ClearSign Technologies Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited condensed consolidated results. ClearSign develops combustion and fuel-safety technologies, including ClearSign Core, for industrial and commercial applications. Its technologies remain in field development, with only nominal commercial installations and revenues to date.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $0 | $363,000 |
| Gross profit | $0 | $138,000; approximately 38% gross margin |
| Operating expenses | $1.517 million | $2.159 million, down $642,000 (29.7%) |
| Net loss | $1.490 million; $0.05 per share | $2.021 million; $0.07 per share |
| Cash used in operating activities | $1.503 million | $1.513 million |
| Cash and cash equivalents | $6.667 million at March 31 | $7.607 million at December 31, 2021 |
| Working capital | $6.553 million at March 31 | $7.293 million at December 31, 2021 |
| Total liabilities | $1.080 million, including $506,000 of lease liabilities | $1.081 million at December 31, 2021 |
Amounts are in U.S. dollars. No revenue was recognized in Q1 2022. The 2021 revenue came from delivery of a burner product. The balance sheet reports no borrowings; lease obligations are the principal disclosed liabilities. Q1 investing cash use was $15,000 net, and financing provided $578,000 net from ATM share sales. Cash declined by $940,000 during the quarter.
Material changes and notable items
- R&D expense fell $718,000 to $108,000, partly because three engineers were reassigned to business development, moving about $107,000 of salaries to G&A. Lower headcount, incentives, and product-development costs also contributed.
- G&A rose $76,000 to $1.409 million. Increased accounting costs included $122,000 for temporary professional support following the CFO’s death in July 2021; lower director compensation expense partly offset the increase.
- The company recorded a $23,000 gain from selling Seattle office equipment and $4,000 of other income. It relocated its headquarters from Seattle to Tulsa in January 2022.
- During the quarter, ClearSign issued approximately 496,000 shares through its ATM program, generating $578,000 net proceeds. It reported about 1.6 million ATM shares issued overall through March 31, for approximately $5.9 million in net proceeds. Shares outstanding were 32,154,746 at March 31 and 32,160,131 as of May 4, 2022.
Outlook, risks and contingencies
Management expects operating losses and negative cash flows for the foreseeable future. It stated that existing funds should support operations at current levels for at least 12 months from the report’s issuance, but anticipates needing additional capital thereafter. Potential funding sources include equity or debt financing, co-development or strategic-partner agreements, and licensing or sale of intellectual property. Management cautioned that financing may not be available when needed and that failure to obtain funding could require reduced spending or curtailed operations.
Commercialization depends on technology development, market recognition, customer acceptance, and successful sales and installations. Risks identified include competition and alternative technologies, regulatory changes, financing access, intellectual-property protection, China-related operating risks, and possible effects of the COVID-19 pandemic. The filing reports no material pending legal proceeding expected to have a material adverse effect and no off-balance-sheet transactions. Management concluded disclosure controls were effective at the reasonable-assurance level; no material change in internal control was reported.
No specific financial or revenue guidance was provided. The filing also disclosed a May 11, 2022 amendment to the CEO’s employment agreement, after quarter-end: it broadened permitted forms of bonus compensation and increased specified cash severance from six months to one year of base salary.
Investor facts to verify
- How the company plans to convert its development-stage technology and nominal installations into recurring revenue, given zero Q1 2022 revenue.
- Cash runway assumptions and the timing, amount, and potential dilution or terms of future financing.
- Whether lower reported R&D expense reflects sustainable cost reductions or the reassignment of engineering staff to business development.
- Progress on commercialization, customer installations, and the contract assets balance, which increased to $244,000 from $39,000 at year-end.
- Potential dilution from outstanding options and other equity awards; the filing reports 3.3 million potentially dilutive shares outstanding at March 31, 2022.