ClearSign Combustion Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013; filed November 11, 2013. The filing identifies ClearSign Combustion Corporation as a development-stage company developing combustion-efficiency and emissions-control technologies, including ECC and Duplex. It reported no significant operating revenue since inception before this quarter.
Financial results and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $50,000 | $0 | $50,000 | $0 |
| Gross profit | $16,000 | $0 | $16,000 | $0 |
| Operating expenses | $1.381 million | $1.142 million | $4.151 million | $3.032 million |
| Operating loss | $1.365 million | $1.142 million | $4.135 million | $3.032 million |
| Net loss | $1.362 million | $1.132 million | $4.125 million | $3.017 million |
| Basic and diluted loss per share | $0.15 | $0.13 | $0.47 | $0.42 |
- Q3 gross margin was 32% ($16,000 gross profit on $50,000 revenue); the filing gives no meaningful prior-year comparison because there was no revenue.
- At September 30, cash and cash equivalents were $3.989 million, down from $8.027 million at December 31, 2012. Current assets were $4.214 million and current liabilities $911,000, yielding working capital of $3.303 million.
- Total assets were $5.856 million; total liabilities were $944,000, including $911,000 current liabilities. No outstanding debt balance was reported.
- Nine-month cash used in operations was $3.305 million; investing cash outflow was $772,000; financing cash inflow was $39,000. Cash declined by $4.038 million during the period.
- Accumulated development-stage deficit was $12.804 million. Shares outstanding were 8,810,674 at September 30, 2013.
Changes and management commentary
- The company recorded its first revenue in Q3: $50,000 from a solid-fuel burner co-development project. Management said work began based on a letter of intent and customer instruction before a definitive agreement was executed; further revenue or a final agreement was not assured.
- Year-to-date operating expenses rose $1.119 million year over year. R&D increased $579,000, primarily from personnel, testing materials and depreciation; G&A increased $540,000, including $320,000 in additional public-company costs and higher personnel and marketing costs.
- Management expected existing funds to support activities at least through April 2014. Planned annual capital expenditures were estimated at $0.5 million to $1.0 million, depending on co-development work. No profitability or revenue guidance was provided.
- The company had an effective shelf registration allowing offers of up to $30 million of common stock, preferred stock or warrants, but reported no committed financing source. Management stated that insufficient funding could require reduced development spending or curtailed or suspended operations.
Risks, contingencies and unusual items
- Key risks include limited cash, continuing losses, uncertain customer demand and technology commercialization, competition and rapid technological change, manufacturing capability, and the ability to raise additional financing.
- A former legal adviser asserted that a related partnership had a right to acquire 25,250 shares at $0.02 per share. The company denied the claim, citing a prior settlement; the filing reported no further communication since March 2012.
- The company had a facility lease through February 2017 with minimum future payments of $391,000, plus triple-net operating costs. CEO employment terms included potential severance if terminated without cause.
- A $4,000 impairment loss was recorded for an abandoned capitalized patent. Stock-based compensation and shares issued for services contributed to expenses and equity changes.
Most important facts to verify
- Whether the solid-fuel co-development project progressed to a definitive agreement and generated additional billings or revenue.
- Actual cash burn and financing needs relative to management’s stated runway through April 2014.
- Terms, availability and potential dilution from any use of the $30 million shelf registration.
- Commercial progress, customer adoption and independent validation of ECC and Duplex performance.
- Status of the former legal adviser-related share claim and any material changes in lease or executive severance obligations.