ClearSign Technologies Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 17, 2021. ClearSign develops combustion and fuel-safety technologies, including ClearSign Core, for industrial and commercial applications. Its technologies remained in field development, with limited commercial installations and nominal operating revenue.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $363,000 | $0 |
| Gross profit | $138,000; approximately 38% gross margin | $0 |
| Operating expenses | $2.159 million | $1.963 million, up 10% |
| Net loss | $2.021 million in the financial statements | $1.963 million; loss per share was $0.07 in both periods |
| Operating cash flow | $(1.513) million | $(1.390) million |
| Cash and cash equivalents | $10.725 million at March 31, 2021 | $8.824 million at December 31, 2020 |
| Working capital | $10.562 million | $8.302 million at December 31, 2020 |
At March 31, total liabilities were $1.626 million, including a $251,000 Paycheck Protection Program (PPP) loan and $699,000 of lease liabilities ($193,000 current and $506,000 long-term). The company reported total assets of $13.494 million and equity of $11.868 million.
Changes and cash funding
- The quarter’s revenue came from delivery of a burner under a product contract with an infrastructure company. Q1 2020 had no revenue or cost of goods sold.
- Research and development expense rose 2% to $826,000, primarily due to field testing and laboratory costs. General and administrative expense increased 16% to $1.333 million, primarily reflecting higher share-based compensation, partly offset by reduced consulting services.
- ATM stock sales and option and warrant exercises provided $3.502 million of financing cash flow. The company sold 940,748 shares through its ATM at an average $4.93 per share; approximately $1.1 million of proceeds related to shares sold by quarter-end was received in April.
- Investing cash outflow was $88,000, mainly for fixed assets and patent development. Cash increased by $1.901 million during the quarter.
Outlook, risks and other matters
- Management stated that available funds were sufficient to operate at current levels for at least 12 months from the report’s issuance, but additional capital would be needed to continue beyond that period. The company expects operating losses and negative cash flows for the foreseeable future and has no committed source of financing.
- Meaningful revenue depends on further technology development, market acceptance and successful installations. Potential funding sources include equity or debt financing, co-development or strategic partnerships, and licensing or selling intellectual property; none is assured.
- COVID-19 restrictions and travel limitations delayed China product development, demonstrations and certification, and may have prolonged other projects. Partner and supplier delays also affected projects. The company said remote-work arrangements had not caused a major operational impact to date.
- The PPP loan bears 1% interest, matures May 7, 2022, and forgiveness was pending; the company cautioned that forgiveness was not assured. FINRA notified the company on April 1, 2021 that it had concluded its investigation of trading around a June 2020 ExxonMobil purchase-order announcement without findings.
- No material pending legal proceeding was identified. Management reported disclosure controls and procedures were effective as of March 31, 2021.
- The filing’s results section reports net loss of $2.021 million, while MD&A states $2.012 million. The financial statements also show cost of goods sold of $225,000 and gross profit of $138,000; the revenue note and MD&A describe $250,000 of burner costs, other costs and a $51,000 warranty-accrual reversal. These presentation differences warrant reconciliation.
Important facts for investors to verify
- Reconcile the net-loss and cost-of-goods-sold figures between the financial statements, notes and MD&A.
- Track subsequent revenue, customer installations and evidence of commercial acceptance, given limited operating revenue to date.
- Assess cash use and the timing and terms of any additional financing; the company’s 12-month liquidity statement is based on operating at current levels.
- Check the status of PPP loan forgiveness and the implications if any amount is not forgiven.
- Monitor COVID-related project and supplier delays, as well as the company’s dependence on equity financing and potential dilution from share-based compensation and future stock issuance.