ClearSign Technologies Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. ClearSign develops combustion and fuel-safety technologies; its ClearSign Core technology remained in field development. The company reported no revenue in either 2020 or 2019 comparable period.
Financial results and position
| Metric | Q2 2020 | Six months 2020 | Comparable 2019 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Gross profit (loss) | $153,000 | $153,000 | $0; $(1,000), respectively |
| Operating expenses | $1.589 million | $3.552 million | $2.447 million; $4.823 million |
| Operating loss | $(1.436) million | $(3.399) million | $(2.447) million; $(4.824) million |
| Net loss | $(1.391) million | $(3.354) million | $(2.426) million; $(4.755) million |
| Basic and diluted loss per share | $(0.05) | $(0.13) | $(0.09); $(0.18) |
The 2020 gross profit reflects a $153,000 reversal of warranty accruals for expired warranties on six earlier projects, not sales. Q2 operating expenses fell 35% year over year; first-half expenses fell 26%. Management attributed the reductions mainly to lower field-testing costs and lower share-based compensation, consulting, and legal expenses. Q2 other income included a nonrecurring $44,000 sale of spare parts. First-half interest income was $1,000, down from $69,000 in 2019 as Treasury-bill proceeds were used in operations.
At June 30, cash and cash equivalents were $5.672 million, down $2.880 million from December 31, 2019. Working capital was $5.064 million, versus $7.684 million at year-end. Total assets were $8.132 million and total liabilities were $1.790 million. Liabilities included $520,000 of lease liabilities and a $251,000 PPP loan; no other significant borrowing is identified in the provided filing text. First-half operating cash use was $3.037 million, investing cash use was $116,000, and financing provided $273,000, including the PPP loan and stock-option exercises.
Material changes, outlook, and risks
- Going concern and funding: Management said current funds are insufficient to sustain operations at current levels for at least 12 months from the filing date and disclosed substantial doubt about the company’s ability to continue as a going concern. The company expects continuing losses and negative cash flows and has no committed financing source; it may seek equity or debt financing, partnerships, or asset licensing or sales.
- Commercialization and COVID-19: Pandemic-related limits on travel, suppliers, contractors, and parts delayed development and demonstrations. Management anticipated the fire-tube boiler burner product could be delayed until fall 2020 or later, with China water-tube development potentially delayed beyond the next heating season. Potential related revenue could also be delayed. The filing gives no numerical revenue or earnings guidance.
- PPP loan: The company received $250,832 in May 2020 under a two-year loan bearing 1% interest. It intended to use proceeds for eligible expenses and apply for forgiveness; forgiveness was not assured.
- Contingencies and investigations: Prairie Star National sent a notice and a $3 million invoice relating to an unclear claim possibly connected to a former CEO and his former spouse. ClearSign said it believed it had no liability and would defend any action; it reported no known court filing. Separately, FINRA notified the company of an investigation into trading around its June 15 announcement of an ExxonMobil purchase order. The company said it was cooperating and that no findings had been communicated.
- Other operating context: The company reported 14 full-time employees. Management said remote work and reduced office staffing had not materially impaired operations to date, though project timelines were affected.
Important facts for investors to verify
- Available cash, actual operating burn, and financing raised after the filing date; the company expressly warned it lacked a 12-month runway at current operating levels.
- Progress and timing of the boiler and burner demonstrations, commercialization, and any revenue associated with the ExxonMobil purchase order.
- Whether the PPP loan was forgiven and any remaining repayment obligations.
- Developments in the $3 million Prairie Star National claim and the FINRA trading investigation.
- Potential dilution: 2,675,744 stock options were outstanding at June 30, 2020, in addition to 80,000 warrants; options and warrants are not equivalent to issued shares.