UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _______________
Commission File Number 001-35521
CLEARSIGN TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Washington |
| 26-2056298 |
8023 E. 63rd Place, Suite 101
Tulsa, Oklahoma 74133
(Address of principal executive offices)
(Zip Code)
(206) 673-4848(918) 236-6461
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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Common Stock | | CLIR | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit such files). Yes ⌧ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
| Accelerated filer ☐ |
|
|
|
Non-accelerated filer ⌧ |
| Smaller reporting company ☒ |
| | |
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| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of May 4,November 1, 2022, the issuer has 32,160,13138,019,951 shares of common stock, par value $0.0001, issued and outstanding.
TABLE OF CONTENTS
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Conditions and Results of Operations |
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PART I-FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | |
(in thousands, except share and per share data) | | March 31, | | December 31, | | ||
|
| 2022 |
| 2021 |
| ||
ASSETS | | | | | | | |
| | | | | | | |
Current Assets: |
| |
|
| |
|
|
Cash and cash equivalents | | $ | 6,667 | | $ | 7,607 | |
Accounts receivable, net | | | 27 | | | 33 | |
Contract assets | |
| 244 | |
| 39 | |
Prepaid expenses and other assets | |
| 401 | |
| 345 | |
Total current assets | |
| 7,339 | |
| 8,024 | |
| | | | | | | |
Fixed assets, net | |
| 493 | |
| 530 | |
Patents and other intangible assets, net | |
| 802 | |
| 799 | |
Other assets | |
| 10 | |
| 10 | |
| | | | | | | |
Total Assets | | $ | 8,644 | | $ | 9,363 | |
| | | | | | | |
LIABILITIES AND EQUITY | |
|
| |
|
| |
| | | | | | | |
Current Liabilities: | |
| | |
|
| |
Accounts payable and accrued liabilities | | $ | 294 | | $ | 224 | |
Current portion of lease liabilities | |
| 212 | |
| 205 | |
Accrued compensation and related taxes | |
| 196 | |
| 218 | |
Contract liabilities | | | 84 | | | 84 | |
Total current liabilities | |
| 786 | |
| 731 | |
Long Term Liabilities: | |
| | |
| | |
Long term lease liabilities | |
| 294 | | | 350 | |
Total liabilities | |
| 1,080 | |
| 1,081 | |
| | | | | | | |
Commitments and contingencies (note 7) | |
| | |
| | |
| | | | | | | |
Stockholders’ Equity: | |
|
| |
|
| |
Preferred stock, $0.0001 par value, 0 shares issued and outstanding | |
| — | |
| — | |
Common stock, $0.0001 par value, 32,154,746 and 31,581,666 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | |
| 3 | | | 3 | |
Additional paid-in capital | |
| 91,807 | | | 91,035 | |
Accumulated other comprehensive income | | | 9 | | | 9 | |
Accumulated deficit | |
| (84,255) | | | (82,765) | |
Total ClearSign Technologies Corporation stockholders' equity | | | 7,564 | | | 8,282 | |
Noncontrolling Interest | | | — | | | — | |
Total equity | |
| 7,564 | |
| 8,282 | |
| | | | | | | |
Total Liabilities and Equity | | $ | 8,644 | | $ | 9,363 | |
| | | | | | | |
(in thousands, except share and per share data) | | September 30, | | December 31, | | ||
|
| 2022 |
| 2021 |
| ||
ASSETS | | | | | | | |
| | | | | | | |
Current Assets: |
| |
|
| |
|
|
Cash and cash equivalents | | $ | 5,880 | | $ | 7,607 | |
Short-term held-to-maturity investments | |
| 3,900 | |
| — | |
Accounts receivable, net | | | 38 | | | 33 | |
Contract assets | |
| 284 | |
| 39 | |
Prepaid expenses and other assets | |
| 506 | |
| 345 | |
Total current assets | |
| 10,608 | |
| 8,024 | |
| | | | | | | |
Fixed assets, net | |
| 427 | |
| 530 | |
Patents and other intangible assets, net | |
| 818 | |
| 799 | |
Other assets | |
| 10 | |
| 10 | |
| | | | | | | |
Total Assets | | $ | 11,863 | | $ | 9,363 | |
| | | | | | | |
LIABILITIES AND EQUITY | |
|
| |
|
| |
| | | | | | | |
Current Liabilities: | |
| | |
|
| |
Accounts payable and accrued liabilities | | $ | 287 | | $ | 224 | |
Current portion of lease liabilities | |
| 180 | |
| 205 | |
Accrued compensation and related taxes | |
| 300 | |
| 218 | |
Contract liabilities | | | 61 | | | 84 | |
Total current liabilities | |
| 828 | |
| 731 | |
Long Term Liabilities: | |
| | |
| | |
Long term lease liabilities | |
| 239 | | | 350 | |
Total liabilities | |
| 1,067 | |
| 1,081 | |
| | | | | | | |
Commitments and contingencies (note 7) | |
| | |
| | |
| | | | | | | |
Stockholders’ Equity: | |
|
| |
|
| |
Preferred stock, $0.0001 par value, zero shares issued and outstanding | |
| — | |
| — | |
Common stock, $0.0001 par value, 38,019,951 and 31,581,666 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | |
| 4 | | | 3 | |
Additional paid-in capital | |
| 98,008 | | | 91,035 | |
Accumulated other comprehensive income (loss) | | | (11) | | | 9 | |
Accumulated deficit | |
| (87,205) | | | (82,765) | |
Total ClearSign Technologies Corporation stockholders' equity | | | 10,796 | | | 8,282 | |
Noncontrolling Interest | | | — | | | — | |
Total equity | |
| 10,796 | |
| 8,282 | |
| | | | | | | |
Total Liabilities and Equity | | $ | 11,863 | | $ | 9,363 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | |
(in thousands, except share and per share data) | | For the Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2022 |
| 2021 |
| ||
| | | | | | | |
Revenues | | $ | — | | $ | 363 | |
Cost of goods sold | |
| — | |
| 225 | |
| | | | | | | |
Gross Income | |
| — | |
| 138 | |
| | | | | | | |
Operating expenses: | | | | | | | |
Research and development | |
| 108 | |
| 826 | |
General and administrative | |
| 1,409 | |
| 1,333 | |
| | | | | | | |
Total operating expenses | |
| 1,517 | |
| 2,159 | |
| | | | | | | |
Loss from operations | |
| (1,517) | |
| (2,021) | |
| | | | | | | |
Other income | | | | | | | |
Gain from sale of assets | | | 23 | | | — | |
Other income, net | | | 4 | | | — | |
| | | | | | | |
Net Loss | | $ | (1,490) | | $ | (2,021) | |
| | | | | | | |
Net loss per share - basic and fully diluted | | $ | (0.05) | | $ | (0.07) | |
| | | | | | | |
Weighted average number of shares outstanding - basic and fully diluted | |
| 31,826,221 | |
| 30,526,571 | |
| | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
For the Three Months Ended March 31, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Total ClearSign | | | | | | | |
| | | | | | | | | | Other | | | | | Technologies Corp. | | | | | | | ||
(in thousands, except per share data) | | Common Stock | | Additional | | Comprehensive | | Accumulated | | Stockholders’ | | Noncontrolling | | | |||||||||
|
| Shares |
| Amount |
| Paid-In Capital |
| | Income |
| Deficit |
| Equity |
| Interest |
| Total Equity | ||||||
Balances at December 31, 2021 |
| 31,582 | | $ | 3 | | $ | 91,035 | | $ | 9 | | $ | (82,765) | | $ | 8,282 | | $ | — | | $ | 8,282 |
| | | | | | | | | | | | | | | | | | | | | | | |
Shares issued upon exercise of options ($0.89 per share) | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Shares issued upon exercise of options ($2.93 per share) | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Fair value of stock issued in payment of accrued compensation | | 66 | | | — | | | 95 | | | — | | | — | | | 95 | | | — | | | 95 |
Fair value of stock options granted in payment of accrued compensation | | — | | | — | | | 12 | | | — | | | — | | | 12 | | | — | | | 12 |
Share based compensation | | 3 | | | — | | | 80 | | | — | | | — | | | 80 | | | — | | | 80 |
Shares issued through the use of At-The Market issuance ($1.24 average per share) | | 496 | | | — | | | 578 | | | — | | | — | | | 578 | | | — | | | 578 |
Shares issued for services ($1.93 per share) | | 4 | | | — | | | 7 | | | — | | | — | | | 7 | | | — | | | 7 |
Foreign-Exchange Translation Adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | | | | — |
Net loss | | — | | | — | | | — | | | — | | | (1,490) | | | (1,490) | | | — | | | (1,490) |
Balances at March 31, 2022 |
| 32,155 | | $ | 3 | | $ | 91,807 | | $ | 9 | | $ | (84,255) | | $ | 7,564 | | $ | — | | $ | 7,564 |
| | | | | | | | | | | | | |
(in thousands, except share and per share data) | | For the Three Months Ended | | For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
| | | | | | | | | | | | | |
Revenues | | $ | 324 | | $ | 190 | | $ | 324 | | $ | 553 | |
Cost of goods sold | |
| 201 | |
| 278 | |
| 201 | |
| 1,008 | |
| | | | | | | | | | | | | |
Gross profit (loss) | |
| 123 | |
| (88) | |
| 123 | |
| (455) | |
| | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | |
| 97 | |
| 1,138 | |
| 393 | |
| 2,436 | |
General and administrative | |
| 1,461 | |
| 1,131 | |
| 4,342 | |
| 4,029 | |
| | | | | | | | | | | | | |
Total operating expenses | |
| 1,558 | |
| 2,269 | |
| 4,735 | |
| 6,465 | |
| | | | | | | | | | | | | |
Loss from operations | |
| (1,435) | |
| (2,357) | |
| (4,612) | |
| (6,920) | |
| | | | | | | | | | | | | |
Other income | | | | | | | | | | | | | |
Interest, net | | | 35 | | | — | | | 35 | | | — | |
Government assistance | | | 88 | | | — | | | 100 | | | — | |
Gain on forgiveness of debt | | | — | | | — | | | — | | | 251 | |
Gain from sale of assets | | | — | | | — | | | 37 | | | — | |
Other income, net | | | — | | | 4 | | | — | | | 4 | |
Total other income | |
| 123 | |
| 4 | |
| 172 | |
| 255 | |
| | | | | | | | | | | | | |
Net loss | | | (1,312) | | | (2,353) | | | (4,440) | | | (6,665) | |
Net loss attributed to non-controlling interest | |
| — | |
| — | |
| — | |
| (1) | |
Net loss attributed to common stockholders | | $ | (1,312) | | $ | (2,353) | | $ | (4,440) | | $ | (6,664) | |
| | | | | | | | | | | | | |
Net loss per share - basic and fully diluted | | $ | (0.03) | | $ | (0.07) | | $ | (0.13) | | $ | (0.21) | |
| | | | | | | | | | | | | |
Weighted average number of shares outstanding - basic and fully diluted | |
| 37,871,291 | |
| 31,491,174 | |
| 34,435,117 | |
| 31,114,769 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
For the Three Month Periods During The Nine Months Ended September 30, 2022 and 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Total ClearSign | | | | | | | |
| | | | | | | | | | Other | | | | | Technologies Corp. | | | | | | |||
| | Common Stock | | Additional | | Comprehensive | | Accumulated | | Stockholders’ | | Noncontrolling | | | |||||||||
|
| Shares |
| Amount |
| Paid-In Capital |
| | Income |
| Deficit |
| Equity |
| Interest |
| Total Equity | ||||||
Balances at December 31, 2020 |
| 30,077 | | $ | 3 | | $ | 84,411 | | $ | — | | $ | (74,874) | | $ | 9,540 | | $ | 1 | | $ | 9,541 |
| | | | | | | | | | | | | | — | | | — | | | | | | |
Shares issued upon exercise of options ($1.90 per share) | | 1 | | | — | | | 2 | | | — | | | — | | | 2 | | | — | | | 2 |
Shares issued upon exercise of options ($3.80 per share) | | 9 | | | — | | | 36 | | | — | | | — | | | 36 | | | — | | | 36 |
Shares issued upon exercise of options ($1.21 per share) | | 3 | |
| — | |
| 4 | | | — | |
| — | | | 4 | | | — | |
| 4 |
Shares issued upon exercise of warrants ($1.80 per share) | | 38 | |
| — | |
| 67 | | | — | |
| — | | | 67 | | | — | |
| 67 |
Fair value of stock options issued for board service | | — | | | — | | | 210 | | | — | | | — | | | 210 | | | — | | | 210 |
Fair value of stock issued in payment of accrued compensation | | 64 | | | — | | | 217 | | | — | | | — | | | 217 | | | — | | | 217 |
Share based compensation | | — | | | — | | | 410 | | | — | | | — | | | 410 | | | — | | | 410 |
Shares issued through use of At The Market issuance ($ 4.84 average per share) | | 941 | | | — | | | 4,469 | | | — | | | — | | | 4,469 | | | — | | | 4,469 |
Proceeds receivable from At The Market issuance | | — | | | — | | | (1,076) | | | — | | | — | | | (1,076) | | | — | | | (1,076) |
Shares issued for services ($2.33 per share) | | 4 | | | — | | | 9 | | | — | | | — | | | 9 | | | — | | | 9 |
Net loss | | — | | | — | | | — | | | — | | | (2,021) | | | (2,021) | | | — | | | (2,021) |
Balances at March 31, 2021 | | 31,137 | | $ | 3 | | $ | 88,759 | | $ | — | | $ | (76,895) | | $ | 11,867 | | $ | 1 | | $ | 11,868 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Total ClearSign | | | | | | | |
| | | | | | | | | | Accumulated Other | | | | | Technologies Corp. | | | | | | | ||
(in thousands, except per share data) | | Common Stock | | Additional | | Comprehensive | | Accumulated | | Stockholders’ | | Noncontrolling | | | |||||||||
| | Shares |
| Amount |
| Paid-In Capital |
| | Income (loss) |
| Deficit |
| Equity |
| Interest |
| Total Equity | ||||||
Balances at December 31, 2021 |
| 31,582 | | $ | 3 | | $ | 91,035 | | $ | 9 | | $ | (82,765) | | $ | 8,282 | | $ | — | | $ | 8,282 |
Shares issued upon exercise of options ($0.89 per share) | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Shares issued upon exercise of options ($2.93 per share) | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Fair value of stock issued in payment of accrued compensation | | 66 | | | — | | | 95 | | | — | | | — | | | 95 | | | — | | | 95 |
Fair value of stock options granted in payment of accrued compensation | | — | | | — | | | 12 | | | — | | | — | | | 12 | | | — | | | 12 |
Share based compensation | | 3 | | | — | | | 80 | | | — | | | — | | | 80 | | | — | | | 80 |
Shares issued through the use of At-The Market issuance ($1.24 average per share) | | 496 | | | — | | | 578 | | | — | | | — | | | 578 | | | — | | | 578 |
Shares issued for services ($1.93 per share) | | 4 | | | — | | | 7 | | | — | | | — | | | 7 | | | — | | | 7 |
Net loss | | — | | | — | | | — | | | — | | | (1,490) | | | (1,490) | | | — | | | (1,490) |
Balances at March 31, 2022 |
| 32,155 | | | 3 | | | 91,807 | | | 9 | | | (84,255) | | | 7,564 | | | — | | | 7,564 |
| | | | | | | | | | | | | | | | | | | | | | | |
Share based compensation | | — | | | — | | | 50 | | | — | | | — | | | 50 | | | — | | | 50 |
Shares issued through the use of At-The Market issuance ($1.71 average per share) | | 5 | | | — | | | 9 | | | — | | | — | | | 9 | | | — | | | 9 |
Shares issued for services ($1.93 per share) | | 4 | | | — | | | 7 | | | — | | | — | | | 7 | | | — | | | 7 |
Shares issued in stock offering ($1.11 per share) | | 4,186 | | | 1 | | | 4,210 | | | — | | | — | | | 4,211 | | | — | | | 4,211 |
Foreign-Exchange Translation Adjustment | | — | | | — | | | — | | | (10) | | | — | | | (10) | | | — | | | (10) |
Net loss | | — | | | — | | | — | | | — | | | (1,638) | | | (1,638) | | | — | | | (1,638) |
Balances at June 30, 2022 |
| 36,350 | | | 4 | | | 96,083 | | | (1) | | | (85,893) | | | 10,193 | | | — | | | 10,193 |
| | | | | | | | | | | | | | | | | | | | | | | |
Share based compensation | | 64 | | | — | | | 177 | | | — | | | — | | | 177 | | | — | | | 177 |
Shares issued upon cashless exercise of options ($0.89 per share) | | 10 | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Shares issued pursuant to purchase right ($1.11 per share) | | 1,592 | | | — | | | 1,741 | | | — | | | — | | | 1,741 | | | — | | | 1,741 |
Shares issued for services ($1.93 per share) | | 4 | | | — | | | 7 | | | — | | | — | | | 7 | | | — | | | 7 |
Foreign-Exchange Translation Adjustment | | — | | | — | | | — | | | (10) | | | — | | | (10) | | | — | | | (10) |
Net loss | | — | | | — | | | — | | | — | | | (1,312) | | | (1,312) | | | — | | | (1,312) |
Balances at September 30, 2022 |
| 38,020 | | $ | 4 | | $ | 98,008 | | $ | (11) | | $ | (87,205) | | $ | 10,796 | | $ | — | | $ | 10,796 |
3
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Total ClearSign | | | | | | | |
|
| |
| |
| |
| |
| Technologies Corp. | | | | | ||||||
| | Common Stock | | Additional | | Accumulated | | Stockholders' | | Noncontrolling | | Total | ||||||||
| | Shares | | Amount | | Paid-In Capital | | Deficit | | Equity | | Interest | | Equity | ||||||
Balances at December 31, 2020 | | 30,077 | | $ | 3 | | $ | 84,411 | | $ | (74,874) | | $ | 9,540 | | $ | 1 | | $ | 9,541 |
Shares issued upon exercise of options ($1.90 per share) |
| 1 | |
| — | |
| 2 | |
| — | |
| 2 | |
| — | |
| 2 |
Shares issued upon exercise of options ($3.80 per share) |
| 9 | |
| — | |
| 36 | |
| — | |
| 36 | |
| — | |
| 36 |
Shares issued upon exercise of options ($1.21 per share) |
| 3 | |
| — | |
| 4 | |
| — | |
| 4 | |
| — | |
| 4 |
Shares issued upon exercise of options ($1.80 per share) | | 38 | | | — | | | 67 | | | — | | | 67 | | | — | | | 67 |
Fair value of stock options issued for board service | | — | | | — | | | 210 | | | — | | | 210 | | | — | | | 210 |
Fair value of stock issued in payment of accrued compensation | | 64 | | | — | | | 217 | | | — | | | 217 | | | — | | | 217 |
Share based compensation |
| — | |
| — | |
| 410 | |
| — | |
| 410 | |
| — | |
| 410 |
Shares issued through the use of At-The Market issuance | | 941 | | | — | | | 4,469 | | | — | | | 4,469 | | | — | | | 4,469 |
Proceeds receivable from At-The Market issuance | | — | | | — | | | (1,076) | | | — | | | (1,076) | | | — | | | (1,076) |
Shares issued for services ($2.33 per share) | | 4 | | | — | | | 9 | | | — | | | 9 | | | — | | | 9 |
Net loss |
| — | |
| — | |
| — | |
| (2,021) | |
| (2,021) | |
| — | |
| (2,021) |
Balances at March 31, 2021 |
| 31,137 | | | 3 | | | 88,759 | | | (76,895) | | | 11,867 | | | 1 | | | 11,868 |
| | | | | | | | | | | | | | | | | | | | |
Shares issued upon exercise of options ($3.10 per share) |
| 17 | |
| — | |
| 54 | |
| — | |
| 54 | |
| — | |
| 54 |
Shares issued upon exercise of options ($0.89 per share) | | 42 | | | — | | | 36 | | | — | | | 36 | | | — | | | 36 |
Shares issued upon exercise of options ($1.85 per share) |
| 3 | |
| — | |
| 6 | |
| — | |
| 6 | |
| — | |
| 6 |
Shares issued upon exercise of options ($1.21 per share) | | 95 | | | — | | | 72 | | | — | | | 72 | | | — | | | 72 |
Shares issued upon exercise of options ($0.98 per share) | | 23 | | | — | | | — | | | — | | | — | | | — | | | — |
Shares issued upon exercise of options ($2.93 per share) | | 6 | | | — | | | — | | | — | | | — | | | — | | | — |
Fair value of stock options issued for board service | | — | | | — | | | 52 | | | — | | | 52 | | | — | | | 52 |
Share based compensation | | — | | | — | | | 19 | | | — | | | 19 | | | — | | | 19 |
Shares issued through the use of At-The Market issuance | | 152 | | | — | | | 1,916 | | | — | | | 1,916 | | | — | | | 1,916 |
Shares issued for services ($2.33 per share) | | 4 | | | — | | | 9 | | | — | | | 9 | | | — | | | 9 |
Net loss | | — | | | — | | | — | | | (2,290) | | | (2,290) | | | (1) | | | (2,291) |
Balances at June 30, 2021 |
| 31,479 | | | 3 | | | 90,923 | | | (79,185) | | | 11,741 | | | — | | | 11,741 |
| | | | | | | | | | | | | | | | | | | | |
Shares issued upon exercise of options ($0.89 per share) | | 22 | | | — | | | 19 | | | — | | | 19 | | | — | | | 19 |
Shares issued upon exercise of options ($1.21 per share) | | 65 | | | — | | | 79 | | | — | | | 79 | | | — | | | 79 |
Shares issued upon exercise of options ($1.90 per share) | | 5 | | | — | | | 10 | | | — | | | 10 | | | — | | | 10 |
Shares issued for services ($2.33 per share) | | 4 | | | — | | | 9 | | | — | | | 9 | | | — | | | 9 |
Net reversal of share based compensation | | — | | | — | | | (85) | | | — | | | (85) | | | — | | | (85) |
Net loss | | — | | | — | | | — | | | (2,353) | | | (2,353) | | | — | | | (2,353) |
Balances at September 30, 2021 | | 31,575 | | $ | 3 | | $ | 90,955 | | $ | (81,538) | | $ | 9,420 | | $ | — | | $ | 9,420 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
34
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | |
(in thousands) | | For the Three Months Ended March 31, | | ||||
|
| 2022 |
| 2021 |
| ||
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (1,490) | | $ | (2,021) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | | | |
Common stock issued for services | |
| 7 | | | 9 | |
Share based compensation | |
| 80 | | | 620 | |
Depreciation and amortization | |
| 36 | | | 46 | |
Gain from sale of fixed assets | | | (23) | | | — | |
Reserve for prepaid materials | | | — | | | 96 | |
Change in operating assets and liabilities: | |
| | | | | |
Contract assets | |
| (205) | | | (247) | |
Accounts receivable | |
| 6 | | | (124) | |
Prepaid expenses and other assets | |
| (56) | | | 127 | |
Accounts payable and accrued liabilities | |
| 57 | | | 2 | |
Accrued compensation and related taxes | |
| 85 | | | 25 | |
Contract liabilities | | | — | | | (46) | |
Net cash used in operating activities | |
| (1,503) | |
| (1,513) | |
| | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
Acquisition of fixed assets | |
| (5) | | | (54) | |
Disbursements for patents and other intangible assets | |
| (33) | | | (34) | |
Proceeds from sale of fixed assets | | | 23 | | | — | |
Net cash used in investing activities | |
| (15) | |
| (88) | |
| | | | | | | |
Cash flows from financing activities: | |
|
| |
|
| |
Proceeds from issuance of common stock, net of offering costs | |
| 578 | |
| 3,393 | |
Proceeds from exercise of stock options and warrants | | | — | | | 109 | |
Net cash provided by financing activities | |
| 578 | |
| 3,502 | |
Cash and cash equivalents: | | | | | | | |
Net change in cash and cash equivalents | |
| (940) | | | 1,901 | |
Cash and cash equivalents, beginning of period | |
| 7,607 | | | 8,824 | |
Cash and cash equivalents, end of period | | $ | 6,667 | | $ | 10,725 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Officer and employee equity awards for prior year accrued compensation | | $ | 107 | | $ | 217 | |
| | | | | | | |
(in thousands) | | For the Nine Months Ended September 30, | | ||||
|
| 2022 |
| 2021 |
| ||
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (4,440) | | $ | (6,665) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | | | |
Common stock issued for services | |
| 21 | | | 27 | |
Share based compensation | |
| 307 | | | 606 | |
Depreciation and amortization | |
| 113 | | | 215 | |
Impairment of intangible assets | | | — | | | 236 | |
Gain from sale of fixed assets | | | (37) | | | — | |
Gain on forgiveness of Payroll Protection Program Loan and interest | | | — | | | (251) | |
Change in operating assets and liabilities: | |
| | | | | |
Contract assets | |
| (245) | | | 92 | |
Accounts receivable | |
| (5) | | | — | |
Prepaid expenses and other assets | |
| (161) | | | 11 | |
Accounts payable and accrued liabilities | |
| 17 | | | (160) | |
Accrued compensation and related taxes | |
| 189 | | | 441 | |
Contract liabilities | | | (23) | | | (94) | |
Net cash used in operating activities | |
| (4,264) | |
| (5,542) | |
| | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
Acquisition of fixed assets | |
| (5) | | | (66) | |
Disbursements for patents and other intangible assets | |
| (114) | | | (69) | |
Proceeds from sale of fixed assets | | | 37 | | | — | |
Purchases of held-to-maturity short-term US treasuries | | | (3,900) | | | — | |
Net cash used in investing activities | |
| (3,982) | |
| (135) | |
| | | | | | | |
Cash flows from financing activities: | |
|
| |
|
| |
Proceeds from issuance of common stock, net of offering costs | |
| 6,539 | |
| 5,309 | |
Proceeds from exercise of stock options and warrants | | | — | | | 385 | |
Net cash provided by financing activities | |
| 6,539 | |
| 5,694 | |
Effect of exchange rate changes on cash and cash equivalents | | | (20) | | | — | |
Cash and cash equivalents: | | | | | | | |
Net change in cash and cash equivalents | |
| (1,727) | | | 17 | |
Cash and cash equivalents, beginning of period | |
| 7,607 | | | 8,824 | |
Cash and cash equivalents, end of period | | $ | 5,880 | | $ | 8,841 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Officer and employee equity awards for prior year accrued compensation | | $ | 107 | | $ | 217 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
45
ClearSign Technologies Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Organization and Description of Business
ClearSign Technologies Corporation (“ClearSign” or the “Company”) designs and develops products and technologies that have been shown to significantly improve key performance characteristics of industrial and commercial systems, including operational performance, energy efficiency, emission reduction, safety, and overall cost-effectiveness. The Company’s patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation.
The Company was incorporated in the State of Washington in 2008. During January 2022, the Company relocated its headquarters from Seattle, Washington to Tulsa, Oklahoma. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.
Unless otherwise stated or the context otherwise requires, the terms ClearSign and the Company refer to ClearSign Technologies Corporation and its subsidiary, ClearSign Asia Limited.
Liquidity
The Company's 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 technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.
TheHistorically, the Company has recently financed its operations primarily through issuances of equity securities including $6.1securities. Since inception, the Company has raised approximately $91 million in gross proceeds raised fromthrough the sale of its At-The-Market (ATM) program in whichequity securities. During the nine months ended September 30, 2022, the Company issued a total of 1.6raised approximately $6.5 million in net proceeds by issuing approximately 6.3 million shares of common stock at a weighted average price of $3.85 per share as of March 31, 2022. Costs associated with the ATM program totaled approximately $227 thousand and the Company received net cash proceeds approximating $5.9 million.stock.
The Company has incurred losses since its inception totaling $84.3$87.2 million and expects to experience operating losses and negative cash flows for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon ourits ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.
56
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2021 has been derived from the Company’s audited financial statements as of that date.
In the opinion of management, these condensed consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.
The accompanying unaudited condensed consolidated financial statements include the accounts of ClearSign and its subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition and Cost of Sales
The Company recognizes revenue and related cost of goods sold in accordance with Financial Accounting Standards Board (FASB)(“FASB”) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (“ASC 606)606”). When applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligations are satisfied. Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.
The Company’s contracts generally include progress payments from the customer upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.
Contract 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 recordscapitalizes those costs whenuntil performance obligations related to the contract are completed. The Company generally expenses sales commissions when incurred. The Company amortizes those costs within general and administrative expenses over the life of the contract.
67
Product Warranties
The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical or expected warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ significantly from actual warranty expense. Product warranties are included in accrued liabilities in the balance sheets.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit in a checking and savings account.
Short-Term Investments
Short-term investments consist of U.S. treasuries with original maturities of twelve months or less and greater than three months. These short-term investments are classified as held to maturity and are recorded on an amortized cost basis based on the Company’s positive intent and ability to hold these securities to maturity. As of September 30, 2022, the Company has not experienced any other-than-temporary impairment of its short-term investments.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are recorded at the contractual invoiced amount. An allowance for doubtful accounts is established, as necessary, based on past experience and management’s judgment. The determination of the collectability of amounts due from customers require the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Company’s customers. Based on a review of these factors, the Company may establish or adjust the allowance for specific customers and the accounts receivable portfolio as a whole.
Fixed Assets and Leases
Fixed assets are recorded at cost. Leases are recorded in accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes a right-of-use asset and a lease liability measured at the present value of the lease payments at the time of the lease inception or modification. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Leases with a term of 1one year or less are considered short term leases with rent expense recognized over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over three to four years. Maintenance and repairs are expensed as incurred.
78
Patents and Trademarks
Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent and trademark applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no continuing value in current business activity. We evaluateThe Company evaluates the recoverability of the carrying values of intangible assets each reporting period.
Impairment of Long-Lived Assets
The Company tests long-lived assets, consisting of fixed assets, patents, trademarks, and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected from the use and eventual disposition of the assets. In the event an asset is not fully recoverable, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Fair value is determined based on the present value of estimated expected cash flows using a discount rate commensurate with the risks involved, quoted market prices, or appraised values depending upon the nature of the assets. Losses on long-lived assets to be disposed of isare determined in a similar manner, except those fair values are reduced for the cost of disposal.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs used to establish fair value are the following:
● | Level 1 – Quoted prices in active markets for identical assets or |
● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company’s financial instruments primarily consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term nature of these instruments.
The Company did not identify any other recurring or non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.
89
Research and Development
The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners in cost sharing, collaborative projects. During
Government Assistance
We have adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. We record gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the three months ended March 31, 2022 and March 31, 2021, the Company did not receive any funds from such arrangementsnature of expenditure. We accrue for reimbursement requests submitted to partially offset funding for research and development activities.government entities in accounts receivable.
Income Taxes
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not the Company would not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits are recognized only if it is more likely than not that the tax benefits will be utilized in the foreseeable future.
Share-Based Compensation
The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of a milestone as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
Foreign Operations
The accompanying unaudited condensed consolidated balance sheets as of March 31,September 30, 2022 and December 31, 2021 include assets amounting to approximately $227$205 thousand and $274 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which none has been paid to date. 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
Assets and liabilities of ClearSign Asia Limited with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive gainincome (loss).
10
Noncontrolling Interest
The subsidiary of the Company has a minority shareholder agreement representing an ownership interest of 1.00% of ClearSign Asia Limited. The Company accounts for this noncontrolling interest pursuant to FASB Topic ASC 810,Consolidation, 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.
9
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 March 31,September 30, 2022 and December 31, 2021, potentially dilutive shares outstanding amounted to 3.33.1 million and 3.13.3 million, respectively.
Recently Issued Accounting Pronouncements
In June 2017, the FASB issued an Accounting Standards Update (ASU)(“ASU”) 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company has not completed its assessment of the standard but does not expect the adoption to have a material impact on its financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which outlines disclosure requirements for entities that receive assistance from a government body. ASU 2021-10, and related amendments, are affective for annual reports beginning after December 15, 2021. The Company does not expect the adoption to have a material impact on its financial statements.
Note 3 – Fixed Assets
Fixed Assets
Fixed assets are summarized as follows:
| | | | | | | | | | | | | |
| | March 31, | | December 31, | | | September 30, | | December 31, | ||||
(in thousands) |
| 2022 |
| 2021 |
|
| 2022 |
| 2021 | ||||
Machinery and equipment | | $ | 666 | | $ | 722 | | | $ | 393 | | $ | 722 |
Office furniture and equipment | |
| 224 | |
| 218 | | |
| 173 | |
| 218 |
Leasehold improvements | |
| 192 | |
| 192 | | |
| 192 | |
| 192 |
| | | 1,082 | | | 1,132 | | | | 758 | | | 1,132 |
Accumulated depreciation and amortization | |
| (1,006) | |
| (1,055) | | |
| (695) | |
| (1,055) |
| | | 76 | | | 77 | | | | 63 | | | 77 |
Operating lease ROU assets, net | | | 417 | | | 453 | | | | 364 | | | 453 |
Total | | $ | 493 | | $ | 530 | | | $ | 427 | | $ | 530 |
Depreciation and amortization expense for the threenine months ended March 31,September 30, 2022 and 2021 totaled $7$19 thousand and $8$21 thousand, respectively.
Leases
The Company leases office space in Seattle, Washington, Tulsa, Oklahoma and Beijing, China. TheDuring June 2022, the Company entered into a new lease agreement for its Beijing office space for a period of one year. We classified this lease as an operating lease since it is treated as a short-term lease. Themore likely than not the lease will be renewed at the end of its term. Prior to entering into this new lease agreement, the monthly rent for the old Beijing lease isoffice space was approximately $5 thousand.
The Seattle and Tulsa leases are classified as operating leases, with remaining terms ranging from onethousand, equating to six years; contractual language requires renewal negotiationsan annual total short term lease expense of $23 thousand prior to occur at or near termination. These leases are normal and customary for office space,termination in that, contractual guarantees exist requiring the lessee to return the premises to its original functional state. In 2021, the Company accrued an estimated cost of $32 thousand to prepare for the restoration of the Seattle office. The Company plans to exit the Seattle lease on or before contract termination as part of our headquartersJune 2022.
1011
The Seattle, Tulsa, and Beijing leases are classified as operating leases, with remaining terms ranging from one to six years; contractual language requires renewal negotiations to occur at or near termination. These leases are normal and customary for office space, in that, contractual guarantees exist requiring the lessee to return the premises to its original functional state. The Company accrued an estimated cost of $32 thousand in each of 2021 and 2022, for a total of approximately $64 thousand, to prepare for the restoration of the Seattle office. The Company plans to exit the Seattle lease on or before contract termination as part of our headquarters move from Seattle to Tulsa. In preparation for this move, the Company entered into the Tulsa operating lease agreement in April 2021.
The Seattle and Tulsa leases contain fixed annual lease payments that increase annually by factors that range between 2% to 3%. TotalThe Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $24$22 thousand. Contractual agreements contain expiration dates ranging from less than twelve months to less than six years.
Supplemental balance sheet information related to operating leases is as follows:
| | | | | | | | | | | | | | |
| | | March 31, | | | December 31, | | | | September 30, | | | December 31, | |
(in thousands) | | | 2022 | | | 2021 | | | | 2022 | | | 2021 | |
Operating lease ROU assets, net | | $ | 417 | | $ | 453 | | | $ | 364 | | $ | 453 | |
Lease Liabilities: | | | | | | | | | | | | | | |
Current lease liabilities | | $ | 212 | | $ | 205 | | | $ | 180 | | $ | 205 | |
Long term lease liabilities | | | 294 | | | 350 | | | | 239 | | | 350 | |
Total lease liabilities | | $ | 506 | | $ | 555 | | | $ | 419 | | $ | 555 | |
| | | | |
| | | September 30, | |
| | | 2022 | |
Weighted average remaining lease term (in years): | | 2.4 | | |
Weighted average discount rate: | | 5.7 | % |
Operating lease costs for the three and nine months ended September 30, 2022 are $49 thousand and $138 thousand, respectively. Operating lease costs for the three and nine months ended September 30, 2021 are $66 thousand and $162 thousand, respectively.
| | | | | | | |
| | | For the Three Months Ended | | |||
| | | March 31, | | |||
| |
| 2022 | | | 2021 | |
Operating lease costs | | $ | 57 | | $ | 51 | |
| | | | | | | |
Supplemental cash flow information related to leases is as follows: | | | | | | | |
| | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | | $ | 57 | | $ | 53 | |
Non-cash impact of new leases and lease modifications | | | | | | | |
New operating lease liabilities | | $ | — | | $ | 320 | |
| | | | | | | |
Weighted average remaining lease term (in years): | |
| 2.6 | | | | |
Weighted average discount rate: | |
| 5.8 | % | | | |
Minimum future payments under the Company’s lease liabilities at March 31, 2022 are as follows:
| | | | | | |
|
| Discounted |
| Payments | ||
| | lease | | due under | ||
(in thousands) | | liability | | lease | ||
| | payments | | agreements | ||
2022 (remaining 9 months) |
| $ | 158 |
| $ | 176 |
2023 |
| | 122 |
| | 136 |
2024 | | | 54 | | | 64 |
2025 | | | 59 | | | 66 |
2026 | | | 63 | | | 67 |
Thereafter | | | 50 | | | 51 |
Total | | $ | 506 | | $ | 560 |
At March 31, 2022, $56 thousand of our future minimum lease payments represented interest.
| | | | | | |
| | For the Nine Months Ended | ||||
Supplemental cash flow information related to leases is as follows: | | September 30, | ||||
| | | 2022 | | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows used in operating leases | | $ | 185 | | $ | 162 |
Non-cash impact of new leases and lease modifications | | | | | | |
New operating lease liabilities | | $ | 25 | | $ | — |
1112
Minimum future payments under the Company’s lease liabilities as of September 30, 2022 are as follows:
| | | | | | |
|
| Discounted |
| Payments | ||
| | lease | | due under | ||
(in thousands) | | liability | | lease | ||
| | payments | | agreements | ||
2022 (remaining 3 months) |
| $ | 60 |
| $ | 66 |
2023 |
| | 134 |
| | 148 |
2024 | | | 54 | | | 64 |
2025 | | | 58 | | | 66 |
2026 | | | 63 | | | 67 |
Thereafter | | | 50 | | | 51 |
Total | | $ | 419 | | $ | 462 |
At September 30, 2022, $43 thousand of our future minimum lease payments represented interest.
Note 4 – Patents and Other Intangible Assets
Patents and other intangible assets are summarized as follows:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, | | | September 30, | | December 31, | | ||||
(in thousands) |
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
| ||||
Patents | | | | | | | | | | | | | | |
Patents pending | | $ | 473 | | $ | 439 | | | $ | 364 | | $ | 439 | |
Issued patents | |
| 577 | |
| 577 | | |
| 761 | |
| 577 | |
| |
| 1,050 | |
| 1,016 | | |
| 1,125 | |
| 1,016 | |
Trademarks | |
| | |
| | | |
| | |
| | |
Trademarks pending | |
| 1 | |
| 3 | | |
| 6 | |
| 3 | |
Registered trademarks | |
| 95 | |
| 94 | | |
| 95 | |
| 94 | |
| |
| 96 | |
| 97 | | |
| 101 | |
| 97 | |
Other | |
| 8 | |
| 8 | | |
| 8 | |
| 8 | |
| |
| 1,154 | |
| 1,121 | | |
| 1,234 | |
| 1,121 | |
Accumulated amortization | |
| (352) | |
| (322) | | |
| (416) | |
| (322) | |
| | $ | 802 | | $ | 799 | | | $ | 818 | | $ | 799 | |
Future amortization expense associated with issued patents and registered trademarks as of March 31,September 30, 2022 is as follows:
| | | | | | |
(in thousands) | | | | | | |
2022 (remaining 9 months) |
| $ | 88 | |||
2022 (remaining 3 months) |
| $ | 38 | |||
2023 | |
| 96 | |
| 133 |
2024 | |
| 74 | |
| 111 |
2025 | |
| 42 | |
| 79 |
2026 | |
| 9 | |
| 45 |
Thereafter | |
| 11 | |
| 34 |
| | $ | 320 | | $ | 440 |
The amortization life for patents ranges between three to five years, with trademark lives set at ten years. The Company does not amortize patents or trademarks classified as pending.
13
During the threenine months ended March 31,September 30, 2022 and 2021, the Company assessed its patent and trademark assets. The Company also evaluated its strategic approach to the pursuit and protection of its intellectual property. It is the intent of the Company to continue to pursue intellectual property protection.
If the Company identifies certain assets where the intellectual property does not directly align with ourits core technology, wethe Company will impair the intangible asset and write-off any moniesthe asset to research and development expense.
Note 5 – Revenue, Contract Assets and Contract Liabilities
The Company recognized 0$324 thousand of revenues and $201 thousand of cost of goods sold during the three and nine months ended March 31, 2022September 30, 2022. The revenue and $363cost of goods sold are mostly in connection with the completion of a technology validation project.
The Company recognized $190 thousand of revenue during the three months ended March 31,September 30, 2021 and $553 thousand during the nine months ended September 30, 2021. Revenues were generated from the completion and delivery of our process burner products to a burner under a product contract with anglobal supermajor oil company and domestic infrastructure company.
The Company did 0t record any cost of goods sold for the three months ended March 31, 2022. During the three and nine months ended March 31,September 30, 2021, the Company recognized cost of goods sold of $250$278 thousand from the burner contract. Additionally, the Company recognized $18and $1,008 thousand, in costrespectively. Cost of goods sold during the three months ended September 30, 2021 consisted of $182 thousand in estimated losses on a contract that the Company estimatedanticipated would show a losslosses upon completion and $8$96 thousand in residual costs associated withrelated to the delivery and sale of a contract that was completed during 2020. The recognized costprocess burner product.
Cost of goods sold wasduring the nine months ended September 30, 2021 consisted of $390 thousand recorded upon completion of a process burner contract and $712 thousand in anticipated contract losses upon completion of the contract. These amounts were offset by adjustments totaling $51$86 thousand related to the reversalreversals of accrualaccruals for product warranties that expired on 3 completed projects from the year 2018.and $8 thousand of accrual adjustments.
12
The Company had contract assets of $244$284 thousand and $39 thousand at March 31,September 30, 2022 and December 31, 2021, respectively. The Company had contract liabilities of $61 thousand and $84 thousand at March 31,September 30, 2022 and December 31, 2021.
Note 6 – Equity
Common Stock and Preferred Stock
The Company is authorized to issue 62.5 million shares of common stock and 2.0 million shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.
In July 2018, the Company completed a private equity offering and executed a Stock Purchase Agreement with clirSPV LLC, which permits participation in future capital raising transactions (Participation Right)(the “Participation Right”) on the same terms as other investors participating in such transactions. The Participation Right will expire on December 31, 2023. In no event may the Participation Right be exercised to the extent it would cause clirSPV LLC or any of its affiliates to beneficially own 20% or more of the Company’s then outstanding common stock or hold shares with 20% or more of the voting power. In May 2022, the Company signed an agreement with clirSPV LLC, that provides for an election right to extend the Participation Right beyond the original expiration date of December 31, 2023, but to no later than June 30, 2027. This election is pursuant to specific terms and conditions and expires on December 31, 2023.
On June 1, 2022, the Company completed a firm commitment underwritten public offering pursuant to an underwriting agreement, dated May 27, 2022, by and between the Company and Newbridge Securities Corporation by issuing 4,186 thousand shares of common stock at a price to the public of $1.11 per share, resulting in gross proceeds of approximately $4.6 million and net cash proceeds of approximately $4.2 million. During July 2022, the Company issued approximately 1,592 thousand shares to clirSPV LLC pursuant to the Participation Right, at a price per share of $1.11, resulting in net cash proceeds to the Company of approximately $1.7 million.
14
The Company has an At-The-Market (“ATM”) Offering Sales Agreement with Virtu Americas LLC, as sales agent pursuant to which it may currently sell shares of common stock with an aggregate offering price of up to $8.7 million. During the three months ended March 31,September 30, 2022, the Company issued zero shares of its common stock from the ATM program. During the nine months ended September 30, 2022, the Company issued approximately 496501 thousand shares of its common stock at an average price of $1.24 per share for gross proceeds of approximately $614$624 thousand pursuant to an At-The-Market (ATM) Offering Sales Agreement with Virtu Americas LLC, as sales agent pursuant to which it may sell sharesand net cash proceeds of common stock with an aggregate offering price of up to $15.0 million.approximately $587 thousand. As of March 31,September 30, 2022, the Company has issued approximately 1.6 million shares of common stock under the ATM program, at an average price of $3.85$3.84 per share. Gross proceeds totaled approximately $6.1 million and net cash proceeds was approximately $5.9 million.
The Company is currently subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less
than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s
public float in a 12-month period. These rules may limit future issuances of shares by the Company under our shelf
registration statement on Form S-3, our ATM Offering Sales Agreement or other common stock offerings.
Equity Incentive Plan
On June 17, 2021, the Company's shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (2021 Plan)(the “2021 Plan”) which permits the Company to grant Incentive Stock Options, Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares, to eligible participants, which includes employees, directors and consultants. The Compensation Committee of the Board of Directors is authorized to administer the 2021 Plan.
The 2021 Plan provides for an annual increase in available shares equal to the lessorlesser of (i) 10% of the aggregate number of shares of Common Stock issued by the Company in the prior fiscal year; or (ii) such number provided by the Compensation Committee; provided, however, that the total cumulative increase in the number of shares available for issuance pursuant to this automatic share increase shall not exceed 400 thousand shares of common stock. In 2022, the board of directors approved an increase of 150,423 shares.
Ending balances of the Plans are as follows:
| | | | | | | | |
| | March 31, | | December 31, | | September 30, | | December 31, |
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
Outstanding options and restricted stock units |
| 3,307 |
| 3,076 |
| 3,114 |
| 3,076 |
Reserved but unissued shares under the Plans | | 2,758 | | 2,901 | | 2,866 | | 2,901 |
Total authorized shares under the Plans |
| 6,065 |
| 5,977 |
| 5,980 |
| 5,977 |
Stock Options
Under the terms of the 2021 Plan, incentive stock options and nonstatutory stock options must have an exercise price at or above the fair market value on the date of the grant. At the time of grant, the Company will determine the period within which the option may be exercised and will specify any conditions that must be satisfied before the option vests and may be exercised. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.
13
As permitted by SEC Staff Accounting Bulletin (SAB) 107, management utilized the simplified approach to estimate the expected term of the options, which represents the period of time that options granted are expected to be outstanding. Expected volatility has been determined through the Company’s historical stock price volatility. The Company has not made an estimate of forfeitures at the time of the grant, but rather accounts for forfeitures at the time they occur. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
The following weighted-average assumptions were utilized in the calculation of the fair value of stock options:
15
| | | |
| |
| |
| | 2022 | |
Expected life |
| 5.71 years |
|
Weighted average volatility | | 77.64 | % |
Weighted average risk-free interest rate | | 1.39 | % |
Expected dividend rate | | 0 | % |
Compensation expense forassociated with stock option awards was $42 thousand and $410 thousand for the three and nine months ended March 31,September 30, 2022 totaled $27 thousand and $84 thousand, respectively. Compensation expense associated with stock option awards for the three and nine months ended September 30, 2021 totaled $(85) thousand and $344 thousand, respectively.
A summary of the Company’s stock option activity and changes is as follows:
| | | | | | | | |||||||
| | March 31, | ||||||||||||
| | 2022 | ||||||||||||
| | | | | | | Weighted | |||||||
| | | | | | | Average | |||||||
| | Options to | | Weighted | | Remaining | | | | | | | | |
| | Purchase | | Average | | Contractual | | September 30, | ||||||
| | Common | | Exercise | | Life (in | | 2022 | ||||||
(in thousands) |
| Stock |
| Price |
| years) | | Options to Purchase Common Stock | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (in years) | ||
Outstanding at January 1 |
| 2,964 | | $ | 2.06 |
| 6.89 |
| 2,964 | | $ | 2.06 |
| 6.89 |
Granted |
| 88 | | $ | 1.26 |
| 9.76 |
| 88 | | $ | 1.26 |
| 9.26 |
Exercised |
| (3) | | $ | 0.89 |
| — |
| (43) | | $ | 0.89 |
| — |
Forfeited/Expired |
| (10) | | $ | 2.93 |
| — |
| (230) | | $ | 1.99 |
| — |
Outstanding at March 31 |
| 3,039 | | $ | 2.03 |
| 6.76 | |||||||
Exercisable at March 31 |
| 2,202 | | $ | 1.71 |
| 6.05 | |||||||
Outstanding at September 30 |
| 2,779 | | $ | 2.05 |
| 6.66 | |||||||
Exercisable at September 30 |
| 1,952 | | $ | 1.70 |
| 6.08 |
The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at March 31,September 30, 2022 is $848$53 thousand. The intrinsic value is the difference between the Company’s common stock price and the option exercise prices multiplied by the number of in-the-money options. This amount changes based on the fair value of the Company’s common stock.
At March 31,September 30, 2022, there was $1.8$1.1 million of total unrecognized compensation cost related to non-vested stock option-based compensation arrangements. Vesting criteria ranges from time-based to performance-based. The Company records costs for time-based arrangements ratably across the timeframe, whereas performance-based arrangements require management to continually evaluate predetermined goals against actual circumstances.
Restricted Stock Units
The Company approved compensation for board service to be paid to its independent directors in restricted stock units (“RSUs”) under the 2021 Plan. Compensation is earned on a quarterly basis with the target value of compensation set at $85 thousand per quarter. A RSU grant is to be awarded to each independent director in the beginning of the quarter in which services will be rendered, and the number of RSUs granted is to be based on the trading value of the Company’s stock on the date of the award.
The vesting of the RSU grants is contingent upon the occurrence of one of four future events which the Company cannot predict or control. For the nine months ended September 30, 2022, one of the events occurred relating to a director who resigned in August 2022, and stock-based compensation for board services totaled $114 thousand representing the vesting of 65 thousand RSUs. For active directors at September 30, 2022, stock based compensation has not been recognized for services performed during the nine months ended September 30, 2022 in accordance with FASB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718). During the nine months ended September 30, 2022, the Company issued 190 thousand RSUs for board services amounting to $268 thousand. As of September 30, 2022, the Company has 237 thousand RSUs outstanding for board services amounting to $408 thousand of unrecognized compensation.
1416
The vesting of the RSU grants is contingent upon the occurrence of one of four future events which the Company cannot predict or control. Accordingly, stock based compensation has not been recognized for services performed during each of the three months ended March 31, 2022 or 2021 in accordance with FASB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718). During the three months ended March 31, 2022, the Company issued 59 thousand RSUs for board services amounting to $85 thousand of unrecognized compensation.
During January 2022, the Company issued retention bonuses for employees in the form of RSUs. These awards vest 12 months from the date of award for services rendered in 2022. During the threenine months ended March 31,September 30, 2022, the Company issued 97 thousand RSUs to employees amounting to $35$105 thousand of recognized compensation and $105$35 thousand for unrecognized compensation.
Stock Grants
During the three months ended March 31, 2022, the Company issued 66 thousand shares of common stock with a fair value of $1.44 per share to its employees. These shares were issued in lieu of cash for payment of 2021 accrued bonuses totaling $125 thousand that were recorded during the year ended December 31, 2021. In addition, the Company issued 3 thousand shares for a one-time $3 thousand bonus to 1one employee in recognition of their performance.
Consultant Stock Plan
The 2013 Consultant Stock Plan (the Consultant Plan)“Consultant Plan”) 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 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 Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.
The Consultant Plan activity and change is as follows:
The Consultant Plan compensation expense is summarized as follows:
Inducement Stock Options Pursuant to the rules of The Nasdaq Stock Market, and in compliance with those rules, the Company may issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. Inducement awards need not be approved by the Company's shareholders. During the year ended December 31, 2019, the Company granted 341 thousand non-qualified stock options to its Chief Executive Officer. The fair value of the non-qualified stock options estimated on the date of grant using the Black-Scholes valuation model was $176 thousand. The compensation expense recognized for these awards for the Note 7 – Commitments and Contingencies Litigation From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings or claims that the Company believes will have a material adverse effect on the 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. Note 8 – The Paycheck Protection Program (PPP) Loan On May 8, 2020, the Company obtained a loan in the amount of $251 thousand (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 was evidenced by a promissory note, dated effective May 1, 2020, issued by the Company to the Lender. The PPP loan was unsecured with a Note 9 – Government Assistance During 2022, the Company was awarded a research grant from the Department of Energy (“DOE”) for approximately $250 thousand with an estimated completion occurring in the first three months of 2023. The purpose of the grant is to produce a research paper for a flexible fuel ultra-low NOx process burner capable of burning 100% hydrogen fuel. The award allows the Company to request reimbursements for expenditures such as labor, material, and administrative costs. During the three and nine months ended Beginning in 2021, the Company received funds relating to the Oklahoma 21st Century Quality Jobs Act. The estimated duration of the program is up to 10 years and is designed to attract growth industries to Oklahoma. By reporting quarterly salary statistics and meeting agreed upon employment thresholds, the state remits benefit monies to the 18 Company. For the three and nine months ended September 30, 2022, the Company recognized $12 thousand and $24 thousand in government assistance. During the nine months ended September 30, 2021, the Company had no government assistance from this program. Note 10 – Subsequent Events The Company has evaluated subsequent events as of the date of this report, and has none to report.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT This 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, and technologies; future performance or results of 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:
Forward-looking statements may appear throughout this report, including, without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements. Unless otherwise stated or the context otherwise requires, the terms “ClearSign,” “we,” “us,” “our” and the “Company” refer to ClearSign Technologies Corporation and its subsidiary, 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 ClearSign Core™ technology has been proven in full scale industrial test furnaces and boilers and first customer installations are currently operating in normal commercial use. We have generated nominal revenues from operations to date to meet operating expenses. We have incurred losses since inception totaling 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 gain market recognition and acceptance to develop sufficient recurring sales. In addition, management believes that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to
With respect to our China operations, we have a satellite office located in Beijing, China to support our commercialization efforts. At this time, these operations in China are immaterial compared to total company operations. As of September 30, 2022, our China asset balance totaled $205 thousand, or approximately 2%, compared to our total asset balance of $11,863 thousand. During the three and nine months ended September 30, 2022, our China operations reported zero revenues.During the year ended December 31, 2021, revenues attributable to our China operations were $21 thousand, or approximately 3.4% compared to our total revenues of $607 thousand. Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for prototype development and manufacture, 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 14 full-time employees. Because using third party expertise and resources is more efficient than maintaining full time resources, we also expect to incur ongoing consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current level of activities. 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 undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create sufficient future sales to sustain operations. If the net proceeds from these offerings are insufficient for this purpose, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives. We cannot assure that our technologies will be accepted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing, and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development plans by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations. CRITICAL ACCOUNTING POLICIES The following discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations. These policies and estimates require the application of significant judgment by management. These estimates can be materially affected by changes from period to period as economic factors and conditions outside of our control change. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report for a more complete description of our significant accounting policies. Revenue Recognition and Cost of Goods Sold. The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services 22 are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain documents or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.
The Company’s contracts generally include progress payments from customers upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue can be recorded. 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. 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 from the use and eventual disposition of the assets. In the event an asset in not fully recoverable a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Fair value is determined based on the present value of estimated expected cash flows using a discount rate commensurate with the risks involved, quoted market prices, or appraised values depending upon the nature of the assets. Losses on long-lived assets to be disposed of is determined in a similar manner, except those fair values are reduced for the cost of disposal. 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. Accruals for product warranties are based on expected warranty experience and current product performance trends which are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs during the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of our recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material if estimates differ significantly from actual warranty expense. The warranty liabilities are included in accounts payable and accrued liabilities in the unaudited condensed consolidated 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, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and development costs are offset by any funds received from strategic partners in cost sharing, collaborative Stock-Based Compensation The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited, condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of a milestone as defined in the grant agreement. Stock-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured. Fair Value of Financial Instruments The Company's financial instruments primarily consist of cash 23 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.
RESULTS OF OPERATIONS Comparison of the Three and Nine Months Ended Highlights of our quarter financial performance are as follows:
Sales and Gross Profit Consolidated revenues for the During the three months ended September 30, 2021, we recognized revenues predominantly from sales from our process burner product line. Consolidated revenues for the nine months ended September 30, 2022, were $324 thousand compared to revenues of During the nine months ended September 30, 2021, we recognized revenues primarily from sales from our process burner product line. Customer demand for the process burner product line came from a global supermajor oil company installing our burners into their European refinery, and an infrastructure company installing our burners into a domestic heater. 24 Gross profit for the three months ended September 30, 2022, increased by $211 thousand, compared to the three months ended September 30, 2021. During the three months ended September 30, 2022, gross profit was generated predominantly by recognizing revenues from our ExxonMobil technology validation project. During the three months ended September 30, 2021, a gross loss was reported primarily due to estimated extensive testing costs related to our ExxonMobil technology validation project. Gross profit for the nine months ended September 30, 2022, increased by $578 thousand, compared to the nine months ended September 30, 2021. Profit generated during the current nine months are described above. During the nine months ended September 30, 2021, a gross loss was reported primarily due to extensive testing costs related to our ExxonMobil technology validation project and our European refinery project. Research and Development Research and development (“R&D”) expenses decreased by $1,041 thousand or approximately 91.5%, to $97 thousand for the three months ended
September 30, 2022, R&D expenses decreased R&D expenses decreased by $2,043 thousand, or approximately 83.9%, to $393 thousand for the nine months ended September 30, 2022, as compared to $2,436 thousand during the nine months ended September 30, 2021. General and Administrative General and administrative (“G&A”) expenses increased by $330 thousand, or approximately 29.2%, to $1,461 thousand for the three months ended September 30, 2022, as compared to
G&A expenses increased by $313 thousand, or approximately 7.8%, to $4,342 thousand for the nine months ended September 30, 2022, as 25 for the nine months ended September 30, 2022, compared to the same nine months in 2021. A one-time RSU vesting payment referenced in the above explanation increased costs by $114 thousand. Expense increases were offset by year-over-year decreases in board compensation expenses of approximately $261 thousand,
Other Income
The impact of Net Loss Net loss for the three months ended
Net loss for the nine months ended September 30, 2022, was $4,440 thousand compared to $6,665 thousand for the nine months ended September 30, 2021, or an approximate 33.4% decrease. The $2,225 thousand decrease in net loss during the nine months ended September 30, 2022 is primarily attributable to decreased Liquidity and Capital Resources At At
approximately $8.7 million. During the Operating activities for the Operating activities for the 26 Investing activities for the Investing activities for the nine months ended September 30, 2021, resulted in Financing activities for the
Financing activities for the 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 and Procedures We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting and financial officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Vice President and Controller (principal accounting and financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the quarter ended Limitations on Effectiveness of Controls and Procedures Our management, including our Chief Executive Officer (principal executive officer) and our Vice President and Controller (principal accounting and financial officer), does not expect that our disclosure controls and procedures or 27 our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. PART II-OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results. ITEM 1A.RISK FACTORS We incorporate herein by reference the risk factors included under “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 which we filed with the Securities and Exchange Commission on March 31, 2022, and the risk factors included in the reports and other documents we filed with the Securities and Exchange Commission subsequent to that date. Macroeconomic pressures in the markets in which we operate may adversely affect our financial results. If we fail to comply with the continued minimum closing bid requirements of The Nasdaq Capital Market LLC (“Nasdaq”) by May 1, 2023 or other requirements for continued listing, including stockholder equity requirements, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted. Our common stock is listed for trading on Nasdaq, therefore, we must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 28 consecutive business days. On November 1, 2022, the Nasdaq staff notified us that we did not comply with the minimum $1.00 per share bid price requirement for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2). We have been granted 180 calendar days, through May 1, 2023, to regain compliance. In the event that we do not regain compliance within this 180 day period, we may be eligible to seek an additional compliance period of 180 calendar days if we meet certain requirements. There can be no assurance that we will be able to regain compliance with Nasdaq’s listing rules. If we are unable to regain compliance with the minimum closing bid price requirement or if we fail to meet any of the other continued listing requirements, including stockholder equity requirements, our securities may be delisted from Nasdaq, which could reduce the liquidity of our common stock materially and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities. ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On During July 2022, the Company issued 1,591,594 shares of common stock to clirSPV LLC (the “SPV”) pursuant the SPV’s participation right, at a price per share of $1.11, resulting in net cash proceeds to the Company of approximately $1,741 thousand. The participation right was exercised by clirSPV LLC on July 8, 2022 pursuant to the terms and conditions of a Stock Purchase Agreement dated July 12, 2018, as modified. These shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for a transaction by an issuer not involving a public offering. ITEM 3.DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. ITEM 5.OTHER INFORMATION
ITEM 6.EXHIBITS
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*Filed herewith
+ Agreement with management or compensatory plan or arrangement.
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.
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