10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

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

For the transition period from ______________ to _______________

Commission File Number 001-35521

CLEARSIGN TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

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

8023 E. 63rd Place, Suite 101

Tulsa, Oklahoma 74133

(Address of principal executive offices)

(Zip Code)

(918) 236-6461

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of November 6, 2023, the issuer has 38,565,836 shares of common stock, par value $0.0001, issued and outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	2
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three month periods during the nine months ended September 30, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II	OTHER INFORMATION	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
	SIGNATURES	30

PART I-FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)	September 30,		December 31,
	2023		2022
ASSETS
Current Assets:
Cash and cash equivalents	$	7,235	$	6,451
Short-term held-to-maturity investments		—		2,606
Accounts receivable, net		87		79
Contract assets		7		20
Prepaid expenses and other assets		484		577
Total current assets		7,813		9,733
Fixed assets, net		406		384
Patents and other intangible assets, net		769		798
Other assets		10		10
Total Assets	$	8,998	$	10,925
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	406	$	296
Current portion of lease liabilities		78		133
Accrued compensation and related taxes		581		471
Contract liabilities		1,801		247
Total current liabilities		2,866		1,147
Long Term Liabilities:
Long term lease liabilities		186		226
Total liabilities		3,052		1,373
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding		—		—
Common stock, $0.0001 par value, 38,565,836 and 38,023,701 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		4		4
Additional paid-in capital		98,725		98,079
Accumulated other comprehensive loss		(21)		(8)
Accumulated deficit		(92,762)		(88,523)
Total equity		5,946		9,552
Total Liabilities and Equity	$	8,998	$	10,925

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

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ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenues	$	85	$	324	$	1,129	$	324
Cost of goods sold		61		201		870		201
Gross profit		24		123		259		123
Operating expenses:
Research and development		93		97		440		393
General and administrative		1,428		1,461		4,649		4,342
Total operating expenses		1,521		1,558		5,089		4,735
Loss from operations		(1,497)		(1,435)		(4,830)		(4,612)
Other income
Interest		85		35		237		35
Government assistance		38		88		145		100
Gain from sale of assets		—		—		5		37
Other income, net		42		—		204		—
Total other income		165		123		591		172
Net loss	$	(1,332)	$	(1,312)	$	(4,239)	$	(4,440)
Net loss per share - basic and fully diluted	$	(0.03)	$	(0.03)	$	(0.11)	$	(0.13)
Weighted average number of shares outstanding - basic and fully diluted		38,562,127		37,871,291		38,459,313		34,435,117
Comprehensive loss
Net loss	$	(1,332)	$	(1,312)	$	(4,239)	$	(4,440)
Foreign-exchange translation adjustments		(1)		(10)		(13)		(20)
Comprehensive loss	$	(1,333)	$	(1,322)	$	(4,252)	$	(4,460)

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

2

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the Three Month Periods During the Nine Months Ended September 30, 2023 and 2022

										Total ClearSign
						Accumulated Other				Technologies Corp.
(in thousands, except per share data)	Common Stock			Additional		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital			Income (Loss)	Deficit		Equity
Balances at December 31, 2022	38,023	$	4	$	98,079	$	(8)	$	(88,523)	$	9,552
Share-based compensation	223		—		227		—		—		227
Fair value of stock issued in payment of accrued compensation	296		—		234		—		—		234
Shares issued for services ($0.66 per share)	4		—		3		—		—		3
Net loss	—		—		—		—		(1,429)		(1,429)
Balances at March 31, 2023	38,546		4		98,543		(8)		(89,952)		8,587
Share-based compensation	—		—		59		—		—		59
Shares issued upon exercise of options ($0.54 per share)	12		—		—		—		—		—
Shares issued for services ($0.66 per share)	4		—		2		—		—		2
Foreign-Exchange Translation Adjustment	—		—		—		(12)		—		(12)
Net loss	—		—		—		—		(1,478)		(1,478)
Balances at June 30, 2023	38,562		4		98,604		(20)		(91,430)		7,158
Share-based compensation	—		—		119		—		—		119
Shares issued for services ($0.66 per share)	4		—		2		—		—		2
Foreign-Exchange Translation Adjustment	—		—		—		(1)		—		(1)
Net loss	—		—		—		—		(1,332)		(1,332)
Balances at September 30, 2023	38,566	$	4	$	98,725	$	(21)	$	(92,762)	$	5,946

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										Total ClearSign
						Accumulated Other				Technologies Corp.
(in thousands, except per share data)	Common Stock			Additional		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Paid-In Capital			Income (Loss)	Deficit		Equity
Balances at December 31, 2021	31,582	$	3	$	91,035	$	9	$	(82,765)	$	8,282
Shares issued upon exercise of options ($0.89 per share)	1		—		—		—		—		—
Shares issued upon exercise of options ($2.93 per share)	3		—		—		—		—		—
Fair value of stock issued in payment of accrued compensation	66		—		95		—		—		95
Fair value of stock options granted in payment of accrued compensation	—		—		12		—		—		12
Share based compensation	3		—		80		—		—		80
Shares issued through the use of At-The Market issuance ($1.24 average per share)	496		—		578		—		—		578
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Net loss	—		—		—		—		(1,490)		(1,490)
Balances at March 31, 2022	32,155		3		91,807		9		(84,255)		7,564
Share based compensation	—		—		50		—		—		50
Shares issued through the use of At-The Market issuance ($1.71 average per share)	5		—		9		—		—		9
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Shares issued in stock offering ($1.11 average per share)	4,186		1		4,210		—		—		4,211
Foreign-Exchange Translation Adjustment	—		—		—		(10)		—		(10)
Net loss	—		—		—		—		(1,638)		(1,638)
Balances at June 30, 2022	36,350		4		96,083		(1)		(85,893)		10,193
Share based compensation	64		—		177		—		—		177
Shares issued upon cashless exercise of options ($0.89 per share)	10		—		—		—		—		—
Shares issued pursuant to purchase right ($1.11 per share)	1,592		—		1,741		—		—		1,741
Shares issued for services ($1.93 per share)	4		—		7		—		—		7
Foreign-Exchange Translation Adjustment	—		—		—		(10)		—		(10)
Net loss	—		—		—		—		(1,312)		(1,312)
Balances at September 30, 2022	38,020	$	4	$	98,008	$	(11)	$	(87,205)	$	10,796

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

4

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(4,239)	$	(4,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		7		21
Share-based compensation		419		307
Depreciation and amortization		231		113
Gain from sale of fixed assets		(5)		(37)
Right of use asset amortization		105		116
Realized gain from marketable securities		(79)		—
Lease Amendments		(14)		—
Impairment of intangible assets		14		—
Change in operating assets and liabilities:
Contract assets		13		(245)
Accounts receivable		(8)		(5)
Prepaid expenses and other assets		(116)		(161)
Accounts payable and accrued liabilities		6		(99)
Accrued compensation and related taxes		329		189
Contract liabilities		1,554		(23)
Net cash used in operating activities		(1,783)		(4,264)
Cash flows from investing activities:
Acquisition of fixed assets		—		(5)
Disbursements for patents and other intangible assets		(95)		(114)
Proceeds from sale of fixed assets		5		37
Purchases of held-to-maturity short-term U.S. treasuries		(2,162)		(3,900)
Redemption of held-to-maturity short-term U.S. treasuries		4,847		—
Net cash provided by (used in) investing activities		2,595		(3,982)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		—		6,539
Taxes paid related to vesting of restricted stock units		(15)		—
Net cash (used in) provided by financing activities		(15)		6,539
Effect of exchange rate changes on cash and cash equivalents		(13)		(20)
Cash and cash equivalents:
Net change in cash and cash equivalents		784		(1,727)
Cash and cash equivalents, beginning of period		6,451		7,607
Cash and cash equivalents, end of period	$	7,235	$	5,880
Supplemental disclosure of cash flow information:
Officer and employee equity awards for prior year accrued compensation	$	234	$	107
Prior year prepaid expenses repurposed to fixed assets as demonstration equipment	$	209	$	—
Non-cash impact of new lease	$	34	$	—

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

5

ClearSign Technologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

ClearSign Technologies Corporation (“ClearSign” or the “Company”) designs and develops products and technologies that have been shown to significantly improve key performance characteristics of industrial and commercial systems, including operational performance, energy efficiency, emission reduction, safety, and overall cost-effectiveness. The Company’s patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of selective catalytic reduction.

The Company was originally incorporated in the State of Washington in 2008. During January 2022, the Company relocated its headquarters from Seattle, Washington to Tulsa, Oklahoma. Effective June 15, 2023, the Company changed its state of incorporation to Delaware. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

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

Liquidity

The Company's condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2023, the Company’s cash and cash equivalents totaled $7,235 thousand, which the Company believes is sufficient to fund current operating expenses beyond twelve months from the date hereof. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

Historically, the Company has financed operations primarily through issuances of equity securities. Since inception, the Company has raised approximately $91.0 million in gross proceeds through the sale of its equity securities. During the nine months ended September 30, 2023, the Company did not raise proceeds through the issuance of common stock.

The Company has incurred losses since its inception totaling $92.8 million and expects to experience operating losses and negative cash flows for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

6

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited financial statements as of that date.

In the opinion of management, these condensed consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Sales

The Company recognizes revenue and related cost of goods sold in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (“ASC 606”). When applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligations are satisfied. Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.

The Company’s contracts generally include progress payments from the customer upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

Contract Costs

The Company capitalizes project costs until performance obligations related to the contract are completed. The Company expenses selling and marketing expenses when incurred within the statements of operations in general and administrative expenses.

7

Product Warranties

The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical or expected warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ significantly from actual warranty expense. Product warranties are included in accounts payable and accrued liabilities in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit in a checking and savings account, and short-term money market instruments with an original maturity of three months or less. Cash equivalents, which consist of short-term U.S. treasury bills, are based on quoted market prices, a Level 1 fair value measure.

Short-Term Investments

Short-term investments consist of U.S. treasuries with original maturities of twelve months or less and greater than three months. These short-term investments are classified as held to maturity and are recorded on an amortized cost basis based on the Company’s positive intent and ability to hold these securities to maturity. As of September 30, 2023, the Company has not experienced any other-than-temporary impairment of its short-term investments. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. The company evaluates whether the decline in fair value of its investments is other-than temporary at each quarter-end.

The cost basis for the Company’s short-term investments totaled approximately zero and $2,606 thousand as of September 30, 2023 and December 31, 2022, respectively. The unrealized holding gains for the Company’s short-term investments totaled approximately zero and $4 thousand as of September 30, 2023 and December 31, 2022, respectively. The Company has not experienced any continuous unrealized holding losses on these investments. The fair value for the Company’s short-term investments totaled approximately zero and $2,610 thousand as of September 30, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

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

Fixed Assets and Leases

Fixed assets are recorded at cost. Leases are recorded in accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes a right-of-use asset, which is included in fixed assets, net on the consolidated balance sheets, and a lease liability measured at the present value of the lease payments at the time of the lease inception or modification. Lease costs are recognized in the consolidated statement of operations over the lease term on a straight-line basis. Leases with a term of 1 year or less are considered short term leases with rent expense recognized over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life,

8

whichever is shorter. All other fixed assets are depreciated over three to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent and trademark applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no continuing value in current business activity. The Company evaluates the recoverability of the carrying values of intangible assets each reporting period.

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

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

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

● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments primarily consist of cash equivalents, short-term investments, accounts receivable, contract assets, contract liabilities, accounts payable, and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term nature of these instruments.

The Company did not identify any other recurring or non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners

9

in cost sharing, collaborative projects. During the nine months ended September 30, 2023, the Company received $60 thousand from these arrangements. During the nine months ended September 30, 2022, the Company did not receive funds from these arrangements.

Government Assistance

The Company has adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. The Company records gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the nature of expenditure. The Company accrues for reimbursement requests submitted to government entities in accounts receivable.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not the Company would not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits are recognized only if it is more likely than not that the tax benefits will be utilized in the foreseeable future.

Share-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of milestones as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Foreign Operations

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 include assets amounting to approximately $261 thousand and $172 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which $111 thousand has been paid as of September 30, 2023. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the COVID-19 pandemic.

Foreign Currency

Assets and liabilities of ClearSign Asia Limited with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive income (loss).

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants

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using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At September 30, 2023 and September 30, 2022, potentially dilutive shares outstanding amounted to 4.0 million and 3.1 million, respectively.

Recently Issued Accounting Pronouncements Adopted

In June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023. This standard did not have a material impact on the Company’s condensed consolidated financial statements.

Note 3 – Fixed Assets

Fixed Assets

Fixed assets are summarized as follows:

	September 30,		December 31,
(in thousands)	2023		2022
Machinery and equipment	$	209	$	390
Office furniture and equipment		60		177
Leasehold improvements		43		192
		312		759
Accumulated depreciation and amortization		(162)		(697)
		150		62
Operating lease ROU assets, net		256		322
Total	$	406	$	384

Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 totaled $122 thousand and $19 thousand, respectively.

Leases

The Company leases office space in Seattle, Washington, Tulsa, Oklahoma and Beijing, China. During June 2023, the Company renewed its Beijing, China lease agreement for 13 months with monthly rent at approximately $3 thousand. The Company increased the right of use asset and lease liability by $34 thousand.

During March 2023, the Company amended its Seattle lease to extend the lease term to September 2023. The amended lease reduced the square footage and lowered the monthly payment to approximately $4 thousand. The Company increased the right of use asset by $5 thousand and decreased the lease liability by $9 thousand. During October 2023, the Company entered into an agreement to lease a portion of office space for approximately $2 thousand per month for twelve months. The Tulsa and Beijing leases are classified as operating leases, with remaining terms ranging from less than twelve months to four years; contractual language requires renewal negotiations to occur at or near termination. These leases are normal and customary for office space, in that, contractual guarantees exist requiring the lessee to return the premises to its original functional state. The Company incurred restoration expenses of $31 thousand and $87 thousand for the nine months ended September 30, 2023 and twelve months ended December 31, 2022, respectively.

The Tulsa lease contains fixed annual lease payments that increase annually by 2%. The Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $10 thousand. Operating lease costs for the three and nine months ended

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September 30, 2023 were $35 thousand and $117 thousand, respectively. Operating lease costs for the three and nine months ended September 30, 2022 were $49 thousand and $138 thousand, respectively.

Supplemental balance sheet information related to operating leases is as follows:

		September 30,			December 31,
(in thousands)		2023			2022
Operating lease ROU assets, net	$	256		$	322
Lease Liabilities:
Current lease liabilities	$	78		$	133
Long term lease liabilities		186			226
Total lease liabilities	$	264		$	359
Weighted average remaining lease term (in years):		2.3
Weighted average discount rate:		5.3	%

	For the Nine Months Ended
	September 30,
(in thousands)		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	134	$	185
Non-cash impact of new leases and lease modifications
Change in operating lease liabilities	$	25	$	25
Change in operating lease ROU assets	$	39	$	—

Minimum future payments under the Company’s lease liabilities as of September 30, 2023 are as follows:

	Discounted		Payments
	lease		due under
(in thousands)	liability		lease
	payments		agreements
2023 (remaining 3 months)	$	21	$	24
2024		71		81
2025		59		66
2026		63		67
2027		50		51
Total	$	264	$	289

At September 30, 2023, $25 thousand of the Company’s future minimum lease payments represents interest.

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Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	September 30,		December 31,
(in thousands)	2023		2022
Patents
Patents pending	$	400	$	307
Issued patents		782		815
		1,182		1,122
Trademarks
Trademarks pending		4		6
Registered trademarks		86		95
		90		101
Other		8		8
		1,280		1,231
Accumulated amortization		(511)		(433)
	$	769	$	798

Amortization expense for the nine months ended September 30, 2023 and 2022 totaled $109 thousand and $94 thousand, respectively. Future amortization expense associated with issued patents and registered trademarks as of September 30, 2023 is as follows:

(in thousands)
2023 (remaining 3 months)	$	33
2024		125
2025		95
2026		60
2027		38
Thereafter		6
	$	357

The amortization life for patents ranges between three to five years, with trademark lives set at ten years. The Company does not amortize patents or trademarks classified as pending.

During the nine months ended September 30, 2023 and 2022, the Company assessed its patent and trademark assets, and determined $14 thousand and zero impairment costs were incurred, respectively. The Company also evaluated its strategic approach to the pursuit and protection of its intellectual property. It is the intent of the Company to continue to pursue intellectual property protection. If the Company identifies certain assets where the intellectual property does not directly align with its core technology, the Company will impair the intangible asset and write-off the asset as an expense.

Note 5 – Revenue, Contract Assets and Contract Liabilities

The Company recognized $85 thousand of revenues and $61 thousand of cost of goods sold during the three months ended September 30, 2023. The revenue and cost of goods sold relate to a sale of our boiler burner product line.

The Company recognized $1,129 thousand of revenues and $870 thousand of cost of goods sold during the nine months ended September 30, 2023. The revenue and cost of goods sold relate predominately to the Company’s process burner product line, where the Company successfully completed a burner performance customer witness test, which represented a contractual performance obligation per ASC 606.

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The Company recognized $324 thousand of revenues and $201 thousand of cost of goods sold during the three and nine months ended September 30, 2022. The revenue and cost of goods sold are mostly in connection with the completion of a technology validation project.

The Company had contract assets of $7 thousand and $20 thousand at September 30, 2023 and December 31, 2022, respectively. The Company had contract liabilities of $1,801 thousand and $247 thousand at September 30, 2023 and December 31, 2022, respectively. Of the $247 thousand contract liability balance at December 31, 2022, the Company recognized revenue of $120 thousand during the nine months ended September 30, 2023.

Note 6 – Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62.5 million shares of common stock and 2.0 million shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In July 2018, the Company completed a private equity offering and executed a Stock Purchase Agreement with clirSPV LLC (“clirSPV”) which permits participation in future capital raising transactions (the “Participation Right”) on the same terms as other investors participating in such transactions. In no event may the Participation Right be exercised to the extent it would cause clirSPV or any of its affiliates to beneficially own 20% or more of the Company’s then outstanding common stock. In May 2022, the Company signed an agreement with clirSPV, that provides for an election right to extend the Participation Right beyond the original expiration date of December 31, 2023, but to no later than June 30, 2027. This election is pursuant to specific terms and conditions and expires on December 31, 2023.

The Company has an At-The-Market (“ATM”) Offering Sales Agreement with Virtu Americas LLC, as sales agent pursuant to which it may currently sell shares of common stock with an aggregate offering price of up to $8.7 million. During the nine months ended September 30, 2023, the Company issued zero shares of its common stock from the ATM program. As of September 30, 2023, the Company has cumulatively issued approximately 1.6 million shares of common stock under the ATM program, at an average price of $3.84 per share. Gross proceeds totaled approximately $6.1 million and net cash proceeds was approximately $5.9 million.

The Company is currently subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less

than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s

public float in a 12-month period. These rules may limit future issuances of shares by the Company under its Shelf

Registration statement on Form S-3, the ATM Offering Sales Agreement or other securities offerings.

Equity Incentive Plan

On June 17, 2021, the Company's shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “2021 Plan”) which permits the Company to grant Incentive Stock Options, Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares, to eligible participants, which includes employees, directors and consultants. The Compensation Committee of the Board of Directors is authorized to administer the 2021 Plan.

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The 2021 Plan provides for an annual increase in available shares equal to the lesser of (i) 10% of the aggregate number of shares of Common Stock issued by the Company in the prior fiscal year; or (ii) such number provided by the Compensation Committee; provided, however, that the total cumulative increase in the number of shares available for issuance pursuant to this automatic share increase shall not exceed 400 thousand shares of common stock. In 2023, the board of directors approved an increase of 400,000 shares available for issuance pursuant to future awards in accordance with the terms of the 2021 Plan.

Ending balances for the 2021 Plan is as follows:

	September 30,	December 31,
(in thousands)	2023	2022
Outstanding options and restricted stock units	3,467	3,202
Reserved but unissued shares under the Plan	2,381	2,777
Total authorized shares under the Plan	5,848	5,979

Stock Options

Under the terms of the 2021 Plan, incentive stock options and nonstatutory stock options must have an exercise price at or above the fair market value on the date of the grant. At the time of grant, the Company will determine the period within which the option may be exercised and will specify any conditions that must be satisfied before the option vests and may be exercised. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.

As permitted by SEC Staff Accounting Bulletin (SAB) 107, management utilized the simplified approach to estimate the expected term of the options, which represents the period of time that options granted are expected to be outstanding. Expected volatility has been determined through the Company’s historical stock price volatility. The Company has not made an estimate of forfeitures at the time of the grant, but rather accounts for forfeitures at the time they occur. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Inducement Options

During the nine months ended September 30, 2023, the Company granted non-qualified stock options to its Director of Customer Relationships and Business Development to purchase an aggregate of 150 thousand shares of common stock with an exercise price of $1.31 as a material inducement to accept employment with the Company. These inducement options vest in three equal installments, with one third of the option vesting on the grant date, and each remaining third of the options to vest on the second and third anniversaries of the grant date, subject to continued employment with the Company. The fair value of these options estimated on the date of grant using the Black Scholes valuation model was $160 thousand. The compensation expense recognized for these awards for the three and nine months ended September 30, 2023 was $62 thousand.

These inducement options were granted outside of the 2021 Plan and in accordance with the employment inducement

exemption provided under Nasdaq Listing Rule 5635(c)(4).

Equity Incentive Plan Options

Compensation expense associated with stock option awards for the three and nine months ended September 30, 2023 totaled $42 thousand and $132 thousand, respectively. Compensation expense associated with stock option awards for the three and nine months ended September 30, 2022 totaled $27 thousand and $84 thousand, respectively.

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A summary of the Company’s Equity Incentive Plan stock option activity and changes is as follows:

	September 30,
	2023
(in thousands, except per share data)	Options to Purchase Common Stock	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at beginning of year	2,779	$	2.05	6.43
Granted	—	$	—	—
Exercised	(20)	$	0.54	—
Forfeited/Expired	—	$	—	—
Outstanding at end of period	2,759	$	2.07	5.58
Exercisable at end of period	1,991	$	1.71	5.00

The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at September 30, 2023 is $154 thousand. The intrinsic value is the difference between the Company’s common stock price and the option exercise prices multiplied by the number of in-the-money options. This amount changes based on the fair value of the Company’s common stock.

At September 30, 2023, there was $1.0 million of total unrecognized compensation cost related to non-vested stock option-based compensation arrangements. Vesting criteria ranges from time-based to performance-based. The Company records costs for time-based arrangements ratably across the timeframe, whereas performance-based arrangements require management to continually evaluate predetermined goals against actual circumstances.

Restricted Stock Units

The Company awards employees and directors restricted stock units (“RSUs”) in lieu of cash payment for compensation. These awards are granted pursuant to the 2021 Plan. Employee vesting criteria is time based, and compensation expense is recognized ratably across the timeframe.

Director vesting criteria is contingent upon the occurrence of one of four future events, which the Company cannot predict or control. Therefore, compensation expense for director RSUs is not recognized until one of these four future events occur, which is in accordance with FASB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718). Unrecognized compensation expense for director services as of September 30, 2023 and 2022 was $233 thousand and $256 thousand, respectively. Director compensation is earned on a quarterly basis with the target value of compensation set at approximately $83 thousand per quarter.

A summary of the Company’s RSUs activity and changes is as follows:

	September 30,
	2023
(in thousands, except per share data)	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	423	$	1.49
Granted	538	$	0.78
Vested	(245)	$	1.34
Forfeited	(8)	$	0.79
Nonvested at end of period	708	$	1.01

A summary of the Company’s RSU compensation expense is as follows:

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	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023			2022
Compensation Expense	$	225	$	219
Weighted Average Value Per Share	$	0.80	$	1.34

Stock Awards

The Company awards employees stock in lieu of cash payment for compensation, typically to satisfy accrued bonus compensation. The awards are granted from the Company’s 2021 Plan.

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Fair value	$	234	$	98
Weighted Average Value Per Share	$	0.79	$	1.43

Consultant Stock Plan

The 2013 Consultant Stock Plan (the “Consultant Plan”) provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The Consultant Plan provides for periodic increases in the number of authorized shares available for issuance under the Consultant Plan on the first day of each of the Company’s fiscal quarters. The quarterly increases are equal to 1% of any new shares subsequently issued by the Company or such lesser amount as the Board of Directors shall determine.

The Consultant Plan activity and change is as follows:

	September 30,
(in thousands)	2023
Reserved but unissued shares at beginning of year		196
Increases in the number of authorized shares		5
Grants		(12)
Reserved but unissued shares at end of year		189

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The Consultant Plan compensation expense is summarized as follows:

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Compensation Expense	$	7	$	21
Weighted Average Value Per Share	$	0.66	$	1.93

Note 7 – Commitments and Contingencies

Litigation

From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings or claims that the Company believes will have a material adverse effect on the business, financial condition or operating results.

Indemnification Agreements

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

Note 8 – Government Assistance

During 2022, the Company was awarded a research grant from the Department of Energy (“DOE”) for approximately $250 thousand with the completion occurring in March 2023. The purpose of the grant was to produce a research paper for a flexible fuel ultra-low NOx process burner capable of burning 100% hydrogen fuel. During the three months ended September 2023, the Company was awarded a Phase 2 grant from the DOE to develop the flexible fueled ultra-low NOx process burner capable of burning 100% hydrogen. This grant is for $1.6 million over a two-year period. These awards allow the Company to request reimbursements for expenditures such as labor, material, and administrative costs. During the three and nine months ended September 30, 2023, the Company recognized $26 thousand and $95 thousand in reimbursements from the DOE, respectively. During the three and nine months ended September 30, 2022, the Company recognized $76 thousand in reimbursements from the DOE.

Beginning in 2021, the Company received funds relating to the Oklahoma 21^st Century Quality Jobs Act. The estimated duration of the program is up to 10 years and is designed to attract growth industries to Oklahoma. By reporting quarterly salary statistics and meeting agreed upon employment thresholds, the state remits benefit monies to the Company. During the three and nine months ended September 30, 2023, the Company recognized $12 thousand and $51 thousand in government assistance from this program, respectively. During the three and nine months ended September 30, 2022, the Company recognized $12 thousand and $24 thousand in government assistance from this program, respectively.

Note 9 – Subsequent Events

On November 6, 2023, we hired Matt Martin as our Chief Technology Officer. On the same day, we granted non-qualified stock options, in accordance with Nasdaq Listing Rule 5635(c)(4) and outside of the 2021 Plan, to purchase an

aggregate of 150 thousand shares of common stock with an exercise price of $0.91 per share as a material inducement to Mr.

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Martin’s entering into employment with us. These options vest in three equal installments, with one third of the option

vesting on the grant date, and each remaining third of the options to vest on the first and second anniversaries of the

grant date, subject to continued employment with the Company. This event does not impact the nine months ended

September 30, 2023 consolidated financial statements, but will impact the year ended December 31, 2023 consolidated

financial statements.

On November 9, 2023, 116 thousand shares of common stock, valued at approximately $99 thousand, were issued for vested restricted stock units in connection with the resignation of a member of the Company’s board of directors on November 9, 2023. 

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

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

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

● our ability to successfully develop and implement our technologies and achieve profitability;

● our limited operating history;

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

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

● customer demand for the products and services we develop;

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

● our ability to manufacture any products we design;

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

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

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

● our ability to protect our intellectual property;

● our ability to obtain adequate financing in the future;

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

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

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

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

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

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited financial statements and related notes included in our most recent Annual Report on Form 10-K. In addition to historical information, this discussion and analysis here and throughout this Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Overview

We design and develop technologies for the purpose of improving key performance characteristics of combustion systems, including emission and operational performance, energy efficiency and overall cost-effectiveness. Our ClearSign Core™ technology has been proven in full scale industrial test furnaces and boilers and first customer installations are currently operating in normal commercial applications. We have generated nominal revenues from operations to date to meet operating expenses.

We have incurred losses since inception totaling $92.8 million and we expect to experience operating losses and negative cash flow for the foreseeable future. We have historically financed our operations primarily through issuances of equity securities. Since inception, we have raised approximately $91.0 million in gross proceeds through the sale of our equity securities. We may need to raise additional capital in the future, however, the significant volatility in the capital markets may negatively affect our ability to raise this additional capital.

In order to generate meaningful revenues, our technologies must gain market recognition and acceptance to develop sufficient recurring sales. In addition, management believes that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to support commercialization of our research and development efforts, protect intellectual property, form relationships with strategic partners and provide for working capital and general corporate purposes. There can be no assurance that we will be successful in achieving our long-term plans, or that such plans, if consummated, will result in profitable operations or enable us to continue in the long-term as a going concern.

With respect to our China operations, we have a satellite office located in Beijing, China to support our commercialization efforts. At this time, these operations in China are immaterial compared to total company operations. As of September 30, 2023, our China asset balance totaled $261 thousand, or approximately 3%, compared to our total asset balance of $8,998 thousand. During the nine months ended September 30, 2023 and 2022, our China operations reported zero revenues.

Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for prototype development and manufacture, costs associated with development activities including materials, sub-contractors, travel and administration, legal and accounting expenses, sales and marketing costs, general and administrative expenses, and other costs associated with an early stage, publicly traded technology company. We currently have 16 full-time employees. Because using third party expertise and resources is more efficient than maintaining full time resources, we also expect to incur ongoing consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current level of activities.

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

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

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

Critical Accounting Policies

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

Revenue Recognition and Cost of Goods Sold.

The Company recognizes revenue and related cost of goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain documents or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.

The Company’s contracts generally include progress payments from customers upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue can be recorded. For any contract in connection with which the Company is expected to incur costs in excess of the contact price, the Company accrues the estimated loss in full in the period such determination is made.

Impairment of Long-Lived Assets

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

22

depending upon the nature of the assets. Losses on long-lived assets to be disposed of is determined in a similar manner, except those fair values are reduced for the cost of disposal.

Product Warranties

The Company warrants all installed products against defects in materials and workmanship, and shortcomings in performance compared to contractual guarantees for a period specified in each contract. Accruals for product warranties are based on expected warranty experience and current product performance trends which are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs during the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of our recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material if estimates differ significantly from actual warranty expense. The warranty liabilities are included in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and development costs are offset by any funds received from strategic partners in cost sharing, collaborative projects.

Stock-Based Compensation

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

Fair Value of Financial Instruments

The Company's financial instruments primarily consist of cash equivalents, accounts payable, accrued expenses and short-term investments in government securities. As of the balance sheet date, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the consolidated balance sheets. This is primarily attributed to the short maturities of these instruments.

23

RESULTS OF OPERATIONS

Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

Highlights of our quarter financial performance are as follows:

	For the Three Months Ended
(in thousands, except per share data)	September 30,
	2023		2022		$ Change		% Change
Revenues	$	85	$	324	$	(239)	(73.8)	%
Cost of goods sold		61		201	$	(140)	(69.7)	%
Gross profit		24		123	$	(99)	(80.5)	%
Research and development		93		97	$	(4)	(4.1)	%
General and administrative		1,428		1,461	$	(33)	(2.3)	%
Operating Expenses		1,521		1,558	$	(37)	(2.4)	%
Other income, net		165		123	$	42	34.1	%
Net loss	$	(1,332)	$	(1,312)	$	(20)	(1.5)	%
Basic and diluted net income per common share	$	(0.03)	$	(0.03)	$	(0.00)	NM

	For the Nine Months Ended
(in thousands, except per share data)	September 30,
	2023		2022		$ Change		% Change
Revenues	$	1,129	$	324	$	805	248.5	%
Cost of goods sold		870		201	$	669	332.8	%
Gross profit		259		123	$	136	110.6	%
Research and development		440		393	$	47	12.0	%
General and administrative		4,649		4,342	$	307	7.1	%
Operating Expenses		5,089		4,735	$	354	7.5	%
Other income, net		591		172	$	419	243.6	%
Net loss	$	(4,239)	$	(4,440)	$	201	4.5	%
Basic and diluted net income per common share	$	(0.11)	$	(0.13)	$	0.02	15.4	%
NM = Not meaningful

Revenues and Gross Profit

Consolidated revenues for the three and nine months ended September 30, 2023, were $85 thousand and $1,129 thousand, respectively, compared to $324 thousand for the same time periods in 2022. Revenues for the three months ended September 30, 2023, were generated from a boiler burner order. Revenues for the nine months ended September 30, 2023, were generated from several orders for spare parts, burner performance testing, engineering feasibility study and boiler burner sale.

The $324 thousand in consolidated revenues for the three and nine months ended September 30, 2022, were predominantly generated from the closeout of our ExxonMobil technology validation project. Additional revenue consisted of the sale of our ClearSign Core™ enclosed oxidizer product for a hydrogen production plant.

Gross profit for the three months ended September 30, 2023, decreased by $99 thousand compared to $123 thousand in profit for the same period in 2022, mostly due to a lower margin profile for the boiler burner sold in the third quarter of 2023 as compared to the margin from the ExxonMobil technology validation project during the 2022 comparable period. The margin profile for the boiler burner order sold in the 2023 quarter was lowered to incentivize the sale and adoption of our technology. Gross profit for the quarter ended September 30, 2023, was approximately 28.2% of revenues, resulting in a decrease of approximately 9.8% compared to the same quarter in 2022.

24

Gross profit for the nine months ended September 30, 2023, increased by $136 thousand compared to $123 thousand for the same period in 2022. For the nine months ended September 30, 2023, gross profit was approximately 22.9% of revenues, resulting in a decrease of approximately 15.1% compared to the same period in 2022, mainly due to our burner performance testing revenues during 2023, and revenues recognized in connection with the ExxonMobil technology validation project during the 2022 comparable period. The margin profile in the current year was lower predominantly due to the revenue coming from burner performance testing. Burner performance testing typically produces lower margin compared to burner fabrication revenues.

Operating Expenses

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

Research and Development

R&D expenses for the three and nine months ended September 30, 2023, remained relatively consistent year-over-year.

General and Administrative

G&A expenses for the 2023 third quarter remained relatively consistent compared to the same quarter in 2022. During the three months ended September 30, 2023, G&A expenses decreased by $33 thousand or 2.3% when compared to the same quarter in 2022.

During the nine months ended September 30, 2023, G&A expenses increased by $307 thousand or 7.1% when compared to the same period in 2022. This year-over-year difference in G&A expenses is primarily comprised of $73 thousand for vesting of restricted stock units triggered by the departure of two board members, one in 2023 and the other in 2022; an increase in project management and refurbishment costs for our Seattle office decommissioning project, which added $134 thousand in expenses as compared to the same period in 2022; and the vesting of $62 thousand in inducement stock options, which were granted to our new Customer Relationships and Business Development Director to incentivize employment (see “Note 6 – Equity – Inducement Options” for more details on the granted inducement options).

Other Income

Other income increased by $42 thousand or 34.1%, and $419 thousand or 243.6% for the three and nine month periods ending on September 30, 2023, respectively, as compared to the same time periods in 2022. During the three months ended September 30, 2023, interest income increased by $51 thousand compared to the same quarter in 2022. Materials sold as a result of our Seattle office decommission project increased other income by $43 thousand compared to the same quarter in 2022. The current third quarter increases were offset by a decrease of $50 thousand in government assistance, which are related to our Oklahoma Quality Jobs rebate agreement and our Department of Energy (“DOE”) ultra-low NOx hydrogen burner development grant. Our Phase 2 DOE grant was awarded late in the current quarter, thus a minimal amount of reimbursement was earned compared to our prior Phase 1 grant reimbursements during the comparable period. During the nine months ended September 30, 2023, interest income increased by $202 thousand, which was driven by rising interest rates. Our Seattle office decommission project increased other income by $197 thousand for the nine months ended September 30, 2023, compared to the same period in 2022.

Net Loss

Net loss for the three months ended September 30, 2023, was $1,332 thousand as compared to $1,312 thousand for the same quarter in 2022, or an approximate 1.5% increase. The $20 thousand increase is primarily attributable to the $99 thousand decrease in gross profit referenced in the above explanation.

25

Net loss for the nine months ended September 30, 2023, was $4,239 thousand as compared to $4,440 thousand for the same period in 2022, or an approximate 4.5% decrease. The $201 thousand decrease in net loss is primarily attributable to the $136 thousand increase in gross profit referenced in the above explanation.

Liquidity and Capital Resources

At September 30, 2023, our cash and cash equivalent balance totaled $7,235 thousand compared to $6,451 thousand at December 31, 2022, an increase of $784 thousand. The increase in cash and cash equivalent balance is primarily attributable to the change of short-term held-to-maturity investments. At September 30, 2023, our short-term held-to-maturity investments totaled zero, compared to $2,606 thousand at December 31, 2022.

At September 30, 2023, our current assets were in excess of current liabilities resulting in working capital of $4,947 thousand as compared to $8,586 thousand at December 31, 2022. We have no contractual debt obligations, and the Company has sufficient cash and expected cash collections to fund current operating expenses for over twelve months. To the extent the Company requires additional funds more than 12 months from the date hereof, and customer cash collections cannot fund our needs, the Company may utilize equity offerings. Historically, the Company has funded operations predominantly through equity offerings.

Currently, the Company can sell shares of common stock through its ATM program. As of September 30, 2023, the remaining aggregate offering price for future sales of common stock on the ATM is approximately $8.7 million, subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period (for more details, see “Note 6 – Equity” in the notes to our condensed consolidated financial statements). Future sales of shares of common stock and the price at which we may be able to sell such shares of common stock under the ATM are dependent on factors beyond our control, including, but not limited to, market conditions, and the trading price of our common stock.

We filed a Form S-3 shelf registration statement with the SEC on July 1, 2022 that was declared effective on August 12, 2022.The registration statement on Form S-3 allows us to offer common stock, preferred stock, warrants, subscription rights, debt securities and units from time to time, as market conditions permit to fund, to the extent required beyond the 12 months from the date hereof, the ongoing operations of the Company. Until the growth of revenue increases to a level that covers operating expenses, the Company intends to continue to fund operations in this manner, although the volatility in the capital markets may negatively affect our ability to do so.

Operating activities for the nine months ended September 30, 2023, resulted in cash outflows of $1,783 thousand, primarily due to the loss for the period of $4,239 thousand, offset with non-cash expenses of $678 thousand, and an increase of $1,554 thousand of contract liabilities, which represents payments from customers in advance of future project costs.

Operating activities for the nine months ended September 30, 2022, resulted in cash outflows of $4,264 thousand, primarily due to the loss for the period of $4,440 thousand, offset with non-cash expenses of $520 thousand.

Investing activities for the nine months ended September 30, 2023, resulted in cash inflows of $2,595 thousand, which is primarily attributable to the redemption $4,847 thousand of short-term held-to-maturity U.S. treasuries, offset by $2,162 thousand of purchases for the same type of investments.

Investing activities for the nine months ended September 30, 2022, resulted in cash outflows of $3,982 thousand, which is primarily attributable to $3,900 thousand of investments in short-term held-to-maturity U.S. treasuries, and $114 thousand of disbursements for patents and other intangibles.

Financing activities for the nine months ended September 30, 2023, included $15 thousand in disbursements for taxes paid related to vesting of employee restricted stock units.

26

Financing activities for the nine months ended September 30, 2022, included $6,539 thousand in net proceeds from the sale of 501 thousand shares of our common stock through our ATM program at an average price of $1.24 per share, sale of 4.2 million shares of our common stock through a public offering at an average price of $1.11 per share, and sales of 1.6 million shares of our common stock at a price of $1.11 per share pursuant to the Participant Right with clirSPV.

Off-Balance Sheet Transactions

We do not have any off-balance sheet transactions.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting and financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or

27

procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II-OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

ITEM 1A.RISK FACTORS

We incorporate herein by reference the risk factors included under “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 which we filed with the Securities and Exchange Commission on March 31, 2023, and the risk factors included in the reports and other documents we filed with the Securities and Exchange Commission subsequent to that date. There are no material changes from the risk factors set forth in such prior filings.

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

On September 30, 2023, we issued 3,750 shares of common stock at a price per share of $0.66, the closing price of our common stock on November 17, 2022, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, Firm IR, for services provided during the three months ended September 30, 2023. These shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for a transaction by an issuer not involving a public offering.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

Disclosure Pursuant to Item 5.02 of Current Report on Form 8-K - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. 

On November 9, 2023, Gary DiElsi notified our Board of Directors (the “Board”) that he will resign from the Board, effective immediately. At the time of his resignation, Mr. DiElsi was the chairperson of the Board’s Compensation Committee and a member of the Board’s Audit Committee and Nominating and Corporate Governance Committee. Mr. DiElsi’s decision to resign was not as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. The Company intends to appoint a new director to fill the vacancy resulting from Mr. DiElsi’s resignation. 

28

ITEM 6.EXHIBITS

Exhibit
Number	Document
3.1	Certificate of Incorporation of ClearSign Technologies Corporation, a Delaware corporation (1)
3.2	Bylaws of ClearSign Technologies Corporation, a Delaware corporation (1)
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1**	Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101.INS	Inline XBRL Instance Document*
101.SCH	Inline XBRL Taxonomy Extension Schema Document*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

**Furnished herewith

+ Agreement with management or compensatory plan or arrangement.

(1) Incorporated by reference from the Form 8-K filed with the Securities and Exchange Commission on June 15, 2023.

29

SIGNATURES

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

		CLEARSIGN TECHNOLOGIES CORPORATION
Date: November 14, 2023	By:	/s/ Colin James Deller
		Colin James Deller
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, 2023	By:	/s/ Brent Hinds
		Brent Hinds
		Chief Financial Officer (Principal Financial and Accounting Officer)

30

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Colin James Deller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ClearSign Technologies Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2023

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Brent Hinds, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ClearSign Technologies Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including any consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2023

/s/ Brent Hinds

Brent Hinds

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of ClearSign Technologies Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023 as filed with the Securities and Exchange Commission (the “Report”), we, Colin James Deller, Chief Executive Officer (Principal Executive Officer) and Brent Hinds, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

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

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

Date: November 14, 2023

/s/ Colin James Deller

Colin James Deller

Chief Executive Officer

(Principal Executive Officer)

/s/ Brent Hinds

Brent Hinds

Chief Financial Officer (Principal Financial and Accounting Officer)

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

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 06, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity Registrant Name	CLEARSIGN TECHNOLOGIES CORPORATION
Entity File Number	001-35521
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-2056298
Entity Address, Address Line One	8023 E. 63rd Place, Suite 101
Entity Address, City or Town	Tulsa
Entity Address, State or Province	OK
Entity Address, Postal Zip Code	74133
City Area Code	918
Local Phone Number	236-6461
Title of 12(b) Security	Common Stock
Trading Symbol	CLIR
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		38,565,836
Entity Central Index Key	0001434524
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current Assets:
Cash and cash equivalents	$ 7,235	$ 6,451
Short-term held-to-maturity investments	0	2,606
Accounts receivable, net	87	79
Contract assets	7	20
Prepaid expenses and other assets	484	577
Total current assets	7,813	9,733
Fixed assets, net	406	384
Patents and other intangible assets, net	769	798
Other assets	10	10
Total Assets	8,998	10,925
Current Liabilities:
Accounts payable and accrued liabilities	406	296
Current portion of lease liabilities	78	133
Accrued compensation and related taxes	581	471
Contract liabilities	1,801	247
Total current liabilities	2,866	1,147
Long Term Liabilities:
Long term lease liabilities	186	226
Total liabilities	3,052	1,373
Commitments and contingencies (Note 7)
Stockholders' Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding
Common stock, $0.0001 par value, 38,565,836 and 38,023,701 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	4	4
Additional paid-in capital	98,725	98,079
Accumulated other comprehensive loss	(21)	(8)
Accumulated deficit	(92,762)	(88,523)
Total equity	5,946	9,552
Total Liabilities and Equity	$ 8,998	$ 10,925

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares issued	38,565,836	38,023,701
Common stock, shares outstanding	38,565,836	38,023,701

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Condensed Consolidated Statements of Operations
Revenues	$ 85	$ 324	$ 1,129	$ 324
Cost of goods sold	61	201	870	201
Gross profit	24	123	259	123
Operating expenses:
Research and development	93	97	440	393
General and administrative	1,428	1,461	4,649	4,342
Total operating expenses	1,521	1,558	5,089	4,735
Loss from operations	(1,497)	(1,435)	(4,830)	(4,612)
Other income
Interest	85	35	237	35
Government assistance	38	88	145	100
Gain from sale of assets			5	37
Other income, net	42		204
Total other income	165	123	591	172
Net loss	$ (1,332)	$ (1,312)	$ (4,239)	$ (4,440)
Net loss per share - basic	$ (0.03)	$ (0.03)	$ (0.11)	$ (0.13)
Net loss per share - fully diluted	$ (0.03)	$ (0.03)	$ (0.11)	$ (0.13)
Weighted average number of shares outstanding - basic	38,562,127	37,871,291	38,459,313	34,435,117
Weighted average number of shares outstanding - fully diluted	38,562,127	37,871,291	38,459,313	34,435,117
Comprehensive loss
Net loss	$ (1,332)	$ (1,312)	$ (4,239)	$ (4,440)
Foreign-exchange translation adjustments	(1)	(10)	(13)	(20)
Comprehensive loss	$ (1,333)	$ (1,322)	$ (4,252)	$ (4,460)

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Condensed Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (loss)	Accumulated Deficit	Total
Beginning Balance at Dec. 31, 2021	$ 3	$ 91,035	$ 9	$ (82,765)	$ 8,282
Beginning Balances (in shares) at Dec. 31, 2021	31,582
Shares issued upon exercise of options ($0.89 per share) (in shares)	1
Shares issued upon exercise of options ($2.93 per share) (in shares)	3
Share based compensation		80			80
Share based compensation (in shares)	3
Fair value of stock issued in payment of accrued compensation		95			95
Fair value of stock issued in payment of accrued compensation (in shares)	66
Fair value of stock options granted in payment of accrued compensation		12			12
Shares issued through the use of At-The Market issuance		578			578
Shares issued through the use of At-The Market issuance (in shares)	496
Shares issued for services		7			7
Shares issued for services (in shares)	4
Net loss				(1,490)	(1,490)
Ending Balance at Mar. 31, 2022	$ 3	91,807	9	(84,255)	7,564
Ending Balances (in shares) at Mar. 31, 2022	32,155
Beginning Balance at Dec. 31, 2021	$ 3	91,035	9	(82,765)	8,282
Beginning Balances (in shares) at Dec. 31, 2021	31,582
Net loss					(4,440)
Ending Balance at Sep. 30, 2022	$ 4	98,008	(11)	(87,205)	10,796
Ending Balances (in shares) at Sep. 30, 2022	38,020
Beginning Balance at Mar. 31, 2022	$ 3	91,807	9	(84,255)	7,564
Beginning Balances (in shares) at Mar. 31, 2022	32,155
Share based compensation		50			50
Shares issued through the use of At-The Market issuance		9			9
Shares issued through the use of At-The Market issuance (in shares)	5
Shares issued for services		7			7
Shares issued for services (in shares)	4
Shares issued in stock offering	$ 1	4,210			4,211
Shares issued in stock offering (in shares)	4,186
Foreign-Exchange Translation Adjustment			(10)		(10)
Net loss				(1,638)	(1,638)
Ending Balance at Jun. 30, 2022	$ 4	96,083	(1)	(85,893)	10,193
Ending Balances (in shares) at Jun. 30, 2022	36,350
Share based compensation		177			177
Share based compensation (in shares)	64
Shares issued for services		7			7
Shares issued for services (in shares)	4
Shares issued pursuant to purchase right ($1.11 per share)		1,741			1,741
Shares issued pursuant to purchase right ($1.11 per share) (in shares)	1,592
Shares issued upon cashless exercise of options ($0.89 per share) (in shares)	10
Foreign-Exchange Translation Adjustment			(10)		(10)
Net loss				(1,312)	(1,312)
Ending Balance at Sep. 30, 2022	$ 4	98,008	(11)	(87,205)	10,796
Ending Balances (in shares) at Sep. 30, 2022	38,020
Beginning Balance at Dec. 31, 2022	$ 4	98,079	(8)	(88,523)	9,552
Beginning Balances (in shares) at Dec. 31, 2022	38,023
Share based compensation	$ 223	227			227
Fair value of stock issued in payment of accrued compensation		234			234
Fair value of stock issued in payment of accrued compensation (in shares)	296
Shares issued for services		3			3
Shares issued for services (in shares)	4
Net loss				(1,429)	(1,429)
Ending Balance at Mar. 31, 2023	$ 4	98,543	(8)	(89,952)	8,587
Ending Balances (in shares) at Mar. 31, 2023	38,546
Beginning Balance at Dec. 31, 2022	$ 4	98,079	(8)	(88,523)	9,552
Beginning Balances (in shares) at Dec. 31, 2022	38,023
Net loss					(4,239)
Ending Balance at Sep. 30, 2023	$ 4	98,725	(21)	(92,762)	5,946
Ending Balances (in shares) at Sep. 30, 2023	38,566
Beginning Balance at Mar. 31, 2023	$ 4	98,543	(8)	(89,952)	8,587
Beginning Balances (in shares) at Mar. 31, 2023	38,546
Shares issued upon exercise of options ($0.54 per share) (in shares)	12
Share based compensation		59			59
Shares issued for services		2			2
Shares issued for services (in shares)	4
Foreign-Exchange Translation Adjustment			(12)		(12)
Net loss				(1,478)	(1,478)
Ending Balance at Jun. 30, 2023	$ 4	98,604	(20)	(91,430)	7,158
Ending Balances (in shares) at Jun. 30, 2023	38,562
Share based compensation		119			119
Shares issued for services		2			2
Shares issued for services (in shares)	4
Foreign-Exchange Translation Adjustment			(1)		(1)
Net loss				(1,332)	(1,332)
Ending Balance at Sep. 30, 2023	$ 4	$ 98,725	$ (21)	$ (92,762)	$ 5,946
Ending Balances (in shares) at Sep. 30, 2023	38,566

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Condensed Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022
Condensed Consolidated Statements of Stockholders' Equity
Share price of shares issued upon exercise of options (in dollars per share)		$ 0.54
Common stock for options exercise, 0.89 per share issue						$ 0.89
Common stock for options exercise, 2.93 per share issue						2.93
Shares issued through at the market issuance 1.24 average per share						1.24
Shares issued through at the market issuance 1.71 average per share					$ 1.71
Share price of common stock issued for services (in dollars per share)	$ 0.66	$ 0.66	$ 0.66	$ 1.93	1.93	$ 1.93
Share price of shares issued in stock offering (in dollars per share)					$ 1.11
Share price of shares issued upon cashless exercise of options (in dollars per share)				0.89
Share price of shares issued pursuant to purchase right (in dollars per share)				$ 1.11

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities:
Net loss	$ (4,239)	$ (4,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services	7	21
Share-based compensation	419	307
Depreciation and amortization	231	113
Gain from sale of fixed assets	(5)	(37)
Right of use asset amortization	105	116
Realized gain from marketable securities	(79)
Lease Amendments	(14)
Impairment of intangible assets	14
Change in operating assets and liabilities:
Contract assets	13	(245)
Accounts receivable	(8)	(5)
Prepaid expenses and other assets	(116)	(161)
Accounts payable and accrued liabilities	6	(99)
Accrued compensation and related taxes	329	189
Contract liabilities	1,554	(23)
Net cash used in operating activities	(1,783)	(4,264)
Cash flows from investing activities:
Acquisition of fixed assets		(5)
Disbursements for patents and other intangible assets	(95)	(114)
Proceeds from sale of fixed assets	5	37
Purchases of held-to-maturity short-term US treasuries	(2,162)	(3,900)
Redemption of held-to-maturity US treasuries	4,847
Net cash provided by (used in) investing activities	2,595	(3,982)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		6,539
Taxes paid related to vesting of restricted stock units	(15)
Net cash (used in) provided by financing activities	(15)	6,539
Effect of exchange rate changes on cash and cash equivalents	(13)	(20)
Net change in cash and cash equivalents	784	(1,727)
Cash and cash equivalents, beginning of period	6,451	7,607
Cash and cash equivalents, end of period	7,235	5,880
Supplemental disclosure of cash flow information:
Officer and employee equity awards for prior year accrued compensation	234	$ 107
Prior year prepaid expenses repurposed to fixed assets as demonstration equipment	209
Non-cash impact of new lease	$ 34

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Organization and Description of Business

9 Months Ended

Sep. 30, 2023

Organization and Description of Business

Organization and Description of Business

Note 1 – Organization and Description of Business

ClearSign Technologies Corporation (“ClearSign” or the “Company”) designs and develops products and technologies that have been shown to significantly improve key performance characteristics of industrial and commercial systems, including operational performance, energy efficiency, emission reduction, safety, and overall cost-effectiveness. The Company’s patented technologies are designed to be embedded in established OEM products as ClearSign Core™ and ClearSign Eye™ and other sensing configurations in order to enhance the performance of combustion systems and fuel safety systems in a broad range of markets. These markets include energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, transport and power industries. The Company’s primary technology is its ClearSign Core technology, which achieves very low emissions without the need of selective catalytic reduction.

The Company was originally incorporated in the State of Washington in 2008. During January 2022, the Company relocated its headquarters from Seattle, Washington to Tulsa, Oklahoma. Effective June 15, 2023, the Company changed its state of incorporation to Delaware. On July 28, 2017, the Company incorporated a subsidiary, ClearSign Asia Limited, in Hong Kong to represent the Company’s business and technological interests throughout Asia. Through ClearSign Asia Limited, the Company has established a Wholly Foreign Owned Enterprise (WFOE) in China – ClearSign Combustion (Beijing) Environmental Technologies Co., LTD.

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

Liquidity

The Company's condensed consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As of September 30, 2023, the Company’s cash and cash equivalents totaled $7,235 thousand, which the Company believes is sufficient to fund current operating expenses beyond twelve months from the date hereof. The Company’s technologies are currently in field development, but with nominal fully operational commercial installations, and have generated nominal revenues from operations to date to meet operating expenses. In order to generate meaningful revenues, the technologies must be fully developed, gain market recognition and acceptance, and develop a critical level of successful sales and product installations.

Historically, the Company has financed operations primarily through issuances of equity securities. Since inception, the Company has raised approximately $91.0 million in gross proceeds through the sale of its equity securities. During the nine months ended September 30, 2023, the Company did not raise proceeds through the issuance of common stock.

The Company has incurred losses since its inception totaling $92.8 million and expects to experience operating losses and negative cash flows for the foreseeable future. Management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of funding through co-development agreements, strategic partnering agreements, or equity or debt financing to adequately support product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will result in profitable operations or enable the Company to continue in the long-term as a going concern.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited financial statements as of that date.

In the opinion of management, these condensed consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Sales

The Company recognizes revenue and related cost of goods sold in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (“ASC 606”). When applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligations are satisfied. Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.

The Company’s contracts generally include progress payments from the customer upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

Contract Costs

The Company capitalizes project costs until performance obligations related to the contract are completed. The Company expenses selling and marketing expenses when incurred within the statements of operations in general and administrative expenses.

Product Warranties

The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical or expected warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ significantly from actual warranty expense. Product warranties are included in accounts payable and accrued liabilities in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit in a checking and savings account, and short-term money market instruments with an original maturity of three months or less. Cash equivalents, which consist of short-term U.S. treasury bills, are based on quoted market prices, a Level 1 fair value measure.

Short-Term Investments

Short-term investments consist of U.S. treasuries with original maturities of twelve months or less and greater than three months. These short-term investments are classified as held to maturity and are recorded on an amortized cost basis based on the Company’s positive intent and ability to hold these securities to maturity. As of September 30, 2023, the Company has not experienced any other-than-temporary impairment of its short-term investments. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. The company evaluates whether the decline in fair value of its investments is other-than temporary at each quarter-end.

The cost basis for the Company’s short-term investments totaled approximately zero and $2,606 thousand as of September 30, 2023 and December 31, 2022, respectively. The unrealized holding gains for the Company’s short-term investments totaled approximately zero and $4 thousand as of September 30, 2023 and December 31, 2022, respectively. The Company has not experienced any continuous unrealized holding losses on these investments. The fair value for the Company’s short-term investments totaled approximately zero and $2,610 thousand as of September 30, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

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

Fixed Assets and Leases

Fixed assets are recorded at cost. Leases are recorded in accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes a right-of-use asset, which is included in fixed assets, net on the consolidated balance sheets, and a lease liability measured at the present value of the lease payments at the time of the lease inception or modification. Lease costs are recognized in the consolidated statement of operations over the lease term on a straight-line basis. Leases with a term of 1 year or less are considered short term leases with rent expense recognized over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life,

whichever is shorter. All other fixed assets are depreciated over three to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent and trademark applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no continuing value in current business activity. The Company evaluates the recoverability of the carrying values of intangible assets each reporting period.

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

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

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

● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments primarily consist of cash equivalents, short-term investments, accounts receivable, contract assets, contract liabilities, accounts payable, and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term nature of these instruments.

The Company did not identify any other recurring or non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners

in cost sharing, collaborative projects. During the nine months ended September 30, 2023, the Company received $60 thousand from these arrangements. During the nine months ended September 30, 2022, the Company did not receive funds from these arrangements.

Government Assistance

The Company has adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. The Company records gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the nature of expenditure. The Company accrues for reimbursement requests submitted to government entities in accounts receivable.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not the Company would not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits are recognized only if it is more likely than not that the tax benefits will be utilized in the foreseeable future.

Share-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of milestones as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Foreign Operations

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 include assets amounting to approximately $261 thousand and $172 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which $111 thousand has been paid as of September 30, 2023. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the COVID-19 pandemic.

Foreign Currency

Assets and liabilities of ClearSign Asia Limited with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive income (loss).

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants

using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At September 30, 2023 and September 30, 2022, potentially dilutive shares outstanding amounted to 4.0 million and 3.1 million, respectively.

Recently Issued Accounting Pronouncements Adopted

In June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023. This standard did not have a material impact on the Company’s condensed consolidated financial statements.

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Fixed Assets

9 Months Ended

Sep. 30, 2023

Fixed Assets

Fixed Assets

Note 3 – Fixed Assets

Fixed Assets

Fixed assets are summarized as follows:

	September 30,		December 31,
(in thousands)	2023		2022
Machinery and equipment	$	209	$	390
Office furniture and equipment		60		177
Leasehold improvements		43		192
		312		759
Accumulated depreciation and amortization		(162)		(697)
		150		62
Operating lease ROU assets, net		256		322
Total	$	406	$	384

Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022 totaled $122 thousand and $19 thousand, respectively.

Leases

The Company leases office space in Seattle, Washington, Tulsa, Oklahoma and Beijing, China. During June 2023, the Company renewed its Beijing, China lease agreement for 13 months with monthly rent at approximately $3 thousand. The Company increased the right of use asset and lease liability by $34 thousand.

During March 2023, the Company amended its Seattle lease to extend the lease term to September 2023. The amended lease reduced the square footage and lowered the monthly payment to approximately $4 thousand. The Company increased the right of use asset by $5 thousand and decreased the lease liability by $9 thousand. During October 2023, the Company entered into an agreement to lease a portion of office space for approximately $2 thousand per month for twelve months. The Tulsa and Beijing leases are classified as operating leases, with remaining terms ranging from less than twelve months to four years; contractual language requires renewal negotiations to occur at or near termination. These leases are normal and customary for office space, in that, contractual guarantees exist requiring the lessee to return the premises to its original functional state. The Company incurred restoration expenses of $31 thousand and $87 thousand for the nine months ended September 30, 2023 and twelve months ended December 31, 2022, respectively.

The Tulsa lease contains fixed annual lease payments that increase annually by 2%. The Seattle, Tulsa, and Beijing total monthly minimum rent is approximately $10 thousand. Operating lease costs for the three and nine months ended

September 30, 2023 were $35 thousand and $117 thousand, respectively. Operating lease costs for the three and nine months ended September 30, 2022 were $49 thousand and $138 thousand, respectively.

Supplemental balance sheet information related to operating leases is as follows:

		September 30,			December 31,
(in thousands)		2023			2022
Operating lease ROU assets, net	$	256		$	322
Lease Liabilities:
Current lease liabilities	$	78		$	133
Long term lease liabilities		186			226
Total lease liabilities	$	264		$	359
Weighted average remaining lease term (in years):		2.3
Weighted average discount rate:		5.3	%

	For the Nine Months Ended
	September 30,
(in thousands)		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	134	$	185
Non-cash impact of new leases and lease modifications
Change in operating lease liabilities	$	25	$	25
Change in operating lease ROU assets	$	39	$	—

Minimum future payments under the Company’s lease liabilities as of September 30, 2023 are as follows:

	Discounted		Payments
	lease		due under
(in thousands)	liability		lease
	payments		agreements
2023 (remaining 3 months)	$	21	$	24
2024		71		81
2025		59		66
2026		63		67
2027		50		51
Total	$	264	$	289

At September 30, 2023, $25 thousand of the Company’s future minimum lease payments represents interest.

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Patents and Other Intangible Assets

9 Months Ended

Sep. 30, 2023

Patents and Other Intangible Assets

Patents and Other Intangible Assets

Note 4 – Patents and Other Intangible Assets

Patents and other intangible assets are summarized as follows:

	September 30,		December 31,
(in thousands)	2023		2022
Patents
Patents pending	$	400	$	307
Issued patents		782		815
		1,182		1,122
Trademarks
Trademarks pending		4		6
Registered trademarks		86		95
		90		101
Other		8		8
		1,280		1,231
Accumulated amortization		(511)		(433)
	$	769	$	798

Amortization expense for the nine months ended September 30, 2023 and 2022 totaled $109 thousand and $94 thousand, respectively. Future amortization expense associated with issued patents and registered trademarks as of September 30, 2023 is as follows:

(in thousands)
2023 (remaining 3 months)	$	33
2024		125
2025		95
2026		60
2027		38
Thereafter		6
	$	357

The amortization life for patents ranges between three to five years, with trademark lives set at ten years. The Company does not amortize patents or trademarks classified as pending.

During the nine months ended September 30, 2023 and 2022, the Company assessed its patent and trademark assets, and determined $14 thousand and zero impairment costs were incurred, respectively. The Company also evaluated its strategic approach to the pursuit and protection of its intellectual property. It is the intent of the Company to continue to pursue intellectual property protection. If the Company identifies certain assets where the intellectual property does not directly align with its core technology, the Company will impair the intangible asset and write-off the asset as an expense.

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Revenue, Contract Assets and Contract Liabilities

9 Months Ended

Sep. 30, 2023

Revenue, Contract Assets and Contract Liabilities

Revenue, Contract Assets and Contract Liabilities

Note 5 – Revenue, Contract Assets and Contract Liabilities

The Company recognized $85 thousand of revenues and $61 thousand of cost of goods sold during the three months ended September 30, 2023. The revenue and cost of goods sold relate to a sale of our boiler burner product line.

The Company recognized $1,129 thousand of revenues and $870 thousand of cost of goods sold during the nine months ended September 30, 2023. The revenue and cost of goods sold relate predominately to the Company’s process burner product line, where the Company successfully completed a burner performance customer witness test, which represented a contractual performance obligation per ASC 606.

The Company recognized $324 thousand of revenues and $201 thousand of cost of goods sold during the three and nine months ended September 30, 2022. The revenue and cost of goods sold are mostly in connection with the completion of a technology validation project.

The Company had contract assets of $7 thousand and $20 thousand at September 30, 2023 and December 31, 2022, respectively. The Company had contract liabilities of $1,801 thousand and $247 thousand at September 30, 2023 and December 31, 2022, respectively. Of the $247 thousand contract liability balance at December 31, 2022, the Company recognized revenue of $120 thousand during the nine months ended September 30, 2023.

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Equity

9 Months Ended

Sep. 30, 2023

Equity

Equity

Note 6 – Equity

Common Stock and Preferred Stock

The Company is authorized to issue 62.5 million shares of common stock and 2.0 million shares of preferred stock. Preferences, limitations, voting powers and relative rights of any preferred stock to be issued may be determined by the Company’s Board of Directors. The Company has not issued any shares of preferred stock.

In July 2018, the Company completed a private equity offering and executed a Stock Purchase Agreement with clirSPV LLC (“clirSPV”) which permits participation in future capital raising transactions (the “Participation Right”) on the same terms as other investors participating in such transactions. In no event may the Participation Right be exercised to the extent it would cause clirSPV or any of its affiliates to beneficially own 20% or more of the Company’s then outstanding common stock. In May 2022, the Company signed an agreement with clirSPV, that provides for an election right to extend the Participation Right beyond the original expiration date of December 31, 2023, but to no later than June 30, 2027. This election is pursuant to specific terms and conditions and expires on December 31, 2023.

The Company has an At-The-Market (“ATM”) Offering Sales Agreement with Virtu Americas LLC, as sales agent pursuant to which it may currently sell shares of common stock with an aggregate offering price of up to $8.7 million. During the nine months ended September 30, 2023, the Company issued zero shares of its common stock from the ATM program. As of September 30, 2023, the Company has cumulatively issued approximately 1.6 million shares of common stock under the ATM program, at an average price of $3.84 per share. Gross proceeds totaled approximately $6.1 million and net cash proceeds was approximately $5.9 million.

The Company is currently subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less

than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s

public float in a 12-month period. These rules may limit future issuances of shares by the Company under its Shelf

Registration statement on Form S-3, the ATM Offering Sales Agreement or other securities offerings.

Equity Incentive Plan

On June 17, 2021, the Company's shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “2021 Plan”) which permits the Company to grant Incentive Stock Options, Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares, to eligible participants, which includes employees, directors and consultants. The Compensation Committee of the Board of Directors is authorized to administer the 2021 Plan.

The 2021 Plan provides for an annual increase in available shares equal to the lesser of (i) 10% of the aggregate number of shares of Common Stock issued by the Company in the prior fiscal year; or (ii) such number provided by the Compensation Committee; provided, however, that the total cumulative increase in the number of shares available for issuance pursuant to this automatic share increase shall not exceed 400 thousand shares of common stock. In 2023, the board of directors approved an increase of 400,000 shares available for issuance pursuant to future awards in accordance with the terms of the 2021 Plan.

Ending balances for the 2021 Plan is as follows:

	September 30,	December 31,
(in thousands)	2023	2022
Outstanding options and restricted stock units	3,467	3,202
Reserved but unissued shares under the Plan	2,381	2,777
Total authorized shares under the Plan	5,848	5,979

Stock Options

Under the terms of the 2021 Plan, incentive stock options and nonstatutory stock options must have an exercise price at or above the fair market value on the date of the grant. At the time of grant, the Company will determine the period within which the option may be exercised and will specify any conditions that must be satisfied before the option vests and may be exercised. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model.

As permitted by SEC Staff Accounting Bulletin (SAB) 107, management utilized the simplified approach to estimate the expected term of the options, which represents the period of time that options granted are expected to be outstanding. Expected volatility has been determined through the Company’s historical stock price volatility. The Company has not made an estimate of forfeitures at the time of the grant, but rather accounts for forfeitures at the time they occur. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Inducement Options

During the nine months ended September 30, 2023, the Company granted non-qualified stock options to its Director of Customer Relationships and Business Development to purchase an aggregate of 150 thousand shares of common stock with an exercise price of $1.31 as a material inducement to accept employment with the Company. These inducement options vest in three equal installments, with one third of the option vesting on the grant date, and each remaining third of the options to vest on the second and third anniversaries of the grant date, subject to continued employment with the Company. The fair value of these options estimated on the date of grant using the Black Scholes valuation model was $160 thousand. The compensation expense recognized for these awards for the three and nine months ended September 30, 2023 was $62 thousand.

These inducement options were granted outside of the 2021 Plan and in accordance with the employment inducement

exemption provided under Nasdaq Listing Rule 5635(c)(4).

Equity Incentive Plan Options

Compensation expense associated with stock option awards for the three and nine months ended September 30, 2023 totaled $42 thousand and $132 thousand, respectively. Compensation expense associated with stock option awards for the three and nine months ended September 30, 2022 totaled $27 thousand and $84 thousand, respectively.

A summary of the Company’s Equity Incentive Plan stock option activity and changes is as follows:

	September 30,
	2023
(in thousands, except per share data)	Options to Purchase Common Stock	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at beginning of year	2,779	$	2.05	6.43
Granted	—	$	—	—
Exercised	(20)	$	0.54	—
Forfeited/Expired	—	$	—	—
Outstanding at end of period	2,759	$	2.07	5.58
Exercisable at end of period	1,991	$	1.71	5.00

The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at September 30, 2023 is $154 thousand. The intrinsic value is the difference between the Company’s common stock price and the option exercise prices multiplied by the number of in-the-money options. This amount changes based on the fair value of the Company’s common stock.

At September 30, 2023, there was $1.0 million of total unrecognized compensation cost related to non-vested stock option-based compensation arrangements. Vesting criteria ranges from time-based to performance-based. The Company records costs for time-based arrangements ratably across the timeframe, whereas performance-based arrangements require management to continually evaluate predetermined goals against actual circumstances.

Restricted Stock Units

The Company awards employees and directors restricted stock units (“RSUs”) in lieu of cash payment for compensation. These awards are granted pursuant to the 2021 Plan. Employee vesting criteria is time based, and compensation expense is recognized ratably across the timeframe.

Director vesting criteria is contingent upon the occurrence of one of four future events, which the Company cannot predict or control. Therefore, compensation expense for director RSUs is not recognized until one of these four future events occur, which is in accordance with FASB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718). Unrecognized compensation expense for director services as of September 30, 2023 and 2022 was $233 thousand and $256 thousand, respectively. Director compensation is earned on a quarterly basis with the target value of compensation set at approximately $83 thousand per quarter.

A summary of the Company’s RSUs activity and changes is as follows:

	September 30,
	2023
(in thousands, except per share data)	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	423	$	1.49
Granted	538	$	0.78
Vested	(245)	$	1.34
Forfeited	(8)	$	0.79
Nonvested at end of period	708	$	1.01

A summary of the Company’s RSU compensation expense is as follows:

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023			2022
Compensation Expense	$	225	$	219
Weighted Average Value Per Share	$	0.80	$	1.34

Stock Awards

The Company awards employees stock in lieu of cash payment for compensation, typically to satisfy accrued bonus compensation. The awards are granted from the Company’s 2021 Plan.

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Fair value	$	234	$	98
Weighted Average Value Per Share	$	0.79	$	1.43

Consultant Stock Plan

The 2013 Consultant Stock Plan (the “Consultant Plan”) provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The Consultant Plan provides for periodic increases in the number of authorized shares available for issuance under the Consultant Plan on the first day of each of the Company’s fiscal quarters. The quarterly increases are equal to 1% of any new shares subsequently issued by the Company or such lesser amount as the Board of Directors shall determine.

The Consultant Plan activity and change is as follows:

	September 30,
(in thousands)	2023
Reserved but unissued shares at beginning of year		196
Increases in the number of authorized shares		5
Grants		(12)
Reserved but unissued shares at end of year		189

The Consultant Plan compensation expense is summarized as follows:

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Compensation Expense	$	7	$	21
Weighted Average Value Per Share	$	0.66	$	1.93

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Commitments and Contingencies

Commitments and Contingencies

Note 7 – Commitments and Contingencies

Litigation

From time to time the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in any such matter may harm the Company’s business. As of the date of this report, the Company is not a party to any material pending legal proceedings or claims that the Company believes will have a material adverse effect on the business, financial condition or operating results.

Indemnification Agreements

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

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Government Assistance

9 Months Ended

Sep. 30, 2023

Government Assistance

Government Assistance

Note 8 – Government Assistance

During 2022, the Company was awarded a research grant from the Department of Energy (“DOE”) for approximately $250 thousand with the completion occurring in March 2023. The purpose of the grant was to produce a research paper for a flexible fuel ultra-low NOx process burner capable of burning 100% hydrogen fuel. During the three months ended September 2023, the Company was awarded a Phase 2 grant from the DOE to develop the flexible fueled ultra-low NOx process burner capable of burning 100% hydrogen. This grant is for $1.6 million over a two-year period. These awards allow the Company to request reimbursements for expenditures such as labor, material, and administrative costs. During the three and nine months ended September 30, 2023, the Company recognized $26 thousand and $95 thousand in reimbursements from the DOE, respectively. During the three and nine months ended September 30, 2022, the Company recognized $76 thousand in reimbursements from the DOE.

Beginning in 2021, the Company received funds relating to the Oklahoma 21^st Century Quality Jobs Act. The estimated duration of the program is up to 10 years and is designed to attract growth industries to Oklahoma. By reporting quarterly salary statistics and meeting agreed upon employment thresholds, the state remits benefit monies to the Company. During the three and nine months ended September 30, 2023, the Company recognized $12 thousand and $51 thousand in government assistance from this program, respectively. During the three and nine months ended September 30, 2022, the Company recognized $12 thousand and $24 thousand in government assistance from this program, respectively.

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Subsequent Events

9 Months Ended

Sep. 30, 2023

Subsequent Events

Subsequent Events

Note 9 – Subsequent Events

On November 6, 2023, we hired Matt Martin as our Chief Technology Officer. On the same day, we granted non-qualified stock options, in accordance with Nasdaq Listing Rule 5635(c)(4) and outside of the 2021 Plan, to purchase an

aggregate of 150 thousand shares of common stock with an exercise price of $0.91 per share as a material inducement to Mr.

Martin’s entering into employment with us. These options vest in three equal installments, with one third of the option

vesting on the grant date, and each remaining third of the options to vest on the first and second anniversaries of the

grant date, subject to continued employment with the Company. This event does not impact the nine months ended

September 30, 2023 consolidated financial statements, but will impact the year ended December 31, 2023 consolidated

financial statements.

On November 9, 2023, 116 thousand shares of common stock, valued at approximately $99 thousand, were issued for vested restricted stock units in connection with the resignation of a member of the Company’s board of directors on November 9, 2023. 

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2022 has been derived from the Company’s audited financial statements as of that date.

In the opinion of management, these condensed consolidated financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.

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

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition and Cost of Sales

Revenue Recognition and Cost of Sales

The Company recognizes revenue and related cost of goods sold in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 606 Revenue from Contracts with Customers (“ASC 606”). When applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligations are satisfied. Revenues and cost of goods sold are recognized once the goods or services are delivered to the customer’s control or non-refundable performance obligations are satisfied. The Company’s contracts with customers generally have performance obligations and a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon delivery of certain drawings or equipment. Revenue related to the contracts is recognized following the completion of non-refundable performance obligations as defined in the contract.

The Company’s contracts generally include progress payments from the customer upon completion of defined milestones. As these payments are received, they are offset against accumulated project costs and recorded as either contract assets or contract liabilities. Upon completion of the performance obligations and collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the contract price, the Company accrues the estimated loss in full in the period such determination is made.

Contract Costs

Contract Costs

The Company capitalizes project costs until performance obligations related to the contract are completed. The Company expenses selling and marketing expenses when incurred within the statements of operations in general and administrative expenses.

Product Warranties

Product Warranties

The Company warrants all installed products against defects in materials and workmanship for a period specified in each contract by replacing failed parts. Accruals for product warranties are based on historical or expected warranty experience and current product performance trends and are recorded as a component of cost of sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs used to replace parts over the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material in the future if estimates differ significantly from actual warranty expense. Product warranties are included in accounts payable and accrued liabilities in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on deposit in a checking and savings account, and short-term money market instruments with an original maturity of three months or less. Cash equivalents, which consist of short-term U.S. treasury bills, are based on quoted market prices, a Level 1 fair value measure.

Short-term Investments

Short-Term Investments

Short-term investments consist of U.S. treasuries with original maturities of twelve months or less and greater than three months. These short-term investments are classified as held to maturity and are recorded on an amortized cost basis based on the Company’s positive intent and ability to hold these securities to maturity. As of September 30, 2023, the Company has not experienced any other-than-temporary impairment of its short-term investments. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. The company evaluates whether the decline in fair value of its investments is other-than temporary at each quarter-end.

The cost basis for the Company’s short-term investments totaled approximately zero and $2,606 thousand as of September 30, 2023 and December 31, 2022, respectively. The unrealized holding gains for the Company’s short-term investments totaled approximately zero and $4 thousand as of September 30, 2023 and December 31, 2022, respectively. The Company has not experienced any continuous unrealized holding losses on these investments. The fair value for the Company’s short-term investments totaled approximately zero and $2,610 thousand as of September 30, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

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

Fixed Assets and Leases

Fixed Assets and Leases

Fixed assets are recorded at cost. Leases are recorded in accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes a right-of-use asset, which is included in fixed assets, net on the consolidated balance sheets, and a lease liability measured at the present value of the lease payments at the time of the lease inception or modification. Lease costs are recognized in the consolidated statement of operations over the lease term on a straight-line basis. Leases with a term of 1 year or less are considered short term leases with rent expense recognized over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life,

whichever is shorter. All other fixed assets are depreciated over three to four years. Maintenance and repairs are expensed as incurred.

Patents and Trademarks

Patents and Trademarks

Third-party expenses related to patents and trademarks are recorded at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are awarded. Patent application costs are deferred pending the outcome of patent and trademark applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no continuing value in current business activity. The Company evaluates the recoverability of the carrying values of intangible assets each reporting period.

Impairment of Long-lived Assets

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

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

● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s financial instruments primarily consist of cash equivalents, short-term investments, accounts receivable, contract assets, contract liabilities, accounts payable, and accrued expenses. As of the balance sheet dates, the estimated fair values of the financial instruments were not materially different from their carrying values as presented on the balance sheets. This is primarily attributable to the short-term nature of these instruments.

The Company did not identify any other recurring or non-recurring assets and liabilities that are required to be presented in the balance sheets at fair value.

Research and Development

Research and Development

The cost of research and development is expensed as incurred. Research and development costs consist of salaries, benefits, share based compensation, consumables, and consulting fees, including costs to develop and test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners

in cost sharing, collaborative projects. During the nine months ended September 30, 2023, the Company received $60 thousand from these arrangements. During the nine months ended September 30, 2022, the Company did not receive funds from these arrangements.

Government Assistance

Government Assistance

The Company has adopted Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. The Company records gross monies received from government entities in other income, and associated expenses such as salaries and supplies are recorded in Research and Development or General and Administration, depending on the nature of expenditure. The Company accrues for reimbursement requests submitted to government entities in accounts receivable.

Income Taxes

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not the Company would not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits are recognized only if it is more likely than not that the tax benefits will be utilized in the foreseeable future.

Share-Based Compensation

Share-Based Compensation

The costs of all employee stock options, as well as other equity-based compensation arrangements, are reflected in the unaudited condensed consolidated financial statements based on the estimated fair value of the awards on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, or in the case of performance options, expense is recognized upon completion of milestones as defined in the grant agreement. Share-based compensation for stock grants to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued, whichever is more reliably measured.

Foreign Operations

Foreign Operations

The accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 include assets amounting to approximately $261 thousand and $172 thousand, respectively, relating to operations of ClearSign Asia Limited. The Beijing registered capital requirement is $350 thousand, which is required to be paid by 2027, and of which $111 thousand has been paid as of September 30, 2023. It is always possible that unanticipated events in foreign countries could disrupt the Company’s operations, and since the first quarter of 2020 this has been and currently continues to be the case with the effects of the COVID-19 pandemic.

Foreign Currency

Foreign Currency

Assets and liabilities of ClearSign Asia Limited with non-U.S. Dollar functional currency are translated to U.S. Dollars using exchange rates in effect at the end of the period. Revenue and expenses are translated to U.S. Dollars using rates that approximate those in effect during the period. The resulting translation adjustments are included in the Company’s condensed consolidated balance sheets in the stockholders’ equity section as a component of accumulated other comprehensive income (loss).

Net Loss per Common Share

Net Loss per Common Share

Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants

using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive. At September 30, 2023 and September 30, 2022, potentially dilutive shares outstanding amounted to 4.0 million and 3.1 million, respectively.

Recently Issued Accounting Pronouncements Adopted

Recently Issued Accounting Pronouncements Adopted

In June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU 2016-13, Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13, and related amendments, are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023. This standard did not have a material impact on the Company’s condensed consolidated financial statements.

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Fixed Assets (Tables)

9 Months Ended

Sep. 30, 2023

Fixed Assets

Summary of Fixed Assets

	September 30,		December 31,
(in thousands)	2023		2022
Machinery and equipment	$	209	$	390
Office furniture and equipment		60		177
Leasehold improvements		43		192
		312		759
Accumulated depreciation and amortization		(162)		(697)
		150		62
Operating lease ROU assets, net		256		322
Total	$	406	$	384

Schedule Of Supplemental Information

		September 30,			December 31,
(in thousands)		2023			2022
Operating lease ROU assets, net	$	256		$	322
Lease Liabilities:
Current lease liabilities	$	78		$	133
Long term lease liabilities		186			226
Total lease liabilities	$	264		$	359
Weighted average remaining lease term (in years):		2.3
Weighted average discount rate:		5.3	%

Supplemental cash flow information related to leases

	For the Nine Months Ended
	September 30,
(in thousands)		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases	$	134	$	185
Non-cash impact of new leases and lease modifications
Change in operating lease liabilities	$	25	$	25
Change in operating lease ROU assets	$	39	$	—

Schedule of minimum future payments

	Discounted		Payments
	lease		due under
(in thousands)	liability		lease
	payments		agreements
2023 (remaining 3 months)	$	21	$	24
2024		71		81
2025		59		66
2026		63		67
2027		50		51
Total	$	264	$	289

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Patents and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2023

Patents and Other Intangible Assets

Schedule of Patents and Other Intangible Assets

	September 30,		December 31,
(in thousands)	2023		2022
Patents
Patents pending	$	400	$	307
Issued patents		782		815
		1,182		1,122
Trademarks
Trademarks pending		4		6
Registered trademarks		86		95
		90		101
Other		8		8
		1,280		1,231
Accumulated amortization		(511)		(433)
	$	769	$	798

Schedule of future amortization expense

(in thousands)
2023 (remaining 3 months)	$	33
2024		125
2025		95
2026		60
2027		38
Thereafter		6
	$	357

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Equity (Tables)

9 Months Ended

Sep. 30, 2023

Schedule of Outstanding, Reserved and Authorized Shares under Share-based Compensation Plans

	September 30,	December 31,
(in thousands)	2023	2022
Outstanding options and restricted stock units	3,467	3,202
Reserved but unissued shares under the Plan	2,381	2,777
Total authorized shares under the Plan	5,848	5,979

Schedule of stock option activity

	September 30,
	2023
(in thousands, except per share data)	Options to Purchase Common Stock	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at beginning of year	2,779	$	2.05	6.43
Granted	—	$	—	—
Exercised	(20)	$	0.54	—
Forfeited/Expired	—	$	—	—
Outstanding at end of period	2,759	$	2.07	5.58
Exercisable at end of period	1,991	$	1.71	5.00

Schedule of share-based compensation activity

	September 30,
(in thousands)	2023
Reserved but unissued shares at beginning of year		196
Increases in the number of authorized shares		5
Grants		(12)
Reserved but unissued shares at end of year		189

Schedule of restricted stock unit activity

	September 30,
	2023
(in thousands, except per share data)	Number of Shares	Weighted Average Grant Date Fair Value
Nonvested at beginning of year	423	$	1.49
Granted	538	$	0.78
Vested	(245)	$	1.34
Forfeited	(8)	$	0.79
Nonvested at end of period	708	$	1.01

Restricted Stock Units

Schedule of Compensation Expense

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023			2022
Compensation Expense	$	225	$	219
Weighted Average Value Per Share	$	0.80	$	1.34

Equity Incentive Plan

Schedule of Compensation Expense

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Fair value	$	234	$	98
Weighted Average Value Per Share	$	0.79	$	1.43

Consultant Stock Plan

Schedule of Compensation Expense

	For the Nine Months Ended
	September 30,
(in thousands, except per share data)	2023		2022
Compensation Expense	$	7	$	21
Weighted Average Value Per Share	$	0.66	$	1.93

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Organization and Description of Business (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Organization and Description of Business
Cash and cash equivalents	$ 7,235	$ 6,451
Short-term held-to-maturity investments	0	2,606
Gross proceeds to date	91,000
(Losses) since inception	$ 92,762	$ 88,523

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Summary of Significant Accounting Policies - Short-Term Investments (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Summary of Significant Accounting Policies
Short-term investments at cost	$ 0	$ 2,606
Unrealized holding gains	0	4
Fair value of short-term investments	$ 0	$ 2,610

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Summary of Significant Accounting Policies - Fixed Assets and Leases (Details) - Fixed Assets Other Than Leasehold Improvements	Sep. 30, 2023
Minimum
Property, Plant and Equipment [Line Items]
Fixed assets, depreciated life	3 years
Maximum
Property, Plant and Equipment [Line Items]
Fixed assets, depreciated life	4 years

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Summary of Significant Accounting Policies - Research and Development (Details) - USD ($)	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Summary of Significant Accounting Policies
Research and Development costs have been offset by funds received	$ 60,000,000	$ 0

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Summary of Significant Accounting Policies - Foreign Operations (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Assets	$ 8,998	$ 10,925
CHINA
Property, Plant and Equipment [Line Items]
Assets	261	$ 172
Registered capital requirement	350
Capital requirement paid	$ 111

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Summary of Significant Accounting Policies - Net Loss per Common Share (Details) - shares shares in Millions	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Summary of Significant Accounting Policies
Potentially dilutive shares outstanding (in shares)	4.0	3.1

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Fixed Assets - Summary (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Fixed assets, gross	$ 312		$ 759
Accumulated depreciation and amortization	(162)		(697)
Fixed assets, net, after accumulated amortization	150		62
Operating lease ROU assets, net	256		322
Total	406		384
Depreciation expense	122	$ 19
Machinery and equipment
Property, Plant and Equipment [Line Items]
Machinery and equipment	209		390
Office furniture and equipment
Property, Plant and Equipment [Line Items]
Office furniture and equipment	60		177
Leasehold improvements
Property, Plant and Equipment [Line Items]
Leasehold improvements	$ 43		$ 192

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Fixed Assets - Leases (Details) - USD ($) $ in Thousands	1 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 31, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Leases
Increase (decrease) in operating lease right of use asset		$ 34
Restoration expense						$ 31		$ 87
Monthly rent expense						10
Operating lease cost				$ 35	$ 49	$ 117	$ 138
Seattle and Tulsa
Leases
Annual rent expense, increase (in percent)						2.00%
Monthly rent expense			$ 4
CHINA
Leases
Short term monthly rent expense		$ 3
Renewal option term		13 months
Minimum | Seattle and Tulsa
Leases
Remaining term (in years)			12 months
Maximum | Seattle and Tulsa
Leases
Remaining term (in years)			4 years
Subsequent Event | Seattle and Tulsa
Leases
Lease Term	12 months
Short term monthly rent expense	$ 2
Agreement expiration term (in years)	12 months

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Fixed Assets - Leases - Supplemental balance sheet and cash flow information (Details) - USD ($) $ in Thousands	1 Months Ended	9 Months Ended
	Mar. 31, 2023	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Operating Lease
Operating lease ROU assets, net		$ 256		$ 322
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration]		Property, Plant and Equipment, Net		Property, Plant and Equipment, Net
Lease Liabilities:
Current lease liabilities		$ 78		$ 133
Long term lease liabilities		186		226
Total lease liabilities		$ 264		$ 359
Weighted average remaining lease term (in years)		2 years 3 months 18 days
Weighted average discount rate		5.30%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases		$ 134	$ 185
Change in operating lease liabilities	$ (9)	25	$ 25
Change in operating lease ROU assets	$ 5	$ 39

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Fixed Assets - Minimum future lease payments (Details) $ in Thousands	Sep. 30, 2023 USD ($)
Fixed Assets
Discounted payments, 2023 (remaining 3 months)	$ 21
Discounted payments, 2024	71
Discounted payments, 2025	59
Discounted payments, 2026	63
Discounted payments, 2027	50
Total discounted payments	264
2023 (remaining 3 months)	24
2024	81
2025	66
2026	67
2027	51
Total	289
Interest on future minimum payments	$ 25

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Patents and Other Intangible Assets - Summary (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Patents	$ 1,182	$ 1,122
Trademarks	90	101
Other	8	8
Patents and other intangible assets	1,280	1,231
Accumulated amortization	(511)	(433)
Finite-Lived Intangible Assets, Net	769	798
Patents pending
Patents	400	307
Issued patents
Patents	782	815
Trademarks pending
Trademarks	4	6
Registered trademarks
Trademarks	$ 86	$ 95

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Patents and Other Intangible Assets - Future amortization expense (Details) $ in Thousands	Sep. 30, 2023 USD ($)
Patents and Other Intangible Assets
2023 (remaining 3 months)	$ 33
2024	125
2025	95
2026	60
2027	38
Thereafter	6
Finite-Lived Intangible Assets, Net	$ 357

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Patents and Other Intangible Assets - Additional information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Intangible assets
Amortization expense	$ 109	$ 94
Impairment	$ 14	$ 0
Minimum
Intangible assets
Amortization life (in years)	3 years
Maximum
Intangible assets
Amortization life (in years)	5 years
Trademarks
Intangible assets
Amortization life (in years)	10 years

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Revenue, Contract Assets and Contract Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Revenue, Contract Assets and Contract Liabilities
Revenues	$ 85	$ 324	$ 1,129	$ 324
Cost of goods sold	61		870	$ 201
Contract assets	7		7		$ 20
Contract liabilities	$ 1,801		1,801		$ 247
Revenue recognized			$ 120

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Equity - Common Stock and Preferred Stock (Details) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2023	Jul. 31, 2018
Stockholders' equity
Common stock, authorized shares	62,500,000
Preferred stock, authorized shares	2,000,000.0
Gross proceeds to date	$ 91.0
ATM
Stockholders' equity
Number of shares of common stock issued	0
Number of shares issued to date	1,600,000
Aggregate offering price	$ 8.7
Participation Right
Stockholders' equity
Stock Issued, Investor, Maximum Beneficial Ownership Percentage		20.00%
Common Stock | ATM
Stockholders' equity
Gross proceeds to date	6.1
Net proceeds to date	$ 5.9
Share price of shares issued in offering (in dollars per share)	$ 3.84

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Equity - Equity Incentive Plan (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Inducement Stock Options
Share-based compensation
Fair value of options granted (in dollars)	$ 160
Share based compensation cost related to vesting awards	$ 62
Equity Incentive Plan
Share-based compensation
Outstanding options and restricted stock units	3,467,000	3,202,000
Reserved but unissued shares under the Plans	2,381,000	2,777,000
Total authorized shares under the Plans	5,848,000	5,979,000
Increases in the number of authorized shares	400,000
2021 Plan
Share-based compensation
Maximum number of shares that may be issued as a proportion of outstanding stock	10.00%
Maximum increase in number of shares available for issuance	400,000

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Equity - Stock Options - Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Share-based compensation
Outstanding shares, beginning balance			2,779
Exercised (in shares)			(20)
Outstanding shares, ending balance	2,759		2,759		2,779
Exercisable (in shares)	1,991		1,991
Outstanding - Weighted Average Exercise Price (in dollars per share)			$ 2.05
Exercised - Weighted Average Exercise Price (in dollars per share)			0.54
Outstanding - Weighted Average Exercise Price (in dollars per share)	$ 2.07		2.07		$ 2.05
Exercisable - Weighted Average Exercise Price (in dollars per share)	$ 1.71		$ 1.71
Stock options, Contractual life (in years)			5 years 6 months 29 days		6 years 5 months 4 days
Exercisable - Weighted Average Remaining Contractual Life (in years)			5 years
Estimated aggregate pretax intrinsic value	$ 154		$ 154
Total unrecognized compensation	1,000		1,000
Equity Incentive Plan
Share-based compensation
Compensation expense	$ 42	$ 27	$ 132	$ 84

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Equity - Restricted Stock Units (Details) - Director - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense for director services		$ 256
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Target Value of Compensation per Quarter	$ 83
Unrecognized compensation expense for director services	$ 233

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Equity - Restricted Stock units Activity (Details) shares in Thousands	9 Months Ended
	Sep. 30, 2023 $ / shares shares
Number of Shares
Nonvested at beginning of year | shares	423
Granted | shares	538
Vested | shares	(245)
Forfeited | shares	(8)
Nonvested at end of year | shares	708
Weighted Average Grant Date Fair Value
Nonvested at beginning of year | $ / shares	$ 1.49
Granted | $ / shares	0.78
Vested | $ / shares	1.34
Forfeited | $ / shares	0.79
Nonvested at end of year | $ / shares	$ 1.01

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Equity - Restricted Stock Units - Compensation Expense (Details) - Restricted Stock Units - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	$ 225	$ 219
Weighted Average Value Per Share	$ 0.80	$ 1.34

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Equity - Stock Grants (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2023	Jun. 30, 2023	Mar. 31, 2023	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2023	Sep. 30, 2022
Share-based compensation
Stock Issued During Period, Value, Issued for Services	$ 2	$ 2	$ 3	$ 7	$ 7	$ 7
Employee compensation in lieu of bonus
Share-based compensation
Fair value							$ 234	$ 98
Weighted Average Value Per Share							$ 0.79	$ 1.43

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Equity - Consultant Stock Plan (Details) - Consultant Stock Plan - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reserved but unissued shares at beginning of year	196
Increases in the number of authorized shares	5
Grants	(12)
Reserved but unissued shares at end of year	189
Compensation expense	$ 7	$ 21
Weighted Average Value Per Share	$ 0.66	$ 1.93
Maximum increase in available number of authorized shares as a percentage of new shares issued	1.00%

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Government Assistance (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022	Dec. 31, 2021
Government Assistance [Line Items]
Government assistance	$ 38	$ 88	$ 145	$ 100
Research Grant From the Department of Energy
Government Assistance [Line Items]
Total award	1,600				$ 250
Government assistance	$ 26		95	76
Duration of the program	2 years
Oklahoma Quality Jobs Act
Government Assistance [Line Items]
Government assistance	$ 12	$ 12	$ 51	$ 24
Duration of the program						10 years

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Subsequent Events (Details) $ / shares in Units, shares in Thousands, $ in Thousands			9 Months Ended
	Nov. 09, 2023 USD ($) shares	Nov. 06, 2023 installment $ / shares shares	Sep. 30, 2023 installment $ / shares shares
Member of Board of directors | Subsequent Event
Subsequent Event
Issued for vested restricted stock units in connection with the resignation of a member, shares	116
Issued for vested restricted stock units in connection with the resignation of a member, value | $	$ 99
Non-Qualified Stock Option | Subsequent Event
Subsequent Event
Grants of stock options		150
Exercise price (in dollars per share) | $ / shares		$ 0.91
Number of installments | installment		3
Vesting percentage		33.00%
Non-Qualified Stock Option | Director of customer relationships and business development
Subsequent Event
Grants of stock options			150
Exercise price (in dollars per share) | $ / shares			$ 1.31
Number of installments | installment			3
Vesting percentage			33.33%