ClearSign Technologies Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited and amounts below are in U.S. dollars; financial statement figures are in thousands unless noted.
Business context
ClearSign develops combustion and fuel-safety technologies intended to improve emissions, efficiency, safety, and operating performance. Its products remain in field development, with nominal commercial installations and historically limited revenue. The company said it is shifting its focus from research toward commercialization. It relocated its headquarters from Seattle to Tulsa in January 2022.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $324 | $190 | $324 | $553 |
| Gross profit (loss) | $123 | $(88) | $123 | $(455) |
| Operating expenses | $1,558 | $2,269 | $4,735 | $6,465 |
| Operating loss | $(1,435) | $(2,357) | $(4,612) | $(6,920) |
| Net loss | $(1,312) | $(2,353) | $(4,440) | $(6,665) |
| Loss per share, basic and diluted | $(0.03) | $(0.07) | $(0.13) | $(0.21) |
- Q3 gross margin was approximately 38% of revenue; the nine-month gross margin was also approximately 38%, versus gross losses in the comparable 2021 periods.
- At September 30, cash and cash equivalents were $5.880 million, with $3.900 million of short-term U.S. Treasury investments. Current assets were $10.608 million, current liabilities $828,000, and working capital $9.780 million.
- Total liabilities were $1.067 million, including $419,000 of operating lease liabilities. The company reported no contractual debt obligations.
- Nine-month operating cash outflow was $4.264 million; investing cash outflow was $3.982 million, mainly reflecting Treasury purchases; financing provided $6.539 million, primarily from common-stock issuance. Cash and cash equivalents fell $1.727 million from year-end 2021.
- Stockholders’ equity was $10.796 million, up from $8.282 million at December 31, 2021. Shares outstanding increased from 31.582 million to 38.020 million by September 30.
Material changes versus prior comparable periods
- Q3 revenue rose 70.5% year over year, while nine-month revenue fell 41.4%. 2022 revenue included closeout of an ExxonMobil technology validation project and a ClearSign Core enclosed-oxidizer sale; 2021 revenue was primarily process-burner sales.
- Gross profit improved in both comparisons. Prior-year cost of goods sold included substantial anticipated contract losses and testing costs; Q3 2022 gross profit was primarily associated with the ExxonMobil project.
- R&D expense declined substantially—91.5% in Q3 and 83.9% for nine months. Management attributed the reduction to organizational restructuring, lower headcount and product-development costs, and the absence of prior-year intellectual-property impairment. Some employee costs shifted from R&D to G&A as the company redirected resources toward business development.
- G&A increased 29.2% in Q3 and 7.8% for nine months, partly from the reclassification of personnel costs and a $114,000 one-time RSU vesting charge related to a departing director. Lower consulting and board-compensation costs partly offset increases.
- Net loss narrowed 44.2% in Q3 and 33.4% for nine months, mainly reflecting lower operating expenses. Nine-month 2021 other income included $251,000 of PPP loan forgiveness; 2022 included government assistance and interest income.
Outlook, risks and unusual items
- Management expects operating losses and negative cash flows for the foreseeable future. It stated that working capital was sufficient to fund current operating expenses for over 12 months, but longer-term needs may require additional financing, customer collections, partnerships, or other funding. There is no committed source of future financing.
- The company raised approximately $6.5 million net from equity issuance during the first nine months of 2022, including a June public offering and a July issuance to clirSPV under its participation right. It reported approximately $8.7 million remaining under its ATM program, subject to applicable limitations, including SEC “baby shelf” rules.
- A Department of Energy grant of approximately $250,000 supports research on a hydrogen-fuel-capable, ultra-low-NOx process burner, with completion estimated in early 2023. The company recognized $76,000 in DOE reimbursements during the first nine months of 2022.
- On November 1, 2022, Nasdaq notified the company that it did not meet the $1.00 minimum bid-price requirement. The compliance period runs through May 1, 2023; delisting could impair share liquidity and access to capital.
- Key risks include commercialization and customer acceptance, continued financing needs, competition and technology changes, China-related risks, macroeconomic and geopolitical pressures, and possible effects of COVID-19. Management reported no material pending legal proceedings, no subsequent events to report, and no off-balance-sheet transactions.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2022, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ClearSign can convert validation work and product installations into recurring, material revenue and positive gross margins.
- Whether the stated liquidity runway remains adequate given cash burn, commercialization spending, and the timing of customer receipts.
- The effect of additional equity financing, ATM sales, participation-right issuances, and outstanding equity awards on dilution.
- Whether ClearSign regains Nasdaq’s minimum bid-price compliance by May 1, 2023 and continues to satisfy other listing requirements.
- Progress, reimbursement timing, and completion of the DOE-funded hydrogen-burner research project.