ClearSign Combustion Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. The filing identifies the registrant as ClearSign Combustion Corporation. It is a development-stage company developing combustion technologies; it has not begun planned principal operations and has generated no operating revenue.
Financial performance and position
| Metric | Q1 2013 / March 31, 2013 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None since inception | None |
| Research and development expense | $458,000 | $264,000 in Q1 2012 |
| General and administrative expense | $903,000 | $600,000 in Q1 2012 |
| Total operating expenses / operating loss | $1.361 million | $864,000 in Q1 2012 |
| Net loss | $1.357 million; $0.15 per share | $865,000; $0.17 per share in Q1 2012 |
| Cash and cash equivalents | $6.655 million | $8.027 million at December 31, 2012 |
| Working capital | $6.223 million | $7.643 million at December 31, 2012 |
| Total assets | $8.092 million | $9.115 million at December 31, 2012 |
| Total liabilities | $624,000 | $479,000 at December 31, 2012 |
Operating cash outflow was $1.069 million; investing cash outflow was $303,000, primarily for equipment and patents; financing cash flow was zero. No revenue or gross margin was reported, so operating margins are not meaningful. The balance sheet reports no debt; liabilities were principally accounts payable, accrued compensation and deferred rent.
Material changes versus Q1 2012 and prior year-end
- Operating expenses rose $497,000, and net loss widened by $492,000. R&D expense increased $194,000, primarily from higher personnel costs and depreciation. G&A increased $303,000; the company attributed $296,000 of Q1 2013 expense to operating as a public company.
- Cash declined $1.372 million from year-end, while working capital fell $1.420 million. Q1 operating and investing cash outflows exceeded the prior-year quarter’s levels.
- Shares issued and outstanding increased from 8,752,015 at year-end to 8,782,015 at March 31. The filing reports 8,793,265 shares outstanding as of May 6, 2013.
Outlook, commentary, risks and unusual items
- Management expected existing funds to support activities at least through April 2014. It also warned that the company has no committed financing, may need additional capital, and could scale back or suspend operations if financing is unavailable. The filing’s risks include commercialization, customer acceptance, competition, manufacturing, and achieving profitability.
- In April 2013, the company announced its intention to enter a development agreement with Grandeg for ECC-based solutions for biomass boilers. Grandeg indicated intent to provide up to $500,000 for an initial phased project, with a potential first commercial solution targeted for 2014. A definitive agreement was expected by June 2013, but execution and funding were not assured.
- On May 6, 2013, the company filed an S-3 shelf registration that, if declared effective, would permit offerings of up to $30 million of common stock, preferred stock or warrants. This is a potential financing source, not completed funding.
- A former legal adviser’s related party claimed a right to acquire 25,250 shares at $0.02 per share. The company denied the claim, asserting that amounts owed had been settled. The filing reports no other applicable legal proceedings.
- Other notable commitments include a facility lease with minimum future payments of $445,000 as of March 31, 2013, and annual independent-director compensation of $300,000, half payable in stock. The company also disclosed consulting payments to an organization led by its Chief Science Officer, who is a director, co-founder and significant beneficial owner.
Important facts for investors to verify
- Whether the Grandeg development agreement was executed, what funding and milestones it provides, and whether commercialization targets remain achievable.
- Actual cash runway and quarterly cash burn relative to management’s estimate through April 2014, including planned R&D, hiring and capital spending.
- Whether the shelf registration became effective and whether any securities were issued, including the resulting dilution and use of proceeds.
- Progress toward revenue, product validation, manufacturing readiness and customer adoption; the filing reports no operating revenue.
- Resolution of the former-adviser share claim and the effect of equity compensation, warrants and other potential dilution.