ClearSign Technologies Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 31, 2021. The filing also reports unaudited fourth-quarter results. ClearSign develops combustion and flame-sensing technologies, including ClearSign Core burners intended to reduce emissions and improve efficiency. The company reported only nominal revenue since inception and remains in commercialization and field-testing stages.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross loss | $279,000 | $1,000 |
| Operating expenses | $6.653 million | $8.582 million |
| Loss from operations | $6.932 million | $8.583 million |
| Net loss | $6.886 million | $8.482 million |
| Net loss per share | $0.25 | $0.32 |
| Cash used in operating activities | $5.964 million | $6.902 million |
- Operating expenses fell 22%; R&D declined to $2.029 million, primarily as activity shifted toward customer field work and laboratory costs decreased. G&A declined to $4.624 million, largely from lower consulting, travel and patent impairment costs.
- Gross margin is not meaningful with no revenue. Management said it expects margins to normalize around 50% as production increases, assuming future revenue is achieved.
- At year-end, cash and cash equivalents were $8.824 million, versus $8.552 million; working capital was $8.302 million, versus $7.684 million. Total assets were $11.121 million and total liabilities were $1.580 million, including a $251,000 PPP loan and lease liabilities. No material conventional long-term borrowings were reported.
- Financing provided $6.430 million in 2020, including $6.053 million net common-stock proceeds, $126,000 from option exercises and $251,000 from the PPP loan. The company reported 30.1 million shares outstanding at year-end; 30.9 million were outstanding as of March 28, 2021.
- Fourth-quarter 2020 revenue was $0; gross loss was $252,000, operating expenses were $1.604 million and net loss attributable to common stockholders was $1.854 million, or $0.06 per share.
Material changes and business developments
- Net loss narrowed about 19% year over year, primarily because operating expenses declined. Operating cash outflow also decreased, but the company continued to consume cash in operations.
- ClearSign completed common-stock offerings in August and September 2020, raising approximately $6.1 million net in total. After year-end, it raised $3.5 million through an ATM facility by March 27, 2021.
- In February 2021, the company received a purchase order from a second global refining supermajor and its first international order for a ClearSign Core process heater. The Zeeco collaboration remains contingent on successful completion of a performance and validation test associated with the ExxonMobil supply order.
- Ten ClearSign Core flare units were installed and operating. Boiler demonstrations in China were delayed, and testing and commercialization remained in progress.
Outlook, commentary and key risks
- Management believed year-end cash would support operations for at least 12 months from issuance of the financial statements, but anticipated needing additional capital to continue beyond that period. There is no committed financing source, and the filing gives no revenue or profitability forecast.
- The company expects continued operating losses and negative cash flows until its technologies achieve meaningful sales and adoption. Future financing may involve equity, debt, partnerships, or licensing; availability and terms are uncertain.
- COVID-19 disrupted work at company offices, travel to China, partner and supplier activity, and project schedules. Management could not estimate the pandemic’s full financial or operational impact.
- Commercialization depends on technical performance, customer acceptance, permits and successful partnerships. The company competes against larger, established suppliers and has limited resources and customer-support infrastructure.
- Other material risks include volatile energy-sector spending, changing emissions rules, China-related legal and operating exposure, intellectual-property protection, cybersecurity, and dilution from future securities issuance and outstanding equity awards.
- FINRA was investigating trading around the June 2020 ExxonMobil purchase-order announcement; the company said it was cooperating and could not predict the outcome. The $251,000 PPP loan had a 1% interest rate and was awaiting a forgiveness determination; no assurance of forgiveness was given.
- The auditor issued an unqualified opinion on the financial statements and highlighted the impairment assessment of patents and other intangible assets as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not audit internal-control effectiveness.
Investor facts to verify
- Whether the 2021 refining orders, ExxonMobil validation test and Zeeco collaboration convert into completed installations, recognized revenue and repeat business.
- Cash burn, subsequent financing, share-count dilution and whether available liquidity remains adequate beyond the stated 12-month horizon.
- Progress and costs for delayed China boiler demonstrations, product certification, permits and commercialization.
- PPP loan forgiveness status and the outcome or any material consequences of the FINRA inquiry.
- Basis for projected 50% gross margins and the recoverability of the $1.302 million carrying value of patents and other intangible assets.