (155) 395 356 4,210 (3,057) 6,451 (1,634) 5,969 (3,512) 11,332 (3,508) (3,262) 1,050 (1,066) 1,295 10,146 24,391 43,926

Cash and cash equivalents at beginning of period 437 57 42 172 17 57 413 4,623 1,565 8,016 413 6,382 2,870 14,202 10,694 6,382 7,432 6,366 7,661 17,806 42,198

Closing Cash Balance 57 42 172 17 413 413 4,623 1,565 8,016 6,382 6,382 2,870 14,202 10,694 7,432 7,432 6,366 7,661 17,806 42,198 86,124


FY2018A FY2019E FY2020E



Important Disclaimers

This material is confidential and intended for use by Institutional Accounts as defined in FINRA Rule 4512(c). It may also beprivileged or otherwise protected by work product immunity or other legal rules. If you have received it by mistake, please letus know by e-mail reply to [email protected] and delete it from your system; you may not copy this message ordisclose its contents to anyone. The integrity and security of this message cannot be guaranteed on the Internet.H.C. WAINWRIGHT & CO, LLC RATING SYSTEM: H.C. Wainwright employs a three tier rating system for evaluating boththe potential return and risk associated with owning common equity shares of rated firms. The expected return of any givenequity is measured on a RELATIVE basis of other companies in the same sector. The price objective is calculated to estimatethe potential movements in price that a given equity could reach provided certain targets are met over a defined time horizon.Price objectives are subject to external factors including industry events and market volatility.

RETURN ASSESSMENTMarket Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all thecommon stock of companies within the same sector.Market Perform (Neutral): The common stock of the company is expected to mimic the performance of a passive indexcomprised of all the common stock of companies within the same sector.Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised ofall the common stock of companies within the same sector.

Rating and Price Target History for: CleanSpark, Inc. (CLSK-US) as of 08-26-2019

876543210

Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3

Rating and Price Target History for: Tecogen, Inc. (TGEN-US) as of 08-26-2019

5.50

5.00

4.50

4.00

3.50

3.00

2.50

2.00Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3

I:BUY:$6.0010/04/16

Related Companies Mentioned in this Report as of Aug/26/2019

Company Ticker H.C. Wainwright 12 Month Price MarketRating Price Target Cap

Tecogen, Inc. TGEN Buy $6.00 $2.75 $68

Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placementof securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a companyor one of its affiliates or subsidiaries within the past 12 months.



Distribution of Ratings Table as of August 26, 2019IB Service/Past 12 Months

Ratings Count Percent Count PercentBuy 348 91.82% 120 34.48%Neutral 29 7.65% 5 17.24%Sell 0 0.00% 0 0.00%Under Review 2 0.53% 1 50.00%Total 379 100% 126 33.25%

H.C. Wainwright & Co, LLC (the “Firm”) is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.

I, Amit Dayal and Sameer Joshi , certify that 1) all of the views expressed in this report accurately reflect my personal viewsabout any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly orindirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor anymembers of my household is an officer, director or advisory board member of these companies.

None of the research analysts or the research analyst’s household has a financial interest in the securities of CleanSpark, Inc.and Tecogen, Inc. (including, without limitation, any option, right, warrant, future, long or short position).As of July 31, 2019 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securitiesof CleanSpark, Inc. and Tecogen, Inc..Neither the research analyst nor the Firm knows or has reason to know of any other material conflict of interest at the timeof publication of this research report.

The research analyst principally responsible for preparation of the report does not receive compensation that is based upon anyspecific investment banking services or transaction but is compensated based on factors including total revenue and profitabilityof the Firm, a substantial portion of which is derived from investment banking services.

The Firm or its affiliates did not receive compensation from CleanSpark, Inc. and Tecogen, Inc. for investment banking serviceswithin twelve months before, but will seek compensation from the companies mentioned in this report for investment bankingservices within three months following publication of the research report.

The Firm does not make a market in CleanSpark, Inc. and Tecogen, Inc. as of the date of this research report.

The securities of the company discussed in this report may be unsuitable for investors depending on their specific investmentobjectives and financial position. Past performance is no guarantee of future results. This report is offered for informationalpurposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdictionwhere such would be prohibited. This research report is not intended to provide tax advice or to be used to provide tax advice toany person. Electronic versions of H.C. Wainwright & Co., LLC research reports are made available to all clients simultaneously.No part of this report may be reproduced in any form without the expressed permission of H.C. Wainwright & Co., LLC. Additionalinformation available upon request.

H.C. Wainwright & Co., LLC does not provide individually tailored investment advice in research reports. This research report isnot intended to provide personal investment advice and it does not take into account the specific investment objectives, financialsituation and the particular needs of any specific person. Investors should seek financial advice regarding the appropriatenessof investing in financial instruments and implementing investment strategies discussed or recommended in this research report.

H.C. Wainwright & Co., LLC’s and its affiliates’ salespeople, traders, and other professionals may provide oral or written marketcommentary or trading strategies that reflect opinions that are contrary to the opinions expressed in this research report.

H.C. Wainwright & Co., LLC and its affiliates, officers, directors, and employees, excluding its analysts, will from time to timehave long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants)thereof of covered companies referred to in this research report.

The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as beingaccurate and does not purport to be a complete statement or summary of the available data on the company, industry or securitydiscussed in the report. All opinions and estimates included in this report constitute the analyst’s judgment as of the date ofthis report and are subject to change without notice.

Securities and other financial instruments discussed in this research report: may lose value; are not insured by the FederalDeposit Insurance Corporation; and are subject to investment risks, including possible loss of the principal amount invested.



The Rating: Buy CleanSpark, Inc. (CLSK) Amit Dayal Initiating …innovativestockreport.com/wp-content/uploads/2019/08/... · 2019-08-29 · energy consumption and generates customized

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