Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under 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.
28
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We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K. Based upon the evaluation of our disclosure controls and procedures as of December 31, 2023, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer) are responsible for establishing and maintaining internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework). Based on this assessment, our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), has concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on those criteria.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None of the Company’s directors or officers adopted , modified or terminated a Rule 10b5-1 trading arrangement or a non-
Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended December 31, 2023, as such terms are defined under
Item 408(a) of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2023.
29
Table of Contents
Code of Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics that applies to all of our ClearSign employees and directors. The Code of Business Conduct and Ethics is posted on the Company’s website at www.clearsign.com . We will post any amendments to or waivers from the Code of Business Conduct and Ethics at that location. We have also adopted Governance Guidelines for the board of directors and a written committee charter for each of our audit committee and compensation committee.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2023.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2023.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) Consolidated Financial Statements
The financial statements filed as part of this report are listed and indexed in the Index to Consolidated Financial Statements on page 34 located in this Annual Report on Form 10-K. Financial statement schedules have been omitted because they are not applicable, or the required information has been included elsewhere in this report.
(a) (2) Financial Statement Schedules
Not applicable.
(a) (3) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Table below. The Company has identified in the Exhibit Table each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item 15(a) (3) of Form 10-K.
(b) The exhibits set forth in the following index of exhibits are filed or incorporated by reference as a part of this Annual Report on
Form 10-K:
30
Table of Contents
Exhibit
No.
Description of Document
2.1**
Plan of Conversion, dated June 14, 2023 (incorporated by reference to Exhibit 2.1 to the Company ’ s Form 8-K
filed with the Securities and Exchange Commission on June 15, 2023).
3.1**
Certificate of Incorporation of ClearSign Technologies Corporation, a Delaware corporation
(incorporated by reference to Exhibit 3.3 to the Company ’ s Form 8-K filed with the Securities and Exchange
Commission on June 15, 2023).
3.2**
Bylaws of ClearSign Technologies Corporation, a Delaware corporation (incorporated by reference to
Exhibit 3.4 to the Company ’ s Form 8-K filed with the Securities and Exchange Commission on June 15, 2023).
3.3**
Certificate of Conversion, as filed with the Secretary of State of the State of Delaware on June 14, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 15, 2023).
3.4**
Articles of Conversion, as filed with the Secretary of State of the State of Washington on June 14, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 15, 2023).
4.1*
Description of Securities of the Company.
10.1+**
Form of Confidentiality and Proprietary Rights Agreement (incorporated by reference to Exhibit 10.6 to the
Company ’ s Form 10-K filed with the Securities and Exchange Commission on February 26, 2015).
10.2**
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the
Company ’ s Form 10-Q filed with the Securities and Exchange Commission on August 14, 2023).
10.3**
ClearSign Combustion Corporation 2013 Consultant Stock Plan (incorporated by reference to Exhibit 10.1 to
the Company ’ s Form 10-Q filed with the Securities and Exchange Commission on May 6, 2013).
10.4+**
Employment Agreement dated January 28, 2019 between the registrant and Colin James Deller (incorporated
by reference to Exhibit 10.1 to the Company ’ s Form 8-K filed with the Securities and Exchange Commission on
January 30, 2019).
10.5**
Stock Purchase Agreement dated July 12, 2018 between the registrant and CLIRSPV, LLC (incorporated by
reference to Exhibit 10.1 to the Company ’ s Form 8-K filed with the Securities and Exchange Commission on
July 17, 2018).
10.6**
At-the-Market Sales Agreement, dated December 23, 2020, by and between ClearSign Technologies Corporation and Virtu Americas LLC (incorporated by reference to Exhibit 1.1 to the Company ’ s Form 8-K
filed with the Securities and Exchange Commission on December 23, 2020).
10.7+**
ClearSign Technologies Corporation 2021 Equity Incentive Plan (incorporated by reference to Appendix A
from the Company ’ s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on
May 7, 2021) .
10.8**
2021 Equity Incentive Plan Form of Stock Option Award Agreement (incorporated by reference to Exhibit
31
Table of Contents
10.13 to the Company ’ s Form 10-K filed with the Securities and Exchange Commission on March 31, 2022).
10.9**
2021 Equity Incentive Plan Form of Restricted Stock Unit Award Agreement (incorporated by reference to
Exhibit 10.14 to the Company ’ s Form 10-K filed with the Securities and Exchange Commission on March 31, 2022).
10.10**
2021 Equity Incentive Plan Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit
10.15 to the Company ’ s Form 10-K filed with the Securities and Exchange Commission on March 31, 2022) .
10.11+**
Offer Letter dated October 18, 2021 by and between the Company and Brent Hinds (incorporated by
reference to Exhibit 10.1 to the Company ’ s Form 10-Q filed with the Securities and Exchange Commission on
November 12, 2021).
10.12**
Lease Agreement, entered into as of June 20, 2016, between Paradigm Realty Advisors, L.L.C. and ClearSign Technologies Corporation (incorporated by reference to Exhibit 10.18 to the Company ’ s Form 10-K filed
with the Securities and Exchange Commission on March 31, 2022).
10.13**
First Amendment to Lease, entered into as of July 29, 2019, between Tulsa Portfolio Oklahoma Realty LP and ClearSign Technologies Corporation (incorporated by reference to Exhibit 10.19 to the Company ’ s Form 10-
K filed with the Securities and Exchange Commission on March 31, 2022).
10.14**
Second Amendment to Lease, entered into as of January 14, 2020, between Tulsa Portfolio Oklahoma Realty LP and ClearSign Technologies Corporation (incorporated by reference to Exhibit 10.20 to the Company ’ s
Form 10-K filed with the Securities and Exchange Commission on March 31, 2022).
10.15**
Purchase Right Waiver of clirSPV LLC (incorporated by reference to Exhibit 10.1 to the Company ’ s Form 8-
K filed with the Securities and Exchange Commission on May 31, 2022).
10.16+**
Amendment to Employment Agreement between the Company and Colin James Deller (incorporated by
reference to Exhibit 10.1 to the Company ’ s Form 10-Q filed with the Securities and Exchange Commission on
August 15, 2022).
10.17**
Catharine de Lacy ’ s Offer Letter, dated February 20, 2023 (incorporated by reference to Exhibit 10.1 to the
Company ’ s Form 8-K filed with the Securities and Exchange Commission on February 24, 2023).
21**
Subsidiaries of the registrant (incorporated by reference to Exhibit 21 to the Company ’ s Form 10-K filed with
the Securities and Exchange Commission on March 31, 2022).
23.1*
Consent of BPM CPA LLP, Independent Registered Public Accounting Firm
24.1*
Power of Attorney (included on the signature page of this report)
31.1*
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
97*
Clawback Policy.
101INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase
32
Table of Contents
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*Filed herewith.
**Previously filed.
***Furnished herewith.
+Agreement with management or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY.
None.
33
Table of Contents
ClearSign Technologies Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
No.
ANNUAL FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm (PCAOB: ID 207 )
F-1
Consolidated Balance Sheets at December 31, 2023 and 2022
F- 3
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022
F- 4
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2023
F- 5
Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2022
F- 5
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
F- 6
Notes to Consolidated Financial Statements
F- 7
34
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ClearSign Technologies Corporation and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ClearSign Technologies Corporation and subsidiary (the "Company") as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of this critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
F-1
Table of Contents
Carrying Cost of Patents and Other Intangible Assets
As described in Notes 2 and 4 to the consolidated financial statements, the Company’s patents and other intangible assets, net balance was $0.8 million as of December 31, 2023. The Company capitalizes third-party legal costs and filing fees, if any, associated with obtaining patents or other intangible assets. Once a patent asset has been placed in service, the Company amortizes these costs over the shorter of the asset’s legal or estimated economic life using the straight-line method. The Company also evaluates for potential impairment of long-lived assets, including intangible assets composed of patents, no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The principal considerations for our determination that performing procedures relating to the carrying value of intangible assets is a critical audit matter are the significant amount of judgment by management in developing the assumptions of future economic benefit in an impairment analysis, which in turn led to significant auditor judgment, subjectivity and effort in performing audit procedures and evaluating audit evidence relating to the analysis.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, reviewing current and forecasted operating conditions for indication of impairment. We also reviewed board minutes, news, and industry reports for indications of impairment. Last, we obtained an understanding of potential future customers indicating future recoverability.
/s/ BPM CPA LLP
Santa Monica, California
March 29, 2024
We have served as the Company's auditor since 2011.
F-2
Table of Contents
ClearSign Technologies Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2023
2022
ASSETS
Current Assets:
Cash and cash equivalents
$
5,684
$
6,451
Short-term held-to-maturity investments
—
2,606
Accounts receivable, net
287
79
Contract assets
188
20
Prepaid expenses and other assets
350
577
Total current assets
6,509
9,733
Fixed assets, net
275
384
Patents and other intangible assets, net
836
798
Other assets
—
10
Total Assets
$
7,620
$
10,925
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued liabilities
$
366
$
296
Current portion of lease liabilities
71
133
Accrued compensation and related taxes
703
471
Contract liabilities
1,116
247
Total current liabilities
2,256
1,147
Long Term Liabilities:
Long term lease liabilities
172
226
Total liabilities
2,428
1,373
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Preferred stock, $ 0.0001 par value, zero shares issued and outstanding
—
—
Common stock, $ 0.0001 par value, 38,687,061 and 38,023,701 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively
4
4
Additional paid-in capital
98,922
98,079
Accumulated other comprehensive loss
( 17 )
( 8 )
Accumulated deficit
( 93,717 )
( 88,523 )
Total equity
5,192
9,552
Total Liabilities and Equity
$
7,620
$
10,925
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
ClearSign Technologies Corporation
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
For the Year Ended
December 31,
2023
2022
Revenues
$
2,403
$
374
Cost of goods sold
1,586
258
Gross profit
817
116
Operating expenses:
Research and development
739
505
General and administrative
6,059
5,728
Total operating expenses
6,798
6,233
Loss from operations
( 5,981 )
( 6,117 )
Other income
Interest
324
83
Government assistance
255
232
Gain from sale of assets
5
38
Other income, net
203
6
Total other income
787
359
Net loss
$
( 5,194 )
$
( 5,758 )
Net loss per share - basic and fully diluted
$
( 0.13 )
$
( 0.16 )
Weighted average number of shares outstanding - basic and fully diluted
38,500,933
35,338,712
Comprehensive loss
Net loss
$
( 5,194 )
$
( 5,758 )
Foreign-exchange translation adjustments
( 9 )
( 17 )
Comprehensive loss
$
( 5,203 )
$
( 5,775 )
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
ClearSign Technologies Corporation
Consolidated Statement of Stockholders’ Equity
For the Year Ended December 31, 2023
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, net of taxes paid
339
—
599
—
—
599
Fair value of stock issued in payment of accrued compensation
296
—
234
—
—
234
Shares issued for services ($ 0.66 per share)
12
—
7
—
—
7
Shares issued upon exercise of options ($ 0.54 per share)
12
—
—
—
—
—
Shares issued for services ($ 0.81 per share)
3
—
3
—
—
3
Shares issued upon exercise of options ($ 1.31 per share)
2
—
—
—
—
—
Foreign-exchange translation adjustment
—
—
—
( 9 )
—
( 9 )
Net loss
—
—
—
—
( 5,194 )
( 5,194 )
Balances at December 31, 2023
38,687
$
4
$
98,922
$
( 17 )
$
( 93,717 )
$
5,192
ClearSign Technologies Corporation
Consolidated Statement of Stockholders’ Equity
For the Year Ended December 31, 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, 2021
31,582
$
3
$
91,035
$
9
$
( 82,765 )
$
8,282
Shares issued upon exercise of options ($ 0.89 per share)
11
—
—
—
—
—
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
67
—
373
—
—
373
Shares issued through the use of At-The Market issuance ($ 1.24 average per share)
501
—
587
—
—
587
Shares issued for services ($ 1.93 per share)
13
—
25
—
—
25
Shares issued for services ($ 0.66 per share)
2
—
1
—
—
1
Shares issued in stock offering ($ 1.11 per share)
4,186
1
4,210
—
—
4,211
Shares issued pursuant to purchase right ($ 1.11 per share)
1,592
—
1,741
—
—
1,741
Foreign-exchange translation adjustment
—
—
—
( 17 )
—
( 17 )
Net loss
—
—
—
—
( 5,758 )
( 5,758 )
Balances at December 31, 2022
38,023
$
4
$
98,079
$
( 8 )
$
( 88,523 )
$
9,552
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
ClearSign Technologies Corporation
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
2023
2022
Cash flows from operating activities:
Net loss
$
( 5,194 )
$
( 5,758 )
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services
10
26
Share-based compensation
614
373
Depreciation and amortization
299
161
Gain from sale of fixed assets
( 5 )
( 38 )
Right of use asset amortization
125
131
Realized gain from marketable securities
( 79 )
( 45 )
Lease amendments
( 14 )
—
Impairment of fixed assets
81
—
Impairment of intangible assets
14
19
Change in operating assets and liabilities:
Contract assets
( 168 )
19
Accounts receivable
( 208 )
( 46 )
Prepaid expenses and other assets
18
( 232 )
Other long term assets
10
—
Accounts payable and accrued liabilities
( 57 )
( 125 )
Accrued compensation and related taxes
452
360
Contract liabilities
869
163
Net cash used in operating activities
( 3,233 )
( 4,992 )
Cash flows from investing activities:
Acquisition of fixed assets
—
( 10 )
Disbursements for patents and other intangible assets
( 200 )
( 154 )
Proceeds from sale of fixed assets
5
39
Purchases of held-to-maturity short-term U.S. treasuries
( 2,162 )
( 5,898 )
Redemption of held-to-maturity short-term U.S. treasuries
4,847
3,337
Net cash provided by (used in) investing activities
2,490
( 2,686 )
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs
—
6,539
Taxes paid related to vesting of restricted stock units
( 15 )
—
Net cash (used in) provided by financing activities
( 15 )
6,539
Effect of exchange rate changes on cash and cash equivalents
( 9 )
( 17 )
Cash and cash equivalents:
Net change in cash and cash equivalents
( 767 )
( 1,156 )
Cash and cash equivalents, beginning of year
6,451
7,607
Cash and cash equivalents, end of year
$
5,684
$
6,451
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 consolidated financial statements.
F-6
Table of Contents
ClearSign Technologies Corporation
Notes to 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 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 December 31, 2023, the Company’s cash and cash equivalents totaled $ 5,684 thousand, which is not 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of this report.
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 year ended December 31, 2023, the Company did not raise proceeds through the issuance of common stock.
The Company has incurred losses since its inception totaling $ 93.7 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. As a result, the substantial doubt the Company’s ability to continue as a going concern had not been alleviated. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of ClearSign and its subsidiary. Intercompany balances and transactions have been eliminated in consolidation.
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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 statement of operations in general and administrative expenses.
Product Warranties
The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical 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 US 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 December 31, 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 our short-term investments totaled approximately zero and $ 2,606 thousand for the years ended December 31, 2023 and 2022, respectively. The unrealized holding gains for our short-term investments totaled approximately zero and $ 4 thousand for
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the years ended December 31, 2023 and 2022, respectively. We have not experienced any continuous unrealized holding losses on these investments. The fair value for our short-term investments totaled approximately zero and $ 2,610 thousand for the years ended December 31, 2023 and 2022, respectively.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable is stated at the cost less a reserve for expected credit losses. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers or interest on past due amounts. Management estimates the allowance for credit loss based on review and analysis of specific customer balances that may not be collectible and how recently payments have been received in addition to an expected credit loss model based on aging analysis as per the invoice date as re-imbursement risks could exist. Though an exception exists, the vast majority of the outstanding accounts receivable share the same expected credit risk due to the re-imbursement risk is same for the current customer pool. Accounts are considered for write-off when they become past due and when it is determined that the probability of collection is remote. In accordance with Company policy and based on the Company’s historical experience, the Company estimates a reserve due to the nature of uncertainty for collectability of reimbursement. The allowance for collectability reserve as of December 31, 2023, and 2022 was zero , respectively.
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, 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.
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● 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 in cost sharing, collaborative projects. During the year ended December 31, 2023, the Company received $ 60 thousand from these arrangements. During the year ended December 31, 2022, the Company did no t receive funds from these arrangements.
Government Assistance
We have adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. We record gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the nature of expenditure. We accrue 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 consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of a milestone as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.
Foreign Operations
The accompanying consolidated balance sheets as of December 31, 2023 and 2022 include assets amounting to approximately $ 334 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 December 31, 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 the case with the effects of the COVID-19 pandemic.
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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 consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive (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 effect would be anti-dilutive. At December 31, 2023 and 2022, potentially dilutive shares outstanding amounted to 3.9 million and 3.5 million, respectively.
Recently Issued Accounting Pronouncements
In June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments , which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company adopted ASU 2016-13 as of January 1, 2023, and this adoption did not have a material impact on our accounts receivable or short-term investment balances.
Note 3 – Fixed Assets
Fixed Assets
Fixed assets are summarized as follows:
December 31,
(in thousands)
2023
2022
Machinery and equipment
$
—
$
390
Office furniture and equipment
60
177
Leasehold improvements
43
192
103
759
Accumulated depreciation and amortization
( 63 )
( 697 )
40
62
Operating lease ROU assets, net
235
322
Total
$
275
$
384
Depreciation and amortization expense for the years ended 2023 and 2022 totaled $ 152 thousand and $ 24 thousand, respectively. In the year ended December 31, 2023, we impaired $ 81 thousand of machinery and equipment, specifically demonstration burners. These burners were capitalized at $ 209 thousand, and at the time of impairment, the associated accumulated depreciation amounted to $ 128 thousand.
Leases
The Company leases office space in Tulsa, Oklahoma, Seattle, Washington and Beijing, China. During June 2023, the Company renewed its Beijing, China lease agreement for 13 months with monthly rent at approximately $ 3 thousand. The Company increased the right of use asset and lease liability by $ 34 thousand.
During March 2023, the Company amended its Seattle lease to extend the lease term to September 2023. The amended lease reduced the square footage and lowered the monthly payment to approximately $ 4 thousand. The Company increased the right of use asset by $ 5 thousand and decreased the lease liability by $ 9 thousand. During October 2023, the Company entered into a sub-lease agreement to rent office space in Seattle for approximately $ 2 thousand per month for twelve months . The Tulsa and Beijing leases are classified as operating leases, with remaining terms ranging from less than twelve months to four years ; contractual language requires renewal
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negotiations to occur at or near termination. These leases are normal and customary for office space, in that, contractual guarantees exist requiring the lessee return the premises to its original functional state. The Company incurred restoration expenses of $ 33 thousand and $ 55 thousand for the years ended December 31, 2023 and 2022, respectively.
The Tulsa lease contains fixed annual lease payments that increase annually by 2 %. The Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $ 10 thousand. Operating lease costs for the years ended December 31, 2023 and 2022 were $ 141 thousand and $ 186 thousand, respectively.
Supplemental balance sheet information related to operating leases is as follows:
December 31,
December 31,
(in thousands)
2023
2022
Operating lease ROU assets, net
$
235
$
322
Lease Liabilities:
Current lease liabilities
$
71
$
133
Long term lease liabilities
172
226
Total lease liabilities
$
243
$
359
Weighted average remaining lease term (in years):
2.4
Weighted average discount rate:
5.2
%
Supplemental cash flow information related to leases is as follows:
For the Year Ended
December 31,
(in thousands)
2023
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases
$
158
$
251
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 December 31, 2023 are as follows:
Discounted
Payments
lease
due under
(in thousands)
liability
lease
payments
agreements
2024
$
71
$
81
2025
59
66
2026
63
67
2027
50
51
Total
$
243
$
265
At December 31, 2023, $ 22 thousand of our 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:
December 31,
(in thousands)
2023
2022
Patents
Patents pending
$
477
$
307
Issued patents
810
815
1,287
1,122
Trademarks
Trademarks pending
4
6
Registered trademarks
86
95
90
101
Other
8
8
1,385
1,231
Accumulated amortization
( 549 )
( 433 )
$
836
$
798
Amortization expense for the years ended December 31, 2023 and 2022 totaled $ 147 thousand and $ 136 thousand, respectively. Future amortization expense associated with issued patents and registered trademarks as of December 31, 2023 is as follows:
(in thousands)
2024
$
129
2025
99
2026
66
2027
43
2028
7
Thereafter
3
$
347
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 years ended December 31, 2023 and 2022, the Company assessed its patent and trademark assets, and determined $ 14 thousand and $ 19 thousand 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’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. Performance obligations typically fall into one of three categories, product shipment, burner performance tests and engineering feasibility studies. Customer payment milestones are unique to individual contracts and may occur prior to completion of performance obligations. Customer payment terms typically range between thirty and sixty days from the date of billing. Our customer contracts typically have a duration of less than twelve months . Delays in contract performance, if any, typically occur as a result of customer onsite project delays outside of our control.
The Company recognized $ 2,403 thousand of revenues and $ 1,586 thousand of cost of goods sold during the year ended December 31, 2023. Revenues and cost of goods sold relate predominately to the Company’s process burner product line. During 2023, the Company delivered multiple burners in connection with a single customer order. Prior to delivery, we successfully
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completed multiple customer witness tests at a burner test facility for two separate customer orders. Both the witness tests and burner shipment constitute contractual performance obligations per ASC 606.
The Company recognized $ 374 thousand of revenues and $ 258 thousand of cost of goods sold during the year ended December 31, 2022. The revenue and cost of goods sold are mostly in connection with the completion of a technology validation project.
The Company had contract assets of $ 188 thousand and $ 20 thousand and contract liabilities of $ 1,116 thousand and $ 247 thousand at December 31, 2023 and 2022, respectively. Of the $ 247 thousand contract liability balance at December 31, 2022, the Company recognized revenue $ 247 thousand during the year ended December 31, 2023. In addition, the net accounts receivable balance at December 31, 2021, was $ 33 thousand.
Note 6 – Product Warranties
A summary of the Company’s warranty liability activity, which is included in accrued liabilities in the accompanying balance sheets as of December 31, 2023 and 2022, is as follows:
December 31,
(in thousands)
2023
2022
Warranty liability at beginning of year
$
5
$
—
Accruals
105
5
Payments
—
—
Warranty liability at end of year
$
110
$
5
Note 7 - Income Taxes
For the years ended December 31, 2023 and 2022 the Company's loss before provision for income taxes were as follows:
For the Year Ended
December 31,
( in thousands )
2023
2022
Domestic
$
( 5,145 )
$
( 5,649 )
Foreign
( 50 )
( 109 )
Loss before provision for income taxes
$
( 5,194 )
$
( 5,758 )
There was no provision for income taxes for the years ended December 31, 2023 and 2022.
Income tax benefit attributable to loss from continuing operations differed from the amounts computed by applying the statutory U.S federal income tax rate of 21 % to pretax loss from continuing operations as a result of the following:
For the Year Ended
December 31,
( in thousands )
2023
2022
Tax benefit at federal statutory rate
$
( 1,091 )
$
( 1,209 )
Tax benefit at state rate
( 126 )
( 197 )
Meals and entertainment
5
4
Prior year deferred tax true ups
—
( 2,805 )
Other
( 75 )
( 82 )
Change in valuation allowance
1,287
4,289
$
—
$
—
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The significant components of the Company's deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows:
For the Year Ended
December 31,
( in thousands )
2023
2022
Deferred tax assets:
Accrued expenses
$
86
$
74
Stock-based compensation
388
337
Depreciation
177
102
Prepaid expenses
61
( 31 )
Accrued vacation
( 1 )
( 3 )
ASC 842 lease standard
( 51 )
( 16 )
Net operating loss carryforwards
21,020
20,263
Gross deferred tax assets
21,680
20,726
Valuation allowance
( 21,598 )
( 20,677 )
Total deferred tax assets, net of valuation allowance
82
49
Deferred tax liabilities
Other
( 82 )
( 49 )
Net deferred tax assets
$
—
$
—
For the year ended December 31, 2023, based on all available objective evidence, including the existence of cumulative losses, the Company determined that it was not more likely than not that the net deferred tax assets were fully realizable as of December 31, 2023. Accordingly, the Company established a full valuation allowance against its deferred tax assets.
As of December 31, 2023, the Company had $ 85.3 million of federal and $ 48.5 million of state net operating loss carryforwards available to reduce future taxable income, of which federal net operating loss carryforwards of $ 39.1 million have an indefinite life. The federal net operating losses begin to expire in 2028, while state net operating losses begin to expire in 2025.
The Company experienced an “ownership change” within the meaning of Section 382 of the Internal Revenue Code in April 2012, subjecting net operating loss carryforwards (incurred prior to the ownership change) to an annual limitation, which may restrict the ability to use these losses to offset taxable income in periods following the ownership change. The Company determined the amount of the annual limitation to be $ 686 thousand annually. The net operating loss carryforwards generated before 2018 may be used to reduce taxable income through the years 2028 to 2037. Federal net operating loss carryforwards generated for year 2018 and thereafter do not expire.
The Company files income tax returns in the U.S. federal, state and foreign jurisdictions. All tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2023 and 2022 there was no accrued interest or penalties related to uncertain tax positions.
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Note 8 – 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, in
connection with a waiver of the Participation Right’s notice requirements and other related closing mechanics for such Participation
Right (the “Waiver”) the Company and clirSPV, LLC agreed that the Participation Right may be extended from December 31, 2023, to such date that the holders of two -thirds of the outstanding units of clirSPV LLC agree to extend each such holder’s existing agreement that he/she/it will have no right to force a redemption of his/her/its interests in clirSPV LLC (the “Redemption Right”); provided, however, that the Participation Right could not be extended to a date later than June 30, 2027. On December 30, 2023, the Company received notice from clirSPV that the holders of at least two -thirds of the outstanding units of clirSPV agreed to extend the waiver of the Redemption Right until December 31, 2024. Accordingly, the Participation Right will now expire on December 31, 2024.
The Company has an At-The-Market (“ATM”) program pursuant to a Sales Agreement with Virtu Americas LLC, as sales agent, dated December 23, 2020 (the “Sales Agreement”), pursuant to which the Company may sell shares of common stock with an aggregate offering price of up to $ 8.7 million. On March 18, 2024, the Company filed a prospectus supplement suspending the ATM program. The Company will not make any sales of its common stock pursuant to the Sales Agreement unless and until a new prospectus supplement is filed with the SEC; however, the Sales Agreement remains in full force and effect. During the year ended December 31, 2023, the Company issued zero shares of its common stock from the ATM program. As of December 31, 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 prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by the Company under our Shelf Registration statement on Form S-3, 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 thousand 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:
December 31,
December 31,
( in thousands )
2023
2022
Outstanding options and restricted stock units
3,430
3,202
Reserved but unissued shares under the Plan
2,302
2,777
Total authorized shares under the Plan
5,732
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.
Inducement Options
During the year ended December 31, 2023, the Company granted non-qualified stock options to its Chief Technology Officer to purchase an aggregate of 150 thousand shares of common stock with an exercise price of $ 0.91 as a material inducement to accept employment with the Company. These inducement options vest in three equal installments, with one third of the option vesting on the grant date, and each remaining third vesting on the second and third anniversaries of the grant date, subject to continued employment with the Company. The fair value of these options were estimated on the grant date using the Black Scholes valuation model, which resulted in $ 112 thousand. The compensation expense recognized for these awards for the year ended December 31, 2023 was $ 43 thousand.
During the year ended December 31, 2023, the Company granted non-qualified stock options to its Director of Customer Relationships and Business Development to purchase an aggregate of 150 thousand shares of common stock with an exercise price of $ 1.31 as a material inducement to accept employment with the Company. These inducement options vest in three equal installments, with one third of the option vesting on the grant date, and each remaining third vesting on the second and third anniversaries of the grant date, subject to continued employment with the Company. The fair value of these options were estimated on the grant date using the Black Scholes valuation model, which resulted in $ 160 thousand. The compensation expense recognized for these awards for the year ended December 31, 2023 was $ 74 thousand. Two -thirds of these inducement options were forfeited in 2023 upon the departure of the Director of Customer Relationships and Business Development.
These inducement options were granted outside of the 2021 Plan and in accordance with the employment inducement
exemption provided under Nasdaq Listing Rule 5635(c)(4).
Equity Incentive Plan Options
Compensation expense associated with stock option awards for the years ended December 31, 2023 and 2022 totaled $ 174 thousand and $ 118 thousand, respectively.
A summary of the Company’s Equity Incentive Plan stock option activity and changes is as follows:
December 31,
2023
( in thousands, except per share data )
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
5.38
Exercisable at end of period
2,024
$
1.71
4.87
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The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at December 31, 2023 is $ 171 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 December 31, 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 from the Company’s Equity Incentive Plan. Employee vesting criteria is time based, and compensation expense is recognized ratably across the timeframe.
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 amounted to $ 244 thousand and $ 491 thousand for the years ended December 31, 2023 and 2022, respectively. Director compensation is earned on a quarterly basis with the target value of compensation set at $ 85 thousand per quarter.
A summary of the Company’s RSUs activity and changes is as follows:
December 31,
December 31,
2023
2022
( in thousands, except per share data )
Number of Shares
Weighted Average Grant Date Fair Value
Number of Shares
Weighted Average Grant Date Fair Value
Nonvested at beginning of year
423
$
1.49
112
$
2.28
Granted
617
$
0.82
376
$
1.30
Vested
( 361 )
$
1.18
( 65 )
$
1.77
Forfeited
( 8 )
$
0.79
—
$
—
Nonvested at end of period
671
$
1.05
423
$
1.49
A summary of the Company’s RSU compensation expense is as follows:
For the Year Ended
December 31,
( in thousands, except per share data )
2023
2022
Compensation Expense
$
337
$
252
Weighted Average Value Per Share
$
0.83
$
1.57
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 Year Ended
December 31,
( in thousands, except per share data )
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 quarterly increases in the available number of authorized shares equal to the lesser of 1 % of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.
The Consultant Plan activity and change is as follows:
December 31,
( in thousands )
2023
2022
Reserved but unissued shares at beginning of year
196
211
Increases in the number of authorized shares
7
—
Grants
( 15 )
( 15 )
Reserved but unissued shares at end of year
188
196
The Consultant Plan compensation expense is summarized as follows:
For the Year Ended
December 31,
( in thousands, except per share data )
2023
2022
Compensation Expense
$
10
$
26
Weighted Average Value Per Share
$
0.69
$
1.61
Note 9 – Retirement Plan
The Company has a defined contribution retirement plan covering all of its U.S. employees whereby the Company matches employee contributions up to 3 % of their base salary. The Company’s matching contribution expense totaled $ 64 thousand and $ 54 thousand during the years ended December 31, 2023 and 2022, respectively.
Note 10 – Commitments and Contingencies
Litigation
From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings or claims that the Company believes will have a material adverse effect on the business, financial condition or operating results.
Indemnification Agreements
The Company maintains indemnification agreements with our directors and officers that may require the Company to indemnify these individuals against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by law.
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Note 11 – 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. During 2023, the Company was awarded a Phase 2 grant from the DOE to continue developing this ultra-low NOx hydrogen burner. The Phase 2 grant amount totaled approximately $ 1.6 million over a two-year period. These awards allow the Company to request reimbursements for expenditures such as labor, material, and administrative costs. During the years ended December 31, 2023 and 2022, the Company recognized $ 191 thousand and $ 181 thousand in reimbursements from the DOE, respectively.
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. During the years ended December 31, 2023 and 2022, the Company recognized $ 64 thousand and $ 51 thousand in government assistance from this program, respectively.
Note 12 – Quarterly Results (unaudited)
Quarterly results for the years ended December 31, 2023 and 2022 are as follows:
(in thousands, except per share data)
First
Second
Third
Fourth
For the year ended December 31, 2023
Quarter
Quarter
Quarter
Quarter
Revenue
$
894
$
150
$
85
$
1,274
Gross Profit (Loss)
$
106
$
129
$
24
$
558
Operating Expense
$
1,810
$
1,758
$
1,521
$
1,709
Net loss
$
( 1,429 )
$
( 1,478 )
$
( 1,332 )
$
( 955 )
Net Loss per share - basic and fully diluted
$
( 0.04 )
$
( 0.04 )
$
( 0.03 )
$
( 0.03 )
For the year ended December 31, 2022
Revenue
$
—
$
—
$
324
$
50
Gross Profit (Loss)
$
—
$
—
$
123
$
( 7 )
Operating Expense
$
1,517
$
1,660
$
1,558
$
1,498
Net loss
$
( 1,490 )
$
( 1,638 )
$
( 1,312 )
$
( 1,318 )
Net Loss per share - basic and fully diluted
$
( 0.05 )
$
( 0.05 )
$
( 0.03 )
$
( 0.03 )
Note 13 – Subsequent Events
On February 22, 2024, the Company’s board of directors and compensation committee approved and paid the 2023 bonus accrual allocated to the Company’s Chief Executive Officer, Colin James Deller, and Chief Financial Officer, Brent Hinds, in the form of common stock and restricted stock units (“RSUs”). After applicable tax withholdings, Dr. Deller received 66,019 shares of common stock valued at $ 1.06 per share. After applicable tax withholdings, Mr. Hinds received 28,555 shares of common stock valued at $ 1.06 per share. In addition, Mr. Hinds received RSUs for 7,547 shares of common stock that will vest in three equal installments commencing on the first anniversary of the grant date, and performance-based restricted stock units (“PRSUs”) for 2,627 shares of common stock that will vest upon the achievement of certain established performance targets. The PRSUs will not vest and be forfeited if such performance targets are not achieved during the measuring period ending December 31, 2024.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEARSIGN TECHNOLOGIES CORPORATION
Date: April 1, 2024
By:
/s/ Colin J. Deller
Colin J. Deller
Chief Executive Officer
Date: April 1, 2024
By:
/s/ Brent Hinds
Brent Hinds
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Colin
James Deller and Brent Hinds as their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-
K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in- fact and agents, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Date: April 1, 2024
/s/ Colin J. Deller
Colin J. Deller
Chief Executive Officer and Director
(Principal Executive Officer)
Date: April 1, 2024
/s/ Brent Hinds
Brent Hinds
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: April 1, 2024
/s/ Robert T. Hoffman Sr.
Robert T. Hoffman Sr., Director
Date: April 1, 2024
/s/ Judith S. Schrecker
Judith S. Schrecker, Director
Date: April 1, 2024
/s/ Catharine Marie de Lacy
Catharine Marie de Lacy, Director
27