ClearSign Technologies Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. ClearSign develops combustion and fuel-safety technologies, including ClearSign Core, which remained in field development. The company reported no sales in the quarter or the first nine months of 2020.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Gross loss | $180,000 | $0 | $27,000 | $1,000 |
| Operating expenses | $1.497 million | $2.138 million | $5.049 million | $6.962 million |
| Operating loss | $1.677 million | $2.138 million | $5.076 million | $6.963 million |
| Net loss | $1.677 million | $2.108 million | $5.031 million | $6.863 million |
| Basic and diluted loss per share | $0.06 | $0.08 | $0.19 | $0.26 |
Q3 2020 cost of goods sold included $180,000 associated with a project expected to incur a loss upon completion and another project deemed potentially uncollectible. Nine-month cost of goods sold was offset by $153,000 of warranty-accrual reversals. Gross margin is not meaningful with no reported revenue.
Cash, liquidity and capital
- Cash and cash equivalents were $10.647 million at September 30, 2020, versus $8.552 million at December 31, 2019. Working capital was $9.714 million, compared with $7.684 million.
- For the first nine months, operating cash outflow was $4.143 million; investing cash outflow was $155,000; and financing cash inflow was $6.393 million. Financing included $6.053 million net stock proceeds, $89,000 from option exercises and a $251,000 PPP loan.
- The August public offering and September private placement raised approximately $6.1 million net in total. The company issued 3,241,925 shares at $2.00 per share; outstanding shares were 30,043,186 at quarter-end, up from 26,707,261 at year-end 2019.
- Total liabilities were $2.152 million, including $467,000 of lease liabilities and a $251,000 PPP loan. The PPP loan carries 1% interest, matures in May 2022, and may be forgiven in whole or in part; forgiveness was not assured.
Changes and management outlook
- Nine-month operating expenses fell 27% year over year, reflecting lower research and development and general and administrative costs. Net loss decreased 27%. Q3 operating expenses declined 30%, but net loss improved 20% partly because 2019 included $30,000 of quarterly interest income.
- Management said cash on hand was sufficient to fund operations at current levels for at least 12 months from the report’s November 13, 2020 issuance date. The company expects to need additional capital thereafter and has no committed financing source.
- COVID-19 restrictions, limited travel, and supplier and contractor availability delayed development and demonstration projects. Management said the fire-tube boiler burner timeline could extend beyond year-end 2020 and the China water-tube project was expected to continue beyond the heating season, delaying potential revenue.
- The filing identifies substantial uncertainty: the company had accumulated losses of $73.020 million, expected continued operating losses and negative cash flows, and depended on product development, market acceptance, successful sales and additional funding to support operations and its long-term plans.
Risks, contingencies and unusual items
- FINRA notified the company that it was investigating trading in its securities surrounding the June 15, 2020 announcement of an ExxonMobil purchase order. The company said it had responded to information requests and was cooperating; no findings were reported.
- The company received a purported $3 million invoice and notice of intent to file a lien from Prairie Star National. It said the basis of the claim was unclear, denied believing it had liability, and stated it would vigorously defend any action. No court filing was known to the company.
- The company reported no material pending legal proceedings it believed would materially harm its business, financial condition or results. It also noted risks from COVID-19, financing needs, commercialization, competition, regulation and customer acceptance.
Important facts for investors to verify
- Whether the company converts its development projects and purchase orders into completed installations, recognized revenue and collectible customer payments.
- Actual cash burn and financing needs relative to management’s stated 12-month funding outlook, including any subsequent capital raises or dilution.
- The status and potential repayment or forgiveness of the PPP loan.
- Any developments in the FINRA inquiry or the disputed $3 million claim.
- Whether COVID-related project delays, supplier constraints or market conditions further affect commercialization and revenue timing.