ClearSign Technologies Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; financial figures below are in thousands of dollars unless stated otherwise.
Business context
ClearSign develops combustion and fuel-safety technologies intended to improve emissions, efficiency and operating performance. Its technologies remain in field development, with nominal fully operational commercial installations and limited revenue to date. The company reported 16 full-time employees and said its China operations were immaterial to the business.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $85 | $324 | $1,129 | $324 |
| Gross profit | $24 | $123 | $259 | $123 |
| Gross margin | 28.2% | 38.0% | 22.9% | 38.0% |
| Operating expenses | $1,521 | $1,558 | $5,089 | $4,735 |
| Operating loss | ($1,497) | ($1,435) | ($4,830) | ($4,612) |
| Net loss | ($1,332) | ($1,312) | ($4,239) | ($4,440) |
| Net loss per share | ($0.03) | ($0.03) | ($0.11) | ($0.13) |
- Q3 revenue came from a boiler burner sale. Nine-month 2023 revenue primarily reflected process-burner activity, including a customer witness test that satisfied a contractual performance obligation.
- Q3 gross profit declined year over year as the boiler burner sale carried a lower margin; management said pricing was reduced to encourage adoption. Nine-month gross profit increased, but margin fell because burner performance testing typically earns less than burner fabrication.
- Q3 net loss widened by $20; nine-month net loss narrowed by $201, primarily reflecting higher gross profit and other income.
- Cash and cash equivalents were $7,235 at September 30, 2023, versus $6,451 at December 31, 2022. Short-term Treasury investments declined from $2,606 to zero. Working capital was $4,947, down from $8,586.
- Operating cash outflow was $1,783 for the nine months, compared with $4,264 in 2022. The 2023 outflow was reduced in part by a $1,554 increase in contract liabilities, representing customer payments received ahead of future project costs. Investing activities provided $2,595, mainly from net Treasury redemptions; financing activities used $15.
- The company reported no contractual debt obligations. Lease liabilities totaled $264, including $78 current and $186 long term.
Material changes and unusual items
- Contract liabilities rose to $1,801 from $247 at year-end 2022; revenue recognized during the nine months included $120 from the opening liability balance.
- Other income was $591 for the first nine months, versus $172 in 2022. The increase included higher interest income, proceeds from Seattle office decommissioning activities and government assistance. A $79 realized gain on marketable securities was also reported in cash-flow reconciliation.
- General and administrative expense increased 7.1% year over year for the nine months. Management cited board-related RSU vesting, Seattle office decommissioning/refurbishment costs and inducement-option expense.
- The company recorded $14 of intangible-asset impairment in the nine-month period.
- In Q3, ClearSign received a Department of Energy Phase 2 award of $1.6 million over two years for development of a flexible-fuel, ultra-low-NOx process burner capable of burning 100% hydrogen. DOE reimbursements recognized were $95 for the nine months.
- No common shares were issued through the ATM during the nine months. As of September 30, the ATM had approximately $8.7 million of stated remaining offering capacity, subject to SEC “baby shelf” limits and market conditions. Shares outstanding were 38,565,836 as of November 6, 2023.
Outlook, risks and contingencies
Management said cash, together with expected collections, was sufficient to fund current operating expenses for more than 12 months from the filing. However, ClearSign expects operating losses and negative cash flows for the foreseeable future and has no committed financing source. It depends on commercialization, customer acceptance and access to funding through partnerships, customer arrangements or securities offerings; management cautioned that financing may not be available when needed. The filing provides no quantified revenue or earnings guidance.
Key risks include limited commercial adoption, technology development and competition, future financing availability and potential dilution, manufacturing and customer-demand challenges, intellectual-property protection, and doing business in China. The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material quarterly change in internal control over financial reporting.
Subsequent events included the November 6 hiring of a Chief Technology Officer with 150,000 inducement options at a $0.91 exercise price, and a director’s November 9 resignation. The filing said the resignation was not due to a disagreement with the company.
Investor facts to verify
- Whether the $1.6 million DOE Phase 2 award converts into eligible reimbursements on schedule, and what development milestones and matching costs apply.
- Whether the $1,801 contract-liability balance corresponds to funded, executable customer work and when it may convert to recognized revenue and cash margin.
- Commercial pipeline, repeat orders and installation progress, especially given nominal revenue and the lower-margin Q3 sale.
- Cash burn and runway assumptions behind management’s more-than-12-month liquidity statement, including the role of customer collections and potential financing.
- Practical ATM issuance capacity after baby-shelf restrictions, and the potential dilution from future equity sales and outstanding equity awards.