Business context and reporting period
The supplied filing identifies the registrant as Stratean Inc., not CleanSpark, Inc. It covers the quarter ended December 31, 2014 (Stratean’s fiscal first quarter of 2015) and compares results with the three months ended December 31, 2013. The interim financial statements are unaudited. This summary therefore reflects the supplied Stratean filing, not a CleanSpark filing.
Stratean was developing and seeking to commercialize gasifier technology intended to convert organic and other carbon-based materials into synthesis gas. Its prototype was still under development, and the company reported no revenue or significant customer negotiations.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2014 | Comparable 2013 period |
|---|---|---|
| Revenue | $0 | $0 |
| Gross profit / margin | $0; margin not meaningful | $0; margin not meaningful |
| Operating expenses | $186,194 | $8,287 |
| Operating loss | $(186,194) | $(8,287) |
| Interest expense | $(5,144) | $(1,928) |
| Net loss | $(191,338) | $(10,215) |
| Basic loss per share | $(0.03) | $(0.01) |
| Cash from operating activities | $(106,944) | $237 |
Professional fees were $117,772 and research and development expense was $50,000, both compared with zero in the prior-year quarter. General and administrative expense was $17,782, up from $8,287; depreciation and amortization was $640. The filing attributes much of the professional fees to legal and consulting work and the research and development costs to gasifier testing.
At December 31, 2014, cash was $58,087, down from $116,741 at September 30, 2014. Current assets were $58,087 and current liabilities were $8,949, yielding reported working capital of $49,138. Total assets were $685,877; total liabilities were $8,949; and stockholders’ equity was $676,928. Notes payable fell from $44,857 to zero following stock settlements. Cash used in investing was $1,710, while financing provided $50,000 from stock and warrant sales. No cash interest or taxes were paid.
Material changes and notable transactions
- Net loss increased to $191,338 from $10,215, primarily reflecting higher professional fees, gasifier testing costs, and general and administrative expense.
- Operating cash use rose to $106,944 from $237 provided in the prior-year quarter. The filing identifies noncash stock-based consulting expense of $80,000 and imputed interest of $5,143 among the reconciling items.
- The company raised $50,000 in two private placements during the quarter, issuing 50,000 common shares and warrants for 5,000 shares at an exercise price of $1.10 per share. It also issued 60,000 shares valued at $60,000 for grant-writing services.
- Two related-party promissory notes with face values of $33,341 and $16,659 were settled by issuing 57,500 shares. The agreements also granted 10-year royalties on gross revenue from gasifier-unit sales: 0.5% to one noteholder and 0.25% to the other.
- A $147,144 independent gasifier-testing agreement was signed in December. The company paid $50,000 initially; another $50,000 was due after task 5, with $47,144 due on delivery of the final report.
- After quarter-end, on January 6, 2015, the company received $20,000 for 20,000 shares and warrants for 2,000 shares at an exercise price of $1.10.
Outlook, risks, and controls
Management said the gasifier was still under development and expected a commercially viable unit to be sellable in the first or second quarter of 2015, subject to testing. The filing provides no quantified revenue, earnings, or cash-flow guidance. Management said it intended to pursue licensing, manufacturing, and direct sales, but had not engaged in significant negotiations with major customers.
Management stated that available cash was insufficient to operate at the current level for the next 12 months and that additional debt or equity financing was needed, with no assurance it could be obtained on acceptable terms or at all. The company reported cumulative losses of $600,613 and disclosed substantial doubt about its ability to continue as a going concern. Its financial statements include no adjustments for the outcome of that uncertainty.
Disclosure controls were deemed ineffective because of material weaknesses involving inadequate segregation of duties and risk assessment, and insufficient written accounting and financial-reporting policies. Planned remediation depended largely on obtaining financing. The filing reported no pending legal proceedings and no off-balance-sheet arrangements. Operating lease payments due in 2015 were $12,150.
Important facts for investors to verify
- Confirm the issuer and filing: the supplied text names Stratean Inc., whereas the request metadata names CleanSpark, Inc.
- Verify the gasifier testing results, commercial readiness, and whether any customer or sales agreements were subsequently secured.
- Assess cash needs, financing availability, and the going-concern uncertainty, including the effect of the post-quarter $20,000 private placement.
- Review the debt-settlement share issuances and the continuing 10-year royalty obligations.
- Check the material-weakness remediation status and the filing’s stated signing date, which reads February 3, 2014 despite reporting a quarter ended December 31, 2014.