ClearSign Combustion Corporation — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. ClearSign develops combustion and emissions-control technologies, principally Duplex; commercial revenues remain nominal and depend on successful development, customer acceptance, and installations.
Financial results and liquidity
| Metric | Q3 2018 | Nine months 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | $0 | $530,000 | $0 for Q3; $360,000 for nine months |
| Gross profit (loss) | ($9,000) | $106,000 | ($15,000) for Q3; $94,000 for nine months |
| Operating expenses | $2.306 million | $7.089 million | $2.460 million for Q3; $7.213 million for nine months |
| Operating loss | ($2.315 million) | ($6.983 million) | ($2.475 million) for Q3; ($7.119 million) for nine months |
| Net loss | ($2.292 million) | ($6.959 million) | ($2.472 million) for Q3; ($7.087 million) for nine months |
| Basic and diluted loss per share | ($0.09) | ($0.32) | ($0.16) for Q3; ($0.46) for nine months |
Nine-month 2018 gross margin was approximately 20%. Revenue comprised completed flare projects, an OTSG project, and a small project. Q3 cost of goods sold was warranty expense despite no revenue.
- Cash and cash equivalents were $18.078 million at September 30, 2018, versus $1.247 million at year-end 2017. Working capital was $17.102 million, versus $263,000.
- Nine-month operating cash outflow was $6.323 million; investing outflow was $357,000. Financing provided $23.511 million, principally from February and July stock offerings.
- Total liabilities were $1.664 million, including $236,000 of lease liabilities. The filing reports no borrowing debt.
- Cash increased following net proceeds of approximately $11.9 million from a February public offering and $11.6 million from a July private offering. Shares outstanding rose to 26,660,980 from 15,608,853 at December 31, 2017.
Changes versus prior periods
Nine-month revenue rose to $530,000 from $360,000, while gross profit increased to $106,000 from $94,000. Operating expenses and net loss declined modestly year over year. Research and development expense fell, mainly due to lower field-testing and development costs; general and administrative expense increased, primarily from intellectual-property and personnel costs. Q3 revenue was zero in both years.
Outlook, commentary, and risks
- Management said available cash was expected to fund ongoing activities into 2020, assuming expenses did not increase significantly and there were no material acquisitions. The company expects operating losses and negative cash flow for the foreseeable future.
- The company has no committed financing source and may need additional equity or debt financing, partnerships, co-development arrangements, or licensing. Management cautioned that funding may not be available and that the company may have to reduce or cease operations if it cannot raise funds.
- Commercialization remains uncertain: Duplex has limited independent third-party testing, and meaningful revenue requires further development, market acceptance, and successful sales and installations. No licensing agreements had been signed.
- Management described completed flare installations and OTSG deployments, ongoing process-heater testing, and continued development of the Duplex Plug & Play product. These are development and commercialization efforts, not revenue or profitability guidance.
- CEO Stephen E. Pirnat announced his intention to retire on October 1, 2018; the board began a search for a successor. On November 6, the board separated the Chairman and CEO roles and elected Robert T. Hoffman Sr. as Chairman.
- The July investor agreement includes rights to purchase additional shares under specified conditions and to participate in future capital raises, creating potential dilution. The company reported no material legal proceedings, no material risk-factor changes from its 2017 Form 10-K, and effective disclosure controls.
Important facts for investors to verify
- Whether field tests and installations lead to repeat commercial orders, customer acceptance, and meaningful recurring revenue.
- Whether management’s conditional cash runway estimate remains valid as operating cash burn and development spending evolve.
- CEO succession, execution of commercialization plans, and progress toward any OEM licensing or strategic partnership agreements.
- Potential share dilution from equity financing, warrants, incentive plans, and the July investor’s contractual rights.
- Warranty costs and product performance as installed units operate over time; future warranty estimates could differ materially from actual costs.