ClearSign Technologies 10Q 2023 Q2 Quarterly report

ClearSign Technologies (CLIR) 10-Q2023 Q2 Quarterly report

Content analysis

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 June 30, 2023


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

For the transition period from ______________ to _______________

Commission File Number 001-35521

CLEARSIGN TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)


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

8023 E. 63rd Place, Suite 101

Tulsa, Oklahoma 74133

(Address of principal executive offices)

(Zip Code)

(918) 236-6461

(Registrant’s telephone number, including area code)

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

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

Common Stock	CLIR	The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ⌧		Smaller reporting company ☒

		Emerging growth company ☐

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

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

As of August 9, 2023, the issuer has 38,562,086 shares of common stock, par value $0.0001, issued and outstanding.

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TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

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

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

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022	3

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

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	26

PART II	OTHER INFORMATION	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	29

	SIGNATURES	30

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PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)


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

Current Assets:
Cash and cash equivalents	$	7,600	$	6,451
Short-term held-to-maturity investments		931		2,606
Accounts receivable, net		39		79
Contract assets		3		20
Prepaid expenses and other assets		575		577
Total current assets		9,148		9,733

Fixed assets, net		478		384
Patents and other intangible assets, net		762		798
Other assets		10		10

Total Assets	$	10,398	$	10,925

LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable and accrued liabilities	$	428	$	296
Current portion of lease liabilities		95		133
Accrued compensation and related taxes		413		471
Contract liabilities		2,105		247
Total current liabilities		3,041		1,147
Long Term Liabilities:
Long term lease liabilities		199		226
Total liabilities		3,240		1,373

Commitments and contingencies (Note 7)

Stockholders’ Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		—		—
Common stock, $0.0001 par value, 38,562,086 and 38,023,701 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		4		4
Additional paid-in capital		98,604		98,079
Accumulated other comprehensive loss		(20)		(8)
Accumulated deficit		(91,430)		(88,523)
Total equity		7,158		9,552

Total Liabilities and Equity	$	10,398	$	10,925

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

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)


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

Revenues	$	150	$	—	$	1,044	$	—
Cost of goods sold		21		—		809		—

Gross profit		129		—		235		—

Operating expenses:
Research and development		187		188		347		296
General and administrative		1,571		1,472		3,221		2,881

Total operating expenses		1,758		1,660		3,568		3,177

Loss from operations		(1,629)		(1,660)		(3,333)		(3,177)

Other income
Interest		94		—		152		—
Government assistance		14		—		107		—
Gain from sale of assets		—		14		5		37
Other income, net		43		8		162		12
Total other income		151		22		426		49

Net loss		(1,478)		(1,638)		(2,907)		(3,128)

Net loss per share - basic and fully diluted	$	(0.04)	$	(0.05)	$	(0.08)	$	(0.09)

Weighted average number of shares outstanding - basic and fully diluted		38,549,810		33,541,408		38,407,053		33,378,054

Comprehensive loss
Net loss	$	(1,478)	$	(1,638)	$	(2,907)	$	(3,128)
Foreign-exchange translation adjustments		(12)		(10)		(12)		(10)
Comprehensive loss	$	(1,490)	$	(1,648)	$	(2,919)	$	(3,138)

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

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the Three Month Periods During the Six Months Ended June 30, 2023 and 2022


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

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

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

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

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

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)


(in thousands)	For the Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(2,907)	$	(3,128)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		5		14
Share-based compensation		300		130
Depreciation and amortization		158		13
Gain from sale of fixed assets		(5)		(37)
Right of use asset amortization		73		59
Realized gain from marketable securities		(60)		—
Lease Amendments		(14)		—
Impairment of intangible assets		14		—
Change in operating assets and liabilities:
Contract assets		17		(448)
Accounts receivable		40		33
Prepaid expenses and other assets		(207)		(260)
Accounts payable and accrued liabilities		58		102
Accrued compensation and related taxes		162		175
Contract liabilities		1,858		—
Net cash used in operating activities		(508)		(3,347)

Cash flows from investing activities:
Acquisition of fixed assets		—		(5)
Disbursements for patents and other intangible assets		(56)		(73)
Proceeds from sale of fixed assets		5		37
Purchases of held-to-maturity short-term US treasuries		(2,162)		—
Redemption of held-to-maturity US treasuries		3,897		—
Net cash provided by (used in) investing activities		1,684		(41)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		—		4,798
Taxes paid related to vesting of restricted stock units		(15)		—
Net cash (used in) provided by financing activities		(15)		4,798
Effect of exchange rate changes on cash and cash equivalents		(12)		(10)
Cash and cash equivalents:
Net change in cash and cash equivalents		1,149		1,400
Cash and cash equivalents, beginning of period		6,451		7,607
Cash and cash equivalents, end of period	$	7,600	$	9,007

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

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

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ClearSign Technologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

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

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

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

Liquidity

The Company's condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of June 30, 2023, the Company’s cash and cash equivalents totaled $7,600 thousand, and short-term held-to-maturity investments totaled $931 thousand, which is sufficient to fund current operating expenses beyond twelve months from the date hereof. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

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

The Company has incurred losses since its inception totaling $91.4 million and expects to experience operating losses and negative cash flows for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

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Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Use of Estimates

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

Revenue Recognition and Cost of Sales

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

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

Contract Costs

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

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Product Warranties

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

Cash and Cash Equivalents

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

Short-Term Investments

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

The cost basis for the Company’s short-term investments totaled approximately $931 thousand and $2,606 thousand as of June 30, 2023 and December 31, 2022, respectively. The unrealized holding gains for the Company’s short-term investments totaled approximately $17 thousand and $4 thousand as of June 30, 2023 and December 31, 2022, respectively. The Company has not experienced any continuous unrealized holding losses on these investments. The fair value for the Company’s short-term investments totaled approximately $948 thousand and $2,610 thousand as of June 30, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

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

Fixed Assets and Leases

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

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

Patents and Trademarks

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

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

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

●

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

●

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

●

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

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

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

Research and Development

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

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in cost sharing, collaborative projects. During the six months ended June 30, 2023 and 2022, the Company did not receive funds from these arrangements.

Government Assistance

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

Income Taxes

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

Share-Based Compensation

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

Foreign Operations

The accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 include assets amounting to approximately $279 thousand and $172 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which $111 thousand has been paid as of June 30, 2023. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the COVID-19 pandemic.

Foreign Currency

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

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their

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effect would be anti-dilutive. At June 30, 2023 and June 30, 2022, potentially dilutive shares outstanding amounted to 3.8 million and 3.4 million, respectively.

Recently Issued Accounting Pronouncements Adopted

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

Note 3 – Fixed Assets

Fixed Assets

Fixed assets are summarized as follows:


	June 30,		December 31,
(in thousands)	2023		2022
Machinery and equipment	$	209	$	390
Office furniture and equipment		60		177
Leasehold improvements		43		192
		312		759
Accumulated depreciation and amortization		(121)		(697)
		191		62
Operating lease ROU assets, net		287		322
Total	$	478	$	384

Depreciation and amortization expense for the six months ended June 30, 2023 and 2022 totaled $81 thousand and $13 thousand, respectively.

Leases

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

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

The Tulsa lease contains fixed annual lease payments that increase annually by 2%. The Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $12 thousand. Operating lease costs for the three and six months ended June 30, 2023 were $34 thousand and $82 thousand, respectively. Operating lease costs for the three and six months ended June 30, 2022 were $46 thousand and $88 thousand, respectively.

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


		June 30,			December 31,
(in thousands)		2023			2022
Operating lease ROU assets, net	$	287		$	322
Lease Liabilities:
Current lease liabilities	$	95		$	133
Long term lease liabilities		199			226
Total lease liabilities	$	294		$	359

Weighted average remaining lease term (in years):		2.4
Weighted average discount rate:		5.4	%


	For the Six Months Ended
	June 30,
		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	99	$	119
Non-cash impact of new leases and lease modifications
Change in operating lease liabilities	$	25	$	25
Change in operating lease ROU assets	$	39	$	—

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


	Discounted		Payments
	lease		due under
(in thousands)	liability		lease
	payments		agreements
2023 (remaining 6 months)	$	52	$	59
2024		71		81
2025		58		66
2026		63		67
2027		50		51
Total	$	294	$	324

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

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Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:


	June 30,		December 31,
(in thousands)	2023		2022
Patents
Patents pending	$	360	$	307
Issued patents		782		815
		1,142		1,122
Trademarks
Trademarks pending		4		6
Registered trademarks		86		95
		90		101
Other		8		8
		1,240		1,231
Accumulated amortization		(478)		(433)
	$	762	$	798

Future amortization expense associated with issued patents and registered trademarks as of June 30, 2023 is as follows:


(in thousands)
2023 (remaining 6 months)	$	67
2024		125
2025		94
2026		60
2027		38
Thereafter		6
	$	390

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

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

Note 5 – Revenue, Contract Assets and Contract Liabilities

The Company recognized $150 thousand of revenues and $21 thousand of cost of goods sold during the three months ended June 30, 2023. The revenue and cost of goods sold relate to an engineering feasibility study and spare parts order.

The Company recognized $1,044 thousand of revenues and $809 thousand of cost of goods sold during the six months ended June 30, 2023. The revenue and cost of goods sold relate predominately to the Company’s process burner product line, where the Company successfully completed a burner performance customer witness test, which represented a contractual performance obligation per ASC 606.

The Company did not recognize revenue or cost of goods sold for the three and six months ended June 30, 2022.

The Company had contract assets of $3 thousand and $20 thousand at June 30, 2023 and December 31, 2022, respectively. The Company had contract liabilities of $2,105 thousand and $247 thousand at June 30, 2023 and

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December 31, 2022, respectively. Of the $247 thousand contract liability balance at December 31, 2022, the Company recognized revenue of $120 thousand during the six months ended June 30, 2023.

Note 6 – Equity

Common Stock and Preferred Stock

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

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

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

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

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

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

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

Equity Incentive Plan

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

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

Ending balances for the 2021 Plan is as follows:


	June 30,	December 31,
(in thousands)	2023	2022
Outstanding options and restricted stock units	3,409	3,202
Reserved but unissued shares under the Plans	2,439	2,777
Total authorized shares under the Plans	5,848	5,979

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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.

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.

During the six months ended June 30, 2023, no new options were awarded by the company.

Compensation expense associated with stock option awards for the three and six months ended June 30, 2023 totaled $46 thousand and $90 thousand, respectively. Compensation expense associated with stock option awards for the three and six months ended June 30, 2022 totaled $15 thousand and $57 thousand, respectively.

A summary of the Company’s stock option activity and changes is as follows:


	June 30,
	2023
(in thousands)	Options to Purchase Common Stock	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at beginning of year	2,779	$	2.05	6.43
Granted	—	$	—	—
Exercised	(20)	$	0.54	—
Forfeited/Expired	—	$	—	—
Outstanding at end of period	2,759	$	2.07	5.83
Exercisable at end of period	1,991	$	1.71	5.25

The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at June 30, 2023 is $383 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 June 30, 2023, there was $1.0 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 awards employees and directors restricted stock units (“RSUs”) in lieu of cash payment for compensation. These awards are granted pursuant to the 2021 Plan. Employee vesting criteria is time based, and compensation expense is recognized ratably across the timeframe.

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Director vesting criteria is contingent upon the occurrence of one of four future events, which the Company cannot predict or control. Therefore, compensation expense for director RSUs is not recognized until one of these four future events occur, which is in accordance with FASB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718). Unrecognized compensation expense for director services for the three and six months ended June 30, 2023 was $83 thousand and $150 thousand, respectively. Unrecognized compensation expense for director services for the three and six months ended June 30, 2022 was $85 thousand and $170 thousand, respectively. Director compensation is earned on a quarterly basis with the target value of compensation set at approximately $83 thousand per quarter.

A summary of the Company’s RSUs activity and changes is as follows:


	June 30,
	2023
(in thousands)	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	423	$	1.49
Granted	477	$	0.71
Vested	(245)	$	1.34
Forfeited	(5)		0.79
Nonvested at end of period	650	$	0.98

A summary of the Company’s RSU compensation expense is as follows:


	For the Six Months Ended
	June 30,
(in thousands)	2023			2022
Compensation Expense	$	212	$	70
Weighted Average Value Per Share	$	1.23	$	1.44

Stock Awards

The Company awards employees stock in lieu of cash payment for compensation, typically to satisfy accrued bonus compensation. The awards are granted from the Company’s 2021 Plan.


	For the Six Months Ended
	June 30,
	2023		2022
Fair value	$	234	$	98
Weighted Average Value Per Share	$	0.79	$	1.43

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Consultant Stock Plan

The 2013 Consultant Stock Plan (the “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 periodic increases in the number of authorized shares available for issuance under the Consultant Plan on the first day of each of the Company’s fiscal quarters. The quarterly increases are equal to 1% of any new shares subsequently issued by the Company or such lesser amount as the Board of Directors shall determine.

The Consultant Plan activity and change is as follows:


	June 30,
(in thousands)	2023
Reserved but unissued shares at beginning of year		196
Increases in the number of authorized shares		5
Grants		(8)
Reserved but unissued shares at end of year		193

The Consultant Plan compensation expense is summarized as follows:

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

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Note 8 – Government Assistance

During 2022, the Company was awarded a research grant from the Department of Energy (“DOE”) for approximately $250 thousand with the completion occurring in March 2023. The purpose of the grant was to produce a research paper for a flexible fuel ultra-low NOx process burner capable of burning 100% hydrogen fuel. The award allowed the Company to request reimbursements for expenditures such as labor, material, and administrative costs. During the six months ended June 30, 2023, the Company recognized $69 thousand in reimbursements from DOE. The Company did not recognize reimbursements from the DOE for the six months ended June 30, 2022.

Beginning in 2021, the Company received funds relating to the Oklahoma 21^st 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 Company. The Company recognized $38 thousand and $12 thousand in government assistance from this program during the six months ended June 30, 2023 and 2022, respectively.

Note 9 – Subsequent Events

On July 31, 2023, we hired Tina Oby Unachukwu as our Director of Customer Relationships and Business Development. On the same day, we granted non-qualified stock options, in accordance with Nasdaq Listing Rule 5635(c)(4) and outside of the 2021 Plan, to purchase an aggregate of 150 thousand shares of common stock with an exercise price of $1.31 as a material inducement to Ms. Unachukwu’s entering into employment with us. These options vest in three equal installments, with one third of the option vesting on the grant date, and each remaining third of the options to vest on the second and third anniversaries of the grant date, subject to continued employment with the Company. This event does not impact the six months ended June 30, 2023 consolidated financial statements, but will impact the nine months ended September 30, 2023 consolidated financial statements.

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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:

●

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

●

our ability to successfully develop and implement our technologies and achieve profitability;

●

our limited operating history;

●

changes in government regulations that could substantially reduce, or even eliminate, the need for our technology;

●

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

●

customer demand for the products and services we develop;

●

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

●

our ability to manufacture any products we design;

●

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

●

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

●

the impact of a cybersecurity incident or other technology disruption;

●

our ability to protect our intellectual property;

●

our ability to obtain adequate financing in the future;

●

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

●

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

●

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

●

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

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

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes included in our 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 for the year ended December 31, 2022.

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 applications. We have generated nominal revenues from operations to date to meet operating expenses.

We have incurred losses since inception totaling $91.4 million and we expect to experience operating losses and negative cash flow for the foreseeable future. We have historically financed our operations primarily through issuances of equity securities. Since inception, we have raised approximately $91.0 million in gross proceeds through the sale of our equity securities. We may need to raise additional capital in the future, however, the significant volatility in the capital markets may negatively affect our ability to raise this additional capital.

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 support commercialization of our research and development efforts, protect intellectual property, form relationships with strategic partners and provide for working capital and general corporate purposes. There can be no assurance that we will be successful in achieving our long-term plans, or that such plans, if consummated, will result in profitable operations or enable us to continue in the long-term as a going concern.

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 June 30, 2023, our China asset balance totaled $279 thousand, or approximately 3%, compared to our total asset balance of $10,398 thousand. During the six months ended June 30, 2023 and 2022, our China operations reported zero revenues.

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 15 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.

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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 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 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

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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 projects.

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 equivalents, accounts payable, accrued expenses and short-term investments in government securities. As of the balance sheet date, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the consolidated balance sheets. This is primarily attributed to the short maturities of these instruments.

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Recent Developments

Delaware Reincorporation

At our annual meeting of shareholders held on June 6, 2023, the shareholders of the Company approved our proposed conversion from a Washington corporation to a Delaware corporation (the “Reincorporation”) by means of a plan of conversion. In connection with the Reincorporation, we filed on June 14, 2023 (the “Effective Date”) a certificate of incorporation (the “Certificate of Incorporation”) and a certificate of conversion with the Delaware Secretary of State and adopted new bylaws (the “Bylaws”), and filed articles of entity conversion with the Washington Secretary of State.

As of the Effective Date, our domicile changed from the State of Washington to the State of Delaware and our affairs ceased to be governed by the Revised Code of Washington and our previous articles of incorporation and bylaws, and instead became governed by the General Corporation Law of the State of Delaware (the “DGCL”), and the Certificate of Incorporation and Bylaws. The number of shares of common stock and preferred stock that we are authorized to issue remained the same upon completion of the Reincorporation.

RESULTS OF OPERATIONS

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Highlights of our quarter financial performance are as follows:



	For the Three Months Ended
(in thousands, except per share data)	June 30,
	2023		2022		$ Change		% Change
Revenues	$	150	$	—	$	150	NM
Cost of goods sold		21		—	$	21	NM
Gross profit		129		—	$	129	NM
Research and development		187		188	$	(1)	(0.5)	%
General and administrative		1,571		1,472	$	99	6.7	%
Operating Expenses		1,758		1,660	$	98	5.9	%
Other income, net		151		22	$	129	586.4	%
Net loss	$	(1,478)	$	(1,638)	$	160	9.8	%
Basic and diluted net income per common share	$	(0.04)	$	(0.05)	$	0.01	20.0	%


	For the Six Months Ended
(in thousands, except per share data)	June 30,
	2023		2022		$ Change		% Change
Revenues	$	1,044	$	—	$	1,044	NM
Cost of goods sold		809		—	$	809	NM
Gross profit		235		—	$	235	NM
Research and development		347		296	$	51	17.2	%
General and administrative		3,221		2,881	$	340	11.8	%
Operating Expenses		3,568		3,177	$	391	12.3	%
Other income, net		426		49	$	377	769.4	%
Net loss	$	(2,907)	$	(3,128)	$	221	7.1	%
Basic and diluted net income per common share	$	(0.08)	$	(0.09)	$	0.01	11.1	%
NM = Not meaningful

Sales and Gross Profit

Consolidated revenues for the three and six months ended June 30, 2023 were $150 thousand and $1,044 thousand, respectively, compared to zero revenues for the same time periods in 2022. Revenues for the three months ended June 30, 2023, were mostly generated from a stand-alone engineering feasibility study and spare parts sale.

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Revenues for the six months ended June 30, 2023 were generated from multiple spare parts orders, burner performance testing and an engineering feasibility study.

Gross profit for the three and six months ended June 30, 2023, increased by $129 thousand and $235 thousand, respectively, as compared to zero profit for the same periods in 2022. Gross profit was realized by each revenue source noted in the above paragraph for both the three and six month periods during 2023. The mix of gross profit was predominately weighted towards our engineering feasibility study, with the profit profile considered to be abnormally high due to expedited timing commitments and mix of engineering activities.

Operating Expenses

Operating expenses consist of research and development (“R&D”) and general and administrative (“G&A”) expenses. These are addressed separately below.

Research and Development

R&D expenses for the three and six months ended June 30, 2023, remained relatively consistent year-over-year.

General and Administrative

G&A expenses increased by $99 thousand or 6.7%, and $340 thousand or 11.8% for the three and six month periods ending on June 30, 2023, respectively, as compared to the same time periods in 2022. During the three months ended June 30, 2023, G&A expenses were negatively impacted by $105 thousand in project management and refurbishment costs related to our Seattle office decommissioning project. Monies received for selling used materials as a result of our Seattle office decommissioning project are reported in other income. During the six months ended June 30, 2023, G&A expenses were impacted by a one-time $187 thousand vesting of restricted stock units triggered by the departure of a board director. In addition, project management and refurbishment costs for our Seattle office decommissioning project totaled $168 thousand for the six months ended June 30, 2023.

Other Income

Other income increased by $129 thousand or 586.4%, and $377 thousand or 769.4% for the three and six month periods ending on June 30, 2023, respectively, as compared to the same time periods in 2022. During the three months ended June 30, 2023, other income increased by $35 thousand for materials sold as a result of our Seattle office decommissioning project. Interest income also increased by $94 thousand when compared to the same three month period in 2022. During the six months ended June 30, 2023, other income increased compared to the same period in 2022 by $152 thousand for interest income and $93 thousand for government assistance. Government assistance monies are related to our Oklahoma Quality Jobs rebate agreement and our Department of Energy hydrogen burner development grant. In addition, income from materials sold during our Seattle office decommissioning project resulted in a favorable impact of $154 thousand, for the six months ended June 30, 2023. These increases were offset by decreases of $32 thousand for asset sales in the six months ended June 30, 2023 versus the same period in 2022.

Net Loss

Net loss for the three months ended June 30, 2023, was $1,478 thousand as compared to $1,638 thousand for the three months ended June 30, 2022, or an approximate 9.8% decrease. The $160 thousand decrease in net loss during the three months ended June 30, 2023, is primarily attributable to the $129 thousand increase in gross profit referenced in the above explanation.

Net loss for the six months ended June 30, 2023, was $2,907 thousand as compared to $3,128 thousand for the six months ended June 30, 2022, or an approximate 7.1% decrease. The $221 thousand decrease in net loss during the six months ended June 30, 2023, is primarily attributable to the $235 thousand increase in gross profit referenced in the above explanation.

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Liquidity and Capital Resources

At June 30, 2023, our cash and cash equivalent balance totaled $7,600 thousand compared to $6,451 thousand at December 31, 2022, an increase of $1,149 thousand. The increase in cash and cash equivalent balance is primarily attributable to the change of short-term held-to-maturity investments. At June 30, 2023, our short-term held-to-maturity investments totaled $931 thousand, which is a decrease of $1,675 thousand compared to $2,606 thousand at December 31, 2022.

At June 30, 2023, our current assets were in excess of current liabilities resulting in working capital of $6,107 thousand as compared to $8,586 thousand at December 31, 2022. We have no contractual debt obligations, and the Company has sufficient working capital to fund current operating expenses for over twelve months. To the extent the Company requires additional funds more than 12 months from the date hereof, and customer cash collections cannot fund our needs, the Company may utilize equity offerings. Historically, the Company has funded operations predominately through equity offerings.

Currently, the Company can sell shares of common stock through its ATM program. As of June 30, 2023, the remaining aggregate offering price for future sales of common stock on the ATM is approximately $8.7 million, subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period (for more details, see “Note 6 – Equity” in the notes to our condensed consolidated financial statements). Future sales of shares of common stock and the price at which we may be able to sell such shares of common stock under the ATM are dependent on factors beyond our control, including, but not limited to, market conditions, the trading price of our common stock and our capital needs.

We filed a Form S-3 shelf registration statement with the SEC on July 1, 2022 that was declared effective on August 12, 2022.The registration statement on Form S-3 allows us to offer common stock, preferred stock, warrants, subscription rights, debt securities and units from time to time, as market conditions permit to fund, to the extent required beyond the 12 months from the date hereof, the ongoing operations of the Company. Until the growth of revenue increases to a level that covers operating expenses, the Company intends to continue to fund operations in this manner, although, the volatility in the capital markets and potential upcoming recession may negatively affect our ability to do so.

Operating activities for the six months ended June 30, 2023, resulted in cash outflows of $508 thousand, primarily due to the loss for the period of $2,907 thousand, offset with non-cash expenses of $471 thousand, and an increase of $1,858 thousand of contract liabilities, which represents payments from customers in advance of future project costs.

Operating activities for the six months ended June 30, 2022, resulted in cash outflows of $3,347 thousand, primarily due to the loss for the period of $3,128 thousand, offset with non-cash expenses of $179 thousand.

Investing activities for the six months ended June 30, 2023, resulted in cash inflows of $1,684 thousand, which is primarily attributable to the redemption $3,897 thousand of short-term held-to-maturity U.S. treasuries, offset by $2,162 thousand of purchases for the same type of investments.

Investing activities for the six months ended June 30, 2022, resulted in cash outflows of $78 thousand in disbursements for fixed and intangible assets, and cash inflows of $37 thousand in proceeds from fixed asset sales.

Financing activities for the six months ended June 30, 2023, included $15 thousand in disbursements for taxes paid related to vesting of employee restricted stock units.

Financing activities for the six months ended June 30, 2022, included $4,798 thousand in net proceeds from the sale of 501 thousand shares of our common stock through our ATM program at an average price of $1.24 per share, and sale of 4.2 million shares of our common stock through a public offering at an average price of $1.11 per share.

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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 June 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon the evaluation of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer (principal executive officer) and our Vice President and Controller (principal accounting and financial officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 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.

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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, 2022 which we filed with the Securities and Exchange Commission on March 31, 2023, and the risk factors included in the reports and other documents we filed with the Securities and Exchange Commission subsequent to that date. There are no material changes from the risk factors set forth in such prior filings.

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

On June 30, 2023, we issued 3,750 shares of common stock at a price per share of $0.66, the closing price of our common stock on November 17, 2022, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, Firm IR, for services provided during the three months ended June 30, 2023. 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

Disclosure Pursuant to Item 1.01 of Current Report on Form 8-K – Entry into a Material Definitive Agreement.

On August 9 and 10, 2023, in connection with the Reincorporation (as defined above), our Board of Directors entered into indemnification agreements with each of its directors and executive officers, which replaced any prior indemnification agreement with the Company to which such director or officer was a party (the
“Indemnification Agreement”). The prior indemnification agreements were governed by Washington law, the Company's state of incorporation until it was reincorporated in Delaware in June 2023 (see “Recent Developments – Delaware Reincorporation” above for more information). The Indemnification Agreement supplements the indemnification rights provided under the Certificate of Incorporation, Bylaws, and applicable law.

This form of Indemnification Agreement, among other things, requires the Company to indemnify each director and executive officer, under the circumstances and to the extent provided in the agreement, to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding arising out of the person’s service as a director or executive officer. The form of agreement also sets forth procedures with respect to requests for indemnification from a director or executive officer.

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A copy of a form of the Indemnification Agreement is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. The foregoing description of the Indemnification Agreement is a summary and does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.1.

Disclosure Pursuant to Item 5.02 of Current Report on Form 8-K - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On August 8, 2023, the Company promoted Brent Hinds as Chief Financial Officer of the Company, effective immediately. Mr. Hinds will continue to serve as the Company’s principal financial and accounting officer.

In connection with the promotion, the Company amended Mr. Hinds’ employment agreement entered into with the Company on September 30, 2021 (the “Employment Agreement”), to provide for severance payments in certain instances (the “Amendment”). Specifically, the Amendment provides for severance payments in an amount equal to one (1) year salary plus any accrued but unpaid salary, vacation, and bonus amounts upon termination of Mr. Hinds’ employment without “Cause” or upon a “Change in Control.” For purposes of the Amendment, “Cause” means: (a) the commission by the employee of an act relating to employee’s duties constituting a felony under the laws of the United States or any state or political subdivision thereof or any other jurisdiction; (b) the commission by employee of an act constituting a breach of fiduciary duty, willful misconduct, or gross negligence; (c) the commission by employee of an act of fraud, dishonesty or misrepresentation related to employee’s duties that is detrimental to the Company; or (d) a material breach by employee of his obligations under the Employment Agreement. Further, for purposes of the Amendment, “Change in Control” means the sale or disposition by the Company to an unrelated third party of substantially all of its business or assets, or the sale of the capital stock of the Company in connection with the sale or transfer of the Company’s voting securities representing greater than 50% of the voting power in the Company (a “Controlling Interest”) to an unrelated third party, or the merger or consolidation of the Company with another corporation as part of the sale or transfer of a Controlling Interest in the Company to an unrelated third party. Additionally, if Mr. Hinds’ employment is terminated for Cause, he will not be eligible for any severance payments. No other changes were made to the Employment Agreement.

A copy of the Amendment is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. The foregoing description of the Amendment is a summary and does not purport to be complete and is qualified in its entirety by reference to Exhibit 10.2.

Disclosure Pursuant to Item 7.01 of Current Report on Form 8-K - Required FD Disclosure.

A press release issued by the Company on August 8, 2023, announcing Mr. Hinds’ promotion to Chief Financial Officer is included as Exhibit 99.1 to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

Further, on August 14, 2023, the Company made an updated corporate presentation available on its website (www.clearsign.com). The Company intends, from time to time, to present and/or distribute the corporate presentation to the investment community and utilize at various industry and other conferences. The corporate presentation is filed as Exhibit 99.2 to this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. The Company undertakes no obligation to update, supplement or amend the materials attached hereto as Exhibit 99.2.

The information under this Item 5, provided pursuant to Item 7.01 of Form 8-K, including Exhibits 99.1 and 99.2 hereto, is being furnished herewith and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. Furthermore, the furnishing of information under this Item 5, provided pursuant to Item 7.01 of Form 8-K, is not intended to constitute a determination by the Company that the information contained herein, including the exhibit hereto, is material or that the dissemination of such information is required by Regulation FD.

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ITEM 6.EXHIBITS

Exhibit
Number		Document

2.1		Plan of Conversion dated June 14, 2023 (1)
3.1		Certificate of Incorporation of ClearSign Technologies Corporation, a Delaware corporation (1)
3.2		Bylaws of ClearSign Technologies Corporation, a Delaware corporation (1)
3.3		Certificate of Conversion, as filed with the Secretary of the State of Delaware on June 14, 2023 (1)
3.4		Articles of Conversion, as filed with the Secretary of State of the State of Washington on June 14, 2023 (1)
10.1*		Form of Indemnification Agreement
10.2*+		Amendment to Offer Letter between the Company and Brent Hinds, dated August 8, 2023
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1**		Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
99.1**		Press Release, dated August 8, 2023
99.2**		Corporate Presentation, dated August 2023
101.INS		Inline XBRL Instance Document*
101.SCH		Inline XBRL Taxonomy Extension Schema Document*
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

**Furnished herewith

+ Agreement with management or compensatory plan or arrangement.

(1) Incorporated by reference from the Form 8-K filed with the Securities and Exchange Commission on June 15, 2023.

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SIGNATURES

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

		CLEARSIGN TECHNOLOGIES CORPORATION


Date: August 14, 2023	By:	/s/ Colin James Deller
		Colin James Deller
		Chief Executive Officer
		(Principal Executive Officer)




Date: August 14, 2023	By:	/s/ Brent Hinds
		Brent Hinds
		Vice President and Controller (Principal Financial and Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

For the Six Months Ended

June 30,

Compensation Expense

Weighted Average Value Per Share