Filing summary
Entity and period: The supplied filing is a Form 10-Q for Stratean Inc., not CleanSpark, Inc. It covers the quarter and nine months ended June 30, 2015, for the fiscal year ending September 30, 2015. The filing is signed August 13, 2015. This entity and period mismatch should be verified before relying on this summary.
Business context and reporting period
Stratean described its business as acquiring, licensing, and marketing technology intended to convert solid waste and other carbon-based materials into synthesis gas. Its gasifier remained under development; the company was pursuing independent testing and had not engaged in significant negotiations with major customers. Interim financial statements are unaudited.
Financial results and liquidity
| Metric | Three months ended June 30, 2015 | Nine months ended June 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $54,776 | $3,429,887 |
| Operating loss | $54,776 | $3,429,887 |
| Interest expense | $0 | $5,144 |
| Net loss | $54,776 | $3,435,031 |
Gross margin is not meaningful for 2015 because there was no revenue. The filing reports 2014 revenue of $2,555 for both the quarter and nine-month period, with cost of revenue of $700.
- Balance sheet at June 30, 2015: Cash $125,936; current assets $164,115; total assets $818,681; current liabilities $6,750; total liabilities $6,750; stockholders’ equity $811,931. Reported working capital was $157,365.
- Debt: No notes payable remained at June 30, 2015, compared with $44,857 at September 30, 2014. The company settled two notes with a combined face value of $50,000 by issuing common shares and granting royalties.
- Cash flows, nine months: Operating cash use was $203,907; investing cash use was $28,898; financing cash inflow was $242,000, principally from a private stock-and-warrant offering. Cash increased by $9,195 to $125,936.
- The $3,435,031 nine-month net loss included $3,228,517 in stock-based consulting expense, a major noncash item. The filing also reports $690,000 of shares issued for services and $2,556,296 of options and warrants issued for services in supplemental noncash disclosures.
Changes versus prior comparable periods
- Revenue fell to zero from $2,555 in both the three- and nine-month comparisons.
- Quarterly net loss increased to $54,776 from $10,899. Nine-month net loss increased to $3,435,031 from $71,674, driven primarily by professional fees, including stock-based consulting and legal fees.
- Nine-month operating expenses rose to $3,429,887 from $27,567; professional fees alone were $3,336,369, versus $14,606 in 2014.
- Cash rose from $116,741 at September 30, 2014 to $125,936 at June 30, 2015, supported by equity financing, despite operating and investing cash outflows.
- Common shares outstanding increased from 17,409,915 at September 30, 2014 to 20,378,415 at June 30, 2015. The company also issued 400,000 Series A preferred shares to directors.
Outlook, risks, and unusual items
- Management said significant revenue was not expected until the technology was further developed and marketable. Independent gasifier testing was underway; stages one through three of a seven-stage program were reported complete, with the remaining stages and final report expected before September 30, 2015. These are expectations, not reported completed outcomes.
- The company stated it did not have sufficient cash to operate at its current level for the next 12 months and planned to seek additional private-equity financing. Financing availability was uncertain; failure to raise funds could impair execution of its business plan.
- The filing reports cumulative losses of $3,844,306 and states that substantial doubt exists about the company’s ability to continue as a going concern. The financial statements include no adjustments for the outcome of that uncertainty.
- Series A preferred shares carry quarterly dividends equal to 2% of earnings before interest, taxes, and amortization, a $0.02-per-share liquidation preference plus unpaid dividends, change-of-control conversion/redemption rights, and 45 votes per share. The 400,000 shares were issued to board members.
- Debt-settlement agreements granted former noteholders royalties of 0.5% and 0.25% of gross receipts from sales of physical gasifier units for ten years.
- The company reported ineffective disclosure controls due to material weaknesses in segregation of duties/risk assessment and written accounting and reporting procedures. Planned remediation depended substantially on obtaining financing.
- A Combustion Resources testing agreement totaled $147,144; $50,000 had been paid, with further payments due at specified project milestones. Minimum 2015 office lease payments were $14,850.
- Management reported no pending legal proceedings, no defaults upon senior securities, and no off-balance-sheet arrangements. No formal financial guidance or quantified sales outlook is provided.
Investor facts to verify
- Confirm that this Stratean Inc. filing—not a CleanSpark filing—is the intended source and that June 30, 2015 is the intended reporting period.
- Review the composition, valuation, and timing of the unusually large stock-based consulting and professional-fee charges, including the related share, option, and warrant issuances.
- Verify financing raised after the reporting date, cash runway, and whether the stated going-concern and 12-month liquidity concerns were resolved.
- Check completion and results of independent gasifier testing, evidence of commercial viability, and any customer commitments or revenue generation.
- Assess the economic and governance effects of the preferred-stock voting, dividend, and change-of-control terms, as well as the noteholders’ royalty obligations.
- Track remediation of the disclosed material weaknesses and whether internal controls improved.