Business context and reporting period
The supplied filing is Stratean, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015 (the second quarter of its fiscal year ending September 30, 2015). This does not match the request metadata naming CleanSpark, Inc.; confirm the intended company and filing before relying on this summary. Stratean describes its business as developing, licensing, and marketing gasifier technology intended to convert organic and other carbon-based materials into synthesis gas. Its prototype was still under development.
Financial performance and condition
- Revenue and margins: No revenue was reported for either the three or six months ended March 31, 2015 or the comparable 2014 periods. Gross profit was zero; with no sales, a meaningful gross margin is not available.
- Expenses and net loss: Second-quarter operating expenses were $3.19 million versus $7,523 a year earlier, primarily reflecting stock-based consulting costs. Six-month operating expenses were $3.38 million versus $15,810; six-month net loss was $3.38 million versus $60,775. Second-quarter net loss was $3.19 million versus $50,560.
- Cash flow: Six-month operating cash use was $166,966 and investing cash use was $21,787; financing provided $242,000, principally from common-stock sales. Cash increased by $53,247 to $169,988 from September 30, 2014.
- Liquidity and debt: At March 31, 2015, current assets were $228,926 and current liabilities were $10,805, yielding working capital of $218,121. Total liabilities were $10,805; the $44,857 notes payable outstanding at September 30, 2014 had been eliminated through debt settlement. Management said available cash was insufficient to fund operations at the current level for the next 12 months.
- Assets and equity: Total assets were $877,112, including $601,804 of net fixed assets. Stockholders’ equity was $866,307. Common shares outstanding were 6,792,805 at March 31 and May 1, 2015.
Material changes, outlook, and risks
- Stock-based compensation was the dominant unusual expense: the cash-flow statement reports $3.21 million of stock-based consulting adjustments, including $2.41 million attributed to options granted to officers and directors and $500,000 for shares issued to them. This largely explains the sharp increase in reported losses and professional fees.
- The company raised $242,000 in a private placement during the six months and settled two notes with $50,000 combined face value by issuing 57,500 common shares. The settlements also granted former noteholders royalties on specified gasifier-unit sales.
- Stratean engaged Combustion Resources to conduct seven stages of independent prototype testing, with contract payments totaling $147,144. Management described commercial sales as dependent on development and testing, said significant customer negotiations had not begun, and expected the gasifier to be sellable by the second quarter of 2015. The filing provides no quantified sales or earnings guidance.
- Management stated that additional financing is needed and may not be available on acceptable terms or at all. The financial statements identify substantial doubt about the company’s ability to continue as a going concern.
- Subsequent to quarter-end, the company authorized preferred stock and designated Series A shares with dividends tied to 2% of earnings before interest, taxes, and amortization, liquidation preference, change-of-control conversion rights, and 45 votes per share. It issued 400,000 Series A shares to directors on April 16, 2015.
- Disclosure controls were deemed ineffective because of material weaknesses in segregation of duties/risk assessment and written accounting and reporting policies. Management’s remediation plans depended in part on obtaining financing. No pending legal proceedings were reported.
Important facts to verify
- Confirm the issuer: the provided filing names Stratean, Inc., not CleanSpark, Inc.
- Reconcile the filing’s cumulative-loss disclosures: the financial statements report accumulated deficit of $3,789,530, while the MD&A separately states cumulative net losses of $3,617,852.
- Check the equity-award disclosures: the notes and Part II differ on certain consultant option quantities and terms; also confirm the valuation and accounting for the large stock-based compensation charge.
- Assess cash runway and financing plans against management’s stated inability to fund the next 12 months, and monitor whether independent gasifier testing supported commercial viability.
- Review the voting, dividend, liquidation, and change-of-control terms of the 400,000 Series A preferred shares issued after quarter-end.