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, 2017~~March 31, 2021

¨	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 ~~COMBUSTION~~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)

(Zip Code)

(206) 673-4848

(Registrant’s telephone number, including area code)

No change

(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. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yesx 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
~~(Do not check if a smaller reporting company)~~
		Emerging growth companyx¨

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 ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act.¨

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 9, 2017,~~May 17, 2021, the issuer has ~~15,606,353~~31,311,189 shares of common stock, par value $.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, 2017~~March 31, 2021 (Unaudited) and December 31, ~~2016 (Unaudited)~~2020	3

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 (Unaudited)~~2020 Unaudited)	4

	Condensed ~~Statement~~Consolidated Statements of Stockholders’ Equity for the ~~nine~~three months ended ~~September 30, 2017 (Unaudited)~~March 31, 2021 and 2020 Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (Unaudited)	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2523

Item 4.	Controls and Procedures	2524

PART II	OTHER INFORMATION	2524

Item 1.	Legal Proceedings	2524

Item 1A.	Risk Factors	2524

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2624

Item 3.	Defaults Upon Senior Securities	2625

Item 4.	Mine Safety Disclosures	2625

Item 5.	Other Information	2625

Item 6.	Exhibits	2725

SIGNATURES			2826

PART ~~I – FINANCIAL~~I-FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign ~~Combustion~~Technologies Corporation and Subsidiary

~~Condensed~~Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,			March 31,			December 31,
	2017			2016			2021			2020
ASSETS

Current Assets:
Cash and cash equivalents	$	3,511,000		$	1,259,000		$	10,725,000		$	8,824,000
Accounts receivable		-			103,000			124,000			-
Contract assets		126,000			-			339,000			92,000
Prepaid expenses and other assets		575,000			535,000
Prepaid expenses and other assets, net								243,000			466,000
Total current assets		4,212,000			1,897,000			11,431,000			9,382,000

Fixed assets, net		554,000			644,000			755,000			427,000
Patents and other intangible assets, net		1,836,000			1,735,000			1,298,000			1,302,000
Other assets		10,000			10,000			10,000			10,000

Total Assets	$	6,612,000		$	4,286,000		$	13,494,000		$	11,121,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable and accrued liabilities	$	863,000		$	755,000		$	438,000		$	435,000
Current portion of lease liabilities		157,000			150,000			193,000			169,000
Accrued compensation and taxes		501,000			669,000			190,000			382,000
Contract liabilities		-			115,000			48,000			94,000
Total current liabilities		1,521,000			1,689,000			869,000			1,080,000
Long Term Liabilities:
Long term lease liabilities		235,000			353,000			506,000			249,000
Deferred rent		-			-
Payroll protection program loan								251,000			251,000
Total liabilities		1,756,000			2,042,000			1,626,000			1,580,000

Commitments
Commitments and contingencies

Stockholders’ Equity:
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		-			-			-			-
Common stock, $0.0001 par value, 15,606,353 and 12,983,938 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		2,000			1,000
Common stock, $0.0001 par value, 31,137,498 and 30,077,436 shares issued and
outstanding at March 31, 2021 and December 31, 2020, respectively								3,000			3,000
Additional paid-in capital		52,272,000			42,574,000			88,759,000			84,411,000
Accumulated deficit		(47,418,000	)		(40,331,000	)		(76,895,000	)		(74,874,000	)
Total stockholders’ equity		4,856,000			2,244,000
Total stockholders' equity								11,867,000			9,540,000
Noncontrolling Interest								1,000			1,000
Total equity								11,868,000			9,541,000

Total Liabilities and Stockholders’ Equity	$	6,612,000		$	4,286,000
Total Liabilities and Stockholders' Equity							$	13,494,000		$	11,121,000

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

ClearSign ~~Combustion~~Technologies Corporation and Subsidiary

~~Condensed~~Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2017			2016			2017			2016			2021			2020

Sales	$	-		$	260,000		$	360,000		$	260,000		$	363,000		$	-
Cost of goods sold		15,000			47,000			266,000			47,000
Cost of goods sold including warranty adjustment (see note 5)														225,000			-

Gross profit		(15,000	)		213,000			94,000			213,000			138,000			-

Operating expenses:
Research and development		1,329,000			1,226,000			3,644,000			3,767,000			826,000			810,000
General and administrative		1,131,000			2,840,000			3,569,000			5,342,000			1,333,000			1,153,000

Total operating expenses		2,460,000			4,066,000			7,213,000			9,109,000			2,159,000			1,963,000

Loss from operations		(2,475,000	)		(3,853,000	)		(7,119,000	)		(8,896,000	)
Net loss													$	(2,021,000	)	$	(1,963,000	)

Other income:
Interest income		3,000			7,000			32,000			30,000

Net Loss	$	(2,472,000	)	$	(3,846,000	)	$	(7,087,000	)	$	(8,866,000	)

Net Loss per share - basic and fully diluted	$	(0.16	)	$	(0.30	)	$	(0.46	)	$	(0.69	)
Net loss per share - basic and fully diluted													$	(0.07	)	$	(0.07	)

Weighted average number of shares outstanding - basic and fully diluted		15,603,880			12,957,029			15,358,655			12,914,665			30,526,571			26,707,288

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

ClearSign ~~Combustion~~Technologies Corporation and Subsidiary

~~Statement~~Condensed Consolidated Statements of ~~Stockholders’~~ Equity

(Unaudited)

For the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and 2020

Total
Common Stock Additional Accumulated Stockholders’
Shares Amount Paid-In Capital Deficit Equity

Balances at December 31, 2016 12,983,938 $ 1,000 $ 42,574,000 $ (40,331,000 ) $ 2,244,000
Shares issued in rights offering ($3.03 per share) 2,395,471 1,000 7,257,000 - 7,258,000
Warrants issued in rights offering ($0.97 per warrant) - - 2,324,000 - 2,324,000
Issuance costs of rights offering - - (915,000 ) - (915,000 )
Shares issued in payment of accrued compensation ($3.60 per share) 136,110 - 490,000 - 490,000
Shares issued for services ($4.85 per share) 5,000 - 24,000 - 24,000
Shares issued for services ($3.50 per share) 2,500 - 9,000 - 9,000
Shares issued for 2017 board services ($3.60 per share) 83,334 - - - -
Share based compensation - - 509,000 - 509,000
Net loss - - - (7,087,000 ) (7,087,000 )

Balances at September 30, 2017 15,606,353 $ 2,000 $ 52,272,000 $ (47,418,000 ) $ 4,856,000
Common Stock Additional Accumulated Stockholders' Noncontrolling
Shares Amount Paid-In Capital Deficit Equity Interest Total Equity

Balances at December 31, 2020 30,077,436 3,000 84,411,000 (74,874,000 ) 9,540,000 $ 1,000 $ 9,541,000

Shares issued upon exercise of options ($1.90 per share) 1,250 - 2,000 - 2,000 - 2,000
Shares issued upon exercise of options ($3.80 per share) 9,375 - 36,000 - 36,000 - 36,000
Shares issued upon exercise of options ($1.21 per share) 3,000 - 4,000 - 4,000 - 4,000
Shares issued upon exercise of warrants ($1.80 per share) 37,500 - 67,000 - 67,000 - 67,000
Fair value of stock options issued for board service - - 210,000 - 210,000 - 210,000
Fair value of stock issued in payment of accrued compensation 64,439 - 217,000 - 217,000 - 217,000
Share based compensation - - 410,000 - 410,000 - 410,000
Shares issued through the use of At-The Market issuance 940,748 - 4,469,000 - 4,469,000 - 4,469,000
Proceeds receivable from At-The Market issuance - - (1,076,000 ) - (1,076,000 ) - (1,076,000 )
Shares issued for services ($2.33 per share) 3,750 - 9,000 - 9,000 - 9,000
Net loss - - - (2,021,000 ) (2,021,000 ) - (2,021,000 )
Balances at March 31, 2021 31,137,498 3,000 88,759,000 (76,895,000 ) 11,867,000 1,000 11,868,000

Common Stock Additional Accumulated Stockholders' Noncontrolling
Shares Amount Paid-In Capital Deficit Equity Interest Total Equity
Balances at December 31, 2019 26,707,261 $ 3,000 $ 77,210,000 $ (67,990,000 ) $ 9,223,000 $ 3,000 $ 9,226,000

Shares issued for services ($1.03 per share) 2,500 - 2,000 - 2,000 - 2,000
Fair value of stock options issued in payment of accrued compensation - - 215,000 - 215,000 - 215,000
Fair value of stock options issued for board service - - 53,000 - 53,000 - 53,000
Share based compensation - - 80,000 - 80,000 - 80,000
Net loss - - - (1,963,000 ) (1,963,000 ) - (1,963,000 )
Balances at March 31, 2020 26,709,761 3,000 77,560,000 (69,953,000 ) 7,610,000 3,000 7,613,000
~~The accompanying notes are an integral part of these condensed financial statements.~~

~~ClearSign Combustion Corporation~~
~~Condensed Statements of Cash Flows~~
~~(Unaudited)~~
For the Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (7,087,000 ) $ (8,866,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services 258,000 144,000
Share based payments 284,000 492,000
Depreciation and amortization 209,000 139,000
Amortization of right of use asset 119,000 106,000
Payments of lease liabilities (111,000 ) (106,000 )
Abandonment and impairment of capitalized patents pending - 1,971,000
Other - (13,000 )
Change in operating assets and liabilities:
Contract assets (126,000 ) (144,000 )
Accounts receivable 103,000 -
Prepaid expenses and other assets (40,000 ) (287,000 )
Accounts payable and accrued liabilities 108,000 89,000
Accrued compensation and taxes 322,000 (260,000 )
Contract liabilities (115,000 ) 318,000
Net cash used in operating activities (6,076,000 ) (6,417,000 )

Cash flows from investing activities:
Acquisition of fixed assets (89,000 ) (176,000 )
Disbursements for patents and other intangible assets (250,000 ) (834,000 )
Net cash used in investing activities (339,000 ) (1,010,000 )

Cash flows from financing activities:
Proceeds from issuance of units of common stock and warrants for cash, net of offering costs 8,667,000 -
Net cash provided by financing activities 8,667,000 -

Net increase (decrease) in cash and cash equivalents 2,252,000 (7,427,000 )
Cash and cash equivalents, beginning of period 1,259,000 10,985,000
Cash and cash equivalents, end of period $ 3,511,000 $ 3,558,000
~~Supplemental disclosure of non-cash operating activities:~~
~~During the nine months ended September 30, 2017, the Company issued 136,110 shares of common stock to its officers in satisfaction of $490,000 of accrued compensation at December 31, 2016.~~
During the nine months ended September 30, 2016, the Company issued 60,883 shares of common stock through net settlement cashless exercise of warrants to purchase 118,959 shares at $2.20 per share when the closing prices on the date of exercises were a weighted average of $4.51 per share.

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

ClearSign ~~Combustion~~Technologies Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net loss $ (2,021,000 ) $ (1,963,000 )
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for services 9,000 2,000
Share based compensation 620,000 143,000
Depreciation and amortization 46,000 58,000
Reserve for prepaid materials 96,000 -
Change in operating assets and liabilities:
Contract assets (247,000 ) -
Accounts receivable (124,000 ) -
Prepaid expenses and other assets 127,000 57,000
Accounts payable and accrued liabilities 2,000 213,000
Accrued compensation and taxes 25,000 100,000
Contract liabilities (46,000 ) -
Net cash used in operating activities (1,513,000 ) (1,390,000 )

Cash flows from investing activities:
Acquisition of fixed assets (54,000 ) -
Disbursements for patents and other intangible assets (34,000 ) (78,000 )
Net cash used in investing activities (88,000 ) (78,000 )

Cash flows from financing activities:
Proceeds from issuance of common stock,
net of offering costs 3,393,000 -
Proceeds from exercise of stock options and warrants 109,000 -
Net cash provided by financing activities 3,502,000 -

Net change in cash and cash equivalents 1,901,000 (1,468,000 )
Cash and cash equivalents, beginning of period 8,824,000 8,552,000
Cash and cash equivalents, end of period $ 10,725,000 $ 7,084,000

Supplemental disclosure of non-cash operating activities:

During the three months ended March 31, 2021, the company issued stock options to purchase a total of 64,439 shares of common stock to its officers and employees in satisfaction of $217,000 of accrued compensation at December 31, 2020.

During the three months ended March 31, 2020, the company issued stock options to purchase a total of 444,161 shares of common stock to its officers and employees in satisfaction of $205,000 of accrued compensation at December 31, 2019.
The accompanying notes are an integral part of these condensed consolidated financial statements.

ClearSign Technologies Corporation and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

ClearSign ~~Combustion~~Technologies Corporation (ClearSign or the Company) designs and ~~is developing~~develops products and technologies ~~for the purpose of improving~~that have been shown to significantly improve key performance characteristics of ~~combustion~~industrial and commercial systems, including ~~emission and~~ operational performance, energy efficiency, emission reduction, safety, and overall cost-effectiveness. Our patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include, the energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ~~Duplex™~~ClearSign Core technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation. Its other technology, Electrodynamic Combustion Control™ or ECC™, introduces a computer-controlled electric field into the combustion region which may better control gas-phase chemical reactions and improve system performance and cost-effectiveness. The Company is headquartered in Seattle, Washington and was incorporated in the state of Washington in 2008. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

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

Going Concern

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s ~~Duplex technology is~~technologies are currently in ~~various states of~~field development, but with nominal fully operational commercial ~~application regarding in three of the Company’s target markets~~installations, and ~~has~~have generated nominal revenues from operations to ~~date. Results are encouraging but the Company continues~~date to ~~further refine and expand our Duplex technology range. The Company’s ECC technology is in development stage and the Company has not had any commercial application of ECC technology to date.~~meet operating expenses. In order to generate meaningful revenues, ~~one of~~ 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 our operations primarily through issuances of equity securities, including $4.6 million in gross proceeds raised from its At-The-Market stock in which the Company issued a total of 940,748 shares of common stock at an average price of $4.93 per share during the three months ended March 31, 2021. Cost associated with the offering totaled approximately $100,000 and the Company received net cash proceeds approximating $4.5 million, of which $1.1 million was received in April 2021.

The Company has incurred losses since its inception totaling ~~$47,418,000~~$76,895,000 and expects to experience operating losses and negative cash ~~flow~~flows for the foreseeable future. AsAdditionally, the outbreak of ~~September 30, 2017,~~COVID-19 has caused significant disruptions to the ~~Company had cash and cash equivalents totaling $3,511,000. The Company currently anticipates that its cash and cash equivalents will be sufficient to fund~~global financial markets which could impact the Company’s ~~ongoing business activities into the first quarter of 2018. In order to continue business operations beyond that point, the Company currently anticipates that it will need~~ability to raise additional capital. The Company has historically financed its operations primarily through issuances of equity securities, and until the growth of revenue streams increases to a level that covers operating expenses it is the Company’s plan to continue to fund operations in this manner.

Management believes that the successful growth and operation of the Company’s business is dependent upon ~~its~~our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing ~~co-development agreements or strategic partnering agreements~~ to adequately support ~~research and development~~product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. Management has made estimates of future results of operations, using a wide range of assumptions regarding the level of revenue generated, operating expenses incurred, and future cash flows from financing activities and is working to execute these plans. While historically the Company has had success in raising capital, there can be no assurances that the Company will raise the necessary capital in the short-term in order to fund operations beyond the first quarter of 2018. Furthermore, thereThere 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 ~~obtain profitable operations or~~ 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, ~~2016~~2020 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 ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

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

Revenue Recognition and Cost of Sales ~~and Change in Accounting Principle~~

~~In September 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 (ASU No. 2014-09) regarding revenue recognition.~~ The ~~new standard provides authoritative guidance clarifying the principles for recognizing~~Company recognizes revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. It is effective January 1, 2018 and early adoption is permitted. Management has elected early adoption of this standard to minimize the eventualrelated cost ~~of implementation.~~

~~The Company previously accounted for revenues from design and installation of its products on the completed contract method. Revenues from contracts and related costs~~ of goods sold were recognized once the contract was completed or substantially completed. Contract costs included all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, and depreciation costs. Provisions for estimated losses on uncompleted contracts were made in ~~the period in which such losses were determined.~~

The Company retroactively adopted ASU No. 2014-09 effective January 1, 2017. The Company reviewed each contract to identify contract rights, performance obligations, and transaction prices, including the allocation of prices to separate performance obligations.accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and ~~costs~~cost of ~~sales~~goods sold are recognized once the goods or services are delivered to the customer’s control ~~and~~or non-refundable performance obligations are satisfied. Typically, the Company’s customer contracts include performance obligations related to emission levels or other metrics that are measured at project completion. Management analyzed prior year revenue recognition made under the completed contract method and determined that no changes in the previously reported financial statements were required. Management elected to not apply the practical expedients in the adoption of ASU No. 2014-09.

The Company’s contracts with customers generally have performance obligations ~~regarding air emissions~~ and ~~operational performance that are satisfied~~a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon ~~completion~~delivery 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~~certain drawings or equipment. Revenue related to the contracts is recognized ~~upon project completion.~~in accordance with ASC 606 in accordance with the non-refundable performance obligations which are laid out in each sales order.

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~~contract assets or ~~Contract~~contract liabilities. Upon completion of the performance obligations ~~and acceptance by the customer~~ the projects can be recorded as revenue. ~~The~~For any contract that is expected to incur costs in excess of the contract price, the Company ~~did not recognize any revenue from contracts during~~accrues the ~~quarter ended September 30, 2017. The Company recognized revenue of $360,000~~estimated loss in full in the ~~nine-month~~ period ~~ended September 30, 2017.~~such determination is made.

The ~~Company’s~~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~~were used in satisfying the review requirements of ~~ASU No. 2014-09.~~ASC 606.

Contract Acquisition Costs and Practical Expedients

For contracts that have a duration of less than one year, the Company follows ASC 606, Narrow Scope Improvements and 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, and shortcomings in performance compared to contractual guarantees 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.~~sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of ~~its~~our 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 $76,000 (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.

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 ~~Change in Accounting Principle for~~ Leases

Fixed assets are recorded at cost. ~~As disclosed~~Leases are recorded in ~~Note 3, in 2017 the Company retroactively adopted Accounting Standards Update No. 2016-02 (ASU No. 2016-02) regarding leases.~~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 ~~(short-term leases)~~ are recognized on a straight line basis over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life, 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.~~cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis.

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 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,~~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~~Company's financial instruments primarily consist of cash and cash equivalents, accounts payable and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term maturities of these instruments.

In adopting ASU 2016-02 as described in Note 3, the Company recorded lease liabilities for the estimated present value of the lease payments under the lease agreements. The Company determined the interest rate based on an estimated incremental borrowing rate. The lease liabilities are classified within Level 3.

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~~share based compensation, consulting fees, rent, utilities, depreciation, and consumables.

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 aan 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.

~~Share-Based~~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. ~~Share-based~~Stock compensation for ~~shares~~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 March 31, 2021 and December 31, 2020 include assets amounting to approximately $62,000 and $103,000, respectively, relating to operations of the Company in China. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

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 (loss) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

Noncontrolling Interest

The subsidiary of the Company has a minority shareholder representing an ownership interest of 1.00% at March 31, 2021. The Company accounts for this noncontrolling interest pursuant to ASC 810-10-65 whereby gains and losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance.

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, 2017~~March 31, 2021 and ~~2016,~~2020, potentially dilutive shares outstanding amounted to ~~3,474,094~~3,630,994 and ~~1,335,363,~~2,643,470, respectively.

Recently Adopted Accounting Pronouncements

In ~~connection~~November 2018 FASB issued ASU 2018-18, Topic 808 Collaborative Arrangements.The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: (1) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements; (2) add unit-of-account guidance in Topic 808 to align with the ~~January 2017 rights offering (see Note 6),~~guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the ~~Company evaluated~~collaborative arrangement or a part of the ~~financial impact~~arrangement is within the scope of ~~FASB ASC 260, “Earnings per Share,” which states, among other things,~~Topic 606; (3) require that ifin a ~~rights issue is offered to all existing stockholders at an exercise price~~transaction with a collaborative arrangement participant that is ~~less than~~not directly related to sales to third parties, presenting the ~~fair value of~~transaction together with revenue recognized under Topic 606 is precluded if the ~~stock, then~~collaborative arrangement participant is not a customer. For public business entities, the ~~weighted average shares outstanding~~amendments in this update are effective for fiscal years beginning after December 15, 2019, and ~~basic and diluted earnings per share shall be adjusted retroactively to reflect the bonus element of the rights offering for all~~interim periods ~~presented.~~within those fiscal years. The ~~Company determined that the application~~adoption of this ~~specific provision of ASC 260 was immaterial to previously issued financial statements and, therefore,~~standard did not ~~retroactively adjust previously reported weighted average shares outstanding and basic and diluted earnings per share.~~have material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

~~In May 2017, the FASB issued ASU 2017-09,~~~~Compensation - Stock Compensation (Topic 718)~~: Scope of Modification Accounting. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 71 to a change to the terms or conditions of a share-based payment award. The amendments in this ASU are effective for public entities for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective date. The Company is evaluating the impact of this ASU.

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.

~~Emerging Growth Company~~

~~The Company is an emerging growth company as defined underthe Jumpstart Our Business Startups Act of 2012 (JOBS Act)~~.An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1.07 billion, if it issues more than $1 billion in non-convertible debt in a three-year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any June 30. At June 30, 2017, the market value of the Company’s common stock held by non-affiliates totaled $57 million.

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

September 30, December 31,
2017 2016
(unaudited)
Machinery and equipment $ 801,000 $ 662,000
Office furniture and equipment 163,000 141,000
Leasehold improvements 145,000 134,000
Right of use asset-operating leases 518,000 518,000
Accumulated depreciation and amortization (1,073,000 ) (894,000 )
554,000 561,000
Construction in progress - 83,000
$ 554,000 $ 644,000

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02 regarding leases for the purpose of providing more comprehensive and standardized presentation of an entity’s cost of property essential to its operations and its related funding. The new standard requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statements of cash flows. It is effective for fiscal years commencing after December 15, 2018 and early adoption is permitted. Management has elected early adoption of this standard to minimize the eventual cost of implementation.

	March 31,			December 31,
	2021			2020
	(Unaudited)
Machinery and equipment	$	720,000		$	720,000
Office furniture and equipment		180,000			180,000
Leasehold improvements		149,000			149,000
Right of use asset-operating leases		1,235,000			1,024,000
		2,284,000			2,073,000
Accumulated depreciation and amortization		(1,594,000	)		(1,657,000	)
		690,000			416,000
Construction in progress		65,000			11,000
	$	755,000		$	427,000

The Company has a triple net operating lease for office and laboratory space in Seattle, Washington ~~through~~with a term that initially ended in March ~~2020. This lease was modified in November 2016 to extend its term from February 2017 to March 2020. Rent escalated annually by 3% through February 2017 and remains at a constant rate thereafter~~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 ~~began in September 2016 and will expire~~initially ended in August 2019 ~~with~~and monthly rent of approximately $2,000 per month plus triple net operating costs. Both leases ~~include~~included lessee renewal options for three years at the then prevailing market rate.

~~With~~ Effective as of July and August 2019, the ~~retroactive adoption of ASU No. 2016-02,~~Company exercised the ~~new~~options to renew both the Seattle lease ~~standard was applied to~~and the Tulsa lease ~~in September 2016, the commencement~~for three years. The new term of ~~the lease term, and to~~ the Seattle lease began in ~~November 2016,~~April 2020 and included rent abatement for April and May 2020, although the ~~time~~Company was responsible for our proportionate share of expenses and taxes. For the period beginning on June 1, 2020 through March 2021, the Company paid a monthly rent of approximately $13,500. The monthly rent will increase on the first day of April of each succeeding year by approximately 3% until the end of the ~~lease modification. A leasehold interest and corresponding lease liability was recognized related to~~term in May 2023. The rent for the Tulsa lease ~~and~~was approximately $2,200 a month through August 2022 with an annual 2.5% increase. However, in January 2021, the ~~Seattle~~ lease ~~retroactively in 2016~~was amended for a larger office space in the ~~amounts~~same building. The amended lease terms commenced in April 2021, and expire in September 2027. The new rent amount for the Tulsa lease will be approximately $5,100 a month 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 ~~$71,000~~approximately $6,000. It was renewed for an additional 18 months through May 2022, and ~~$447,000, respectively. These reflect the~~is being treated as a short term lease ~~commitments over the lease term discounted at the Company’s estimated incremental borrowing rate~~with a monthly rent of 5% per annum. The lessee renewal options were not included in the lease term as they were not considered to be reasonably probable of exercise nor measurable. In 2016, accumulated amortization of these assets amounted to $19,000 and principal payments of the lease liabilities amounted to $17,000. There was no meaningful effect on the 2016 results of operations or the December 31, 2016 accumulated deficit. Management elected to apply the practical expedients in the adoption of ASU No. 2016-02 and to not apply the standard to short-term leases.approximately $4,500.

Lease costs for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 and other quantitative disclosures are as ~~follows:~~follows (unaudited):

For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Lease cost:
Operating lease cost $ 54,000 $ 42,000 $ 161,000 $ 122,000
Short-term lease cost 40,000 4,000 47,000 21,000
Total lease cost $ 94,000 $ 46,000 $ 208,000 $ 143,000

				For the three months ended March 31,
				2021		2020
Lease cost:
Operating lease cost				$	46,000	$	62,000
Short-term lease cost					5,000		-
Total lease cost				$	51,000	$	62,000

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	129,000				$	53,000

Right-of-use assets obtained in exchange for new operating lease liabilities
For operating lease:
Weighted average remaining lease term (in years)		2.43					4.47
Weighted average discount rate		5.00	%				5.98	%

Minimum future payments under the Company’s leases at ~~September 30, 2017~~March 31, 2021 and their application to the corresponding lease liabilities are as ~~follows:~~follows (unaudited):

Payments due
Discounted lease under lease
liability payments agreements
2017 $ 38,000 $ 43,000
2018 159,000 173,000
2019 158,000 164,000
2020 37,000 37,000
Total $ 392,000 $ 417,000

	Discounted lease liability payments		Payments due under lease agreements
2021 (remaining 9 months)	$	143,000	$	171,000
2022		207,000		233,000
2023		122,000		136,000
2024		54,000		65,000
2025		59,000		66,000
Thereafter		114,000		118,000
Total	$	699,000	$	789,000

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

September 30, December 31,
2017 2016
(unaudited)
Patents
Patents pending $ 1,163,000 $ 1,040,000
Issued patents 862,000 747,000
2,025,000 1,787,000
Trademarks
Trademarks pending 36,000 23,000
Registered trademarks 23,000 23,000
59,000 46,000
Other 8,000 8,000
2,092,000 1,841,000
Accumulated amortization (256,000 ) (106,000 )
$ 1,836,000 $ 1,735,000

~~During the three and nine months ended September 30, 2017 and 2016, the Company recorded impairment losses of $0, $0, $1,739,000, and $1,971,000 respectively, of capitalized patents pending.~~

	March 31,			December 31,
	2021			2020
	(Unaudited)
Patents
Patents pending	$	763,000		$	731,000
Issued patents		883,000			883,000
		1,646,000			1,614,000
Trademarks
Trademarks pending		107,000			105,000
Registered trademarks		23,000			23,000
		130,000			128,000
Other		8,000			8,000
		1,784,000			1,750,000
Accumulated amortization		(486,000	)		(448,000	)
	$	1,298,000		$	1,302,000

Future amortization expense associated with issued patents and registered trademarks as of ~~September 30, 2017~~March 31, 2021 is estimated as ~~follows:~~follows (unaudited):

2017 $ 54,000
2018 215,000
2019 193,000
2020 109,000
2021 38,000
Thereafter 29,000
$ 638,000

2021 (remaining 9 months)		114,000
2022		125,000
2023		91,000
2024		63,000
Thereafter		27,000
	$	420,000

Note 5 – Sales, Contract Assets and Contract Liabilities

~~In the three months ended September 30, 2016, the~~The Company ~~entered into~~a multi-flare contract with a third-party contractor to supply its Duplex technology to a major California oil producer to retrofit its enclosed wellhead ground flares. This contract is valued at $900,000 and includes certain performance requirements related to emission levels. As such, each flare retrofit is considered a separate transaction where revenues are recognized ~~upon delivery~~revenue of ~~the unit and satisfaction of the performance obligation. In~~$363,000 during the three months ended March 31, ~~2017, revenue totaling $360,000 was recognized with~~2021 from the completion and delivery of a burner under a product contract with an infrastructure company during the ~~performance obligations. The remaining units~~quarter and no revenue during the three months ended March 31, 2020.

During the three months ended March 31, 2021, the Company recognized cost of goods sold of $250,000 from the burner contract. Additionally, the Company recognized $18,000 in cost of goods sold on a contract that the Company anticipates will show a loss upon completion and $8,000 in residual costs associated with a contract ~~value~~that was completed during 2020. The recognized cost of goods sold was offset by adjustments totaling ~~$540,000 are in progress.~~ $51,000 related to the reversal of accrual for product warranties that expired on three completed projects from the year 2018.

The Company ~~also has contracts with two oil producing companies~~did not record any cost of goods sold for the ~~installation of its Duplex technology with a total value of approximately $280,000. At September 30, 2017, the~~three months ended March 31, 2020.

The Company had contract assets of ~~$126,000~~$339,000 and $92,000 and contract liabilities of ~~$0.~~$48,000 and $94,000 at March 31, 2021 and December 31, 2020, respectively.

Note 6 –Equity

~~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.

~~In January 2017,~~During the three months ended March 31, 2021 the Company ~~completed a rights offering and public offering of units comprised of~~issued common stock ~~and warrants at $4.00 per unit (the Rights Offering) whereby 2,395,471~~pursuant to our At-The-Market Offering Sales Agreement, dated December 23, 2020, with Virtu Americas LLC, as sales agent pursuant to which we may sell shares of common stock ~~and warrants for the purchase~~with an aggregate offering price of ~~2,395,471~~up to $15,000,000 (the “ATM”). As of March 31, 2021, we had sold 940,748 shares of our common stock ~~were issued. The warrants allow each holder to purchase one share of common stock~~under the ATM program, at an ~~exercise~~average price of ~~$4.00~~$4.93 per ~~share, are non-callable, expire on January 25, 2019, and are publicly traded on the NASDAQ Capital Market under the symbol “CLIRW”.~~share. Gross proceeds ~~from the Rights Offering~~ totaled ~~$9.6~~approximately $4.6 million and net cash proceeds approximated ~~$8.7~~$4.5 million. ~~Expenses~~Of these amounts, 190,748 shares representing net proceeds of ~~the Rights Offering approximated $915,000, including dealer-manager and placement agent fees~~approximately $1.1 million were sold as of ~~$575,000 paid to MDB Capital Group LLC (MDB) and MDB’s legal fees of $60,000.~~March 31, 2021, but settled during April 2021.

Equity Incentive Plan

The Company ~~has an~~had adopted and the Company’s shareholders had approved the ClearSign Technologies Corporation 2011 Equity Incentive Plan (the ~~Plan)~~“Plan”) which ~~provides for~~permitted the ~~granting of~~Company to grant to eligible participants, including officers, employees, directors, consultants and advisors, options to purchase shares of common stock, stock awards ~~to purchase shares at no less than 85% of the value of the shares,~~ and stock ~~bonuses to officers, employees, board members, consultants, and advisors.~~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. As of ~~September 30, 2017,~~March 31, 2021 the number of shares of common stock reserved for issuance under the Plan totaled ~~1,657,972. The Plan provides for quarterly increases in~~3,630,994.

During the ~~available number of authorized shares equal to the lesser of 10% of any new shares issued by~~three months ended March 31, 2021, the Company ~~during~~granted stock options for the ~~quarter immediately prior to the adjustment date or such lesser amount as the Board~~purchase of ~~Directors shall determine.~~

~~In February 2017, the Company issued 83,334~~an aggregate 885,000 shares of common stock ~~under~~to our employees from the ~~Plan to its three independent directors~~Plan. 80,000 of these options were awarded for 2020 bonuses in ~~accordance with agreements entered into with each director.~~lieu of cash and the expense of $192,000 was recorded during the year ended December 31, 2020. The remaining 805,000 options for the purchase of common stock ~~is subject to repurchase rights by~~were awarded with vesting dependent on the ~~Company at $0.0001 per share through February 10, 2018 upon the termination~~achievement of ~~the individual’s services as a director or other circumstances as set forth in the award agreements.~~certain performance objectives. The fair ~~value~~values of the stock at the time of grant was $3.60 per share for a total value of $300,000. The Company recognized $225,000 in general and administrative expense for the nine months ended September 30, 2017 and will recognize the remaining $75,000 during the remainder of 2017.

~~In the nine months ended September 30, 2017, the Company granted 107,000 stock~~these options under the Plan to employees. The stock options have exercise prices at the grant date fair value of $3.80 per share, contractual lives of 10 years, and vest over 4 years. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $224,000. The recognized compensation expense associated with these grants for the nine months ended September 30, 2017 was $28,000.totaled $1.9 million. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Employee Awards
	2021
Expected life		~~6.25~~5.75 years
Weighted average volatility		6994	%
Forfeiture rate		130	%
Weighted average risk-free interest rate		~~1.90~~0.47	%
Expected dividend rate		0	%

Outstanding stock option ~~grants~~awards at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 totaled ~~978,310~~3,630,994 shares and ~~882,815~~2,697,119 shares, respectively, with the right to purchase ~~720,643~~2,780,735 shares and ~~547,532~~2,379,752 shares being vested and exercisable at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively. ~~The intrinsic value of the exerciseable shares was $194,000 as of September 30, 2017.~~ The recognized compensation expense associated with ~~these grants~~stock option awards for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 totaled ~~$140,000, $509,000, $199,000~~$410,000 and ~~$604,000,~~$126,000 respectively. ~~At September 30, 2017 the number of shares reserved under~~On January 27, 2021 the Plan ~~but unissued totaled 202,648.~~expired so there are no remaining shares available to award under this plan. At ~~September 30, 2017, in addition to the $75,000 of director share-based compensation to be recognized in 2017,~~March 31, 2021, there was ~~$499,000~~$234,000 of total unrecognized compensation cost related to ~~non-vested share-based~~performance incentive awards that are probable of vesting and another $1.4 million in performance incentive awards that are currently deemed as not probable of vesting related to share based compensation arrangements ~~granted~~awarded under the Plan. ~~That~~The cost of the awards in which vesting was assessed as probable is expected to be recognized over a weighted average period of ~~2.6~~1 year. Awards for which vesting was assessed as not probable will be reassessed at the end of each reporting period. The intrinsic value of outstanding stock options was $11.8 million at March 31, 2021.

The Company’s directors are currently compensated solely in stock option awards. In addition to being compensated for their services as directors, individual directors are also compensated for committee membership, for services as a committee chair and for services as a lead director. On January 22, 2021, the Company awarded from the Plan to certain directors stock options for the purchase of 62,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2021. The stock options have an exercise price based on the grant date fair value, which was $3.97. All of the options have a contractual life of 10 years. The recognized compensation expense associated with director stock option awards for the three months ended March 31, 2021 and 2020 totaled $210,000 and $53,000, respectively. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Director Awards
	2021
Expected life		10.00 years
Weighted average volatility		88	%
Forfeiture rate		0	%
Weighted average risk-free interest rate		1.10	%
Expected dividend rate		0	%

Stock Grants

During the three months ended March 31, 2021, the Company issued 64,439 shares of common stock with a fair value of $3.37 per share to its employees. These shares were issued for payment of 2020 bonuses in lieu of cash and the expense of $217,000 was recorded during the year ended December 31, 2020.

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 ~~grants~~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, 2017~~March 31, 2021 totaled ~~142,384~~287,118 with ~~101,634~~208,868 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. ~~In August 2017, the~~The Company granted 10,000 shares of common stock to a consultant under the Consultant ~~Stock~~ Plan for contracted services performed during the period from August 13, 2019 to ~~a consultant for services from June 2017 to May 2018 and subject to completion of service each quarter.~~August 31, 2020. The fair value of the stock at the time of grant was ~~$3.50~~$1.03 per share for a total value of $10,000, which the Company recognized on a quarterly pro-rated basis as to 2,500 shares in general and administrative expense. The contract was renewed and the consultant was granted an additional 15,000 shares for services performed from September 1, 2020 through August 31, 2021. The fair value of the stock at the time of grant was $2.33 per share for a total value of $35,000, which the Company ~~recognizes~~is recognizing 3,750 shares in general and administrative expense on a quarterly pro-rated ~~quarterly~~ basis. The Consultant Plan expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 was $9,000 and ~~$33,000 and $12,000 and $32,000,~~$2,000, respectively.

~~Warrants~~Inducement Stock Options

Pursuant to the rules of The Nasdaq Stock Market, the Company has the ~~following warrants outstanding~~ability to issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. These awards need not be granted from a plan approved by the Company’s shareholders. In January, 2019 the Company granted options for the purchase of 600,000 shares of common stock to its President and Chief Executive Officer as an inducement to accept the Company’s offer of employment. (See Note 7.) The stock options have exercise prices at ~~September 30, 2017:~~

Total Outstanding Warrants
Exercise Price Warrants Wtd. Avg.
Exercise
Price Remaining
Life
(in years)
$ 1.80 80,000 $ 1.80 3.38
$ 4.00 2,395,471 $ 4.00 1.32
$ 10.00 20,313 $ 10.00 1.43
2,495,784 $ 3.98

the award date with fair values ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and that vest over 2 years. Of these options to purchase 600,000 shares of common stock, an option to purchase 258,618 shares of common stock was issued from the Plan and is accounted for with the stock options described above. Non-qualified stock options covering the remaining 341,382 shares of common stock were issued from the Company’s reserve of authorized but unissued shares of common stock. The ~~intrinsic~~fair value of the ~~outstanding warrants~~non-qualified stock options estimated on the date of grant using the Black-Scholes option valuation model was ~~$140,000 as~~$176,000. The recognized compensation expense associated with these awards for each of ~~September 30, 2017.~~the three months ended March 31, 2021 and 2020 was $13,000 and $13,000. There is no remaining unrecognized compensation expense associated with these awards.

Warrants

~~Note 7 – Related Party Transactions~~

~~In connection with~~During the ~~January 2017 Rights Offering,~~quarter ended March 31, 2021, 37,500 warrants were redeemed at an exercise price of $1.80 and 42,500 warrants expired during the quarter. As of March 31, 2021 the Company ~~paid MDB,~~had no warrants outstanding for the ~~dealer-manager and placement agent, fees of $575,000 and legal fees and other costs of $60,000. MDB and its chief executive officer own a significant number~~purchase of shares of ~~the Company’s~~ common stock.

Note 87 – Commitments and Contingencies

On ~~February 3, 2015,~~July 10, 2020, the Company received a letter from the Financial Industry Regulatory Authority (“FINRA”) notifying the Company that FINRA was investigating trading in the Company’s securities surrounding the June 15, 2020 announcement that the Company had received a purchase order from ExxonMobil. On April 1, 2021 the Company received a letter from FINRA stating that it had concluded its investigation without any findings.

On January 28, 2019 (the “Effective Date”), the Company and ~~its Chief Executive Officer, Stephen E. Pirnat,~~Colin James Deller entered into an employment agreement (the ~~Agreement)~~“Agreement”) pursuant to which ~~terminates on December 31, 2017, unless earlier terminated. Compensation under~~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, ~~includes~~the Company pays Dr. Deller an annual salary of ~~$350,000~~$350,000. As an inducement to accept employment with ~~annual cost-of-living adjustments, a grant of stock options~~the Company, Dr. Deller was also granted an option to purchase ~~300,000~~400,000 shares of the Company’s common stock ~~annual cash bonuses that may equal~~at an exercise price of $1.16 per share and an 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 ~~60% of his annual salary~~$6,000 a month to Dr. Deller for expenses related to temporary housing and ~~equity bonuses based on performance standards established by~~travel to and from Tulsa to Seattle. If Dr. Deller purchases a home in the ~~Compensation Committee~~Seattle area, the Relocation Adjustment will continue to be paid through the expiration of the ~~Board~~Payment Period, although the Relocation Adjustment may be adjusted or terminated upon mutual agreement of ~~Directors, medical~~Dr. Deller and ~~dental benefits for Mr. Pirnat and his family, other employee benefits offered to employees generally and relocation expenses up to approximately $100,000.~~the Company. The Agreement may be terminated by the Company ~~without~~for cause, ~~under certain circumstances,~~ as defined in the Agreement, ~~whereby~~due to Dr. Deller’s death or disability, upon 30 days’ notice to Dr. Deller or as a severance payment would be due in the amount of compensation that would have been due had employment not been terminated or one year of the current annual compensation, whichever is greater. In the eventresult of a change in control, ~~Mr. Pirnat would~~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 ~~one year’s compensation~~the balance of the unpaid Relocation Adjustment and ~~all previously granted stock options would vest~~six months of his annual salary. During the three months ended March 31, 2021 and 2020, the Company has paid Dr. Deller $5,000 and $12,000, respectively, in ~~full. On October 30, 2017~~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 ~~agreement was extended through December 31, 2018.~~report, the Company is not a party to any material pending legal proceedings or claims that the Company believes will have a material adverse effect on our business, financial condition or operating results.

Indemnification Agreements

The Company maintains indemnification agreements with our 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.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and the rest of the world. The ultimate extent of the impact of COVID-19 on the financial performance of the Company will depend on future developments, including, among other things, the duration and spread of COVID-19, and the overall economy, all of which are highly uncertain and cannot be predicted. The outbreak of COVID-19 has already caused significant disruptions to the global financial markets which may impact the Company’s ability to raise additional capital on acceptable terms or at all. If the financial markets and/or the overall economy are impacted for an extended period, the Company's operating results may be materially and adversely affected.

To date the Company has altered its operations through working remotely and only maintaining essential personnel in its offices. This has not resulted in any major impact on the Company’s ability to conduct business.

Note 8 - The Paycheck Protection Program (PPP) Loan

On May 8, 2020, the Company obtained a ~~field test agreement~~loan in the amount of $250,832 (the “PPP loan”) from Bank of America (the “Lender”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economics Security Act (the “CARES Act”) that was signed into law in March 2020. In accordance with the PPP, the Company was permitted to use the PPP loan proceeds to fund designated expenses, including certain payroll costs, rent, utilities, and other permitted expenses. The PPP loan is evidenced by a promissory note, dated effective May 1, 2020, issued by the Company to the Lender. The PPP loan is unsecured with a ~~customer that was established to demonstrate~~2-year term, matures on May 7, 2022, and ~~test the Duplex technology in~~bears interest at a ~~once through steam generator (OTSG) used to facilitate a thermally enhanced oil recovery process.~~rate of 1.00% per annum. Under the terms of the ~~agreement,~~PPP, the PPP loan may be prepaid at any time prior to maturity with no prepayment penalties. In addition, up to the entire amount of principal and accrued interest may be forgiven to the extent the PPP loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration (“SBA”) under the PPP (including that up to 75% of such loan funds are used for payroll). The Company submitted an application with the SBA for forgiveness in January 2021. Payments under this note have been deferred by the bank until the forgiveness status of the loan is ascertained. The Company used the entire PPP loan amount for designated qualifying expenses and has applied for forgiveness of the loan in accordance with the terms of the PPP. No assurance can be given that the Company ~~has retrofitted an OTSG unit~~will obtain forgiveness of the loan in ~~order~~whole or in part. With respect to ~~achieve certain performance criteria. The agreement also includes time-sensitive pricing, delivery and installation terms, if elected,~~any portion of the PPP loan that is not forgiven, the loan will ~~apply~~be subject to ~~future purchases~~customary provisions for a loan of this ~~Duplex application by this customer.~~type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the PPP loan and cross-defaults.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

This ~~report~~Quarterly Report on Form 10-Q 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, orand technologies; future performance or results of ~~anticipated~~any 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 limited cash and our history of losses;~~

our limited cash, history of losses, and our expectation that we will continue to experience operating losses and negative cash flows in the near future;

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

our limited operating history;

~~our limited operating history;~~

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

~~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;

~~customer demand for the products and services we develop;~~

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

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

our ability to manufacture any products we design;

~~our ability to manufacture any products we design;~~

	·	our doing business in China and related risks with respect to intellectual property protection, currency exchange, contract enforcement and rules on foreign investment;

	·	the impact of a cybersecurity incident or other technology disruption;

	·	our ability to protect our intellectual property;

	·	our ability to obtain adequate financing in the future;

	·	our ability to retain and hire personnel with the experience and talent to develop our products and business;

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

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 obtain adequate financing in the future to support our operations;

	·	the financial and operational impacts of the coronavirus pandemic on our business and results of operations, including impacts on our day-to-day operations, collaborative arrangements, revenue and marketing efforts and suppliers;

~~our ability to continue as a going concern;~~

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

~~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.~~

other factors discussed in this report and in the section titled “Risk Factors” in our most recent 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 ~~Combustion Corporation.~~Technologies Corporation and its subsidiary, ClearSign Asia Limited.

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 most recent 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.

OVERVIEW

We design and develop technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency, and overall cost-effectiveness. Our ~~patented Duplex™~~ClearSign Core technology is currently in test furnace and Electrodynamic Combustion Control™ (ECC™) platform technologies enhance the performance of combustion systems in a broad range of markets, including the energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, and power industries. Our Duplex technology uses a porous ceramic tile above 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. Our ECC technology introduces a computer-controlled high voltage electric field into a combustion volume in order to better control gas-phase chemical reactions and improve system performance and cost-effectiveness. To date, our operations have been funded primarily through sales of our equity securities.development. We have ~~earned limited revenue since inception on January 23, 2008. We are headquartered in Seattle, Washington with an office in Tulsa, Oklahoma.~~generated nominal revenues from operations to date to meet operating expenses.

We have incurred losses since ~~our~~ inception totaling ~~$47,418,000~~$76,895,000 and we expect to experience operating losses and negative cash flow for the foreseeable future. As of September 30, 2017, we had cash and cash equivalents totaling $3,511,000. We currently anticipate that our cash and cash equivalents will be sufficient to fund our ongoing business activities into the first quarter of 2018. In order to continue business operations beyond that point, we currently anticipate that we will need to raise additional capital. We have historically financed our operations primarily through issuances of equity ~~securities,~~securities. Since inception, we have raised approximately $82.9 million in gross proceeds through the sale of our equity securities. We may need to raise additional capital in the future, however, thesignificant volatility in the capital markets relating to the ongoing spread of the coronavirus may negatively affect our ability to do so.

In order to mitigate the impact of the coronavirus pandemic we have significantly limited the personnel working full time in both our Seattle, Washington and ~~until~~Tulsa, Oklahoma offices to those providing services that cannot be provided remotely, including research and development activities. We also limit the ~~growth~~in-person attendance of ~~revenue streams increases~~other employees to times when their interactions with others are necessary and can be done safely, and in compliance with the CDC guidelines. It is not possible to say what inefficiencies result from this working arrangement but is it probable that some projects have been prolonged or delayed as a ~~level that covers operating expenses it is our plan to continue to fund~~result.

Our operations in ~~this manner.~~China have also been impacted by the severity of the pandemic, which has prevented our USA based employees other than our President of ClearSign Asia from visiting the country. This has delayed progress on our product development and product demonstration and certification programs there and we do not know how long these delays will continue.

~~Management~~In addition to our own work, the work of our partners and suppliers has been, and continues to be affected resulting in delays to the delivery of materials and services, and has resulted in delays to our projects.

It is not possible at this time to estimate the full impact that the coronavirus pandemic will have on our business or on our potential customers, suppliers, or other business partners. However, the continued spread of the coronavirus, the measures taken by the governments of affected countries, actions taken to protect employees, the limitations placed on travel and border crossings, and the impact of the pandemic on various business activities in affected countries could adversely impact our operational results and financial condition.

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 ~~co-development agreements or strategic partnering agreements~~ to adequately support research and development efforts, protect intellectual property, ~~form~~from relationships with strategic partners and provide for working capital and general corporate purposes. Management has made estimates of future results of operations, using a wide range of assumptions regarding the level of revenue generated, operating expenses incurred, and future cash flows from financing activities and is working to execute these plans. While historically we have had success, there can be no assurances that we will raise the necessary capital in the short-term in order to fund operations beyond the first quarter of 2018. Furthermore, thereThere 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 ~~obtain profitable operations or~~ continue in the long-term as a going ~~concern.~~concern.

~~Our Market Opportunities~~

Our initial target markets center on the energy sector, including upstream crude oil production through the use of once through steam generators (OTSGs) and wellhead enclosed flares and downstream oil refineries through the use of process heaters and boilers. We are focusing on these targets in multiple regions, including North America, Europe, and China. In recent years, the energy sector has been significantly affected by the volatile market price of crude oil and marginal economic growth. Crude oil prices have stabilized during 2016 and early 2017 and enjoyed appreciation with the general post-election upswing in certain commodities and improved economic outlook. According to the U.S. Energy Information Administration, the spot price of West Texas intermediate crude oil in the last five years has ranged from approximately $110 per barrel to approximately $25 per barrel, with 2016 prices reaching a low of $27 per barrel and September 2017 prices approximating $46+ per barrel. Regardless of the effect of crude oil prices, based upon our experience and feedback from current and prospective customers, we believe that the market continues to validate the appeal of our Duplex technology to the energy sector due to the technology’s ability to lower emissions and maintain certain operational efficiencies.

Operators in all of our target markets are under intense pressure to meet current and proposed federal, state and local pollution 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 expect these standards to continue to become more stringent regardless of political leadership. As an illustration, air pollution emission standards are most stringent in the states of California and Texas, historically politically leaning in opposite directions. As a result, these standards are a significant driver in our development and sales efforts and that our Duplex technology can provide a unique, cost-effective pollution control solution for operators in comparison to competing products.

Emissions standards in the United States largely emanate from the Clean Air Act, which is administered by the Environmental Protection Agency (EPA) and regulates six 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, nitrogen oxides (NOx) are regulated emissions 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~~

We have noted that local air quality districts in EPA designated “severe non-attainment zones” in California are uncertain as to how they will achieve the 2015 standard. As such, we believe that local regulators are in search of additional means beyond those included in the current regulations to comply with the impending standards. For example, although NOx emissions from refineries and other oil production and processing operations are highly regulated since they are historically a significant source of stationary NOx emissions, enclosed ground flares have not historically been viewed as a source requiring the same level of regulation. We believe that our Duplex technology is uniquely able to address the emissions challenges being faced by oil producers and other industries as those challenges relate to both current and reasonably predictable future local air emission standards.

In the process of attempting to develop our ECC technology beyond laboratory scale for a potential process heater design in 2013, we developed Duplex, which is a simplified application for gaseous fuel. While we continued to pursue development of our ECC technology through laboratory testing, in 2014 we began to pursue field development and conditional sales of our Duplex technology. We engaged in a number of field development projects in which we successfully demonstrated the technology operating with thermal output of up to 62 million BTU/hr. and pursued business development and marketing activities with established entities that use steam generators, process heaters, enclosed flares, boilers, and other combustion systems as well as original equipment manufacturers.

We have had numerous field test projects in three target markets using our Duplex technology: one related to wellhead enclosed flares, four related to process heaters in the oil refining industry, and three related to OTSGs in the enhanced oil recovery industry. We believe that the successful completion of these field development projects, which resulted from years of research and development work, are fundamental to the commercialization of our Duplex product. We reported our first meaningful product sales of $621,000 during the second half of 2016 from the installation of our Duplex technology through retrofits in a wellhead enclosed flare for a major California oil producer, an enhanced oil recovery OTSG, and two refinery process heater projects. Furthermore, we entered into an agreement to supply the oil producer with five additional wellhead enclosed flare retrofits for $900,000 and in the first quarter of 2017 we delivered two units generating sales revenue of $360,000. Our laboratory research currently focuses on enhancing our Duplex products and includes the development of a packaged boiler application that enhances operational performance by eliminating flue gas recirculation.

~~Product Applications of Duplex~~

~~Process Heaters in the Oil Refining Industry~~

We have to date applied our Duplex technology through retrofits of existing burners. These often involve engineering around an existing burner architecture that can complicate the Duplex installation. Because of this, we believe that the retrofit market is best suited for larger projects and larger applications of Duplex.

~~We have recently completed laboratory testing as well as our first field testing of a new burner product for refinery and industrial process heater applications. The Duplex Plug & Play~~™ design 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 a multi-burner heater or furnace to continue operating during installation rather than be shut down. If ongoing field testing confirms this design attribute, the ability to install the Duplex 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. We believe that this product, our first complete burner product, will be suitable for licensing and potential manufacturing arrangements with OEMs with established manufacturing and distribution capabilities.

~~Wellhead Enclosed Ground Flares~~

A major California oil producer approached us in early 2016 to address a unique emission compliance need relating to wellhead enclosed ground flares. We developed a Duplex application, completed the wellhead enclosed ground flare retrofit and received payment in the third quarter of 2016, thereby recognizing $260,000 of revenue in that quarter. This was an important milestone because it demonstrated a broad application of our Duplex technology. As a result, we entered into an agreement to supply this oil producer with five additional wellhead enclosed flare retrofits for $900,000, with 2 units completed in the first quarter of 2017. The remaining three units are expected to be completed during the fourth quarter of 2017 and in early 2018, depending on the oil producer customer’s schedule. We previously received 40% of the contract amount as an initial payment on all units. These funds, net of costs through quarter end, are reflected as contract liabilities on our balance sheet. These sales will be recognized as each of the remaining three units are installed and accepted by the customer and the performance obligations are completed. Our expectation is that our Duplex retrofit sales will normalize over time to gross margins approximating 50%.

Based upon discussions with local regulators and regulatory reports, we believe that flare emissions are a potential target for increased regulation, in part based upon the success of our installations to date. In anticipation of this, we are pursuing potential customers with target ground flare applications that would benefit from our proven installations.

~~OTSGs in Enhanced Oil Recovery Industry~~

We have successfully installed Duplex in two OTSG projects in the enhanced oil recovery industry in Southern California. In March 2017 we entered into an agreement to complete a third installation for this customer fueled by oil field waste gas. We believe that our successful installations in the OTSG market to date are gaining regulator acceptance by the Southern California regulatory authorities and, as a result, market acceptance.

We have now achieved emission results which exceeded current local Best Available Control Technology (BACT) levels in multiple installations in California related to three of our target industries. We intend to continue to demonstrate Duplex 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 and applications, (iv) pursuing additional lab research and development of new applications (e.g. packaged boilers) and next generation improvements to Duplex design and standardization, including the pursuit of more complete systems, similar to the Duplex 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.

We are pursuing development of our ECC technology through laboratory research where we have demonstrated certain attributes of our proprietary technology operating in our research facility at lab scales.

Our business plan contemplates licensing our technology after we prove commercial viability and generate interest from original equipment manufacturers (OEMs). Licensing would significantly change the makeup of our sales mix, sales recognition, and margins.~~Licensing our technology within one or an array of selected vertical markets (e.g. burners for~~ ~~refinery process heaters or~~packaged boilers) could dramatically accelerate the global sales and market adoption rate of our technology. However, in order to create channel flexibility and meet end user demand, we intend to continue to pursue end user customers through direct sales, sub-contractors, or channel partners.While we are currently pursuing various licensing arrangements, we have no agreements at this time and do not anticipate entering into any such agreements prior to completing the field development projects discussed above and completing a meaningful number of installations and sales. We believe that the continuing development of Duplex, the completion of sales and an increase in end-users will enhance our ability to license our technology.

~~Our Funding and Operating Expenses~~

~~Historically, we have funded our operations through the sale of our securities, including the following:~~

In April and May 2012, we completed an initial public offering of our common stock whereby we sold 3,450,000 shares of common stock at $4.00 per share, which included the exercise of the underwriter’s overallotment option, resulting in gross proceeds of $13.8 million and, after deducting certain costs paid with common stock, net proceeds of approximately $11.6 million.

In March 2014, we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $8.00 per share resulting in gross proceeds of $6.5 million and net proceeds of approximately $5.8 million.

In February 2015, we completed an underwritten public offering of our common stock whereby we sold 2,990,000 shares of common stock at $5.85 per share resulting in gross proceeds of $17.5 million and net proceeds of approximately $16.3 million.

In January 2017, we completed a rights offering and public offering pursuant to which we sold 2,395,471 units for $4.00 per unit (the Rights Offering) with each unit consisting of one share of common stock and one warrant to purchase one share of common stock for $4.00 per share resulting in gross proceeds of $9.6 million and net proceeds of approximately $8.7 million.

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 1615 full-time employees. ~~We anticipate increasing the number of employees required to support our activities in the areas of research~~Because using third party expertise and ~~development, sales and marketing, and general and administrative functions. We~~resources is more efficient than maintaining full time resources, we also expect to incur consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current ~~levels and we expect to incur increasing expenses to protect our intellectual property.~~ levels.

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.

Research, development, and commercial acceptance of new technologies are, by their nature, unpredictable. Although we ~~will~~ undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our ~~planned~~ 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 ~~technology~~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~~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 ~~Sales~~Goods Sold. . The Company ~~reviews each contract to identify contract rights, performance obligations,~~recognizes revenue and ~~transaction prices, including the allocation~~related cost of ~~prices to separate performance obligations.~~goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and ~~costs~~cost of ~~sales~~goods sold are recognized once the goods or services are delivered to the customer’s control ~~and~~or non-refundable performance obligations are ~~satisified. Typically,~~satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized in accordance with ASC 606 in accordance with the non-refundable performance obligations which are laid out in each sales order.

The Company’s contracts generally include progressive 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, the projects can be recorded as revenue. For any contract in connection with which the Company is expected to incur costs in excess of the contact price, the Company accrues the estimated loss in full in the period such determination is made.

Contract Acquisition Costs and Practical Expedients. For contracts ~~include~~that have a duration of less than one year, the Company follows ASC 606, Narrow Scope Improvements and 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 ~~emission levels or other metrics that~~the contract are ~~measured at project completion.~~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, and performance in accordance with operational guarantees, for a period specified in each contract by replacing failed or improperly performing 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~~our 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.

~~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 issued.~~

~~Share-Based~~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. ~~Share-based~~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.

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 Months Ended March 31, 2021 and ~~Nine Months Ending September 30, 2017 and 2016~~ 2020

Sales and Gross Profit. ~~Gross profit~~

The Company recognized revenue of $94,000, or 26%, was realized on product sales totaling $360,000 in the nine months ended September 30, 2017, whereas a gross profit of $213,000 was realized on product sales of $260,000 in the three and nine months ended September 30, 2016. A $15,000 increase to warranty reserves was taken in$363,000 during the three months ~~ending September 30, 2017 reducing~~ ended March 31, 2021 from the ~~gross profit from prior sales and resulting in~~delivery of product under a ~~negative gross margin~~burner contract with an infrastructure company that was delivered during the ~~quarter. The 2017 sales resulted~~quarter and no revenue during the three months ended March 31, 2020.

During the three months ended March 31, 2021, the Company recognized cost of goods sold of $250,000 from the ~~installation~~burner contract. Additionally, the Company recognized $18,000 in cost of ~~our Duplex technology~~goods sold on a contract that the Company anticipates will show a loss upon completion and $8,000 in two enclosed ground flares for a major California oil producer. Our contract with this customer includes three more installations totaling approximately $540,000 and involves terms typical to the industry with progress payments made over the delivery schedule, which we expect to be completed during the fourth quarter of 2017 and in early 2018 depending on the oil producer customer’s schedule. The 2016 installation of our Duplex technology in an enclosed ground flare for the same major California oil producer was completed under a conditional sales contract. Because the conditions had not been met in prior quarters, $144,000 of project costs, including design and start-upresidual costs associated with ~~unique aspects~~a contract that was completed during 2020. The recognized cost of ~~this market vertical,~~goods sold was offset by adjustments totaling $51,000 related to the reversal of accrual for product warranties that expired on three projects that were ~~previously expensed. Including these costs, the gross profit~~completed during 2018.

The Company did not record any cost of goods sold for the three ~~and nine~~ months ended ~~September 30, 2017 would have been $69,000, or 26%. We earned no revenues from sales during the quarter ended September 30, 2017.~~March 31, 2020.

Operating Expenses. Operating expenses, consisting of research and development (R&D) and general and administrative (G&A) expenses, ~~decreased~~increased by approximately ~~$1,606,000~~$196,000, or approximately 10%, to ~~$2,460,000~~$2,159,000 for the ~~three months~~three-month period ended ~~September 30, 2017, referred to herein as Q3 2017,~~March 31, 2021, as compared to ~~$4,066,000~~$1,963,000 for the ~~same~~three-month period ~~in 2016 (Q3 2016).~~ended March 31, 2020. The Company increased ~~its~~our R&D expenses by ~~$103,000~~$16,000, or approximately 2%, to ~~$1,329,000~~$826,000 for ~~Q3 2017,~~the three-month period ended March 31, 2021 as compared to ~~$1,226,000~~$810,000 for ~~Q3 2016~~the three-month period ended March 31, 2020. The increase in R&D expenses was due primarily ~~due~~ to ~~increased~~ field testing and ~~development costs of our Duplex technology.~~laboratory related costs. G&A expenses ~~decreased~~increased by ~~$1,709,000~~$180,000, or approximately 16% to ~~$1,131,000~~$1,333,000 in ~~Q3 2017~~the three-month period ended March 31, 2021 as compared to ~~$2,840,000~~$1,153,000 in ~~Q3 2016,~~the three-month period ended March 31, 2020, resulting primarily from ~~decreased intellectual property writeoff expenses~~increases in share-based compensation offset by ~~increased~~reduced consulting ~~costs of $164,000 mainly from added consultants operating in Europe and Asia.~~

Operating expenses, decreased by approximately $1,896,000 to $7,213,000 for the nine months ended September 30, 2017 compared to $9,109,000 for the same period in 2016. The Company decreased its R&D expenses by $123,000 to $3,644,000 for the nine months ended September 30, 2017, as compared to $3,767,000 for the same period in 2016, primarily due to decreased field testing and development costs of our Duplex technology. G&A expenses decreased by $1,773,000 to $3,569,000 in 2017 as compared to $5,342,000 in 2016 resulting primarily from decreased intellectual property writeoff expenses, this was partially offset by added consulting costs of $289,000 mainly caused by added consultants working in the European and Asian markets.

~~Loss from Operations~~. Due to the decrease in intellectual property costs, our loss from operations decreased during Q3 2017 by $1,378,000, from $3,853,000 in Q3 2016 to $2,475,000 in Q3 2017 and decreased for the nine months ended September 30, 2017 by $1,777,000 to $7,119,000 as compared with $8,896,000 for the nine months ended September 30, 2016.services.

Net Loss. Primarily as a result of ~~the decrease in intellectual property costs,~~increased operating expenses, our net loss for ~~Q3 2017~~the three-month period ended March 31, 2021 was ~~$2,472,000~~$2,012,000 as compared to a net loss of ~~$3,846,000~~$1,963,000 for ~~Q3 2016,~~the three month period ended March 31, 2020, resulting in ~~a decrease~~an increase in net loss of $1,374,000 and our net loss for the nine months ended September 30, 2017 was $7,087,000 as compared to a net loss of $8,866,000 for the same period in 2016, resulting in a decrease in net loss of $1,779,000.$58,000 or approximately 3%.

Liquidity and Capital Resources

At ~~September 30, 2017,~~March 31, 2021, our cash and cash equivalent balance totaled ~~$3,511,000~~$10,725,000 compared to ~~$1,259,000~~$8,824,000 at December 31, ~~2016.~~2020, an increase of $1,901,000. This increase resulted primarily from ~~$8.7 million~~sales of ~~net proceeds~~common stock pursuant to the ATM. As of March 31, 2021, we ~~received from our Rights Offering in January 2017 offset by our operating costs for the nine months ended September 30, 2017 associated with the ongoing research and development~~had sold 940,748 shares of our ~~technology~~common stock under the ATM program, including 190,748 shares that were sold as ~~well as general~~of March 31, 2021 but were not settled and ~~administrative expenses. As~~issued until April 2021, at an average price of ~~September 30, 2017,~~$4.93 per share for proceeds of $4.6 million, net of commissions and professional fees of approximately $100,000.

Based on our current plans, we ~~had cash and cash equivalents totaling $3,511,000 . We expect~~have sufficient funds to continue operating our business at current levels for at least 12 months from the date of issuance of this ~~cash and cash equivalents will be sufficient to fund our ongoing business activities into the first quarter of 2018.~~report. In order to continue business operations beyond that point, we currently anticipate that we will need to raise additional capital. Our ~~research and~~ development and general administrative costs are ongoing, and we expect to require additional funding to meet these expenses. To that end we may undertake offerings of our securities, debt financing, selling or licensing our developed intellectual or other property, or other alternatives. We filed a Form S-3 shelf registration statement with the Securities and Exchange Commission on ~~December 29, 2015~~June 27, 2019 that was declared effective on ~~January 7, 2016.~~July 12, 2019. The registration statement allows us to offer common stock, preferred stock, warrants, orsubscription rights, debt securities and units from time to time as market conditions permit to fund the ongoing operations of the Company. Until the growth of revenue streams increases to a level that covers operating expenses it is the Company’s plan to continue to fund operations in this ~~manner.~~manner although, as noted above, the significant volatility in the capital markets relating to the ongoing spread of the coronavirus may negatively affect our ability to do so.

At ~~September 30, 2017,~~March 31, 2021, our current assets were in excess of current liabilities resulting in working capital of ~~$2,691,000~~$10,562,000 compared to ~~$208,000~~$8,302,000 at December 31, ~~2016.~~2020. The increase in working capital resulted primarily from approximately $3.4 million in net proceeds we received from an At-The-Market public offering of 940,748 shares of our common stock at an average price of $4.93 per share over the course of the quarter. Of these amounts, 190,748 shares representing net proceeds of ~~our Rights Offering offset by~~approximately $1.1 million were sold as of March 31, 2021, but settled during April 2021. Additionally, the ~~funds used in operations~~Company also received approximately $67,000 and ~~invested in intangible~~$42,000 from the exercise of outstanding warrants and ~~fixed assets.~~option awards during the quarter.

Operating activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 resulted in cash outflows of ~~$6,076,000~~$1,513,000 which were due primarily to the loss for the period of ~~$7,087,000 and net changes in working capital, exclusive of~~$2,021,000. The cash ~~which reduced cash flow by $252,000. These~~outflows were offset ~~primarily~~mainly by ~~other non-cash expenses of $217,000 and~~ services paid with common stock and stock options of $542,000. Operating activities for the nine months ended September 30, 2016 resulted in cash outflows of $6,417,000, which were due primarily to the loss for the period of $8,866,000 and net changes in working capital, exclusive of cash, which reduced cash flow by $284,000. These were offset by impairment losses on abandoned capitalized patents pending of $1,971,000, other non-cash expenses of $126,000, and services paid with common stock and stock options of $636,000.$629,000.

Investing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 resulted in cash outflows of ~~$250,000~~$88,000 in disbursements for purchases of fixed assets and development of patents, ~~and $89,000 for acquisition of fixed assets,~~ compared to ~~$834,000~~$78,000 in disbursements for ~~patent~~ development ~~and $176,000 for the acquisition of fixed assets~~patents during the same period of ~~2016.~~2020.

~~There were net~~Financing activities for the three months ended March 31, 2021 resulted in cash inflows ~~from financing activities~~ of ~~$8,667,000~~approximately $3.4 million in net proceeds we received from our ~~Rights Offering in~~ATM program. Additionally, the ~~nine months ended September 30, 2017. There were~~Company also received approximately $67,000 and $42,000 from the exercise of outstanding Warrants and Option awards during the quarter, compared to no financing activities ~~for~~during the ~~nine months ended September 30, 2016.~~same period of 2020.

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.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure ~~controls~~Controls and ~~procedures~~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, ~~(the “Act”),~~ is accumulated and communicated to the issuer’s management, including ~~its~~our 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 ~~Interim~~ Chief Financial Officer (CFO) (principal financial and accounting officer), has concluded that, as of ~~September 30, 2017,~~March 31, 2021, 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, 2017~~March 31, 2021 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~~our 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~~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, ~~2016~~2020 which we filed with the Securities and Exchange Commission on ~~February 14, 2017.~~March 31, 2021 and the risk factors included in the reports and other documents we filed with the Securities and Exchange Commission subsequent to that date.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On ~~September 30, 2017,~~March 31, 2021, we issued ~~2,500~~3,750 shares of common stock, having a per share value of ~~$3.50,~~$2.33, the closing price of our common stock on ~~August 3, 2017,~~November 5, 2020, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, ~~Three Part Advisors, LLC,~~Firm IR, for services provided in the three months ended ~~September 30, 2017. The issuance of such~~March 31, 2021. These shares ~~was deemed to be exempt~~were issued in reliance upon the exemption from registration ~~under~~provided by Section 4(a)(2) of the Securities Act of 1933, as amended, ~~in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D promulgated thereunder).~~for transaction by an issuer not involving any public offering.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

~~Not applicable.~~

ITEM 6.

EXHIBITS

~~ITEM 6. EXHIBITS~~

Exhibit
Number		Document

3.1		Articles of Incorporation of ClearSign ~~Combustion~~Technologies Corporation ~~amended on February 2, 2011~~ (1)

~~3.1.1~~		~~Articles of Amendment to Articles of Incorporation of ClearSign Combustion Corporation filed on December 22, 2011 (1)~~

3.2		Bylaws, ~~(1)~~

~~10.1~~		~~Confidential Separation Agreement and General Release with Andrew U. Lee dated September 7, 2017~~as amended (2)

~~10.2~~		~~Consulting Agreement with Andrew U. Lee dated September 7, 2017 (2)~~

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 ~~Interim~~ Chief Financial Officer*

32.1		Section 1350 Certification of Chief Executive Officer and Interim 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 registrant’s Form 10-Q for the quarter ended September 30, 2019 filed with the Securities and Exchange Commission on November 13, 2019.

~~(1)~~

(2) Incorporated by reference from the registrant’s ~~registration statement on~~ Form ~~S-1, as amended, file number 333-177946, originally~~10-Q for the quarter ended September 30, 2020 filed with the Securities and Exchange Commission on November ~~14, 2011.~~13, 2020.

~~(2)~~

~~Incorporated by reference from the registrants release on Form 8-K, originally filed with the Securities and Exchange Commission on September 8, 2017.~~

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 ~~COMBUSTION~~TECHNOLOGIES CORPORATION
	~~(Registrant)~~

Date: ~~November 9, 2017~~May 17, 2021	By:	/s/ ~~Stephen E. Pirnat~~Colin James Deller
		~~Stephen E. Pirnat~~Colin James Deller
		Chief Executive Officer

	By:	/s/ Brian G. Fike
		Brian G. Fike
		~~Interim~~ Chief Financial Officer

											Total
	Common Stock				Additional			Accumulated			Stockholders’
	Shares		Amount		Paid-In Capital			Deficit			Equity

Balances at December 31, 2016		12,983,938	$	1,000	$	42,574,000		$	(40,331,000	)	$	2,244,000
Shares issued in rights offering ($3.03 per share)		2,395,471		1,000		7,257,000			-			7,258,000
Warrants issued in rights offering ($0.97 per warrant)		-		-		2,324,000			-			2,324,000
Issuance costs of rights offering		-		-		(915,000	)		-			(915,000	)
Shares issued in payment of accrued compensation ($3.60 per share)		136,110		-		490,000			-			490,000
Shares issued for services ($4.85 per share)		5,000		-		24,000			-			24,000
Shares issued for services ($3.50 per share)		2,500		-		9,000			-			9,000
Shares issued for 2017 board services ($3.60 per share)		83,334		-		-			-			-
Share based compensation		-		-		509,000			-			509,000
Net loss		-		-		-			(7,087,000	)		(7,087,000	)

Balances at September 30, 2017		15,606,353	$	2,000	$	52,272,000		$	(47,418,000	)	$	4,856,000

	For the Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(7,087,000	)	$	(8,866,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		258,000			144,000
Share based payments		284,000			492,000
Depreciation and amortization		209,000			139,000
Amortization of right of use asset		119,000			106,000
Payments of lease liabilities		(111,000	)		(106,000	)
Abandonment and impairment of capitalized patents pending		-			1,971,000
Other		-			(13,000	)
Change in operating assets and liabilities:
Contract assets		(126,000	)		(144,000	)
Accounts receivable		103,000			-
Prepaid expenses and other assets		(40,000	)		(287,000	)
Accounts payable and accrued liabilities		108,000			89,000
Accrued compensation and taxes		322,000			(260,000	)
Contract liabilities		(115,000	)		318,000
Net cash used in operating activities		(6,076,000	)		(6,417,000	)

Cash flows from investing activities:
Acquisition of fixed assets		(89,000	)		(176,000	)
Disbursements for patents and other intangible assets		(250,000	)		(834,000	)
Net cash used in investing activities		(339,000	)		(1,010,000	)

Cash flows from financing activities:
Proceeds from issuance of units of common stock and warrants for cash, net of offering costs		8,667,000			-
Net cash provided by financing activities		8,667,000			-

Net increase (decrease) in cash and cash equivalents		2,252,000			(7,427,000	)
Cash and cash equivalents, beginning of period		1,259,000			10,985,000
Cash and cash equivalents, end of period	$	3,511,000		$	3,558,000

	For the Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(2,021,000	)	$	(1,963,000	)
Adjustments to reconcile net loss to net cash used
in operating activities:
Common stock issued for services		9,000			2,000
Share based compensation		620,000			143,000
Depreciation and amortization		46,000			58,000
Reserve for prepaid materials		96,000			-
Change in operating assets and liabilities:
Contract assets		(247,000	)		-
Accounts receivable		(124,000	)		-
Prepaid expenses and other assets		127,000			57,000
Accounts payable and accrued liabilities		2,000			213,000
Accrued compensation and taxes		25,000			100,000
Contract liabilities		(46,000	)		-
Net cash used in operating activities		(1,513,000	)		(1,390,000	)

Cash flows from investing activities:
Acquisition of fixed assets		(54,000	)		-
Disbursements for patents and other intangible assets		(34,000	)		(78,000	)
Net cash used in investing activities		(88,000	)		(78,000	)

Cash flows from financing activities:
Proceeds from issuance of common stock,
net of offering costs		3,393,000			-
Proceeds from exercise of stock options and warrants		109,000			-
Net cash provided by financing activities		3,502,000			-

Net change in cash and cash equivalents		1,901,000			(1,468,000	)
Cash and cash equivalents, beginning of period		8,824,000			8,552,000
Cash and cash equivalents, end of period	$	10,725,000		$	7,084,000

Supplemental disclosure of non-cash operating activities:

During the three months ended March 31, 2021, the company issued stock options to purchase a total of 64,439 shares of common stock to its officers and employees in satisfaction of $217,000 of accrued compensation at December 31, 2020.

During the three months ended March 31, 2020, the company issued stock options to purchase a total of 444,161 shares of common stock to its officers and employees in satisfaction of $205,000 of accrued compensation at December 31, 2019.

			Payments due
	Discounted lease		under lease
	liability payments		agreements
2017	$	38,000	$	43,000
2018		159,000		173,000
2019		158,000		164,000
2020		37,000		37,000
Total	$	392,000	$	417,000

		Total Outstanding Warrants
Exercise Price		Warrants		Wtd. Avg. Exercise Price		Remaining Life (in years)
$	1.80		80,000	$	1.80		3.38
$	4.00		2,395,471	$	4.00		1.32
$	10.00		20,313	$	10.00		1.43
			2,495,784	$	3.98