ClearSign Technologies (CLIR) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended June 30, 2019 Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q2 2019 show decreased assets and equity, no sales, an increased net loss, and highlight liquidity risks and a patent impairment Condensed Consolidated Balance Sheets Total assets decreased to $14.24 million from $18.64 million, and stockholders' equity declined to $12.70 million by June 30, 2019, primarily due to reduced short-term investments and accumulated deficit Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 9,657,000 | 8,949,000 | | Short-term investments | 1,988,000 | 6,923,000 | | Total current assets | 12,316,000 | 16,411,000 | | Total Assets | 14,240,000 | 18,637,000 | | Liabilities & Equity | | | | Total current liabilities | 1,457,000 | 1,637,000 | | Total Liabilities | 1,536,000 | 1,728,000 | | Total stockholders' equity | 12,704,000 | 16,909,000 | | Total Liabilities and Stockholders' Equity | 14,240,000 | 18,637,000 | Condensed Consolidated Statements of Operations The company reported no sales for the six months ended June 30, 2019, resulting in a net loss of $4.76 million, a slight increase from the prior year, though loss per share improved Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended June 30, 2019 ($) | Three Months Ended June 30, 2018 ($) | Six Months Ended June 30, 2019 ($) | Six Months Ended June 30, 2018 ($) | | :--- | :--- | :--- | :--- | :--- | | Sales | - | - | - | 530,000 | | Gross profit (loss) | - | (20,000) | (1,000) | 115,000 | | Total operating expenses | 2,447,000 | 2,370,000 | 4,823,000 | 4,783,000 | | Loss from operations | (2,447,000) | (2,390,000) | (4,824,000) | (4,668,000) | | Net loss | (2,426,000) | (2,389,000) | (4,755,000) | (4,667,000) | | Net loss per share | (0.09) | (0.11) | (0.18) | (0.24) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $16.91 million to $12.70 million by June 30, 2019, primarily due to the $4.76 million net loss for the period - Total stockholders' equity decreased by approximately $4.2 million in the first six months of 2019, from $16,909,000 to $12,704,000[15] - The primary driver of the decrease in equity was the net loss of $4,755,000 for the six months ended June 30, 2019[12][15] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $3.97 million, offset by $4.68 million provided by investing activities, leading to a $0.71 million increase in cash and cash equivalents by June 30, 2019 Cash Flow Summary for the Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (3,967,000) | (4,581,000) | | Net cash provided by (used in) investing activities | 4,675,000 | (230,000) | | Net cash provided by financing activities | - | 11,923,000 | | Net increase in cash and cash equivalents | 708,000 | 7,112,000 | | Cash and cash equivalents, end of period | 9,657,000 | 8,359,000 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's combustion technology business, highlight significant liquidity risks, outline accounting policies, report a $396,000 patent impairment, and describe CEO compensation arrangements - The company's technologies are in field development and have generated nominal revenues to date. Management acknowledges dependence on obtaining additional funding to continue as a going concern[23] - Revenue is recognized upon project completion when performance obligations related to air emissions and operational performance are satisfied and successfully tested[28] - An impairment charge of $396,000 was recorded during the quarter ended June 30, 2019, related to the company's patent portfolio[61] - The company entered into an employment agreement with a new President and CEO, which includes a $350,000 annual salary, inducement stock options, and relocation expense reimbursements[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the shift to a B2B licensing model for Duplex™ technology, reporting no revenue, decreased R&D, increased G&A due to patent impairment, and asserts sufficient liquidity for the next twelve months Overview and Business Model The company develops Duplex™ combustion technology to improve emissions and efficiency, shifting to a B2B licensing model for its "ClearSign Core™" to major equipment vendors - The company's primary technology, Duplex™, uses a porous ceramic matrix to reduce flame length and achieve very low emissions without requiring external flue gas recirculation or selective catalytic reduction[85] - The business strategy is to sell its technology business-to-business, similar to a license, to alliance companies that manufacture and deliver the final equipment to customers[97] Results of Operations No revenue was reported for the six months ended June 30, 2019, with operating expenses increasing 1% to $4.82 million due to a $396,000 patent impairment, leading to a 2% higher net loss of $4.76 million Comparison of Operations for the Six Months Ended June 30 | Metric | 2019 ($) | 2018 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | - | 530,000 | -100% | | R&D Expenses | 1,766,000 | 2,153,000 | -18% | | G&A Expenses | 3,057,000 | 2,630,000 | +16% | | Total Operating Expenses | 4,823,000 | 4,783,000 | +1% | | Net Loss | 4,755,000 | 4,667,000 | +2% | - The increase in G&A expenses was mainly due to a review of the patent portfolio which resulted in impairment charges of $396,000[120] Liquidity and Capital Resources Cash and cash equivalents totaled $9.66 million as of June 30, 2019, deemed sufficient for twelve months of operations, despite a decrease in working capital to $10.86 million due to cash used in operations - The company's cash and cash equivalent balance was $9,657,000 at June 30, 2019[125] - Management believes the current cash balance is sufficient to fund operations for at least twelve months from the filing date of the report[125] - Working capital decreased from $14,774,000 at December 31, 2018, to $10,859,000 at June 30, 2019, due to funds used in operations and investments[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk[133] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[134] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2019[135] PART II OTHER INFORMATION This section provides information on legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business, financial condition, or operating results - The company is not aware of any legal proceedings or claims that would have a material adverse effect on its business[139] Item 1A. Risk Factors This section incorporates prior risk factors and introduces a new one concerning potential negative impacts from cybersecurity incidents or technology disruptions on trade secrets and sensitive information - A new risk factor was added regarding cybersecurity incidents, which could lead to business disruption, brand damage, and potential liability from the theft or release of confidential information[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued 2,500 shares of common stock to its investor relations firm on June 30, 2019, for services rendered, valued at $1.44 per share - The company issued 2,500 shares of common stock to its investor relations firm for services rendered in Q2 2019[142] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications, XBRL data, and incorporates previously filed documents by reference