ClearSign Combustion Corporation — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013; filed March 11, 2014. ClearSign is a development-stage company developing combustion and emissions-control technologies, including Electrodynamic Combustion Control (ECC) and Duplex burners. Its technologies had not been commercially deployed or independently verified, and the company reported no significant revenue since inception.
Financial performance and position
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $93,000 | $0 |
| Cost of revenue / gross profit | $88,000 / $5,000 | $0 / $0 |
| Research and development expense | $1.851 million | $1.184 million |
| General and administrative expense | $3.450 million | $3.026 million |
| Total operating expenses | $5.301 million | $4.210 million |
| Operating loss / net loss | $5.296 million / $5.285 million | $4.210 million / $4.189 million |
| Operating cash used | $4.297 million | $3.188 million |
| Cash and cash equivalents at year-end | $2.688 million | $8.027 million |
| Working capital at year-end | $1.923 million | $7.643 million |
At December 31, 2013, total assets were $4.702 million, total liabilities were $914,000, and stockholders’ equity was $3.788 million. The balance sheet showed no outstanding debt; earlier promissory notes had been repaid. Investing activities used $1.081 million, including $845,000 for patents and other intangible assets. No meaningful operating margin is established by the limited co-development revenue; gross profit was only $5,000. Accumulated deficit was $13.964 million.
Changes versus FY2012
- Revenue rose from zero to $93,000, from a Covanta solid-fuel burner co-development project; the filing also describes a commercial wood-pellet boiler unit from Grandeg. The company cautions that further revenue or agreements are not assured.
- Operating expenses increased $1.091 million, led by higher R&D staffing and laboratory costs, plus business-development and public-company expenses. Net loss increased $1.096 million.
- Operating cash use increased $1.109 million. Year-end cash fell by $5.339 million, while working capital declined by $5.720 million.
Outlook, risks, and unusual items
- In March 2014, after year-end, ClearSign sold 812,500 shares at $8.00 per share, raising $6.5 million gross and approximately $5.7 million net. Management expected cash to fund activities through at least January 2015. Planned uses included R&D, intellectual-property protection, business development and marketing, and working capital.
- Management anticipated approximately $0.5 million in annual capital expenditures, with spending dependent on development and co-development needs. The company expects continuing losses and negative cash flow and may need further financing; it warns that failure to obtain funds could force cutbacks or suspension of operations.
- Key execution risks include scaling and demonstrating the technology at commercial sites, customer acceptance, competition from established suppliers, permitting, safety, manufacturing, and obtaining enforceable intellectual-property protection. As of year-end, ClearSign had filed 145 patent applications but had received no patents.
- A former legal adviser’s related investment partnership claimed a right to acquire 25,250 shares for $0.02 per share. The company disputes the claim, citing a prior settlement; it reported no further communication since March 2012. No other pending legal proceedings were reported.
- The company recorded a $4,000 impairment for an abandoned capitalized patent. A 100% valuation allowance was maintained against deferred tax assets. The auditor issued an unqualified opinion on the financial statements; management stated disclosure controls and internal control over financial reporting were effective. The auditor was not engaged to opine on internal-control effectiveness.
Most important facts for investors to verify
- Whether the March 2014 offering proceeds and management’s stated January 2015 cash runway align with actual cash burn and development spending.
- Whether commercial-scale and site demonstrations succeed, and whether customers or partners enter binding agreements that generate repeatable revenue.
- Progress, costs, and outcomes of the patent applications, including whether any patents are issued and provide meaningful protection.
- Current cash requirements, prospective financing plans and dilution, and any developments in the disputed share-acquisition claim.