ClearSign Combustion Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2014. The filing identifies the registrant as ClearSign Combustion Corporation.
Business context
The company develops combustion technologies intended to improve energy efficiency and emissions control, including Electrodynamic Combustion Control and Duplex. It reported no revenue for the three- or six-month periods ended June 30, 2014 or 2013 and has generated no significant revenue since inception.
Financial highlights
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $556,000 | $537,000 | $1,163,000 | $995,000 |
| General and administrative expense | $1,072,000 | $871,000 | $2,113,000 | $1,774,000 |
| Total operating expenses | $1,628,000 | $1,408,000 | $3,276,000 | $2,769,000 |
| Net loss | $1,626,000 | $1,405,000 | $3,273,000 | $2,762,000 |
| Basic and diluted loss per share | $0.17 | $0.16 | $0.35 | $0.31 |
| Cash used in operating activities | Not separately reported by quarter | $3,111,000 | $2,386,000 |
At June 30, 2014, cash and cash equivalents were $4.731 million, up from $2.688 million at December 31, 2013. Working capital was $4.211 million, versus $1.923 million at year-end. Total liabilities were $770,000; the filing reports no debt balance. No meaningful operating margin is available because the company reported no revenue.
Changes versus prior periods
- Q2 operating expenses rose $220,000 year over year; first-half expenses rose $507,000. Management attributed the increases mainly to higher business development and marketing spending and increased personnel compensation.
- First-half net loss increased $511,000 year over year, while operating cash use increased $725,000.
- Cash increased primarily because of a March 2014 registered direct offering: 812,500 shares sold at $8.00 each for $6.5 million gross and approximately $5.8 million net proceeds. Offering costs were approximately $812,000.
- Patent and other intangible assets increased to $2.030 million from $1.459 million at year-end. The company spent $579,000 on patents and intangible assets in the first half and recorded an $8,000 patent-abandonment impairment.
Outlook, risks and other items
- Management expected available funds to support activities at least through January 2015. It anticipated approximately $500,000 in annual capital expenditures, subject to development activity, and planned continued spending on research, intellectual property, and business development.
- The company expects operating losses and negative cash flow for the foreseeable future. It has no committed financing source and may seek equity or debt financing, co-development arrangements, or licensing or sale of intellectual property. If funding is inadequate, it may reduce, curtail, or suspend operations.
- A subsequent-event Field Test Agreement with a Southern California company calls for a Duplex retrofit and performance demonstration on a once-through steam generator. Potential future purchase terms apply only if testing is successful and the customer elects to proceed.
- Through June 30, the company had received $93,000 in co-development revenue from Covanta and Grandeg, but the filing reports no revenue recognized in the presented periods and gives no assurance of further revenue or agreements.
- Management stated disclosure controls were effective as of June 30, 2014, with no material change in internal control over financial reporting during the quarter. No legal proceedings were reported.
Important facts for investors to verify
- Whether the field test meets performance criteria and leads to commercial orders or recurring revenue.
- Cash burn, funding runway, and whether additional financing will be needed before or after the stated January 2015 runway.
- Progress and commercial viability of ECC and Duplex technologies, including customer adoption and co-development arrangements.
- Future R&D, marketing, and intellectual-property costs, and the potential impact of equity issuance and stock-based compensation on dilution.
- Patent application outcomes and whether capitalized patent costs remain recoverable.