UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to _______________
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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| 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
As of November 6, 2024, the issuer has
TABLE OF CONTENTS
Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 | 1 | |
2 | ||
3 | ||
5 | ||
6 | ||
Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 22 | |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data) | September 30, | December 31, | |||||
| 2024 |
| 2023 |
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ASSETS | |||||||
Current Assets: |
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Cash and cash equivalents | $ | | $ | | |||
Accounts receivable | | | |||||
Contract assets |
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Prepaid expenses and other assets |
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Total current assets |
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Fixed assets, net |
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Patents and other intangible assets, net |
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Total Assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable and accrued liabilities | $ | | $ | | |||
Current portion of lease liabilities |
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Accrued compensation and related taxes |
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Contract liabilities | | | |||||
Total current liabilities |
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Long Term Liabilities: |
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Long term lease liabilities |
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Total liabilities |
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Commitments and contingencies (Note 9) |
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Stockholders’ Equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss | ( | ( | |||||
Accumulated deficit |
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Total stockholders' equity |
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Total Liabilities and Stockholders' Equity | $ | | $ | | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data) | For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
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Revenues | $ | | $ | | $ | | $ | | |||||
Cost of goods sold |
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Gross profit |
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Operating expenses: | |||||||||||||
Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income, net | |||||||||||||
Interest income | | | | | |||||||||
Government assistance | | | | | |||||||||
Gain from sale of assets | — | — | — | | |||||||||
Other income, net | | | | | |||||||||
Total other income, net |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per share - basic and fully diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted average number of shares outstanding - basic and fully diluted |
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Comprehensive loss | |||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Foreign-exchange translation adjustments, net of taxes | | ( | | ( | |||||||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
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
For the Three Month Periods During the Nine Months Ended September 30, 2024 and 2023
(Unaudited)
Accumulated Other | Total | ||||||||||||||||
(in thousands, except per share data) | Common Stock | Additional | Comprehensive | Accumulated | Stockholders’ | ||||||||||||
Shares |
| Amount |
| Paid-In Capital |
| Loss |
| Deficit |
| Equity | |||||||
Balances at December 31, 2023 |
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| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Share-based compensation | | — | | — | — | | |||||||||||
Tax withholdings related to share-based compensation | ( | — | ( | — | — | ( | |||||||||||
Fair value of stock issued in payment of accrued compensation | | — | | — | — | | |||||||||||
Shares issued for services | | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at March 31, 2024 | | | | ( | ( | | |||||||||||
Share-based compensation | | — | | — | — | | |||||||||||
Tax withholdings related to share-based compensation | ( | — | ( | — | — | ( | |||||||||||
Shares issued for services | | — | | — | — | | |||||||||||
Issuance of common stock in public offering, net of expenses | | | | — | — | | |||||||||||
Issuance of warrants in public offering, net of expenses | — | — | | — | — | | |||||||||||
Issuance of common stock in private placement, net of expenses | | — | | — | — | | |||||||||||
Issuance of prefunded warrants in private placement, net of expenses | — | — | | — | — | | |||||||||||
Issuance of warrants in private placement, net of expenses | — | — | | — | — | | |||||||||||
Issuance of common stock for participation right exercise, net of expenses | | — | | — | — | | |||||||||||
Issuance of prefunded warrants for participation right exercise, net of expenses | — | — | | — | — | | |||||||||||
Issuance of warrants for participation right exercise, net of expenses | — | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at June 30, 2024 | | | | ( | ( | | |||||||||||
Share-based compensation | — | — | | — | — | | |||||||||||
Tax withholdings related to share-based compensation | — | — | ( | — | — | ( | |||||||||||
Shares issued for services | | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | | — | | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2024 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
3
ClearSign Technologies Corporation and Subsidiary
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Month Periods During the Nine Months Ended September 30, 2024 and 2023
(Unaudited)
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(in thousands, except per share data) | Common Stock | Additional | Comprehensive |
| Accumulated | Stockholders' | |||||||||||
| Shares |
| Amount |
| Paid-In Capital |
| Loss |
| Deficit |
| Equity | ||||||
Balances at December 31, 2022 |
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| $ | ( |
| $ | ( |
| $ | |
Share-based compensation | | — | | — | — | | |||||||||||
Fair value of stock issued in payment of accrued compensation |
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Shares issued for services ($ | | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | — | — | — | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at March 31, 2023 | | | | ( | ( | | |||||||||||
Share-based compensation | — | — | | — | — | | |||||||||||
Shares issued upon exercise of options ($ | | — | — | — | — | — | |||||||||||
Shares issued for services ($ | | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at June 30, 2023 | | | | ( | ( | | |||||||||||
Share-based compensation | — | — | | — | — | | |||||||||||
Shares issued for services ($ | | — | | — | — | | |||||||||||
Foreign-exchange translation adjustment | — | — | — | ( | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
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, | ||||||
| 2024 |
| 2023 |
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Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Common stock issued for services |
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Share-based compensation |
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Reserve for share-based compensation tax withholdings | ( | — | |||||
Depreciation and amortization |
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Impairment of intangible assets | | | |||||
Gain from sale of fixed assets | — | ( | |||||
Right-of-use asset amortization |
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Realized gain from marketable securities | — | ( | |||||
Lease amendments | ( | ( | |||||
Change in operating assets and liabilities: |
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Contract assets |
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Accounts receivable |
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Prepaid expenses and other assets |
| ( | ( | ||||
Accounts payable, accrued liabilities, and lease liabilities |
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Accrued compensation and related taxes |
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Contract liabilities | ( | | |||||
Net cash used in operating activities |
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Cash flows from investing activities: |
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Acquisition of fixed assets |
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Disbursements for patents and other intangible assets |
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Proceeds from sale of fixed assets | — | | |||||
Purchases of held-to-maturity short-term U.S. treasuries | — | ( | |||||
Redemption of held-to-maturity short-term U.S. treasuries | — | | |||||
Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock, net of offering costs |
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Taxes paid related to vesting of restricted stock units | ( | ( | |||||
Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents | | ( | |||||
Net change in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | | $ | | |||
Supplemental disclosure of cash flow information: | |||||||
Officer and employee equity awards for prior year accrued compensation | $ | | $ | | |||
Prior year prepaid expenses repurposed to fixed assets as demonstration equipment | $ | — | $ | | |||
Non-cash impact of new lease | $ | | $ | | |||
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 for the purpose of decarbonization and improving 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 original equipment manufacturers (“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. On August 22, 2024, the Company’s Board of Directors (the “Board”) authorized management to move forward with filing for dormancy with Chinese regulators to suspend the Company’s Beijing, China operations. A dormancy filing allows the Company to keep its China legal entity in a suspended status for up to
Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” “our,” “ClearSign” and the “Company” refer to ClearSign Technologies Corporation and its subsidiary, ClearSign Asia Limited.
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, 2023 has been derived from the Company’s audited consolidated 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, 2023. 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.
6
Liquidity
The Annual Report on Form 10-K filed with the SEC on April 1, 2024, contained a “going concern” note, which raised substantial doubt about our ability to continue as a going concern. We believe that we have alleviated the substantial doubt by selling equity securities on April 23, 2024, May 15, 2024, and June 24, 2024, which resulted in aggregate gross proceeds of approximately $
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.
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 three and nine months ended September 30, 2024, the Company received $
Foreign Operations
The accompanying unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 include assets amounting to approximately $
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires expanded disclosures about reportable segments including additional information on segment expenses, expanded interim period disclosures, and an explanation of how the chief operating decision maker utilizes segment information in evaluating segment performance. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact that the adoption of ASU 2023-07 will have on the disclosures in our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). The FASB issued ASU 2023-09 to enhance the transparency and decision-making usefulness of income tax disclosures by requiring additional information on an entity's tax rate reconciliation, as well as
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income taxes paid. ASU 2023-09 is effective for our reporting period beginning January 1, 2025. We are currently assessing the impact that the adoption of ASU 2023-09 will have on the disclosures in our consolidated financial statements.
Note 3 – Fixed Assets
Fixed Assets
Fixed assets are summarized as follows:
September 30, | December 31, | |||||
(in thousands) |
| 2024 |
| 2023 | ||
Office furniture and equipment | $ | | $ | | ||
Leasehold improvements |
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Accumulated depreciation and amortization |
| ( |
| ( | ||
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Operating lease ROU assets, net | | | ||||
Total | $ | | $ | | ||
Depreciation expense for the three and nine months ended September 30, 2024 was $
Depreciation expense for the three and nine months ended September 30, 2023 was $
Leases
The Company leases office space in Tulsa, Oklahoma, Seattle, Washington, and Beijing, China. During the nine months ended September 30, 2024 and 2023, the Company renewed its Beijing, China lease for
The Company exited our long term Seattle operating lease on September 30, 2023. During October 2023, the Company entered into a sub-lease agreement to rent office space in Seattle for approximately $
The Tulsa lease contains fixed annual lease payments that increase annually by
8
Supplemental balance sheet information related to operating leases is as follows:
September 30, | December 31, | ||||||
(in thousands) | 2024 | 2023 | |||||
$ | | $ | | ||||
Lease Liabilities: | |||||||
Current lease liabilities | $ | | $ | | |||
Long term lease liabilities | | | |||||
Total lease liabilities | $ | | $ | | |||
Weighted average remaining lease term (in years): |
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Weighted average discount rate: |
| | % | | % |
Supplemental cash flow information related to operating leases is as follows:
For the Nine Months Ended | ||||||
September 30, | ||||||
(in thousands) | 2024 | 2023 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||
Operating cash flows used in operating leases | $ | | $ | | ||
Non-cash impact of new leases and lease modifications | ||||||
Change in operating lease liabilities | $ | | $ | | ||
Change in operating lease ROU assets | $ | | $ | | ||
Minimum future payments under the Company’s operating lease liabilities as of September 30, 2024 are as follows:
| Discounted |
| Payments | |||
lease | due under | |||||
(in thousands) | liability | lease | ||||
payments | agreements | |||||
2024 (remaining 3 months) |
| $ | |
| $ | |
2025 |
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2026 | | | ||||
2027 | | | ||||
Total | $ | | $ | | ||
At September 30, 2024, $
9
Note 4 – Patents and Other Intangible Assets
Patents and other intangible assets are summarized as follows:
September 30, | December 31, | |||||
(in thousands) |
| 2024 |
| 2023 | ||
Patents | ||||||
Patents pending | $ | | $ | | ||
Issued patents |
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Trademarks |
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Trademarks pending |
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Registered trademarks |
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Other |
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Accumulated amortization |
| ( |
| ( | ||
$ | | $ | | |||
Amortization expense for the three and nine months ended September 30, 2024 was $
Future amortization expense associated with issued patents and registered trademarks as of September 30, 2024 is as follows:
(in thousands) | |||
2024 (remaining 3 months) |
| $ | |
2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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$ | |
The amortization life for patents ranges between to
During the three and nine months ended September 30, 2024 and 2023, the Company assessed its patent and trademark assets for impairment. The Company incurred $
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 $
10
process burners to a single customer. The delivery of products constitutes performance obligations per Accounting Standards Codification (“ASC”) 606.
The Company recognized $
The Company recognized $
The Company recognized $
The Company had contract assets of $
Note 6 – Product Warranties
A summary of the Company’s warranty liability activity, which is included in accrued liabilities in the accompanying consolidated balance sheets as of September 30, 2024 and December 31, 2023, is as follows:
September 30, | December 31, | |||||
(in thousands) | 2024 |
| 2023 | |||
Warranty liability at beginning of year | $ | | $ | | ||
Accruals |
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Payments |
| ( |
| — | ||
Changes in accrual related to expirations | ( | — | ||||
Warranty liability at end of period | $ | | $ | | ||
Note 7 – Equity
Common Stock and Preferred Stock
The Company is authorized to issue
In July 2018, in connection with a private placement of the Company’s common stock pursuant to a Stock Purchase Agreement, the Company granted clirSPV LLC (“clirSPV”) a right to purchase certain new equity securities that the Company sells for purpose of raising capital on terms and conditions no different from those offered to other purchasers (the “Participation Right”), so that clirSPV could maintain a
11
In May 2022, in connection with a waiver of the Participation Right’s notice requirements and other related closing mechanics for such Participation Right (the “Waiver”) the Company and clirSPV, agreed that the Participation Right may be extended from December 31, 2023, to such date that the holders of -thirds of the outstanding units of clirSPV agree to extend each such holder’s existing agreement that he/she/it will have no right to force a redemption of his/her/its interests in clirSPV (the “Redemption Right”); provided, however, that the Participation Right could not be extended to a date later than June 30, 2027. On December 30, 2023, the Company received notice from clirSPV that the holders of at least -thirds of the outstanding units of clirSPV agreed to extend the waiver of the Redemption Right until December 31, 2024. Accordingly, the Participation Right will now expire on December 31, 2024.
The Company has an At-The-Market (“ATM”) program pursuant to a Sales Agreement with Virtu Americas LLC, as sales agent, dated December 23, 2020 (the “Sales Agreement”), pursuant to which the Company may sell shares of common stock with an aggregate offering price of up to $
The Company is currently subject to the SEC’s “baby shelf rules,” which prohibit 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 our “shelf” registration statement on Form S-3, the ATM program or other securities offerings.
Equity Offerings
Public Offering
On April 23, 2024, we completed an underwritten public offering (the “Public Offering”), pursuant to which we sold approximately
Each Public Warrant has an exercise price of $
In connection with the Public Offering, we also issued approximately
12
The shares of common stock and Public Warrants issued in the Public Offering have been classified and recorded as part of stockholders’ equity. The amount allocated to such instruments were based on their relative fair value, resulting in an initial carrying value for each of those instruments to be as follows:
(in thousands) | Allocated Amount | |
Common Stock | $ | |
Public Warrants | | |
$ | | |
In determining the fair values of the Public Warrants and Underwriter Warrants, we used a Black-Scholes option pricing model with the following assumptions:
Stock price | $ | |
Expected volatility | ||
Contractual/expected term (in years) | ||
Risk-free interest rate | ||
Expected dividend yield |
The Underwriter Warrants issued in connection with the Public Offering have been accounted for as a direct cost of the Public Offering, resulting in no net effect to the overall stockholders’ equity.
The fair value of the shares of common stock issued in the Public Offering was determined using the closing price of our common stock immediately preceding the closing date of the Public Offering.
Private Placement
On April 23, 2024, we completed a private placement (the “Private Placement”) concurrent with the Public Offering noted above. As part of the Private Placement, we sold (i) approximately
The Private Warrants have the same terms as the Public Warrants noted above, except that they are only exercisable
Each Private Pre-Funded Warrant has an exercise price of $
In connection with the Private Placement, we issued approximately
The shares of common stock, Private Pre-Funded Warrants and Private Warrants issued in the Private Placement have been classified and recorded as part of stockholders’ equity. The amount allocated to such instruments were based on their relative fair value, resulting in an initial carrying value for each of those instruments to be as follows:
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(in thousands) | Allocated Amount | |
Common Stock | $ | |
Private Pre-Funded Warrants | | |
Private Warrants | | |
$ | | |
In determining the fair values of the Private Warrants, Private Pre-Funded Warrants, and Placement Agent Warrants, we used a Black-Scholes option pricing model with the following assumptions:
Stock price | $ | |
Expected volatility | ||
Contractual/expected term (in years) | ||
Risk-free interest rate | ||
Expected dividend yield |
The Placement Agent Warrants issued in the Private Placement have been accounted for as a direct cost of the Private Placement resulting in no net effect to the overall stockholders’ equity.
The fair value of the shares of common stock issued in the Private Placement was determined using the closing price of our common stock immediately preceding the closing date of the Private Placement.
Participation Right Exercise
On June 24, 2024, in connection with the Public Offering and concurrent Private Placement noted above, clirSPV exercised its Participation Right (the “Participation Right Exercise”) and purchased (i)
The Participation Right Warrants have the same terms as the Private Warrants noted above.
The Participation Right Pre-Funded Warrants have the same terms as the Private Pre-Funded Warrants noted above, except that, in accordance with the terms of the Participation Right Pre-Funded Warrants, the Company is prohibited from effecting an exercise that would result in beneficial ownership exceeding
The shares of common stock, Participation Right Pre-Funded Warrants, and Participation Right Warrants issued in the Participation Right have been classified and recorded as part of stockholders’ equity. The amount allocated to such instruments were based on their relative fair value, resulting in an initial carrying value for each of those instruments to be as follows:
(in thousands) | Allocated Amount | |
Common Stock | $ | |
Participation Right Pre-Funded Warrants | | |
Participation Right Private Warrants | | |
$ | 4,277 |
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In determining the fair values of the Participation Right Warrants and Participation Right Pre-Funded Warrants, the Company used a Black-Scholes option pricing model with the following assumptions:
Stock price | $ | |
Expected volatility | ||
Contractual/expected term (in years) | ||
Risk-free interest rate | ||
Expected dividend yield |
The fair value of the shares of common stock issued in connection with the Participation Right Exercise was determined using the closing price of the Company’s common stock immediately preceding the closing date of the Participation Right Exercise.
Warrants & Pre-Funded Warrants
The following table summarizes the Warrants (as defined above) and Pre-Funded Warrants (as defined above) activity and outstanding balance as of September 30, 2024, along with the associated weighted average exercise price and weighted average remaining life.
Warrants | Pre-Funded Warrants(1) | |||||||||
(in thousands, except per share data) | Number | Wtd. Avg. Exercise Price | Wtd. Avg. Remaining Life (in years) | Number | Wtd. Avg. Exercise Price | |||||
Beginning Balance | — | — | — | — | — | |||||
Granted | | $ | | | $ | | ||||
Exercised | — | — | — | — | — | |||||
Forfeited/Expired | — | — | — | — | — | |||||
Outstanding at Period End | | $ | | | $ | | ||||
(1) Pre-Funded warrants have no expiration date and only expire when exercised in full. | ||||||||||
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 Board’s Human Capital and Compensation Committee (the “Compensation Committee”) is authorized to administer the 2021 Plan.
The 2021 Plan provides for an annual increase in available shares equal to the lesser of (i)
Ending balances for the 2021 Plan is as follows:
September 30, | December 31, | |||
(in thousands) |
| 2024 |
| 2023 |
Outstanding options and restricted stock units |
| |
| |
Reserved but unissued shares under the Plan | | | ||
Total authorized shares under the Plan |
| |
| |
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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.
Equity Incentive Plan Options
Compensation expense associated with stock option awards for the three and nine months ended September 30, 2024 totaled $
A summary of the Company’s 2011 Equity Incentive Plan and the 2021 Plan stock option activity and changes is as follows:
September 30, | |||||||
2024 | |||||||
(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 |
| | $ | |
| ||
Granted |
| — | $ | — |
| — | |
Exercised |
| — | $ | — |
| — | |
Forfeited/Expired |
| ( | $ | |
| — | |
Outstanding at end of period |
| | $ | |
| ||
Exercisable at end of period |
| | $ | |
| ||
The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at September 30, 2024 is $
At September 30, 2024, there was $
Inducement Options
During the year ended December 31, 2023, the Company granted non-qualified stock options to its Chief Technology Officer to purchase an aggregate of
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of the grant date, subject to continued employment with the Company. The fair value of these options were estimated on the grant date using the Black-Scholes valuation model, and totaled $
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
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).
Restricted Stock Units
The Company awards employees and directors restricted stock units (“RSUs”) in lieu of cash payment for compensation. These awards are granted from the 2021 Plan. Employee vesting criteria is time based, and compensation expense is recognized ratably across the timeframe. The Company pays payroll withholding taxes on behalf of the employee at vesting, and withholds shares from the employee’s award to cover the taxes payable. The Company accrued taxes for RSU share-based compensation of $
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 ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Total unrecognized compensation expense for director services as of September 30, 2024 was $
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A summary of the Company’s RSUs activity is as follows:
September 30, | |||||
2024 | |||||
(in thousands, except per share data) | Number of Shares | Weighted Average Grant Date Fair Value | |||
Nonvested at beginning of period |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Forfeited | — | $ | — | ||
Nonvested at end of period |
| | $ | | |
A summary of the Company’s RSU compensation expense is as follows:
For the Three Months Ended | For the Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||
(in thousands, except per share data) | 2024 | 2023 | 2024 |
| 2023 | |||||
Compensation Expense | $ | | $ | | $ | | $ | | ||
Weighted Average Value Per Share | $ | | $ | | $ | | $ | | ||
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 2021 Plan.
For the Nine Months Ended | ||||||
September 30, | ||||||
(in thousands, except per share data) |
| 2024 |
| 2023 | ||
Fair value | $ | | $ | | ||
Weighted Average Value Per Share | $ | | $ | | ||
For the three months ended for September 30, 2024 and 2023, the Company issued
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 is authorized to administer the Consultant Plan and establish the grant terms. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of
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The Consultant Plan activity is as follows:
September 30, | |||
(in thousands) |
| 2024 | |
Reserved but unissued shares at beginning of period | | ||
Increases in the number of authorized shares | | ||
Grants | ( | ||
Reserved but unissued shares at end of period |
| | |
The Consultant Plan compensation expense is summarized as follows:
For the Three Months Ended | For the Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
(in thousands, except per share data) | 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Compensation Expense | $ | | $ | | $ | | $ | | |||
Weighted Average Value Per Share | $ | | $ | | $ | | $ | | |||
Note 8 – Net Loss per Common Share
The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Under ASC 260, shares issuable for little or no cash consideration are considered outstanding common shares and included in the computation of basic net loss per share. As such, for the three and nine months ended September 30, 2024, the Company included Pre-Funded Warrants to purchase shares of common stock in its computation of net loss per share. The Pre-Funded Warrants were issued in April and June 2024 with an exercise price of $0.0001 (See "Note 7 - Equity" for additional information).
The following potentially dilutive securities have not been included in the computation of diluted net loss per share for the three and nine months ended September 30, 2024 and 2023, as the result would be anti-dilutive:
September 30, | September 30, | |||
(in thousands) | 2024 | 2023 | ||
Stock Options | | | ||
Restricted Stock Units | | | ||
Warrants | | - | ||
Total shares excluded from calculation | | | ||
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Note 9 – 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 our directors and officers that may require the Company to indemnify these individuals against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by law.
Note 10 – Government Assistance
During 2022, the Company was awarded a research grant from the Department of Energy (“DOE”) for approximately $
Beginning in 2021, the Company received funds relating to the Oklahoma 21st Century Quality Jobs Act. The estimated duration of the program is up to
Note 11 – Subsequent Events
The Company has evaluated subsequent events as of the date of this report and has none to report.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q (this “Form 10-Q” or “report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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; |
| ● | our ability to maintain the listing of our common stock on the Nasdaq Capital Market (“Nasdaq”); |
| ● | 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, and rules on foreign investment; |
| ● | the impact of a cybersecurity incident or other technology disruption; |
| ● | our ability to protect our intellectual property; |
| ● | our ability to obtain adequate financing in the future; |
| ● | our ability to retain and hire personnel with the experience and talent to develop our products and business; |
| ● | 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 Form 10-Q as well as our audited consolidated 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, 2023.
Overview
We design and develop technologies for the purpose of decarbonization and 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 $98.0 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. As of September 30, 2024, we have raised approximately $105.2 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.
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.
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,
22
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.
Recent Developments
Public Offering and Concurrent Private Placement
On April 23, 2024, we completed an underwritten public offering, whereby we sold 4,620,760 shares of common stock and 5-year redeemable warrants to purchase up to 4,620,760 shares of common stock (the “Public Warrants”) (plus a 45-day option to purchase up to an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock, or up to 693,114 shares of common stock only) at a price of $0.92 per set of one share of common stock and one Public Warrant. Concurrently, we completed a private placement, whereby we sold 2,249,763 shares of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 3,155,642 shares of common stock and redeemable warrants (the “Private Warrants”) to purchase up to 8,108,106 shares of common stock. The offering prices in the private placement were $0.91 per share and $0.01 per Private Warrant, or $0.9099 per Pre-Funded Warrant and $0.01 per Private Warrant, as applicable. The redeemable warrants issued in both offerings have an exercise price equal to $1.05 per share.
In connection with this offering, we issued Public Ventures, LLC (“Public Ventures”) 5-year warrants to purchase up to 369,660 shares of common stock at an exercise price of $1.1375 per share as part of their underwriter compensation, which underwriter warrants become exercisable on October 16, 2024 (the “Underwriter Warrants”). We also issued Public Ventures 5-year warrants to purchase up to 432,432 shares of common stock at an exercise price of $1.1375 per share as part of their placement agent compensation in connection with the private placement, which warrants become exercisable on October 16, 2024 (the “Placement Agent Warrants,” and together with the Public Warrants, Private Warrants, Pre-Funded Warrants and Underwriter Warrants, the “Warrants,” and the shares issuable upon exercise of the Warrants, the “Warrant Shares”). Both sets of warrants may be exercised on a cashless basis based on a formula set forth in the respective warrants.
Subsequently, on May 15, 2024, Public Ventures exercised its option in full to purchase an additional 693,114 shares of common stock and Public Warrants to purchase up to 693,114 shares of common stock at a price of $0.92 per set of one share of common stock and one Public Warrant, in connection with which we issued Public Ventures additional Underwriter Warrants to purchase up to 55,449 shares of common stock.
The public offering and the concurrent private placement resulted in combined gross proceeds of approximately $9,300 thousand, and net proceeds of approximately $8,100 thousand. The exercise of Public Ventures’ option to purchase additional shares of common stock and Public Warrants resulted in additional gross proceeds of approximately $638 thousand.
Participation Right Exercise
On June 24, 2024, following clirSPV, LLC’s (the “SPV”) notice to exercise its participation right in connection with the underwritten public offering and concurrent private placement discussed above (See “Note 7 – Equity” for additional information), we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the SPV whereby we issued an aggregate of (i) 3,907,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 786,000 shares of common stock, and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock.
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Subsequently, on June 26, 2024, the SPV and we entered into an Amendment to the Securities Purchase Agreement (the “Amendment”) to provide for a revised allocation of the SPV’s subscription between shares of common stock and Pre-Funded Warrants in lieu thereof. Pursuant to the Amendment, the SPV subscribed for: (i) 3,350,000 shares of common stock, (ii) Pre-Funded Warrants to purchase up to 1,343,000 shares of common stock and (iii) Private Warrants to purchase up to 7,039,500 shares of common stock, for aggregate gross proceeds of approximately $4.3 million.
Nasdaq Deficiency Notice
On May 2, 2024, we received a letter from Nasdaq’s Listing Qualifications Staff (the “Staff”) indicating that, based upon our common stock’s closing bid price for the last 30 consecutive business days beginning on March 20, 2024 and ending on May 1, 2024, we no longer meet the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq rules, we were provided a period of 180 calendar days, or until October 29, 2024, in which to regain compliance with the Bid Price Rule.
On October 30, 2024, we received a second letter from the Staff, granting our request for a 180-day extension to regain compliance with the Bid Price Rule. We now have until April 28, 2025 to regain compliance with the Bid Price Rule. If at any time prior to April 28, 2025, our common stock’s closing bid price is at least $1 per share for a minimum of ten consecutive business days during such 180-day extension, we will regain compliance with the Bid Price Rule. As part of our request for the 180-day extension, we notified Nasdaq that we intend to regain compliance with the Bid Price Rule by effecting a reverse stock split, if necessary. If we do not regain compliance with the Bid Price Rule during the additional 180-day extension, Nasdaq will provide written notification to us that our common stock will be delisted. At that time, the Company may appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that, if we do appeal the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful.
This second letter from the Staff does not result in the immediate delisting of our common stock from Nasdaq, and we intend to monitor our common stock’s closing bid price and consider our available options in the event that our common stock’s closing bid price remains below $1 per share.
Amendment to Certificate of Incorporation
On June 25, 2024, we held our 2024 annual meeting of stockholders, at which our stockholders approved, among other items, an increase in the number of authorized shares of common stock available for issuance under our certificate of incorporation (as amended, the “certificate of incorporation”) to 87,500,000 shares from 62,500,000 shares previously authorized.
Accordingly, on June 25, 2024, we filed an amendment to our certificate of incorporation with the Secretary of State of the State of Delaware, reflecting the increase of our authorized shares of common stock to 87,500,000 shares, which became effective upon filing.
Suspension of Activities in China
On October 1, 2024, we informed our employees that we were suspending our operations in China as a result of delayed progress on commercialization of its products in that geographic market and as part of our efforts to align strategic priorities and to reduce operating costs. The suspension of our operations in China will involve declaring our Beijing, China wholly-owned subsidiary dormant, which is a legal entity status available under current China law. Under this legal entity status, operational activities cease for a time period not to exceed three years. By pursuing this entity status, we will initiate a project to suspend current operational activities, which are estimated to cease on or before December 31, 2024. Suspension activities include disposal and shipment of certain equipment in China, the termination of 2 employees and related benefit costs, and legal entity filing fees. In connection with this action, we estimate that we will incur certain one-time costs, primarily consisting of employee termination payments, as well as equipment disposal
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and shipment and legal filing fees. See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” above for additional information.
Critical Accounting Policies
The following discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. 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. We believe the current assumptions and other considerations used to estimate amounts reflected in the condensed consolidated financial statements included in this Form 10-Q are appropriate.
This Form 10-Q and our most recent Annual Report on Form 10-K include discussions of our accounting policies, as well as methods and estimates used in the preparation of our audited consolidated financial statements. For further information on our critical accounting policies and estimates, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K, the notes to our audited consolidated financial statements included in our most recent Annual Report on Form 10-K and “Note 2 – Summary of Significant Accounting Policies” of our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. Since our most recent Annual Report on Form 10-K, we have not experienced a material change to our critical accounting policies or the methods and applications used to develop our accounting estimates.
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RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023
Highlights of our quarter financial performance are as follows:
For the Three Months Ended | ||||||||||||
(in thousands, except per share data) | September 30, | |||||||||||
2024 |
| 2023 |
| $ Change |
| % Change | ||||||
Revenues | $ | 1,859 | $ | 85 | $ | 1,774 | NM | |||||
Cost of goods sold | 1,308 | 61 | $ | 1,247 | NM | |||||||
Gross profit | 551 | 24 | $ | 527 | NM | |||||||
Research and development | 329 | 93 | $ | 236 | 253.8 | % | ||||||
General and administrative | 1,655 | 1,428 | $ | 227 | 15.9 | % | ||||||
Operating Expenses | 1,984 | 1,521 | $ | 463 | 30.4 | % | ||||||
Other income, net | 278 | 165 | $ | 113 | 68.5 | % | ||||||
Net loss | $ | (1,155) | $ | (1,332) | $ | 177 | 13.3 | % | ||||
Basic and diluted net income per common share | $ | (0.02) | $ | (0.03) | $ | 0.01 | 33.3 | % | ||||
NM = Not meaningful | ||||||||||||
For the Nine Months Ended | ||||||||||||
(in thousands, except per share data) | September 30, | |||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Revenues | $ | 3,006 | $ | 1,129 | $ | 1,877 | 166.3 | % | ||||
Cost of goods sold | 1,976 | 870 | $ | 1,106 | 127.1 | % | ||||||
Gross profit | 1,030 | 259 | $ | 771 | 297.7 | % | ||||||
Research and development | 1,012 | 440 | $ | 572 | 130.0 | % | ||||||
General and administrative | 4,840 | 4,649 | $ | 191 | 4.1 | % | ||||||
Operating Expenses | 5,852 | 5,089 | $ | 763 | 15.0 | % | ||||||
Other income, net | 687 | 591 | $ | 96 | 16.2 | % | ||||||
Net loss | $ | (4,135) | $ | (4,239) | $ | 104 | 2.5 | % | ||||
Basic and diluted net income per common share | $ | (0.09) | $ | (0.11) | $ | 0.02 | 18.2 | % | ||||
Revenues and Gross Profit
Consolidated revenues for the three months ended September 30, 2024 were $1,859 thousand compared to $85 thousand for the same period in 2023. Revenues for the three months ended September 30, 2024 were predominantly generated from our process burner product line by shipping multiple burners to a California refinery customer. Revenues for the three months ended September 30, 2023 were generated from a boiler burner order. Consolidated revenues for the nine months ended September 30, 2024 were $3,006 thousand compared to $1,129 thousand for the same period in 2023. Revenues for the nine months ended September 30, 2024 were predominantly generated from our process burner line by shipping multiple burners, performing engineering feasibility studies, and delivering spare parts, all of which constitute contractual performance obligations under ASC 606. Revenues for the nine months ended September 30, 2023 were generated predominantly from a burner performance test, engineering feasibility study, spare parts orders, and a boiler burner sale.
Gross profit increased by $527 thousand and $771 thousand, or 297.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same time periods in 2023. The favorable increase in gross profit for the three months ended September 30, 2024 was predominantly due to higher revenues, as described above. The favorable increase in gross profit for the nine months ended September 30, 2024 was due to higher revenues and an increased profit margin, which increased by 11.3% and added an additional $340 thousand in profit compared to the same period in 2023. This favorable change in profit margin was predominantly driven by the shipment of our process
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burners during the nine months ended September 30, 2024, which was expected since the comparable period in 2023 included a low margin burner performance test.
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 increased $236 thousand, or 253.8%, and $572 thousand, or 130.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same time periods in 2023. This unfavorable year-over-year increase in R&D expenses was mainly driven by additional head count and related benefit costs of $69 thousand and $225 thousand for the three and nine months ended September 30, 2024, respectively, that did not exist in the comparable periods in 2023. In addition, we incurred an unfavorable additional year-over-year expense related to product development costs for our process burner product line for a total of $91 thousand and $234 thousand for the three and nine months ended September 30, 2024, respectively.
General and Administrative
G&A expenses increased by $227 thousand, or 15.9%, for the three months ended September 30, 2024, compared to the same time period in 2023. This unfavorable increase in G&A expenses is primarily attributed to a one-time non-recurring accrual estimate of $394 thousand related to the decision to suspend our China operations. These G&A expenses related to the suspension of our operations in China include severance and related benefit costs, the disposal and shipment of certain equipment in China, and legal entity filing fees. See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” and “Recent Developments – Suspension of Activities in China” above for additional information. This unfavorable increase in G&A expenses was partially offset by a decrease of $93 thousand in human capital and benefit costs primarily driven by the timing of employee departures and subsequent onboarding costs.
G&A expenses for the nine months ended September 30, 2024, increased by $191 thousand, or 4.1%, compared to the same period in 2023. This unfavorable increase in G&A expenses is primarily attributed to a one-time non-recurring accrual estimate of $394 thousand related to our decision to suspend our operations in China, as described above. The year-over-year increase in G&A expenses was partially offset by a decrease of $228 thousand in human capital and benefit costs, which was primarily driven by the timing of employee departures and subsequent onboarding costs.
Other Income, net
Other income, net increased by $113 thousand, or 68.5%, for the three months ended September 30, 2024, compared to the same period in 2023. The favorable increase is primarily due to $89 thousand increase in government assistance from our Department of Energy hydrogen burner development grant, and $61 thousand increase in interest income due to a higher cash balance during the nine months ended September 30, 2024, compared to the same period in 2023. The increase was partially offset by a decrease of $43 thousand in income from the sale of materials from the decommissioning of our Seattle office during the comparable period in 2023.
Other income, net increased $96 thousand, or 16.2%, for the nine months ended September 30, 2024, compared to the same period in 2023. This favorable increase was predominantly due to the $237 thousand increase in government assistance related to our Department of Energy hydrogen burner project. This year-over-year increase was partially offset by a $154 thousand decrease in income in connection with the decommissioning of our Seattle office during 2023, while we derived no income from this project during the comparable period in 2024.
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Liquidity and Capital Resources
At September 30, 2024, our cash and cash equivalent balance totaled $14,486 thousand compared to $5,684 thousand at December 31, 2023, an increase of $8,802 thousand. The increase in cash and cash equivalent balance is primarily attributable to our public offering, concurrent private placement and the related SPV’s exercise of its participation right. See “Note 7 – Equity” for additional information.
At September 30, 2024, we had working capital of $13,851 thousand compared to $4,253 thousand at December 31, 2023. Our Annual Report on Form 10-K filed with the SEC on April 1, 2024, contained a “going concern” note, which raised substantial doubt about our ability to continue as a going concern. We believe that we have alleviated the substantial doubt following the consummation of the recent public offering, concurrent private placement and the related SPV’s exercise of its participation right. See “Note 7 – Equity” for additional information. Accordingly, we believe we have sufficient cash and expected cash collections to fund current operating expenses for over twelve months. We have no contractual debt obligations and to the extent we may require additional funds beyond twelve months from the date hereof, and customer cash collections cannot fund our needs, we may utilize equity offerings. Historically, we have funded operations predominantly through equity offerings. 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. As of September 30, 2024, approximately 21.3 million shares of our common stock are issuable upon exercise of the Warrants (as defined above), and we may receive up to $22.5 million in aggregate gross proceeds from the cash exercises thereof, subject to certain beneficial ownership limitations set forth therein. The Warrants require the warrant holder to tender cash upon exercise, with the exception of the Underwriter Warrants which allow the holder to exercise cashless if they so desire. These equity financial instruments may from time-to-time fund future cash needs, but the volatility of our stock and the risk tolerance of warrant holders will play a key role in this type of funding.
Operating activities for the nine months ended September 30, 2024, resulted in cash outflows of $3,958 thousand, primarily due to the net loss of $4,135 thousand during such period, which was partially offset by a non-cash expense of $688 thousand. The decision to suspend our China operations increased accounts payable and accrued liabilities by $394 thousand during the three months ended September 30, 2024, which represents a one-time accrual estimate for the costs to prepare and place our Beijing China entity into a dormant state. See “Note 2 – Summary of Significant Accounting Policies – Foreign Operations” and “Recent Developments – Suspension of Activities in China” above for additional information. The change in contract liabilities during the nine months ended September 30, 2024 was predominantly impacted by our shipment of process burners during the three months ended September 30, 2024. See “Note 5 – Revenue, Contract Assets and Contract Liabilities” above for additional information.
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.
Investing activities for the nine months ended September 30, 2024, resulted in cash outflows of $177 thousand, which is primarily attributable to $159 thousand of disbursements for patents and other intangible assets.
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, partially offset by $2,162 thousand in purchases of the same type of investments.
Financing activities for the nine months ended September 30, 2024, resulted in cash inflows of $12,936 thousand, which is primarily attributable to the net proceeds received of $12,967 thousand from the issuance of securities in connection with the recent equity offerings (see “Note 7 – Equity” above for additional information).
Financing activities for the nine months ended September 30, 2023, resulted in cash outflows of $15 thousand due to disbursements for taxes paid related to vesting of employee restricted stock units.
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Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under 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, 2024, the end of the period covered by this Form 10-Q. Based upon the evaluation of our disclosure controls and procedures as of September 30, 2024, 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, 2024 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 procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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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, 2023 which we filed with the SEC on April 1, 2024. There are no material changes from the risk factors set forth in such prior filing, except as set forth below.
There may be future sales of our common stock, or a perception that these sales could occur, which events could cause the price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market or the perception that such sales might occur could materially adversely affect the market price of the shares of our common stock. For instance, the securities issued in our recent equity offerings (see “Note 7 – Equity” for additional information), as well as the Warrant Shares, have been registered for resale and are freely tradable without restriction or further registration under the Securities Act. As a result, a substantial number of shares of common stock may be sold in the public market following such offerings, subject to certain contractual transfer and beneficial ownership restrictions. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares for sale will have on the market price of our common stock. Further, if there are significantly more shares of common stock offered for sale than buyers are willing to purchase, then the market price of the common stock may decline to a market price at which buyers are willing to purchase the offered common stock and sellers remain willing to sell common stock.
We will have broad discretion as to the proceeds that we receive from the cash exercise by any holder of the Warrants, and we may not use the proceeds effectively.
We may receive up to approximately $22.5 million in aggregate gross proceeds from cash exercises of the Warrants, based on the per share exercise price of the Warrants, and to the extent that we receive such proceeds, we intend to use the net proceeds from cash exercises of the Warrants for working capital, research and development, marketing and sales, and general corporate purposes. We have considerable discretion in the application of such proceeds. You must rely on our judgment regarding the application of the net proceeds from cash exercises of the Warrants, which may be used for corporate purposes that do not improve our profitability or increase the price of our shares of common stock. Such proceeds may also be placed in investments that do not produce income or that lose value. The failure to use such funds by us effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.
You may experience future dilution as a result of issuance of the Warrant Shares, future equity offerings by us and other issuances of our common stock or other securities. In addition, the issuance of the Warrant Shares, to the extent the Warrants are exercisable, and future equity offerings and other issuances of our common stock or other securities may adversely affect our common stock price.
You may experience future dilution as a result of issuance of the Warrant Shares and other issuances of our common stock or other securities. In order to raise additional capital, if needed, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share as prior issuances of common stock. We may not be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share previously paid by
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investors, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock or securities convertible into common stock in future transactions may be higher or lower than the prices per share for previous issuances of common stock or securities convertible into common stock paid by certain investors. In addition, the exercise price of the Warrants may be equal to or greater than the price per share previously paid by certain investors. You will incur dilution upon exercise of any outstanding stock options, warrants or upon the issuance of shares of common stock under our equity incentive programs.
If we fail to comply with Nasdaq’s continued minimum closing bid requirements by April 28, 2025 or other requirements for continued listing, including stockholder equity requirements, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock is listed for trading on Nasdaq, therefore, we must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 consecutive business days. On May 2, 2024, the Staff notified us that we did not comply with the Bid Price Rule for continued listing, as set forth in Nasdaq Listing Rule 5550(a)(2), during the 30 consecutive business day period beginning on March 20, 2024 and ending on May 1, 2024. We were granted 180 calendar days, or until October 29, 2024, to regain compliance with the Bid Price Rule.
On October 30, 2024, the Staff sent us a second letter granting our request for a 180-day extension, or until April 28, 2025, to regain compliance with the Bid Price Rule. To regain compliance with the Bid Price Rule and to qualify for continued listing on Nasdaq, the minimum bid price per share of our common stock must be at least $1.00 for at least ten consecutive business days during the 180-day extension. As part of our request for the 180-day extension, we notified Nasdaq that we intend to regain compliance with the Bid Price Rule by effecting a reverse stock split, if necessary. If we do not regain compliance with the Bid Price Rule during the 180-day extension, our common stock will be subject to delisting by Nasdaq. At that time, we may appeal the relevant delisting determination to a hearings panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that, if the we do appeal the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful.
There can be no assurance that we will be able to regain compliance with Nasdaq’s listing rules. If we are unable to regain compliance with the Bid Price Rule or if we fail to meet any of the other continued listing requirements, including stockholder equity requirements, our securities may be delisted from Nasdaq, which could reduce the liquidity of our common stock materially and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and business development opportunities.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 24, 2024, we issued 3.8 thousand shares of common stock at a fair market value price per share of $0.81, the closing price of our common stock as reported on Nasdaq on November 16, 2023, the date of grant, and on August 24, 2024, we issued 25 thousand shares of common stock at a fair market value price per share of $0.7063, from our 2013 Consultant Stock Plan to our investor relations firm, Firm IR Group LLC (“Firm IR”). The 3.8 thousand shares were issued for services provided during the three months ended September 30, 2024. The 25 thousand shares were issued as a one-time discretionary payment for Firm IR’s services provided during our most recent equity offerings (see “Note 7 – Equity” above for additional information). These shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, for a transaction by an issuer not involving a public offering.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None of the Company’s
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 13, 2024, the Human Capital and Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of ClearSign Technologies Corporation (the “Company”) approved (i) an increase to Colin James Deller’s, the Company’s Chief Executive Officer, annual bonus target from up to 60% to up to 80% of his annual base salary; and (ii) an increase to Brent Hinds’, the Company’s Chief Financial Officer, base salary from $200,000 to $220,000, with such increases to be effective as of January 1, 2025. The Board ratified the Compensation Committee’s approval on the same date. Except as described herein, there were no further changes to Dr. Deller’s and Mr. Hinds’ employment agreements.
Item 6. Exhibit | EXHIBITS | |
Number |
| Document |
3.1** | ||
3.2** | ||
3.3** | ||
4.1** | ||
4.2** | ||
4.3** | ||
4.4** | ||
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4.5** | ||
10.1+** | ||
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.
**Previously filed.
***Furnished herewith.
+Indicates an agreement with management or compensatory plan or arrangement
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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, 2024 | By: | /s/ Colin James Deller |
Colin James Deller | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
Date: November 14, 2024 | By: | /s/ Brent Hinds |
Brent Hinds | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
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