ClearSign Combustion Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The filing is unaudited. ClearSign develops combustion technologies, including Duplex and Electrodynamic Combustion Control (ECC), and has generated no revenue in the nine-month periods presented.
Financial highlights
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $815,000 | $673,000 | $2,102,000 | $1,836,000 |
| General and administrative | $1,154,000 | $1,049,000 | $3,269,000 | $3,162,000 |
| Total operating expenses | $1,969,000 | $1,722,000 | $5,371,000 | $4,998,000 |
| Net loss | $1,961,000 | $1,721,000 | $5,340,000 | $4,994,000 |
| Net loss per share | $0.15 | $0.18 | $0.43 | $0.53 |
- Cash and cash equivalents were $12.683 million at September 30, 2015, versus $1.845 million at December 31, 2014. Working capital was $11.577 million, compared with $719,000.
- Nine-month operating cash use was $4.800 million; investing cash use was $925,000; financing provided $16.563 million. Ending cash increased by $10.838 million.
- The February 2015 stock offering raised $17.491 million gross and approximately $16.279 million net. The company also received $284,000 from option exercises.
- Total liabilities were $1.455 million, primarily accrued compensation and accounts payable. The balance sheet reports no borrowings or other debt.
- Total assets were $16.323 million; stockholders’ equity was $14.868 million. Patents and other intangible assets, net, were $3.248 million.
- Operating margins are not meaningful because the company reported no revenue. The filing does not provide a profitability or cash-runway estimate.
Changes versus prior comparable periods
- Q3 operating expenses rose $247,000, and net loss increased $240,000. Nine-month operating expenses rose $373,000, and net loss increased $346,000.
- Management attributed higher R&D costs mainly to increased Duplex field testing. Higher G&A reflected CEO-related stock option and relocation costs, partly offset by lower travel, consulting, and patent-abandonment costs.
- Cash increased substantially following the 2015 offering, while operating cash use increased to $4.800 million from $4.293 million in the prior-year nine-month period.
- Common shares issued and outstanding were 12.820 million at September 30, 2015, compared with 9.681 million at December 31, 2014. The filing reports 12,860,161 shares outstanding as of November 12, 2015.
Business developments, outlook, and risks
- ClearSign reported that Duplex testing on a once-through steam generator achieved NOx emissions of no more than 5 ppm under the cited district rule at 52 million BTU/hr. Management estimated potential energy savings of 3–4% versus systems using flue gas recirculation; these are company estimates, not reported realized results.
- The company received an order in May to retrofit a 25 million BTU/hr unit, expected to be completed in the second half of 2015. Its original demonstration customer placed an initial commercial order in September for a second unit, expected to be completed in 2016.
- ClearSign signed evaluation or installation agreements with Tesoro and a Delek subsidiary, and was conducting additional refinery field tests. Some prospective customer agreements require successful testing before a purchase obligation arises.
- Management expects operating losses and negative cash flows for the foreseeable future. Funding may be sought through equity or debt financing, co-development arrangements, or licensing or sale of intellectual property; there is no assurance these sources will be available or sufficient. The company warned it could reduce, curtail, or suspend operations if funding is inadequate.
- The company stated that it had no significant revenue to date and no committed source of future financing. Key risks include commercialization and customer acceptance, technology and competitive developments, manufacturing capability, and ability to raise capital.
- Notable obligations include a former CEO termination liability of $469,000 payable through December 2016, lease minimum payments of $214,000 through February 2017, and commitments under the current CEO’s employment agreement. No material legal proceedings were identified; the company reported no off-balance-sheet transactions.
Important facts for investors to verify
- Whether the reported customer orders and refinery projects were completed, met performance criteria, and generated revenue or repeat business.
- Actual commercial economics and independently validated emissions and energy-savings claims for Duplex applications.
- Cash burn and remaining funding runway, including the availability and terms of any additional financing; the filing does not quantify runway.
- Potential dilution from future equity financing, outstanding options and warrants, and the remaining shelf registration capacity, stated as $6.009 million after the February offering.
- Execution of the ECC research program and whether it leads to field demonstrations, commercial agreements, or revenue.