ClearSign Technologies Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial statements are unaudited; dollar amounts below are in millions unless noted. ClearSign develops combustion and fuel-safety technologies, including ClearSign Core. Its technologies remain in field development, with nominal commercial installations and revenues to date.
Financial results and liquidity
- Revenue: No revenue in Q2 or the first half of 2022. First-half 2021 revenue was $0.363 million; Q2 revenue was zero in both years.
- Profit and expenses: Q2 net loss was $1.638 million ($0.05 per share), compared with $2.290 million ($0.07 per share) in Q2 2021. First-half net loss was $3.128 million ($0.09 per share), versus $4.312 million ($0.14 per share) in 2021. Operating expenses were $1.660 million for Q2 and $3.177 million for the half-year. Gross margin is not meaningful for 2022 because there was no revenue or cost of goods sold.
- Cash flow: First-half operating cash outflow was $3.347 million, compared with $3.674 million in 2021. Net investing cash outflow was $0.041 million. Equity financing provided $4.798 million, and cash increased $1.400 million to $9.007 million.
- Liquidity and liabilities: Current assets were $10.098 million and current liabilities $0.952 million, giving working capital of $9.146 million. Total liabilities were $1.204 million, including $0.479 million of lease liabilities. The filing reports no other outstanding borrowings in the presented balance sheet.
- Equity: The company issued approximately 4.7 million shares during the first half, raising $4.798 million net. Shares outstanding were 36.35 million at June 30 and 37.95 million as of August 1, 2022.
Changes versus the prior comparable period
- First-half revenue fell from $0.363 million in 2021 to zero in 2022. The 2021 period included a burner-product sale; 2022 had no recognized revenue.
- First-half net loss narrowed by $1.184 million, largely as operating expenses declined. R&D expense fell to $0.296 million from $1.298 million, reflecting lower headcount and product-development costs, as well as engineers shifting to business development. G&A was nearly flat at $2.881 million versus $2.898 million.
- Comparisons also reflect prior-year items: 2021 included $0.251 million of PPP loan-forgiveness income and contract-loss charges, including estimated losses on two projects. In 2022, asset-sale gains contributed $0.037 million for the half-year.
- Cash increased from year-end 2021, primarily because first-half equity proceeds exceeded operating cash use. The 2022 public offering and ATM issuances increased the share count.
Outlook, risks and unusual items
- No quantified revenue, earnings or cash-flow guidance is provided. Management expects operating losses and negative cash flows for the foreseeable future and says meaningful revenue depends on market acceptance, commercialization and recurring sales.
- Management says continued operations depend on obtaining adequate financing through equity or debt, strategic partnerships or co-development. It cautions that financing may not be available when needed; inability to raise funds could require reduced development, hiring, marketing or other operations.
- After quarter-end, ClearSign issued approximately 1.592 million shares to clirSPV LLC at $1.11 per share, receiving approximately $1.742 million net. The filing also describes an agreement allowing clirSPV to elect to extend its participation right, subject to terms, beyond its original 2023 expiry, but no later than June 30, 2027.
- Key risks include technology and customer acceptance, competition, manufacturing and intellectual-property protection, financing access, China-related operating and regulatory risks, COVID-19 impacts, and macroeconomic and geopolitical uncertainty, including the Ukraine conflict. China operations were described as immaterial. No material pending legal proceeding was reported.
- The company relocated its headquarters from Seattle to Tulsa in January 2022. Management reported disclosure controls were effective at the reasonable-assurance level as of June 30, 2022, with no material change in internal control during the quarter.
Important facts for investors to verify
- Whether ClearSign converts development activity and nominal installations into meaningful, recurring commercial revenue.
- Cash burn, available liquidity and the timing and terms of any further financing, including the dilution from equity issuance.
- Commercial progress and any project-level contract obligations, losses or warranty exposure as customer installations develop.
- Execution of the commercialization-focused staff reassignment and its effect on research, customer support and sales.
- The terms and impact of clirSPV’s participation rights and the post-quarter share issuance.