ClearSign Technologies Corp [CLIR] Filings

10-Q 1 clir-20230930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File Number 001-35521

CLEARSIGN TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		26-2056298 (I.R.S. Employer Identification No.)

8023 E. 63rd Place, Suite 101

Tulsa, Oklahoma 74133

(Address of principal executive offices)

(Zip Code)

(918) 236-6461

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock	CLIR	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit such files). Yes ⌧ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ⌧		Smaller reporting company ☒

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of November 6, 2023, the issuer has 38,565,836 shares of common stock, par value $0.0001, issued and outstanding.

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TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	2

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three month periods during the nine months ended September 30, 2023 and 2022	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II	OTHER INFORMATION	28

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

	SIGNATURES	30

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PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share and per share data)	September 30,		December 31,
	2023		2022
ASSETS

Current Assets:
Cash and cash equivalents	$	7,235	$	6,451
Short-term held-to-maturity investments		—		2,606
Accounts receivable, net		87		79
Contract assets		7		20
Prepaid expenses and other assets		484		577
Total current assets		7,813		9,733

Fixed assets, net		406		384
Patents and other intangible assets, net		769		798
Other assets		10		10

Total Assets	$	8,998	$	10,925

LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable and accrued liabilities	$	406	$	296
Current portion of lease liabilities		78		133
Accrued compensation and related taxes		581		471
Contract liabilities		1,801		247
Total current liabilities		2,866		1,147
Long Term Liabilities:
Long term lease liabilities		186		226
Total liabilities		3,052		1,373

Commitments and contingencies (Note 7)

Stockholders’ Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		—		—
Common stock, $0.0001 par value, 38,565,836 and 38,023,701 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		4		4
Additional paid-in capital		98,725		98,079
Accumulated other comprehensive loss		(21)		(8)
Accumulated deficit		(92,762)		(88,523)
Total equity		5,946		9,552

Total Liabilities and Equity	$	8,998	$	10,925

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)


(in thousands, except share and per share data)	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Revenues	$	85	$	324	$	1,129	$	324
Cost of goods sold		61		201		870		201

Gross profit		24		123		259		123

Operating expenses:
Research and development		93		97		440		393
General and administrative		1,428		1,461		4,649		4,342

Total operating expenses		1,521		1,558		5,089		4,735

Loss from operations		(1,497)		(1,435)		(4,830)		(4,612)

Other income
Interest		85		35		237		35
Government assistance		38		88		145		100
Gain from sale of assets		—		—		5		37
Other income, net		42		—		204		—
Total other income		165		123		591		172

Net loss	$	(1,332)	$	(1,312)	$	(4,239)	$	(4,440)

Net loss per share - basic and fully diluted	$	(0.03)	$	(0.03)	$	(0.11)	$	(0.13)

Weighted average number of shares outstanding - basic and fully diluted		38,562,127		37,871,291		38,459,313		34,435,117

Comprehensive loss
Net loss	$	(1,332)	$	(1,312)	$	(4,239)	$	(4,440)
Foreign-exchange translation adjustments		(1)		(10)		(13)		(20)
Comprehensive loss	$	(1,333)	$	(1,322)	$	(4,252)	$	(4,460)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the Three Month Periods During the Nine Months Ended September 30, 2023 and 2022


										Total ClearSign
						Accumulated Other				Technologies Corp.
(in thousands, except per share data)	Common Stock			Additional		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital			Income (Loss)	Deficit		Equity
Balances at December 31, 2022	38,023	$	4	$	98,079	$	(8)	$	(88,523)	$	9,552
Share-based compensation	223		—		227		—		—		227
Fair value of stock issued in payment of accrued compensation	296		—		234		—		—		234
Shares issued for services ($0.66 per share)	4		—		3		—		—		3
Net loss	—		—		—		—		(1,429)		(1,429)
Balances at March 31, 2023	38,546		4		98,543		(8)		(89,952)		8,587

Share-based compensation	—		—		59		—		—		59
Shares issued upon exercise of options ($0.54 per share)	12		—		—		—		—		—
Shares issued for services ($0.66 per share)	4		—		2		—		—		2
Foreign-Exchange Translation Adjustment	—		—		—		(12)		—		(12)
Net loss	—		—		—		—		(1,478)		(1,478)
Balances at June 30, 2023	38,562		4		98,604		(20)		(91,430)		7,158

Share-based compensation	—		—		119		—		—		119
Shares issued for services ($0.66 per share)	4		—		2		—		—		2
Foreign-Exchange Translation Adjustment	—		—		—		(1)		—		(1)
Net loss	—		—		—		—		(1,332)		(1,332)
Balances at September 30, 2023	38,566	$	4	$	98,725	$	(21)	$	(92,762)	$	5,946

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										Total ClearSign
						Accumulated Other				Technologies Corp.
(in thousands, except per share data)	Common Stock			Additional		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Paid-In Capital			Income (Loss)	Deficit		Equity
Balances at December 31, 2021	31,582	$	3	$	91,035	$	9	$	(82,765)	$	8,282
Shares issued upon exercise of options ($0.89 per share)	1		—		—		—		—		—
Shares issued upon exercise of options ($2.93 per share)	3		—		—		—		—		—
Fair value of stock issued in payment of accrued compensation	66		—		95		—		—		95
Fair value of stock options granted in payment of accrued compensation	—		—		12		—		—		12
Share based compensation	3		—		80		—		—		80
Shares issued through the use of At-The Market issuance ($1.24 average per share)	496		—		578		—		—		578
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Net loss	—		—		—		—		(1,490)		(1,490)
Balances at March 31, 2022	32,155		3		91,807		9		(84,255)		7,564

Share based compensation	—		—		50		—		—		50
Shares issued through the use of At-The Market issuance ($1.71 average per share)	5		—		9		—		—		9
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Shares issued in stock offering ($1.11 average per share)	4,186		1		4,210		—		—		4,211
Foreign-Exchange Translation Adjustment	—		—		—		(10)		—		(10)
Net loss	—		—		—		—		(1,638)		(1,638)
Balances at June 30, 2022	36,350		4		96,083		(1)		(85,893)		10,193

Share based compensation	64		—		177		—		—		177
Shares issued upon cashless exercise of options ($0.89 per share)	10		—		—		—		—		—
Shares issued pursuant to purchase right ($1.11 per share)	1,592		—		1,741		—		—		1,741
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Foreign-Exchange Translation Adjustment	—		—		—		(10)		—		(10)
Net loss	—		—		—		—		(1,312)		(1,312)
Balances at September 30, 2022	38,020	$	4	$	98,008	$	(11)	$	(87,205)	$	10,796

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)


(in thousands)	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(4,239)	$	(4,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		7		21
Share-based compensation		419		307
Depreciation and amortization		231		113
Gain from sale of fixed assets		(5)		(37)
Right of use asset amortization		105		116
Realized gain from marketable securities		(79)		—
Lease Amendments		(14)		—
Impairment of intangible assets		14		—
Change in operating assets and liabilities:
Contract assets		13		(245)
Accounts receivable		(8)		(5)
Prepaid expenses and other assets		(116)		(161)
Accounts payable and accrued liabilities		6		(99)
Accrued compensation and related taxes		329		189
Contract liabilities		1,554		(23)
Net cash used in operating activities		(1,783)		(4,264)

Cash flows from investing activities:
Acquisition of fixed assets		—		(5)
Disbursements for patents and other intangible assets		(95)		(114)
Proceeds from sale of fixed assets		5		37
Purchases of held-to-maturity short-term U.S. treasuries		(2,162)		(3,900)
Redemption of held-to-maturity short-term U.S. treasuries		4,847		—
Net cash provided by (used in) investing activities		2,595		(3,982)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		—		6,539
Taxes paid related to vesting of restricted stock units		(15)		—
Net cash (used in) provided by financing activities		(15)		6,539
Effect of exchange rate changes on cash and cash equivalents		(13)		(20)
Cash and cash equivalents:
Net change in cash and cash equivalents		784		(1,727)
Cash and cash equivalents, beginning of period		6,451		7,607
Cash and cash equivalents, end of period	$	7,235	$	5,880

Supplemental disclosure of cash flow information:
Officer and employee equity awards for prior year accrued compensation	$	234	$	107
Prior year prepaid expenses repurposed to fixed assets as demonstration equipment	$	209	$	—
Non-cash impact of new lease	$	34	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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ClearSign Technologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

ClearSign Technologies Corporation (“ClearSign” or the “Company”) designs and develops products and technologies that have been shown to significantly improve key performance characteristics of industrial and commercial systems, including operational performance, energy efficiency, emission reduction, safety, and overall cost-effectiveness. The Company’s patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of selective catalytic reduction.

The Company was originally incorporated in the State of Washington in 2008. During January 2022, the Company relocated its headquarters from Seattle, Washington to Tulsa, Oklahoma. Effective June 15, 2023, the Company changed its state of incorporation to Delaware. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

Unless otherwise stated or the context otherwise requires, the terms ClearSign and the Company refer to ClearSign Technologies Corporation and its subsidiary, ClearSign Asia Limited.

Liquidity

The Company's condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2023, the Company’s cash and cash equivalents totaled $7,235 thousand, which the Company believes is sufficient to fund current operating expenses beyond twelve months from the date hereof. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

Historically, the Company has financed operations primarily through issuances of equity securities. Since inception, the Company has raised approximately $91.0 million in gross proceeds through the sale of its equity securities. During the nine months ended September 30, 2023, the Company did not raise proceeds through the issuance of common stock.

The Company has incurred losses since its inception totaling $92.8 million and expects to experience operating losses and negative cash flows for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

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Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited financial statements as of that date.

In the opinion of management, these condensed consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

The accompanying unaudited condensed consolidated financial statements include the accounts of ClearSign and its subsidiary. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Sales

The Company recognizes revenue and related cost of goods sold in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (“ASC 606”). When applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligations are satisfied. Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.

The Company’s contracts generally include progress payments from the customer upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

Contract Costs

The Company capitalizes project costs until performance obligations related to the contract are completed. The Company expenses selling and marketing expenses when incurred within the statements of operations in general and administrative expenses.

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Product Warranties

The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical or expected warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ significantly from actual warranty expense. Product warranties are included in accounts payable and accrued liabilities in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit in a checking and savings account, and short-term money market instruments with an original maturity of three months or less. Cash equivalents, which consist of short-term U.S. treasury bills, are based on quoted market prices, a Level 1 fair value measure.

Short-Term Investments

Short-term investments consist of U.S. treasuries with original maturities of twelve months or less and greater than three months. These short-term investments are classified as held to maturity and are recorded on an amortized cost basis based on the Company’s positive intent and ability to hold these securities to maturity. As of September 30, 2023, the Company has not experienced any other-than-temporary impairment of its short-term investments. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. The company evaluates whether the decline in fair value of its investments is other-than temporary at each quarter-end.

The cost basis for the Company’s short-term investments totaled approximately zero and $2,606 thousand as of September 30, 2023 and December 31, 2022, respectively. The unrealized holding gains for the Company’s short-term investments totaled approximately zero and $4 thousand as of September 30, 2023 and December 31, 2022, respectively. The Company has not experienced any continuous unrealized holding losses on these investments. The fair value for the Company’s short-term investments totaled approximately zero and $2,610 thousand as of September 30, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the contractual invoiced amount. An allowance for doubtful accounts is established, as necessary, based on past experience and management’s judgment. The determination of the collectability of amounts due from customers require the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Company’s customers. Based on a review of these factors, the Company may establish or adjust the allowance for specific customers and the accounts receivable portfolio as a whole.

Fixed Assets and Leases

Fixed assets are recorded at cost. Leases are recorded in accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes a right-of-use asset, which is included in fixed assets, net on the consolidated balance sheets, and a lease liability measured at the present value of the lease payments at the time of the lease inception or modification. Lease costs are recognized in the consolidated statement of operations over the lease term on a straight-line basis. Leases with a term of 1 year or less are considered short term leases with rent expense recognized over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life,

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whichever is shorter. All other fixed assets are depreciated over three to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent and trademark applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no continuing value in current business activity. The Company evaluates the recoverability of the carrying values of intangible assets each reporting period.

Impairment of Long-Lived Assets

The Company tests long-lived assets, consisting of fixed assets, patents, trademarks, and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected from the use and eventual disposition of the assets. In the event an asset is not fully recoverable, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Fair value is determined based on the present value of estimated expected cash flows using a discount rate commensurate with the risks involved, quoted market prices, or appraised values depending upon the nature of the assets. Losses on long-lived assets to be disposed are determined in a similar manner, except those fair values are reduced for the cost of disposal.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to establish fair value are the following:

●

Level 1 – Quoted prices in active markets for identical assets or liabilities;

●

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

●

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments primarily consist of cash equivalents, short-term investments, accounts receivable, contract assets, contract liabilities, accounts payable, and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term nature of these instruments.

The Company did not identify any other recurring or non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners

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in cost sharing, collaborative projects. During the nine months ended September 30, 2023, the Company received $60 thousand from these arrangements. During the nine months ended September 30, 2022, the Company did not receive funds from these arrangements.

Government Assistance

The Company has adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. The Company records gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the nature of expenditure. The Company accrues for reimbursement requests submitted to government entities in accounts receivable.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not the Company would not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits are recognized only if it is more likely than not that the tax benefits will be utilized in the foreseeable future.

Share-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of milestones as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Foreign Operations

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 include assets amounting to approximately $261 thousand and $172 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which $111 thousand has been paid as of September 30, 2023. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the COVID-19 pandemic.

Foreign Currency

Assets and liabilities of ClearSign Asia Limited with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive income (loss).

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants

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using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At September 30, 2023 and September 30, 2022, potentially dilutive shares outstanding amounted to 4.0 million and 3.1 million, respectively.

Recently Issued Accounting Pronouncements Adopted

In June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023. This standard did not have a material impact on the Company’s condensed consolidated financial statements.

Note 3 – Fixed Assets

Fixed Assets

Fixed assets are summarized as follows:


	September 30,		December 31,
(in thousands)	2023		2022
Machinery and equipment	$	209	$	390
Office furniture and equipment		60		177
Leasehold improvements		43		192
		312		759
Accumulated depreciation and amortization		(162)		(697)
		150		62
Operating lease ROU assets, net		256		322
Total	$	406	$	384

Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 totaled $122 thousand and $19 thousand, respectively.

Leases

The Company leases office space in Seattle, Washington, Tulsa, Oklahoma and Beijing, China. During June 2023, the Company renewed its Beijing, China lease agreement for 13 months with monthly rent at approximately $3 thousand. The Company increased the right of use asset and lease liability by $34 thousand.

During March 2023, the Company amended its Seattle lease to extend the lease term to September 2023. The amended lease reduced the square footage and lowered the monthly payment to approximately $4 thousand. The Company increased the right of use asset by $5 thousand and decreased the lease liability by $9 thousand. During October 2023, the Company entered into an agreement to lease a portion of office space for approximately $2 thousand per month for twelve months. The Tulsa and Beijing leases are classified as operating leases, with remaining terms ranging from less than twelve months to four years; contractual language requires renewal negotiations to occur at or near termination. These leases are normal and customary for office space, in that, contractual guarantees exist requiring the lessee to return the premises to its original functional state. The Company incurred restoration expenses of $31 thousand and $87 thousand for the nine months ended September 30, 2023 and twelve months ended December 31, 2022, respectively.

The Tulsa lease contains fixed annual lease payments that increase annually by 2%. The Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $10 thousand. Operating lease costs for the three and nine months ended

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September 30, 2023 were $35 thousand and $117 thousand, respectively. Operating lease costs for the three and nine months ended September 30, 2022 were $49 thousand and $138 thousand, respectively.

Supplemental balance sheet information related to operating leases is as follows:


		September 30,			December 31,
(in thousands)		2023			2022
Operating lease ROU assets, net	$	256		$	322
Lease Liabilities:
Current lease liabilities	$	78		$	133
Long term lease liabilities		186			226
Total lease liabilities	$	264		$	359

Weighted average remaining lease term (in years):		2.3
Weighted average discount rate:		5.3	%


	For the Nine Months Ended
	September 30,
(in thousands)		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	134	$	185
Non-cash impact of new leases and lease modifications
Change in operating lease liabilities	$	25	$	25
Change in operating lease ROU assets	$	39	$	—

Minimum future payments under the Company’s lease liabilities as of September 30, 2023 are as follows:


	Discounted		Payments
	lease		due under
(in thousands)	liability		lease
	payments		agreements
2023 (remaining 3 months)	$	21	$	24
2024		71		81
2025		59		66
2026		63		67
2027		50		51
Total	$	264	$	289

At September 30, 2023, $25 thousand of the Company’s future minimum lease payments represents interest.

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Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:


	September 30,		December 31,
(in thousands)	2023		2022
Patents
Patents pending	$	400	$	307
Issued patents		782		815
		1,182		1,122
Trademarks
Trademarks pending		4		6
Registered trademarks		86		95
		90		101
Other		8		8
		1,280		1,231
Accumulated amortization		(511)		(433)
	$	769	$	798

Amortization expense for the nine months ended September 30, 2023 and 2022 totaled $109 thousand and $94 thousand, respectively. Future amortization expense associated with issued patents and registered trademarks as of September 30, 2023 is as follows:


(in thousands)
2023 (remaining 3 months)	$	33
2024		125
2025		95
2026		60
2027		38
Thereafter		6
	$	357

The amortization life for patents ranges between three to five years, with trademark lives set at ten years. The Company does not amortize patents or trademarks classified as pending.

During the nine months ended September 30, 2023 and 2022, the Company assessed its patent and trademark assets, and determined $14 thousand and zero impairment costs were incurred, respectively. The Company also evaluated its strategic approach to the pursuit and protection of its intellectual property. It is the intent of the Company to continue to pursue intellectual property protection. If the Company identifies certain assets where the intellectual property does not directly align with its core technology, the Company will impair the intangible asset and write-off the asset as an expense.

Note 5 – Revenue, Contract Assets and Contract Liabilities

The Company recognized $85 thousand of revenues and $61 thousand of cost of goods sold during the three months ended September 30, 2023. The revenue and cost of goods sold relate to a sale of our boiler burner product line.

The Company recognized $1,129 thousand of revenues and $870 thousand of cost of goods sold during the nine months ended September 30, 2023. The revenue and cost of goods sold relate predominately to the Company’s process burner product line, where the Company successfully completed a burner performance customer witness test, which represented a contractual performance obligation per ASC 606.

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The Company recognized $324 thousand of revenues and $201 thousand of cost of goods sold during the three and nine months ended September 30, 2022. The revenue and cost of goods sold are mostly in connection with the completion of a technology validation project.

The Company had contract assets of $7 thousand and $20 thousand at September 30, 2023 and December 31, 2022, respectively. The Company had contract liabilities of $1,801 thousand and $247 thousand at September 30, 2023 and December 31, 2022, respectively. Of the $247 thousand contract liability balance at December 31, 2022, the Company recognized revenue of $120 thousand during the nine months ended September 30, 2023.

Note 6 – Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62.5 million shares of common stock and 2.0 million shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In July 2018, the Company completed a private equity offering and executed a Stock Purchase Agreement with clirSPV LLC (“clirSPV”) which permits participation in future capital raising transactions (the “Participation Right”) on the same terms as other investors participating in such transactions. In no event may the Participation Right be exercised to the extent it would cause clirSPV or any of its affiliates to beneficially own 20% or more of the Company’s then outstanding common stock. In May 2022, the Company signed an agreement with clirSPV, that provides for an election right to extend the Participation Right beyond the original expiration date of December 31, 2023, but to no later than June 30, 2027. This election is pursuant to specific terms and conditions and expires on December 31, 2023.

The Company has an At-The-Market (“ATM”) Offering Sales Agreement with Virtu Americas LLC, as sales agent pursuant to which it may currently sell shares of common stock with an aggregate offering price of up to $8.7 million. During the nine months ended September 30, 2023, the Company issued zero shares of its common stock from the ATM program. As of September 30, 2023, the Company has cumulatively issued approximately 1.6 million shares of common stock under the ATM program, at an average price of $3.84 per share. Gross proceeds totaled approximately $6.1 million and net cash proceeds was approximately $5.9 million.

The Company is currently subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less

than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s

public float in a 12-month period. These rules may limit future issuances of shares by the Company under its Shelf

Registration statement on Form S-3, the ATM Offering Sales Agreement or other securities offerings.

Equity Incentive Plan

On June 17, 2021, the Company's shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “2021 Plan”) which permits the Company to grant Incentive Stock Options, Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares, to eligible participants, which includes employees, directors and consultants. The Compensation Committee of the Board of Directors is authorized to administer the 2021 Plan.

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The 2021 Plan provides for an annual increase in available shares equal to the lesser of (i) 10% of the aggregate number of shares of Common Stock issued by the Company in the prior fiscal year; or (ii) such number provided by the Compensation Committee; provided, however, that the total cumulative increase in the number of shares available for issuance pursuant to this automatic share increase shall not exceed 400 thousand shares of common stock. In 2023, the board of directors approved an increase of 400,000 shares available for issuance pursuant to future awards in accordance with the terms of the 2021 Plan.

Ending balances for the 2021 Plan is as follows:

ClearSign Technologies Corp [CLIR] Filings
10-Q	[2023-11-14]
10-Q	[2023-08-14]
10-Q	[2023-05-15]
10-K	[2023-03-31]
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-03-31]
10-Q	[2021-11-12]
10-Q	[2021-08-20]
10-Q	[2021-05-17]
10-K	[2021-03-31]
10-Q	[2020-11-13]
10-Q	[2020-08-14]
10-Q	[2020-05-14]
10-K	[2020-03-30]
10-Q	[2019-11-13]
10-Q	[2019-08-14]
10-Q	[2019-05-14]
10-K	[2019-03-12]
10-Q	[2018-11-08]
10-Q	[2018-08-13]
10-Q	[2018-05-10]
10-K	[2018-03-27]
10-Q	[2017-11-09]
S-1	[2017-11-09]
10-Q	[2017-08-14]
10-Q	[2017-05-11]
10-K	[2017-02-14]
10-Q	[2016-11-14]
10-Q	[2016-08-11]
10-Q	[2016-05-12]
10-K	[2016-03-03]
10-Q	[2015-11-12]
10-Q	[2015-08-13]
10-Q	[2015-05-14]
10-K	[2015-02-26]
10-Q	[2014-11-13]
10-Q	[2014-08-12]
10-Q	[2014-05-08]
10-K	[2014-03-11]
10-Q	[2013-11-12]
10-Q	[2013-08-14]
10-Q	[2013-05-06]
10-K	[2013-02-22]
10-Q	[2012-11-08]
10-Q	[2012-08-06]
10-Q	[2012-06-11]