UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

¨ 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)

 

WASHINGTON

(State or other jurisdiction of
incorporation or organization)

 

26-2056298

(I.R.S. Employer
Identification No.)

 

12870 Interurban Avenue South

Seattle, Washington 98168

(Address of principal executive offices)

 

(206) 673-4848

(Registrant’s telephone number, including area code)

 

CLEARSIGN COMBUSTION CORPORATION

(Former name, former address and former fiscal year, if changed since last report)

 

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 x 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 x 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 x   Smaller reporting company x
    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.  o

 

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

 

As of November 12, 2019, the issuer has 26,704,761 shares of common stock, par value $0.0001, issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION 3
     
Item 1. Condensed Consolidated Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (Unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three month periods during the nine months ended September 30, 2019 and 2018 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited) 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
     
Item 4. Controls and Procedures 25
     
PART II OTHER INFORMATION 25
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
     
Item 3. Defaults Upon Senior Securities 26
     
Item 4. Mine Safety Disclosures 26
     
Item 5. Other Information 26
     
Item 6. Exhibits 27
     
SIGNATURES 28

 

 2 

 

 

PART I-FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

 

   September 30,   December 31, 
   2019   2018 
ASSETS          
Current Assets:          
Cash and cash equivalents  $8,077,000   $8,949,000 
Short-term investments   1,999,000    6,923,000 
Contract assets   53,000    39,000 
Prepaid expenses and other assets   536,000    500,000 
Total current assets   10,665,000    16,411,000 
           
Fixed assets, net   734,000    457,000 
Patents and other intangible assets, net   1,244,000    1,759,000 
Other assets   10,000    10,000 
           
Total Assets  $12,653,000   $18,637,000 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current Liabilities:          
Accounts payable and accrued liabilities  $816,000   $1,080,000 
Current portion of lease liabilities   176,000    216,000 
Accrued compensation and taxes   477,000    341,000 
Total current liabilities   1,469,000    1,637,000 
Long Term Liabilities:          
Long term lease liabilities   467,000    91,000 
Total liabilities   1,936,000    1,728,000 
           
Commitments and contingencies          
           
Stockholders' Equity:          
Preferred stock, $0.0001 par value, zero shares issued and outstanding   -    - 
Common stock, $0.0001 par value, 26,704,761 and 26,697,261  shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively   3,000    3,000 
Additional paid-in capital   77,088,000    76,417,000 
Accumulated deficit   (66,374,000)   (59,511,000)
Total stockholders' equity   10,717,000    16,909,000 
           
Total Liabilities and Stockholders' Equity  $12,653,000   $18,637,000 

 

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

 

 3 

 

 

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

 

   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
Sales  $-   $-   $-   $530,000 
Cost of goods sold   -    9,000    1,000    424,000 
                     
Gross profit (loss)   -    (9,000)   (1,000)   106,000 
                     
Operating expenses:                    
Research and development, net of grants   796,000    980,000    2,563,000    3,133,000 
General and administrative   1,342,000    1,326,000    4,399,000    3,956,000 
                     
Total operating expenses   2,138,000    2,306,000    6,962,000    7,089,000 
                     
Loss from operations   (2,138,000)   (2,315,000)   (6,963,000)   (6,983,000)
                     
Other income:                    
Interest income   30,000    23,000    100,000    24,000 
                     
Net loss  $(2,108,000)  $(2,292,000)  $(6,863,000)  $(6,959,000)
                     
Net loss per share - basic and fully diluted  $(0.08)  $(0.09)  $(0.26)  $(0.32)
                     
Weighted average number of shares outstanding - basic and fully diluted   26,702,288    25,555,705    26,699,825    21,573,884 

 

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

 

 4 

 

 

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

For the Three month periods during the Nine Months Ended September 30, 2019 and 2018

  

   Common Stock   Additional   Accumulated   Total
Stockholders'
 
   Shares   Amount   Paid-In Capital   Deficit   Equity 
Balances at December 31, 2018   26,697,261   $3,000   $76,417,000   $(59,511,000)  $16,909,000 
Shares issued for services ($1.44 per share)   2,500    -    3,000    -    3,000 
Fair value of stock options issued in payment of accrued compensation   -    -    100,000    -    100,000 
Share based compensation   -    -    233,000    -    233,000 
Net loss   -    -    -    (2,329,000)   (2,329,000)
Balances at March 31, 2019   26,699,761    3,000    76,753,000    (61,840,000)   14,916,000 
                          
Shares issued for services ($1.44 per share)   2,500    -    4,000    -    4,000 
Fair value of stock options issued for board service   -    -    69,000    -    69,000 
Share based compensation   -    -    141,000    -    141,000 
Net loss   -    -    -    (2,426,000)   (2,426,000)
Balances at June 30, 2019   26,702,261    3,000    76,967,000    (64,266,000)   12,704,000 
                          
Shares issued for services ($1.44 per share)   2,500    -    4,000    -    4,000 
Fair value of stock options issued for board service   -    -    34,000    -    34,000 
Share based compensation   -    -    83,000    -    83,000 
Net loss   -    -    -    (2,108,000)   (2,108,000)
Balances at September 30, 2019   26,704,761   $3,000   $77,088,000   $(66,374,000)  $10,717,000 

  

   Common Stock   Additional   Accumulated   Total Stockholders' 
   Shares   Amount   Paid-In Capital   Deficit   Equity 
Balances at December 31, 2017   15,608,853   $2,000   $52,441,000   $(50,011,000)  $2,432,000 
Shares issued in stock offering ($2.25 per share)   5,750,000    -    12,937,000    -    12,937,000 
Issuance costs of rights offering   -    -    (1,014,000)   -    (1,014,000)
Shares issued for services ($3.50 per share)   2,500    -    9,000    -    9,000 
Share Based Compensation   -    -    50,000    -    50,000 
Net loss   -    -    -    (2,278,000)   (2,278,000)
Balances at March 31, 2018   21,361,353    2,000    64,423,000    (52,289,000)   12,136,000 
                          
Shares issued for services ($3.50 per share)   2,500    -    8,000    -    8,000 
Shares issued for board service ($1.85 per share)   54,056    -    100,000    -    100,000 
Share Based Compensation   -    -    61,000    -    61,000 
Net loss   -    -    -    (2,389,000)   (2,389,000)
Balances at June 30, 2018   21,417,909    2,000    64,592,000    (54,678,000)   9,916,000 
                          
Shares issued in stock offering ($2.25 per share)   5,213,543    1,000    11,730,000    -    11,731,000 
Issuance costs of rights offering   -    -    (143,000)   -    (143,000)
Shares issued for services ($3.50 per share)   2,500    -    9,000    -    9,000 
Shares issued for board service ($1.85 per share)   27,028    -    50,000    -    50,000 
Share Based Compensation   -    -    59,000    -    59,000 
Net loss   -    -    -    (2,292,000)   (2,292,000)
Balances at September 30, 2018   26,660,980   $3,000   $76,297,000   $(56,970,000)  $19,330,000 

 

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

 

 5 

 

 

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   For the Nine Months Ended September 30, 
   2019   2018 
Cash flows from operating activities:          
Net loss  $(6,863,000)  $(6,959,000)
Adjustments to reconcile net loss to net cash used          
in operating activities:          
Common stock issued for services   11,000    176,000 
Share based compensation   560,000    170,000 
Depreciation and amortization   185,000    267,000 
Abandonment and impairment of capitalized patent costs   733,000    35,000 
Change in operating assets and liabilities:          
Contract assets   (14,000)   145,000 
Prepaid expenses and other assets   (35,000)   (210,000)
Accounts payable and accrued liabilities   (270,000)   10,000 
Accrued compensation and taxes   236,000    43,000 
Net cash used in operating activities   (5,457,000)   (6,323,000)
           
Cash flows from investing activities:          
Acquisition of fixed assets   (13,000)   (44,000)
Disbursements for patents and other intangible assets   (326,000)   (313,000)
Maturity of short term treasury bills   4,924,000    - 
Net cash provided by (used in) investing activities   4,585,000    (357,000)
           
Cash flows from financing activities:          
Proceeds from issuance of common stock,          
net of offering costs   -    23,511,000 
Net cash provided by financing activities   -    23,511,000 
           
Net increase (decrease) in cash and cash equivalents   (872,000)   16,831,000 
Cash and cash equivalents, beginning of period   8,949,000    1,247,000 
Cash and cash equivalents, end of period  $8,077,000   $18,078,000 
           
Supplemental disclosure of non-cash operating activities:          
           
During the nine months ended September 30, 2019, the Company issued stock options to purchase a total of 159,100 shares of common stock to certain of its officers and employees in satisfaction of $100,000 of accrued compensation at December 31, 2018.          
           
Effective as of July and August 2019, respectively, the Company exercised options to extend both the Seattle and Tulsa office leases which resulted in adjustments to the right of use assets and related lease liabilities by $505,000.                 

 

 

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

 

 6 

 

 

 

ClearSign Technologies Corporation and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1 – Organization and Description of Business

 

ClearSign Technologies Corporation (ClearSign or the Company) designs and develops technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. The Company’s primary technologies include its ClearSign Core™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation, and ClearSign Eye™ sensing technology that provides robust and advanced flame and flammability detection in flames or hydrocarbon containing gas mixtures. The Company is headquartered in Seattle, Washington and was incorporated in the state of Washington in 2008 under the name ClearSign Combustion Corporation. The Company changed its name to ClearSign Technologies Corporation on November 12, 2019.  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” refers to ClearSign Technologies Corporation and its wholly-owned subsidiary, ClearSign Asia Limited.

 

Liquidity

 

The Company’s technologies are currently in field development and have generated nominal revenues from operations to date. 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. The Company has historically financed its operations primarily through issuances of equity securities, including $11.9 million in

proceeds, net of offering costs, from a stock offering completed on February 27, 2018 and $11.6 million in proceeds, net of offering costs, from a stock offering completed on July 20, 2018. The Company has incurred losses since its inception totaling $66,374,000 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 research and development 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.

 

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 balance sheet at December 31, 2018 has been derived from the Company’s audited financial statements.

 

In the opinion of management, these consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These 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, 2018. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

 

 7 

 

 

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 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 FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control and performance obligations are satisfied. Typically, the Company’s contracts with customers have performance obligations regarding air emissions and operational performance that are satisfied upon completion of service. Since this is the singular performance obligation and cannot be achieved until the air emissions and operational performance have been successfully tested, revenue related to the contracts is recognized upon project completion.

 

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 acceptance by the customer the projects can be recorded as revenue.

 

The Company's contracts with customers contain no variable considerations or incentives or discounts that would cause revenue to be allocated or adjusted over time. Therefore, no separate methods of evaluating the contracts other than consideration of the price at achievement of the performance objectives was used in satisfying the review requirements of ASC 606.

 

Contract Acquisition Costs and Practical Expedients

 

For contracts that have a duration of less than one year, the Company follows ASC 606 practical expedients and expenses those costs when incurred; for contracts with a life exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company generally expenses sales commissions when earned. The Company records those costs within general and administrative expenses.

 

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 warranty experience and current product performance trends, and are recorded at the time revenue is recognized as a component of cost of sales. 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. The warranty liabilities are included in accrued liabilities in the balance sheets.

 

Cash and Cash Equivalents

 

Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash is maintained with a commercial bank where accounts are generally guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company’s deposits may at times exceed this limit. The Company also maintains a cash balance in China which is insured up to $70,000 (500,000RMB). The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

 8 

 

 

Short-Term Investments

 

Short-term investments consist of U.S. treasury bills 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 which approximates fair value.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management’s judgment, deserve current recognition in estimating bad debts. The determination of the collectability of amounts due from customer accounts requires 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 on the balance sheet at the time of lease inception or modification a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Operating leases with a term of 1 year or less are recognized on a straight line basis over the term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

 

Patents and Trademarks

 

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

 

Impairment of Long-Lived Assets

 

The Company tests long-lived assets, consisting of fixed assets, patents 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 to result from the use and eventual disposition of the assets. In that event, 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. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.

 

 9 

 

 

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 and cash equivalents, short-term investments, accounts payable and accrued liabilities. 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 maturities of these instruments.

 

The Company did not identify any other 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, consulting fees, rent, utilities, depreciation, and consumables.

 

During the nine months ended September 30, 2019, the Company received $108,000 to partially fund specific research and development activity relating to its ECC technology. Since these funds were provided without expectation of reciprocation, except notification of research results, the funds received were offset against the related research and development costs incurred.

 

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 these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

 

Stock-Based Compensation

 

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the 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. Stock compensation for stock granted 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 consolidated financial statements as of September 30, 2019 and December 31, 2018 include assets amounting to approximately $149,000 and $199,000, respectively, relating to operations of the Company in China. It is always possible unanticipated events in foreign countries could disrupt the Company’s operations.

 

 10 

 

 

Foreign Currency

 

The functional currency of ClearSign Asia Limited is the U.S. dollar. The Company remeasures the transactions denominated in Chinese Yuan at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures ClearSign Asia Limited’s monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income (expense), net in the consolidated statements of operations. Foreign currency exchange gain (losses) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

 

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 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, 2019 and 2018, potentially dilutive shares outstanding amounted to 2,195,670 and 3,534,579, respectively.

 

Recently Adopted Standards

 

In June 2018 FASB issued ASU No. 2018-07 Compensation-Stock Compensation. The amendments in this update expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company currently does not believe this amendment applies to any of its transactions at this time.

 

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s consolidated financial statement presentation or disclosures.

 

Note 3 – Fixed Assets

 

Fixed assets are summarized as follows:

   September 30,   December 31, 
   2019   2018 
   (unaudited)      
Machinery and equipment  $863,000   $853,000 
Office furniture and equipment   178,000    186,000 
Leasehold improvements   150,000    150,000 
Right of use asset-operating leases   1,138,000    637,000 
Accumulated depreciation and amortization   (1,595,000)   (1,369,000)
   $734,000   $457,000 

 

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The Company has a triple net operating lease for office and laboratory space in Seattle, Washington through March 2020 with rent of approximately $12,000 per month plus triple net operating costs. The Company also has a triple net operating lease for office space in Tulsa, Oklahoma with a term that was to end in August 2019 and monthly rent of approximately $2,000 per month plus triple net operating costs. Both leases include lessee renewal options for three years at the then prevailing market rate. Effective as of July and August 2019, the Company exercised the option to renew both the Seattle lease and the Tulsa lease for three years. The new term of the Seattle lease will begin in April 2020 and rent will be abated for April and May 2020, although the Company will be responsible for its proportionate share of expenses and taxes. The Company will pay a monthly rent of approximately $13,500 beginning on June 1, 2020 through March 2021. The monthly rent will increase on the first day of April of each succeeding year by approximately 3% until the end of the term in May 2023. The rent for the Tulsa lease is approximately $2,200 a month beginning September 2019 through August 2022 with an annual 2.5% increase. The Company has an operating lease for office space in Beijing, China through November 2020 with a monthly rent of approximately $6,000.

 

Lease costs for the nine months ended September 30, 2019 and 2018 and other quantitative disclosures are as follows (unaudited):

 

   For the three months ended Setpember 30,   For the nine months ended September 30, 
   2019   2018   2019   2018 
Lease cost:                    
Operating lease cost  $58,000   $52,000   $175,000   $158,000 
Total lease cost  $58,000   $52,000   $175,000   $158,000 
                     
Other information:                    
Cash paid for amounts included in the measurement of lease liabilities:                
Operating cash flows from operating leases   $178,000           
                 
Right-of-use assets obtained in exchange for new operating lease liabilities   $505,000           
For operating lease:                
Weighted average remaining lease term (in years)    3.34           
Weighted average discount rate    7.17%          

 

During the nine months ended September 30, 2019, the Company recorded a right-of-use assets and operating lease liabilities amounting to $505,000 upon extensions of the leases for its office space in Seattle, Washington through May 2023 and its offices space in Tulsa, Oklahoma through August 2022.

 

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Minimum future payments under the Company’s leases at September 30, 2019 and their application to the corresponding lease liabilities are as follows (unaudited):

 

   Discounted lease
liability payments
   Payments due under lease agreements 
2019 (remaining 3 months)   48,000    59,000 
2020   177,000    215,000 
2021   169,000    193,000 
2022   178,000    190,000 
2023   71,000    73,000 
Total     $643,000   $730,000 

 

Note 4 – Patents and Other Intangible Assets

 

Patents and other intangible assets are summarized as follows:

 

   September 30,   December 31, 
   2019   2018 
   (Unaudited)      
Patents          
Patents pending  $847,000   $1,202,000 
Issued patents   558,000    761,000 
    1,405,000    1,963,000 
Trademarks          
Trademarks pending   64,000    55,000 
Registered trademarks   23,000    23,000 
    87,000    78,000 
Other   8,000    8,000 
    1,500,000    2,049,000 
Accumulated amortization   (256,000)   (290,000)
   $1,244,000   $1,759,000 

 

The Company monitors and assesses the net realizable value of the Company’s patent portfolio at each reporting period. As a result of management’s assessment of the Company’s patent portfolio in terms of cost-effectiveness and alignment with the focus on those patents that have significant future commercial value to the Company, an impairment charge of $337,000 and $733,000, respectively, was recorded during the three and nine months ended September 30, 2019.

 

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Future amortization expense associated with issued patents and registered trademarks as of September 30, 2019 is estimated as follows (unaudited):

 

2019 (remaining 3 months)  $31,000 
2020   123,000 
2021   90,000 
2022   54,000 
2023   21,000 
Thereafter   6,000 
   $325,000 

 

Note 5 – Sales, Contract Assets and Contract Liabilities

 

The Company recognized no revenue during the nine months ended September 30, 2019. For the nine months ended September 30, 2018, the Company recognized revenues totaling $530,000 from completed flare projects. At September 30, 2019, the Company had contract assets of $53,000 and contract liabilities of $0. The cost of goods sold of $1,000, recognized during the nine months ended September 30, 2019, related to additional warranty costs incurred for previously completed contracts.

 

Note 6 – Stockholders’ Equity

 

Common Stock and Preferred Stock

 

The Company is authorized to issue 62,500,000 shares of common stock and 2,000,000 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.

 

Equity Incentive Plan

 

The Company has adopted and the Company’s shareholders have approved the ClearSign Combustion Corporation 2011 Equity Incentive Plan (the Plan) which permits the Company to grant to eligible participants, including officers, employees, directors, consultants and advisors, options to purchase shares of common stock, stock awards and stock bonuses. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. At the Company’s Annual Meeting held on May 8, 2019, the shareholders approved an amendment to the Plan that (i) increased the number of shares of common stock in the reserve by 1,231,593 to a total of 4,004,214 shares of common stock, representing approximately 15% of the number of shares of the Company’s stock outstanding and (ii) increased the number of shares that may be issued pursuant to the evergreen provision, if any, to the lesser of 15% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. Therefore, as of September 30, 2019, the number of shares of common stock reserved for issuance under the Plan totaled 4,004,589.

 

In the nine months ended September 30, 2019, the Company made awards of stock options for the purchase of an aggregate 1,298,718 shares of common stock to its employees and directors from the Plan. Of these awards, options covering 159,100 shares of common stock were awarded in lieu of cash bonuses for 2018 and the expense was recorded during the year ended December 31, 2018. An option for the purchase of 258,618 shares of common stock was issued from the Plan to the Company’s Chief Executive Officer as part of options for the purchase of an aggregate 600,000 shares of common stock granted to him in conjunction with his recruitment and employment, as described below (see Inducement Stock Options). Options covering an additional 381,000 shares of common stock have been issued as payment to the Company’s directors and are described below. The remaining stock option awards covering 500,000 shares of common stock have exercise prices at the grant date fair value ranging from $0.87 to $2.25 per share, contractual lives of 10 years, and vest over 2 years. The fair value of the stock options estimated on the date of grant using the Black-Scholes option valuation model was $259,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

 

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Expected life  5.75 years
Weighted average volatility  71%  
Forfeiture rate  20%  
Weighted average risk-free interest rate  2.51%  
Expected dividend rate  0%  

 

Outstanding stock option awards at September 30, 2019 and December 31, 2018 totaled 2,115,670 shares and 880,277 shares, respectively, with the right to purchase 1,150,375 shares and 587,962 shares being vested and exercisable at September 30, 2019 and December 31, 2018, respectively. The recognized compensation expense associated with stock option awards for the three and nine months ended September 30, 2019 and 2018 totaled $58,000 and $274,000 and $59,000 and $170,000, respectively. On September 30, 2019 the number of shares reserved under the Plan but unissued totaled 1,297,040. At September 30, 2019, there was $316,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.7 years. The intrinsic value of outstanding stock options was $131,000 at September 30, 2019.

 

During 2019, the Company’s directors are compensated solely in stock option awards. In addition to being paid for their services as directors, individual directors are paid for committee membership, for services as a committee chair and for services as a lead director. 381,000 options for the purchase of shares of common stock were granted to members of the Board of Directors for service during 2019. The options have an exercise price of $1 and vest in equal increments at the end of each quarter. The recognized expense associated with Board stock option awards for the three and nine months ended September 30, 2019 and 2018 totaled $34,000 and $103,000, and $0 and $0, respectively. At September 30, 2019 there was $34,000 of unrecognized cost related to non-vested Board fees granted under the Plan. The following assumptions were utilized in the calculation of the fair value of the stock options:

 

Expected life  5.75 years
Weighted average volatility  71%  
Forfeiture rate  20%  
Weighted average risk-free interest rate  2.25%  
Expected dividend rate  0%  

  

Consultant Stock Plan

 

The Company has a Consultant Stock Plan (the Consultant Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive awards from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on September 30, 2019 totaled 253,367 with 192,617 of those shares unissued. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. The Company granted 10,000 shares of common stock to a consultant under the Consultant Plan for services performed and to be performed during the period from August 13, 2018 to August 31, 2019. The fair value of the stock at the time of grant was $1.44 per share for a total value of $14,000. The Consultant Plan expense for the three and nine months ended September 30, 2019 and 2018 was $4,000 and $11,000 and $9,000 and $26,000, respectively.

 

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Inducement Stock Options

 

Pursuant to the rules of The Nasdaq Stock Market, and in compliance with those rules, the Company may issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. Inducement awards need not be approved by the Company’s shareholders. During the nine months ending September 30, 2019 the Company granted options to purchase 600,000 shares of common stock as an inducement to its President and Chief Executive Officer to accept the Company’s offer of employment. (See Note 7.) The stock options have exercise prices at the award date fair value ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and vest over 2 years. An option to purchase 258,618 shares was issued from the Company’s 2011 Equity Incentive Plan. Non-qualified stock options covering the remaining 341,382 shares were issued from the Company’s reserve of authorized but unissued shares of common stock. The fair value of the stock options estimated on the date of grant using the Black-Scholes option valuation model was $329,000. The recognized compensation expense associated with these awards for the three and nine months ended September 30, 2019 was $24,000 and $183,000, respectively. The remaining unrecognized compensation expense associated with these awards is $146,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

 

Expected life  5.75 years
Weighted average volatility  71%  
Forfeiture rate  20%  
Weighted average risk-free interest rate  2.55%  
Expected dividend rate  0%  

 

Warrants

 

At September 30, 2019, warrants for the purchase of 80,000 shares of common stock at an exercise price of $1.80 per share were outstanding and had a remaining life of 1.39 years.

 

The intrinsic value of the outstanding warrants was $0 at September 30, 2019.

 

Note 7 – Commitments and Contingencies

 

On January 28, 2019 (the “Effective Date”), the Company and Colin James Deller entered into an employment agreement (the “Agreement”) pursuant to which the Company employed Dr. Deller as its President until April 1, 2019, at which time Dr. Deller became the Company’s Chief Executive Officer. Pursuant to the Agreement, the Company pays Dr. Deller an annual salary of $350,000. As an inducement to accept employment with the Company, Dr. Deller was also granted an incentive option to purchase 400,000 shares of the Company’s common stock at an exercise price of $1.16 per share and an incentive option to purchase 200,000 shares of the Company’s common stock at an exercise price of $2.25 per share. Each option has a term of 10 years and will vest as follows: the right to purchase one-third of the shares of common stock subject to the option vested on the Effective Date; the right to purchase one-third of the shares will vest on the first anniversary of the grant date; and the right to purchase one-third of the shares will vest on the second anniversary of the grant date. The Company also agreed to pay certain expenses, not to exceed the sum of $100,000, related to Dr. Deller’s move from Tulsa, Oklahoma to Seattle, Washington, including reasonable expenses related to the sale of his home in Tulsa. As a temporary adjustment for the difference in the cost of living between Tulsa and Seattle (the “Relocation Adjustment”), for a period of four years (the “Payment Period”) from the Effective Date, the Company has also agreed to pay up to $6,000 a month to Dr. Deller for expenses related to temporary housing and travel to and from Tulsa to Seattle. If Dr. Deller purchases a home in the Seattle area, the Relocation Adjustment will continue to be paid through the expiration of the Payment Period, although the Relocation Adjustment may be adjusted or terminated upon mutual agreement of Dr. Deller and the Company. The Agreement may be terminated by the Company for cause, as defined in the Agreement, due to Dr. Deller’s death or disability, upon 30 days’ notice to Dr. Deller or as a result of a change in control, as defined in the Agreement. With the exception of a termination for cause, if Dr. Deller’s employment is terminated by the Company, aside from accrued but unpaid salary, bonus (if any) and business expenses, Dr. Deller will receive the balance of the unpaid Relocation Adjustment and nine months of his annual salary.

 

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Through September 30, 2019, the Company has paid Dr. Deller $25,000 in Relocation Adjustment payments to reimburse temporary housing costs.

 

Litigation

 

From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings.

 

Indemnification Agreements

 

The Company maintains indemnification agreements with its directors and officers that may require the Company to indemnify these individuals against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by law.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may,” “will” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers, or technologies; future performance or results of anticipated products; anticipated expenses; and future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to:

 

  · our history of losses;

  · our ability to successfully develop and implement our technology and achieve profitability;

  · our limited operating history;

  · emerging competition and rapidly advancing technology in our industry that may outpace our technology;

  · changes in government regulations that could substantially reduce, or even eliminate, the need for our technology;
  · customer demand for the products and services we develop;

  · the impact of competitive or alternative products, technologies and pricing;

  · our ability to manufacture any products we design;

  · general economic conditions and events and the impact they may have on us and our potential customers;

  · our ability to obtain adequate financing in the future;

  · our ability to continue as a going concern;

  · our success at managing the risks involved in the foregoing items; and

  · other factors discussed in this report and in the section titled “Risk Factors” in our Annual Report on Form 10-K.

 

Forward-looking statements may appear throughout this report, including, without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.

 

Unless otherwise stated or the context otherwise requires, the terms “ClearSign,” “we,” “us,” “our” and the “Company” refer to ClearSign Technologies Corporation and its subsidiary.

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes included in our Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled “Risk Factors” in our Annual Report on Form 10-K and in Part II, Item 1A of our Form 10-Q for the quarter ended June 30, 2019.

 

OVERVIEW

 

We design and develop technologies that have been shown to significantly improve key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. We believe that our patented ClearSign Core™ technology can enhance the performance of combustion systems in a broad range of markets, including the energy (upstream oil production and down-stream refining), institutional commercial and industrial boiler, chemical, and petrochemical industries. Our ClearSign Core technology, which is our primary technology, uses a porous ceramic matrix at a distance to a burner to significantly reduce flame length and achieve very low emissions without the need for external flue gas recirculation, selective catalytic reduction, or excess air systems. To date, our operations have been funded primarily through sales of our equity securities. We have earned nominal revenue since inception in 2008.

 

Our combustion technology has been successfully installed in commercial projects across four different combustion applications. Based on the results of our testing and initial field installations, we believe that ClearSign Core is more effective and cost-efficient than current industry-standard air pollution control technologies, such as selective catalytic reduction devices, low- and ultra-low NOx burners (which address nitrogen oxides or NOx), external flue gas recirculation systems and other similar technologies. Such systems are used in our current target market segments of petroleum refining and petrochemical process heaters, large-scale once through steam generators (OTSGs), enclosed flares, institutional commercial and industrial boilers and other similar equipment.

 

Based on the limited operating data we have obtained from installations, burners utilizing ClearSign Core ceramic technology provide increased heat transfer efficiency compared to standard burner designs. This is consistent with the physics of heat transfer and the mechanisms by which the ceramic technology functions. The increased heat transfer efficiency as reported potentially results in cost savings in the low to mid-single digit range which would produce an extremely attractive pay-back period for an investment in ClearSign Core technology-based burners. In addition, since the flames in a Duplex system are established within the confines of a ceramic enclosure and form with minimal “bulking up” from dilutive inert flue gasses, the flame volumes are small, thus virtually eliminating flame impingement and enabling the burners to function better in tightly spaced heaters. As a result, heaters utilizing ClearSign technology appears to require less maintenance, operate at a lower cost, have increased productivity when heater operation is otherwise constrained by the internal furnace volume, and, more importantly, have decreased process downtime.

 

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We were incorporated in Washington on January 23, 2008 under the name ClearSign Combustion Corporation. We changed our name to ClearSign Technologies Corporation on November 12, 2019. The address of our corporate headquarters is 12870 Interurban Avenue South, Seattle, Washington 98168 and our telephone number is (206) 673-4848. Our website can be accessed at www.clearsign.com. The information contained on or that may be obtained from our website is not a part of this report. To date, our operations have been located in the United States, but we have opened an office in Beijing to further our pursuit of opportunities in China and are reviewing opportunities in Europe.

 

Our Industry

 

The combustion and emissions control markets are significant, both in the wide array of industries in which the systems are used and in the amount of money spent in installing and upgrading systems. Combustion systems are used to provide heat for all manner of industrial processes, including boilers, furnaces, kilns and gas turbines. In order to maximize energy efficiency while keeping pace with regulatory guidelines for air pollution emissions, operators of combustion systems are continually installing, maintaining and upgrading a variety of costly process control, air pollution control and monitoring systems. Although we believe that there are many potential markets for our ClearSign Core technology, to date we have prioritized the introduction of ClearSign Core to petroleum refining process heaters, steam generation, district heating and enclosed flares.

 

Our Proprietary Technology

 

Our ClearSign Core burner technology consists of an industrial burner body and a downstream porous ceramic matrix. When the unreacted mix of gaseous fuel and air is directed at the ceramic matrix, the mixture ignites and stabilizes within the matrix itself. Because the fuel and air have more time to mix, the homogeneous mixture mitigates NOx-forming hot spots and chemistry that are typically produced. The mixing and combustion in the ceramic matrix results in a dramatically shorter flame, and modification of the matrix enables a high level of control over the shape of the flame allowing it to be optimized for a wide range of different applications. NOx, a regulated greenhouse gas pollutant comprised largely of nitrogen oxide and nitrogen dioxide, can be greatly reduced to levels of 5 ppm or below, depending on the specific application, without any external fans or associated power, thereby minimizing harmful emissions while improving system efficiency. A shorter flame can often allow for operation of the furnace at a higher capacity. We believe ClearSign Core’s radiant heat transfer from the ceramic matrix enhances thermal efficiency, minimizes the possibility of flame impingement and reduces the likelihood of carbon deposits forming on the inside surfaces of the process tubes (coking) or failure of process tubes, thereby extending the length of time a heater can remain in operation before the need for maintenance.

 

Our ClearSign Core Plug & Play® product provides a more simplified, pre-engineered and standardized direct burner replacement for traditional refinery process heaters. We believe that this product will reduce the customized engineering associated with typical retrofits and lend itself to mass production. The product derives its name from the fact that it is designed to allow quick and easy installation into a multi-burner heater or furnace and possibly allow the heater to continue operating during installation rather than be shut down. The ability to install the ClearSign Core Plug & Play while the remaining burner system is operational will allow customers to limit down time and shorten the sales cycle often prolonged by annual or semi-annual scheduled maintenance.

 

To date, we have deployed our ClearSign Core technology through retrofits and replacements of existing burners and complete replacement units in the case of our Plug & Play products. Retrofits often involve engineering around an existing burner architecture that can complicate the ClearSign Core burner installation, whereas replacements are more straightforward and more amenable to being sold and installed by third parties, enabling more expansive channels to market. This is especially the case after the introduction of our Plug & Play technology in February 2017 and simplified control and operation in April 2019. Because of this, we have focused the development of our technology to provide designs that can be included into our customers’ equipment as self-contained modules or assemblies rather than as individual projects involving the re-engineering of existing burner systems. In this form, we believe that ClearSign Core burner technology is ideally suited for installation into new heaters and burner replacement markets, including heater and furnace types requiring large quantities of burners. We have also developed ClearSign Core flare and boiler burner technology into a similar repeatable form to aid its inclusion in standard industry equipment on a commercial scale.

 

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For simplification and marketing, we have adopted the term “ClearSign Coreä” to refer to the inclusion of our standardized proprietary combustion technology into a variety of combustion systems including, but not limited to, burners, furnaces, boilers, heaters, thermal oxidizers and flares.

 

We have now achieved emission results in multiple applications that were superior to current local Best Available Control Technology (BACT) levels in multiple installations in California related to three of our five target industries. We intend to continue to demonstrate ClearSign Core capabilities through (i) working with local air quality officials to demonstrate the effectiveness of the technology, (ii) operating in-place units, (iii) engineering and testing with new customers, (iv) pursuing additional lab research and developing new applications (e.g. institutional commercial and industrial boilers) and next generation improvements to ClearSign Core design and standardization, including the pursuit of more complete systems similar to the ClearSign Core Plug & Play for application in other vertical markets, and (v) assisting our customers in making emission results available for designation as BACT by local regulatory bodies.

 

Business Model and Monetization Strategy

 

As described above, we have developed our ClearSign Core technology into standardized configurations that can be incorporated into equipment sold by the major vendors in the industry in an effort to gain quick access to large global markets. For brand recognition and marketing purposes, we have named the inclusion of our technology into OEM equipment as the “ClearSign Core”. This approach allows us to sell our technology business to business, through an arrangement similar to a license, to selected alliance companies which then manufacture and deliver the complete equipment to the final customers. The objective of this business model is to enable ClearSign to leverage our technology along with the resources and networks of our supply partners to sell to the global markets. The details of any such collaborative agreements will vary depending on the nature of the individual markets and requirements to achieve an optimum collaboration with our partners. At this time, we have entered into one such agreement and have received demonstrated interest in collaboration from other major equipment suppliers in all major verticals and target markets.

 

Our Target Markets

 

We compete in the combustion and emissions control markets. These are highly competitive industries that are currently dominated by companies that have both established products as well as substantially greater infrastructure, customer support networks, and financial resources than we do. Based on the testing and the field installations completed to date, however, we believe that our ClearSign Core technology provides a unique and powerful ability to improve energy efficiency and operational performance, while at the same time significantly reducing emissions, leading to an overall cost-effective installation. Further, we believe that the ClearSign burner technology is well suited to create substantial synergistic value through its incorporation into the mainstream commercial offerings of the market incumbents as a “ClearSign Core”, thus leveraging the ClearSign technology and the established breadth and capabilities of collaborating companies.

 

We are targeting the following segments of the combustion market:

 

·institutional commercial and industrial boiler segment;
·refinery and petrochemical segment;
·large industrial segment;
·enclosed flare segment; and
·enhanced oil recovery segment  

 

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In each segment, we are marketing solutions with our ClearSign Core technology that we believe could simultaneously improve both operational efficiency and pollution control characteristics through (i) cost-effective retrofitting of our ClearSign Core technology into existing standard system designs, and (ii) new system designs.

 

Our target markets are greatly affected by air emission regulations and economic conditions, including the price and profitability related to crude oil and its processing. We believe that operators in all of our target markets are under intense pressure to meet current and proposed federal, state and local emissions standards. The standards applicable to our target markets have been developed over the past 50 years with broad political input. Due to the localized effects of poor air quality, we anticipate these standards to continue regardless of national political leadership.

 

Emissions standards in the United States largely emanate from the Clean Air Act, which is administered by the Environmental Protection Agency (EPA) and regulates nine common criteria air pollutants, including ground-level ozone. These regulations are enforced by state and local air quality districts as part of their compliance plans. As a precursor to ground-level ozone, NOx is a regulated pollutant by local air quality districts in order to achieve the EPA limits. The 8-hour ground-level ozone regulations have been reduced from 84 parts per billion (ppb) in 1997, to 75 ppb in 2008, and 70 ppb in 2015, with the requirement of realizing these levels approximately 25 years following the year of legislation. The areas of non-attainment related to this 1997 limit of 84 ppb are depicted below in the map on the left and the projected areas of non-attainment related to the 2015 limit of 70 ppb are depicted below in the map on the right.

 

   
Non-attainment areas under the 1997 limit of 84 ppb Projected non-attainment areas under the 2015 limit of 70 ppb
Source: EPA, August 2016 Source: URS, August 2015

 

Additionally, we believe that current emissions standards in Europe, China, the Middle East, other parts of Asia and Canada will continue to trend towards stricter air emission standards as these jurisdictions seek to achieve cleaner air. Existing and new emissions standards in such jurisdictions may create additional market opportunities for us.

 

Historically, we have funded our operations through the sale of our securities. Over the years we have raised gross proceeds of $72 million and net proceeds of $65.9 million through six offerings of our securities.

 

Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for research, costs associated with development activities including materials, sub-contractors, travel and administration, legal and accounting expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly-traded technology company. We currently have 15 full-time and 1 part-time employees. We anticipate increasing the number of employees required to support our activities in the areas of research and development, sales and marketing, and general and administrative functions.

 

The amount that we spend for any specific purpose may vary significantly, and could depend on a number of factors including, but not limited to, the pace of progress of our commercialization and development efforts, actual needs with respect to product testing, development and research, market conditions, and changes in or revisions to our sales and marketing strategies. 

 

 21 

 

 

Research, development, and commercial acceptance of new technologies are, by their nature, unpredictable.  Although we undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations.  If the net proceeds from these offerings are insufficient for this purpose, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives.

 

We cannot assure that our technologies will be accepted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development plans by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations.

 

CRITICAL ACCOUNTING POLICIES

 

The following discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report for a more complete description of our significant accounting policies.

 

Revenue Recognition and Cost of Goods Sold. The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control and performance obligations are satisfied. Typically, the Company’s contracts with customers have performance obligations regarding air emissions and operational performance that are satisfied upon completion of service. Since this is the singular performance obligation and cannot be achieved until the air emissions and operational performance have been successfully tested, revenue related to the contracts is recognized upon project completion.

 

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 warranty experience and current product performance trends, and are recorded at the time revenue is recognized as a component of cost of sales. 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. The warranty liabilities are included in accrued liabilities in the balance sheets.

 

Research and Development. The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share-based compensation, consulting fees, rent, utilities, depreciation, and consumables.

 

 22 

 

 

Stock-Based Compensation. The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the 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. Stock compensation for stock granted 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.

 

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 Company's financial instruments primarily consist of cash and cash equivalents, accounts payable, accrued expenses and short-term investments in government securities. As of the balance sheet date, 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 attributed to the short maturities of these instruments. The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

 

RESULTS OF OPERATIONS

 

Comparison of the Three and Nine Months Ending September 30, 2019 and 2018

 

Sales and Gross Profit. We earned no revenues during the three and nine month periods ended September 30, 2019 and we incurred $0 and $1,000 in additional warranty costs for previously completed contracts during the same periods. We earned $530,000 in revenues and realized a gross profit of $106,000 from the installation of our Duplex technology in two enclosed ground flares for a major California oil producer and in an OTSG owned by another major California oil producer during the nine month period ended September 30, 2018 and we incurred $9,000 in warranty costs for previously completed contracts during the same period.

 

Operating Expenses. Operating expenses, consisting of research and development (R&D) and general and administrative (G&A) expenses, decreased by approximately $168,000 to $2,138,000 for the three month period ended September 30, 2019, as compared to $2,306,000 for the three month period ended September 30, 2018. During the three month period ended September 30, 2019, the Company decreased its R&D expenses by $184,000, or approximately 19%, to $796,000 as compared to $980,000 for the three month period ended September 30, 2018. The decrease in R&D expenses was due primarily to decreased field testing and development costs related to our ClearSign Core technology. G&A expenses increased by $16,000, or approximately 1%, to $1,342,000 for the three month period ended September 30, 2019, as compared to $1,326,000 for the three month period ended September 30, 2018, resulting primarily from the decrease in bonus accrual for the period and offset by the impairment charge of $337,000 recorded as a result of management’s assessment of the Company’s patent portfolio in terms of cost-effectiveness and alignment with the focus on those patents that have significant future commercial value to the Company. During the nine month period ended September 30, 2019, operating expenses decreased by approximately 2% or $127,000, to $6,962,000, as compared to $7,089,000 for the nine month period ended September 30, 2018. The Company’s R&D expenses decreased by $570,000 during the nine month period ended September 30, 2019, or approximately 18%, due to decreases in field testing costs. G&A expenses during the nine month period ended September 30, 2019 increased by $443,000, or approximately 11%, to $4,399,000, mainly due to the aforementioned ongoing review process of the efficacy of our patent portfolio which resulted in impairment charges of $733,000 offset by decreases in consulting and bonus expenses.

 

Loss from Operations. Our loss from operations decreased during the three months ended September 30, 2019 by $177,000, to $2,138,000 from $2,315,000 in the three months ended September 30, 2018 and decreased for the nine months ended September 30, 2019 by $20,000, to $6,963,000 as compared with $6,983,000 for the nine months ended September 30, 2018.

 

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Interest Income. The net proceeds we received from the private offering of our common stock that we undertook in July 2018 were invested in short-term treasury bills resulting in interest income from investments for the three months ended September 30, 2019 of $30,000 as compared to $23,000 in the three month period ended September 30, 2018. For the nine month period ended September 30, 2019 the interest income was $100,000 compared to $24,000 in the nine month period ended September 30, 2018.

 

Net Loss. Primarily as a result of decreased R&D expenses , our net loss for the three month period ended September 30, 2019 was $2,108,000 as compared to a net loss of $2,292,000 for the three month period ended September 30, 2018, resulting in a decrease in net loss of $184,000, and our net loss for the nine month period ended September 30, 2019 was $6,863,000 as compared to a net loss of $6,959,000 for the same period in 2018, resulting in a decrease in net loss of $96,000 or approximately 1%.

 

Liquidity and Capital Resources

 

In order to generate meaningful revenues, our technologies must be fully developed, gain market recognition and acceptance and develop a critical level of successful sales and product installations. In addition, management believes that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support research and development efforts, protect intellectual property, form relationships with strategic partners and provide for working capital and general corporate purposes. There can be no assurance that we will be successful in achieving our long-term plans, or that such plans, if consummated, will result in profitable operations or enable us to continue in the long-term as a going concern.

 

At September 30, 2019, our cash and cash equivalent balance totaled $8,077,000 compared to $8,949,000 at December 31, 2018. This decrease resulted primarily from operating costs. Assuming that our expenses do not increase significantly and that we make no material acquisitions, we anticipate that the current available cash and cash equivalent balance will be sufficient to fund the Company’s ongoing business activities for at least twelve months from the date of filing of this report.

 

At September 30, 2019, our current assets were in excess of current liabilities resulting in working capital of $9,196,000 compared to $14,774,000 at December 31, 2018. The decrease in working capital resulted primarily from the funds used in operations and invested in intangible and fixed assets.

 

Operating activities for the nine months ended September 30, 2019 resulted in cash outflows of $5,457,000 which were due primarily to the loss for the period of $6,863,000. These were offset primarily by other non-cash expenses of $185,000, impairment loss of $733,000, services paid with common stock and stock options of $571,000, and a net decrease of $83,000 in working capital exclusive of cash. Operating activities for the nine months ended September 30, 2018 resulted in cash outflows of $6,323,000, which were due primarily to the loss for the period of $6,959,000. These were offset primarily by other non-cash expenses of $302,000, services paid with common stock and stock options of $346,000, and a net increase of $12,000 in working capital, exclusive of cash.

 

Investing activities for the nine months ended September 30, 2019 resulted in cash inflows of $4,924,000 from the maturity of short term treasury bills, offset by $326,000 in cash used for development of patents and $13,000 for acquisition of fixed assets, compared to $313,000 in disbursements for patent development and $44,000 for the acquisition of fixed assets during the same period of 2018.

 

There were no net cash inflows from financing activities in the nine months ended September 30, 2019. In the nine months ending September 30, 2018, we received net proceeds of $23,511,000 from offerings of our common stock.

 

Off-Balance Sheet Transactions

 

We do not have any off-balance sheet transactions.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company we are not required to provide this information.

 

 24 

 

 

ITEM 4.CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer (CEO) (principal executive officer) and our Chief Financial Officer (CFO) (principal financial and accounting officer), has concluded that, as of September 30, 2019, our disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

There have been no material changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

PART II-OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

From time to time we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A.RISK FACTORS

 

We incorporate herein by reference the risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 which we filed with the Securities and Exchange Commission on March 12, 2019 and the risk factors included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 which we filed with the Securities and Exchange Commission on August 14, 2019. There have been no material changes to such risk factors as of September 30, 2019.

 

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On September 30, 2019 we issued 2,500 shares of common stock, having a per share value of $1.44, the closing price of our common stock on October 31, 2018, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, Firm IR, for services provided in the three months ended September 30, 2019.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.OTHER INFORMATION

 

Appointment of Officer and Compensatory Arrangement.

 

The Company’s Board of Directors appointed Brian G. Fike as the Company’s Chief Financial Officer effective as of November 12, 2019. Prior to his appointment, Mr. Fike held the title of interim Chief Financial Officer from May 11, 2017. Mr. Fike is 51 years of age. We incorporate by reference the description of Mr. Fike’s experience from the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 11, 2017.

 

In conjunction with his appointment as Chief Financial Officer, the Company increased Mr. Fike’s salary to $200,000.

 

Amendments to Articles of Incorporation.

 

On November 12, 2019 the Company amended its articles of incorporation to change the Company’s name from ClearSign Combustion Corporation to ClearSign Technologies Corporation.

 

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ITEM 6. EXHIBITS

 

Exhibit  
Number   Document
     
3.1.1   Articles of Incorporation of ClearSign Technologies Corporation, as amended*
     
3.2.1   Bylaws (1)
     
3.2.2   Amendment to Bylaws (2)
     
10.1   Third Amendment to Lease (3)
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
     
31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
     
32.1   Section 1350 Certification of Chief Executive Officer and Chief Financial Officer+
     
101.INS   XBRL Instant Document*
     
101.SCH   XBRL Taxonomy Extension Schema Document*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

*Filed herewith

+Furnished herewith

 

(1) Incorporated by reference from the registration statement on Form S-1, as amended, file number 333-177946, originally filed with the Securities and Exchange Commission on November 14, 2011.

(2) Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2019.

(3) Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 28, 2019.

 

 27 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  CLEARSIGN TECHNOLOGIES CORPORATION
  (Registrant)
   
    Date: November 13, 2019
     
  By: /s/ Colin James Deller
    Colin James Deller
    Chief Executive Officer
     
  By: /s/ Brian G. Fike
    Brian G. Fike
    Chief Financial Officer

 

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Exhibit 3.1.1

 

ARTICLES OF INCORPORATION

of

CLEARSIGN COMBUSTION CORPORATION

 

 

The undersigned, as incorporator of a corporation under the Washington Business Corporation Act, adopts the following Articles of Incorporation:

 

ARTICLE 1. NAME

 

The name of this corporation is ClearSign Combustion Corporation.

 

ARTICLE 2. SHARES

 

2.1          Authorized Capital

 

The total number of shares which this corporation is authorized to issue is 14,000,000, consisting of three classes of shares to be designated, respectively, "Common Stock," "Class B Common Stock," (together, the Common Stock and the Class B Common Stock are referred to herein as the "Authorized Common Stock") and "Preferred Stock." The total number of shares of Common Stock that this corporation shall have the authority to issue is 8,000,000 shares, each with a par value of $0.0001. The total number of shares of Class B Common Stock that this corporation shall have authority to issue is 4,000,000 shares, each with a par value of $0.0001. The total number of shares of Preferred Stock that this corporation shall have authority to issue is 2,000,000 shares, each with a par value of $0.0001. The Common Stock, Class B Common Stock and the Preferred Stock are sometimes referred to as the "Authorized Shares."

 

2.2          Issuance of Preferred Stock in Series

 

The Preferred Stock may be issued from time to time in one or more series in any manner permitted by law and the provisions of these Articles of Incorporation, as determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for its issuance, prior to the issuance of any shares. The Board of Directors shall have the authority to fix and determine and to amend, subject to these provisions, the designation, preferences, limitations, voting powers, and relative rights of the shares of any series that is wholly unissued or to be established. Unless otherwise specifically provided in the resolution establishing any series, the Board of Directors shall further have the authority, after the issuance of shares of a series whose number it has designated, to amend the resolution establishing such series to decrease the number of shares of that series, but not below the number of shares of such series then outstanding.

 

2.3          Authorized Common Stock

 

(a) Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock and the Class B Common Stock shall be entitled to receive, at the same rate per share of Authorized Common Stock, when, as and if declared by the Board, out of any assets of the corporation legally available therefor, such cash dividends as may be declared from time to time by the Board of Directors. ·

 

(b) Liquidation Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior liquidation rights, upon the liquidation, dissolution or winding up of the corporation, the assets of the corporation shall be distributed ratably to the holders of the Common Stock and the Class B Common Stock in proportion to the number of shares of Authorized Common Stock then held by each.

 

 

 

 

(c) Redemption. The Common Stock and the Class B Common Stock are not redeemable; provided, however, that the corporation's repurchase of shares of its capital stock pursuant to agreements approved by the Board of Directors shall not be deemed "redemptions" and shall be allowed, subject to limitations on "distributions" pursuant to corporate law.

 

(d) Voting Rights. Except as otherwise provided herein or required by applicable law, (i) each holder of Common Stock shall be entitled to 1 vote for each share of Common Stock held as of the applicable record date on any matter that is submitted to a vote or for the consent of the shareholders of the corporation and (ii) each holder of Class B Common Stock shall be entitled to 2 votes for each share of Class B Common Stock held as of the applicable record date on any matter that is submitted to a vote or for the consent of the shareholders of the corporation. Holders of Common Stock and Class B Common Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the corporation. Except as otherwise required by applicable law, and subject to the provisions of Article 11 hereof, the Common Stock and the Class B Common Stock shall vote together as a single voting group on all matters submitted to a vote or for the consent of the shareholders of the corporation.

 

(e) Stock Dividends, Stock Splits or Combinations. In no event shall any stock dividends or stock splits or combinations of stock be declared or made with respect to the Common Stock and Class B Common Stock unless all shares of Common Stock and Class B Common Stock then outstanding are treated equally, provided that, for purposes of establishing equal treatment, a stock dividend, split or combination with respect to Common Stock effected with or in shares of Common Stock shall be deemed equal to a stock dividend, split or combination with respect to Class B Common Stock effected with or in shares of Class B Common Stock so long as the numerical rate or ratio of such dividends, splits or combinations is the same.

 

(f) Conversion of Class B Common.

 

(i) Voluntary Conversion. Each share of the Class B Common Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the corporation or any transfer agent for such shares, into one fully paid and nonassessable share of Common Stock.

 

(ii) Shareholder Vote. Each share of Class B Common Stock shall automatically be converted into one share of Common Stock upon the affirmative vote or written consent of holders of not less than two-thirds of the shares of Class B Common Stock outstanding at such time.

 

(iii) Mechanics of Conversion. Before any holder of Class B Common Stock shall be entitled to convert some or all shares of such holder's Class B Common Stock into shares of Common Stock, such holder shall give written notice to the corporation at the office of the corporation or any transfer agent for such stock that such holder elect to convert the same, shall state the number of shares to be converted into, at holder's election, shares of Common Stock, shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued, and shall surrender the certificate or certificates evidencing the shares of Class B Common Stock to be converted, duly endorsed or accompanied by an executed assignment separate from certificate, at the office of the corporation or of any transfer agent for such stock, provided, however, that if the certificate or certificates evidencing the shares to be converted have been lost, stolen or destroyed, the holder may, in lieu of delivering such certificates, notify the corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute and deliver an agreement satisfactory to the corporation (the. "lost certificate agreement") to indemnify the corporation from any loss incurred by it in connection with such certificates. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock into which such holder has elected to convert the applicable shares of Class B Common and to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the certificate or certificates evidencing the shares of Class B Common Stock to be converted or on the date of delivery of the lost certificate agreement, as the case may be, and the person or persons entitled to receive the shares of Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

 

 

 

 

ARTICLE 3. REGISTERED OFFICE AND AGENT

 

The name of the initial registered agent of this corporation and the address of its initial registered office are as follows:

 

CT Corporation

1801 W. Bay Drive NW, Suite 206

Olympia, WA 98502

 

ARTICLE 4. PREEMPTIVE RIGHTS

 

No preemptive rights shall exist with respect to shares of stock or securities convertible into shares of stock of this corporation, except to the extent provided by written agreement with the corporation.

 

ARTICLE 5. CUMULTIVE VOTING

 

The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation.

 

ARTICLE 6. DIRECTORS

 

The number of Directors of this corporation shall be determined in the manner provided by the Bylaws and may be increased or decreased from time to time in the manner provided therein.

 

ARTICLE 7. LIMITATION OF DIRECTOR LI BILITY

 

To the full extent that the Washington Business Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of Directors, a Director of this corporation shall not be liable to this corporation or its shareholders for monetary damages for conduct as a Director. Any amendments to or repeal of this Article shall not adversely affect any right or protection of a Director of this corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal.

 

 

 

 

ARTICLE 8. SHAREHOLDER ACTIONS

 

Any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting or a vote if either:

 

(a) the action is taken by written consent of all shareholders entitled to vote on the action; or

 

(b) so long as this corporation is not a public company, the action is taken by written consent of shareholders holding of record, or otherwise entitled to vote, in the aggregate not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on the action were present and voted.

 

To the extent the Washington Business Corporation Act requires prior notice of any such action to be given to nonconsenting or nonvoting shareholders, such notice shall be given by at least the date immediately prior to the date on which the action becomes effective. The notice shall be in the form of a record and shall contain or be accompanied by the same material that, under the Washington Business Corporation Act, would have been required to be delivered to nonconsenting or nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted for shareholder action. Such notice shall be provided in the same manner as the Bylaws or these Articles of Incorporation require or permit other notices to shareholders to be provided.

 

ARTICLE 9. AUTHORITY TO AMEND ARTICLE OF INCORPORATION

 

This corporation reserves the right to amend or repeal any of the provisions contained in these Articles of Incorporation in any manner now or hereafter permitted by the Washington Business Corporation Act or by these Articles of Incorporation, and the rights of the shareholders of this corporation are granted subject to this reservation.

 

ARTICLE 10. SHAREHOLDER VOTE REQUIRED ON CERTAIN MATTER

 

If shareholder approval of any of the following matters is required under the Washington Business Corporation Act, such matter may be approved by a majority of the votes in each voting group (except as otherwise provided in Article 11) entitled to be cast on such matter: (a) amendment to the Articles of Incorporation, (b) a plan of merger or share exchange of this corporation with any other corporation; (c) the sale, lease, exchange or other disposition, whether in one transaction or a series of transactions, by this corporation of all or substantially all of this corporation's property other than in the usual and regular course of business; or (d) the dissolution of this corporation. This Article is intended to reduce the voting requirements otherwise prescribed by the Washington Business Corporation Act with respect to the foregoing matters.

 

ARTICLE 11. LIMITATION OF SEPARATE CLASS VOTING TO EXTENT PERMI'ITED BYLAW

 

Except to the extent expressly provided in the preferences, limitations, voting powers and relative rights set forth in these Articles of Incorporation with respect to a particular class or series of shares, the holders of each outstanding class or series of shares of this corporation are not entitled to vote as a separate voting group: (a) on any amendment to this corporation's Articles of Incorporation with respect to which such class or series would otherwise be entitled under RCW 23B.l0.040(1)(a) or (e) to vote as a separate voting group, (b) on any plan of merger or share exchange with respect to which such class or series would otherwise be entitled under RCW 23B.l1.035 to vote as a separate voting group, except that the holders of the Common Stock and the holders of the Class B Common Stock shall be entitled to vote as separate voting groups on any plan of merger or share exchange in which each share of Common Stock and each share of Class B Common Stock would not be entitled to receive the same amount and form of consideration per share, or (c) on any transaction pursuant to RCW 238.12.020.

 

 

 

 

ARTICLE 12. INCORPORATOR

 

The name and address of the incorporator are as follows:

 

John D. Guillot

Attorney

Perkins Coie, LLP

1201 Third Avenue, Suite 4800

Seattle, WA 98101

 

ARTICLE 13. SAVINGS CLAUSE

 

If any provision of these Articles of Incorporation or any application thereof shall be invalid, unenforceable or contrary to applicable law, the remainder of these Articles of Incorporation, and the application of such provisions to individuals or circumstances other than those as to which it is held invalid, unenforceable or contrary to applicable law, shall not be affected thereby .

 

Dated: January 23, 2008

 

  /s/ John D. Guillot
  John D. Guillot, Incorporator

 

 

 

 

CONSENT TO SERVE AS REGISTERED AGENT

 

I, CT CORPORATION SYSTEM, hereby Consent to serve as Registered Agent in the State of Washington, for the following:

 

CLEARSIGN COMBUSTION CORPORATION

 

I understand that as agent, it will be my responsibility to receive service of process; to forward all mail; and to immediately notify the Office of the Secretary of State in the event of my resignation, or of any changes in the Registered Office address.

 

1-23-08 /s/ Michele Rowe
Date Michele Rowe
  Assistant Secretary

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
CLEARSIGN COMBUSTION CORPORATION

 

Pursuant to the provisions of Section 23B.10 of the Revised Code of Washington, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation:

 

1.       A new paragraph is added to the end of Article 8 of the Articles of Incorporation to read as follows:

 

A special meeting of the shareholders shall be held if the holders of at least 20% of all the votes entitled to be cast on any issue proposed to be considered at the special meeting have delivered to the corporation one or more demands for the meeting in the manner and at the times set forth in the Bylaws.

 

2.       The foregoing amendment was duly adopted by the Board of Directors on March 16, 2019 and approved by the shareholders of the Corporation on June 4, 2019, in accordance with the provisions of RCW 23B.10.030.

 

Executed as of this 4th day of June 2019.

 

  CLEARSIGN COMBUSTION CORPORATION,
  a Washington corporation
   
  By /s/ Colin James Deller
    Name: Colin James Deller
    Its: Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Colin James Deller, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of ClearSign Technologies Corporation;
     
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
    a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
       
    b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
       
    c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
       
    d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
    a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
       
    b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: November 13, 2019
   
  /s/ Colin James Deller  
 

Colin James Deller
Chief Executive Officer (Principal Executive Officer)

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Brian G. Fike, certify that:

 

1.   I have reviewed this quarterly report on Form 10-Q of ClearSign Technologies Corporation;
     
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     
    a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
       
    b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
       
    c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
       
    d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     
5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     
    a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
       
    b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: November 13, 2019
   
  /s/ Brian G. Fike  
  Brian G. Fike  
  Chief Financial Officer (Principal Financial and Accounting Officer)  

 

Exhibit 32.1

 

CERTIFICATION

 

In connection with the periodic report of ClearSign Technologies Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), we, Colin James Deller, Chief Executive Officer (Principal Executive Officer) and Brian G. Fike, Interim Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:

 

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Exchange Act, and

 

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

 

  Date: November 13, 2019  
     
  /s/ Colin James Deller  
  Colin James Deller  
  Chief Executive Officer (Principal Executive Officer)  
     
  /s/ Brian G. Fike  
  Brian G. Fike  
  Chief Financial Officer (Principal Financial and Accounting Officer)  

 

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of ClearSign Technologies Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

 

 

v3.19.3
Condensed Consolidated Statements of Operations - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Condensed Consolidated Statements of Operations        
Sales $ 0 $ 0 $ 0 $ 530,000
Cost of goods sold 0 9,000 1,000 424,000
Gross profit (loss) 0 (9,000) (1,000) 106,000
Operating expenses:        
Research and development, net of grants 796,000 980,000 2,563,000 3,133,000
General and administrative 1,342,000 1,326,000 4,399,000 3,956,000
Total operating expenses 2,138,000 2,306,000 6,962,000 7,089,000
Loss from operations (2,138,000) (2,315,000) (6,963,000) (6,983,000)
Other income:        
Interest income 30,000 23,000 100,000 24,000
Net loss $ (2,108,000) $ (2,292,000) $ (6,863,000) $ (6,959,000)
Net loss per share - basic and fully diluted $ (0.08) $ (0.09) $ (0.26) $ (0.32)
Weighted average number of shares outstanding - basic and fully diluted 26,702,288 25,555,705 26,699,825 21,573,884
v3.19.3
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
1 Months Ended 9 Months Ended
Aug. 31, 2019
Jul. 31, 2019
Sep. 30, 2019
Dec. 31, 2018
Cash Flow Noncash Operating Activities Disclosure [Abstract]        
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures     159,100  
Due to Officers or Stockholders, Current       $ 100,000
Adjustments to right of use assets and lease liabilities $ 505,000 $ 505,000    
v3.19.3
Sales, Contract Assets and Contract Liabilities
9 Months Ended
Sep. 30, 2019
Sales, Contract Assets and Contract Liabilities  
Sales, Contract Assets and Contract Liabilities

Note 5 – Sales, Contract Assets and Contract Liabilities

The Company recognized no revenue during the nine months ended September 30, 2019. For the nine months ended September 30, 2018, the Company recognized revenues totaling $530,000 from completed flare projects. At September 30, 2019, the Company had contract assets of $53,000 and contract liabilities of $0. The cost of goods sold of $1,000, recognized during the nine months ended September 30, 2019, related to additional warranty costs incurred for previously completed contracts.

v3.19.3
Fixed Assets (Tables)
9 Months Ended
Sep. 30, 2019
Fixed Assets  
Summary of Fixed Assets

Fixed assets are summarized as follows:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

 

 

(unaudited)

 

 

 

Machinery and equipment

 

$

863,000

 

$

853,000

Office furniture and equipment

 

 

178,000

 

 

186,000

Leasehold improvements

 

 

150,000

 

 

150,000

Right of use asset-operating leases

 

 

1,138,000

 

 

637,000

Accumulated depreciation and amortization

 

 

(1,595,000)

 

 

(1,369,000)

 

 

$

734,000

 

$

457,000

 

Schedule Of Leases Cost

Lease costs for the nine months ended September 30, 2019 and 2018 and other quantitative disclosures are as follows (unaudited):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended Setpember 30,

 

For the nine months ended September 30,

 

    

2019

    

2018

    

2019

    

2018

Lease cost:

 

 

  

 

 

  

 

 

  

 

 

  

Operating lease cost

 

$

58,000

 

$

52,000

 

$

175,000

 

$

158,000

Total lease cost

 

$

58,000

 

$

52,000

 

$

175,000

 

$

158,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Other information:

 

 

  

 

 

  

 

 

  

 

 

  

Cash paid for amounts included in the measurement of lease liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Operating cash flows from operating leases

 

 

 

 

$

178,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

  

 

$

505,000

 

 

 

 

 

  

For operating lease:

 

 

  

 

 

  

 

 

 

 

 

  

Weighted average remaining lease term (in years)

 

 

 

 

 

3.34

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

 

7.17

%  

 

 

 

 

 

 

During the nine months ended September 30, 2019, the Company recorded a right-of-use assets and operating lease liabilities amounting to $505,000 upon extensions of the leases for its office space in Seattle, Washington through May 2023 and its offices space in Tulsa, Oklahoma through August 2022.

Schedule of minimum future payments

During the nine months ended September 30, 2019, the Company recorded a right-of-use assets and operating lease liabilities amounting to $505,000 upon extensions of the leases for its office space in Seattle, Washington through May 2023 and its offices space in Tulsa, Oklahoma through August 2022.

 

Minimum future payments under the Company’s leases at September 30, 2019 and their application to the corresponding lease liabilities are as follows (unaudited):

 

 

 

 

 

 

 

 

 

    

Discounted lease

    

Payments due under

 

 

liability payments

 

lease agreements

2019 (remaining 3 months)

 

 

48,000

 

 

59,000

2020

 

 

177,000

 

 

215,000

2021

 

 

169,000

 

 

193,000

2022

 

 

178,000

 

 

190,000

2023

 

 

71,000

 

 

73,000

Total

 

$

643,000

 

$

730,000

 

v3.19.3
Stockholders' Equity - Grants and Expense (Details) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
May 08, 2019
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Class of Stock [Line Items]            
Common Stock, Shares Authorized   62,500,000   62,500,000    
Preferred Stock, Shares Authorized   2,000,000   2,000,000    
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized   $ 316,000   $ 316,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       259,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value   $ 131,000   $ 131,000    
Class of Warrant or Right, Exercise Price of Warrants or Rights   $ 1.80   $ 1.80    
Warrants Intrinsic Value Outstanding   $ 0   $ 0    
Class of Warrant or Right, Number of Securities Called by Warrants or Rights   80,000   80,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number   1,150,375   1,150,375   587,962
Stock Issued During Period In Lieu of Cash Bonus           159,100
Warrants and Rights Remaining Term       1 year 4 months 21 days    
Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized   $ 146,000   $ 146,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       600,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term2       10 years    
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price       $ 2.25    
Allocated Share-based Compensation Expense   $ 24,000   $ 183,000    
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period1       2 years    
Incentive Stock Options [Member] | Minimum [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value       $ 1.16    
Consultant Plan [Member]            
Class of Stock [Line Items]            
Common Stock, Capital Shares Reserved for Future Issuance   253,367   253,367    
Increase Decrease Of Share Based Compensation Arrangement By Share Based Payment Award Percentage       1.00%    
Consultant Plan Expenses   $ 4,000 $ 9,000 $ 11,000 $ 26,000  
Shares Reserved Unissued   192,617   192,617    
Consultant Plan [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       329,000    
Consultant Plan Two [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       10,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value       $ 1.44    
Share Based Compensation Arrangement By Share Based Payment Award Options Value Grants In Period Weighted Average Grant Date Fair Value       $ 14,000    
2011 Equity Incentive Plan [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       258,618    
Non-Qualified Stock Option [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       341,382    
Equity Incentive Plan [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized 1,231,593          
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized 4,004,214          
Share-based Compensation Arrangement by Share-based Payment Award, Percentage of Outstanding Stock Maximum 15.00%          
Common Stock, Capital Shares Reserved for Future Issuance   4,004,589   4,004,589    
Increase Decrease Of Share Based Compensation Arrangement By Share Based Payment Award Percentage       15.00%    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       1,298,718    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term2       10 years    
Class of Warrant or Right, Exercise Price of Warrants or Rights   $ 1   $ 1    
Allocated Share-based Compensation Expense   $ 58,000 59,000 $ 274,000 170,000  
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan   2,115,670   2,115,670   880,277
Shares Reserved Unissued   1,297,040   1,297,040    
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period1       1 year 8 months 12 days    
Equity Incentive Plan [Member] | Minimum [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value       $ 0.87    
Equity Incentive Plan [Member] | Maximum [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value       $ 2.25    
Equity Incentive Plan [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Estimated common stock subject to options issued       381,000    
Equity Incentive Plan [Member] | Chief Executive Officer [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       258,618    
Equity Incentive Plan [Member] | Director [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       381,000    
Equity Incentive Plan [Member] | Other Employees [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross       500,000    
Equity Incentive Plan [Member] | Board of Directors [Member]            
Class of Stock [Line Items]            
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized   $ 34,000   $ 34,000    
Equity Incentive Plan [Member] | Board of Directors [Member] | Incentive Stock Options [Member]            
Class of Stock [Line Items]            
Allocated Share-based Compensation Expense   $ 34,000 $ 0 $ 103,000 $ 0  
v3.19.3
Patents and Other Intangible Assets - Future amortization expense (Details)
Sep. 30, 2019
USD ($)
Patents and Other Intangible Assets  
2019 (remaining 3 months) $ 31,000
2020 123,000
2021 90,000
2022 54,000
2023 21,000
Thereafter 6,000
Finite-Lived Intangible Assets, Net $ 325,000
v3.19.3
Summary of Significant Accounting Policies - Contract Acquisition Costs and Practical Expedients (Details)
9 Months Ended
Sep. 30, 2019
Summary of Significant Accounting Policies  
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract [true false] true
v3.19.3
Fixed Assets - Summary (Details) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Fixed Assets    
Machinery and equipment $ 863,000 $ 853,000
Office furniture and equipment 178,000 186,000
Leasehold improvements 150,000 150,000
Right of use asset-operating leases 1,138,000 637,000
Accumulated depreciation and amortization (1,595,000) (1,369,000)
Property, Plant and Equipment, Net, Total $ 734,000 $ 457,000
v3.19.3
Patents and Other Intangible Assets - Summary (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2019
Dec. 31, 2018
Patents $ 1,405,000 $ 1,405,000 $ 1,963,000
Trademarks 87,000 87,000 78,000
Other 8,000 8,000 8,000
Patents and other intangible assets 1,500,000 1,500,000 2,049,000
Accumulated amortization (256,000) (256,000) (290,000)
Finite-Lived Intangible Assets, Net 1,244,000 1,244,000 1,759,000
Amount charge for patent process of reassessing 337,000 733,000  
Patents Pending [Member]      
Patents 847,000 847,000 1,202,000
Issued Patents [Member]      
Patents 558,000 558,000 761,000
Trademarks Pending [Member]      
Trademarks 64,000 64,000 55,000
Registered Trademarks [Member]      
Trademarks $ 23,000 $ 23,000 $ 23,000
v3.19.3
Fixed Assets - Lease descriptions (Details)
9 Months Ended
Jun. 01, 2020
USD ($)
Sep. 30, 2019
USD ($)
Monthly operating lease expenses   $ 6,000
Lease One [Member]    
Triple Net Operating Cost   12,000
Lease Two [Member]    
Triple Net Operating Cost   2,000
Future Operating Lease Cost $ 13,500 $ 2,200
Operating Lease Rent Annual Increased Percentage 3 2.5
v3.19.3
Organization and Description of Business (Details) - USD ($)
1 Months Ended
Jul. 20, 2018
Feb. 27, 2018
Sep. 30, 2019
Dec. 31, 2018
Organization and Description of Business        
Proceeds from Issuance of Common Stock $ 11,600,000 $ 11,900,000    
Accumulated deficit     $ (66,374,000) $ (59,511,000)
v3.19.3
Summary of Significant Accounting Policies - Other (Details) - USD ($)
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Dec. 31, 2018
Variable Interest Entity [Line Items]      
Weighted Average Number of Shares Outstanding, Diluted 2,195,670 3,534,579  
Tax Benefits Recognized (in Percent) 50.00%    
Assets $ 12,653,000   $ 18,637,000
Funds Received 108,000    
CHINA      
Variable Interest Entity [Line Items]      
Assets $ 149,000   $ 199,000
v3.19.3
Organization and Description of Business
9 Months Ended
Sep. 30, 2019
Organization and Description of Business  
Organization and Description of Business

Note 1 – Organization and Description of Business

ClearSign Technologies Corporation (ClearSign or the Company) designs and develops technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. The Company’s primary technologies include its ClearSign Core™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation, and ClearSign Eye™ sensing technology that provides robust and advanced flame and flammability detection in flames or hydrocarbon containing gas mixtures. The Company is headquartered in Seattle, Washington and was incorporated in the state of Washington in 2008 under the name ClearSign Combustion Corporation. The Company changed its name to ClearSign Technologies Corporation on November 12, 2019.  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” refers to ClearSign Technologies Corporation and its wholly-owned subsidiary, ClearSign Asia Limited.

Liquidity

The Company’s technologies are currently in field development and have generated nominal revenues from operations to date. 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. The Company has historically financed its operations primarily through issuances of equity securities, including $11.9 million in proceeds, net of offering costs, from a stock offering completed on February 27, 2018 and $11.6 million in proceeds, net of offering costs, from a stock offering completed on July 20, 2018. The Company has incurred losses since its inception totaling $66,374,000 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 research and development 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.

 

v3.19.3
Patents and Other Intangible Assets
9 Months Ended
Sep. 30, 2019
Patents and Other Intangible Assets  
Patents and Other Intangible Assets

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

 

 

(Unaudited)

 

 

 

Patents

 

 

  

 

 

  

Patents pending

 

$

847,000

 

$

1,202,000

Issued patents

 

 

558,000

 

 

761,000

 

 

 

1,405,000

 

 

1,963,000

Trademarks

 

 

 

 

 

 

Trademarks pending

 

 

64,000

 

 

55,000

Registered trademarks

 

 

23,000

 

 

23,000

 

 

 

87,000

 

 

78,000

Other

 

 

8,000

 

 

8,000

 

 

 

1,500,000

 

 

2,049,000

Accumulated amortization

 

 

(256,000)

 

 

(290,000)

 

 

$

1,244,000

 

$

1,759,000

 

The Company monitors and assesses the net realizable value of the Company’s patent portfolio at each reporting period. As a result of management’s assessment of the Company’s patent portfolio in terms of cost-effectiveness and alignment with the focus on those patents that have significant future commercial value to the Company, an impairment charge of $337,000 and $733,000, respectively, was recorded during the three and nine months ended September 30, 2019.

Future amortization expense associated with issued patents and registered trademarks as of September 30, 2019 is estimated as follows (unaudited):

 

 

 

 

 

2019 (remaining 3 months)

    

$

31,000

2020

 

 

123,000

2021

 

 

90,000

2022

 

 

54,000

2023

 

 

21,000

Thereafter

 

 

6,000

 

 

$

325,000

 

v3.19.3
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2019
Summary of Significant Accounting Policies  
Basis of Presentation

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 balance sheet at December 31, 2018 has been derived from the Company’s audited financial statements.

In the opinion of management, these consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These 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, 2018. 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

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 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

Revenue Recognition and Cost of Sales

The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control and performance obligations are satisfied. Typically, the Company’s contracts with customers have performance obligations regarding air emissions and operational performance that are satisfied upon completion of service. Since this is the singular performance obligation and cannot be achieved until the air emissions and operational performance have been successfully tested, revenue related to the contracts is recognized upon project completion.

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 acceptance by the customer the projects can be recorded as revenue.

The Company’s contracts with customers contain no variable considerations or incentives or discounts that would cause revenue to be allocated or adjusted over time. Therefore, no separate methods of evaluating the contracts other than consideration of the price at achievement of the performance objectives was used in satisfying the review requirements of ASC 606.

Contract Acquisition Costs and Practical Expedients

Contract Acquisition Costs and Practical Expedients

For contracts that have a duration of less than one year, the Company follows ASC 606 practical expedients and expenses those costs when incurred; for contracts with a life exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company generally expenses sales commissions when earned. The Company records those costs within general and administrative expenses.

Product Warranties

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 warranty experience and current product performance trends, and are recorded at the time revenue is recognized as a component of cost of sales. 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. The warranty liabilities are included in accrued liabilities in the balance sheets.

Cash and Cash Equivalents

Cash and Cash Equivalents

Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash is maintained with a commercial bank where accounts are generally guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company’s deposits may at times exceed this limit. The Company also maintains a cash balance in China  which is insured up to $70,000  (500,000RMB). The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Short-Term Investments

Short-Term Investments

Short-term investments consist of U.S. treasury bills 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 which approximates fair value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management’s judgment, deserve current recognition in estimating bad debts. The determination of the collectability of amounts due from customer accounts requires 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 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 on the balance sheet at the time of lease inception or modification a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Operating leases with a term of 1 year or less are recognized on a straight line basis over the term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company tests long-lived assets,  consisting of fixed assets, patents 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 to result from the use and eventual disposition of the assets. In that event, 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. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.

Fair Value of Financial Instruments

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 and cash equivalents, short-term investments, accounts payable and accrued liabilities. 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 maturities of these instruments.

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

Research and Development

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consulting fees, rent, utilities, depreciation, and consumables.

During the nine months ended September 30, 2019, the Company received $108,000 to partially fund specific research and development activity relating to its ECC technology. Since these funds were provided without expectation of reciprocation, except notification of research results, the funds received were offset against the related research and development costs incurred.

Income Taxes

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 these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the 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. Stock compensation for stock granted 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

Foreign Operations

The accompanying consolidated financial statements as of September 30, 2019 and December 31, 2018 include assets amounting to approximately $149,000 and $199,000, respectively, relating to operations of the Company in China. It is always possible unanticipated events in foreign countries could disrupt the Company’s operations.

Foreign Currency

Foreign Currency

The functional currency of ClearSign Asia Limited is the U.S. dollar. The Company remeasures the transactions denominated in Chinese Yuan at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures ClearSign Asia Limited’s monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income (expense), net in the consolidated statements of operations. Foreign currency exchange gain (losses) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

Net Loss per Common Share

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 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, 2019 and 2018, potentially dilutive shares outstanding amounted to 2,195,670 and 3,534,579, respectively.

Recently Adopted Standards

Recently Adopted Standards

In June 2018 FASB issued ASU No. 2018‑07 Compensation-Stock Compensation. The amendments in this update expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The ASU is effective for all entities for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company currently does not believe this amendment applies to any of its transactions at this time.

Management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s consolidated financial statement presentation or disclosures.

v3.19.3
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Total
Balances at Dec. 31, 2017 $ 2,000 $ 52,441,000 $ (50,011,000) $ 2,432,000
Balances (in shares) at Dec. 31, 2017 15,608,853      
Shares issued in stock offering ($2.25 per share) $ 0 12,937,000 0 12,937,000
Shares issued in stock offering ($2.25 per share) (in shares) 5,750,000      
Issuance costs of rights offering $ 0 (1,014,000) 0 (1,014,000)
Shares issued for services $ 0 9,000 0 9,000
Shares issued for services (in shares) 2,500      
Share based compensation $ 0 50,000 0 50,000
Net loss 0 0 (2,278,000) (2,278,000)
Balances at Mar. 31, 2018 $ 2,000 64,423,000 (52,289,000) 12,136,000
Balances (in shares) at Mar. 31, 2018 21,361,353      
Balances at Dec. 31, 2017 $ 2,000 52,441,000 (50,011,000) 2,432,000
Balances (in shares) at Dec. 31, 2017 15,608,853      
Net loss       (6,959,000)
Balances at Sep. 30, 2018 $ 3,000 76,297,000 (56,970,000) 19,330,000
Balances (in shares) at Sep. 30, 2018 26,660,980      
Balances at Mar. 31, 2018 $ 2,000 64,423,000 (52,289,000) 12,136,000
Balances (in shares) at Mar. 31, 2018 21,361,353      
Shares issued for services $ 0 8,000 0 8,000
Shares issued for services (in shares) 2,500      
Shares issued for board service ($1.85 per share) $ 0 100,000 0 100,000
Shares issued for board service ($1.85 per share) (in Shares) 54,056      
Share based compensation $ 0 61,000 0 61,000
Net loss 0 0 (2,389,000) (2,389,000)
Balances at Jun. 30, 2018 $ 2,000 64,592,000 (54,678,000) 9,916,000
Balances (in shares) at Jun. 30, 2018 21,417,909      
Shares issued in stock offering ($2.25 per share) $ 1,000 11,730,000 0 11,731,000
Shares issued in stock offering ($2.25 per share) (in shares) 5,213,543      
Issuance costs of rights offering $ 0 (143,000) 0 (143,000)
Shares issued for services $ 0 9,000 0 9,000
Shares issued for services (in shares) 2,500      
Shares issued for board service ($1.85 per share) $ 0 50,000 0 50,000
Shares issued for board service ($1.85 per share) (in Shares) 27,028      
Share based compensation $ 0 59,000 0 59,000
Net loss 0 0 (2,292,000) (2,292,000)
Balances at Sep. 30, 2018 $ 3,000 76,297,000 (56,970,000) 19,330,000
Balances (in shares) at Sep. 30, 2018 26,660,980      
Balances at Dec. 31, 2018 $ 3,000 76,417,000 (59,511,000) 16,909,000
Balances (in shares) at Dec. 31, 2018 26,697,261      
Shares issued for services $ 0 3,000 0 3,000
Shares issued for services (in shares) 2,500      
Fair value of stock options issued in payment of accrued compensation $ 0 100,000 0 100,000
Share based compensation 0 233,000 0 233,000
Net loss 0 0 (2,329,000) (2,329,000)
Balances at Mar. 31, 2019 $ 3,000 76,753,000 (61,840,000) 14,916,000
Balances (in shares) at Mar. 31, 2019 26,699,761      
Balances at Dec. 31, 2018 $ 3,000 76,417,000 (59,511,000) 16,909,000
Balances (in shares) at Dec. 31, 2018 26,697,261      
Net loss       (6,863,000)
Balances at Sep. 30, 2019 $ 3,000 77,088,000 (66,374,000) 10,717,000
Balances (in shares) at Sep. 30, 2019 26,704,761      
Balances at Mar. 31, 2019 $ 3,000 76,753,000 (61,840,000) 14,916,000
Balances (in shares) at Mar. 31, 2019 26,699,761      
Shares issued for services $ 0 4,000 0 4,000
Shares issued for services (in shares) 2,500      
Fair value of stock options issued in payment of accrued compensation $ 0 69,000 0 69,000
Share based compensation 0 141,000 0 141,000
Net loss 0 0 (2,426,000) (2,426,000)
Balances at Jun. 30, 2019 $ 3,000 76,967,000 (64,266,000) 12,704,000
Balances (in shares) at Jun. 30, 2019 26,702,261      
Balances at Mar. 31, 2019 $ 3,000 76,753,000 (61,840,000) 14,916,000
Balances (in shares) at Mar. 31, 2019 26,699,761      
Fair value of stock options issued in payment of accrued compensation   34,000   34,000
Share based compensation   83,000   83,000
Balances at Sep. 30, 2019 $ 3,000 77,088,000 (66,374,000) 10,717,000
Balances (in shares) at Sep. 30, 2019 26,704,761      
Balances at Jun. 30, 2019 $ 3,000 76,967,000 (64,266,000) 12,704,000
Balances (in shares) at Jun. 30, 2019 26,702,261      
Shares issued for services $ 0 4,000 0 4,000
Shares issued for services (in shares) 2,500      
Fair value of stock options issued in payment of accrued compensation $ 0   0  
Share based compensation 0   0  
Net loss 0 0 (2,108,000) (2,108,000)
Balances at Sep. 30, 2019 $ 3,000 $ 77,088,000 $ (66,374,000) $ 10,717,000
Balances (in shares) at Sep. 30, 2019 26,704,761