ClearSign Technologies Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; results are unaudited. ClearSign develops combustion and fuel-safety technologies, including ClearSign Core and ClearSign Eye. Its technologies remain in development and early commercialization, with nominal operating revenue to date.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $190,000 | $0 | $553,000 | $0 |
| Gross loss (gross margin) | $(88,000) (-46%) | $(180,000) | $(455,000) (-82%) | $(27,000) |
| Operating expenses | $2.269 million | $1.497 million | $6.465 million | $5.049 million |
| Net loss | $(2.353) million | $(1.677) million | $(6.665) million | $(5.031) million |
| Basic and diluted loss per share | $(0.07) | $(0.06) | $(0.21) | $(0.19) |
| Operating cash flow | Not separately presented for the quarter | $(5.542) million | $(4.143) million |
Q3 revenue included $82,000 from delivery of a process burner and $108,000 recognized on earlier projects after collectability constraints were resolved. Nine-month revenue also included $363,000 from a multi-burner contract. Nine-month gross loss included a $712,000 estimated loss on the ExxonMobil project, partly offset by warranty-accrual reversals and other adjustments.
Liquidity, debt and capital
- Cash and cash equivalents were $8.841 million at September 30, 2021, versus $8.824 million at December 31, 2020. Working capital was $8.214 million, down from $8.302 million.
- Nine-month investing cash outflow was $135,000; financing cash inflow was $5.694 million. Financing included $5.309 million net proceeds from ATM share sales and $385,000 from option and warrant exercises.
- The company reported $1.485 million of total liabilities, including $605,000 of lease liabilities. The $251,000 PPP loan was forgiven in Q2 2021; no PPP balance remained at quarter-end.
- Shares outstanding increased from 30,077,436 at December 31, 2020 to 31,574,704 at September 30, 2021, primarily reflecting ATM issuance and equity compensation.
Changes, outlook and risks
- Revenue commenced in 2021 compared with none in the prior-year periods, but losses increased: nine-month net loss rose about 32%, driven mainly by commercialization and development spending.
- Research and development expense rose 53% for the nine-month period to $2.436 million, reflecting burner development, fabrication, testing and demonstrations. Q3 general and administrative expense was broadly flat year over year; nine-month expense rose 16% to $4.029 million.
- ClearSign recorded a $200,000 non-cash impairment of certain pending patent and trademark assets and $90,000 of accelerated amortization after reassessing intellectual-property alignment with current products. It also recorded a $251,000 gain on PPP loan forgiveness.
- ExxonMobil put testing of ClearSign Core process burners planned for its Baytown refinery on hold after determining there was insufficient time to include them in the targeted 2022 turnaround. The project’s final outcome remains undetermined.
- Management said existing funds were sufficient for at least 12 months from the report’s issuance, but additional capital is anticipated to support operations beyond that period. The company expects continuing operating losses and negative cash flows and has no committed future financing source.
- COVID-19 continued to delay China development and demonstrations and affected suppliers and partners. Management cited risks to commercialization, customer acceptance, financing access, competition, intellectual-property protection and operations in China.
- A material weakness in internal control over financial reporting remained as of September 30, 2021, related to recording transactions and preparing U.S. GAAP financial statements. Management reported remediation steps, including finance staffing and added review procedures, but said full remediation was not yet assured.
- The filing reported no material pending litigation expected to have a material adverse effect and no off-balance-sheet transactions.
Key facts for investors to verify
- Whether ClearSign can convert development projects and demonstrations into recurring commercial sales with positive gross margins.
- The status, expected cost exposure and potential recovery of the paused ExxonMobil project and its $712,000 estimated contract loss.
- Cash runway assumptions and the timing, size and potential dilution or terms of any additional financing.
- Progress toward resolving the material weakness and whether subsequent filings report effective controls.
- Effects of COVID-19 and other delays on planned U.S. and China demonstrations, certifications and commercialization milestones.