ClearSign Combustion Corporation (Nasdaq: CLIR) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; financial statements are unaudited. The filing registrant is ClearSign Combustion Corporation.
Business context
The company develops combustion technologies intended to improve emissions, operating performance, and efficiency, including Duplex and Electrodynamic Combustion Control. Technologies remain in field development and early commercialization; revenue to date has been nominal. The company is pursuing customer projects and potential OEM or other supply collaborations, but reported no collaboration agreements in place.
Key financial metrics
| Metric | Q1 2019 / March 31, 2019 | Comparable period / December 31, 2018 |
|---|---|---|
| Revenue | $0 | $530,000 in Q1 2018 |
| Gross profit (loss) | $(1,000) | $135,000 in Q1 2018 |
| Operating expenses | $2.376 million | $2.413 million in Q1 2018 |
| Loss from operations | $(2.377) million | $(2.278) million in Q1 2018 |
| Net loss | $(2.329) million; $(0.09) per share | $(2.278) million; $(0.13) per share in Q1 2018 |
| Cash used in operating activities | $2.022 million | $1.860 million in Q1 2018 |
| Cash and cash equivalents | $6.771 million | $8.949 million at December 31, 2018 |
| Short-term investments | $6.967 million | $6.923 million at December 31, 2018 |
| Working capital | $12.700 million | $14.774 million at December 31, 2018 |
| Total liabilities | $1.573 million, including $255,000 in lease liabilities | $1.728 million at December 31, 2018 |
There was no reported interest-bearing debt. The filing reports lease liabilities, but no debt balance. Cash used in investing activities was $156,000, primarily for patents and other intangible assets. There were no financing cash flows in Q1 2019; Q1 2018 included $11.923 million of net stock-offering proceeds. Gross margin was not meaningful in Q1 2019 because there was no revenue and the company recorded $1,000 of warranty costs.
Material changes versus Q1 2018
- Revenue fell from $530,000 to zero; the prior-year revenue came from completed flare projects. The company recorded a $1,000 gross loss in Q1 2019 versus $135,000 gross profit in Q1 2018.
- Operating expenses decreased $37,000 overall. Research and development expense declined $232,000, attributed mainly to lower field-testing and development costs and $108,000 of research grant funding. General and administrative expense increased $195,000, primarily due to intellectual-property costs, amortization, professional fees, and compensation.
- Operating loss increased $99,000 and net loss increased $51,000. Net loss per share improved from $0.13 to $0.09, while weighted-average shares rose from 17.7 million to 26.7 million.
- Operating cash outflow increased $162,000. Cash and cash equivalents declined $2.178 million from year-end, while short-term investments were broadly stable.
Outlook, risks, and unusual items
- Management expected available cash and cash equivalents to fund ongoing activities for at least 12 months from the filing date, assuming expenses did not increase significantly and there were no material acquisitions. The company also disclosed recurring losses, expected future operating losses and negative cash flows, no committed financing source, and dependence on future funding or strategic arrangements; it cautioned that continued operation as a going concern is not assured.
- Commercial success depends on further technology development, market acceptance, successful installations, and the ability to obtain financing. Management described plans for continued field testing, development of applications, and pursuit of OEM or other collaboration arrangements, without providing quantified revenue or earnings guidance.
- On April 17, 2019, Nasdaq notified the company that its share price did not meet the $1.00 minimum bid requirement. The company had until October 14, 2019 to regain compliance and said it would consider alternatives. Failure to comply could result in delisting and impair access to capital.
- Colin James Deller became CEO on April 1, 2019, following his January employment agreement. Terms included a $350,000 annual salary, options covering 600,000 shares, relocation expenses capped at $100,000, and a relocation adjustment of up to $6,000 monthly for up to four years.
- During Q1, the company granted 600,000 inducement options to its incoming CEO and 400,000 employee options under its equity plan. The quarter also included $233,000 of share-based compensation. These awards may contribute to future dilution.
- The company reported no material pending legal proceedings and no off-balance-sheet transactions. Management assessed disclosure controls as effective as of March 31, 2019.
Important facts for investors to verify
- Whether cash burn, including operating and investing outflows, remains consistent with management’s stated 12-month funding expectation.
- Progress toward commercial installations, customer acceptance, and any signed OEM, licensing, or supply agreements.
- Whether the company regained Nasdaq’s minimum bid-price compliance by the deadline and met other continued-listing requirements.
- Future financing needs, potential equity dilution, and the effect of outstanding options and warrants.
- Whether revenue recognition upon successful testing and project completion affects the timing and variability of reported revenue.