The accompanying notes are an integral part of these condensed
consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
During the six months ended June 30, 2017,
the Company issued 136,110 shares of common stock to its officers in satisfaction of $490,000 of accrued compensation at December
31, 2016.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Notes to Unaudited Condensed Financial
Statements
Note 1 – Organization and Description of Business
ClearSign Combustion Corporation (ClearSign or the Company)
designs and develops technologies for the purpose of improving key performance characteristics of combustion systems, including
emission and operational performance, energy efficiency and overall cost-effectiveness. The Company’s primary technologies
include its Duplex™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective
catalytic reduction, or higher excess air operation, and its Electrodynamic Combustion Control™ or ECC™ technology,
which introduces a computer-controlled electric field into the combustion region that may better control gas-phase chemical reactions
and improve system performance and cost-effectiveness. The Company is headquartered in Seattle, Washington and was incorporated
in the state of Washington in 2008. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia, Limited, in Hong
Kong. During the quarter ended September 30, 2018, the subsidiary commenced operations.
Liquidity
The Company’s technologies are currently in field development
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. The Company has historically financed its operations primarily through issuances of equity securities,
including $11.9 million in proceeds, net of offering costs, from the stock offering completed on February 27, 2018 and $11.6 million
in proceeds, net of offering costs, from a stock offering completed on July 20, 2018 as described in Note 6. The Company has incurred
losses since its inception totaling $56,970,000 and expects to experience operating losses and negative cash flow for the foreseeable
future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability
to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing
to adequately support research and development efforts, protect intellectual property, form relationships with strategic partners,
and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in
achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable
the Company to continue in the long-term as a going concern.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”)
for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
The condensed balance sheet at December 31, 2017 has been derived from the Company’s audited financial statements.
In the opinion of management, these consolidated financial statements
reflect all normal recurring and other adjustments necessary for a fair presentation. These consolidated financial statements should
be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2017. 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 financial statements include
the accounts of Clearsign and its subsidiary. Intercompany balances and transations have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition, Cost of Sales and Change in Accounting
Principle
The Company recognizes revenue and related cost of goods sold
in accordance with FASB ASC 606
Revenue from Contracts with Customers
(ASC 606). Revenues and cost of goods sold are recognized
once the goods or services are delivered to the customer’s control and performance obligations are satisfied. Typically,
the Company’s contracts with customers have performance obligations regarding air emissions and operational performance that
are satisfied upon completion of service. Since this is the singular performance obligation and cannot be achieved until the air
emissions and operational performance have been successfully tested, revenue related to the contracts is recognized upon project
completion.
The Company’s contracts generally include progress payments
from the customer upon completion of defined milestones. As these payments are received they are offset against accumulated project
costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and acceptance
by the customer the projects can be recorded as revenue.
The Company's contracts with customers contain no variable considerations
or incentives or discounts that would cause revenue to be allocated or adjusted over time. Therefore, no separate methods of evaluating
the contracts other than consideration of the price at achievement of the performance objectives was used in satisfying the review
requirements of ASC 606.
Contract Acquisition Costs and Practical Expedients
For contracts that have a duration of less than one year, the
Company follows the practical expedients provisions of ASC 606 and expenses those costs when incurred; for contracts with a life
exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company
generally expenses sales commissions when earned and records those costs within general and administrative expenses.
Product Warranties
The Company warrants all installed products against defects
in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties
are based on historical warranty experience and current product performance trends, and are recorded at the time revenue is recognized
as a component of cost of sales. The warranty liabilities are reduced by material and labor costs used to replace parts over the
warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ
significantly from actual warranty expense. The warranty liabilities are included in accrued liabilities in the balance sheets.
Cash and Cash Equivalents
Highly liquid investments purchased with an original maturity
of three months or less are considered cash equivalents. Cash is maintained with a commercial bank where accounts are generally
guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company’s deposits may at times exceed this limit.
The Company also maintains a cash balance in China. Accounts at such banks are insured up to $75,000 (500,000RMB). The Company
has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount. An
allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management’s
judgment, deserve current recognition in estimating bad debts. The determination of the collectability of amounts due from customer
accounts requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined
based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a
review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Company’s
customers. Based on a review of these factors, the Company may establish or adjust the allowance for specific customers and the
accounts receivable portfolio as a whole.
Fixed Assets
Fixed assets are recorded at cost. Leases are recorded
in accordance with FASB ASC 842
Leases
. For those leases with a term greater than one year, the Company recognizes on the
balance sheet at the time of lease inception or modification a right-of-use asset and a lease liability, initially measured at
the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line
basis. Operating leases with a term of 1 year or less are recognized on a straight line basis over the term. Depreciation is computed
using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated
over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four
years. Maintenance and repairs are expensed as incurred.
Patents and Trademarks
Patents and trademarks are recorded at cost. Amortization is
computed using the straight-line method over the estimated useful lives of the assets once they are awarded.
Impairment of Long-Lived Assets
The Company tests long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted
cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on
the amount by which the carrying amount exceeds the fair value of the long-lived assets. Fair value is determined based on the
present value of estimated expected cash flows using a discount rate commensurate with the risks involved, quoted market prices,
or appraised values depending upon the nature of the assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair values are reduced for the cost of disposal.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities
measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the
inputs are observable. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The three levels of inputs used to establish fair value
are the following:
|
·
|
Level 1 – Quoted prices in active markets for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities; and
|
|
·
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
|
The Company's financial instruments primarily consist of cash
and cash equivalents, accounts payable and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial
instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable
to the short term maturities of these instruments.
The Company did not identify any
other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.
Research and Development
The cost of research and development is expensed as incurred.
Research and development costs consist of salaries, benefits, share based compensation, consulting fees, rent, utilities, depreciation,
and consumables.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax
benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire
before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain
tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a
position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate
resolution.
Stock-Based Compensation
The costs of all employee stock options, as well as other equity-based
compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant
date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair
value of equity instruments issued, whichever is more reliably measured.
Net Loss per Common Share
Basic loss per share is computed by dividing loss available
to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of
stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included
because their effect would be anti-dilutive. At September 30, 2018 and 2017, potentially dilutive shares outstanding amounted to
3,534,579 and 3,474,094, respectively.
Recently Adopted Standards
In May, 2017 the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2017-09
Scope of Modification Accounting, clarifies Topic 718, Compensation
– Stock Compensation
, which requires a company to apply modification accounting to changes in the terms or conditions
of a share-based payment award unless all of the following criteria are met:
(1) the fair
value of the modified award is the same as the fair value of the original award immediately before the modification. The
ASU indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the
entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified
award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification
of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award
immediately before the modification. The ASU is effective for all entities for fiscal years beginning after December
15, 2017, including interim periods within those years. The Company currently does not have any modifications to existing
stock compensation agreements and will be able to calculate the impact of the ASU once modifications arise.
Recently Issued Accounting
Announcements
In June 2018, the FASB
issued ASU 2018-07 "
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployees Share-Based Payment Accounting"
("ASU 2018-07"). The intention of ASU 2018-07 is to expand the scope of Topic 718 to include share-based payment transactions
for acquiring goods and services from nonemployees. These sharebased payments will now be measured at grant-date fair value of
the equity instrument issued. Upon adoption, only liabilityclassified awards that have not been settled and equity-classified awards
for which a measurement date has not been established should be remeasured through a cumulative-effect adjustment to retained earnings
as of the beginning of the fiscal year of adoption. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018
and is applied retrospectively. The Company currently does not expect this ASU to have any material impact on the financial statements
as all non-employee agreements are valued within the expected guidelines of the standard.
Management does not believe that any other recently issued,
but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s consolidated
financial statement presentation or disclosures.
Reclassifications
Certain items in prior period financial statements have been
reclassified to conform to current period financial statements.
Note 3 – Fixed Assets
Fixed
assets are summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Machinery and equipment
|
|
$
|
832,000
|
|
|
$
|
801,000
|
|
Office furniture and equipment
|
|
|
177,000
|
|
|
|
167,000
|
|
Leasehold improvements
|
|
|
150,000
|
|
|
|
147,000
|
|
Right of use asset-operating leases
|
|
|
518,000
|
|
|
|
518,000
|
|
Accumulated depreciation and amortization
|
|
|
(1,315,000
|
)
|
|
|
(1,135,000
|
)
|
|
|
$
|
362,000
|
|
|
$
|
498,000
|
|
The Company has a triple net operating lease for office and
laboratory space in Seattle, Washington through March 2020 with rent of $12,000 per month plus triple net operating costs. The
Company also has a triple net operating lease for office space in Tulsa, Oklahoma through August 2019 with monthly rent of $2,000
per month plus triple net operating costs. Both leases include lessee renewal options for three years at the then prevailing market
rate.
Lease costs for the three and nine months ended September 30,
2018 and 2017 and other quantitative disclosures are as follows (unaudited):
|
|
For the three months ended September 30,
|
|
|
For the nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
52,000
|
|
|
$
|
94,000
|
|
|
$
|
158,000
|
|
|
$
|
209,000
|
|
Short-term lease cost
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total lease cost
|
|
$
|
52,000
|
|
|
$
|
94,000
|
|
|
$
|
158,000
|
|
|
$
|
209,000
|
|
Other information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
130,000
|
|
|
|
|
|
|
For operating lease:
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|
|
1.44
|
|
Weighted average discount rate
|
|
|
5.00
|
%
|
Minimum future payments under the Company’s leases at
September 30, 2018 and their application to the corresponding lease liabilities are as follows (unaudited):
|
|
Discounted lease
liability payments
|
|
|
Payments due
under lease
agreements
|
|
2018
|
|
$
|
40,000
|
|
|
$
|
43,000
|
|
2019
|
|
|
158,000
|
|
|
|
164,000
|
|
2020
|
|
|
38,000
|
|
|
|
37,000
|
|
Total
|
|
$
|
236,000
|
|
|
$
|
244,000
|
|
Note 4 – Patents and Other Intangible Assets
Patents and other intangible assets are summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
|
|
Patents
|
|
|
|
|
|
|
|
|
Patents pending
|
|
$
|
1,246,000
|
|
|
$
|
1,167,000
|
|
Issued patents
|
|
|
1,120,000
|
|
|
|
930,000
|
|
|
|
|
2,366,000
|
|
|
|
2,097,000
|
|
Trademarks
|
|
|
|
|
|
|
|
|
Trademarks pending
|
|
|
50,000
|
|
|
|
41,000
|
|
Registered trademarks
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
73,000
|
|
|
|
64,000
|
|
Other
|
|
|
8,000
|
|
|
|
8,000
|
|
|
|
|
2,447,000
|
|
|
|
2,169,000
|
|
Accumulated amortization
|
|
|
(518,000
|
)
|
|
|
(313,000
|
)
|
|
|
$
|
1,929,000
|
|
|
$
|
1,856,000
|
|
Future amortization expense associated with issued patents and
registered trademarks as of September 30, 2018 is estimated as follows (unaudited):
2018
|
|
$
|
69,000
|
|
2019
|
|
|
255,000
|
|
2020
|
|
|
165,000
|
|
2021
|
|
|
73,000
|
|
2022
|
|
|
38,000
|
|
Thereafter
|
|
|
25,000
|
|
|
|
$
|
625,000
|
|
Note 5 – Sales, Contract Assets
and Contract Liabilities
The
Company recognized no revenue during the three months ended September 30, 2018. For the nine months ended September 30, 2018 the
Company recognized revenues totaling $360,000 from completed flare projects, $128,000 of revenue from completion of a once through
steam generator (OTSG) project and revenue of $42,000 from a small project. At September 30, 2018, the Company had contract assets
of $39,000 and contract liabilities of $0. The cost of goods sold of $9,000 and $15,000 recognized during the three months ended
September 30, 2018 and 2017, respectively, related to additional warranty costs incurred for completed contracts.
Note 6 – Stockholders’ Equity
Common Stock and Preferred Stock
The Company is authorized to issue 62,500,000 shares of common
stock and 2,000,000 shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock
to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.
In February 2018, the Company completed an underwritten public
offering of 5,750,000 shares of common stock at a price of $2.25 per share. Gross proceeds from the offering totaled $12.9 million
and net cash proceeds approximated $11.9 million.
In July 2018, the Company completed a private equity offering
of 5,213,543 shares of common stock at a price of $2.25 per share to ClirSPV, LLC (Investor). Gross proceeds from the offering
totaled $11.7 million and net cash proceeds approximated $11.6 million. The Stock Purchase Agreement permits the Investor to purchase
from the Company up to an aggregate 478,854 shares of common stock at a price of $4 per share (Additional Purchase Right). Pursuant
to the terms of the Additional Purchase Right, the Investor will have the right to purchase shares of common stock from the Company
as the warrants issued by the Company in its January 25, 2017 rights offering are exercised and the
warrant shares are issued. The Additional Purchase Right expires on February 1, 2019. As of September 30, 2018, no warrants
issued in the rights offering have been exercised. The Additional Purchase Right is an equity instrument accounted for as a component
of the actual price per common share paid by the Investor in the private offering. For basic earnings per share, the common shares
associated with the Additional Purchase Right are treated as contingently issuable shares and will not be included in basic earnings
per share until the actual number of shares have been issued.
The Stock Purchase Agreement also permits the Investor to participate
in future capital raising transactions (Participation Right) on the same terms as other investors participating in such transactions.
The Participation Right will expire on December 31, 2023.
In no event may the Additional Purchase Right and/or the Participation
Right be exercised to the extent it would cause the Investor or any of its affiliates to beneficially own 20% or more of the Company’s
then outstanding common stock or hold shares with 20% or more of the voting power.
The Company filed a registration statement to register the shares
issued in this private offering and shares underlying the Additional Purchase Right. The registration statement was declared effective
by the SEC on September 21, 2018.
Equity Incentive Plan
The Company has adopted and the Company’s shareholders
have approved the ClearSign Combustion Corporation 2011 Equity Incentive Plan (the Plan) which permits the Company to grant to
eligible participants, including officers, employees, directors, consultants and advisors, options to purchase shares of common
stock, stock awards and stock bonuses. The Compensation Committee of the Board of Directors is authorized to administer the Plan
and establish the grant terms, including the grant price, vesting period and exercise date. As of September 30, 2018, the number
of shares of common stock reserved for issuance under the Plan totaled 2,343,686. The Plan provides for quarterly increases in
the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter
immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.
In the nine months ended September 30, 2018, the Company granted
224,000 stock options under the Plan to employees. The stock options have exercise prices at the grant date fair value ranging
from $1.85 to $2.10 per share, contractual lives of 10 years, and vest over 3-4 years. The fair value of the stock options estimated
on the date of grant using the Black-Scholes option valuation model was $239,000. The recognized compensation expense associated
with these grants for the three and nine months ended September 30, 2018 was $15,000 and $43,000, respectively. The following weighted-average
assumptions were utilized in the calculation of the fair value of the stock options:
Expected life
|
|
|
6.25
|
|
Weighted average volatility
|
|
|
69
|
%
|
Forfeiture rate
|
|
|
15
|
%
|
Weighted average risk-free interest rate
|
|
|
2.75
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
In May 2018, the Company authorized 108,108 shares of common
stock to be issued under the Plan to its four independent directors in accordance with board agreements and which will be earned
quarterly for service in 2018. The fair value of the stock at the time of grant was $1.85 per share for a total value of $200,000.
The Company recognized $150,000, represented by 81,084 shares, in general and administrative expense for the nine months ended
September 30, 2018 and will recognize the remaining $50,000 in the remainder of 2018.
Outstanding stock option grants at September 30, 2018 and December
31, 2017 totaled 1,038,795 shares and 993,860 shares, respectively, with the right to purchase 694,881 shares and 754,989 shares
being vested and exercisable at September 30, 2018 and December 31, 2017, respectively. The recognized compensation expense associated
with these grants for the three and nine months ended September 30, 2018 and 2017 totaled $59,000, $170,000, $65,000 and $284,000,
respectively. On October 1, 2018 the number of shares reserved under the Plan but unissued totaled 1,171,000. At September 30,
2018, there was $446,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted
under the Plan. That cost is expected to be recognized over a weighted average period of 2.7 years.
Consultant Stock Plan
The Company has a Consultant Stock Plan (the Consultant
Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital
raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s
officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation
Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number
of shares reserved for issuance under the Consultant Plan on September 30, 2018 totaled 200,524 with 149,774 of those shares
unissued. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the
lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such
lesser amount as the Board of Directors shall determine. In August 2017, the Company granted 10,000 shares of common
stock under the Consultant Plan to a consultant for services provided and to be provided from June 2017 to June 2018. Subject to completion of service each quarter, this contract was extended without modification through September 2018. The
fair value of the stock at the time of grant was $3.50 per share for a total value of $35,000 which the Company recognizes in
general and administrative expense on a pro-rated quarterly basis. The Consultant Plan expense for the three and nine
months ended September 30, 2018 and 2017 was $9,000 and $26,000 and $9,000 and $33,000, respectively.
Warrants
The Company has the following warrants outstanding at September
30, 2018:
Exercise Price
|
|
Warrants
|
|
|
Wtd. Avg.
Exercise
Price
|
|
|
Remaining
Life
(in years)
|
|
$1.80
|
|
|
80,000
|
|
|
$
|
1.80
|
|
|
|
2.38
|
|
$4.00
|
|
|
2,395,471
|
|
|
$
|
4.00
|
|
|
|
0.32
|
|
$10.00
|
|
|
20,313
|
|
|
$
|
10.00
|
|
|
|
0.43
|
|
|
|
|
2,495,784
|
|
|
$
|
3.98
|
|
|
|
|
|
The intrinsic value of the outstanding warrants was $0 at September
30, 2018.
Note 7 – Commitments
The Company and its Chief Executive Officer, Stephen E.
Pirnat entered into an employment agreement on February 3, 2015 that was amended on October 30, 2017 (the Agreement) and
which terminates on December 31, 2018, unless earlier terminated. Compensation under the Agreement includes an annual salary
of $350,000, a grant of 300,000 stock options that vested in 2016 and 2017, an annual cash bonus that may equal up to 60% of
his annual salary and equity bonuses based on performance standards established by the Compensation Committee of the Board of
Directors, medical and dental benefits for Mr. Pirnat and his family, other employee benefits offered to employees generally
and relocation expenses up to approximately $100,000. The Agreement may be terminated by the Company without cause under
certain circumstances, as defined in the Agreement, whereby a severance payment would be due in the amount of compensation
that would have been due pursuant to the Agreement had employment not been terminated or one year of the current annual
compensation, whichever is greater. In the event of his termination through a change in control, Mr. Pirnat would receive one
year’s compensation, and all previously granted stock options would vest in full. On October 1, 2018 Mr. Pirnat
announced his intention to retire, but will remain in any capacity in which he is needed to facilitate a smooth transition.
The board has engaged an internationally known search firm to conduct the search for a new CEO.
The Company has a field test agreement with a customer to demonstrate
and test the Duplex technology in an OTSG used to facilitate a thermally enhanced oil recovery process. Under the terms of the
agreement, the Company has retrofitted an OTSG unit in order to achieve certain performance criteria. The agreement also includes
time-sensitive pricing, delivery and installation terms, if elected, that will apply to future purchases of this Duplex application
by this customer.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give
our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly
to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,”
“believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,”
“intends,” “plans,” “would,” “should,” “could,” “may,”
“will” or other similar expressions in this report. In particular, these include statements relating to future actions;
prospective products, applications, customers, or technologies; future performance or results of anticipated products; anticipated
expenses; and future financial results. These forward-looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that
could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited
to:
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our ability to successfully develop and implement our technology and achieve profitability;
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our limited operating history;
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emerging competition and rapidly advancing technology in our industry that may outpace our technology;
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changes in government regulations that could substantially reduce, or even eliminate, the need for our technology;
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customer demand for the products and services we develop;
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the impact of competitive or alternative products, technologies and pricing;
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our ability to manufacture any products we design;
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general economic conditions and events and the impact they may have on us and our potential customers;
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our ability to obtain adequate financing in the future;
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our ability to continue as a going concern;
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our success at managing the risks involved in the foregoing items; and
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other factors discussed in this report and in the section titled “Risk Factors” in our Annual Report on Form 10-K.
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Forward-looking statements may appear throughout
this report, including, without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” The forward-looking statements are based upon management’s beliefs and assumptions and are
made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included
in this report. You should not place undue reliance on these forward-looking statements.
Unless otherwise stated or the context otherwise
requires, the terms “ClearSign,” “we,” “us,” “our” and the “Company”
refer to ClearSign Combustion Corporation and its subsidiary.