10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from ______________ to _______________

Commission File Number 001-35521

CLEARSIGN TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

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

12870 Interurban Avenue South

Seattle, Washington 98168

(Address of principal executive offices)

(Zip Code)

(206) 673-4848

(Registrant’s telephone number, including area code)

No change

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CLIR	The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x	Smaller reporting company x
	Emerging growth company ¨

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

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

As of May 14, 2020, the issuer has 26,709,761 shares of common stock, par value $.0001, issued and outstanding. 

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (Unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II	OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
SIGNATURES		23

2

PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2020			2019
ASSETS
Current Assets:
Cash and cash equivalents	$	7,084,000		$	8,552,000
Contract assets		39,000			39,000
Prepaid expenses and other assets		334,000			391,000
Total current assets		7,457,000			8,982,000
Fixed assets, net		593,000			665,000
Patents and other intangible assets, net		1,326,000			1,285,000
Other assets		10,000			10,000
Total Assets	$	9,386,000		$	10,942,000
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	1,056,000		$	845,000
Current portion of lease liabilities		168,000			177,000
Accrued compensation and taxes		121,000			226,000
Contract liabilities		50,000			50,000
Total current liabilities		1,395,000			1,298,000
Long Term Liabilities:
Long term lease liabilities		378,000			418,000
Total liabilities		1,773,000			1,716,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		-			-
Common stock, $0.0001 par value, 26,709,761 and 26,707,261  shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		3,000			3,000
Additional paid-in capital		77,560,000			77,210,000
Accumulated deficit		(69,953,000	)		(67,990,000	)
Total stockholders' equity		7,610,000			9,223,000
Noncontrolling Interest		3,000			3,000
Total equity		7,613,000			9,226,000
Total Liabilities and Equity	$	9,386,000		$	10,942,000

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

3

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended March 31,
	2020			2019
Sales	$	-		$	-
Cost of goods sold		-			1,000
Gross profit (loss)		-			(1,000	)
Operating expenses:
Research and development, net of grants		810,000			902,000
General and administrative		1,153,000			1,474,000
Total operating expenses		1,963,000			2,376,000
Loss from operations		(1,963,000	)		(2,377,000	)
Other income:
Interest income		-			48,000
Net loss		(1,963,000	)		(2,329,000	)
Net loss attributed to noncontrolling interest		-			-
Net loss attributed to common stockholders	$	(1,963,000	)	$	(2,329,000	)
Net loss per share - basic and fully diluted	$	(0.07	)	$	(0.09	)
Weighted average number of shares outstanding - basic and fully diluted		26,707,288			26,697,289

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

4

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Equity

(Unaudited)

For the Three Months Ended March 31, 2020 and 2019

	Common Stock				Additional		Accumulated			Stockholders'			Noncontrolling
	Shares		Amount		Paid-In Capital		Deficit			Equity			Interest		Total Equity
Balances at December 31, 2019		26,707,261	$	3,000	$	77,210,000	$	(67,990,000	)	$	9,223,000		$	3,000	$	9,226,000
Shares issued for services ($1.03 per share)		2,500		-		2,000		-			2,000			-		2,000
Fair value of stock options issued in payment of accrued compensation		-		-		215,000		-			215,000			-		215,000
Fair value of stock options issued for board service		-		-		53,000		-			53,000			-		53,000
Share based compensation		-		-		80,000		-			80,000			-		80,000
Net loss		-		-		-		(1,963,000	)		(1,963,000	)		-		(1,963,000	)
Balances at March 31, 2020	$	26,709,761	$	3,000	$	77,560,000	$	(69,953,000	)	$	7,610,000		$	3,000	$	7,613,000

	Common Stock					Additional		Accumulated			Stockholders'			Noncontrolling
		Shares		Amount		Paid-In Capital		Deficit			Equity			Interest		Total Equity
Balances at December 31, 2018		26,697,261	$	3,000	$	76,417,000	$	(59,511,000	)	$	16,909,000		$	-	$	16,909,000
Shares issued for services ($1.44 per share)		2,500		-		3,000		-			3,000			-		3,000
Fair value of stock options issued in payment of accrued compensation		-		-		100,000		-			100,000			-		100,000
Share Based Compensation		-		-		233,000		-			233,000			-		233,000
Net loss		-		-		-		(2,329,000	)		(2,329,000	)		-		(2,329,000	)
Balances at March 31, 2019		26,699,761	$	3,000	$	76,753,000	$	(61,840,000	)	$	14,916,000		$	-	$	14,916,000

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

5

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(1,963,000	)	$	(2,329,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		2,000			3,000
Share based compensation		143,000			233,000
Depreciation and amortization		58,000			70,000
Accrued interest income		-			(44,000	)
Change in operating assets and liabilities:
Prepaid expenses and other assets		57,000			45,000
Accounts payable and accrued liabilities		213,000			42,000
Accrued compensation and taxes		100,000			(42,000	)
Net cash used in operating activities		(1,390,000	)		(2,022,000	)
Cash flows from investing activities:
Acquisition of fixed assets		-			(11,000	)
Disbursements for patents and other intangible assets		(78,000	)		(145,000	)
Net cash used in investing activities		(78,000	)		(156,000	)
Net used in cash and cash equivalents		(1,468,000	)		(2,178,000	)
Cash and cash equivalents, beginning of period		8,552,000			8,949,000
Cash and cash equivalents, end of period	$	7,084,000		$	6,771,000
Supplemental disclosure of non-cash operating activities:
During the three months ended March 31, 2020, the Company issued stock options to purchase a total of 444,161 shares of common stock to its officers and employees in satisfaction of $205,000 of accrued compensation at December 31, 2019.
During the three months ended March 31, 2019, the Company issued stock options to purchase a total of 159,100 shares of common stock to certain of its officers and employees in satisfaction of $100,000 of accrued compensation at December 31, 2018.

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

6

Clearsign Technologies Corporation and Subsidiary

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

ClearSign Technologies Corporation (ClearSign or the Company) designs and develops products and technologies that have been shown to significantly improve key performance characteristics of industrial and commercial systems, including operational performance, energy efficiency, emission reduction, safety and overall cost-effectiveness. Our patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and the 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, including the energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation. The Company is headquartered in Seattle, Washington and was incorporated in the state of Washington in 2008.  On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

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

Going Concern

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s 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 a 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. The Company has incurred losses since its inception totaling $69,953,000 and expects to experience operating losses and negative cash flows for the foreseeable future. On January 15, 2020, the Company received a letter from The Nasdaq Stock Market advising that for 30 consecutive trading days preceding the date of the letter, the bid price of the Company’s common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to listing rules, and therefore the Company could become subject to delisting if it did not regain compliance within the compliance period (or the compliance period as may be extended). Additionally, the outbreak of COVID-19 has caused significant disruptions to the global financial markets which could impact the Company’s ability to raise additional capital.

Based on its current plans, the Company does not have sufficient funds to continue operating its business at current levels for at least 12 months from the date of issuance of these financial statements. In order to continue business operations, the Company currently anticipates that it will need to raise additional capital. Accordingly, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. 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 development and 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 plans as set forth above. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

7

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, 2019 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of 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 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 ASC 606, Narrow Scope Improvements and Practical Expedients, and expenses those costs when incurred; for contracts with a life exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company generally expenses sales commissions when earned. The Company records those costs within general and administrative expenses.

8

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 which is insured up to $70,000 (500,000RMB). The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

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

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

9

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.

During the three months ended March 31, 2019, the Company received $108,000 to partially fund specific research and development activity relating to its ECC technology. Since these funds were provided without expectation of reciprocation, except notification of research results, the funds received were offset against the related research and development costs incurred. There were no such funds received by the Company during the three months ended March 31, 2020.

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 consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

10

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. 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.

Foreign Operations

The accompanying consolidated financial statements as of March 31, 2020 and December 31, 2019 include assets amounting to approximately $81,000 and $151,000, respectively, relating to operations of the Company in China. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the end of January 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

The functional currency of ClearSign Asia Limited is the U.S. dollar. The Company remeasures the transactions denominated in Chinese Yuan at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures ClearSign Asia Limited’s monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income (expense), net in the consolidated statements of operations. Foreign currency exchange gain (loss) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

Noncontrolling Interest

The subsidiary of the Company has a minority shareholder representing an ownership interest of 1.00% at March 31, 2020. The Company accounts for this noncontrolling interest pursuant to ASC 810-10-65 whereby gains and losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance.

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2020 and 2019, potentially dilutive shares outstanding amounted to 2,643,470 and 1,516,540, respectively.

Recently Adopted Accounting Pronouncements

In November 2018 FASB issued ASU 2018-18, Topic 808 Collaborative Arrangements. The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: (1) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements; (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606; (3) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this standard did not have material effect on the Company’s consolidated financial statements.

11

Recently Issued Accounting Pronouncements

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.

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	March 31,			December 31,
	2020			2019
		(unaudited)
Machinery and equipment	$	762,000		$	762,000
Office furniture and equipment		177,000			180,000
Leasehold improvements		149,000			149,000
Right of use asset-operating leases		1,140,000			1,140,000
Accumulated depreciation and amortization		(1,635,000	)		(1,566,000	)
	$	593,000		$	665,000

The Company has a triple net operating lease for office and laboratory space in Seattle, Washington that was to end in March 2020 with rent of approximately $12,000 per month plus triple net operating costs. The Company also has a triple net operating lease for office space in Tulsa, Oklahoma with a term that was to end in August 2019 and monthly rent of approximately $2,000 per month plus triple net operating costs. Both leases included lessee renewal options for three years at the then prevailing market rate. Effective as of July and August 2019, the Company exercised the option to renew both the Seattle lease and the Tulsa lease for three years. The new term of the Seattle lease began in April 2020 and rent will be abated for April and May 2020, although the Company will be responsible for its proportionate share of expenses and taxes. The Company will pay a monthly rent of approximately $13,500 beginning on June 1, 2020 through March 2021. The monthly rent will increase on the first day of April of each succeeding year by approximately 3% until the end of the term in May 2023. The rent for the Tulsa lease is approximately $2,200 a month beginning September 2019 through August 2022 with an annual 2.5% increase. The Company has an operating lease for office space in Beijing, China through November 2020 with a monthly rent of approximately $6,000.

Lease costs for the three months ended March 31, 2020 and 2019 and other quantitative disclosures are as follows (unaudited):

	For the three months ended March 31,
	2020		2019
Lease cost:
Operating lease cost	$	62,000	$	59,000
Total lease cost	$	62,000	$	59,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	59,000
For operating lease:
Weighted average remaining lease term (in years)				2.92
Weighted average discount rate				7.17	%

Minimum future payments under the Company’s leases at March 31, 2020 and their application to the corresponding lease liabilities are as follows (unaudited):

	Discounted lease liability payments		Payments due under lease agreements
2020 (remaining 9 months)	$	128,000	$	155,000
2021		169,000		193,000
2022		178,000		190,000
2023		71,000		73,000
Total	$	546,000	$	611,000

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows: 

	March 31,			December 31,
	2020			2019
		(Unaudited)
Patents
Patents pending	$	857,000		$	846,000
Issued patents		676,000			619,000
		1,533,000			1,465,000
Trademarks
Trademarks pending		87,000			77,000
Registered trademarks		23,000			23,000
		110,000			100,000
Other		8,000			8,000
		1,651,000			1,573,000
Accumulated amortization		(325,000	)		(288,000	)
	$	1,326,000		$	1,285,000

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Future amortization expense associated with issued patents and registered trademarks as of March 31, 2020 is estimated as follows (unaudited):

2020 (remaining 9 months)		109,000
2021		111,000
2022		83,000
2023		49,000
2024		22,000
	$	374,000

Note 5 – Sales, Contract Assets and Contract Liabilities

The Company recognized no revenue during the three months ended March 31, 2020 and 2019. The Company did not record any cost of goods sold for the three months ended March 31, 2020 and recorded $1,000 for the three months ended March 31, 2019 related to additional warranty costs incurred for previously completed contracts.

Note 6 –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.

Equity Incentive Plan

The Company has adopted and the Company’s shareholders have approved the Clearsign Technologies 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 March 31, 2020, the number of shares of common stock reserved for issuance under the Plan totaled 4,005,339. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 15% 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. 

During the three months ended March 31, 2020, the Company granted stock options for the purchase of an aggregate 444,161 shares of common stock to its employees from the Plan. These were awarded in lieu of cash for 2019 bonuses and the expense was recorded during the year ended December 31, 2019. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	5.00		years
Weighted average volatility		72	%
Forfeiture rate		15	%
Weighted average risk-free interest rate		1.63	%
Expected dividend rate		0	%

Outstanding stock option awards at March 31, 2020 and December 31, 2019 totaled 2,563,470 shares and 2,131,058 shares, respectively, with the right to purchase 2,147,348 shares and 1,461,073 shares being vested and exercisable at March 31, 2020 and December 31, 2019, respectively. The recognized compensation expense associated with stock option awards for the three months ended March 31, 2020 and 2019 totaled $80,000 and $126,000, respectively. On March 31, 2020 the number of shares reserved under the Plan but unissued totaled 849,990. At March 31, 2020, there was $239,000 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 1 year. The intrinsic value of outstanding stock options was $0 at March 31, 2020.

On April 1, 2020, the Company awarded from the Plan to certain directors stock options for the purchase of 94,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2020.  The stock options have an exercise price based on the grant date fair value, which was $0.72, with a contractual life of 10 years.  Share-based compensation related to this grant of $53,000 was recognized in the three months ended March 31, 2020.

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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 awards from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on March 31, 2020 totaled 253,417 with 187,667 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. The Company granted 10,000 shares of common stock to a consultant under the Consultant Plan for contracted services performed during the period from August 13, 2018 to August 31, 2019. The fair value of the stock at the time of grant was $1.44 per share for a total value of $14,000, which the Company recognized on a quarterly pro-rated basis for 2,500 shares in general and administrative expense. The contract was renewed and the consultant was granted an additional 10,000 shares for services to be performed from September 1, 2019 through August 31, 2020. The fair value of the stock at the time of grant was $1.03 per share for a total value of $10,000, which the Company is recognizing on a quarterly pro-rated basis for 2,500 shares in general and administrative expense. The Consultant Plan expense for the three months ended March 31, 2020 and 2019 was $2,000 and $3,000, respectively.

Inducement Stock Options

Pursuant to the rules of The Nasdaq Stock Market, the Company has the ability to issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. These awards need not be granted from a plan approved by the Company’s shareholders. During the three months ending March 31, 2019 the Company granted options for the purchase of 600,000 shares of common stock to its President and Chief Executive Officer as an inducement to accept the Company’s offer of employment. (see Note 7). The stock options have exercise prices at the award date fair value ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and vest over 2 years. An option to purchase 258,618 shares of common stock was issued from the Company’s 2011 Equity Incentive Plan and is accounted for with the stock options described above. Non-qualified stock options covering the remaining 341,382 shares of common stock were issued from the Company’s reserve of authorized but unissued shares of common stock. The fair value of the non-qualified stock options estimated on the date of grant using the Black-Scholes option valuation model was $176,000. The recognized compensation expense associated with these awards for the three months ended March 31, 2020 and 2019 was $13,000 and $59,000, respectively. The remaining unrecognized compensation expense associated with these awards is $52,000.

Warrants

At March 31, 2020, warrants for the purchase of 80,000 shares of common stock at an exercise price of $1.80 per share were outstanding and had a remaining life of 0.88 years.

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Note 7 – Commitments and Contingencies

On January 28, 2019 (the “Effective Date”), the Company and Colin James Deller entered into an employment agreement (the “Agreement”) pursuant to which the Company employed Dr. Deller as its President until April 1, 2019, at which time Dr. Deller became the Company’s Chief Executive Officer. Pursuant to the Agreement, the Company pays Dr. Deller an annual salary of $350,000. As an inducement to accept employment with the Company, Dr. Deller was also granted an option to purchase 400,000 shares of the Company’s common stock at an exercise price of $1.16 per share and an option to purchase 200,000 shares of the Company’s common stock at an exercise price of $2.25 per share. Each option has a term of 10 years and will vest as follows: the right to purchase one-third of the shares of common stock subject to the option vested on the Effective Date; the right to purchase one-third of the shares will vest on the first anniversary of the grant date; and the right to purchase one-third of the shares will vest on the second anniversary of the grant date. The Company also agreed to pay certain expenses, not to exceed the sum of $100,000, related to Dr. Deller’s move from Tulsa, Oklahoma to Seattle, Washington, including reasonable expenses related to the sale of his home in Tulsa. As a temporary adjustment for the difference in the cost of living between Tulsa and Seattle (the “Relocation Adjustment”), for a period of four years (the “Payment Period”) from the Effective Date, the Company has also agreed to pay up to $6,000 a month to Dr. Deller for expenses related to temporary housing and travel to and from Tulsa to Seattle. If Dr. Deller purchases a home in the Seattle area, the Relocation Adjustment will continue to be paid through the expiration of the Payment Period, although the Relocation Adjustment may be adjusted or terminated upon mutual agreement of Dr. Deller and the Company. The Agreement may be terminated by the Company for cause, as defined in the Agreement, due to Dr. Deller’s death or disability, upon 30 days’ notice to Dr. Deller or as a result of a change in control, as defined in the Agreement. With the exception of a termination for cause, if Dr. Deller’s employment is terminated by the Company, aside from accrued but unpaid salary, bonus (if any) and business expenses, Dr. Deller will receive the balance of the unpaid Relocation Adjustment and six months of his annual salary. During the three months ended March 31, 2020 and 2019, the Company has paid Dr. Deller $12,000 and $5,000, respectively, in Relocation Adjustment payments to reimburse temporary housing costs.

Litigation

From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings.

Indemnification Agreements

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

COVID-19 Pandemic

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

Note 8 – Subsequent Events

On May 8, 2020, the Company issued a Promissory Note ( the “PPP Loan”) to Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $250,832 from the PPP Loan. The PPP Loan is scheduled to mature on May 7, 2022, has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The PPP Loan may be prepaid by the Company at any time prior to its maturity with no prepayment penalties.

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The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is computed using a formula based on a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases and certain qualified utility payments, provided that, among other things, at least 75% of the loan amount is used for eligible payroll costs and the employer maintains or rehires employees and maintains salaries at a certain level. In accordance with the requirements of the CARES Act and the PPP, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. There can be no assurance that the Company will be granted forgiveness of the PPP Loan in whole or in part.

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:

· our history of losses;

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

· our limited operating history;

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

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

· customer demand for the products and services we develop;

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

· our ability to manufacture any products we design;

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

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

· our ability to obtain adequate financing in the future;

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

· our ability to continue as a going concern;

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

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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.

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

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes included in our Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled “Risk Factors” in our Annual Report on Form 10-K.

OVERVIEW

We design and develop technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. Our ClearSign Core™ technology is currently in test furnace and field development. We have generated nominal revenues from operations to date to meet operating expenses.

We have incurred losses since inception totaling $69,953,000 and we expect to experience operating losses and negative cash flow for the foreseeable future. We have historically financed our operations primarily through issuances of equity securities. Since inception, we have raised approximately $72.0 million in gross proceeds through the sale of our equity securities. We may need to raise additional capital in the future, however, the significant volatility in the capital markets relating to the ongoing spread of the coronavirus may negatively affect our ability to do so.

In order to attempt to mitigate the coronavirus pandemic in the State of Washington, where our headquarters are located, on March 23, 2020 Governor Jay Inslee issued a “Stay Home, Stay Healthy” order which, among other things, (i) directs all individuals living in Washington to shelter at their places of residence (subject to limited exceptions), (ii) closes all businesses except “essential businesses,” and (iii) prohibits all gatherings for social, spiritual and recreational purposes. The order will continue until at least May 31, 2020, and is being modified in phases starting on May 5, 2020. After a review of our business and subsequent clarifications from State agencies, we determined that our business is an “essential business” and therefore a limited number of employees are currently working from our facility in Seattle. Employees currently engaged in optimizing the fire tube boiler for demonstration in China, our process burner to meet specific customer performance requirements and the commercialization of our sensing technologies are able to do so, however not all contractors, suppliers or parts are available, or can be obtained as expeditiously as before, so these projects have experienced some delay. Our operations in China have also been impacted by the severity of the pandemic, and this has and may continue to delay the completion of the water tube and fire tube demonstration projects. Our administrative staff in Seattle and our employees located in our Tulsa office are continuing to work remotely.

It is not possible at this time to estimate the full impact that the coronavirus pandemic will have on our business or on our potential customers, suppliers or other business partners. However, the continued spread of the coronavirus, the measures taken by the governments of affected countries, actions taken to protect employees, the limitations placed on travel and border crossings, and the impact of the pandemic on various business activities in affected countries could adversely impact our operational results and financial condition. We currently anticipate that the establishment of the fire tube boiler burner product could be delayed by an additional one to three months. Developments to the water tube boiler burner product in China have already been delayed until the next heating season. These delays could similarly delay any potential revenue stream that would be associated with the sale of those products in the Chinese market.

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The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. In order to generate meaningful revenues, our technologies must be fully developed, gain market recognition and acceptance and develop a critical level of successful sales and product installations. In addition, management believes that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing 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 plans as set forth above. Based on our current plans, we do not have sufficient funds to continue our business at current levels for at least 12 months from the date of issuance of this report. As a result, management has concluded that there is a substantial doubt about the Company’s ability to continue as a going concern.

Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for product development and commercialization activities, and administration, travel, legal and accounting expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly-traded technology company. We currently have 14 full-time employees. Because using third party expertise and resources is more efficient than maintaining full time resources, we also expect to incur consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current levels.

The amount that we spend for any specific purpose may vary significantly, and could depend on a number of factors including, but not limited to, the pace of progress of our commercialization and development efforts, actual needs with respect to product testing, development and research, market conditions, and changes in or revisions to our sales and marketing strategies. 

Research, development, and commercial acceptance of new technologies are, by their nature, unpredictable.  Although we undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations.  If the net proceeds from these offerings are insufficient for this purpose, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives.

We cannot assure that our technologies will be accepted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development plans by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control. As a result, they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report for a more complete description of our significant accounting policies.

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Revenue Recognition and Cost of Goods Sold. The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control 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.

Product Warranties. The Company warrants 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 repair or 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.

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.

Stock-Based Compensation. The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. 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.

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 Company's financial instruments primarily consist of cash and cash equivalents, accounts payable, and accrued expenses. As of the balance sheet date, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributed to the short maturities of these instruments. The Company did not identify any other non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

RESULTS OF OPERATIONS

Comparison of the Three Months Ending March 31, 2020 and 2019

Sales and Gross Profit. We earned no revenue and incurred no cost of goods sold during the quarter ended March 31, 2020, referred to herein as Q1 2020. We earned no revenues and incurred $1,000 in additional warranty costs for previously completed contracts during the three month period ending March 31, 2019, referred to herein as Q1 2019.

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Operating Expenses. Operating expenses, consisting of research and development (R&D) and general and administrative (G&A) expenses, decreased by approximately $413,000, or approximately 17%, to $1,963,000 for Q1 2020, as compared to $2,376,000 for Q1 2019. The Company decreased its R&D expenses by $92,000, or approximately 10%, to $810,000 for Q1 2020 as compared to $902,000 for Q1 2019. The decrease in R&D expenses was due primarily to decreased field testing and laboratory related costs. G&A expenses decreased by $321,000, or approximately 22%, to $1,153,000 in Q1 2020 as compared to $1,474,000 in Q1 2019, resulting primarily from a reduction of share-based compensation, consulting services and legal fees.

Loss from Operations. Our loss from operations decreased during Q1 2020 by $414,000, to $1,963,000 in Q1 2020 from $2,377,000 in Q1 2019.

Interest Income. Our interest income for Q1 2020 was $0 due to maturity of all short-term investments as compared to $48,000 in Q1 2019, which was earned on investments in U.S. Treasury bills.

Net Loss. Primarily as a result of decreased G&A and no gross loss, our net loss for Q1 2020 was $1,963,000 as compared to a net loss of $2,329,000 for Q1 2019, resulting in a decrease in net loss of $366,000.

Liquidity and Capital Resources

At March 31, 2020, our cash and cash equivalent balance totaled $7,084,000 compared to $8,552,000 at December 31, 2019, a decrease of $1,468,000 that resulted primarily from operating costs.

Based on our current plans, we do not have sufficient funds to continue operating our business at current levels for at least 12 months from the date of issuance of this report. In order to continue business operations beyond that point, we currently anticipate that we will need to raise additional capital. Our development and general administrative costs are ongoing and we expect to require additional funding to meet these expenses. To that end we may undertake offerings of our securities, debt financing, selling or licensing our developed intellectual or other property, or other alternatives. We filed a Form S-3 shelf registration statement with the Securities and Exchange Commission on June 27, 2019 that was declared effective on July 12, 2019. The registration statement allows us to offer common stock, preferred stock, warrants, subscription rights, debt securities and units from time to time as market conditions permit to fund the ongoing operations of the Company. Until the growth of revenue streams increases to a level that covers operating expenses it is the Company’s plan to continue to fund operations in this manner although, as noted above, the significant volatility in the capital markets relating to the ongoing spread of the coronavirus may negatively affect our ability to do so. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern.

At March 31, 2020, our current assets were in excess of current liabilities resulting in working capital of $6,062,000 compared to $7,684,000 at December 31, 2019. The decrease in working capital resulted primarily from the funds used in operations and invested in intangible assets.

Operating activities for the three months ended March 31, 2020 resulted in cash outflows of $1,390,000 which were due primarily to the loss for the period of $1,963,000. These were offset primarily by non-cash expenses of $58,000 and services paid with common stock and stock options of $145,000. Operating activities for the three months ended March 31, 2019 resulted in cash outflows of $2,022,000, which were due primarily to the loss for the period of $2,329,000. These were offset primarily by non-cash expenses of $26,000 and services paid with common stock and stock options of $236,000.

Investing activities for the three months ended March 31, 2020 resulted in cash outflows of $78,000 in disbursements for development of patents, compared to $145,000 in disbursements for patent development and $11,000 for the acquisition of fixed assets during the same period of 2019.

There were no net cash inflows from financing activities in the three months ended March 31, 2020 and 2019.

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Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company we are not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer (CEO) (principal executive officer) and our Chief Financial Officer (CFO) (principal financial and accounting officer), has concluded that, as of March 31, 2020, our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no material changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

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ITEM 1A. RISK FACTORS

We incorporate herein by reference the risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 which we filed with the Securities and Exchange Commission on March 30, 2020.

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

On March 31, 2020 we issued 2,500 shares of common stock, having a per share value of $1.03, the closing price of our common stock on October 30, 2019, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, Firm IR, for services provided in the three months ended March 31, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On May 8, 2020, the Company issued a Promissory Note (the “PPP Loan”) to Bank of America pursuant to the Paycheck Protection Program (the “PPP”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $250,832 from thePPP Loan. The PPP Loan is scheduled to mature on May 7, 2022, has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The PPP Loan may be prepaid by the Company at any time prior to its maturity with no prepayment penalties.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is computed using a formula based on a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases and certain qualified utility payments, provided that, among other things, at least 75% of the loan amount is used for eligible payroll costs and the employer maintains or rehires employees and maintains salaries at a certain level. In accordance with the requirements of the CARES Act and the PPP, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. There can be no assurance that the Company will be granted forgiveness of the PPP Loan in whole or in part.

The foregoing description does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the PPP Loan Promissory Note, a copy of which will be filed with the Company’s Quarterly Report on Form 10–Q for the quarterly period ended June 30, 2020.

ITEM 6. EXHIBITS

Exhibit Number	Document
3.1	Articles of Incorporation of Clearsign Technologies Corporation (1)
3.2	Bylaws (2)
3.2.1	Amendment to Bylaws (3)
4.1	Form of Common Stock Certificate (4)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer+
101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE	XBRL Instant Document* XBRL Taxonomy Extension Schema Document* XBRL Taxonomy Extension Calculation Linkbase Document* XBRL Taxonomy Extension Definition Linkbase Document* XBRL Taxonomy Extension Label Linkbase Document* XBRL Taxonomy Extension Presentation Linkbase Document*

*Filed herewith

+Furnished herewith

(1) Incorporated by reference from the registrant’s Form 10-Q for the quarter ended September 30, 2019 filed with the Securities and Exchange Commission on November 13, 2019.

(2) Incorporated by reference from the registrant’s registration statement on Form S-1, as amended, file number 333-177946, originally filed with the Securities and Exchange Commission on November 14, 2011.

(3) Incorporated by reference from the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2019.

(4) Incorporated by reference from the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2015.

22

SIGNATURES

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

	CLEARSIGN TECHNOLOGIES CORPORATION
	(Registrant)
Date: May 14, 2020	By:	/s/ Colin James Deller
		Colin James Deller
		Chief Executive Officer
	By:	/s/ Brian G. Fike
		Brian G. Fike
		Chief Financial Officer

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Colin James Deller, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Clearsign Technologies Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2020

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brian G. Fike, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Clearsign Technologies Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2020

/s/ Brian G. Fike

Brian G. Fike

Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of Clearsign Technologies Corporation (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), we, Colin James Deller, Chief Executive Officer (Principal Executive Officer) and Brian G. Fike, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:

(1)       The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Exchange Act, and

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: May 14, 2020

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer (Principal Executive Officer)

/s/ Brian G. Fike

Brian G. Fike

Chief Financial Officer (Principal Financial and Accounting Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Clearsign Technologies Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Fixed Assets

3 Months Ended

Mar. 31, 2020

Fixed Assets

Fixed Assets

Note 3 –  Fixed Assets

Fixed assets are summarized as follows:

	March 31,		December 31,
	2020		2019
	(unaudited)
Machinery and equipment	$	762,000	$	762,000
Office furniture and equipment		177,000		180,000
Leasehold improvements		149,000		149,000
Right of use asset-operating leases		1,140,000		1,140,000
Accumulated depreciation and amortization		(1,635,000)		(1,566,000)
	$	593,000	$	665,000

The Company has a triple net operating lease for office and laboratory space in Seattle, Washington that was to end in March 2020 with rent of approximately $12,000 per month plus triple net operating costs. The Company also has a triple net operating lease for office space in Tulsa, Oklahoma with a term that was to end in August 2019 and monthly rent of approximately $2,000 per month plus triple net operating costs. Both leases included lessee renewal options for three years at the then prevailing market rate. Effective as of July and August 2019, the Company exercised the option to renew both the Seattle lease and the Tulsa lease for three years. The new term of the Seattle lease began in April 2020 and rent will be abated for April and May 2020, although the Company will be responsible for its proportionate share of expenses and taxes. The Company will pay a monthly rent of approximately $13,500 beginning on June 1, 2020 through March 2021. The monthly rent will increase on the first day of April of each succeeding year by approximately 3% until the end of the term in May 2023. The rent  for the Tulsa lease is approximately $2,200 a month beginning September 2019 through August 2022 with an annual 2.5% increase. The Company has an operating lease for office space in Beijing, China through November 2020 with a monthly rent of approximately $6,000.

Lease costs for the three months ended March 31, 2020 and 2019 and other quantitative disclosures are as follows (unaudited):

	For the three months ended March 31,
	2020		2019
Lease cost:
Operating lease cost	$	62,000	$	59,000
Total lease cost	$	62,000	$	59,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	59,000
For operating lease:
Weighted average remaining lease term (in years)				2.92
Weighted average discount rate				7.17	%

Minimum future payments under the Company’s leases at March 31, 2020 and their application to the corresponding lease liabilities are as follows (unaudited):

	Discounted lease		Payments due under
	liability payments		lease agreements
2020 (remaining 9 months)	$	128,000	$	155,000
2021		169,000		193,000
2022		178,000		190,000
2023		71,000		73,000
Total	$	546,000	$	611,000

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies

Commitments and Contingencies

Note 7 – Commitments and Contingencies

On January 28, 2019 (the “Effective Date”), the Company and Colin James Deller entered into an employment agreement (the “Agreement”) pursuant to which the Company employed Dr. Deller as its President until April 1, 2019, at which time Dr. Deller became the Company’s Chief Executive Officer. Pursuant to the Agreement, the Company pays Dr. Deller an annual salary of $350,000. As an inducement to accept employment with the Company, Dr. Deller was also granted an option to purchase 400,000 shares of the Company’s common stock at an exercise price of $1.16 per share and an option to purchase 200,000 shares of the Company’s common stock at an exercise price of $2.25 per share. Each option has a term of 10 years and will vest as follows: the right to purchase one-third of the shares of common stock subject to the option vested on the Effective Date; the right to purchase one-third of the shares will vest on the first anniversary of the grant date; and the right to purchase one-third of the shares will vest on the second anniversary of the grant date. The Company also agreed to pay certain expenses, not to exceed the sum of $100,000, related to Dr. Deller’s move from Tulsa, Oklahoma to Seattle, Washington, including reasonable expenses related to the sale of his home in Tulsa. As a temporary adjustment for the difference in the cost of living between Tulsa and Seattle (the “Relocation Adjustment”), for a period of four years (the “Payment Period”) from the Effective Date, the Company has also agreed to pay up to $6,000 a month to Dr. Deller for expenses related to temporary housing and travel to and from Tulsa to Seattle. If Dr. Deller purchases a home in the Seattle area, the Relocation Adjustment will continue to be paid through the expiration of the Payment Period, although the Relocation Adjustment may be adjusted or terminated upon mutual agreement of Dr. Deller and the Company. The Agreement may be terminated by the Company for cause, as defined in the Agreement, due to Dr. Deller’s death or disability, upon 30 days’ notice to Dr. Deller or as a result of a change in control, as defined in the Agreement. With the exception of a termination for cause, if Dr. Deller’s employment is terminated by the Company, aside from accrued but unpaid salary, bonus (if any) and business expenses, Dr. Deller will receive the balance of the unpaid Relocation Adjustment and six months of his annual salary.

During the three months ended March 31, 2020 and 2019, the Company has paid Dr. Deller $12,000 and $5,000, respectively, in Relocation Adjustment payments to reimburse temporary housing costs.

Litigation

From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings.

Indemnification Agreements

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

COVID-19 Pandemic

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

XML

Patents and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Patents and Other Intangible Assets

Schedule of Patents and other intangible assets

Patents and other intangible assets are summarized as follows:

	March 31,		December 31,
	2020		2019
	(Unaudited)
Patents
Patents pending	$	857,000	$	846,000
Issued patents		676,000		619,000
		1,533,000		1,465,000
Trademarks
Trademarks pending		87,000		77,000
Registered trademarks		23,000		23,000
		110,000		100,000
Other		8,000		8,000
		1,651,000		1,573,000
Accumulated amortization		(325,000)		(288,000)
	$	1,326,000	$	1,285,000

Schedule of future amortization expense

Future amortization expense associated with issued patents and registered trademarks as of March 31, 2020 is estimated as follows (unaudited):

2020 (remaining 9 months)		109,000
2021		111,000
2022		83,000
2023		49,000
2024		22,000
	$	374,000

XML

Equity - Consultant Stock Plan (Details) - USD ($)	3 Months Ended		12 Months Ended	13 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Aug. 31, 2020	Aug. 31, 2019
Share-based compensation
Fair value of stock options issued for board service	$ 53,000
Consultant, Two
Share-based compensation
Shares issued for services (in shares)			10,000
Shares issued for services ($1.03 per share) (in shares)	$ 1.03
Stock Issued During Period Value Issued For Services Two	$ 10,000
Shares issued for services ($3.50 per share)	$ 10,000
Consultant Plan
Share-based compensation
Number of common stock reserved for issuance	253,417
Shares Reserved Unissued	187,667
Maximum increase in available number of authorized shares as a percentage of new shares issued	1.00%
Shares issued for services, $1.44 (in dollars per share)	$ 1.44
Fair value of stock options issued for board service	$ 14,000
Consultant Plan Expenses	$ 2,000	$ 3,000
Consultant Plan | Consultant, Two
Share-based compensation
Shares issued for services (in shares)				10,000
Consultant Plan | General and administrative
Share-based compensation
Shares expensed in period	2,500

XML

Sales, Contract Assets and Contract Liabilities (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cost of Goods and Services Sold		$ 1,000
Revenue from Contract with Customer, Including Assessed Tax	$ 0	0
Flare Projects [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 0	$ 0

XML

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Condensed Consolidated Statements of Operations
Sales	$ 0	$ 0
Cost of goods sold	0	1,000
Gross profit (loss)	0	(1,000)
Operating expenses:
Research and development, net of grants	810,000	902,000
General and administrative	1,153,000	1,474,000
Total operating expenses	1,963,000	2,376,000
Loss from operations	(1,963,000)	(2,377,000)
Other income:
Interest income		48,000
Net loss	(1,963,000)	(2,329,000)
Net loss attributed to noncontrolling interest	0	0
Net loss attributed to common stockholders	$ (1,963,000)	$ (2,329,000)
Net loss per share - basic and fully diluted	$ (0.07)	$ (0.09)
Weighted average number of shares outstanding - basic and fully diluted	26,707,288	26,697,289

XML

Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Cash Flow Noncash Operating Activities Disclosure [Abstract]
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures	444,161	159,100
Due to Officers or Stockholders, Current			$ 205,000	$ 100,000

XML

Summary of Significant Accounting Policies - Cash and Cash Equivalents (Details) - Mar. 31, 2020	CNY (¥)	USD ($)
Cash and Cash Equivalents [Line Items]
Cash, FDIC Insured Amount		$ 250,000
CHINA
Cash and Cash Equivalents [Line Items]
Cash, FDIC Insured Amount	¥ 500,000	$ 70,000

XML

Fixed Assets - Lease costs (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Lease cost:
Operating lease cost	$ 62,000	$ 59,000
Total lease cost	$ 62,000	59,000
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$ 59,000
For operating lease:
Weighted average remaining lease term (in years)		2 years 11 months 1 day
Weighted average discount rate		7.17%

XML

Organization and Description of Business

3 Months Ended

Mar. 31, 2020

Organization and Description of Business

Organization and Description of Business

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. Our patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and the 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, including the energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation. The Company is headquartered in Seattle, Washington and was incorporated in the state of Washington in 2008.   On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

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

Going Concern

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.The Company’s 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 a 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. The Company has incurred losses since its inception totaling $69,953,000 and expects to experience operating losses and negative cash flows for the foreseeable future. On January 15, 2020, the Company received a letter from The Nasdaq Stock Market advising that for 30 consecutive trading days preceding the date of the letter, the bid price of the Company's common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to listing rules, and therefore the Company could become subject to delisting if it did not regain compliance within the compliance period (or the compliance period as may be extended). Additionally, the outbreak of COVID-19 has caused significant disruptions to the global financial markets which could impact the Company's ability to raise additional capital.

Based on its current plans, the Company does not have sufficient funds to continue operating its business at current levels for at least 12 months from the date of issuance of these financial statements. In order to continue business operations, the Company currently anticipates that it will need to raise additional capital. Accordingly, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. 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 development and 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 plans as set forth above. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

XML

Condensed Consolidated Statements of Equity - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Stockholders' Equity	Noncontrolling Interest	Total
Balances at Dec. 31, 2018	$ 3,000	$ 76,417,000	$ (59,511,000)	$ 16,909,000	$ 0	$ 16,909,000
Balances (in shares) at Dec. 31, 2018	26,697,261
Shares issued for services ($1.44 per share)	$ 0	3,000	0	3,000	0	3,000
Shares issued for services ($1.44 per share) (in shares)	2,500
Fair value of stock options issued in payment of accrued compensation	$ 0	100,000	0	100,000	0	100,000
Share based compensation	0	233,000	0	233,000	0	233,000
Net loss	0	0	(2,329,000)	(2,329,000)	0	(2,329,000)
Balances at Mar. 31, 2019	$ 3,000	76,753,000	(61,840,000)	14,916,000	0	14,916,000
Balances (in shares) at Mar. 31, 2019	26,699,761
Balances at Dec. 31, 2019	$ 3,000	77,210,000	(67,990,000)	9,223,000	3,000	9,226,000
Balances (in shares) at Dec. 31, 2019	26,707,261
Shares issued for services ($1.03 per share)	$ 0	2,000	0	2,000	0	2,000
Shares issued for services ($1.03 per share) (in shares)	2,500
Fair value of stock options issued in payment of accrued compensation	$ 0	215,000	0	215,000		215,000
Fair value of stock options issued for board service	$ 0	53,000	0	53,000	0	53,000
Fair value of stock options issued for board service (in shares)	0
Share based compensation	$ 0	80,000	0	80,000	0	80,000
Net loss	0	0	(1,963,000)	(1,963,000)	0	(1,963,000)
Balances at Mar. 31, 2020	$ 3,000	$ 77,560,000	$ (69,953,000)	$ 7,610,000	$ 3,000	$ 7,613,000
Balances (in shares) at Mar. 31, 2020	26,709,761

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 14, 2020
Document and Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Registrant Name	CLEARSIGN TECHNOLOGIES CORP
Entity Central Index Key	0001434524
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		26,709,761
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Small Business	true

XML

Summary of Significant Accounting Policies - Contract Acquisition Costs and Practical Expedients (Details)	3 Months Ended
	Mar. 31, 2020
Summary of Significant Accounting Policies
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract [true false]	true

XML

Fixed Assets - Summary (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Fixed Assets
Machinery and equipment	$ 762,000	$ 762,000
Office furniture and equipment	177,000	180,000
Leasehold improvements	149,000	149,000
Right of use asset-operating leases	1,140,000	1,140,000
Accumulated depreciation and amortization	(1,635,000)	(1,566,000)
Property, Plant and Equipment, Net, Total	$ 593,000	$ 665,000

XML

Fixed Assets (Tables)

3 Months Ended

Mar. 31, 2020

Fixed Assets

Summary of Fixed Assets

Fixed assets are summarized as follows:

	March 31,		December 31,
	2020		2019
	(unaudited)
Machinery and equipment	$	762,000	$	762,000
Office furniture and equipment		177,000		180,000
Leasehold improvements		149,000		149,000
Right of use asset-operating leases		1,140,000		1,140,000
Accumulated depreciation and amortization		(1,635,000)		(1,566,000)
	$	593,000	$	665,000

Schedule Of Leases Cost

Lease costs for the three months ended March 31, 2020 and 2019 and other quantitative disclosures are as follows (unaudited):

	For the three months ended March 31,
	2020		2019
Lease cost:
Operating lease cost	$	62,000	$	59,000
Total lease cost	$	62,000	$	59,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	59,000
For operating lease:
Weighted average remaining lease term (in years)				2.92
Weighted average discount rate				7.17	%

Schedule of minimum future payments

Minimum future payments under the Company’s leases at March 31, 2020 and their application to the corresponding lease liabilities are as follows (unaudited):

	Discounted lease		Payments due under
	liability payments		lease agreements
2020 (remaining 9 months)	$	128,000	$	155,000
2021		169,000		193,000
2022		178,000		190,000
2023		71,000		73,000
Total	$	546,000	$	611,000

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

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, 2019 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of 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 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 ASC 606, Narrow Scope Improvements and Practical Expedients, and expenses those costs when incurred; for contracts with a life exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company generally expenses sales commissions when earned. The Company records those costs within general and administrative expenses.

Product Warranties

The Company warrants all installed products against defects in materials and workmanship 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 which is insured up to $70,000  (500,000RMB). The Company has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

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

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

Fair Value of Financial Instruments

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

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

· 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.

During the three months ended March 31, 2019, the Company received $108,000 to partially fund specific research and development activity relating to its ECC technology. Since these funds were provided without expectation of reciprocation, except notification of research results, the funds received were offset against the related research and development costs incurred. There were no such funds received by the Company during the three months ended March 31, 2020.

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 consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. 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.

Foreign Operations

The accompanying consolidated financial statements as of March 31, 2020 and December 31, 2019 include assets amounting to approximately $81,000 and $151,000, respectively, relating to operations of the Company in China. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations , and since the end of January 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

The functional currency of ClearSign Asia Limited is the U.S. dollar. The Company remeasures the transactions denominated in Chinese Yuan at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures ClearSign Asia Limited’s monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income (expense), net in the consolidated statements of operations. Foreign currency exchange gain (loss) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

Noncontrolling Interest

The subsidiary of the Company has a minority shareholder representing an ownership interest of 1.00% at March 31, 2020. The Company accounts for this noncontrolling interest pursuant to ASC 810-10-65 whereby gains and losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance.

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2020 and 2019, potentially dilutive shares outstanding amounted to 2,643,470 and 1,516,540, respectively.

Recently Adopted Accounting Pronouncements

In November 2018 FASB issued ASU 2018-18, Topic 808 Collaborative Arrangements. The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: (1) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements; (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606; (3) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this standard did not have material effect on the company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

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.

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Equity

3 Months Ended

Mar. 31, 2020

Equity

Equity

Note 6 –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.

Equity Incentive Plan

The Company has adopted and the Company’s shareholders have approved the Clearsign Technologies 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 March 31, 2020, the number of shares of common stock reserved for issuance under the Plan totaled 4,005,339. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 15% 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.

During the three months ended March 31, 2020, the Company granted stock options for the purchase of an aggregate 444,161 shares of common stock to its employees from the Plan. These were awarded in lieu of cash for 2019 bonuses and the expense was recorded during the year ended December 31, 2019.  The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	5.00	years
Weighted average volatility	72	%
Forfeiture rate	15	%
Weighted average risk-free interest rate	1.63	%
Expected dividend rate	0	%

Outstanding stock option awards at March 31, 2020 and December 31, 2019 totaled 2,563,470 shares and 2,131,058 shares, respectively, with the right to purchase 2,147,348 shares and 1,461,073 shares being vested and exercisable at March 31, 2020 and December 31, 2019, respectively. The recognized compensation expense associated with stock option awards for the three months ended March 31, 2020 and 2019 totaled $80,000 and $126,000, respectively. On March 31, 2020 the number of shares reserved under the Plan but unissued totaled 849,990. At March 31, 2020, there was $239,000 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 1 year. The intrinsic value of outstanding stock options was $0 at March 31, 2020.

On April 1, 2020, the Company awarded from the Plan to certain directors stock options for the purchase of 94,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2020. The stock options have an exercise price based on the grant date fair value, which was $0.72, with a contractual life of 10 years.  Share-based compensation related to this grant of $53,000 was recognized in the three months ended March 31, 2020.

Consultant Stock Plan

The Company has a Consultant Stock Plan (the “Consultant Plan”) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive awards from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on March 31, 2020 totaled 253,417 with 187,667 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. The Company granted 10,000 shares of common stock to a consultant under the Consultant Plan for contracted services performed during the period from August 13, 2018 to August 31, 2019. The fair value of the stock at the time of grant was $1.44 per share for a total value of $14,000,which the Company recognized on a quarterly pro-rated basis for 2,500 shares in general and administrative expense. The contract was renewed and the consultant was granted an additional 10,000 shares for services to be performed from September 1, 2019 through August 31, 2020. The fair value of the stock at the time of grant was $1.03 per share for a total value of $10,000, which the Company is recognizing on a quarterly pro-rated basis for 2,500 shares in general and administrative expense. The Consultant Plan expense for the three months ended March 31, 2020 and 2019 was $2,000 and $3,000, respectively.

Inducement Stock Options

Pursuant to the rules of The Nasdaq Stock Market, the Company has the ability to issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. These awards need not be granted from a plan approved by the Company’s shareholders. During the three months ending March 31, 2019 the Company granted options for the purchase of  600,000 shares of common stock to its President and Chief Executive Officer as an inducement to accept the Company’s offer of employment. (see Note 7). The stock options have exercise prices at the award date fair value ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and vest over 2 years. An option to purchase 258,618 shares of common stock was issued from the Company’s 2011 Equity Incentive Plan and is accounted for with the stock options described above. Non-qualified stock options covering the remaining 341,382 shares of common stock were issued from the Company’s reserve of authorized but unissued shares of common stock. The fair value of the non-qualified stock options estimated on the date of grant using the Black-Scholes option valuation model was $176,000.  The recognized compensation expense associated with these awards for the three months ended March 31,2020 and 2019 was $13,000 and $59,000, respectively. The remaining unrecognized compensation expense associated with these awards is $52,000.

Warrants

At March 31, 2020, warrants for the purchase of 80,000 shares of common stock at an exercise price of $1.80 per share were outstanding and had a remaining life of 0.88 years.

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Equity - Incentive Stock Options - Valuation assumptions (Details) - Inducement Stock Options [Member] - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Share-based compensation
Contractual life	10 years
Vesting period	2 years
Fair value of options granted (in dollars)	$ 176,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	52,000
Compensation expense	$ 13,000	$ 59,000
Minimum [Member]
Share-based compensation
Exercise price (in dollars per share)	$ 1.16
Maximum [Member]
Share-based compensation
Exercise price (in dollars per share)	$ 2.25
Stock Option [Member] | Chief Executive Officer [Member]
Share-based compensation
Granted (in shares)		600,000
2011 Equity Incentive Plan [Member]
Share-based compensation
Granted (in shares)	258,618
Non-Qualified Stock Option [Member]
Share-based compensation
Granted (in shares)	341,382

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Equity - Common Stock and Preferred Stock (Details)	Mar. 31, 2020 shares
Equity
Common stock, authorized shares	62,500,000
Preferred stock, authorized shares	2,000,000

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Equity (Tables)

3 Months Ended

Mar. 31, 2020

Equity Incentive Plan [Member]

Schedule of weighted-average assumptions used in calculation of fair value of stock options

The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	5.00	years
Weighted average volatility	72	%
Forfeiture rate	15	%
Weighted average risk-free interest rate	1.63	%
Expected dividend rate	0	%

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Summary of Significant Accounting Policies - Fixed Assets and Leases (Details) - Leasehold Improvements [Member]	3 Months Ended
	Mar. 31, 2020
Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	P2Y
Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	P4Y

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Fixed Assets - Minimum future payments (Details)	Mar. 31, 2020 USD ($)
Payments Due Under Lease Agreement [Member]
2020 (remaining 9 months)	$ 155,000
2021	193,000
2022	190,000
2023	73,000
Total	611,000
Discounted Lease Liabilities Payments [Member]
2020 (remaining 9 months)	128,000
2021	169,000
2022	178,000
2023	71,000
Total	$ 546,000

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Condensed Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities:
Net loss	$ (1,963,000)	$ (2,329,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services	2,000	3,000
Share based compensation	143,000	233,000
Depreciation and amortization	58,000	70,000
Accrued interest income	0	(44,000)
Change in operating assets and liabilities:
Prepaid expenses and other assets	57,000	45,000
Accounts payable and accrued liabilities	213,000	42,000
Accrued compensation and taxes	100,000	(42,000)
Net cash used in operating activities	(1,390,000)	(2,022,000)
Cash flows from investing activities:
Acquisition of fixed assets	0	(11,000)
Disbursements for patents and other intangible assets	(78,000)	(145,000)
Net cash used in investing activities	(78,000)	(156,000)
Net used in cash and cash equivalents	(1,468,000)	(2,178,000)
Cash and cash equivalents, beginning of period	8,552,000	8,949,000
Cash and cash equivalents, end of period	$ 7,084,000	$ 6,771,000

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares issued	26,709,761	26,707,261
Common stock, shares outstanding	26,709,761	26,707,261

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Commitments and Contingencies (Details) - USD ($)		3 Months Ended
	Jan. 28, 2019	Mar. 31, 2020	Mar. 31, 2019
Loss Contingencies [Line Items]
Relocation Expenses		$ 12,000	$ 5,000
Employment Agreement [Member]
Loss Contingencies [Line Items]
Salary and Wage, Excluding Cost of Good and Service Sold	$ 350,000
Labor and Related Expense	$ 100,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Remaining Contractual Term	10 years
Employment Early Termination Living Allowance Per Month	$ 6,000
Payment period	4 years
Termination notification period	30 days
Salary payment period, early termination	6 months
Employment Agreement [Member] | Share-based Compensation Award, Tranche One [Member]
Loss Contingencies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	33.33%
Employment Agreement [Member] | Share-based Compensation Award, Tranche Two [Member]
Loss Contingencies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	33.33%
Employment Agreement [Member] | Share-based Compensation Award, Tranche Three [Member]
Loss Contingencies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	2 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	33.33%
Employment Agreement [Member] | Exercise Price $1.16 per share [Member] | Share-based Compensation Award, Tranche One [Member]
Loss Contingencies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number	400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price	$ 1.16
Employment Agreement [Member] | Exercise Price $2.25 per share [Member] | Share-based Compensation Award, Tranche Two [Member]
Loss Contingencies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number	200,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price	$ 2.25

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Equity - Equity Incentive Plan Assumptions (Details) - Equity Incentive Plan [Member]	3 Months Ended
	Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	5 years
Weighted average volatility	72.00%
Forfeiture rate	15.00%
Weighted average risk-free interest rate	1.63%
Expected dividend rate	0.00%

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Patents and Other Intangible Assets - Future amortization expense (Details)	Mar. 31, 2020 USD ($)
Patents and Other Intangible Assets
2020 (remaining 9 months)	$ 109,000
2021	111,000
2022	83,000
2023	49,000
2024	22,000
Finite-Lived Intangible Assets, Net	$ 374,000

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Patents and Other Intangible Assets

3 Months Ended

Mar. 31, 2020

Patents and Other Intangible Assets

Patents and Other Intangible Assets

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	March 31,		December 31,
	2020		2019
	(Unaudited)
Patents
Patents pending	$	857,000	$	846,000
Issued patents		676,000		619,000
		1,533,000		1,465,000
Trademarks
Trademarks pending		87,000		77,000
Registered trademarks		23,000		23,000
		110,000		100,000
Other		8,000		8,000
		1,651,000		1,573,000
Accumulated amortization		(325,000)		(288,000)
	$	1,326,000	$	1,285,000

Future amortization expense associated with issued patents and registered trademarks as of March 31, 2020 is estimated as follows (unaudited):

2020 (remaining 9 months)		109,000
2021		111,000
2022		83,000
2023		49,000
2024		22,000
	$	374,000

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Subsequent Events

3 Months Ended

Mar. 31, 2020

Subsequent Events

Subsequent Events

Note 8 – Subsequent Events

On May 8, 2020, the Company issued a Promissory Note (the "PPP Loan") to Bank of America pursuant to the Paycheck Protection Program (the "PPP") under the recently enacted Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by the U.S. Small Business Administration (the “SBA”). The Company received total proceeds of $250,832 from the PPP Loan. The PPP Loan is scheduled to mature on May 7, 2022, has an interest rate of 1.00% per annum and is subject to the terms and conditions applicable to loans administered by the SBA under the CARES Act. The PPP Loan may be prepaid by the Company at any time prior to its maturity with no prepayment penalties.

The PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the PPP Loan may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the PPP. The amount of loan proceeds eligible for forgiveness is computed using a formula based on a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes, including payroll costs, rent payments on certain leases and certain qualified utility payments, provided that, among other things, at least 75% of the loan amount is used for eligible payroll costs and the employer maintains or rehires employees and maintains salaries at a certain level. In accordance with the requirements of the CARES Act and the PPP, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs.  There can be no assurance that the Company will be granted forgiveness of the PPP Loan in whole or in part.

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:

· our history of losses;

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

· our limited operating history;

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

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

· customer demand for the products and services we develop;

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

· our ability to manufacture any products we design;

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

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

· our ability to obtain adequate financing in the future;

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

· our ability to continue as a going concern;

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

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

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

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

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Equity - Equity Incentive Plan (Details) - USD ($)		3 Months Ended
	Apr. 01, 2020	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Share-based compensation
Warrants and Rights Remaining Term		1 year
Warrants Intrinsic Value Outstanding		$ 0
Inducement Stock Options [Member]
Share-based compensation
Allocated Share-based Compensation Expense		13,000	$ 59,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized		$ 52,000
Contractual life		10 years
Inducement Stock Options [Member] | Minimum [Member]
Share-based compensation
Exercise price (in dollars per share)		$ 1.16
Equity Incentive Plan [Member]
Share-based compensation
Number of common stock reserved for issuance		4,005,339
Maximum increase in available number of authorized shares as a percentage of new shares issued		15.00%
Reserved but unissued shares under the Plan, beginning of year	444,161
Reserved but unissued shares under the Plan, end of period (in shares)		444,161
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan				2,131,058
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number		2,147,348		1,461,073
Allocated Share-based Compensation Expense		$ 80,000	$ 126,000
Shares Reserved Unissued		849,990
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized		$ 239,000
Stock options awards for directors	94,500
Exercise price (in dollars per share)	$ 0.72
Contractual life	10 years
Share based compensation grants		53,000
Equity Incentive Plan [Member] | Inducement Stock Options [Member]
Share-based compensation
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan		2,563,470

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Patents and Other Intangible Assets - Summary (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Patents	$ 1,533,000	$ 1,465,000
Trademarks	110,000	100,000
Other	8,000	8,000
Patents and other intangible assets	1,651,000	1,573,000
Accumulated amortization	(325,000)	(288,000)
Finite-Lived Intangible Assets, Net	1,326,000	1,285,000
Patents Pending [Member]
Patents	857,000	846,000
Issued Patents [Member]
Patents	676,000	619,000
Trademarks Pending [Member]
Trademarks	87,000	77,000
Registered Trademarks [Member]
Trademarks	$ 23,000	$ 23,000

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Equity - Warrants - Exercise price and average life (Details) - Exercise Price 1.80 [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Warrants
Warrants Exercise Price (in dollars per share) | $ / shares	$ 1.80
Warrants Outstanding (in shares) | shares	80,000
Warrant Outstanding, Remaining Life	10 months 17 days

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Sales, Contract Assets and Contract Liabilities

3 Months Ended

Mar. 31, 2020

Sales, Contract Assets and Contract Liabilities

Sales, Contract Assets and Contract Liabilities

Note 5 – Sales, Contract Assets and Contract Liabilities

The Company recognized no revenue during the three months ended March 31, 2020 and 2019. The Company did not record any cost of goods sold for the three months ended March 31, 2020 and recorded $1,000 for the three months ended March 31, 2019 related to additional warranty costs incurred for previously completed contracts.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Summary of Significant Accounting Policies

Basis of Presentation

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, 2019 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Sales

Revenue Recognition and Cost of Sales

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

Contract Acquisition Costs and Practical Expedients

For contracts that have a duration of less than one year, the Company follows ASC 606, Narrow Scope Improvements and Practical Expedients, and expenses those costs when incurred; for contracts with a life exceeding one year, the Company records those costs when performance obligations related to the contract are completed. The Company generally expenses sales commissions when earned. The Company records those costs within general and administrative expenses.

Product Warranties

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

Cash and Cash Equivalents

Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. Cash is maintained with a commercial bank where accounts are generally guaranteed by the Federal Deposit Insurance Corporation up to $250,000. The Company’s deposits may at times exceed this limit. The Company also maintains a cash balance in China which is insured up to $70,000  (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 and Allowance for Doubtful Accounts

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

Fixed Assets and Leases

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 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

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

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

Fair Value 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

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.

During the three months ended March 31, 2019, the Company received $108,000 to partially fund specific research and development activity relating to its ECC technology. Since these funds were provided without expectation of reciprocation, except notification of research results, the funds received were offset against the related research and development costs incurred. There were no such funds received by the Company during the three months ended March 31, 2020.

Income Taxes

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 consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. 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.

Foreign Operations

Foreign Operations

The accompanying consolidated financial statements as of March 31, 2020 and December 31, 2019 include assets amounting to approximately $81,000 and $151,000, respectively, relating to operations of the Company in China. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations , and since the end of January 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

Foreign Currency

The functional currency of ClearSign Asia Limited is the U.S. dollar. The Company remeasures the transactions denominated in Chinese Yuan at the average exchange rate in effect during the period. At the end of each reporting period, the Company remeasures ClearSign Asia Limited’s monetary assets and liabilities to the U.S. dollar using exchange rates in effect at the end of the reporting period. The Company remeasures its non-monetary assets and liabilities at historical exchange rates. The Company records gains and losses related to remeasurement in other income (expense), net in the consolidated statements of operations. Foreign currency exchange gain (loss) has not been significant in any period presented and the Company has not undertaken any hedging transactions related to foreign currency exposure.

Noncontrolling Interest

Noncontrolling Interest

The subsidiary of the Company has a minority shareholder representing an ownership interest of 1.00% at March 31, 2020. The Company accounts for this noncontrolling interest pursuant to ASC 810-10-65 whereby gains and losses in a subsidiary with a noncontrolling interest are allocated to the noncontrolling interest based on the ownership percentage of the noncontrolling interest, even if that allocation results in a deficit noncontrolling interest balance.

Net Loss per Common Share

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2020 and 2019, potentially dilutive shares outstanding amounted to 2,643,470 and 1,516,540, respectively.

Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2018 FASB issued ASU 2018-18, Topic 808 Collaborative Arrangements. The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: (1) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements; (2) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606; (3) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this standard did not have material effect on the company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

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.

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Subsequent Events (Details) - Subsequent events - PPP Loan - USD ($)	May 08, 2020	May 07, 2022
Subsequent Event [Line Items]
Proceeds from loan	$ 250,832
Interest rate (as a percent)		1.00%
Prepayment penalties	$ 0

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Fixed Assets - Operating Lease (Details)	3 Months Ended
	Mar. 31, 2020 USD ($)
Monthly rent expense	$ 13,500
Renewal option term	3 years
Lessee, Operating Lease, Existence of Option to Extend [true false]	true
Monthly rent expense, increase (in percent)	3.00%
Operating Leases, Rent Expense	$ 2,200
Annual rent expense, increase (in percent)	2.50%
Washington
Monthly rent expense	$ 12,000
Oklahoma
Monthly rent expense	2,000
CHINA
Monthly rent expense	$ 6,000

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Organization and Description of Business (Details)	Jan. 15, 2020 D $ / shares	Jul. 20, 2018 USD ($)	Feb. 27, 2018 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Organization and Description of Business
Proceeds from Issuance of Common Stock		$ 11,600,000	$ 11,900,000
Accumulated deficit				$ (69,953,000)	$ (67,990,000)
Number of consecutive trading days | D	30
Share Price | $ / shares	$ 1.00

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Summary of Significant Accounting Policies - Other (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Variable Interest Entity [Line Items]
Weighted Average Number of Shares Outstanding, Diluted	2,643,470	1,516,540
Tax Benefits Recognized (in Percent)	50.00%
Assets	$ 9,386,000		$ 10,942,000
Funds Received	0	$ 108,000
CHINA
Variable Interest Entity [Line Items]
Assets	$ 81,000		$ 151,000

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Condensed Consolidated Statements of Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Condensed Consolidated Statements of Equity
Common stock for services per share issue one	$ 1.03	$ 1.44

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Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Current Assets:
Cash and cash equivalents	$ 7,084,000	$ 8,552,000
Contract assets	39,000	39,000
Prepaid expenses and other assets	334,000	391,000
Total current assets	7,457,000	8,982,000
Fixed assets, net	593,000	665,000
Patents and other intangible assets, net	1,326,000	1,285,000
Other assets	10,000	10,000
Total Assets	9,386,000	10,942,000
Current Liabilities:
Accounts payable and accrued liabilities	1,056,000	845,000
Current portion of lease liabilities	168,000	177,000
Accrued compensation and taxes	121,000	226,000
Contract liabilities	50,000	50,000
Total current liabilities	1,395,000	1,298,000
Long Term Liabilities:
Long term lease liabilities	378,000	418,000
Total liabilities	1,773,000	1,716,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding	0	0
Common stock, $0.0001 par value, 26,709,761 and 26,707,261 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	3,000	3,000
Additional paid-in capital	77,560,000	77,210,000
Accumulated deficit	(69,953,000)	(67,990,000)
Total stockholders' equity	7,610,000	9,223,000
Noncontrolling Interest	3,000	3,000
Total equity	7,613,000	9,226,000
Total Liabilities and Equity	$ 9,386,000	$ 10,942,000