10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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 ⌧ No ☐

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ⌧	Smaller reporting company ☒
	Emerging growth company ☐

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

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

As of August 19, 2021, the issuer has 31,482,454 shares of common stock, par value $0.0001, issued and outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Unaudited Condensed Consolidated Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	3
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three month periods during the six months ended June 30, 2021 and 2020	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	SIGNATURES	30

2

PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign Technologies Corporation and Subsidiary

Consolidated Balance Sheets

(Unaudited)

	June 30,		December 31,
	2021		2020
ASSETS
Current Assets:
Cash and cash equivalents	$	10,642,000	$	8,824,000
Contract assets		108,000		92,000
Prepaid expenses and other assets, net		547,000		466,000
Total current assets		11,297,000		9,382,000
Fixed assets, net		676,000		427,000
Patents and other intangible assets, net		1,296,000		1,302,000
Other assets		10,000		10,000
Total Assets	$	13,279,000	$	11,121,000
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	448,000	$	435,000
Current portion of lease liabilities		198,000		169,000
Accrued compensation and taxes		390,000		382,000
Contract liabilities		48,000		94,000
Total current liabilities		1,084,000		1,080,000
Long Term Liabilities:
Long term lease liabilities		454,000		249,000
Payroll protection program loan		—		251,000
Total liabilities		1,538,000		1,580,000
Commitments and contingencies (Note 7)
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		—		—
Common stock, $0.0001 par value, 31,479,454 and 30,077,436 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		3,000		3,000
Additional paid-in capital		90,923,000		84,411,000
Accumulated deficit		(79,185,000)		(74,874,000)
Total stockholders' equity		11,741,000		9,540,000
Noncontrolling Interest		—		1,000
Total equity		11,741,000		9,541,000
Total Liabilities and Stockholders' Equity	$	13,279,000	$	11,121,000

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

3

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Sales	$	—	$	—	$	363,000	$	—
Cost of goods sold		505,000		(153,000)		730,000		(153,000)
Gross profit (loss)		(505,000)		153,000		(367,000)		153,000
Operating expenses:
Research and development, net of grants		472,000		418,000		1,298,000		1,228,000
General and administrative		1,565,000		1,171,000		2,898,000		2,324,000
Total operating expenses		2,037,000		1,589,000		4,196,000		3,552,000
Loss from operations		(2,542,000)		(1,436,000)		(4,563,000)		(3,399,000)
Other income:
Gain on forgiveness of debt		251,000		—		251,000		—
Other income		—		44,000		—		44,000
Interest income		—		1,000		—		1,000
Net loss		(2,291,000)		(1,391,000)		(4,312,000)		(3,354,000)
Net loss attributed to non-controlling interest		1,000		1,000		—		1,000
Net loss attributed to common stockholders	$	(2,290,000)	$	(1,390,000)	$	(4,312,000)	$	(3,353,000)
Net loss per share - basic and fully diluted	$	(0.07)	$	(0.05)	$	(0.14)	$	(0.13)
Weighted average number of shares outstanding - basic and fully diluted		31,314,816		26,712,294		30,922,871		26,709,791

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

4

ClearSign Technologies Corporation and Subsidiary

Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the Three Month Periods During The Six Months Ended June 30, 2021 and 2020

					Additional				Total
	Common Stock				Paid-In		Accumulated		Stockholders'		Noncontrolling		Total
	Shares		Amount		Capital		Deficit		Equity		Interest		Equity
Balances at December 31, 2020		30,077,436	$	3,000	$	84,411,000	$	(74,874,000)	$	9,540,000	$	1,000	$	9,541,000
Shares issued upon exercise of options ($1.90 per share)		1,250		—		2,000		—		2,000		—		2,000
Shares issued upon exercise of options ($3.80 per share)		9,375		—		36,000		—		36,000		—		36,000
Shares issued upon exercise of options ($1.21 per share)		3,000		—		4,000		—		4,000				4,000
Shares issued upon exercise of warrants ($1.80 per share)		37,500		—		67,000		—		67,000		—		67,000
Fair value of stock options issued for board service		—		—		210,000		—		210,000		—		210,000
Fair value of stock issued in payment of accrued compensation		64,439		—		217,000		—		217,000		—		217,000
Share based compensation		—		—		410,000		—		410,000		—		410,000
Shares issued through the use of At-The Market issuance		940,748		—		4,469,000		—		4,469,000		—		4,469,000
Proceeds receivable from At-The Market issuance		—		—		(1,076,000)		—		(1,076,000)		—		(1,076,000)
Shares issued for services ($2.33 per share)		3,750		—		9,000		—		9,000		—		9,000
Net loss		—		—		—		(2,021,000)		(2,021,000)		—		(2,021,000)
Balances at March 31, 2021		31,137,498		3,000		88,759,000		(76,895,000)		11,867,000		1,000		11,868,000
Shares issued upon exercise of options ($3.10 per share)		17,378		—		54,000		—		54,000		—		54,000
Shares issued upon exercise of options ($0.89 per share)		42,316		—		36,000		—		36,000		—		36,000
Shares issued upon exercise of options ($1.85 per share)		3,200		—		6,000		—		6,000		—		6,000
Shares issued upon exercise of options ($1.21 per share)		94,660		—		72,000		—		72,000		—		72,000
Shares issued upon exercise of options ($0.98 per share)		22,648		—		—		—		—		—		—
Shares issued upon exercise of options ($2.93 per share)		6,182		—		—		—		—		—		—
Fair value of stock options issued for board service		—		—		52,000		—		52,000		—		52,000
Share based compensation		—		—		19,000		—		19,000		—		19,000
Shares issued through the use of At-The Market issuance		151,822		—		1,916,000		—		1,916,000		—		1,916,000
Shares issued for services ($2.33 per share)		3,750		—		9,000		—		9,000		—		9,000
Net loss								(2,290,000)		(2,290,000)		(1,000)		(2,291,000)
Balances at June 30, 2021		31,479,454	$	3,000	$	90,923,000	$	(79,185,000)	$	11,741,000	$	—	$	(11,741,000)

5

				Additional				Total
	Common Stock			Paid-In		Accumulated		Stockholders'		Noncontrolling		Total
	Shares	Amount		Capital		Deficit		Equity		Interest		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
Shares issued for services ($1.03 per share)	2,500		—		3,000		—		3,000		—		3,000
Shares issued upon exercise of stock options ($1.90 per share)	5,000		—		10,000		—		10,000		—		10,000
Shares issued upon exercise of stock options ($.89 per share)	14,000		—		12,000		—		12,000		—		12,000
Fair value of stock options issued for board service	—		—		34,000		—		34,000		—		34,000
Share based compensation	—		—		61,000		—		61,000		—		61,000
Net loss	—		—		—		(1,390,000)		(1,390,000)		(1,000)		(1,391,000)
Balances at June 30, 2020	26,731,261	$	3,000	$	77,680,000	$	(71,343,000)	$	6,340,000	$	2,000	$	6,342,000

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

6

ClearSign Technologies Corporation and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(4,312,000)	$	(3,354,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		18,000		5,000
Share based compensation		691,000		238,000
Depreciation and amortization		92,000		108,000
Estimated losses on contracts		574,000		—
Gain on forgiveness of Payroll Protection Program loan		(251,000)		—
Change in operating assets and liabilities:
Contract assets		(590,000)		(28,000)
Prepaid expenses and other assets		(81,000)		(137,000)
Accounts payable and accrued liabilities		6,000		(144,000)
Accrued compensation and taxes		225,000		277,000
Contract liabilities		(46,000)		(2,000)
Net cash used in operating activities		(3,674,000)		(3,037,000)
Cash flows from investing activities:
Acquisition of fixed assets		(25,000)		—
Disbursements for patents and other intangible assets		(69,000)		(116,000)
Net cash used in investing activities		(94,000)		(116,000)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		5,309,000		—
Proceeds from exercise of stock options and warrants		277,000		22,000
Proceeds from Payroll Protection Program loan				251,000
Net cash provided by financing activities		5,586,000		273,000
Net change in cash and cash equivalents		1,818,000		(2,880,000)
Cash and cash equivalents, beginning of period		8,824,000		8,552,000
Cash and cash equivalents, end of period	$	10,642,000	$	5,672,000

Supplemental disclosure of non-cash operating activities:

During the six months ended June 30, 2021, the Company issued stock options to purchase a total of 64,439 shares of common stock to its officers and employees in satisfaction of $217,000 of accrued compensation at December 31, 2020.

During the year ended December 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.

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

7

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 ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include, 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.

Liquidity

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

The Company has historically financed its operations primarily through issuances of equity securities, including $5.5 million in gross proceeds raised from its At-The-Market stock in which the Company issued a total of 1,092,570 shares of common stock at an average price of $5.03 per share during the six months ended June 30, 2021. Cost associated with the offering totaled approximately $190,000 and the Company received net cash proceeds approximating $5.3 million.

The Company has incurred losses since its inception totaling $79,185,000 and expects to experience operating losses and negative cash flows for the foreseeable future. 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.

Management believes that the successful growth and operation of the Company’s 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 product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

8

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, 2020 has been derived from the Company’s audited financial statements as of that date.

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, 2020. 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized in accordance with ASC 606 in accordance with the non-refundable performance obligations which are laid out in each sales order.

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 the projects can be recorded as revenue. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

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 were 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 incurred. The Company records those costs within general and administrative expenses.

9

Product Warranties

The Company warrants all installed products against defects in materials and workmanship, and shortcomings in performance compared to contractual guarantees for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of our 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 accounts payable and accrued liabilities in the unaudited condensed consolidated 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 $76,000 (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 lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis.

10

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.

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.

11

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 unaudited condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 include assets amounting to approximately $110,000 and $103,000, 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 first quarter of 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

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 June 30, 2021. 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 the loss to common stockholders in aggregate 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 June 30, 2021 and 2020, potentially dilutive shares outstanding amounted to 3,309,651 and 2,755,744, respectively.

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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Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	June 30,		December 31,
	2021		2020
Machinery and equipment	$	720,000	$	720,000
Office furniture and equipment		180,000		180,000
Leasehold improvements		186,000		149,000
Right of use asset-operating leases		1,234,000		1,024,000
		2,320,000		2,073,000
Accumulated depreciation and amortization		(1,644,000)		(1,657,000)
		676,000		416,000
Construction in progress		—		11,000
	$	676,000	$	427,000

The Company has a triple net operating lease for office and laboratory space in Seattle, Washington with a term that initially ended 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 initially ended 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 options 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 included rent abatement for April and May 2020, although the Company was responsible for its proportionate share of expenses and taxes. For the period beginning on June 1, 2020 through March 2021, the Company paid a monthly rent of approximately $13,500 and, beginning on April 1, 2021, paid a monthly rent of approximately $13,900. 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 was approximately $2,300 per month through August 2022 with an annual 2.5% increase. However, in January 2021, the lease was amended for a larger office space in the same building. The amended lease terms commenced in April 2021, and expires in September 2027. The new rent amount for the Tulsa lease will be approximately $5,100 a month 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. It was renewed through May 2022, and is being treated as a short term lease with a monthly rent of approximately $4,500.

Lease costs for the three and six months ended June 30, 2021 and 2020 and other quantitative disclosures are as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2021		2020			2021		2020
Lease cost:
Operating lease cost	$	50,000	$	61,000		$	123,000	$	96,000
Short-term lease cost		14,000		—			—		19,000
Total lease cost	$	64,000	$	61,000		$	123,000	$	115,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	124,000
For operating lease:
Weighted average remaining lease term (in years)				4.31
Weighted average discount rate				5.94	%

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Minimum future payments under the Company’s leases at June 30, 2021 and their application to the corresponding lease liabilities are as follows:

	Discounted lease		Payments due under
	liability payments		lease agreements
2021 (remaining 6 months)	$	96,000	$	114,000
2022		207,000		233,000
2023		122,000		136,000
2024		54,000		65,000
2025		59,000		66,000
Thereafter		114,000		118,000
Total	$	652,000	$	732,000

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	June 30,		December 31,
	2021		2020
Patents
Patents pending	$	795,000	$	731,000
Issued patents		883,000		883,000
		1,678,000		1,614,000
Trademarks
Trademarks pending		111,000		105,000
Registered trademarks		23,000		23,000
		134,000		128,000
Other		8,000		8,000
		1,820,000		1,750,000
Accumulated amortization		(524,000)		(448,000)
	$	1,296,000	$	1,302,000

Future amortization expense associated with issued patents and registered trademarks as of June 30, 2021 is estimated as follows (unaudited):

2021 (remaining 6 months)		76,000
2022		125,000
2023		91,000
2024		63,000
2025		27,000
	$	382,000

Note 5 – Sales, Contract Assets and Contract Liabilities

The Company recognized no revenue during the three months ended June 30, 2021 and $363,000 during the six months ended June 30, 2021 from the completion and delivery of a multi burner product contract with an infrastructure company. There was no revenue during the three and six months ended June 30, 2020.

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During the three and six months ended June 30, 2021, the Company recognized cost of goods sold of $505,000 and $730,000 respectively. Cost of sales during the three months ended June 30, 2021 consisted of $556,000 in estimated losses on two contracts that the Company anticipates will show losses upon completion. This was offset by adjustments totaling $35,000 related to the reversal of an accrual for product warranty that expired on a completed project from the year 2018 and $16,000 in adjustments for residual cost accruals. Cost of sales during the six months ended June 30, 2021 consisted of cost of goods sold of $250,000, including a $36,000 warranty accrual, recorded upon completion of the burner contract and $574,000 in estimated losses on two contracts that the Company anticipates will show losses upon completion. The recognized cost of goods sold was offset by adjustments totaling $86,000 related to the reversals of accruals for product warranties that expired on four completed projects from the year 2018 and $8,000 in adjustments for residual cost accruals. The Company recognized an adjustment to cost of goods sold totaling $153,000 during the three and six months ended June 30, 2020 representing the reversal of accruals for product warranties that expired on six completed projects from years 2016 and 2017.

The Company had contract assets of $108,000 and $92,000 and contract liabilities of $48,000 and $94,000 at June 30, 2021 and December 31, 2020, respectively.

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.

During the six months ended June 30, 2021, the Company issued common stock pursuant to our At-The-Market Offering Sales Agreement, dated December 23, 2020, with Virtu Americas LLC, as sales agent pursuant to which it may sell shares of common stock with an aggregate offering price of up to $15,000,000 (the “ATM”). As of June 30, 2021, the Company had sold 1,092,570 shares of our common stock under the ATM program, at an average price of $5.03 per share. Gross proceeds totaled approximately $5.5 million and net cash proceed was approximately $5.3 million.

Equity Incentive Plan

On June 17, 2021 the Company’s shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “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 June 30, 2021 the number of shares of common stock reserved for issuance under the Plan totaled 3,125,466 plus 3,381,369 shares of common stock subject to issued and outstanding awards under the 2011 Equity Incentive Plan (“2011 Plan”), which expired in January 2021.

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During the six months ended June 30, 2021, the Company granted stock options for the purchase of an aggregate 885,000 shares of common stock to employees from the 2011 Plan. 80,000 of these options were awarded for 2020 bonuses in lieu of cash and the expense of $192,000 was recorded during the year ended December 31, 2020. The remaining 805,000 options were awarded during the six months ended June 30, 2021 with vesting dependent on the achievement of certain performance objectives. The fair values of these options totaled $1.9 million. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Employee Awards	2021
Expected life	5.75	years
Weighted average volatility	94	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	0.47	%
Expected dividend rate	0	%

Outstanding stock option awards at June 30, 2021 and December 31, 2020 totaled 3,309,651 shares and 2,697,119 shares, respectively, with the right to purchase 2,518,403 shares and 2,379,752 shares being vested and exercisable at June 30, 2021 and December 31, 2020, respectively. The recognized compensation expense associated with stock option awards for the three and six months ended June 30, 2021 and 2020 totaled $19,000 and $429,000 and $48,000 and $115,000 respectively. At June 30, 2021, there was $182,000 of total unrecognized compensation cost related to performance incentive awards that are probable of vesting and another $1.3 million in performance incentive awards that are currently deemed as not probable of vesting related to share based compensation arrangements awarded under the prior Plan. The cost of the awards in which vesting was assessed as probable is expected to be recognized over a weighted average period of 1 year. Awards for which vesting was assessed as not probable will be reassessed at the end of each reporting period. The intrinsic value of outstanding stock options was $8.1 million at June 30, 2021.

The Company’s directors are compensated solely in stock option awards for services rendered in the first quarter of 2021. In addition to being compensated for their services as directors, individual directors are also compensated for committee membership, for services as a committee chair and for services as a lead director. On January 22, 2021 and July 28, 2021, the Company awarded from the Plan to certain directors’ stock options for the purchase of 79,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2021. The stock options have an exercise price based on the grant date fair value, which was $3.97 for 62,500 shares and $4.15 for 17,000 shares. All of the options have a contractual life of 10 years. The recognized compensation expense associated with director stock option awards for the three and six months ended June 30, 2021 and 2020 totaled $52,000 and $262,000 and $34,000 and $87,000, respectively. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Director Awards	2021
Weighted average expected life	8.93	years
Weighted average volatility	90	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	1.02	%
Expected dividend rate	0	%

Restricted Stock Units

On July 28, 2021, the Company approved compensation for board service to be paid to its independent directors in restricted stock units (“RSUs”) that will be awarded from the 2021 Plan.  Such compensation will be on a quarterly basis beginning in the second quarter of 2021 through the end of 2021.  For second quarter services, the fair value of the RSUs aggregated to $84,000, which was recorded in general and administrative expense and accounts payable and accrued liabilities as of and for the three months ended June 30, 2021. The quantity of these RSUs issued will be determined using the closing price of the Company’s common stock two days after its second quarter 10-Q is filed.

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Stock Grants

During the six months ended June 30, 2021, the Company issued 64,439 shares of common stock with a fair value of $3.37 per share to its employees. These shares were issued for payment of 2020 bonuses in lieu of cash and the expense of $217,000 was recorded during the year ended December 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 June 30, 2021 totaled 297,719 with 215,719 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, 2019 to 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 recognized on a quarterly pro-rated basis as to 2,500 shares in general and administrative expense. The contract was renewed, and the consultant was granted an additional 15,000 shares for services performed from September 1, 2020 through August 31, 2021. The fair value of the stock at the time of grant was $2.33 per share for a total value of $35,000, which the Company is recognizing 3,750 shares in general and administrative expense on a quarterly pro-rated basis. The Consultant Plan expense for the three and six months ended June 30, 2021 and 2020 was $9,000 and $18,000, and $3,000 and $5,000 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. In January, 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 with fair values ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and that vest over 2 years. Of these options to purchase 600,000 shares of common stock, an option to purchase 258,618 shares of common stock was issued from the 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 each of the three and six months ended June 30, 2021 and 2020 was $0 and $13,000 and $13,000 and $26,000, respectively. There is no remaining unrecognized compensation expense associated with these awards.

Warrants

During the six months ended June 30, 2021, 37,500 warrants were redeemed at an exercise price of $1.80 per share and 42,500 expired. As of June 30, 2021 the Company had no warrants outstanding for the purchase of shares of common stock.

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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 six months ended June 30, 2021 and 2020, the Company has paid Dr. Deller $16,000 and $18,000, 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 or claims that the Company believes will have a material adverse effect on our business, financial condition or operating results.

Indemnification Agreements

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

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.

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Note 8 - The Paycheck Protection Program (PPP) Loan

On May 8, 2020, the Company obtained a loan in the amount of $250,832 (the “PPP loan”) from Bank of America (the “Lender”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economics Security Act (the “CARES Act”) that was signed into law in March 2020. In accordance with the PPP, the Company was permitted to use the PPP loan proceeds to fund designated expenses, including certain payroll costs, rent, utilities, and other permitted expenses. The PPP loan was evidenced by a promissory note, dated effective May 1, 2020, issued by the Company to the Lender. The PPP loan was unsecured with a 2-year term, matures on May 7, 2022, and bore interest at a rate of 1.00% per annum. The Company submitted an application with the SBA for forgiveness in January 2021. Payments under this note have been deferred by the bank until the forgiveness status of the loan is ascertained. During the first half of 2021, the Company received documentation from the Small Business Administration stating that this loan had been forgiven in full. As a result, the Company recorded a $251,000 gain on forgiveness of this loan during the three and six months ended June 30, 2021.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may,” “will” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers, and technologies; future performance or results of any products; anticipated expenses; and future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to:

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

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

● the impact of a cybersecurity incident or other technology disruption;

● our ability to protect our intellectual property;

● our ability to obtain adequate financing in the future;

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

● 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 to support our operations;

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

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

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

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

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

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

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

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 $79,185,000 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 $84.0 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 and particularly in the company share price may negatively affect our ability to do so.

Our operations in China have been impacted by the severity of the COVID-19 pandemic, which has prevented our USA based employees other than our President of ClearSign Asia from visiting the country. This has delayed progress on our product development and product demonstration and certification programs there and we do not know how long these delays will continue.

In addition to our own work, the work of our partners and suppliers has been, and continues to be affected resulting in delays to the delivery of materials and services, and has resulted in delays to our projects.

It is not possible at this time to estimate the full impact that the coronavirus pandemic will have on our business or on our potential customers, suppliers, or other business partners. However, the continued spread of the coronavirus, the measures taken by the governments of affected countries, actions taken to protect employees, the limitations placed on travel and border crossings, and the impact of the pandemic on various business activities in affected countries could adversely impact our operational results and financial condition.

In order to generate meaningful revenues, our technologies must 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 we will be successful in achieving our long-term plans, or that such plans, if consummated, will result in profitable operations or enable us to continue in the long-term as a going concern.

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Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for research, costs associated with development activities including materials, sub-contractors, the rental of test equipment and operating personnel, travel and administration, legal and accounting expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly traded technology company. We currently have 14 full-time employees. Because using third party expertise and resources is more efficient than maintaining full time resources, we also expect to incur ongoing consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current 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 sufficient future sales to sustain operations.  If the net proceeds from these offerings are insufficient for this purpose, we will consider other options to continue our path to commercialization, including, but not limited to, additional financing through follow-on equity offerings, debt financing, co-development agreements, sale or licensing of developed intellectual or other property, or other alternatives.

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

Critical Accounting Policies

The following discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations 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.

Revenue Recognition and Cost of Goods Sold. The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized in accordance with ASC 606 and in accordance with the non-refundable performance obligations which are laid out in each sales order.

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The Company’s contracts generally include progressive 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, the projects can be recorded as revenue. For any contract in connection with which the Company is expected to incur costs in excess of the contact price, the Company accrues the estimated loss in full in the period such determination is made.

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, and performance in accordance with operational guarantees, for a period specified in each contract by replacing failed or improperly performing 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 our 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 accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

Research and Development. The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share-based compensation, 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 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.

The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable, accrued expenses and short-term investments in government securities. As of the balance sheet date, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the 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 and Six Months Ended June 30, 2021 and 2020

Sales and Gross Profit.

The Company recognized no revenue during the three months ended June 30, 2021 and $363,000 during the six months ended June 30, 2021, from the completion and delivery of product under a multi burner supply contract with an infrastructure company. There was no revenue during the three and six months ended June 30, 2020.

24

The Company recorded cost of goods sold for the three months ended June 30, 2021 of $505,000 and ($153,000) for three months ended June 30, 2020. The Company recorded cost of goods sold of $730,000 during the six month period ended June 30, 2021 compared to ($153,000) for the six month period ended June 30, 2020. The cost of goods sold for the three and six months ended June 30 2021 predominantly resulted from the final stage optimization and preliminary demonstration of our process burner technology for the ExxonMobil technology validation project. The negative costs of goods sold for the three and six months ended June 30, 2020 of ($153,000) resulted from reversals of accruals for product warranties that expired during Q2 2020.

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

R&D expenses increased $54,000 or approximately 13% to $472,000 for the three-month period ended June 30, 2021 as compared to $418,000 for the three month period ended June 30, 2020. R&D expenses for the six month period ended June 30, 2021 were $1,298,000 as compared to $1,228,000 for the six month period ended June 30, 2020 an increase of $70,000 or approximately 6%. This was mainly due to expenditures necessary for the commercialization of our fire tube boiler burner technology and included cost to fabricate and install a 125hp production burner in a demonstration and rental boiler in California with our collaborative partner California Boiler.

G&A expenses increased by $394,000, or approximately 34% to $1,565,000 in the three-month period ended June 30, 2021 as compared to $1,171,000 in the three-month period ended June 30, 2020, G&A expenses increased by $574,000 or approximately 25% to $2,898,000 for the six month period ended June 30, 2021 as compared to $2,324,000 for the six month period ended June 30, 2020. This increase was due to a combination of changes in the valuation of equity based director compensation and option based employee incentive awards, increased fees for professional services associated with the need for temporary professional staff and recruitment costs to enhance our finance function and aid the upcoming transition to a Tulsa based team, and increases in office rent and corporate insurance premiums. Both the three month and six month periods ended June 2021 also include the severance accrual of $100,000 related to the separation agreement signed by Mr. Fike, our CFO.

Net Loss. Primarily as a result of increased operating expenses, our net loss for the three-month period ended June 30, 2021 was $2,291,000 as compared to a net loss of $1,391,000 for the three month period ended June 30, 2020, resulting in an increase in net loss of $900,000 or approximately 65%. Net loss for the six-month period ended June 30, 2021 was $4,312,000 compared to $3,354,000 for the six month period ended June 30, 2020. This increase is a combination of the increase to our operating expense, and costs of goods sold as described above.

Liquidity and Capital Resources

At June 30, 2021, our cash and cash equivalent balance totaled $10,642,000 compared to $8,824,000 at December 31, 2020, an increase of $1,818,000. This increase is primarily from sales of common stock pursuant to an At-The-Market (“ATM”) public offering. During the three month period ended June 30, 2021, we sold 151,822 shares of our common stock under the ATM program at an average price of $5.65 per share, resulting in total gross proceeds of approximately $900,000 and net cash proceeds of approximately $840,000. As of June 30, 2021, we sold an aggregate of 1,092,570 shares of our common stock under the ATM program. Total gross proceeds of $5.5 million was raised at an average price of $5.03 per share under the ATM program during the six month period ended June 30, 2021. As of June 30, 2021, costs associated with the offering totaled approximately $0.2 million and the Company received net cash proceeds approximating $5.3 million.

25

Based on our current plans, we 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.

At June 30, 2021, our current assets were in excess of current liabilities resulting in working capital of $10,213,000 compared to $8,302,000 at December 31, 2020. The increase in working capital is primarily from approximately $5.3 million in net proceeds we received from the ATM offering of 1,092,570 shares of our common stock at an average price of $5.03 per share during the six months ended June 30, 2021. Additionally, the Company also received approximately $277,000 from the exercise of option awards during the six months ended June 30, 2021.

Operating activities for the six months ended June 30, 2021 resulted in cash outflows of $3,674,000 which was due primarily to the loss for the period of $4,312,000. The cash outflows were offset primarily by non-cash expense and losses of $666,000 and services paid with common stock and stock options of $709,000. Operating activities for the six months ended June 30, 2020 resulted in cash outflows of $3,037,000 which were due primarily to the loss for the period of $3,354,000. The cash outflows were offset primarily by non-cash expense of $108,000 and services paid with common stock and stock options of $243,000.
​

Investing activities for the six months ended June 30, 2021 resulted in cash outflows of $94,000 in disbursements for purchases of fixed assets and development of patents, compared to $116,000 in disbursements for development patents during the same period of 2020.

Financing activities for the six months ended June 30, 2021 resulted in cash inflows of approximately $5.3 million in net proceeds we received from the issuance of common stock through our ATM program. Additionally, the Company received approximately $277,000 from the exercise of outstanding stock options and warrants during the six months ended June 30, 2021. Financing activities for the six months ended June 30, 2020 resulted in cash inflows of $251,000 from PPP loan funding and $22,000 in proceeds from exercise of stock options.

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 our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

26

Changes in Internal Controls over Financial Reporting

Our management, with the participation of our Chief Executive Officer (CEO) (principal executive officer) and Interim Chief Financial Officer (CFO) (principal financial and accounting officer), has assessed and concluded that, as of June 30, 2021, a material weakness exists in the Company’s internal control over financial reporting related to the ability to record transactions in the accounting records and preparation of financial statements that are in compliance with U.S. Generally Accepted Accounting Principles (“US GAAP”). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statement will not be prevented or detected on a timely basis. Management arrived at such conclusion after numerous adjustments were recorded after the close of the Company’s books of record and preparation of the financial statements. These adjustments related to misstatements of prepaid and accrued expenses, stock-based compensation, revenue contracts, and construction in progress assets.

Management’s Remediation Initiatives

In response to the above identified weaknesses in our internal control over financial reporting, we are taking the following remediation measures:

● We have reassessed and are continuing to reassess our accounting procedures and, as part of the financial reporting process, are implementing the use of supplementary checklists as well as conducting additional reviews and evaluations of transactions to improve the accuracy and reliability of our financial information.

● We are adding appropriate resources to ensure that such procedures are implemented and adequate reviews are performed.

Our CEO, along with other key members of management, are and will be active participants in these remediation processes and such processes will be subject to audit committee oversight. We believe these steps will improve the effectiveness of our internal control over financial reporting. In addition, as our CFO recently passed away, we are actively engaged in hiring a new CFO and controller both of whom will continue to strengthen and oversee the evolution of our procedures. While we plan to take the above steps to remediate these weaknesses, we cannot assure you that we will be able to fully remediate them, which could impair our ability to accurately and timely meet our public company reporting requirements.

PART II-OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

ITEM 1A.RISK FACTORS

Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission (SEC) are descriptions of certain risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also adversely affect our business. 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, 2020 which we filed with the Securities and Exchange Commission on March 31, 2021 and the risk factors included in the reports and other documents we filed with the Securities and Exchange Commission subsequent to that date.

27

We have identified a material weakness in our internal control over financial reporting for the quarterly period ended June 30, 2021 as described above in Item 4 Controls and Procedures.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the Nasdaq Capital Market. Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow our management to report on the effectiveness of our internal control over financial reporting.

We are in the process of designing and implementing measures to remediate the underlying causes of the control deficiencies that gave rise to the material weakness by use of supplementary checklists and as conducting additional reviews and evaluations of transactions to improve the accuracy and reliability of our financial information. The Company additionally plans to add appropriate resources to ensure that such procedures are implemented and adequate reviews are performed. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate. Maintaining effective internal controls has been and will continue to be costly and may divert management’s attention.

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

On June 30, 2021, we issued 3,750 shares of common stock, having a per share value of $2.33, the closing price of our common stock on November 5, 2020, 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 June 30, 2021. These shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transaction by an issuer not involving any public offering.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

28

ITEM 6.EXHIBITS

Exhibit
Number	Document
3.1	Articles of Incorporation of ClearSign Technologies Corporation (1)
3.2	Bylaws, as amended (2)
10.1*,**	Letter Agreement dated April 20, 2021 by and between the Company and Brian G. Fike
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Interim Chief Financial Officer
32.1+	Section 1350 Certification of Chief Executive Officer and Interim Chief Financial Officer+
101.INS*	Inline XBRL Instant Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Linkbase Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

+Furnished herewith

**Agreement with management or compensatory plan or arrangement

(1) Incorporated by reference from the 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 Form 10-Q for the quarter ended September 30, 2020 filed with the Securities and Exchange Commission on November 13, 2020.

29

SIGNATURES

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

		CLEARSIGN TECHNOLOGIES CORPORATION
Date: August 20, 2021	By:	/s/ Colin James Deller
		Colin James Deller
		Chief Executive Officer and Interim Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

30

EX-10.1

Exhibit 10.1

ClearSign Technologies Corp.

Dear Brian,

This letter confirms our discussion regarding your planned resignation from ClearSign Technologies Corporation that is set to occur on December 3, 2021. We value your commitment to ClearSign Technologies, and we hope that you will stay with us to continue your work and help effectuate a smooth transition of your responsibilities. To encourage you to do just that, we will offer you a separation agreement on your last day worked under the following conditions:

1. Over the transition period from now until December 3, 2021, you will continue to devote your best professional efforts, time, and skill to perform all of the responsibilities associated with your current position. In exchange, ClearSign Technologies will continue to provide all of the regular pay and benefits that you currently receive for the duration of your employment.

2. If you remain our employee through December 3, 2021, or some other date as may be mutually agreed, ClearSign Technologies will provide you with a severance payment approximately equivalent to six (6) weeks of pay at your current pay rate, subject to standard payroll deductions and withholdings, in exchange for you signing a separation agreement that will include a waiver and release of claims in addition to other provisions. The separation agreement will be provided to you on your last day worked in accordance with the terms below.

3. To facilitate the transition of your work, you will document the current procedures for all key elements of your work, including but not limited to: quarterly closings, payroll, 10-Q and 10- K completion and filings, proxy statement and AGM procedures, Auditor engagement, and any other processes or procedures deemed necessary to your current position. Upon successful completion of this transition work, ClearSign Technologies will add $77,000 to your severance payment described above and will vest up to 15,000 unearned stock options. As described above with respect to the base severance payment, this additional severance payment and vesting are likewise contingent on you signing the separation agreement that will include a waiver and release of claims.

4. If ClearSign Technologies terminates your employment for cause at any point before December 3, 2021, you will not be offered the separation agreement or any severance payment on your last day worked and you will only be entitled to pay through your last day worked. Termination would be for cause if - after receiving at least one warning - you fail to adequately perform all of the responsibilities of your position or violate a company policy or law.

5. Despite the above reference to termination for cause, you are still an at-will employee, which means that you or ClearSign Technologies may terminate your employment for no reason and with no notice. Under those circumstances, you will only be entitled to pay through your last day worked. If we terminate you without cause or you voluntarily resign prior to December 3, 2021, however, we will still offer you the separation agreement including the base severance payment described in paragraph 2 above on your last day worked. You will not receive the additional severance payment or vesting described in paragraph 3 above, however, unless the transition work is complete and your employment continues through December 3, 2021, or some other date as may be mutually agreed.

6. If either of us have any dispute that needs to be resolved regarding the terms of this agreement, we agree to resolve our dispute under Washington law, through binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. If

that happens, we each agree to cover our own expenses, including costs and attorneys' fees, but ClearSign Technologies will pay for the arbitrator.

If you decide to stay with us through this transition period, please sign below to indicate your understanding and agreement to the above terms for receipt of the separation agreement. So we can plan for the transition period, we will need to receive your signed agreement by April 26th, 2021. Thank you for your continued commitment to ClearSign Technologies.

Sincerely,

Jim Deller

Accepted and Agreed:

/s/ Brian G. Fike	April 20, 2021
Brian G. Fike	Date

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: August 20, 2021

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer (Principal Executive Officer, Interim 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 June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I Colin James Deller, Chief Executive Officer (Principal Executive Officer) and {should this be interim Principal Financial and Accounting Officer?}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: August 20, 2021

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer (Principal Executive Officer, Interim 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

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2021	Aug. 19, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity Registrant Name	CLEARSIGN TECHNOLOGIES CORPORATION
Entity File Number	001-35521
Entity Incorporation, State or Country Code	WA
Entity Tax Identification Number	26-2056298
Entity Address, Address Line One	12870 Interurban Avenue South
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98168
City Area Code	206
Local Phone Number	673-4848
Title of 12(b) Security	Common Stock
Trading Symbol	CLIR
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		31,482,454
Entity Central Index Key	0001434524
Document Fiscal Year Focus	2021
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Current Assets:
Cash and cash equivalents	$ 10,642,000	$ 8,824,000
Contract assets	108,000	92,000
Prepaid expenses and other assets, net	547,000	466,000
Total current assets	11,297,000	9,382,000
Fixed assets, net	676,000	427,000
Patents and other intangible assets, net	1,296,000	1,302,000
Other assets	10,000	10,000
Total Assets	13,279,000	11,121,000
Current Liabilities:
Accounts payable and accrued liabilities	448,000	435,000
Current portion of lease liabilities	198,000	169,000
Accrued compensation and taxes	390,000	382,000
Contract liabilities	48,000	94,000
Total current liabilities	1,084,000	1,080,000
Long Term Liabilities:
Long term lease liabilities	454,000	249,000
Payroll protection program loan	0	251,000
Total liabilities	1,538,000	1,580,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding	0	0
Common stock, $0.0001 par value, 31,137,498 and 30,077,436 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	3,000	3,000
Additional paid-in capital	90,923,000	84,411,000
Accumulated deficit	(79,185,000)	(74,874,000)
Total stockholders' equity	11,741,000	9,540,000
Noncontrolling Interest	0	1,000
Total equity	11,741,000	9,541,000
Total Liabilities and Stockholders' Equity	$ 13,279,000	$ 11,121,000

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
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	31,479,454	30,077,436
Common stock, shares outstanding	31,479,454	30,077,436

XML

Condensed Consolidated Statements of Operations - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Condensed Consolidated Statements of Operations
Sales	$ 0	$ 0	$ 363,000	$ 0
Cost of goods sold	505,000	153,000	730,000	153,000
Gross profit (loss)	(505,000)	153,000	(367,000)	153,000
Operating expenses:
Research and development, net of grants	472,000	418,000	1,298,000	1,228,000
General and administrative	1,565,000	1,171,000	2,898,000	2,324,000
Total operating expenses	2,037,000	1,589,000	4,196,000	3,552,000
Loss from operations	(2,542,000)	(1,436,000)	(4,563,000)	(3,399,000)
Other income:
Other income		44,000		44,000
Gain on forgiveness of debt	251,000		251,000
Interest income		1,000		1,000
Net loss	(2,291,000)	(1,391,000)	(4,312,000)	(3,354,000)
Net loss attributed to noncontrolling interest	(1,000)	(1,000)		(1,000)
Net loss attributed to common stockholders	$ (2,290,000)	$ (1,390,000)	$ (4,312,000)	$ (3,353,000)
Net loss per share - basic and fully diluted	$ (0.07)	$ (0.05)	$ (0.14)	$ (0.13)
Weighted average number of shares outstanding - basic and fully diluted	31,314,816	26,712,294	30,922,871	26,709,791

XML

Consolidated Statements of Stockholders' Equity - USD ($)	Stockholders' Equity	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Noncontrolling Interest	Total
Balance at the beginning of the year at Dec. 31, 2019	$ 9,223,000	$ 3,000	$ 77,210,000	$ (67,990,000)	$ 3,000	$ 9,226,000
Balances (in shares) at Dec. 31, 2019		26,707,261
Fair value of stock options issued for board service	53,000	$ 0	53,000	0	0	53,000
Fair value of stock options issued for board service (in shares)		0
Fair value of stock options issued in payment of accrued compensation	215,000	$ 0	215,000	0	0	215,000
Fair value of stock options issued in payment of accrued compensation (in shares)		0
Shares issued for services ($1.03 per share)	2,000	$ 0	2,000	0	0	2,000
Shares issued for services ($1.03 per share) (in shares)		2,500
Share Based Compensation	80,000	$ 0	80,000	0	0	80,000
Net loss	(1,963,000)	0	0	(1,963,000)	0
Net Loss						(1,963,000)
Balance at the end of the year at Mar. 31, 2020	7,610,000	$ 3,000	77,560,000	(69,953,000)	3,000	7,613,000
Balances (in shares) at Mar. 31, 2020		26,709,761
Balance at the beginning of the year at Dec. 31, 2019	9,223,000	$ 3,000	77,210,000	(67,990,000)	3,000	9,226,000
Balances (in shares) at Dec. 31, 2019		26,707,261
Net loss						(3,353,000)
Balance at the end of the year at Jun. 30, 2020	6,340,000	$ 3,000	77,680,000	(71,343,000)	2,000	6,342,000
Balances (in shares) at Jun. 30, 2020		26,731,261
Balance at the beginning of the year at Mar. 31, 2020	7,610,000	$ 3,000	77,560,000	(69,953,000)	3,000	7,613,000
Balances (in shares) at Mar. 31, 2020		26,709,761
Shares issued for services ($1.90 per share)	10,000	$ 0	10,000	0	0	10,000
Shares issued for services ($1.90 per share) (in shares)		5,000
Fair value of stock options issued for board service	34,000	$ 0	34,000	0	0	34,000
Fair value of stock options issued for board service (in shares)		0
Shares issued for services ($1.03 per share)	3,000	$ 0	3,000	0	0	3,000
Shares issued for services ($1.03 per share) (in shares)		2,500
Share Based Compensation	61,000	$ 0	61,000	0	0	61,000
Shares issued for services ($0.89 per share)	12,000	$ 0	12,000	0	0	12,000
Shares issued for services ($0.89 per share) (in Shares)		14,000
Net loss	(1,390,000)	$ 0	0	(1,390,000)	(1,000)	(1,390,000)
Net Loss						(1,391,000)
Balance at the end of the year at Jun. 30, 2020	6,340,000	$ 3,000	77,680,000	(71,343,000)	2,000	6,342,000
Balances (in shares) at Jun. 30, 2020		26,731,261
Balance at the beginning of the year at Dec. 31, 2020	9,540,000	$ 3,000	84,411,000	(74,874,000)	1,000	9,541,000
Balances (in shares) at Dec. 31, 2020		30,077,436
Shares issued for services ($1.90 per share)	2,000	$ 0	2,000	0	0	2,000
Shares issued for services ($1.90 per share) (in shares)		1,250
Shares issued for services ($3.80 per share)	36,000	$ 0	36,000	0	0	36,000
Shares issued for services ($3.80 per share) (in shares)		9,375
Shares issued for services ($1.21 per share)	4,000	$ 0	4,000	0		4,000
Shares issued for services ($1.21 per share) (in shares)		3,000
Shares issued upon exercise of warrants ($1.80 per share)	67,000	$ 0	67,000	0	0	67,000
Shares issued upon exercise of warrants ($1.80 per share) (in shares)		37,500
Fair value of stock options issued for board service	210,000	$ 0	210,000	0	0	210,000
Fair value of stock options issued for board service (in shares)		0
Fair value of stock options issued in payment of accrued compensation	217,000	$ 0	217,000	0	0	217,000
Fair value of stock options issued in payment of accrued compensation (in shares)		64,439
Share Based Compensation	410,000	$ 0	410,000	0	0	410,000
Shares issued through the use of At-The Market issuance	4,469,000	$ 0	4,469,000	0	0	4,469,000
Shares issued through the use of At-The Market issuance (in shares)		940,748
Proceeds receivable from At-The Market issuance	(1,076,000)	$ 0	(1,076,000)	0	0	(1,076,000)
Proceeds receivable from At-The Market issuance (in Shares)		0
Shares issued for services ($2.33 per share)	9,000	$ 0	9,000	0	0	9,000
Shares issued for services ($2.33 per share) (in Shares)		3,750
Net loss	(2,021,000)	$ 0	0	(2,021,000)	0
Net Loss						(2,021,000)
Balance at the end of the year at Mar. 31, 2021	11,867,000	$ 3,000	88,759,000	(76,895,000)	1,000	11,868,000
Balances (in shares) at Mar. 31, 2021		31,137,498
Balance at the beginning of the year at Dec. 31, 2020	9,540,000	$ 3,000	84,411,000	(74,874,000)	1,000	9,541,000
Balances (in shares) at Dec. 31, 2020		30,077,436
Net loss						(4,312,000)
Balance at the end of the year at Jun. 30, 2021	11,741,000	$ 3,000	90,923,000	(79,185,000)	0	11,741,000
Balances (in shares) at Jun. 30, 2021		31,479,454
Balance at the beginning of the year at Mar. 31, 2021	11,867,000	$ 3,000	88,759,000	(76,895,000)	1,000	11,868,000
Balances (in shares) at Mar. 31, 2021		31,137,498
Shares issued for services ($1.21 per share)	72,000	$ 0	72,000	0	0	72,000
Shares issued for services ($1.21 per share) (in shares)		94,660
Fair value of stock options issued for board service	52,000	$ 0	52,000	0	0	52,000
Fair value of stock options issued for board service (in shares)		0
Share Based Compensation	19,000	$ 0	19,000	0	0	19,000
Shares issued through the use of At-The Market issuance	1,916,000	$ 0	1,916,000	0	0	1,916,000
Shares issued through the use of At-The Market issuance (in shares)		151,822
Shares issued for services ($2.33 per share)	9,000	$ 0	9,000	0	0	9,000
Shares issued for services ($2.33 per share) (in Shares)		3,750
Shares issued for services ($3.10 per share)	54,000	$ 0	54,000	0	0	54,000
Shares issued for services ($3.10 per share) (in Shares)		17,378
Shares issued for services ($0.89 per share)	36,000	$ 0	36,000	0	0	36,000
Shares issued for services ($0.89 per share) (in Shares)		42,316
Shares issued for services ($1.85 per share)	6,000	$ 0	6,000	0	0	6,000
Shares issued for services ($1.85 per share) (in Shares)		3,200
Shares issued for services ($0.98 per share)	0	$ 0	0	0	0	0
Shares issued for services ($0.98 per share) (in Shares)		22,648
Shares issued for services ($2.93 per share)	0	$ 0	0	0	0	0
Shares issued for services ($2.93 per share) (in Shares)		6,182
Net loss	(2,290,000)			(2,290,000)	(1,000)	(2,290,000)
Net Loss						(2,291,000)
Balance at the end of the year at Jun. 30, 2021	$ 11,741,000	$ 3,000	$ 90,923,000	$ (79,185,000)	$ 0	$ 11,741,000
Balances (in shares) at Jun. 30, 2021		31,479,454

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Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020
Consolidated Statements of Stockholders' Equity
Common stock for services per share issue one		$ 1.90	$ 1.03	$ 1.03
Common Stock For Services Per Share Issue Two			1.90
Common stock for services per share issue three		3.80
Common stock for services per share issue four	$ 1.21	1.21
Common stock for services 3.10 per share issue	3.10
Common stock for services 0.89 per share issue	0.89		$ 0.89
Common stock for services 1.85 per share issue	1.85
Common stock for services 0.98 per share issue	0.98
Common stock for services 2.93 per share issue	2.93
Shares issued upon exercise of options one (per share)		1.80
Shares issued for services - per share	$ 2.33	$ 2.33

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Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net loss	$ (4,312,000)	$ (3,354,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services	18,000	5,000
Share based compensation	691,000	238,000
Depreciation and amortization	92,000	108,000
Estimated losses on contracts	574,000	0
Gain on forgiveness of Payroll Protection Program loan	(251,000)	0
Change in operating assets and liabilities:
Contract assets	(590,000)	(28,000)
Prepaid expenses and other assets	(81,000)	(137,000)
Accounts payable and accrued liabilities	6,000	(144,000)
Accrued compensation and taxes	225,000	277,000
Contract liabilities	(46,000)	(2,000)
Net cash used in operating activities	(3,674,000)	(3,037,000)
Cash flows from investing activities:
Acquisition of fixed assets	(25,000)	0
Disbursements for patents and other intangible assets	(69,000)	(116,000)
Net cash used in investing activities	(94,000)	(116,000)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs	5,309,000	0
Proceeds from exercise of stock options and warrants	277,000	22,000
Proceeds from Payroll Protection Program loan		251,000
Net cash provided by financing activities	5,586,000	273,000
Net change in cash and cash equivalents	1,818,000	(2,880,000)
Cash and cash equivalents, beginning of period	8,824,000	8,552,000
Cash and cash equivalents, end of period	$ 10,642,000	$ 5,672,000

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Consolidated Statements of Cash Flows (Parenthetical) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020	Dec. 31, 2019
Cash Flow Noncash Operating Activities Disclosure [Abstract]
Stock Issued During Period, Shares, Share-based Compensation, Net of Forfeitures	64,439	444,161
Due to Officers or Stockholders, Current		$ 217,000	$ 205,000

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Organization and Description of Business

6 Months Ended

Jun. 30, 2021

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 ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include, 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.

Liquidity

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

The Company has historically financed its operations primarily through issuances of equity securities, including $5.5 million in gross proceeds raised from its At-The-Market stock in which the Company issued a total of 1,092,570 shares of common stock at an average price of $5.03 per share during the six months ended June 30, 2021. Cost associated with the offering totaled approximately $190,000 and the Company received net cash proceeds approximating $5.3 million.

The Company has incurred losses since its inception totaling $79,185,000 and expects to experience operating losses and negative cash flows for the foreseeable future. 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.

Management believes that the successful growth and operation of the Company’s 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 product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

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, 2020 has been derived from the Company’s audited financial statements as of that date.

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, 2020. 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized in accordance with ASC 606 in accordance with the non-refundable performance obligations which are laid out in each sales order.

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 the projects can be recorded as revenue. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

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 were 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 incurred. The Company records those costs within general and administrative expenses.

Product Warranties

The Company warrants all installed products against defects in materials and workmanship, and shortcomings in performance compared to contractual guarantees for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of our 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 accounts payable and accrued liabilities in the unaudited condensed consolidated 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 $76,000 (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 lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis.

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.

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 unaudited condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 include assets amounting to approximately $110,000 and $103,000, 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 first quarter of 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

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 June 30, 2021. 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 the loss to common stockholders in aggregate 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 June 30, 2021 and 2020, potentially dilutive shares outstanding amounted to 3,309,651 and 2,755,744, respectively.

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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Fixed Assets

6 Months Ended

Jun. 30, 2021

Fixed Assets

Fixed Assets

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	June 30,		December 31,
	2021		2020
Machinery and equipment	$	720,000	$	720,000
Office furniture and equipment		180,000		180,000
Leasehold improvements		186,000		149,000
Right of use asset-operating leases		1,234,000		1,024,000
		2,320,000		2,073,000
Accumulated depreciation and amortization		(1,644,000)		(1,657,000)
		676,000		416,000
Construction in progress		—		11,000
	$	676,000	$	427,000

The Company has a triple net operating lease for office and laboratory space in Seattle, Washington with a term that initially ended 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 initially ended 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 options 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 included rent abatement for April and May 2020, although the Company was responsible for its proportionate share of expenses and taxes. For the period beginning on June 1, 2020 through March 2021, the Company paid a monthly rent of approximately $13,500 and, beginning on April 1, 2021, paid a monthly rent of approximately $13,900. 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 was approximately $2,300 per month through August 2022 with an annual 2.5% increase. However, in January 2021, the lease was amended for a larger office space in the same building. The amended lease terms commenced in April 2021, and expires in September 2027. The new rent amount for the Tulsa lease will be approximately $5,100 a month 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. It was renewed through May 2022, and is being treated as a short term lease with a monthly rent of approximately $4,500.

Lease costs for the three and six months ended June 30, 2021 and 2020 and other quantitative disclosures are as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2021		2020			2021		2020
Lease cost:
Operating lease cost	$	50,000	$	61,000		$	123,000	$	96,000
Short-term lease cost		14,000		—			—		19,000
Total lease cost	$	64,000	$	61,000		$	123,000	$	115,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	124,000
For operating lease:
Weighted average remaining lease term (in years)				4.31
Weighted average discount rate				5.94	%

Minimum future payments under the Company’s leases at June 30, 2021 and their application to the corresponding lease liabilities are as follows:

	Discounted lease		Payments due under
	liability payments		lease agreements
2021 (remaining 6 months)	$	96,000	$	114,000
2022		207,000		233,000
2023		122,000		136,000
2024		54,000		65,000
2025		59,000		66,000
Thereafter		114,000		118,000
Total	$	652,000	$	732,000

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Patents and Other Intangible Assets

6 Months Ended

Jun. 30, 2021

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:

	June 30,		December 31,
	2021		2020
Patents
Patents pending	$	795,000	$	731,000
Issued patents		883,000		883,000
		1,678,000		1,614,000
Trademarks
Trademarks pending		111,000		105,000
Registered trademarks		23,000		23,000
		134,000		128,000
Other		8,000		8,000
		1,820,000		1,750,000
Accumulated amortization		(524,000)		(448,000)
	$	1,296,000	$	1,302,000

Future amortization expense associated with issued patents and registered trademarks as of June 30, 2021 is estimated as follows (unaudited):

2021 (remaining 6 months)		76,000
2022		125,000
2023		91,000
2024		63,000
2025		27,000
	$	382,000

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Sales, Contract Assets and Contract Liabilities

6 Months Ended

Jun. 30, 2021

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 June 30, 2021 and $363,000 during the six months ended June 30, 2021 from the completion and delivery of a multi burner product contract with an infrastructure company. There was no revenue during the three and six months ended June 30, 2020.

During the three and six months ended June 30, 2021, the Company recognized cost of goods sold of $505,000 and $730,000 respectively. Cost of sales during the three months ended June 30, 2021 consisted of $556,000 in estimated losses on two contracts that the Company anticipates will show losses upon completion. This was offset by adjustments totaling $35,000 related to the reversal of an accrual for product warranty that expired on a completed project from the year 2018 and $16,000 in adjustments for residual cost accruals. Cost of sales during the six months ended June 30, 2021 consisted of cost of goods sold of $250,000, including a $36,000 warranty accrual, recorded upon completion of the burner contract and $574,000 in estimated losses on two contracts that the Company anticipates will show losses upon completion. The recognized cost of goods sold was offset by adjustments totaling $86,000 related to the reversals of accruals for product warranties that expired on four completed projects from the year 2018 and $8,000 in adjustments for residual cost accruals. The Company recognized an adjustment to cost of goods sold totaling $153,000 during the three and six months ended June 30, 2020 representing the reversal of accruals for product warranties that expired on six completed projects from years 2016 and 2017.

The Company had contract assets of $108,000 and $92,000 and contract liabilities of $48,000 and $94,000 at June 30, 2021 and December 31, 2020, respectively.

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Equity

6 Months Ended

Jun. 30, 2021

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.

During the six months ended June 30, 2021, the Company issued common stock pursuant to our At-The-Market Offering Sales Agreement, dated December 23, 2020, with Virtu Americas LLC, as sales agent pursuant to which it may sell shares of common stock with an aggregate offering price of up to $15,000,000 (the “ATM”). As of June 30, 2021, the Company had sold 1,092,570 shares of our common stock under the ATM program, at an average price of $5.03 per share. Gross proceeds totaled approximately $5.5 million and net cash proceed was approximately $5.3 million.

Equity Incentive Plan

On June 17, 2021 the Company’s shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “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 June 30, 2021 the number of shares of common stock reserved for issuance under the Plan totaled 3,125,466 plus 3,381,369 shares of common stock subject to issued and outstanding awards under the 2011 Equity Incentive Plan (“2011 Plan”), which expired in January 2021.

During the six months ended June 30, 2021, the Company granted stock options for the purchase of an aggregate 885,000 shares of common stock to employees from the 2011 Plan. 80,000 of these options were awarded for 2020 bonuses in lieu of cash and the expense of $192,000 was recorded during the year ended December 31, 2020. The remaining 805,000 options were awarded during the six months ended June 30, 2021 with vesting dependent on the achievement of certain performance objectives. The fair values of these options totaled $1.9 million. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Employee Awards	2021
Expected life	5.75	years
Weighted average volatility	94	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	0.47	%
Expected dividend rate	0	%

Outstanding stock option awards at June 30, 2021 and December 31, 2020 totaled 3,309,651 shares and 2,697,119 shares, respectively, with the right to purchase 2,518,403 shares and 2,379,752 shares being vested and exercisable at June 30, 2021 and December 31, 2020, respectively. The recognized compensation expense associated with stock option awards for the three and six months ended June 30, 2021 and 2020 totaled $19,000 and $429,000 and $48,000 and $115,000 respectively. At June 30, 2021, there was $182,000 of total unrecognized compensation cost related to performance incentive awards that are probable of vesting and another $1.3 million in performance incentive awards that are currently deemed as not probable of vesting related to share based compensation arrangements awarded under the prior Plan. The cost of the awards in which vesting was assessed as probable is expected to be recognized over a weighted average period of 1 year. Awards for which vesting was assessed as not probable will be reassessed at the end of each reporting period. The intrinsic value of outstanding stock options was $8.1 million at June 30, 2021.

The Company’s directors are compensated solely in stock option awards for services rendered in the first quarter of 2021. In addition to being compensated for their services as directors, individual directors are also compensated for committee membership, for services as a committee chair and for services as a lead director. On January 22, 2021 and July 28, 2021, the Company awarded from the Plan to certain directors’ stock options for the purchase of 79,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2021. The stock options have an exercise price based on the grant date fair value, which was $3.97 for 62,500 shares and $4.15 for 17,000 shares. All of the options have a contractual life of 10 years. The recognized compensation expense associated with director stock option awards for the three and six months ended June 30, 2021 and 2020 totaled $52,000 and $262,000 and $34,000 and $87,000, respectively. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

2021 Director Awards	2021
Weighted average expected life	8.93	years
Weighted average volatility	90	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	1.02	%
Expected dividend rate	0	%

Restricted Stock Units

On July 28, 2021, the Company approved compensation for board service to be paid to its independent directors in restricted stock units (“RSUs”) that will be awarded from the 2021 Plan.  Such compensation will be on a quarterly basis beginning in the second quarter of 2021 through the end of 2021.  For second quarter services, the fair value of the RSUs aggregated to $84,000, which was recorded in general and administrative expense and accounts payable and accrued liabilities as of and for the three months ended June 30, 2021. The quantity of these RSUs issued will be determined using the closing price of the Company’s common stock two days after its second quarter 10-Q is filed.

Stock Grants

During the six months ended June 30, 2021, the Company issued 64,439 shares of common stock with a fair value of $3.37 per share to its employees. These shares were issued for payment of 2020 bonuses in lieu of cash and the expense of $217,000 was recorded during the year ended December 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 June 30, 2021 totaled 297,719 with 215,719 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, 2019 to 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 recognized on a quarterly pro-rated basis as to 2,500 shares in general and administrative expense. The contract was renewed, and the consultant was granted an additional 15,000 shares for services performed from September 1, 2020 through August 31, 2021. The fair value of the stock at the time of grant was $2.33 per share for a total value of $35,000, which the Company is recognizing 3,750 shares in general and administrative expense on a quarterly pro-rated basis. The Consultant Plan expense for the three and six months ended June 30, 2021 and 2020 was $9,000 and $18,000, and $3,000 and $5,000 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. In January, 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 with fair values ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and that vest over 2 years. Of these options to purchase 600,000 shares of common stock, an option to purchase 258,618 shares of common stock was issued from the 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 each of the three and six months ended June 30, 2021 and 2020 was $0 and $13,000 and $13,000 and $26,000, respectively. There is no remaining unrecognized compensation expense associated with these awards.

Warrants

During the six months ended June 30, 2021, 37,500 warrants were redeemed at an exercise price of $1.80 per share and 42,500 expired. As of June 30, 2021 the Company had no warrants outstanding for the purchase of shares of common stock.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

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 six months ended June 30, 2021 and 2020, the Company has paid Dr. Deller $16,000 and $18,000, 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 or claims that the Company believes will have a material adverse effect on our business, financial condition or operating results.

Indemnification Agreements

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

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.

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The Paycheck Protection Program (PPP) Loan

6 Months Ended

Jun. 30, 2021

The Paycheck Protection Program (PPP) Loan

The Paycheck Protection Program (PPP) Loan

Note 8 - The Paycheck Protection Program (PPP) Loan

On May 8, 2020, the Company obtained a loan in the amount of $250,832 (the “PPP loan”) from Bank of America (the “Lender”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economics Security Act (the “CARES Act”) that was signed into law in March 2020. In accordance with the PPP, the Company was permitted to use the PPP loan proceeds to fund designated expenses, including certain payroll costs, rent, utilities, and other permitted expenses. The PPP loan was evidenced by a promissory note, dated effective May 1, 2020, issued by the Company to the Lender. The PPP loan was unsecured with a 2-year term, matures on May 7, 2022, and bore interest at a rate of 1.00% per annum. The Company submitted an application with the SBA for forgiveness in January 2021. Payments under this note have been deferred by the bank until the forgiveness status of the loan is ascertained. During the first half of 2021, the Company received documentation from the Small Business Administration stating that this loan had been forgiven in full. As a result, the Company recorded a $251,000 gain on forgiveness of this loan during the three and six months ended June 30, 2021.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

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, 2020 has been derived from the Company’s audited financial statements as of that date.

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, 2020. 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized in accordance with ASC 606 in accordance with the non-refundable performance obligations which are laid out in each sales order.

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 the projects can be recorded as revenue. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

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 were 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 incurred. 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, and shortcomings in performance compared to contractual guarantees 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 as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of our 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 accounts payable and accrued liabilities in the unaudited condensed consolidated 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 $76,000 (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 lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis.

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.

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 unaudited condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 include assets amounting to approximately $110,000 and $103,000, 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 first quarter of 2020 this has been and currently continues to be the case with the effects of the recent COVID-19 pandemic.

Foreign Currency

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 June 30, 2021. 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 the loss to common stockholders in aggregate 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 June 30, 2021 and 2020, potentially dilutive shares outstanding amounted to 3,309,651 and 2,755,744, respectively.

Recently Issued Accounting pronouncements

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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Fixed Assets (Tables)

6 Months Ended

Jun. 30, 2021

Fixed Assets

Summary of Fixed Assets

Fixed assets are summarized as follows:

	June 30,		December 31,
	2021		2020
Machinery and equipment	$	720,000	$	720,000
Office furniture and equipment		180,000		180,000
Leasehold improvements		186,000		149,000
Right of use asset-operating leases		1,234,000		1,024,000
		2,320,000		2,073,000
Accumulated depreciation and amortization		(1,644,000)		(1,657,000)
		676,000		416,000
Construction in progress		—		11,000
	$	676,000	$	427,000

Schedule Of Leases Cost

Lease costs for the three and six months ended June 30, 2021 and 2020 and other quantitative disclosures are as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2021		2020			2021		2020
Lease cost:
Operating lease cost	$	50,000	$	61,000		$	123,000	$	96,000
Short-term lease cost		14,000		—			—		19,000
Total lease cost	$	64,000	$	61,000		$	123,000	$	115,000
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	124,000
For operating lease:
Weighted average remaining lease term (in years)				4.31
Weighted average discount rate				5.94	%

Schedule of minimum future payments

Minimum future payments under the Company’s leases at June 30, 2021 and their application to the corresponding lease liabilities are as follows:

	Discounted lease		Payments due under
	liability payments		lease agreements
2021 (remaining 6 months)	$	96,000	$	114,000
2022		207,000		233,000
2023		122,000		136,000
2024		54,000		65,000
2025		59,000		66,000
Thereafter		114,000		118,000
Total	$	652,000	$	732,000

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Patents and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2021

Patents and Other Intangible Assets

Schedule of Patents and other intangible assets

Patents and other intangible assets are summarized as follows:

	June 30,		December 31,
	2021		2020
Patents
Patents pending	$	795,000	$	731,000
Issued patents		883,000		883,000
		1,678,000		1,614,000
Trademarks
Trademarks pending		111,000		105,000
Registered trademarks		23,000		23,000
		134,000		128,000
Other		8,000		8,000
		1,820,000		1,750,000
Accumulated amortization		(524,000)		(448,000)
	$	1,296,000	$	1,302,000

Schedule of future amortization expense

Future amortization expense associated with issued patents and registered trademarks as of June 30, 2021 is estimated as follows (unaudited):

2021 (remaining 6 months)		76,000
2022		125,000
2023		91,000
2024		63,000
2025		27,000
	$	382,000

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Equity (Tables) - Equity Incentive Plan [Member]

6 Months Ended

Jun. 30, 2021

2021 Employee Awards

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

2021 Employee Awards	2021
Expected life	5.75	years
Weighted average volatility	94	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	0.47	%
Expected dividend rate	0	%

2021 Director Awards

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

2021 Director Awards	2021
Weighted average expected life	8.93	years
Weighted average volatility	90	%
Forfeiture rate	0	%
Weighted average risk-free interest rate	1.02	%
Expected dividend rate	0	%

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Organization and Description of Business (Details) - USD ($)	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Organization and Description of Business [Line Items]
Proceeds from Issuance of Common Stock	$ 5,500,000
Accumulated deficit	$ (79,185,000)	$ (74,874,000)
Public offering
Organization and Description of Business [Line Items]
Number of shares of common stock issued	1,092,570
Share price of common stock issued	$ 5.03
Net cash proceeds from the offering	$ 5,300,000
Deferred Offering Costs	$ 190,000

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Summary of Significant Accounting Policies - Contract Acquisition Costs and Practical Expedients (Details)	6 Months Ended
	Jun. 30, 2021
Summary of Significant Accounting Policies
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract [true false]	true

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Summary of Significant Accounting Policies - Cash and Cash Equivalents (Details) - Jun. 30, 2021	USD ($)	CNY (¥)
Cash and Cash Equivalents [Line Items]
Cash, FDIC Insured Amount	$ 250,000
CHINA
Cash and Cash Equivalents [Line Items]
Cash, FDIC Insured Amount	$ 76,000	¥ 500,000

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Summary of Significant Accounting Policies - Fixed Assets and Leases (Details) - Leasehold Improvements [Member]	6 Months Ended
	Jun. 30, 2021
Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	two
Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Estimated Useful Lives	four years

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Summary of Significant Accounting Policies - Other (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Variable Interest Entity [Line Items]
Tax Benefits Recognized (in Percent)	50.00%
Weighted Average Number of Shares Outstanding, Diluted	3,309,651	2,755,744
Assets	$ 13,279,000	$ 11,121,000
Minority Shareholder (Member)
Variable Interest Entity [Line Items]
Minority shareholder ownership interest percentage	1.00%
CHINA
Variable Interest Entity [Line Items]
Assets	$ 110,000	$ 103,000

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Fixed Assets - Summary (Details) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Fixed Assets
Machinery and equipment	$ 720,000	$ 720,000
Office furniture and equipment	180,000	180,000
Leasehold improvements	186,000	149,000
Right of use asset-operating leases	1,234,000	1,024,000
Fixed assets, gross	2,320,000	2,073,000
Accumulated depreciation and amortization	(1,644,000)	(1,657,000)
Fixed assets, net, before Construction in progress	676,000	416,000
Construction in progress	0	11,000
Property, Plant and Equipment, Net, Total	$ 676,000	$ 427,000

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Fixed Assets - Lease costs (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Lease cost:
Operating lease cost	$ 50,000	$ 61,000	$ 123,000	$ 96,000
Short-term lease cost	14,000			19,000
Total lease cost	$ 64,000	61,000	$ 123,000	$ 115,000
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$ 124,000
For operating lease:
Weighted average remaining lease term (in years)		4 years 3 months 21 days		4 years 3 months 21 days
Weighted average discount rate		5.94%		5.94%

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Fixed Assets - Minimum future payments (Details)	Jun. 30, 2021 USD ($)
Payments Due Under Lease Agreement [Member]
2021 (remaining 6 months)	$ 114,000
2022	233,000
2023	136,000
2024	65,000
2025	66,000
Thereafter	118,000
Total	732,000
Discounted Lease Liabilities Payments [Member].
2021 (remaining 6 months)	96,000
2022	207,000
2023	122,000
2024	54,000
2025	59,000
Thereafter	114,000
Total	$ 652,000

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Fixed Assets - Operating lease (Details) - USD ($)		1 Months Ended	6 Months Ended		78 Months Ended
	Apr. 01, 2021	May 31, 2022	Jun. 30, 2021	Jun. 30, 2020	Sep. 30, 2027
Leases
Monthly rent expense	$ 13,900		$ 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			$ 2,300
Annual rent expense, increase (in percent)			2.50%
Washington
Leases
Monthly rent expense				$ 12,000
Oklahoma
Leases
Monthly rent expense			$ 2,000
CHINA
Leases
Monthly rent expense			$ 6,000
Subsequent Event [Member]
Leases
Monthly rent expense					$ 5,100
Annual rent expense, increase (in percent)					2.50%
Subsequent Event [Member] | CHINA
Leases
Short term monthly rent expense		$ 4,500

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Patents and Other Intangible Assets - Summary (Details) - USD ($)	Jun. 30, 2021	Dec. 31, 2020
Patents	$ 1,678,000	$ 1,614,000
Trademarks	134,000	128,000
Other	8,000	8,000
Patents and other intangible assets	1,820,000	1,750,000
Accumulated amortization	(524,000)	(448,000)
Finite-Lived Intangible Assets, Net	1,296,000	1,302,000
Patents Pending [Member]
Patents	795,000	731,000
Issued Patents [Member]
Patents	883,000	883,000
Trademarks Pending [Member]
Trademarks	111,000	105,000
Registered Trademarks [Member]
Trademarks	$ 23,000	$ 23,000

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Patents and Other Intangible Assets - Future amortization expense (Details)	Jun. 30, 2021 USD ($)
Patents and Other Intangible Assets
2021 (remaining 6 months)	$ 76,000
2022	125,000
2023	91,000
2024	63,000
2025	27,000
Finite-Lived Intangible Assets, Net	$ 382,000

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Sales, Contract Assets and Contract Liabilities (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Revenue	$ 0	$ 0	$ 363,000	$ 0
Cost of goods sold	505,000	153,000	730,000	153,000
Cost of sales for losses on two contracts	556,000		574,000	0
Cost of goods sold before warranty adjustment	35,000		86,000
Contract assets	108,000		108,000		$ 92,000
Contract liabilities	48,000		$ 48,000		$ 94,000
Year 2018
Number of projects to expire product warranties			4
Residual costs	16,000
Year 2016 and 2017
Number of projects to expire product warranties			6
Residual costs			$ 8,000
Burner Contract
Revenue	$ 0	$ 0	363,000	$ 0
Cost of goods sold			250,000
Cost of goods sold, warranty accrual			$ 36,000

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Equity - Common Stock and Preferred Stock (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Stockholders' equity
Common stock, authorized shares			62,500,000
Preferred stock, authorized shares			2,000,000
Net proceeds from the offering			$ 5,309,000	$ 0
Public offering
Stockholders' equity
Number of shares of common stock issued			1,092,570
Shares Issued, Price Per Share			$ 5.03
ATM
Stockholders' equity
Net proceeds from the offering			$ 5,300,000
Common Stock
Stockholders' equity
Number of shares of common stock issued	1,250	5,000
Common Stock | ATM
Stockholders' equity
Number of shares of common stock issued			1,092,570
Shares Issued, Price Per Share			$ 5.03
Aggregate offering price			$ 15,000,000
Gross proceeds from the offering			$ 5,500,000

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Equity - Equity Incentive Plan Assumptions (Details) - Equity Incentive Plan - Stock options	6 Months Ended
	Jun. 30, 2021
2021 Employee Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	5 years 9 months
Weighted average volatility	94.00%
Forfeiture rate	0.00%
Weighted average risk-free interest rate	0.47%
Expected dividend rate	0.00%
2021 Director Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	8 years 11 months 4 days
Weighted average volatility	90.00%
Forfeiture rate	0.00%
Weighted average risk-free interest rate	1.02%
Expected dividend rate	0.00%

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Equity - Equity Incentive Plan (Details) - USD ($)			3 Months Ended			6 Months Ended		12 Months Ended
	Jul. 28, 2021	Jan. 22, 2021	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Share-based compensation
Warrants Intrinsic Value Outstanding			$ 8,100,000			$ 8,100,000
Stock grants	17,000	62,500		79,500
Exercise price (in dollars per share)	$ 4.15	$ 3.97
Non-vested stock options
Share-based compensation
Allocated Share-based Compensation Expense			0		$ 13,000	$ 13,000	$ 26,000
Contractual life						10 years
Fair value of options granted (in dollars)						$ 176,000
Minimum [Member] | Non-vested stock options
Share-based compensation
Exercise price (in dollars per share)						$ 1.16
Restricted Stock Units | 2021 Director Awards
Share-based compensation
Fair value of the RSUs aggregate			$ 84,000
Equity Incentive Plan [Member]
Share-based compensation
Number of common stock reserved for issuance			3,125,466			3,125,466
Reserved			885,000			885,000
Reserved but unissued shares under the Consultant Plan at Period End			885,000			885,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number			2,518,403			2,518,403		2,379,752
Allocated Share-based Compensation Expense			$ 19,000		$ 48,000	$ 429,000	$ 115,000
Contractual life						10 years
Equity Incentive Plan [Member] | Non-vested stock options
Share-based compensation
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan			3,309,651			3,309,651		2,697,119
Equity Incentive Plan [Member] | Board of Directors [Member]
Share-based compensation
Stock grants			52,000		34,000	262,000	87,000
Equity Incentive Plan [Member] | 2021 Employee Awards
Share-based compensation
Allocated Share-based Compensation Expense								$ 192,000
Fair value of options granted (in dollars)						$ 1,900,000
Stock options issued in lieu of bonus in cash								80,000
Number of options awarded with performance condition						805,000
Equity Incentive Plan [Member] | 2021 Director Awards
Share-based compensation
Allocated Share-based Compensation Expense								$ 217,000
Exercise price (in dollars per share)						$ 3.37
Stock options issued in lieu of bonus in cash						64,439
Equity Incentive Plan [Member] | Performance Incentive Awards, Probable [Member]
Share-based compensation
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized			$ 182,000			$ 182,000
Equity Incentive Plan [Member] | Performance Incentive Awards, Not Probable [Member]
Share-based compensation
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized			$ 1,300,000			$ 1,300,000
Unrecognized compensation expense period for recognition						1 year
2021 Plan
Share-based compensation
Number of common stock reserved for issuance			3,381,369			3,381,369

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Equity - Consultant Stock Plan (Details) - USD ($)	3 Months Ended				6 Months Ended		12 Months Ended	17 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2021	Jun. 30, 2020	Aug. 31, 2021	Dec. 31, 2020
Share-based compensation
Shares issued for services, $3.50 (in dollars per share)			$ 1.90
Shares issued for services ($2.33 per share)		$ 36,000
Shares issued for services, $1.44 (in dollars per share)		$ 3.80
Fair value of stock options issued for board service	$ 52,000	$ 210,000	$ 34,000	$ 53,000
Shares issued for services $1.03 (in dollars per share)	$ 1.21	$ 1.21
Fair value of stock options $1.03 issued for board service	$ (72,000)	$ (4,000)
Consultant, Two
Share-based compensation
Shares issued for services (in shares)							15,000
Shares issued for services ($1.03 per share) (in shares)					$ 2.33
Shares issued for services ($2.33 per share)					$ 35,000
Stockholders' Equity
Share-based compensation
Shares issued for services ($2.33 per share)		36,000
Fair value of stock options issued for board service	52,000	210,000	$ 34,000	$ 53,000
Fair value of stock options $1.03 issued for board service	(72,000)	$ (4,000)
Common Stock
Share-based compensation
Shares issued for services (in shares)			2,500	2,500
Shares issued for services ($3.80 per share) (in shares)		9,375
Shares issued for services ($2.33 per share)		$ 0
Fair value of stock options issued for board service	$ 0	$ 0	$ 0	$ 0
Stock Issued During Period, Shares, Issued For Services, Three	0	0	0	0
Fair value of stock options $1.03 issued for board service	$ 0	$ 0
Additional Paid-In Capital
Share-based compensation
Shares issued for services ($2.33 per share)		36,000
Fair value of stock options issued for board service	52,000	210,000	$ 34,000	$ 53,000
Fair value of stock options $1.03 issued for board service	(72,000)	(4,000)
Accumulated Deficit
Share-based compensation
Shares issued for services ($2.33 per share)		0
Fair value of stock options issued for board service	0	0	0	0
Fair value of stock options $1.03 issued for board service	0	0
Noncontrolling Interest
Share-based compensation
Shares issued for services ($2.33 per share)		0
Fair value of stock options issued for board service	0	$ 0	0	$ 0
Fair value of stock options $1.03 issued for board service	$ 0
General and administrative | Consultant, Two
Share-based compensation
Shares expensed in period					3,750
Consultant Plan [Member]
Share-based compensation
Number of common stock reserved for issuance	297,719				297,719
Maximum increase in available number of authorized shares as a percentage of new shares issued					1.00%
Shares issued for services, $3.50 (in dollars per share)					$ 1.03
Shares Reserved Unissued	215,719				215,719
Consultant Plan Expenses	$ 9,000		$ 18,000		$ 3,000	$ 5,000
Fair value of stock options issued for board service					$ 10,000
Consultant Plan [Member] | Consultant, Two
Share-based compensation
Shares issued for services (in shares)								10,000
Consultant Plan [Member] | General and administrative
Share-based compensation
Shares expensed in period					2,500

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Equity - Stock Options - Valuation assumptions (Details) - USD ($)			1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 28, 2021	Jan. 22, 2021	Jan. 31, 2019	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Share-based compensation
Exercise price (in dollars per share)	$ 4.15	$ 3.97
Equity Incentive Plan
Share-based compensation
Granted (in shares)						258,618
Non-vested stock options
Share-based compensation
Contractual life						10 years
Vesting period						2 years
Fair value of options granted (in dollars)						$ 176,000
Compensation expense				$ 0	$ 13,000	$ 13,000	$ 26,000
Non-vested stock options | Minimum [Member]
Share-based compensation
Exercise price (in dollars per share)						$ 1.16
Non-vested stock options | Maximum [Member]
Share-based compensation
Exercise price (in dollars per share)						$ 2.25
Non-vested stock options | Non-Qualified Stock Option [Member]
Share-based compensation
Granted (in shares)						341,382
Stock options | Chief Executive Officer [Member] | Non-vested stock options
Share-based compensation
Granted (in shares)			600,000			600,000

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Equity - Warrants - Exercise price and average life (Details)	6 Months Ended
	Jun. 30, 2021 $ / shares shares
Equity
Warrants Exercise Price (in dollars per share) | $ / shares	$ 1.80
Warrants Outstanding (in shares)	0
Number Of Warrants redeemed	37,500
Number of Warrants expired	42,500

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Commitments and Contingencies (Details) - USD ($)		6 Months Ended	12 Months Ended
	Jan. 28, 2019	Jun. 30, 2021	Dec. 31, 2020
Loss Contingencies [Line Items]
Relocation Expenses		$ 16,000	$ 18,000
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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The Paycheck Protection Program (PPP) Loan (Details) - USD ($)		3 Months Ended	6 Months Ended
	May 08, 2020	Jun. 30, 2021	Jun. 30, 2021	Jun. 30, 2020
Gain on forgiveness of Payroll Protection Program loan			$ (251,000)	$ 0
PPP Loan
Proceeds from loan	$ 250,832
Loan term (in years)	2 years
Interest rate (as a percent)	1.00%
Gain on forgiveness of Payroll Protection Program loan		$ (251,000)	$ (251,000)