CLEANSPARK, INC. - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Stratean Inc.

(Exact name of Registrant as specified in its charter)

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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,058,415 common shares as of May 10, 2016.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Our financial statements included in this Form 10-Q are as follows:

The accompanying condensed financial statements of Stratean Inc. ( the “Company”) are unaudited, but in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the Company’s financial position, results of operations, and cash flows as of and for the dates and periods presented. The condensed financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.

These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the twelve months ended September 30, 2015, filed with the Securities and Exchange Commission (the “Commission”).

The results of operations for the three and six months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the entire year ending September 30, 2016 or for any future period.

STRATEAN INC.

BALANCE SHEETS

(UNAUDITED)

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

STRATEAN INC.

STATEMENT OF OPERATIONS

(UNAUDITED)

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

STRATEAN INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

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

STRATEAN INC.

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND GOING CONCERN

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.

Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $(4,156,644) since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

2. SUMMARY OF SIGNIFICANT POLICIES

This summary of significant accounting policies of Stratean Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

Use of estimates – The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Cash and cash equivalents – For purposes of the statement 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 $151,689 and $88,533 in cash and cash equivalents as of March 31, 2016 and September 30, 2015, respectively.

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Revenue recognition – The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended March 31, 2016 and 2015 the Company reported revenues of $nil and $nil, respectively.

Long-lived Assets – In accordance with the Financial Accounting Standards Board ("FASB") Accounts Standard Codification (ASC) ASC 360-10, "Property, Plant and Equipment," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of March 31, 2016, the Company has not implemented an employee stock based compensation plan.

Non-Employee Stock Based Compensation – The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. 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 for 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.

Recently Issued Accounting Pronouncements – The Company has evaluated the all recent accounting pronouncements through ASU 2016-10, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows. 

3. FIXED ASSETS

Fixed assets consist of the following as of March 31, 2016 and September 30, 2015

Depreciation expense for the six months ended March 31, 2016 and 2015 was $19,126 and $97, respectively.

4.    INTANGIBLE AND OTHER ASSETS

Intangible assets consist of the following as of March 31, 2016 and September 30, 2015

Amortization expense for the six months ended March 31, 2016 and 2015 was $1,359 and $1,232, respectively.

5. RELATED PARTY TRANSACTIONS

On October 1, 2014 the Company entered into a Consulting agreement with Matthew Schultz, its Chief Financial Officer for management services. In accordance with this agreement, Mr. Schultz provides services to the Company in exchange for $7,500 per month plus reimbursable expenses incurred. The term of the agreement is one month and automatically renews each month until cancelled by either party. During the six months ending March 31, 2016, Mr. Schultz was paid $45,000 in accordance with this agreement. 

6. PREPAID EXPENSES

The Board of Directors created a Board of Advisors to provide the Officers and Directors with advice and insight and appointed Brad Patee to serve as a member of the board of advisors for a period of one year.

As compensation for his appointment, Mr. Patee was granted 180,000 non-statutory options under the following terms: non-transferable, fully vest on March 31, 2015, expire five years from the date of grant, strike price of $0.083 and become immediately exercisable upon the occurrence of a significant liquidating, restructuring or change of control event.

The 180,000 stock options were valued at $54,411 using the Black-Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 2.11%, a dividend yield of 0% and volatility rates of 110%.   The amount was capitalized as a prepaid expense and will be amortized over a twelve-month term, during the six months ended March 31, 2016 the Company recorded an expense of $24,232. 

On January 22, 2016, the Company appointed Mr. Greg Gohlinghorst as a member of the Company’s board of advisors. He was issued 35,000 shares of common stock for his appointment.  The shares were valued at $11,666 or $0.33 per share. The amount was capitalized as a prepaid expense and will be amortized over a twelve-month term, during the six months ended March 31, 2016 the Company recorded an expense of $2,199. 

7. STOCKHOLDERS’ EQUITY (DEFICIT)

Overview

Our authorized capital stock consists of 100,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of March 31, 2016, there were 21,058,415 shares of our common stock issued and outstanding and 400,000 shares of preferred stock issued and outstanding. 

Description of Common Stock

Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as a liquidation, merger or an amendment to our articles of incorporation.

Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefor.

Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders.

In the event of any merger or consolidation of our company with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

Description of Preferred Stock

Our board of directors is authorized to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock, including, but not limited to, the following:

On April 15, 2015, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation (the “Certificate of Amendment”) with the Nevada Secretary of State. The Certificate of Amendment authorized ten million (10,000,000) shares of preferred stock. The Company’s Board of Directors and a majority of its shareholders approved the Certificate of Amendment.

On April 15, 2015, 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 A Preferred Stock, consisting of up to one million (1,000,000) 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 the Company 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 the Company’s common stock on all matters submitted to shareholders at a rate of forty-five (45) votes for each share held.

During the period commencing October 1, 2015 through March 31, 2016, the Company received $215,000 from 16 investors pursuant to private placement agreements with the investors to purchase 645,000 shares of Stratean $0.001 par value common stock and warrants to purchase 64,500 shares of Stratean $0.001 par value common stock at a purchase price equal to $0.33 for each share of Common stock and 10% warrant coverage. The warrant allows the holder to purchase shares of the Company's $0.001 par value common stock at $0.367 per share.

8. STOCK WARRANTS

The following is a summary of warrants activity during the year ended September 30, 2015 and six months ending March 31, 2016. 

As of March 31, 2016, 8,612,100 warrants are exercisable.

On January 22, 2016, the Company issued warrants to purchase 450,000 shares of common stock to a Mr. Greg Gohlinghorst for business advisory services. The warrants were valued at $116,811 using the Black Scholes option pricing model based upon the following assumptions: term of 5 years, risk free interest rate of 1.49%, a dividend yield of 0% and volatility rate of 110%. The warrants were fully earned and vested on January 31, 2016. 

9. DEFINITIVE AGREEMENTS

On December 5, 2014, the Company and Combustion Resources, Inc. ("Combustion Resources") executed a Service Agreement ("Agreement") to independently test the Company’s Gasifier to further establish its capability of producing large volumes of clean, renewable energy from any carbon compound (Municipal Solid Waste (MSW), Coal, Sewage Sludge) into clean Synthesis Gas.

The testing will be comprised of seven stages. As of the date of this filing, Combustion Resources had completed stages one through five. It is anticipated that the remaining stages will be completed prior to September 30, 2016. Each of the seven stages are briefly outlined below.

Pursuant to the Agreement, the Company will make payments totaling $147,144. On December, 9, 2014, the Company made an initial payment of $50,000 to begin the project. Another $50,000 will be due upon completion of task five  and the balance of $47,144 is due upon delivery of the Final Project report. As of the date of this filing Combustion Resources has not issued an request for payment or an invoice for the second payment, the Company intends to remit payment upon presentation of this such notice. The Company anticipates the final project report will be completed during the quarter ending September 30, 2016.

10. COMMITMENTS AND CONTINGENCIES

On January 22, 2016, the Company terminated its lease agreement at 2391 South 1560 West, Unit B, Woods Cross Utah and relocated its corporate office to 70 north Main Street, Suite 105, Bountiful Utah 84010. The Company executed a one-year lease agreement that calls for the Company to make payments of $850 per month. The Company has prepaid rent for January 2017  . Future minimum lease payments under the operating leases for the facilities as of March 31, 2016, are as follows:

2016 $7,650

11.    SUBSEQUENT EVENTS

On or about April 26, 2016, the Company entered into Stock Purchase Agreement with James Harper (the "Agreement") to acquire a patent from Mr. Harper as represented in an Assignment of even date. Specifically, the Agreement grants 7,500 shares of the Company’s common stock to Mr. Harper in exchange for the Assignment of United States Patent No. 8,342829 issued January 8, 2013 by the United States Patent and Trademark Office (the “Patent”). The Assignment transfers the Patent and all rights associated therewith to the Company.

Effective May 2, 2016, the Company entered into an agreement with Mr. Thompson to act as the Company’s Secretary. The agreement will have an initial term of 180 days with a right for the Company to renew following the term. Under the agreement, the Company agreed to compensate Mr. Thompson, based on his performance, with a combination of shares of common stock and cash, not to exceed 150,000 shares of common stock and $150,000.

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 affect 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

Stratean Inc. is in the business of acquiring, licensing and marketing patents and technology to create renewable energy from solid waste. The Company plans to turn today’s landfill dilemma into tomorrow’s energy solution.

Stratean Inc.'s technology converts any organic material into SynGas. SynGas can be used as clean, renewable, environmentally friendly, warming fuel for power plants, motor vehicles, and as feedstock for the generation of DME (Di-Methyl Ether). DME is the premier energy carrier and offers a range of important benefits:

Ÿ  Simple and low cost of production

Ÿ  An environmentally-benign propellant and coolant

Ÿ  Clean-burning and high energy efficiency

Ÿ  Lower transportation and distribution costs

Ÿ  Easily converted into other fuels and chemicals

The Stratean Gasifier converts the following materials into clean, reusable, renewable, and affordable energy:

Ÿ  Municipal Solid Waste (MSW)

Ÿ  Municipal sewage sludge

Ÿ  Food and cooking waste

Ÿ  Petroleum sludge and oily wastes

Ÿ  Animal manures

Ÿ  Cellulosic and non-cellulosic biomass

Ÿ  Energy crops

Ÿ  Scrap tires

Ÿ  Coal

The process involves the grinding, drying, separating, mixing, and then pelletizing of solid waste. These pellets constitute the feedstock for the Gasifier. Gasifying the pellets produces SynGas. SynGas can be converted into multiple forms of energy including motor vehicle and jet fuels. The SynGas produced is so clean that it generally does not require hot-gas cleanup. SynGas is mostly hydrogen and carbon monoxide. Hydrogen and carbon monoxide are primary building blocks for fuels and chemicals. SynGas is a clean burning fuel suitable for use in duel-fuel diesel engines, gas turbines, and steam boilers.

The Company believes that the Stratean process will turn the world’s waste problem into an abundant, renewable resource of energy. The Stratean production can be adapted to the specific energy requirements of a given area. Communities are expected to benefit from the countless options created including inexpensive green electric power for homes, clean-burning fuel for garbage trucks, street maintenance equipment, or for resale to other municipalities. Because of the modular nature of the components intrinsic to the process, the plant could provide one energy source, then be converted to provide a different energy product. A Stratean facility could produce additional electric power during the peak demand part of the day and produce fuels during the rest of the day.

The Company’s market segmentation is vast as the Company expects to apply its technology to anything that is carbon based. The markets for which the Company has focused its efforts include: the electric utility market, municipal waste, processing plants, the refining sector, stranded natural gas fields, and Canadian oil sands.

The Company has begun pursuing opportunities to utilize the assets and intellectual properties purchased.  The Company aims to further develop these technologies in order to pursue licensing, manufacturing and direct sales agreements for its Gasifier technology.

The technologies and prototype will begin undergoing clinical lab testing to further establish its capability of producing large volumes of clean, renewable energy from any carbon compound (Municipal Solid Waste (MSW), Coal, Sewage Sludge) into clean Synthesis Gas.  The Company’s Gasifier is still under development and a commercially viable Gasifier is not expected to be sellable until the first quarter of 201 7. In December of 2014, the Company executed an agreement with Combustion Resources, LLC to independently test the Company’s production model prototype. Combustion was engaged to independently test the Gasifer's performance and certify the results of its performance. The Company believes the results of these independent tests will provide the results needed to prove its commercial viability, at which time the Company would begin to actively market its Gasifer units. The Company anticipates Combustion’s final project report will be completed during the quarter ending September 30, 2016.

The Company has not engaged in any significant negotiations to sell its Gasifier products to any major customers. Once completed, the Company intends to distribute its products through advertisements and sales calls on potential customers with demonstrations of how the products work. The failure to acquire customers to generate revenues will negatively affect the Company’s financial performance.

Results of operations for the three months ended March 31, 2016 and 2015

Revenues

We did not earn any revenues during the three months ending March 31, 2016 and 2015, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our technology and are able to market our products.

Operating Expenses

The Company had operating expenses of $191,071 for the three months ended March 31, 2016, as compared with $3,188,917 for the three months ended March 31, 2015.

Professional fees decreased to $167,795 for the three months ended March 31, 2016 from $3,172,884 for the same period ended March 31, 2015. Our professional fees expenses for the three months ended March 31, 2016 consisted mainly of stock based compensation to members of our board of advisors of $129,565, legal, accounting and investor relations fees of $15,730 and consulting fees of $22,500 paid to an officer of the Company.

Research and development fees decreased to $368 for the three months ended March 31, 2016 from $2,214 for the same period ended March 31, 2015. Our research and development expenses for the three months ended March 31, 2016 consisted mainly of expenses incurred to during the independent testing of our Gasifier.

General and administrative fees decreased to $9,551 for the three months ended March 31, 2016 from $13,130 for the same period ended March 31, 2015. Our general and administrative expenses for the three months ended March 31, 2016 and 2015 consisted mainly of rent expenses of $3,230 and general expenses incurred as a result of fundraising efforts.

Depreciation and amortization expense increased to $13,357 for the three months ended March 31, 2016 from $689 for the same period ended March 31, 2015.

Other Expenses

We had other expenses of $nil for the three months ended March 31, 2016, compared with other expenses of $nil for the three months ended March 31, 2015.

Other Income

We had other income of $721 for the three months ended March 31, 2016, compared with other income of $nil for the three months ended March 31, 2015. The income of $721 for the three months ended March 31, 2016 was a result of the sale of office equipment upon relocation of the corporate offices.

Net Loss

We recorded a net loss of $190,350 for the three months ended March 31, 2016, as compared with a net loss of $3,188,917 for the three months ended March 31, 2015.

Results of operations for the six months ended March 31, 2016 and 2015

Revenues

We did not earn any revenues during the six months ending March 31, 2016 and 2015, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our technology and are able to market our products.

Operating Expenses

The Company had operating expenses of $263,087 for the six months ended March 31, 2016, as compared with $3,375,111 for the six months ended March 31, 2015.

Professional fees decreased to $214,157 for the six months ended March 31, 2016 from $3,290,656 for the same period ended March 31, 2015. Our professional fees expenses for the six months ended March 31, 2016 consisted mainly of stock based compensation to members of our board of advisors of $143,242, legal, accounting and investor relations fees of $25,915 and consulting fees of $45,000 paid to an officer of the Company.

Research and development fees decreased to $1,826 for the six months ended March 31, 2016 from $52,214 for the same period ended March 31, 2015. Our research and development expenses for the six months ended March 31, 2016 consisted mainly of expenses incurred to during the independent testing of our Gasifier.

General and administrative fees decreased to $26,619 for the six months ended March 31, 2016 from $30,912 for the same period ended March 31, 2015. Our general and administrative expenses for the six months ended March 31, 2016 and 2015 consisted mainly of rent expenses of $7,280, filing fees of $8,200 and general expenses incurred as a result of fundraising efforts.

Depreciation and amortization expense increased to $20,485 for the six months ended March 31, 2016 from $1,329 for the same period ended March 31, 2015.

Other Expenses

We had other expenses of $nil for the six months ended March 31, 2016, compared with other expenses of $5,144 for the six months ended March 31, 2015. Our other expenses for the six months ended March 31, 2015 consisted of amortization of imputed interest on officer loans and amortization of debt discount.

Other Income

We had other income of $721 for the six months ended March 31, 2016, compared with other income of $nil for the six months ended March 31, 2015. The income of $721 for the six months ended March 31, 2016 was a result of the sale of office equipment upon relocation of the corporate offices.

Net Loss

We recorded a net loss of $262,366 for the six months ended March 31, 2016, as compared with a net loss of $3,380,255 for the six months ended March 31, 2015.

Liquidity and Capital Resources

As of March 31, 2016, we had total current assets of $162,006, consisting of cash and prepaid expenses, and total assets in the amount of $856,481. Our total current liabilities as of March 31, 2016 were $13,411. We had working capital of $148,595 as of March 31, 2016.

Operating activities used $139,590 in cash for the six months ended March 31, 2016. Our net loss of $262,366 was the main component of our negative operating cash flow, offset mainly by stock based consulting of $143,401 and depreciation and amortization of $20,485.

Cash flows used by investing activities during the six months ended March 31, 2016 was $12,254 as a result of the purchase of fixed and intangible assets.

Cash flows provided by financing activities during the six months ended March 31, 2016 amounted to $215,000 and consisted of $215,000 in proceeds from our private offering of common stock and warrants.

Despite the efforts we have made to raise money and to settle debt, based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

Off Balance Sheet Arrangements

As of March 31, 2016, there were no off balance sheet arrangements.

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.

Use of estimates – The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

Cash and cash equivalents – For purposes of the statement 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 $151,689 and $88,533 in cash and cash equivalents as of March 31, 2016 and September 30, 2015, respectively.

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Revenue recognition – The Company recognizes revenue on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonably assured. For the periods ended March 31, 2016 and 2015 the Company reported revenues of $nil and $nil, respectively.

Long-lived Assets – In accordance with the Financial Accounting Standards Board ("FASB") Accounts Standard Codification (ASC) ASC 360-10, "Property, Plant and Equipment," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation”, which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of March 31, 2016, the Company has not implemented an employee stock based compensation plan.

Non-Employee Stock Based Compensation – The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. 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 for 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.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

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 September 30, 2015. 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 March 31, 2016, 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 the following material weaknesses which have caused management to conclude that, as of March 31, 2016, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

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

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending September 30, 2016: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the six months ended March 31, 2016 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

We are not a party to any pending legal proceeding. 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

See risk factors included in our Annual Report on Form 10-K for September 30, 2014.

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 a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

During the period commencing October 1, 2015 through March 31, 2016, the Company received $215,000 from 16 investors pursuant to private placement agreements with the investors to purchase 645,000 shares of Stratean $0.001 par value common stock and warrants to purchase 64,500 shares of Stratean $0.001 par value common stock at a purchase price equal to $0.33 for each share of Common stock and 10% warrant coverage. The warrant allows the holder to purchase shares of the Company's $0.001 par value common stock at $0.367 per share. 

On January 22, 2016, the Company appointed Mr. Greg Gohlinghorst as a member of the Company’s board of advisors. He was issued 35,000 shares of common stock for his appointment.  The shares were valued at $11,666 or $0.33 per share.

On January 22, 2016, the Company issued warrants to purchase 450,000 shares of common stock to Mr. Greg Gohlinghorst for business advisory services. The warrants were valued at $116,811 using the Black Scholes option pricing model.

These securities were issued pursuant to Section 4(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

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.     Other Information

None

Item 6.      Exhibits

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.