10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

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 COMBUSTION 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)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer,” and “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
(Do not check if a smaller reporting company)

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

As of May 14, 2015 the issuer has 12,804,936 shares of common stock, par value $.0001, issued and outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Condensed Financial Statements	3
	Condensed Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)	3
	Condensed Statements of Operations for the three months ended March 31, 2015 and 2014 (Unaudited)	4
	Condensed Statement of Stockholders’ Equity for the three months ended March 31, 2015 (Unaudited)	5
	Condensed Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (Unaudited)	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II	OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors.	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	22
SIGNATURES		23

2

PART I-FINANCIAL INFORMATION

ITEM 1 CONDENSED FINANCIAL STATEMENTS

ClearSign Combustion Corporation

Balance Sheets

(Unaudited)

	March 31,			December 31,
	2015			2014
ASSETS
Current Assets:
Cash and cash equivalents	$	16,190,000		$	1,845,000
Prepaid expenses		111,000			109,000
Total current assets		16,301,000			1,954,000
Fixed assets, net		226,000			263,000
Patents and other intangible assets, net		2,705,000			2,372,000
Other assets		10,000			10,000
Total Assets	$	19,242,000		$	4,599,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	200,000		$	253,000
Accrued compensation and taxes		688,000			982,000
Total current liabilities		888,000			1,235,000
Long Term Liabilities:
Long-term accrued compensation and taxes		275,000			372,000
Deferred rent		30,000			33,000
Total liabilities		1,193,000			1,640,000
Commitments
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		-			-
Common stock, $0.0001 par value, 12,790,664 and 9,681,476 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		1,000			1,000
Additional paid-in capital		40,891,000			24,218,000
Accumulated deficit		(22,843,000	)		(21,260,000	)
Total stockholders' equity		18,049,000			2,959,000
Total Liabilities and Stockholders' Equity	$	19,242,000		$	4,599,000

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

3

ClearSign Combustion Corporation

Condensed Statements of Operations

(Unaudited)

	For the Three Months Ended March 31,
	2015			2014
Operating expenses:
Research and development	$	573,000		$	607,000
General and administrative		1,019,000			1,040,000
Total operating expenses		1,592,000			1,647,000
Loss from operations		(1,592,000	)		(1,647,000	)
Other income:
Interest income		9,000			1,000
Net Loss	$	(1,583,000	)	$	(1,646,000	)
Net Loss per share - basic and fully diluted	$	(0.14	)	$	(0.18	)
Weighted average number of shares outstanding - basic and fully diluted		11,363,356			9,060,163

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

4

ClearSign Combustion Corporation

Statement of Stockholders' Equity

(Unaudited)

For the Three Months Ended March 31, 2015

											Total
	Common Stock				Additional			Accumulated			Stockholders'
	Shares		Amount		Paid-In Capital			Deficit			Equity
Balances at December 31, 2014		9,681,476	$	1,000	$	24,218,000		$	(21,260,000	)	$	2,959,000
Shares issued in underwritten offering ($5.85 per share)		2,990,000		-		17,491,000			-			17,491,000
Issuance costs of underwritten offering		-		-		(1,212,000	)		-			(1,212,000	)
Shares issued for services ($5.97 per share)		4,188		-		25,000			-			25,000
Shares issued upon exercise of options ($2.20 per share)		115,000		-		253,000			-			253,000
Share based compensation		-		-		116,000			-			116,000
Net loss		-		-		-			(1,583,000	)		(1,583,000	)
Balances at March 31, 2015		12,790,664	$	1,000	$	40,891,000		$	(22,843,000	)	$	18,049,000

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

5

ClearSign Combustion Corporation

Statements of Cash Flows

(Unaudited)

	For the Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(1,583,000	)	$	(1,646,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		25,000			55,000
Share based payments		116,000			81,000
Depreciation and amortization		56,000			58,000
Abandonment of capitalized patents		-			8,000
Deferred rent		(3,000	)		9,000
Change in operating assets and liabilities:
Prepaid expenses		(2,000	)		76,000
Accounts payable		(53,000	)		(13,000	)
Accrued compensation		(294,000	)		(264,000	)
Net cash used in operating activities		(1,738,000	)		(1,636,000	)
Cash flows from investing activities:
Acquisition of fixed assets		(17,000	)		(17,000	)
Disbursements for patents and other intangible assets		(335,000	)		(328,000	)
Net cash used in investing activities		(352,000	)		(345,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock for cash,
net of offering costs		16,279,000			5,796,000
Proceeds from exercise of stock options		253,000			-
Reduction in long term accrued compensation and taxes		(97,000	)		-
Net cash provided by financing activities		16,435,000			5,796,000
Net increase in cash and cash equivalents		14,345,000			3,815,000
Cash and cash equivalents, beginning of period		1,845,000			2,688,000
Cash and cash equivalents, end of period	$	16,190,000		$	6,503,000

Supplemental disclosure of non-cash operating and financing activities:

During the three months ended March 31, 2014, the Company issued warrants to purchase 20,313 shares of common stock valued at $92,000 as part of a placement agent fee related to the March 2014 registered direct offering of common stock.

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

6

ClearSign Combustion Corporation

Notes to Unaudited Condensed Financial Statements

Note 1 – Organization and Description of Business

ClearSign Combustion Corporation (ClearSign or the Company) designs, develops and markets technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. The Company’s primary technologies include its Duplex™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation, and its Electrodynamic Combustion Control™ or ECC™ technology, which introduces a computer-controlled electric field into the combustion region which may better control gas-phase chemical reactions and improve system performance and cost-effectiveness. The Company is located in Seattle, Washington and was incorporated in the State of Washington in 2008. 

The Company has generated limited revenues from operations to date to meet its operating expenses, and has historically financed its operations primarily through issuances of equity securities. The Company has incurred losses since its inception totaling $22,843,000 and expects to experience operating losses and negative cash flow for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support research and development efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission 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, 2014 has been derived from the Company’s audited financial statements.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

7

Revenue Recognition

The Company recognizes revenue on co-development agreements using the percentage of completion method. Under this method, the completion percentage is determined by dividing costs incurred to date by total estimated project costs. Since these projects will require technological development to complete, which by its nature is difficult to predict, the actual cost required to complete contracted work may vary from estimates. Estimated project costs are revised regularly which can alter the reported level of project profitability. Any estimated project losses are recognized in the current reporting period. Customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract. If billings exceed recognized revenue, the difference is recorded as a current liability, while any recognized revenues exceeding billings are recorded as a current asset. Recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain. Revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known. There were no revenues for the three months ended March 31, 2015 and 2014.

Cost of Revenue

Cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements. Direct costs include labor, materials and other costs incurred directly in fulfilling co-development agreements. Indirect costs include labor, rent, depreciation and other costs associated with operating the Company. Due to the nature of the work involved, the cost of co-development projects may fluctuate substantially from period to period.

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 has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Fixed Assets

Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

Impairment of Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. 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.

8

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 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.

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.

Deferred Rent

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expense in the amount of the total payments over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent which is reflected on the accompanying balance sheets.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2015 and 2014, potentially dilutive shares outstanding amounted to 1,120,214 and 1,249,582, respectively.

Recently Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective standards, if adopted, will have a material effect on the financial statements.

9

Emerging Growth Company

The Company is an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1 billion, if it issues more than $1 billion in non-convertible debt in a three year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any June 30. At June 30, 2014, the market value of the Company’s common stock held by non-affiliates totaled $71 million.

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	March 31,			December 31,
	2015			2014
	(unaudited)
Machinery and equipment	$	647,000		$	646,000
Office furniture and equipment		108,000			98,000
Leasehold improvements		130,000			124,000
Accumulated depreciation		(659,000	)		(605,000	)
	$	226,000		$	263,000

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	March 31,			December 31,
	2015			2014
Patents	(unaudited)
Patents pending	$	2,594,000		$	2,262,000
Issued patents		67,000			67,000
		2,661,000			2,329,000
Trademarks
Trademarks pending		35,000			36,000
Registered trademarks		4,000			-
		39,000			36,000
Other		8,000			8,000
		2,708,000			2,373,000
Accumulated amortization		(3,000	)		(1,000	)
	$	2,705,000		$	2,372,000

10

Future amortization expense associated with awarded patents as of March 31, 2015 is estimated as follows:

2015	$	5,000
2016		7,000
2017		7,000
2018		7,000
2019		7,000
Thereafter		35,000
	$	68,000

Note 5 – Termination of Employment Agreement

The Company and its former Chief Executive Officer, Richard F. Rutkowski, entered into an agreement in December 2014 terminating a prior employment agreement. Under this agreement, Mr. Rutkowski will be paid his annual salary of $359,000 through December 31, 2016, provided employee benefits through December 2015, and receive a bonus of $60,000, which was paid in March 2015, as well as accelerated vesting on 15,625 stock options with an exercise price of $4.88 per share and 14,219 stock options with an exercise price of $9.90 per share which terminate in March 2015.

The liability incurred under this agreement totaled $943,000 which was recognized in general and administrative expense in 2014. At March 31, 2015, the remaining liability totaled $673,000 and is payable through December 2016.

Note 6 – Stockholders’ Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62,500,000 shares of common stock and 2,000,000 shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In February 2015, the Company completed an underwritten public offering of common stock whereby 2,990,000 shares were issued at $5.85 per share. Gross proceeds from the offering totaled $17.5 million and net cash proceeds approximated $16.3 million. Expenses of the offering approximated $1.2 million, including underwriting fees of $1,049,000, underwriter legal fees and other costs of $55,000, and other costs of $110,000.

In March 2014, the Company completed a registered direct offering of common stock whereby 812,500 shares were issued at $8.00 per share. Gross proceeds from the offering totaled $6.5 million and net cash proceeds approximated $5.8 million. Expenses of the offering approximated $0.8 million. Cash expenses included placement agent fees of $488,000, placement agent legal and other fees of $75,000, issuer legal fees of $113,000, and other costs of $44,000. Non-cash expenses consisted of a warrant to purchase 20,313 shares of the Company’s common stock at $10.00 per share exercisable until March 2019 valued at $92,000.

Equity Incentive Plan

The Company has an Equity Incentive Plan (the Plan) which provides for the granting of options to purchase shares of common stock, stock awards to purchase shares at no less than 85% of the value of the shares, and stock bonuses to officers, employees, board members, consultants, and advisors. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. As of March 31, 2015, the number of shares reserved for issuance under the Plan totaled 1,078,379 shares. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. 

11

In February 2015, the Company and its Chief Executive Officer, Stephen E. Pirnat, entered into an employment agreement as described in Note 8. In accordance with the employment agreement, the Company immediately granted to Mr. Pirnat 100,000 stock options under the Plan. The stock options have an exercise price of $5.97 per share, the grant date fair value, vest on February 3, 2016, and have a contractual life of 10 years. The fair value of stock options estimated on the date of grant using the Black-Scholes option valuation model was $334,000. The Company also granted 5,000 stock options under the Plan to a consultant. The stock options have an exercise price of $5.97 per share, the grant date fair value, a contractual life of 10 years, and vest over four years. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $16,000. The recognized compensation expense associated with these grants for the three months ended March 31, 2015 was $53,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	5.53 years
Weighted average volatility	73%
Forfeiture rate	10%
Weighted average risk-free interest rate	1.39%
Expected dividend rate	0%

In February 2015, the Company authorized 23,034 shares of common stock to be issued under the Plan to its three independent directors in accordance with board agreements and which will be earned quarterly for service in 2015. The fair value of the stock at the time of grant was $5.97 per share for a total value of $138,000. The Company recognized $25,000 in general and administrative expense for the three months ended March 31, 2015 and will recognize the remaining $113,000 on a pro-rated quarterly basis in the remainder of 2015.

In the three months ended March 31, 2015, 115,000 shares of common stock were issued through the exercise of stock options with a strike price of $2.20 per share for proceeds of $253,000.

Stock options may be exercised prior to vesting where the resulting shares of common stock are issued with a declining repurchase right in favor of the Company at the exercise price should the employee terminate employment or upon other related circumstances prior to the previous vesting date. At March 31, 2015, there are 6,670 shares outstanding subject to a repurchase right at $4.88 per share through December 31, 2016.

Outstanding stock option grants at March 31, 2015 and December 31, 2014 totaled 555,942 and 643,817 with 295,071 and 441,958 being vested and exercisable at March 31, 2015 and December 31, 2014, respectively. Stock grants made to date through March 31, 2015 and December 31, 2014 totaled 194,612 shares and 190,424 shares, respectively. Of these amounts, 24,000 and 28,000 at March 31, 2015 and December 31, 2014, respectively, are subject to declining repurchase rights by the Company at $0.0001 per share through September 30, 2016. The recognized compensation expense associated with these grants for the three months ended March 31, 2015 and 2014 totaled $141,000 and $81,000, respectively. At March 31, 2015, the number of shares reserved under the Plan but unissued totaled 327,825. At March 31, 2015, there was $824,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.9 years.

Consultant Stock Plan

The Company has a 2013 Consultant Stock Plan (the Consultant Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on March 31, 2015 totaled 115,087 with 96,837 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. 

12

Warrants

The Company has the following warrants outstanding at March 31, 2015:

	Total Outstanding Warrants
Exercise Price	Warrants		Weighted Average Exercise Price		Life  (in years)
$1.80		80,000	$	1.80		5.89
$2.20		118,959	$	2.20		1.11
$5.00		345,000	$	5.00		2.07
$10.00		20,313	$	10.00		3.93
		564,272	$	4.14

Note 7 – Related Party Transactions

In connection with the February 2015 underwritten public offering described in Note 6, the Company paid the underwriter, MDB Capital Group, LLC (MDB), underwriting fees of $1,049,000 and underwriter legal fees and other costs of $55,000. As of March 2015, MDB and its chief executive officer beneficially own, in the aggregate, approximately 8.1% of the Company's common stock.

Note 8 – Commitments

On February 3, 2015, the Company and its newly-appointed Chief Executive Officer, Stephen E. Pirnat entered into an employment agreement (the Agreement) which terminates on December 31, 2017, unless earlier terminated. Compensation under the Agreement includes an annual salary of $350,000 with annual cost-of-living adjustments, a grant of stock options as described in Notes 6 and 9, annual cash bonuses of 30% to 60% of his annual salary and equity bonuses based on performance standards established by the Compensation Committee of the Board of Directors, medical and dental benefits for Mr. Pirnat and his family, and relocation expenses up to approximately $100,000. The Agreement may be terminated by the Company without cause under certain circumstances, as defined in the Agreement whereby a severance payment would be due in the amount of compensation that would have been due had employment not been terminated or one year of the current annual compensation, whichever is greater. In the event of a change in control, Mr. Pirnat would receive one year’s compensation and all previously granted stock options would vest in full.

The Company has agreements with its three independent directors to compensate them annually. The obligation totals $300,000 per year of which $150,000 is to be paid with the Company’s common stock at fair value. Directors are elected annually.

The Company has a triple net lease for office and laboratory space through February 2017. Under the terms of the lease, the Company paid no rent for the period November 2011 to February 2012 and for February 2014. Rent escalates annually by 3%. The Company records monthly rent expense equal to the total of the payments over the lease term divided by the number of months of the lease term. Therefore, the deferred rent was reduced by $3,000 for the three months ended March 31, 2015 and rent expense of $9,000 was accrued for the three months ended March 31, 2014. Under the terms of the lease, the Company will also pay monthly triple net operating costs which currently approximate $3,000 per month. Minimum future payments under this lease at March 31, 2015 are as follows:

2015	$	103,000
2016		141,000
2017		24,000
	$	268,000

For the three months ended March 31, 2015 and 2014, rent expense amounted to $42,000 and $39,000, respectively.

13

The Company has a Field Test Agreement with Southern California-based Aera Energy LLC to demonstrate and test the Duplex technology in a once through steam generator (OTSG) used to facilitate the production of heavy oil in California’s San Joaquin Valley. Under the terms of the agreement, the Company has retrofit an OTSG unit in order to achieve certain performance criteria. Assuming successful completion of the demonstration and testing, the agreement also includes time-sensitive pricing, delivery and installation terms, if elected, that will apply to future purchases by Aera Energy LLC of this Duplex application.

Note 9 – Subsequent Events

From April 1 to May 1, 2015, the Company granted 300,200 stock options under the Plan to certain employees, including 200,000 stock options granted to its Chief Executive Officer, Stephen E. Pirnat. The stock options have exercise prices of $5.21 per share for 275,200 stock options and $5.07 per share for 25,000 stock options, the grant date fair values, contractual lives of 10 years, and vest over 2 years in the case of Mr. Pirnat’s stock options and over 4 years in the case of all other stock options. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $882,000, which includes $589,000 for Mr. Pirnat’s stock options.

After taking into effect the stock options granted subsequent to March 31, 2015, the total unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Plan that is expected to be recognized in future years as follows:

2015	$	681,000
2016		592,000
2017		290,000
2018		84,000
2019		18,000
	$	1,665,000

Activity under the Plan from January 1 to May 1, 2015 is as follows:

Reserved but unissued shares under the Plan, January 1, 2015	242,764
Increases in the number of authorized shares under the Plan	312,292
Grants of stock options	(405,200	)
Stock option forfeitures	77,875
Exercise of stock options	115,000
Stock grants	(4,188	)
Reserved but unissued shares under the Plan, May 1, 2015	338,543

14

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

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

· our limited cash and our history of losses;

· the successful development of our products;

· the acceptance of our products in our markets;

· our ability to achieve profitability; 

· our limited operating history;

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

· our ability to develop commercially viable products based upon 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 develop;

· 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;

· our ability to continue as a going concern; 

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

· other factors discussed in this report.

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.

15

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes included in our Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

We design and develop technologies that aim to improve both the energy efficiency and emission control characteristics of combustion systems. Our core technologies include our Duplex™ and Electrodynamic Combustion Control™ (ECC™) technologies. Our Duplex technology uses a unique refractory tile to homogenize the flame temperature and achieve very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation. Our ECC technology introduces a computer-controlled electric field into a combustion system in order to better control gas-phase chemical reactions and improve system performance and cost-effectiveness. To date, our operations have been funded primarily through sales of our common stock. We have earned no significant revenue since inception on January 23, 2008. We are located in Seattle, Washington.

Plan of Operation

We are pursuing development of our technologies to enable future sales. These activities entail (i) field development projects in the case of our Duplex technology where we have successfully demonstrated our proprietary technology operating in our field testing with thermal output of 52 million BTU/hr, (ii) laboratory research in the case of our ECC technology where we have successfully demonstrated our proprietary technology operating in our research facility with thermal output of 2 million BTU/hr, and (iii) business development and marketing activities with established entities that use steam generators, process heaters, boilers, solid fuel burners, and other combustion systems as well as original equipment manufacturers. We intend to continue to enter into collaborative arrangements which would enable us to work closely with established companies in specific industries to apply developed solutions in laboratory and field settings.

After performing testing on our Duplex technology in our laboratory furnace with thermal output up to 5 million BTU/hr, we commenced field development work in the fourth quarter of 2014 with Southern California-based Aera Energy LLC (Aera Energy) to demonstrate and test the Duplex technology in a once through steam generator (OTSG) with a thermal output ranging from 40 to 62.5 million BTU/hr used to facilitate the production of heavy oil through enhanced oil recovery in California’s San Joaquin Valley. To date, we have fired an OTSG located in Aera Energy’s Belridge field outside Bakersfield, California at a rate of 52 million BTU/hr and met the San Joaquin Valley Air Pollution Control District’s regulations under Rule 4320 requiring NOx emissions of 5 ppm (corrected at 3% O₂). These results were achieved without major modifications to the burner or the need for Flue Gas Recirculation (FGR). Further, we observed a thermal efficiency improvement of approximately 1% when compared to a baseline case with a conventional low NOx burner without FGR. OTSG systems typically operate with FGR to lower NOx emissions. FGR, however, penalizes thermal efficiency, increasing fuel and electricity costs. We estimate that Duplex, compared to systems operating with FGR, will provide an overall energy savings of as much as 3-4% which could represent a reduction in annual operating expense of up to $90,000 to $100,000, depending on variables such as the market price for natural gas and electricity. During testing, Aera’s OTSG unit continued to supply steam at the capacity and quality required for oil field operations. We continue to conduct testing to address additional performance criteria in order to continue to validate the environmental and operational benefits of our Duplex technology. Assuming continued successful completion of the demonstration and testing, our agreement with Aera Energy includes time-sensitive pricing, delivery and installation terms, if elected, that will apply to future purchases of this Duplex application. We recently received an order from an independent Southern California oil producer to retrofit a 25 million BTU/hr OTSG with our Duplex technology. In accordance with the terms of the order, the installation is expected to be completed in the second half of 2015.

We previously executed agreements regarding two further field tests with prospective customers at two separate petroleum refineries in the San Joaquin Valley related to process heaters with a thermal output ranging from 12 to 15 million BTU/hr. Pursuant to each agreement, if we are able to retrofit the prospective customer’s process heater in accordance with the specifications set forth in the agreement, the prospective customer will purchase a Duplex system from us. These prospective customers have no other financial obligations under the agreements. We intend to continue field validation of our Duplex technology in order to produce sufficient data to demonstrate product attributes and dependability. Regarding our ECC technology, we continue to conduct solid fuel laboratory testing in conjunction with six parties who have contributed $110,000 in 2014 to our research. If successful, this would create a basis for further focused laboratory studies prior to any field demonstrations. There is no assurance that additional revenues will be realized, terms will be reached, or a final agreement executed between us and any of these companies.

16

In April and May 2012, we completed an initial public offering (IPO) of our common stock whereby we sold 3,450,000 shares of common stock at $4.00 per share, which included the exercise of the underwriter’s overallotment option, resulting in gross proceeds of $13.8 million and, after deducting certain costs paid with common stock, net proceeds of $11.6 million.

In March 2014, we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $8.00 per share resulting in gross proceeds of $6.5 million and net proceeds of approximately $5.8 million.

In February 2015, we completed an underwritten public offering of our common stock whereby we sold 2,990,000 shares of common stock at $5.85 per share resulting in gross proceeds of $17.5 million and net proceeds of approximately $16.3 million.

Our anticipated costs include employee salaries and benefits, compensation paid to consultants, capital costs for research and other equipment, costs associated with development activities including travel and administration, legal expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly-traded technology company. We currently have 12 full-time employees and 2 part-time employees. We anticipate increasing the number of employees required to support our activities in the areas of research and development, sales and marketing, and general and administrative functions. We expect to incur consulting expenses related to technology development commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property.  

 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 marketing strategies. 

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

If management is unable to implement its proposed business plan or employ alternative financing strategies, it does not presently have any alternative proposals. In that case, we may be required to scale back our development plans by reducing expenditures for employees, consultants, business development and marketing efforts, and other envisioned expenditures or curtail or even suspend our operations.

We cannot assure that our technology 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 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 financial statements for a more complete description of our significant accounting policies.

17

Revenue Recognition. The Company recognizes revenue on co-development agreements using the percentage of completion method. Under this method, the completion percentage is determined by dividing costs incurred to date by total estimated project costs. Since our projects will require technological development to complete, which by its nature is difficult to predict, the actual cost required to complete contracted work may vary from estimates. Estimated project costs are revised regularly which can alter the reported level of project profitability. Any estimated project losses are recognized in the current reporting period. Customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract. If billings exceed recognized revenue, the difference is recorded as a current liability, while any recognized revenues exceeding billings are recorded as a current asset. Recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain. Revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known.

Cost of Revenue. Cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements. Direct costs include labor, materials and other costs incurred directly in fulfilling co-development agreements. Indirect costs include labor, rent, depreciation and other costs associated with operating the Company. Due to the nature of the work involved, the cost of co-development projects may fluctuate substantially from period to period.

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.

Patents and Trademarks. Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

Stock-Based Compensation. The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

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

The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable and accrued expenses. As of the balance sheet 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 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.

18

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2015 and 2014 

Operating Expenses. Operating expenses, consisting of research and development (R&D) and general and administrative (G&A) expenses, decreased by $55,000 to $1,592,000 for the three months ended March 31, 2015, referred to herein as Q1 2015, compared to the same period in 2014 (Q1 2014). The Company decreased its R&D expenses by $34,000 to $573,000 for Q1 2015 due primarily to reduced consulting fees. G&A expenses decreased by $21,000 to $1,019,000 in Q1 2015 due primarily to reduced investor relations consulting costs.

Loss from Operations. Due to the decrease in operating expenses, our loss from operations decreased during Q1 2015 by $55,000 to $1,592,000.

Net Loss. Primarily as a result of the decrease in operating expenses, our net loss for Q1 2015 was $1,583,000 as compared to a net loss of $1,646,000 for Q1 2014, resulting in a decreased net loss of $63,000.

Liquidity and Capital Resources

At March 31, 2015, our cash and cash equivalent balance totaled $16,190,000 compared to $1,845,000 at December 31, 2014. This increase resulted primarily from our underwritten public offering of 2,990,000 shares of common stock in February 2015 which resulted in net proceeds of approximately $16.3 million. This was offset by the operating costs for the three months ended March 31, 2015 supporting our ongoing research and development of our technology to enable future sales. Although we are pursuing co-development agreements, there is no assurance that they will be adequate to fund our operations and to commercialize our technology. To the extent co-development agreement funding is insufficient for these purposes, we may undertake offerings of our securities, debt financing, selling or licensing our developed intellectual or other property, or other alternatives. The Company filed a Form S-3 shelf registration statement with the Securities and Exchange Commission (SEC) on May 6, 2013 that was declared effective on May 30, 2013. Following the offering that closed in February 2015, the registration statement allows the Company to offer up to an aggregate of $6,008,000 of common stock, preferred stock or warrants from time to time as market conditions permit. This equity funding would be used to enable further investment in our technology and product development and to maintain a strong balance sheet as we pursue strategic joint development and marketing relationships and prepare to pursue significant opportunities in various segments of the market. This information does not constitute an offer of any securities for sale.

At March 31, 2015, our current assets were in excess of current liabilities resulting in working capital of $15,413,000 compared to $719,000 at December 31, 2014. The increase in working capital resulted primarily from the $16.3 million of net proceeds from our February 2015 common stock offering offset by funds used in Q1 2015 operations.

Operating activities for the three months ended March 31, 2015 resulted in cash outflows of $1,738,000, which were due primarily to the loss for the period of $1,583,000, offset by non-cash expenses totaling $194,000, and net changes in working capital, exclusive of cash, which reduced cash flow by $349,000 related primarily to a decrease in accrued compensation. Operating activities for the three months ended March 31, 2014 resulted in cash outflows of $1,636,000 which were due primarily to the loss for the period of $1,646,000, offset by non-cash expenses totaling $211,000, and net changes in working capital, exclusive of cash, which reduced cash flow by $201,000 related primarily to a decrease in accrued compensation.

Investing activities for the three months ended March 31, 2015 resulted in cash outflows of $335,000 for development of patents and other intangible assets and $17,000 for acquisition of fixed assets. Investing activities for the three months ended March 31, 2014 resulted in cash outflows of $328,000 for development of patents and other intangible assets and $17,000 for acquisition of fixed assets.

19

Financing activities for the three months ended March 31, 2015 resulted in $16,435,000 of cash inflows, which came primarily from the issuance of 2,990,000 shares of common stock at $5.85 per share resulting in gross proceeds of $17,491,000 and net cash proceeds of approximately $16,279,000. Additionally, we raised $253,000 through an exercise of stock options and reduced long-term liabilities by $97,000. Financing activities for the three months ended March 31, 2014 resulted in $5,796,000 of cash inflows, which came primarily from the issuance of 812,500 shares of common stock at $8.00 per share resulting in gross proceeds of $6,500,000 and net cash proceeds of approximately $5,780,000. Additionally, we raised $16,000 through an exercise of stock options.

Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

20

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 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 (the “Act”) is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded that, as of March 31, 2015, our disclosure controls and procedures are effective.

There have been no material changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 1A. RISK FACTORS

We incorporate herein by reference the risk factors included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 which we filed with the Securities and Exchange Commission on February 26, 2015.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

21

ITEM 6. EXHIBITS

Exhibit Number	Document
3.1	Articles of Incorporation of ClearSign Combustion Corporation, amended on February 2, 2011 (1)
3.1.1	Articles of Amendment to Articles of Incorporation of ClearSign Combustion Corporation filed on December 22, 2011 (1)
3.2	Bylaws (1)
10.1	Employment Agreement dated February 3, 2015 between the ClearSign Combustion Corporation and Stephen E. Pirnat (2)
10.2	Form of Lock-Up Agreement dated February 4, 2015 executed by MDB Capital Group, LLC (3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer*
101	The following financial statements from the registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015, formatted in XBRL: (i) Condensed Balance Sheets (Unaudited); (ii) Condensed Statements of Operations (Unaudited); (iii) Condensed Statement of Stockholders’ Equity (Unaudited); (iv) Condensed Statements of Cash Flows (Unaudited); (v) Notes to Unaudited Condensed Financial Statements.*

*Filed herewith

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

(2) Incorporated by reference from the registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on February 5, 2015.

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

22

SIGNATURES 

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

	CLEARSIGN COMBUSTION CORPORATION
	(Registrant)
Date: May 14, 2015	By:	/s/ Stephen E. Pirnat
		Stephen E. Pirnat
		Chief Executive Officer
	By:	/s/ James N. Harmon
		James N. Harmon
		Chief Financial Officer

23

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Stephen E. Pirnat, certify that:

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

Date: May 14, 2015

/s/ Stephen E. Pirnat

Stephen E. Pirnat

Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James N. Harmon, certify that:

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

Date: May 14, 2015

/s/ James N. Harmon

James N. Harmon

Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of ClearSign Combustion Corporation (the “Company”) on Form 10-Q for the three months ended March 31, 2015 as filed with the Securities and Exchange Commission (the “Report”), we, Stephen E. Pirnat, Chief Executive Officer (Principal Executive Officer) and James N. Harmon, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of 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 Securities Exchange Act of 1934, and

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

Date: May 14, 2015

/s/ Stephen E. Pirnat

Stephen E. Pirnat

Chief Executive Officer (Principal Executive Officer)

/s/ James N. Harmon

James N. Harmon

Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Related Party Transactions (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2015
MDB Consulting Services [Member]
Related Party Transaction [Line Items]
Payments for Underwriting Expense	$ 1,049,000
Other Underwriting Expense	$ 55,000
Chief Executive Officer [Member] | MDB Capital Group, LLC MDB [Member]
Related Party Transaction [Line Items]
Equity Method Investment, Ownership Percentage	8.10%

XML

Summary of Significant Accounting Policies (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Jun. 30, 2014
Variable Interest Entity [Line Items]
Cash, FDIC Insured Amount	$ 250,000
Weighted Average Number of Shares Outstanding, Diluted	1,120,214	1,249,582
Emerging Growth Company Minimum Revenue	1,000,000,000
Emerging Growth Company Non Convertible Debt	1,000,000,000
Emerging Growth Company Minimum Non-Affiliate Market Value Of Common Stock			700,000,000
Tax Benefits Recognized Description	The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.
Emerging Growth Company Non-Affiliate Market Value Of Common Stock			$ 71,000,000
Property, Plant and Equipment, Estimated Useful Lives	over two to four years

XML

Subsequent Events (Details 1)	3 Months Ended	12 Months Ended	4 Months Ended
	Mar. 31, 2015	Dec. 31, 2014	May 01, 2015
Subsequent Event [Member]
Class of Stock [Line Items]
Grants of stock options	(300,200)
Equity Incentive Plan [Member]
Class of Stock [Line Items]
Reserved but unissued shares under the Plan	643,817		643,817
Grants of stock options	(194,612)	(190,424)
Reserved but unissued shares under the Plan	555,942	643,817
Equity Incentive Plan [Member] | Subsequent Event [Member]
Class of Stock [Line Items]
Reserved but unissued shares under the Plan	242,764		242,764
Increases in the number of authorized shares under the Plan			312,292
Grants of stock options			(405,200)
Stock option forfeitures			77,875
Exercise of stock options			115,000
Stock grants			(4,188)
Reserved but unissued shares under the Plan			338,543

XML

Organization and Description of Business

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Organization, Consolidation, Basis Of Presentation, Business Description and Accounting Policies [Text Block]

Note 1 – Organization and Description of Business

ClearSign Combustion Corporation (ClearSign or the Company) designs, develops and markets technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. The Company’s primary technologies include its Duplex™ technology, which achieves very low emissions without the need of external flue gas recirculation, selective catalytic reduction, or higher excess air operation, and its Electrodynamic Combustion Control™ or ECC™ technology, which introduces a computer-controlled electric field into the combustion region which may better control gas-phase chemical reactions and improve system performance and cost-effectiveness. The Company is located in Seattle, Washington and was incorporated in the State of Washington in 2008.

The Company has generated limited revenues from operations to date to meet its operating expenses, and has historically financed its operations primarily through issuances of equity securities. The Company has incurred losses since its inception totaling $22,843,000 and expects to experience operating losses and negative cash flow for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support research and development efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.

XML

Termination of Employment Agreement (Details Textual) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Richard F. Rutkowski [Member] | Option One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	15,625
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value	$ 4.88
Richard F. Rutkowski [Member] | Option Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	14,219
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value	$ 9.90
Scenario, Forecast [Member]
Financial Liabilities Fair Value Disclosure	$ 673,000
Scenario, Forecast [Member] | Richard F. Rutkowski [Member]
Officers' Compensation		359,000	60,000
General and Administrative Expense [Member]
Financial Liabilities Fair Value Disclosure				$ 943,000

XML

Patents and Other Intangible Assets (Details 1) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Net	$ 2,705,000	$ 2,372,000
Issued Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2015	5,000
2016	7,000
2017	7,000
2018	7,000
2019	7,000
Thereafter	35,000
Finite-Lived Intangible Assets, Net	$ 68,000

XML

Stockholders' Equity (Details) (Employee Stock Option [Member])	3 Months Ended
	Mar. 31, 2015
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life	5 years 6 months 11 days
Weighted average volatility	73.00%
Forfeiture rate	10.00%
Weighted average risk-free interest rate	1.39%
Expected dividend rate	0.00%

XML

Stockholders' Equity (Details 1) (USD $)	3 Months Ended
	Mar. 31, 2015
Warrants Outstanding	564,272
Warrants Outstanding Weighted Average Exercise Price	$ 4.14
Exercise Price 1.80 [Member]
Warrants Exercise Price	$ 1.80
Warrants Outstanding	80,000
Warrants Outstanding Weighted Average Exercise Price	$ 1.80
Warrants Outstanding Remaining Life (in years)	5 years 10 months 20 days
Exercise Price 2.20 [Member]
Warrants Exercise Price	$ 2.20
Warrants Outstanding	118,959
Warrants Outstanding Weighted Average Exercise Price	$ 2.20
Warrants Outstanding Remaining Life (in years)	1 year 1 month 10 days
Exercise Price 5.00 [Member]
Warrants Exercise Price	$ 5.00
Warrants Outstanding	345,000
Warrants Outstanding Weighted Average Exercise Price	$ 5.00
Warrants Outstanding Remaining Life (in years)	2 years 25 days
Exercise Price 10.00 [Member]
Warrants Exercise Price	$ 10.00
Warrants Outstanding	20,313
Warrants Outstanding Weighted Average Exercise Price	$ 10.00
Warrants Outstanding Remaining Life (in years)	3 years 11 months 5 days

XML

Supplemental disclosure of non-cash operating and financing activities: (USD $)	3 Months Ended
	Mar. 31, 2014
Warrants Authorized For Issuance To Acquire Common Stock Shares Number	20,313
Warrants Authorized For Issuance To Acquire Common Stock Value	$ 92,000

XML

Stockholders' Equity (Details Textual) (USD $)	3 Months Ended		1 Months Ended	12 Months Ended	4 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Feb. 28, 2015	Dec. 31, 2014	May 01, 2015
Class of Stock [Line Items]
Stock Issued During Period, Value, New Issues	$ 17,491,000
Warrants Authorized For Issuance To Acquire Common Stock Shares Number		20,313
Exercise Price Of Warrants		$ 10.00
Warrants Authorized For Issuance To Acquire Common Stock Value		92,000
Common Stock, Shares Authorized	62,500,000
Preferred Stock, Shares Authorized	2,000,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	1,665,000
Share-Based Compensation	116,000	81,000
Proceeds From Issuance Or Sale Of Equity	16,279,000	5,796,000
Registered Direct Offering [Member]
Class of Stock [Line Items]
Stock Issued During Period, Value, New Issues		6,500,000
Stock Issued In Registered Direct Offering Price Per Share		$ 8.00
Placement Agent Fees		488,000
Payments for Placement Agent Legal Fees		75,000
Other Cost and Expense, Operating		44,000
Stock Issued During Period, Shares, Registered Direct Offering		812,500
Proceeds From Issuance Or Sale Of Equity		5,800,000
Payment of Financing and Stock Issuance Costs		800,000
Underwritten Public Offering [Member]
Class of Stock [Line Items]
Stock Issued During Period, Value, New Issues			17,500,000
Other Cost and Expense, Operating			110,000
Proceeds From Issuance Or Sale Of Equity			16,300,000
Payment of Financing and Stock Issuance Costs			1,200,000
Stock Issued During Period Shares Underwritten Public Offering			2,990,000
Stock Issued in Underwritten Public Offering Price Per Share			$ 5.85
Underwriter Agent fees			1,049,000
Payments for Underwriter Agent Legal Fees			55,000
Subsequent Event [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	300,200
Share Based Compensation Arrangement by Share Based Payment Award Options Grants In Period Fair Value	882,000
Consultant Plan [Member]
Class of Stock [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	115,087
Shares Reserved Unissued	96,837
Stock Option Plan Description	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.
Common Stock [Member]
Class of Stock [Line Items]
Stock Issued During Period, Value, New Issues	0
Equity Incentive Plan [Member]
Class of Stock [Line Items]
Common Stock, Shares Authorized			23,034
Share Based Compensation Arrangement By Share Based Payment Award Purchase Price Share Minimum	85.00%
Common Stock, Capital Shares Reserved for Future Issuance	1,078,379
Increase Decrease Of Share Based Compensation Arrangement By Share Based Payment Award Percentage	10.00%
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan	555,942			643,817
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	824,000
Declining Repurchase Rights Value	24,000			28,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	194,612			190,424
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 5.97		$ 5.97
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	10 years		10 years
Share-Based Compensation	141,000	81,000
Shares Reserved Unissued	327,825
Selling, General and Administrative Expense, Total	25,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 10 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number	295,071			441,958
Stock Granted During Period, Value, Share-Based Compensation, Gross	16,000		334,000
Stock Issued During Period, Shares, Acquisitions	115,000
Investment Options, Exercise Price	$ 2.20
Proceeds from Issuance of Common Stock	253,000
Allocated Share-based Compensation Expense	53,000
Share Based Compensation Arrangement by Share Based Payment Award Options Grants In Period Fair Value			138,000
Equity Incentive Plan [Member] | Subsequent Event [Member]
Class of Stock [Line Items]
Share-based Compensation Outstanding - Reserved but unissued shares under the Plan				242,764	338,543
Declining Repurchase Rights Per Share	$ 0.0001
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					405,200
Selling, General and Administrative Expense, Total	113,000
Equity Incentive Plan [Member] | Employee Stock Option [Member]
Class of Stock [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award Options Grants In Period Subject To Repurchase Rights Decline	6,670
Investment Options, Exercise Price	$ 4.88
Equity Incentive Plan [Member] | Consultant Plan [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			5,000
Legal Fees [Member] | Registered Direct Offering [Member]
Class of Stock [Line Items]
Stock Issued During Period, Value, Issued for Noncash Considerations		$ 113,000
Mr. Pirnat [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			100,000

XML

Balance Sheets (USD $)	Mar. 31, 2015	Dec. 31, 2014
Current Assets:
Cash and cash equivalents	$ 16,190,000	$ 1,845,000
Prepaid expenses	111,000	109,000
Total current assets	16,301,000	1,954,000
Fixed assets, net	226,000	263,000
Patents and other intangible assets, net	2,705,000	2,372,000
Other assets	10,000	10,000
Total Assets	19,242,000	4,599,000
Current Liabilities:
Accounts payable	200,000	253,000
Accrued compensation and taxes	688,000	982,000
Total current liabilities	888,000	1,235,000
Long Term Liabilities:
Long-term accrued compensation and taxes	275,000	372,000
Deferred rent	30,000	33,000
Total liabilities	1,193,000	1,640,000
Commitments
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding	0	0
Common stock, $0.0001 par value, 12,790,664 and 9,681,476 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively	1,000	1,000
Additional paid-in capital	40,891,000	24,218,000
Accumulated deficit	(22,843,000)	(21,260,000)
Total stockholders' equity	18,049,000	2,959,000
Total Liabilities and Stockholders' Equity	$ 19,242,000	$ 4,599,000

XML

Statement of Stockholders' Equity [Parenthetical] (USD $)	3 Months Ended
	Mar. 31, 2015
Stock issued during the period underwritten offering per share	$ 5.85
Common stock for services per share issue	$ 5.97
Stock issued during period par value exercise of options	$ 2.20

XML

Commitments (Details Textual) (USD $)	3 Months Ended		0 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Feb. 03, 2015	Feb. 03, 2015
Loss Contingencies [Line Items]
Rent Expense Escalation Percentage	3.00%
Increase In Deferred Rent	$ 3,000
Reduction In Deferred Rent		9,000
Operating Leases, Rent Expense	42,000	39,000
Contractual Obligation	300,000
Obligation To Pay In Common Stock At Fair Value	150,000
Triple Net Operating Cost	3,000
Minimum [Member]
Loss Contingencies [Line Items]
Annual Cash Bonus			30.00%	30.00%
Maximum [Member]
Loss Contingencies [Line Items]
Annual Cash Bonus			60.00%	60.00%
Stephen E. Pirnat [Member]
Loss Contingencies [Line Items]
Salaries, Wages and Officers' Compensation			350,000
Employment Agreement Termination Date				Dec. 31, 2017
Labor and Related Expense			$ 100,000

XML

Commitments (Tables)

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Minimum future payments under this lease at March 31, 2015 are as follows:

 

2015	$	103,000
2016		141,000
2017		24,000
	$	268,000

XML

Subsequent Events (Details) (USD $)	Mar. 31, 2015
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	$ 1,665,000
Year 2015 [Member]
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	681,000
Year 2016 [Member]
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	592,000
Year 2017 [Member]
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	290,000
Year 2018 [Member]
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	84,000
Year 2019 [Member]
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized	$ 18,000

XML

Organization and Description of Business (Details Textual) (USD $)	3 Months Ended		86 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015
Organization and Description of Business [Line Items]
Net loss	$ 1,583,000	$ 1,646,000	$ 22,843,000

XML

Statements of Cash Flows (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities:
Net loss	$ (1,583,000)	$ (1,646,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services	25,000	55,000
Share based payments	116,000	81,000
Depreciation and amortization	56,000	58,000
Abandonment of capitalized patents	0	8,000
Deferred rent	(3,000)	9,000
Change in operating assets and liabilities:
Prepaid expenses	(2,000)	76,000
Accounts payable	(53,000)	(13,000)
Accrued compensation	(294,000)	(264,000)
Net cash used in operating activities	(1,738,000)	(1,636,000)
Cash flows from investing activities:
Acquisition of fixed assets	(17,000)	(17,000)
Disbursements for patents and other intangible assets	(335,000)	(328,000)
Net cash used in investing activities	(352,000)	(345,000)
Cash flows from financing activities:
Proceeds from issuance of common stock for cash, net of offering costs	16,279,000	5,796,000
Proceeds from exercise of stock options	253,000	0
Reduction in long term accrued compensation and taxes	(97,000)	0
Net cash provided by financing activities	16,435,000	5,796,000
Net increase in cash and cash equivalents	14,345,000	3,815,000
Cash and cash equivalents, beginning of period	1,845,000	2,688,000
Cash and cash equivalents, end of period	$ 16,190,000	$ 6,503,000

XML

Balance Sheets [Parenthetical] (USD $)	Mar. 31, 2015	Dec. 31, 2014
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	12,790,664	9,681,476
Common stock, shares outstanding	12,790,664	9,681,476

XML

Subsequent Events

3 Months Ended

Mar. 31, 2015

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 9 – Subsequent Events

From April 1 to May 1, 2015, the Company granted 300,200 stock options under the Plan to certain employees, including 200,000 stock options granted to its Chief Executive Officer, Stephen E. Pirnat. The stock options have exercise prices of $5.21 per share for 275,200 stock options and $5.07 per share for 25,000 stock options, the grant date fair values, contractual lives of 10 years, and vest over 2 years in the case of Mr. Pirnat’s stock options and over 4 years in the case of all other stock options. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $882,000, which includes $589,000 for Mr. Pirnat’s stock options.

After taking into effect the stock options granted subsequent to March 31, 2015, the total unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Plan that is expected to be recognized in future years as follows:

2015	$	681,000
2016		592,000
2017		290,000
2018		84,000
2019		18,000
	$	1,665,000

Activity under the Plan from January 1 to May 1, 2015 is as follows:

Reserved but unissued shares under the Plan, January 1, 2015	242,764
Increases in the number of authorized shares under the Plan	312,292
Grants of stock options	(405,200)
Stock option forfeitures	77,875
Exercise of stock options	115,000
Stock grants	(4,188)
Reserved but unissued shares under the Plan, May 1, 2015	338,543

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2015	May 14, 2015
Document Information [Line Items]
Entity Registrant Name	CLEARSIGN COMBUSTION CORP
Entity Central Index Key	0001434524
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	CLIR
Entity Common Stock, Shares Outstanding		12,804,936
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission 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, 2014 has been derived from the Company’s audited financial statements.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Use Of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue on co-development agreements using the percentage of completion method. Under this method, the completion percentage is determined by dividing costs incurred to date by total estimated project costs. Since these projects will require technological development to complete, which by its nature is difficult to predict, the actual cost required to complete contracted work may vary from estimates. Estimated project costs are revised regularly which can alter the reported level of project profitability. Any estimated project losses are recognized in the current reporting period. Customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract. If billings exceed recognized revenue, the difference is recorded as a current liability, while any recognized revenues exceeding billings are recorded as a current asset. Recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain. Revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known. There were no revenues for the three months ended March 31, 2015 and 2014.

Cost of Sales, Policy [Policy Text Block]

Cost of Revenue

Cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements. Direct costs include labor, materials and other costs incurred directly in fulfilling co-development agreements. Indirect costs include labor, rent, depreciation and other costs associated with operating the Company. Due to the nature of the work involved, the cost of co-development projects may fluctuate substantially from period to period.

Cash and Cash Equivalents, Policy [Policy Text Block]

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 has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Fixed Assets Policy [Policy Text Block]

Fixed Assets

Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks Policy [Policy Text Block]

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

Impairment Of Long Lived Asset Policy [Policy Text Block]

Impairment of Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. 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, Policy [Policy Text Block]

Fair Value of Financial Instruments

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

 

The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable and accrued expenses. As of the balance sheet 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 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.

Research and Development Expense, Policy [Policy Text Block]

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.

Deferred Rent Policy [Policy Text Block]

Deferred Rent

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expense in the amount of the total payments over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent which is reflected on the accompanying balance sheets.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Share-Based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Earnings Per Share, Policy [Policy Text Block]

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2015 and 2014, potentially dilutive shares outstanding amounted to 1,120,214 and 1,249,582, respectively.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective standards, if adopted, will have a material effect on the financial statements.

Growing Company [Policy Text Block]

Emerging Growth Company

The Company is an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1 billion, if it issues more than $1 billion in non-convertible debt in a three year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any June 30. At June 30, 2014, the market value of the Company’s common stock held by non-affiliates totaled $71 million.

XML

Condensed Statements of Operations (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Operating expenses:
Research and development	$ 573,000	$ 607,000
General and administrative	1,019,000	1,040,000
Total operating expenses	1,592,000	1,647,000
Loss from operations	(1,592,000)	(1,647,000)
Other income:
Interest income	9,000	1,000
Net Loss	$ (1,583,000)	$ (1,646,000)
Net Loss per share - basic and fully diluted (in dollars per share)	$ (0.14)	$ (0.18)
Weighted average number of shares outstanding - basic and fully diluted (in shares)	11,363,356	9,060,163

XML

Patents and Other Intangible Assets

3 Months Ended

Mar. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	March 31,		December 31,
	2015		2014
Patents	(unaudited)
Patents pending	$	2,594,000	$	2,262,000
Issued patents		67,000		67,000
		2,661,000		2,329,000
Trademarks
Trademarks pending		35,000		36,000
Registered trademarks		4,000		-
		39,000		36,000
Other		8,000		8,000
		2,708,000		2,373,000
Accumulated amortization		(3,000)		(1,000)
	$	2,705,000	$	2,372,000

Future amortization expense associated with awarded patents as of March 31, 2015 is estimated as follows:

2015	$	5,000
2016		7,000
2017		7,000
2018		7,000
2019		7,000
Thereafter		35,000
	$	68,000

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Fixed Assets

3 Months Ended

Mar. 31, 2015

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 3 – Fixed Assets

Fixed assets are summarized as follows:

	March 31,		December 31,
	2015		2014
	(unaudited)
Machinery and equipment	$	647,000	$	646,000
Office furniture and equipment		108,000		98,000
Leasehold improvements		130,000		124,000
Accumulated depreciation		(659,000)		(605,000)
	$	226,000	$	263,000

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Subsequent Events (Tables)

3 Months Ended

Mar. 31, 2015

Subsequent Events [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

After taking into effect the stock options granted subsequent to March 31, 2015, the total unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Plan that is expected to be recognized in future years as follows:

2015	$	681,000
2016		592,000
2017		290,000
2018		84,000
2019		18,000
	$	1,665,000

Schedule of Share-based Compensation, Activity [Table Text Block]

Activity under the Plan from January 1 to May 1, 2015 is as follows:

Reserved but unissued shares under the Plan, January 1, 2015	242,764
Increases in the number of authorized shares under the Plan	312,292
Grants of stock options	(405,200)
Stock option forfeitures	77,875
Exercise of stock options	115,000
Stock grants	(4,188)
Reserved but unissued shares under the Plan, May 1, 2015	338,543

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Fixed Assets (Tables)

3 Months Ended

Mar. 31, 2015

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Fixed assets are summarized as follows:

	March 31,		December 31,
	2015		2014
	(unaudited)
Machinery and equipment	$	647,000	$	646,000
Office furniture and equipment		108,000		98,000
Leasehold improvements		130,000		124,000
Accumulated depreciation		(659,000)		(605,000)
	$	226,000	$	263,000

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Related Party Transactions

3 Months Ended

Mar. 31, 2015

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Note 7 – Related Party Transactions

In connection with the February 2015 underwritten public offering described in Note 6, the Company paid the underwriter, MDB Capital Group, LLC (MDB), underwriting fees of $1,049,000 and underwriter legal fees and other costs of $55,000. As of March 2015, MDB and its chief executive officer beneficially own, in the aggregate, approximately 8.1% of the Company's common stock.

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Termination of Employment Agreement

3 Months Ended

Mar. 31, 2015

Employment Agreement Termination [Abstract]

Termination of Employment Agreement Disclosure [Text Block]

Note 5 – Termination of Employment Agreement

The Company and its former Chief Executive Officer, Richard F. Rutkowski, entered into an agreement in December 2014 terminating a prior employment agreement. Under this agreement, Mr. Rutkowski will be paid his annual salary of $359,000 through December 31, 2016, provided employee benefits through December 2015, and receive a bonus of $60,000, which was paid in March 2015, as well as accelerated vesting on 15,625 stock options with an exercise price of $4.88 per share and 14,219 stock options with an exercise price of $9.90 per share which terminate in March 2015.

The liability incurred under this agreement totaled $943,000 which was recognized in general and administrative expense in 2014. At March 31, 2015, the remaining liability totaled $673,000 and is payable through December 2016.

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Stockholders' Equity

3 Months Ended

Mar. 31, 2015

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 6 – Stockholders’ Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62,500,000 shares of common stock and 2,000,000 shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

 

In February 2015, the Company completed an underwritten public offering of common stock whereby 2,990,000 shares were issued at $5.85 per share. Gross proceeds from the offering totaled $17.5 million and net cash proceeds approximated $16.3 million. Expenses of the offering approximated $1.2 million, including underwriting fees of $1,049,000, underwriter legal fees and other costs of $55,000, and other costs of $110,000.

In March 2014, the Company completed a registered direct offering of common stock whereby 812,500 shares were issued at $8.00 per share. Gross proceeds from the offering totaled $6.5 million and net cash proceeds approximated $5.8 million. Expenses of the offering approximated $0.8 million. Cash expenses included placement agent fees of $488,000, placement agent legal and other fees of $75,000, issuer legal fees of $113,000, and other costs of $44,000. Non-cash expenses consisted of a warrant to purchase 20,313 shares of the Company’s common stock at $10.00 per share exercisable until March 2019 valued at $92,000. 

Equity Incentive Plan

 

The Company has an Equity Incentive Plan (the Plan) which provides for the granting of options to purchase shares of common stock, stock awards to purchase shares at no less than 85% of the value of the shares, and stock bonuses to officers, employees, board members, consultants, and advisors. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. As of March 31, 2015, the number of shares reserved for issuance under the Plan totaled 1,078,379 shares. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. 

 

In February 2015, the Company and its Chief Executive Officer, Stephen E. Pirnat, entered into an employment agreement as described in Note 8. In accordance with the employment agreement, the Company immediately granted to Mr. Pirnat 100,000 stock options under the Plan. The stock options have an exercise price of $5.97 per share, the grant date fair value, vest on February 3, 2016, and have a contractual life of 10 years. The fair value of stock options estimated on the date of grant using the Black-Scholes option valuation model was $334,000. The Company also granted 5,000 stock options under the Plan to a consultant. The stock options have an exercise price of $5.97 per share, the grant date fair value, a contractual life of 10 years, and vest over four years. The fair value of stock options granted estimated on the date of grant using the Black-Scholes option valuation model was $16,000. The recognized compensation expense associated with these grants for the three months ended March 31, 2015 was $53,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	5.53 years
Weighted average volatility	73%
Forfeiture rate	10%
Weighted average risk-free interest rate	1.39%
Expected dividend rate	0%

In February 2015, the Company authorized 23,034 shares of common stock to be issued under the Plan to its three independent directors in accordance with board agreements and which will be earned quarterly for service in 2015. The fair value of the stock at the time of grant was $5.97 per share for a total value of $138,000. The Company recognized $25,000 in general and administrative expense for the three months ended March 31, 2015 and will recognize the remaining $113,000 on a pro-rated quarterly basis in the remainder of 2015.

 

In the three months ended March 31, 2015, 115,000 shares of common stock were issued through the exercise of stock options with a strike price of $2.20 per share for proceeds of $253,000.

Stock options may be exercised prior to vesting where the resulting shares of common stock are issued with a declining repurchase right in favor of the Company at the exercise price should the employee terminate employment or upon other related circumstances prior to the previous vesting date. At March 31, 2015, there are 6,670 shares outstanding subject to a repurchase right at $4.88 per share through December 31, 2016.

Outstanding stock option grants at March 31, 2015 and December 31, 2014 totaled 555,942 and 643,817 with 295,071 and 441,958 being vested and exercisable at March 31, 2015 and December 31, 2014, respectively. Stock grants made to date through March 31, 2015 and December 31, 2014 totaled 194,612 shares and 190,424 shares, respectively. Of these amounts, 24,000 and 28,000 at March 31, 2015 and December 31, 2014, respectively, are subject to declining repurchase rights by the Company at $0.0001 per share through September 30, 2016. The recognized compensation expense associated with these grants for the three months ended March 31, 2015 and 2014 totaled $141,000 and $81,000, respectively. At March 31, 2015, the number of shares reserved under the Plan but unissued totaled 327,825. At March 31, 2015, there was $824,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.9 years.

Consultant Stock Plan

The Company has a 2013 Consultant Stock Plan (the Consultant Plan) which provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on March 31, 2015 totaled 115,087 with 96,837 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. 

 

Warrants

The Company has the following warrants outstanding at March 31, 2015:

		Total Outstanding Warrants
Exercise Price		Warrants		Weighted Average Exercise Price		Life (in years)
	$1.80		80,000	$	1.80	5.89
	$2.20		118,959	$	2.20	1.11
	$5.00		345,000	$	5.00	2.07
	$10.00		20,313	$	10.00	3.93
			564,272	$	4.14

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Commitments

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note 8 – Commitments

On February 3, 2015, the Company and its newly-appointed Chief Executive Officer, Stephen E. Pirnat entered into an employment agreement (the Agreement) which terminates on December 31, 2017, unless earlier terminated. Compensation under the Agreement includes an annual salary of $350,000 with annual cost-of-living adjustments, a grant of stock options as described in Notes 6 and 9, annual cash bonuses of 30% to 60% of his annual salary and equity bonuses based on performance standards established by the Compensation Committee of the Board of Directors, medical and dental benefits for Mr. Pirnat and his family, and relocation expenses up to approximately $100,000. The Agreement may be terminated by the Company without cause under certain circumstances, as defined in the Agreement whereby a severance payment would be due in the amount of compensation that would have been due had employment not been terminated or one year of the current annual compensation, whichever is greater. In the event of a change in control, Mr. Pirnat would receive one year’s compensation and all previously granted stock options would vest in full.

 

The Company has agreements with its three independent directors to compensate them annually. The obligation totals $300,000 per year of which $150,000 is to be paid with the Company’s common stock at fair value. Directors are elected annually.

 

The Company has a triple net lease for office and laboratory space through February 2017. Under the terms of the lease, the Company paid no rent for the period November 2011 to February 2012 and for February 2014. Rent escalates annually by 3%. The Company records monthly rent expense equal to the total of the payments over the lease term divided by the number of months of the lease term. Therefore, the deferred rent was reduced by $3,000 for the three months ended March 31, 2015 and rent expense of $9,000 was accrued for the three months ended March 31, 2014. Under the terms of the lease, the Company will also pay monthly triple net operating costs which currently approximate $3,000 per month. Minimum future payments under this lease at March 31, 2015 are as follows:

 

2015	$	103,000
2016		141,000
2017		24,000
	$	268,000

For the three months ended March 31, 2015 and 2014, rent expense amounted to $42,000 and $39,000, respectively.

 

The Company has a Field Test Agreement with Southern California-based Aera Energy LLC to demonstrate and test the Duplex technology in a once through steam generator (OTSG) used to facilitate the production of heavy oil in California’s San Joaquin Valley. Under the terms of the agreement, the Company has retrofit an OTSG unit in order to achieve certain performance criteria. Assuming successful completion of the demonstration and testing, the agreement also includes time-sensitive pricing, delivery and installation terms, if elected, that will apply to future purchases by Aera Energy LLC of this Duplex application.

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Commitments (Details) (USD $)	Mar. 31, 2015
Operating Leased Assets [Line Items]
2015	$ 103,000
2016	141,000
2017	24,000
Operating Leases, Future Minimum Payments Due	$ 268,000

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2015

Schedule Of Share Based Payment Award Warrants Valuation Assumptions [Table Text Block]

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

Expected life	5.53 years
Weighted average volatility	73%
Forfeiture rate	10%
Weighted average risk-free interest rate	1.39%
Expected dividend rate	0%

Schedule Of Share Based Compensation Warrants Activity [Table Text Block]

The Company has the following warrants outstanding at March 31, 2015:

		Total Outstanding Warrants
Exercise Price		Warrants		Weighted Average Exercise Price		Life (in years)
	$1.80		80,000	$	1.80	5.89
	$2.20		118,959	$	2.20	1.11
	$5.00		345,000	$	5.00	2.07
	$10.00		20,313	$	10.00	3.93
			564,272	$	4.14

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Fixed Assets (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Machinery and equipment	$ 647,000	$ 646,000
Office furniture and equipment	108,000	98,000
Leasehold improvements	130,000	124,000
Accumulated depreciation	(659,000)	(605,000)
Property, Plant and Equipment, Net, Total	$ 226,000	$ 263,000

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Statement of Stockholders' Equity (USD $)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Balances at Dec. 31, 2014	$ 2,959,000	$ 1,000	$ 24,218,000	$ (21,260,000)
Balances (in shares) at Dec. 31, 2014		9,681,476
Shares issued in underwritten offering ($5.85 per share)	17,491,000	0	17,491,000	0
Shares issued in underwritten offering ($5.85 per share) (in shares)		2,990,000
Issuance costs of underwritten offering	(1,212,000)	0	(1,212,000)	0
Issuance costs of underwritten offering (in shares)		0
Shares issued for services ($5.97 per share)	25,000	0	25,000	0
Shares issued for services ($5.97 per share) (in shares)		4,188
Shares issued upon exercise of options ($2.20 per share)	253,000	0	253,000	0
Shares issued upon exercise of options ($2.20 per share) (in shares)		115,000
Share based compensation	116,000	0	116,000	0
Share based compensation (in shares)		0
Net loss	(1,583,000)	0	0	(1,583,000)
Balances at Mar. 31, 2015	$ 18,049,000	$ 1,000	$ 40,891,000	$ (22,843,000)
Balances (in shares) at Mar. 31, 2015		12,790,664

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission 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, 2014 has been derived from the Company’s audited financial statements.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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

The Company recognizes revenue on co-development agreements using the percentage of completion method. Under this method, the completion percentage is determined by dividing costs incurred to date by total estimated project costs. Since these projects will require technological development to complete, which by its nature is difficult to predict, the actual cost required to complete contracted work may vary from estimates. Estimated project costs are revised regularly which can alter the reported level of project profitability. Any estimated project losses are recognized in the current reporting period. Customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract. If billings exceed recognized revenue, the difference is recorded as a current liability, while any recognized revenues exceeding billings are recorded as a current asset. Recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain. Revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known. There were no revenues for the three months ended March 31, 2015 and 2014.

Cost of Revenue

Cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements. Direct costs include labor, materials and other costs incurred directly in fulfilling co-development agreements. Indirect costs include labor, rent, depreciation and other costs associated with operating the Company. Due to the nature of the work involved, the cost of co-development projects may fluctuate substantially from period to period.

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 has not experienced losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Fixed Assets

Fixed assets are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the life of the lease or their useful life, whichever is shorter. All other fixed assets are depreciated over two to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded.

Impairment of Long-Lived Assets

The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. 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 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 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.

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.

Deferred Rent

Operating lease agreements which contain provisions for future rent increases or periods in which rent payments are reduced or abated are recorded in monthly rent expense in the amount of the total payments over the lease term divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is credited or charged to deferred rent which is reflected on the accompanying balance sheets.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

Stock-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. Stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At March 31, 2015 and 2014, potentially dilutive shares outstanding amounted to 1,120,214 and 1,249,582, respectively.

Recently Issued Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective standards, if adopted, will have a material effect on the financial statements.

Emerging Growth Company

The Company is an emerging growth company as defined under the Jumpstart Our Business Startups Act of 2012 (JOBS Act). An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1 billion, if it issues more than $1 billion in non-convertible debt in a three year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any June 30. At June 30, 2014, the market value of the Company’s common stock held by non-affiliates totaled $71 million.

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Patents and Other Intangible Assets (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Patents	$ 2,661,000	$ 2,329,000
Trademarks	39,000	36,000
Other	8,000	8,000
Finite-Lived Intangible Assets, Gross	2,708,000	2,373,000
Accumulated amortization	(3,000)	(1,000)
Finite-Lived Intangible Assets, Net	2,705,000	2,372,000
Patents Pending [Member]
Patents	2,594,000	2,262,000
Issued Patents [Member]
Patents	67,000	67,000
Finite-Lived Intangible Assets, Net	68,000
Trademarks Pending [Member]
Trademarks	35,000	36,000
Registered Trademarks [Member]
Trademarks	$ 4,000	$ 0

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Subsequent Events (Details Textual) (Subsequent Event [Member], USD $)	3 Months Ended
	Mar. 31, 2015
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	300,200
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share Based Compensation Arrangement by Share Based Payment Award Options Grants In Period Fair Value	$ 882,000
Chief Executive Officer [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	200,000
Stock Option One [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value	$ 5.21
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	275,200
Stock Option Two [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value	$ 5.07
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	25,000
Other Stock Option [Member]
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Stephen E. Pirnat [Member]
Subsequent Event [Line Items]
Share Based Compensation Arrangement by Share Based Payment Award Options Grants In Period Fair Value	$ 589,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	2 years

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Patents and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

Patents and other intangible assets are summarized as follows:

	March 31,		December 31,
	2015		2014
Patents	(unaudited)
Patents pending	$	2,594,000	$	2,262,000
Issued patents		67,000		67,000
		2,661,000		2,329,000
Trademarks
Trademarks pending		35,000		36,000
Registered trademarks		4,000		-
		39,000		36,000
Other		8,000		8,000
		2,708,000		2,373,000
Accumulated amortization		(3,000)		(1,000)
	$	2,705,000	$	2,372,000

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Future amortization expense associated with awarded patents as of March 31, 2015 is estimated as follows:

2015	$	5,000
2016		7,000
2017		7,000
2018		7,000
2019		7,000
Thereafter		35,000
	$	68,000