What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-14 · 44 added, 104 removed, 60 unchanged (71% of the section changed)

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We have historically financed our operations primarily through issuances of equity securities.

As of September 30, 2024, we have raised approximately $105.2 million in gross proceeds through the sale of our equity securities.

As of March 31, 2025, we have raised approximately $105.3 million in gross proceeds through the sale of our equity securities.

We may need to raise additional capital in the future, however, the significant volatility in the capital markets may negatively affect our ability to raise this additional capital.

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Recent Developments

Public Offering and Concurrent Private Placement

On April 23, 2024, we completed an underwritten public offering, whereby we sold 4,620,760 shares of common stock and 5-year redeemable warrants to purchase up to 4,620,760 shares of common stock (the “Public Warrants”) (plus a 45-day option to purchase up to an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock, or up to 693,114 shares of common stock only) at a price of $0.92 per set of one share of common stock and one Public Warrant.

Concurrently, we completed a private placement, whereby we sold 2,249,763 shares of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,155,642 shares of common stock and redeemable warrants (the “Private Warrants”) to purchase up to 8,108,106 shares of common stock.

The offering prices in the private placement were $0.91 per share and $0.01 per Private Warrant, or $0.9099 per Pre-Funded Warrant and $0.01 per Private Warrant, as applicable.

The redeemable warrants issued in both offerings have an exercise price equal to $1.05 per share.

In connection with this offering, we issued Public Ventures, LLC (“Public Ventures”) 5-year warrants to purchase up to 369,660 shares of common stock at an exercise price of $1.1375 per share as part of their underwriter compensation, which underwriter warrants become exercisable on October 16, 2024 (the “Underwriter Warrants”).

We also issued Public Ventures 5-year warrants to purchase up to 432,432 shares of common stock at an exercise price of $1.1375 per share as part of their placement agent compensation in connection with the private placement, which warrants become exercisable on October 16, 2024 (the “Placement Agent Warrants,” and together with the Public Warrants, Private Warrants, Pre-Funded Warrants and Underwriter Warrants, the “Warrants,” and the shares issuable upon exercise of the Warrants, the “Warrant Shares”).

Both sets of warrants may be exercised on a cashless basis based on a formula set forth in the respective warrants.

Subsequently, on May 15, 2024, Public Ventures exercised its option in full to purchase an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock at a price of $0.92 per set of one share of common stock and one Public Warrant, in connection with which we issued Public Ventures additional Underwriter Warrants to purchase up to 55,449 shares of common stock.

The public offering and the concurrent private placement resulted in combined gross proceeds of approximately $9,300 thousand, and net proceeds of approximately $8,100 thousand.

The exercise of Public Ventures’ option to purchase additional shares of common stock and Public Warrants resulted in additional gross proceeds of approximately $638 thousand.

Participation Right Exercise

On June 24, 2024, following clirSPV, LLC’s (the “SPV”) notice to exercise its participation right in connection with the underwritten public offering and concurrent private placement discussed above (See “Note 7 – Equity” for additional information), we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the SPV whereby we issued an aggregate of (i) 3,907,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 786,000 shares of common stock, and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock.

Subsequently, on June 26, 2024, the SPV and we entered into an Amendment to the Securities Purchase Agreement (the “Amendment”) to provide for a revised allocation of the SPV’s subscription between shares of common stock and Pre-Funded Warrants in lieu thereof.

Pursuant to the Amendment, the SPV subscribed for:

(i) 3,350,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 1,343,000 shares of common stock and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock, for aggregate gross proceeds of approximately $4.3 million.

Nasdaq Deficiency Notice

On May 2, 2024, we received a letter from Nasdaq’s Listing Qualifications Staff (the “Staff”) indicating that, based upon our common stock’s closing bid price for the last 30 consecutive business days beginning on March 20, 2024 and ending on May 1, 2024, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”).

In accordance with Nasdaq rules, we were provided a period of 180 calendar days, or until October 29, 2024, in which to regain compliance with the Bid Price Rule.

On October 30, 2024, we received a second letter from the Staff, granting our request for a 180-day extension to regain compliance with the Bid Price Rule.

We now have until April 28, 2025 to regain compliance with the Bid Price Rule.

If at any time prior to April 28, 2025, our common stock’s closing bid price is at least $1 per share for a minimum of ten consecutive business days during such 180-day extension, we will regain compliance with the Bid Price Rule.

As part of our request for the 180-day extension, we notified Nasdaq that we intend to regain compliance with the Bid Price Rule by effecting a reverse stock split, if necessary.

If we do not regain compliance with the Bid Price Rule during the additional 180-day extension, Nasdaq will provide written notification to us that our common stock will be delisted.

At that time, the Company may appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules.

However, there can be no assurance that, if we do appeal the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful.

This second letter from the Staff does not result in the immediate delisting of our common stock from Nasdaq, and we intend to monitor our common stock’s closing bid price and consider our available options in the event that our common stock’s closing bid price remains below $1 per share.

Amendment to Certificate of Incorporation

On June 25, 2024, we held our 2024 annual meeting of stockholders, at which our stockholders approved, among other items, an increase in the number of authorized shares of common stock available for issuance under our certificate of incorporation (as amended, the “certificate of incorporation”) to 87,500,000 shares from 62,500,000 shares previously authorized.

Accordingly, on June 25, 2024, we filed an amendment to our certificate of incorporation with the Secretary of State of the State of Delaware, reflecting the increase of our authorized shares of common stock to 87,500,000 shares, which became effective upon filing.

Suspension of Activities in China

On October 1, 2024, we informed our employees that we were suspending our operations in China as a result of delayed progress on commercialization of its products in that geographic market and as part of our efforts to align strategic priorities and to reduce operating costs.

The suspension of our operations in China will involve declaring our Beijing, China wholly-owned subsidiary dormant, which is a legal entity status available under current China law.

Under this legal entity status, operational activities cease for a time period not to exceed three years.

By pursuing this entity status, we will initiate a project to suspend current operational activities, which are estimated to cease on or before December 31, 2024.

Suspension activities include disposal and shipment of certain equipment in China, the termination of 2 employees and related benefit costs, and legal entity filing fees.

In connection with this action, we estimate that we will incur certain one-time costs, primarily consisting of employee termination payments, as well as equipment disposal

and shipment and legal filing fees.

See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” above for additional information .

Special Committee of the Company’s Board of Directors

On February 10, 2025, the Company’s Board of Directors formed a special committee of all of its independent directors (the “Special Committee”) for the purpose of responding to, managing, and otherwise addressing attempts by several stockholders to submit director nomination notices in connection with the Company’s 2025 annual meeting of stockholders.

Although several stockholders attempted to submit nomination notices, due to the circumstances of those notices, the Special Committee does not believe that any lawfully and qualifying stockholder nomination notice has been or can at this time be received in connection with the Company’s 2025 annual meeting of stockholders.

The Special Committee’s engagement with certain stockholders who had attempted to deliver nomination notices in connection with the Company’s 2025 annual meeting of stockholders remains ongoing.

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard:

Transfer of Listing

On April 1, 2025, we received a letter (the “Notice”) from Nasdaq’s Listing Qualifications Staff (the “Staff”) indicating that, based upon the closing bid price of our common stock for the 30 consecutive business days beginning on February 18, 2025, and ending on March 31, 2025, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided a period of 180 calendar days, or until September 29, 2025, in which to regain compliance.

In order to regain compliance with the minimum bid price requirement, the closing bid price of our common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180 day period.

In the event that we do not regain compliance within this 180 day period, we may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

However, if it appears to the Staff that we will not be able to cure the deficiency, or if we are not otherwise eligible, Nasdaq will provide notice to us that our common stock will be subject to delisting.

The Notice does not result in the immediate delisting of our common stock from Nasdaq.

We intend to monitor the closing bid price of our common stock and consider its available options in the event that the closing bid price of our common stock remains below $1 per share.

Critical Accounting Policies

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These estimates can be materially affected by changes from period to period as economic factors and conditions outside of our control change.

As a result, they are subject to an inherent degree of uncertainty.

As a result, they are subject to an inherent degree of

In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates.

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RESULTS OF OPERATIONS

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Comparison of the Three Months Ended March 31, 2025 and 2024

Highlights of our quarter financial performance are as follows:

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(in thousands, except per share data)

September 30,

Cost of goods sold

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Basic and diluted net income per common share

NM = Not meaningful

For the Nine Months Ended

(in thousands, except per share data)

September 30,

Cost of goods sold

Research and development

General and administrative

Operating Expenses

Other income, net

Basic and diluted net income per common share

Revenues and Gross Profit

Consolidated revenues for the three months ended September 30, 2024 were $1,859 thousand compared to $85 thousand for the same period in 2023.

Revenues for the three months ended September 30, 2024 were predominantly generated from our process burner product line by shipping multiple burners to a California refinery customer.

Revenues for the three months ended September 30, 2023 were generated from a boiler burner order.

Consolidated revenues for the nine months ended September 30, 2024 were $3,006 thousand compared to $1,129 thousand for the same period in 2023.

Revenues for the nine months ended September 30, 2024 were predominantly generated from our process burner line by shipping multiple burners, performing engineering feasibility studies, and delivering spare parts, all of which constitute contractual performance obligations under ASC 606.

Revenues for the nine months ended September 30, 2023 were generated predominantly from a burner performance test, engineering feasibility study, spare parts orders, and a boiler burner sale.

Gross profit increased by $527 thousand and $771 thousand, or 297.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same time periods in 2023.

The favorable increase in gross profit for the three months ended September 30, 2024 was predominantly due to higher revenues, as described above.

The favorable increase in gross profit for the nine months ended September 30, 2024 was due to higher revenues and an increased profit margin, which increased by 11.3% and added an additional $340 thousand in profit compared to the same period in 2023.

This favorable change in profit margin was predominantly driven by the shipment of our process

burners during the nine months ended September 30, 2024, which was expected since the comparable period in 2023 included a low margin burner performance test.

Consolidated revenues for the three months ended March 31, 2025 and 2024 were $401 thousand and $1,102 thousand, respectively.

Revenues decreased by $701 thousand, or 63.6%, during the three months ended March 31, 2025, as compared to the same period in 2024.

Revenues for the three months ended March 31, 2025 were predominantly generated from spare parts orders related to our process burner product line and a CFD analysis.

Revenues for the three months ended March 31, 2024, were predominantly generated from our process burner line, including shipping multiple process burners, executing consulting services, delivering spare parts related to orders from our California refinery customer and, for a different customer, successfully performing an engineering study and CFD analysis.

Gross profit decreased by $241 thousand, or 55.1%, for the three months ended March 31, 2025 compared to the same period in 2024.

The unfavorable decrease in gross profit for the three months ended March 31, 2025 was predominantly due to lower revenues.

Profit margin increased by 9.2% from 39.7% for the three months ended March 31, 2024, to 48.9% for the three months ended March 31, 2025, which impacted our gross profit by $37 thousand for such period.

The favorable impact to profit margin was driven predominantly by our spare parts orders.

Operating Expenses

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Research and Development

R&D expenses increased $236 thousand, or 253.8%, and $572 thousand, or 130.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same time periods in 2023.

This unfavorable year-over-year increase in R&D expenses was mainly driven by additional head count and related benefit costs of $69 thousand and $225 thousand for the three and nine months ended September 30, 2024, respectively, that did not exist in the comparable periods in 2023.

In addition, we incurred an unfavorable additional year-over-year expense related to product development costs for our process burner product line for a total of $91 thousand and $234 thousand for the three and nine months ended September 30, 2024, respectively.

R&D expenses increased $166 thousand, or 59.1%, for the three months ended March 31, 2025, as compared to the same period in 2024.

This unfavorable increase in R&D expenses was predominantly due to a year-over-year increase in product development costs of $112 thousand related to our process burner product line.

General and Administrative

G&A expenses increased by $227 thousand, or 15.9%, for the three months ended September 30, 2024, compared to the same time period in 2023.

This unfavorable increase in G&A expenses is primarily attributed to a one-time non-recurring accrual estimate of $394 thousand related to the decision to suspend our China operations.

These G&A expenses related to the suspension of our operations in China include severance and related benefit costs, the disposal and shipment of certain equipment in China, and legal entity filing fees.

See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” and “Recent Developments – Suspension of Activities in China” above for additional information.

This unfavorable increase in G&A expenses was partially offset by a decrease of $93 thousand in human capital and benefit costs primarily driven by the timing of employee departures and subsequent onboarding costs.

G&A expenses for the nine months ended September 30, 2024, increased by $191 thousand, or 4.1%, compared to the same period in 2023.

This unfavorable increase in G&A expenses is primarily attributed to a one-time non-recurring accrual estimate of $394 thousand related to our decision to suspend our operations in China, as described above.

The year-over-year increase in G&A expenses was partially offset by a decrease of $228 thousand in human capital and benefit costs, which was primarily driven by the timing of employee departures and subsequent onboarding costs.

G&A expenses increased $598 thousand, or 42.5%, for the three months ended March 31, 2025, as compared to the same period in 2024.

This unfavorable increase in G&A expenses was primarily due to an increase of $581 thousand in legal fees, including $131 thousand in legal fees pertaining to work performed in connection with a regulatory inquiry by the SEC into the trading of our securities in 2020 and the accrual of $450 thousand in legal fees pertaining to work performed for the Special Committee (see “Recent Developments – Special Committee of the Company’s Board of Directors” above for additional information).

Other Income, net

Other income, net increased by $113 thousand, or 68.5%, for the three months ended September 30, 2024, compared to the same period in 2023.

The favorable increase is primarily due to $89 thousand increase in government assistance from our Department of Energy hydrogen burner development grant, and $61 thousand increase in interest income due to a higher cash balance during the nine months ended September 30, 2024, compared to the same period in 2023.

The increase was partially offset by a decrease of $43 thousand in income from the sale of materials from the decommissioning of our Seattle office during the comparable period in 2023.

Other income, net increased $96 thousand, or 16.2%, for the nine months ended September 30, 2024, compared to the same period in 2023.

This favorable increase was predominantly due to the $237 thousand increase in government assistance related to our Department of Energy hydrogen burner project.

This year-over-year increase was partially offset by a $154 thousand decrease in income in connection with the decommissioning of our Seattle office during 2023, while we derived no income from this project during the comparable period in 2024.

Other income was relatively unchanged for the three months ended March 31, 2025.

Liquidity and Capital Resources

At September 30, 2024, our cash and cash equivalent balance totaled $14,486 thousand compared to $5,684 thousand at December 31, 2023, an increase of $8,802 thousand.

The increase in cash and cash equivalent balance is primarily attributable to our public offering, concurrent private placement and the related SPV’s exercise of its participation right.

See “Note 7 – Equity” for additional information.

At September 30, 2024, we had working capital of $13,851 thousand compared to $4,253 thousand at December 31, 2023.

Our Annual Report on Form 10-K filed with the SEC on April 1, 2024, contained a “going concern” note, which raised substantial doubt about our ability to continue as a going concern.

We believe that we have alleviated the substantial doubt following the consummation of the recent public offering, concurrent private placement and the related SPV’s exercise of its participation right.

See “Note 7 – Equity” for additional information.

Accordingly, we believe we have sufficient cash and expected cash collections to fund current operating expenses for over twelve months.

At March 31, 2025, our cash and cash equivalents balance totaled $12,866 thousand compared to $14,035 thousand at December 31, 2024, a decrease of $1,169 thousand.

The decrease in the cash and cash equivalents balance is primarily attributable to our net loss of $2,076 thousand, which was partially offset by our non-cash expenses of $118 thousand and an increase in contract liabilities of $814 thousand.

At March 31, 2025, our current assets were in excess of current liabilities resulting in working capital of $11,099 thousand as compared to $12,809 thousand at December 31, 2024.

We believe we have sufficient cash and expected cash collections to fund current operating expenses for over twelve months.

We have no contractual debt obligations and to the extent we may require additional funds beyond twelve months from the date hereof, and customer cash collections cannot fund our needs, we may utilize equity offerings.

Historically, we have funded operations predominantly through equity offerings.

Until the growth of revenue increases to a level that covers operating expenses, the Company intends to continue to fund operations in this manner, although the volatility in the capital markets may negatively affect our ability to do so.

As of September 30, 2024, approximately 21.3 million shares of our common stock are issuable upon exercise of the Warrants (as defined above), and we may receive up to $22.5 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein.

The Warrants require the warrant holder to tender cash upon exercise, with the exception of the Underwriter Warrants which allow the holder to exercise cashless if they so desire.

These equity financial instruments may from time-to-time fund future cash needs, but the volatility of our stock and the risk tolerance of warrant holders will play a key role in this type of funding.

Operating activities for the nine months ended September 30, 2024, resulted in cash outflows of $3,958 thousand, primarily due to the net loss of $4,135 thousand during such period, which was partially offset by a non-cash expense of $688 thousand.

The decision to suspend our China operations increased accounts payable and accrued liabilities by $394 thousand during the three months ended September 30, 2024, which represents a one-time accrual estimate for the costs to prepare and place our Beijing China entity into a dormant state.

See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” and “Recent Developments – Suspension of Activities in China” above for additional information.

The change in contract liabilities during the nine months ended September 30, 2024 was predominantly impacted by our shipment of process burners during the three months ended September 30, 2024.

See “Note 5 – Revenue, Contract Assets and Contract Liabilities” above for additional information.

Operating activities for the nine months ended September 30, 2023, resulted in cash outflows of $1,783 thousand, primarily due to the loss for the period of $4,239 thousand, offset with non-cash expenses of $678 thousand, and an increase of $1,554 thousand of contract liabilities, which represents payments from customers in advance of future project costs.

Investing activities for the nine months ended September 30, 2024, resulted in cash outflows of $177 thousand, which is primarily attributable to $159 thousand of disbursements for patents and other intangible assets.

Investing activities for the nine months ended September 30, 2023, resulted in cash inflows of $2,595 thousand, which is primarily attributable to the redemption $4,847 thousand of short-term held-to-maturity U.S.

treasuries, partially offset by $2,162 thousand in purchases of the same type of investments.

Financing activities for the nine months ended September 30, 2024, resulted in cash inflows of $12,936 thousand, which is primarily attributable to the net proceeds received of $12,967 thousand from the issuance of securities in connection with the recent equity offerings (see “Note 7 – Equity” above for additional information).

Financing activities for the nine months ended September 30, 2023, resulted in cash outflows of $15 thousand due to disbursements for taxes paid related to vesting of employee restricted stock units.

Until the growth of revenue increases to a level that covers our operating expenses, we intend to continue to fund operations in this manner, although the volatility in the capital markets may negatively affect our ability to do so.

As of March 31, 2025, approximately 21.3 million shares of our common stock are issuable upon exercise of our outstanding warrants, which number excludes the shares of common stock issuable upon exercise of our outstanding pre-funded warrants, and we may receive up to $22.5 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein.

These warrants require the warrant holder to tender cash upon exercise, with the exception of the warrants issued to Public Ventures LLC as compensation for their services in connection with our public offering and concurrent private placement in April 2024, which allow the holder to exercise cashless if they so desire.

These equity financial instruments may from time-to-time fund future cash needs, but the volatility of our common stock price and the risk tolerance of warrant holders will determine the extent in which we will be able to raise funds in this manner.

Operating activities for the three months ended March 31, 2025, resulted in cash outflows of $1,111 thousand, primarily due to the net loss of $2,076 thousand partially offset by non-cash expenses of $118 thousand and an increase in contract liabilities of $814 thousand during such period.

The change in contract liabilities during the three months ended March 31, 2025, was impacted by customer collections for orders we have yet to complete.

Operating activities for the three months ended March 31, 2024, resulted in cash outflows of $1,001 thousand, primarily due to the net loss for the period of $1,108 thousand, partially offset with non-cash expense of $121 thousand.

Investing activities for the three months ended March 31, 2025, resulted in cash outflows of $41 thousand, which is primarily attributable to disbursements for patents and other intangible assets.

Investing activities for the three months ended March 31, 2024, resulted in cash outflows of $34 thousand, which is attributable to disbursements for patents and other intangible assets.

Financing activities for the three months ended March 31, 2025, resulted in cash outflows of $17 thousand, which is primarily attributable to $41 thousand of disbursements related to taxes paid for the vesting of employee restricted stock units, partially offset by $24 thousand in net proceeds received from the exercise of our warrants.

Financing activities for the three months ended March 31, 2024, included $22 thousand in disbursements for taxes paid related to vesting of employee restricted stock units.

Off-Balance Sheet Transactions

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What changed 10-Q

Item 2. Management’s Discussion and Analysis