ClearSign Technologies Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are to FY2021. Amounts below are in U.S. dollars, generally in thousands unless noted.
Business context
ClearSign develops combustion and emissions-control technologies, principally ClearSign Core burners and flares, and ClearSign Eye flame sensors. The company is transitioning from research and development toward commercialization and uses OEM and other partners to access manufacturing, sales and service capabilities. It reports limited commercial installations and nominal revenue to date.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $374 | $607 | Down 38.4% |
| Gross profit (loss) | $116 | $(452) | Improved $568 |
| Gross margin | 31.0% | (74.5%) | Improved |
| Operating expenses | $6,233 | $7,693 | Down 19.0% |
| Operating loss | $(6,117) | $(8,145) | Improved $2,028 |
| Net loss | $(5,758) | $(7,892) | Improved $2,134 |
| Net loss per share | $(0.16) | $(0.25) | Improved $0.09 |
| Net cash used in operations | $(4,992) | $(6,707) | Lower outflow |
Revenue timing reflected satisfaction of contract milestones and collectability requirements. FY2022 revenue included closeout of an ExxonMobil technology-validation project and a ClearSign Core enclosed oxidizer sale. FY2022 gross profit benefited from recognizing ExxonMobil project revenue; FY2021 included $712 of anticipated contract losses, substantially related to that project.
Research and development expense fell to $505 from $2,680, partly as the company shifted personnel toward business development and commercialization. General and administrative expense rose to $5,728 from $5,013, including approximately $527 of reassigned salaries. Other income was $359, including $232 of government assistance and $83 of interest income; FY2021 included $251 of PPP loan-forgiveness income.
At year-end, cash and equivalents were $6,451 and short-term U.S. Treasury investments were $2,606; working capital was $8,586, versus $7,293 in 2021. Total liabilities were $1,373, including $359 of lease liabilities; the company reported no contractual debt obligations. Management stated available cash and investments should fund current operating expenses for more than 12 months from the filing date, while warning that further capital may be needed thereafter. Operating cash burn was funded in part by $6,539 of net equity proceeds. Shares outstanding rose from 31.6 million to 38.0 million during 2022.
Material changes, outlook and risks
- FY2022 fourth-quarter revenue was $50, gross loss was $7, operating expense was $1,498 and net loss attributable to common stockholders was $1,318. Revenue was concentrated in the third quarter ($324).
- The company received its largest process-burner purchase order to date in 2022: 20 ClearSign Core Plug & Play burners for a California refinery. Zeeco process-burner marketing remains contingent on successful completion of comprehensive performance and validation testing. California Boiler is a partner for fire-tube boiler burners and flares.
- COVID-related restrictions in China significantly delayed commercialization and demonstration projects. China operations reported no revenue in 2022; management described them as immaterial to total operations.
- Management expects continuing operating losses and negative cash flows until meaningful recurring revenue develops. No specific revenue, earnings or cash-flow guidance was provided. The company may seek equity or other financing; its ATM program had approximately $8.7 million of stated remaining offering capacity, subject to applicable limitations, including baby-shelf rules.
- Key risks include limited revenue and financing dependence; slow customer adoption; execution and validation of partner-led commercialization; competition; regulatory changes; product safety, permitting and warranty exposure; dependence on subcontractors and supply chains; China-related risks; and potential equity dilution. Nasdaq notified the company in November 2022 of noncompliance with its $1.00 minimum bid-price requirement, with a stated deadline of May 1, 2023 to regain compliance.
- The company reported no material pending litigation, no off-balance-sheet transactions, and effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements and identified patent and intangible-asset carrying value as a critical audit matter.
Important facts for investors to verify
- Whether the 20-burner order converts into timely delivery, recognized revenue and cash collection, and whether additional customer orders follow.
- Progress and outcome of Zeeco’s required validation testing and the status of California Boiler and China commercialization efforts.
- Actual cash burn, runway and financing needs relative to management’s more-than-12-month liquidity statement; monitor equity issuance, shelf/ATM restrictions and resulting dilution.
- Nasdaq listing compliance after the May 1, 2023 deadline and any subsequent listing notices or actions.
- Assumptions supporting patent and intangible-asset recoverability, and progress toward meaningful recurring revenue and profitability.