UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

(Mark One)

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

For the quarterly period ended September 30, ~~2017~~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 ~~COMBUSTION~~TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)


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

~~12870 Interurban Avenue South~~8023 E. 63rd Place, Suite 101

~~Seattle, Washington 98168~~Tulsa, Oklahoma74133

(Address of principal executive offices)

(Zip Code)

~~(206) 673-4848~~(918) 236-6461

(Registrant’s telephone number, including area code)

~~No change~~Securities registered pursuant to Section 12(b) of the Act:

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

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. Yesx⌧ No¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit ~~and post~~ such files). Yesx⌧ 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 x☒
~~(Do not check if a smaller reporting company)~~
		Emerging growth companyx☐

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 ~~7(a)(2)(B)~~13(a) of the ~~Securities~~Exchange Act.¨☐

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

As of November ~~9, 2017,~~6, 2023, the issuer has ~~15,606,353~~38,565,836 shares of common stock, par value ~~$.0001,~~$0.0001, issued and outstanding.

Table of Contents

PART ~~I – FINANCIAL~~I-FINANCIAL INFORMATION

~~ITEM 1.~~

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~ClearSign Combustion Corporation~~

ClearSign Technologies Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Unaudited)

September 30, December 31,
2017 2016
ASSETS

Current Assets:
Cash and cash equivalents $ 3,511,000 $ 1,259,000
Accounts receivable - 103,000
Contract assets 126,000 -
Prepaid expenses and other assets 575,000 535,000
Total current assets 4,212,000 1,897,000

Fixed assets, net 554,000 644,000
Patents and other intangible assets, net 1,836,000 1,735,000
Other assets 10,000 10,000

Total Assets $ 6,612,000 $ 4,286,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable and accrued liabilities $ 863,000 $ 755,000
Current portion of lease liabilities 157,000 150,000
Accrued compensation and taxes 501,000 669,000
Contract liabilities - 115,000
Total current liabilities 1,521,000 1,689,000
Long Term Liabilities:
Long term lease liabilities 235,000 353,000
Deferred rent - -
Total liabilities 1,756,000 2,042,000

Commitments

Stockholders’ Equity:
Preferred stock, $0.0001 par value, zero shares issued and outstanding - -
Common stock, $0.0001 par value, 15,606,353 and 12,983,938 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 2,000 1,000
Additional paid-in capital 52,272,000 42,574,000
Accumulated deficit (47,418,000 ) (40,331,000 )
Total stockholders’ equity 4,856,000 2,244,000

Total Liabilities and Stockholders’ Equity $ 6,612,000 $ 4,286,000


(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 ~~Combustion~~Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Operations

(Unaudited)

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2017 2016 2017 2016

Sales $ - $ 260,000 $ 360,000 $ 260,000
Cost of goods sold 15,000 47,000 266,000 47,000

Gross profit (15,000 ) 213,000 94,000 213,000

Operating expenses:
Research and development 1,329,000 1,226,000 3,644,000 3,767,000
General and administrative 1,131,000 2,840,000 3,569,000 5,342,000

Total operating expenses 2,460,000 4,066,000 7,213,000 9,109,000

Loss from operations (2,475,000 ) (3,853,000 ) (7,119,000 ) (8,896,000 )

Other income:
Interest income 3,000 7,000 32,000 30,000

Net Loss $ (2,472,000 ) $ (3,846,000 ) $ (7,087,000 ) $ (8,866,000 )

Net Loss per share - basic and fully diluted $ (0.16 ) $ (0.30 ) $ (0.46 ) $ (0.69 )

Weighted average number of shares outstanding - basic and fully diluted 15,603,880 12,957,029 15,358,655 12,914,665


(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.

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ClearSign ~~Combustion~~Technologies Corporation and Subsidiary

~~Statement~~Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

For the Three Month Periods During the Nine Months Ended September 30, ~~2017~~2023 and 2022

Total
Common Stock Additional Accumulated Stockholders’
Shares Amount Paid-In Capital Deficit Equity

Balances at December 31, 2016 12,983,938 $ 1,000 $ 42,574,000 $ (40,331,000 ) $ 2,244,000
Shares issued in rights offering ($3.03 per share) 2,395,471 1,000 7,257,000 - 7,258,000
Warrants issued in rights offering ($0.97 per warrant) - - 2,324,000 - 2,324,000
Issuance costs of rights offering - - (915,000 ) - (915,000 )
Shares issued in payment of accrued compensation ($3.60 per share) 136,110 - 490,000 - 490,000
Shares issued for services ($4.85 per share) 5,000 - 24,000 - 24,000
Shares issued for services ($3.50 per share) 2,500 - 9,000 - 9,000
Shares issued for 2017 board services ($3.60 per share) 83,334 - - - -
Share based compensation - - 509,000 - 509,000
Net loss - - - (7,087,000 ) (7,087,000 )

Balances at September 30, 2017 15,606,353 $ 2,000 $ 52,272,000 $ (47,418,000 ) $ 4,856,000


										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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Table of Contents


										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.

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ClearSign ~~Combustion~~Technologies Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (7,087,000 ) $ (8,866,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services 258,000 144,000
Share based payments 284,000 492,000
Depreciation and amortization 209,000 139,000
Amortization of right of use asset 119,000 106,000
Payments of lease liabilities (111,000 ) (106,000 )
Abandonment and impairment of capitalized patents pending - 1,971,000
Other - (13,000 )
Change in operating assets and liabilities:
Contract assets (126,000 ) (144,000 )
Accounts receivable 103,000 -
Prepaid expenses and other assets (40,000 ) (287,000 )
Accounts payable and accrued liabilities 108,000 89,000
Accrued compensation and taxes 322,000 (260,000 )
Contract liabilities (115,000 ) 318,000
Net cash used in operating activities (6,076,000 ) (6,417,000 )

Cash flows from investing activities:
Acquisition of fixed assets (89,000 ) (176,000 )
Disbursements for patents and other intangible assets (250,000 ) (834,000 )
Net cash used in investing activities (339,000 ) (1,010,000 )

Cash flows from financing activities:
Proceeds from issuance of units of common stock and warrants for cash, net of offering costs 8,667,000 -
Net cash provided by financing activities 8,667,000 -

Net increase (decrease) in cash and cash equivalents 2,252,000 (7,427,000 )
Cash and cash equivalents, beginning of period 1,259,000 10,985,000
Cash and cash equivalents, end of period $ 3,511,000 $ 3,558,000


(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	$	—

~~Supplemental disclosure of non-cash operating activities:~~

~~During the nine months ended September 30, 2017, the Company issued 136,110 shares of common stock to its officers in satisfaction of $490,000 of accrued compensation at December 31, 2016.~~

During the nine months ended September 30, 2016, the Company issued 60,883 shares of common stock through net settlement cashless exercise of warrants to purchase 118,959 shares at $2.20 per share when the closing prices on the date of exercises were a weighted average of $4.51 per share.

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

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ClearSign ~~Combustion~~Technologies Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and Description of Business

ClearSign ~~Combustion~~Technologies Corporation ~~(ClearSign~~(“ClearSign” or the ~~Company)~~“Company”) designs and ~~is developing~~develops products and technologies ~~for the purpose of improving~~that have been shown to significantly improve key performance characteristics of ~~combustion~~industrial and commercial systems, including ~~emission and~~ 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 ~~Duplex™~~ClearSign Core technology, which achieves very low emissions without the need of ~~external flue gas recirculation,~~ selective catalytic reduction, or higher excess air operation. Its other technology, Electrodynamic Combustion Control™ or ECC™, introduces a computer-controlled electric field into the combustion region which may better control gas-phase chemical reactions and improve system performance and cost-effectiveness. reduction.

The Company ~~is headquartered in Seattle, Washington and~~ was originally incorporated in the ~~state~~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.

~~Going Concern~~

Liquidity

The ~~Company’s~~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 ~~Duplex technology is~~technologies are currently in ~~various states of~~field development, but with nominal fully operational commercial ~~application regarding in three of the Company’s target markets~~installations, and ~~has~~have generated nominal revenues from operations to ~~date. Results are encouraging but the Company continues~~date to ~~further refine and expand our Duplex technology range. The Company’s ECC technology is in development stage and the Company has not had any commercial application of ECC technology to date.~~meet operating expenses. In order to generate meaningful revenues, ~~one of~~ 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 ~~$47,418,000~~$92.8 million and expects to experience operating losses and negative cash ~~flow~~flows for the foreseeable future. As of September 30, 2017, the Company had cash and cash equivalents totaling $3,511,000. The Company currently anticipates that its cash and cash equivalents will be sufficient to fund the Company’s ongoing business activities into the first quarter of 2018. In order to continue business operations beyond that point, the Company currently anticipates that it will need to raise additional capital. The Company has historically financed its operations primarily through issuances of equity securities, and until the growth of revenue streams increases to a level that covers operating expenses it is the Company’s plan to continue to fund operations in this manner.

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 ~~co-development agreements or strategic partnering agreements~~ to adequately support ~~research and development~~product commercialization efforts, protect intellectual property, form relationships with strategic partners, and provide for working capital and general corporate purposes. Management has made estimates of future results of operations, using a wide range of assumptions regarding the level of revenue generated, operating expenses incurred, and future cash flows from financing activities and is working to execute these plans. While historically the Company has had success in raising capital, there can be no assurances that the Company will raise the necessary capital in the short-term in order to fund operations beyond the first quarter of 2018. Furthermore, thereThere 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 ~~obtain profitable operations or~~ continue in the long-term as a going concern.

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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, ~~2016~~2022 has been derived from the Company’s audited financial ~~statements.~~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 ~~our~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~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 ~~sales~~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 ~~Change~~related cost of goods sold in ~~Accounting Principle~~

~~In September 2014, the~~accordance with Financial Accounting Standards Board ~~issued~~(“FASB”) Accounting Standards ~~Update No. 2014-09 (ASU No. 2014-09) regarding revenue recognition. The new standard provides authoritative guidance clarifying~~Codification Topic 606 Revenue from Contracts with Customers (“ASC 606”). When applying ASC 606, the ~~principles for recognizing revenue~~Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and ~~developing a common revenue standard for U.S. generally accepted accounting principles. The core principle of~~performance obligations in the ~~guidance is that an entity should~~contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue ~~to depict~~when (or as) the ~~transfer of promised goods~~performance obligations are satisfied. Revenues and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. It is effective January 1, 2018 and early adoption is permitted. Management has elected early adoption of this standard to minimize the eventual cost of ~~implementation.~~

~~The Company previously accounted for revenues from design and installation of its products on the completed contract method. Revenues from contracts and related costs of~~ goods sold were recognized once the contract was completed or substantially completed. Contract costs included all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, and depreciation costs. Provisions for estimated losses on uncompleted contracts were made in the period in which such losses were determined.

The Company retroactively adopted ASU No. 2014-09 effective January 1, 2017. The Company reviewed each contract to identify contract rights, performance obligations, and transaction prices, including the allocation of prices to separate performance obligations. Revenues and costs of sales are recognized once the goods or services are delivered to the customer’s control ~~and~~or non-refundable performance obligations are satisfied. Typically, the Company’s customer contracts include performance obligations related to emission levels or other metrics that are measured at project completion. Management analyzed prior year revenue recognition made under the completed contract method and determined that no changes in the previously reported financial statements were required. Management elected to not apply the practical expedients in the adoption of ASU No. 2014-09.

The Company’s contracts with customers generally have performance obligations ~~regarding air emissions~~ and ~~operational performance that are satisfied~~a schedule of non-refundable cancellation obligations. The contracts generally will be fully performed upon ~~completion~~delivery of ~~service. Since this is the singular performance obligation and cannot be achieved until the air emissions and operational performance have been successfully tested, revenue~~certain drawings or equipment. Revenue related to the contracts is recognized ~~upon project completion.~~

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~~contract assets or ~~Contract~~contract liabilities. Upon completion of the performance obligations and ~~acceptance by~~collectability is determined, revenue is recorded. For any contract that is expected to incur costs in excess of the ~~customer~~contract price, the ~~projects can be recorded as revenue.~~ Company accrues the estimated loss in full in the period such determination is made.

Contract Costs

The Company ~~did not recognize any revenue from contracts during~~capitalizes project costs until performance obligations related to the ~~quarter ended September 30, 2017.~~contract are completed. The Company ~~recognized revenue~~expenses selling and marketing expenses when incurred within the statements of ~~$360,000~~operations in ~~the nine-month period ended September 30, 2017.~~general and administrative expenses.

7

~~The Company’s contracts with customers contain no variable considerations or incentives or discounts that would cause revenue to be allocated or adjusted over time. Therefore, no separate methods~~Table of ~~evaluating the contracts other than consideration of the price at achievement of the performance objectives was used in satisfying the review requirements of ASU No. 2014-09.~~Contents

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 ~~at the time revenue is recognized~~ as a component of cost of ~~sales.~~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. ~~The warranty liabilities~~Product warranties are included in accounts payable and accrued liabilities in the consolidated balance sheets.

Cash and Cash Equivalents

~~Highly liquid investments purchased~~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 ~~considered cash equivalents. Cash~~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 ~~maintained with~~deemed other than temporary results in a ~~commercial bank where accounts are generally guaranteed by~~reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the ~~Federal Deposit Insurance Corporation up to $250,000.~~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 ~~deposits may at times exceed this limit.~~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 ~~in such accounts~~on these investments. The fair value for the Company’s short-term investments totaled approximately zero and ~~believes it is not exposed to any significant credit risk on cash~~$2,610 thousand as of September 30, 2023 and ~~cash equivalents.~~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 ~~other factors which, in~~ management’s ~~judgment, deserve current recognition in estimating bad debts.~~judgment. The determination of the collectability of amounts due from ~~customer accounts requires~~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 ~~Change in Accounting Principle for~~ Leases

Fixed assets are recorded at cost. ~~As disclosed~~Leases are recorded in ~~Note 3, in 2017 the Company retroactively adopted Accounting Standards Update No. 2016-02 (ASU No. 2016-02) regarding leases.~~accordance with FASB ASC 842, Leases. For those leases with a term greater than one year, the Company recognizes ~~on the balance sheet at the time of lease inception or modification~~ a right-of-use asset, which is included in fixed assets, net on the consolidated balance sheets, and a lease liability ~~initially~~ measured at the present value of the lease ~~payments.~~payments at the time of the lease inception or modification. Lease costs are recognized in the ~~income~~consolidated statement of operations over the lease term on a straight-line basis. ~~Operating leases~~Leases with a term of 1 year or less ~~(short-term leases)~~ are considered short term leases with rent expense recognized ~~on a straight line basis~~ over the lease term. Depreciation is computed using the straight-line method over the estimated useful lives of the respective lease assets. Leasehold improvements are depreciated over the life of the lease or their useful life,

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

Patents and Trademarks

~~Patents~~Third-party expenses related to patents and trademarks are recorded at ~~cost.~~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 ~~to result~~ from the use and eventual disposition of the assets. In ~~that~~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. ~~Loss~~Losses on long-lived assets to be disposed ~~of is~~are determined in a similar manner, except ~~that~~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,~~liabilities;

·●

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

·●

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

The Company’s financial instruments primarily consist of cash ~~and cash~~ equivalents, 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 ~~maturities~~nature of these instruments.

In adopting ASU 2016-02 as described in Note 3, the Company recorded lease liabilities for the estimated present value of the lease payments under the lease agreements. The Company determined the interest rate based on an estimated incremental borrowing rate. The lease liabilities are classified within Level 3.

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~~share based compensation, consumables, and consulting fees, ~~rent, utilities, depreciation,~~including costs to develop and ~~consumables.~~test prototype equipment and parts. Research and Development costs have been offset by funds received, if any, from strategic partners

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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 ~~these items will either expire before~~ the Company iswould not be able to realize their benefits, or that future deductibility is uncertain. Tax benefits ~~from a tax position~~ are recognized only if it is more likely than not that the tax ~~position~~benefits will be ~~sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized~~utilized in the ~~financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.~~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.~~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 ~~shares granted~~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, ~~2017~~2023 and ~~2016,~~September 30, 2022, potentially dilutive shares outstanding amounted to ~~3,474,094~~4.0 million and ~~1,335,363,~~3.1 million, respectively.

In connection with the January 2017 rights offering (see Note 6), the Company evaluated the financial impact of FASB ASC 260, “Earnings per Share,” which states, among other things, that if a rights issue is offered to all existing stockholders at an exercise price that is less than the fair value of the stock, then the weighted average shares outstanding and basic and diluted earnings per share shall be adjusted retroactively to reflect the bonus element of the rights offering for all periods presented. The Company determined that the application of this specific provision of ASC 260 was immaterial to previously issued financial statements and, therefore, did not retroactively adjust previously reported weighted average shares outstanding and basic and diluted earnings per share.

Recently Issued Accounting Pronouncements

Adopted

In ~~May~~June 2017, the FASB issued an Accounting Standards Update (“ASU”) ASU ~~2017-09,~~~~Compensation - Stock Compensation~~2016-13, Financial Instruments (Topic ~~718)~~~~: Scope~~326) Measurement of ~~Modification Accounting. This~~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 ~~provides clarity~~2016-13, and ~~reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 71 to a change to the terms or conditions of a share-based payment award. The~~related amendments, ~~in this ASU~~ are effective for ~~public entities for~~ fiscal years ~~and interim periods~~ beginning after December 15, ~~2017, with early adoption permitted. The ASU should be applied prospectively on and after the effective date.~~2022. The Company ~~is evaluating the impact of~~adopted this ~~ASU.~~

~~Management does~~standard on January 1, 2023. This standard did not ~~believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would~~ have a material impact on the Company’s condensed consolidated financial ~~statement presentation or disclosures.~~

~~Emerging Growth Company~~statements.

~~The Company is an emerging growth company as defined underthe Jumpstart Our Business Startups Act of 2012 (JOBS Act)~~.An emerging growth company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company will remain an emerging growth company until December 31, 2017, although it will lose that status sooner if its revenues exceed $1.07 billion, if it issues more than $1 billion in non-convertible debt in a three-year period, or if the market value of its common stock that is held by non-affiliates exceeds $700 million as of any June 30. At June 30, 2017, the market value of the Company’s common stock held by non-affiliates totaled $57 million.

Note 3 – Fixed Assets

Fixed Assets

Fixed assets are summarized as follows:

	September 30,			December 31,
	2017			2016
	(unaudited)

							September 30,		December 31,
(in thousands)							2023		2022
Machinery and equipment	$	801,000		$	662,000		$	209	$	390
Office furniture and equipment		163,000			141,000			60		177
Leasehold improvements		145,000			134,000			43		192
Right of use asset-operating leases		518,000			518,000
								312		759
Accumulated depreciation and amortization		(1,073,000	)		(894,000	)		(162)		(697)
		554,000			561,000
Construction in progress		-			83,000
	$	554,000		$	644,000
								150		62
Operating lease ROU assets, net								256		322
Total							$	406	$	384

~~In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02 regarding leases~~Depreciation and amortization expense for the ~~purpose of providing more comprehensive~~nine months ended September 30, 2023 and ~~standardized presentation of an entity’s cost of property essential to its operations~~2022 totaled $122 thousand and its related funding. The new standard requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statements of cash flows. It is effective for fiscal years commencing after December 15, 2018 and early adoption is permitted. Management has elected early adoption of this standard to minimize the eventual cost of implementation.$19 thousand, respectively.

Leases

The Company ~~has a triple net operating lease for~~leases office ~~and laboratory~~ space in Seattle, Washington, ~~through~~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 ~~2020. This~~2023, the Company amended its Seattle lease ~~was modified in November 2016~~ to extend ~~its~~the lease term ~~from February 2017~~ to ~~March 2020. Rent escalated annually~~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 ~~3% through February 2017~~$5 thousand and ~~remains at~~decreased the lease liability by $9 thousand. During October 2023, the Company entered into an agreement to lease a ~~constant rate thereafter~~portion of ~~$12,000~~office space for approximately $2 thousand per month ~~plus triple net~~for twelve months. The Tulsa and Beijing leases are classified as operating ~~costs. The Company also has a triple net operating lease~~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 ~~Tulsa, Oklahoma with a term~~ that, ~~began in~~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 ~~2016~~30, 2023 and ~~will expire in August 2019 with monthly rent of $2,000 per month plus triple net operating costs. Both leases include lessee renewal options for three years at the then prevailing market rate.~~twelve months ended December 31, 2022, respectively.

~~With the retroactive adoption of ASU No. 2016-02, the new lease standard was applied to the~~The Tulsa lease in 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 ~~2016, the commencement of the~~30, 2023 were $35 thousand and $117 thousand, respectively. Operating lease term, and to the Seattle lease in November 2016, the time of the lease modification. A leasehold interest and corresponding lease liability was recognized related to the Tulsa lease and the Seattle lease retroactively in 2016 in the amounts of $71,000 and $447,000, respectively. These reflect the lease commitments over the lease term discounted at the Company’s estimated incremental borrowing rate of 5% per annum. The lessee renewal options were not included in the lease term as they were not considered to be reasonably probable of exercise nor measurable. In 2016, accumulated amortization of these assets amounted to $19,000 and principal payments of the lease liabilities amounted to $17,000. There was no meaningful effect on the 2016 results of operations or the December 31, 2016 accumulated deficit. Management elected to apply the practical expedients in the adoption of ASU No. 2016-02 and to not apply the standard to short-term leases.

~~Lease~~ costs for the three and nine months ended September 30, ~~2017~~2022 were $49 thousand and ~~2016 and other quantitative disclosures are~~$138 thousand, respectively.

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

For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Lease cost:
Operating lease cost $ 54,000 $ 42,000 $ 161,000 $ 122,000
Short-term lease cost 40,000 4,000 47,000 21,000
Total lease cost $ 94,000 $ 46,000 $ 208,000 $ 143,000


		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	%

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 129,000

Right-of-use assets obtained in exchange for new operating lease liabilities
For operating lease:
Weighted average remaining lease term (in years) 2.43
Weighted average discount rate 5.00 %


	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 ~~leases at~~lease liabilities as of September 30, ~~2017 and their application to the corresponding lease liabilities~~2023 are as follows:

Payments due
Discounted lease under lease
liability payments agreements
2017 $ 38,000 $ 43,000
2018 159,000 173,000
2019 158,000 164,000
2020 37,000 37,000
Total $ 392,000 $ 417,000


	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,
	2017			2016
	(unaudited)

							September 30,		December 31,
(in thousands)							2023		2022
Patents
Patents pending	$	1,163,000		$	1,040,000		$	400	$	307
Issued patents		862,000			747,000			782		815
		2,025,000			1,787,000
								1,182		1,122
Trademarks
Trademarks pending		36,000			23,000			4		6
Registered trademarks		23,000			23,000			86		95
		59,000			46,000
								90		101
Other		8,000			8,000			8		8
		2,092,000			1,841,000
								1,280		1,231
Accumulated amortization		(256,000	)		(106,000	)		(511)		(433)
	$	1,836,000		$	1,735,000
							$	769	$	798

~~During~~

Amortization expense for the ~~three and~~ nine months ended September 30, ~~2017~~2023 and ~~2016, the Company recorded impairment losses of $0, $0, $1,739,000,~~2022 totaled $109 thousand and ~~$1,971,000 respectively, of capitalized patents pending.~~

$94 thousand, respectively. Future amortization expense associated with issued patents and registered trademarks as of September 30, ~~2017~~2023 is ~~estimated~~ as follows:

2017 $ 54,000
2018 215,000
2019 193,000
2020 109,000
2021 38,000
Thereafter 29,000
$ 638,000


(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 – ~~Sales,~~Revenue, Contract Assets and Contract Liabilities

InThe Company recognized $85 thousand of revenues and $61 thousand of cost of goods sold during the three months ended September 30, ~~2016,~~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 ~~entered into~~successfully completed a ~~multi-flare contract with~~burner performance customer witness test, which represented a ~~third-party contractor to supply its Duplex technology to a major California oil producer to retrofit its enclosed wellhead ground flares. This contract is valued at $900,000~~contractual performance obligation per ASC 606.

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The Company recognized $324 thousand of revenues and ~~includes certain performance requirements related to emission levels. As such, each flare retrofit is considered a separate transaction where revenues are recognized upon delivery~~$201 thousand of ~~the unit and satisfaction~~cost of ~~the performance obligation. In~~goods sold during the three and nine months ended ~~March 31, 2017,~~September 30, 2022. The revenue ~~totaling $360,000 was recognized~~and cost of goods sold are mostly in connection with the completion of ~~the performance obligations. The remaining units with~~ a ~~contract value totaling $540,000 are in progress. The Company also has contracts with two oil producing companies for the installation of its Duplex~~ technology ~~with a total value of approximately $280,000. At September 30, 2017, the~~validation project.

The Company had contract assets of ~~$126,000~~$7 thousand and $20 thousand at September 30, 2023 and December 31, 2022, respectively. The Company had contract liabilities of ~~$0.~~$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 – ~~Stockholders’~~ Equity

Common Stock and Preferred Stock

The Company is authorized to issue ~~62,500,000~~62.5 million shares of common stock and ~~2,000,000~~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 ~~January 2017,~~July 2018, the Company completed a ~~rights~~private equity offering and ~~public offering~~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 ~~units comprised~~its affiliates to beneficially own 20% or more of the Company’s then outstanding common ~~stock~~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 ~~warrants at $4.00 per unit (the Rights Offering) whereby 2,395,471~~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 ~~and warrants for~~with an aggregate offering price of up to $8.7 million. During the ~~purchase~~nine months ended September 30, 2023, the Company issued zero shares of ~~2,395,471~~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 ~~were issued. The warrants allow each holder to purchase one share of common stock~~under the ATM program, at an ~~exercise~~average price of ~~$4.00~~$3.84 per ~~share, are non-callable, expire on January 25, 2019, and are publicly traded on the NASDAQ Capital Market under the symbol “CLIRW”.~~share. Gross proceeds ~~from the Rights Offering~~ totaled ~~$9.6~~approximately $6.1 million and net cash proceeds ~~approximated $8.7~~was approximately $5.9 million. ~~Expenses of the Rights Offering approximated $915,000, including dealer-manager and placement agent fees of $575,000 paid to MDB Capital Group LLC (MDB) and MDB’s legal fees of $60,000.~~

~~Equity Incentive Plan~~

The Company ~~has an~~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 ~~Plan)~~“2021 Plan”) which ~~provides for~~permits the ~~granting of options~~Company to ~~purchase shares of common stock, stock awards~~grant Incentive Stock Options, Non-statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, and Performance Shares, to ~~purchase shares at no less than 85% of the value of the shares,~~eligible participants, which includes employees, directors and ~~stock bonuses to officers, employees, board members, consultants, and advisors.~~consultants. The Compensation Committee of the Board of Directors is authorized to administer the ~~Plan and establish the grant terms, including the grant price, vesting period and exercise date. As~~2021 Plan.

14

Table of ~~September 30, 2017, the number of shares of common stock reserved for issuance under the Plan totaled 1,657,972.~~ Contents

The 2021 Plan provides for ~~quarterly increases~~an annual increase in ~~the~~ available ~~number of authorized~~ shares equal to the lesser of (i) 10% of ~~any new~~the aggregate number of shares of Common Stock issued by the Company ~~during~~in the ~~quarter immediately~~ 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 ~~the adjustment date or such lesser amount as the Board of Directors~~this automatic share increase shall ~~determine.~~

~~In February 2017, the Company issued 83,334~~not exceed 400 thousand shares of common ~~stock under~~stock. In 2023, the ~~Plan~~board of directors approved an increase of 400,000 shares available for issuance pursuant to ~~its three independent directors~~future awards in accordance with ~~agreements entered into with each director. The common~~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 ~~is subject to repurchase rights by~~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 ~~at $0.0001 per share through February 10, 2018 upon~~will determine the ~~termination of~~period within which the ~~individual’s services as a director or other circumstances as set forth in~~option may be exercised and will specify any conditions that must be satisfied before the ~~award agreements.~~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, ~~was $3.60 per share~~but rather accounts for ~~a total value~~forfeitures at the time they occur. The risk-free rate for periods within the expected life of ~~$300,000.~~the option is based on the U.S. Treasury yield in effect at the time of grant. The Company ~~recognized $225,000~~has never declared or paid dividends and has no plans to do so in ~~general and administrative expense for~~the foreseeable future.

Inducement Options

During the nine months ended September 30, ~~2017 and will recognize the remaining $75,000 during the remainder of 2017.~~

~~In the nine months ended September 30, 2017,~~2023, the Company granted ~~107,000~~non-qualified stock options ~~under~~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 ~~Plan to employees. The stock~~Company. These inducement options ~~have exercise prices at~~vest in three equal installments, with one third of the option vesting on the grant date, ~~fair value~~and each remaining third of ~~$3.80 per share, contractual lives~~the options to vest on the second and third anniversaries of ~~10 years, and vest over 4 years.~~the grant date, subject to continued employment with the Company. The fair value of ~~stock~~these options ~~granted~~ estimated on the date of grant using the ~~Black-Scholes option~~Black Scholes valuation model was ~~$224,000.~~$160 thousand. The ~~recognized~~ compensation expense ~~associated with~~recognized for these ~~grants for the nine months ended September 30, 2017 was $28,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:~~

~~Expected life~~	~~6.25years~~
~~Weighted average volatility~~	69	%
~~Forfeiture rate~~	13	%
~~Weighted average risk-free interest rate~~	~~1.90~~	%
~~Expected dividend rate~~	0	%

Outstanding stock option grants at September 30, 2017 and December 31, 2016 totaled 978,310 shares and 882,815 shares, respectively, with the right to purchase 720,643 shares and 547,532 shares being vested and exercisable at September 30, 2017 and December 31, 2016, respectively. The intrinsic value of the exerciseable shares was $194,000 as of September 30, 2017. The recognized compensation expense associated with these grantsawards for the three and nine months ended September 30, ~~2017~~2023 was $62 thousand.

These inducement options were granted outside of the 2021 Plan and ~~2016~~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 ~~$140,000, $509,000, $199,000~~$42 thousand and ~~$604,000,~~$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, ~~2017 the number of shares reserved under the Plan but unissued totaled 202,648. At September 30, 2017, in addition to the $75,000 of director share-based compensation to be recognized in 2017,~~2023, there was ~~$499,000~~$1.0 million of total unrecognized compensation cost related to non-vested ~~share-based~~stock option-based compensation arrangements. Vesting criteria ranges from time-based to performance-based. The Company records costs for time-based arrangements ~~granted under~~ratably across the ~~Plan. That cost is expected~~timeframe, whereas performance-based arrangements require management to ~~be recognized over a weighted average period of 2.6 years.~~continually evaluate predetermined goals against actual circumstances.

~~Consultant~~Restricted Stock ~~Plan~~

Units

The Company ~~has~~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) which~~“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 ~~reserved~~available for issuance under the Consultant Plan on ~~September 30, 2017 totaled 142,384 with 101,634~~the first day of ~~those shares unissued.~~each of the Company’s fiscal quarters. The ~~Consultant Plan provides for~~ quarterly increases ~~in the available number of authorized shares~~are equal to ~~the lesser of~~ 1% of any new shares subsequently issued by the Company ~~during the quarter immediately prior to the adjustment date~~ or such lesser amount as the Board of Directors shall determine. In August 2017, the Company granted 10,000 shares of common stock under the Consultant Stock Plan to a consultant for services from June 2017 to May 2018 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $3.50 per share for a total value of $35,000 which the Company recognizes in general and administrative expense on a pro-rated quarterly basis.

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, ~~2017~~2023, the Company recognized $26 thousand and ~~2016 was $9,000~~$95 thousand in reimbursements from the DOE, respectively. During the three and ~~$33,000 and $12,000 and $32,000, respectively.~~

~~Warrants~~

~~The Company has the following warrants outstanding at~~nine months ended September 30, ~~2017:~~2022, the Company recognized $76 thousand in reimbursements from the DOE.

Total Outstanding Warrants
Exercise Price Warrants Wtd. Avg.
Exercise
Price Remaining
Life
(in years)
$ 1.80 80,000 $ 1.80 3.38
$ 4.00 2,395,471 $ 4.00 1.32
$ 10.00 20,313 $ 10.00 1.43
2,495,784 $ 3.98

Beginning in 2021, the Company received funds relating to the Oklahoma 21^st Century Quality Jobs Act. The ~~intrinsic value~~estimated duration of the ~~outstanding warrants was $140,000 as of~~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, ~~2017.~~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 79 – ~~Related Party Transactions~~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

Inaggregate 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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Table of Contents

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 ~~January 2017 Rights Offering, the Company paid MDB, the dealer-manager and placement agent, fees~~resignation of ~~$575,000 and legal fees and other costs of $60,000. MDB and its chief executive officer own~~ a ~~significant number of shares~~member of the Company’s ~~common stock.~~board of directors on November 9, 2023.

~~Note 8 – Commitments~~

19

On February 3, 2015, the Company and its Chief Executive Officer, Stephen E. Pirnat, entered into an employment agreement (the Agreement) which terminates on December 31, 2017, unless earlier terminated. Compensation under the Agreement includes an annual salaryTable of $350,000 with annual cost-of-living adjustments, a grant of stock options to purchase 300,000 shares of the Company’s common stock, annual cash bonuses that may equal up to 60% of his annual salary and equity bonuses based on performance standards established by the Compensation Committee of the Board of Directors, medical and dental benefits for Mr. Pirnat and his family, other employee benefits offered to employees generally and relocation expenses up to approximately $100,000. The Agreement may be terminated by the Company without cause under certain circumstances, as defined in the Agreement, whereby a severance payment would be due in the amount of compensation that would have been due had employment not been terminated or one year of the current annual compensation, whichever is greater. In the event of a change in control, Mr. Pirnat would receive one year’s compensation and all previously granted stock options would vest in full. On October 30, 2017 this agreement was extended through December 31, 2018.Contents

The Company has a field test agreement with a customer that was established to demonstrate and test the Duplex technology in a once through steam generator (OTSG) used to facilitate a thermally enhanced oil recovery process. Under the terms of the agreement, the Company has retrofitted an OTSG unit in order to achieve certain performance criteria. The agreement also includes time-sensitive pricing, delivery and installation terms, if elected, that will apply to future purchases of this Duplex application by this customer.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION

CONTAINED IN THIS REPORT

This ~~report~~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, orand technologies; future performance or results of ~~anticipated~~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.

~~our limited cash and our history of losses;~~

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

~~our limited operating history;~~

~~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 ability to obtain adequate financing in the future;~~

~~our ability to continue as a going concern;~~

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

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

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

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

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~~ITEM 2.~~

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.~~10-K for the year ended December 31, 2022.

~~OVERVIEW~~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 ~~patented Duplex™~~ClearSign Core™ technology has been proven in full scale industrial test furnaces and ~~Electrodynamic Combustion Control™ (ECC™) platform technologies enhance the performance of combustion systems~~boilers and first customer installations are currently operating in a broad range of markets, including the energy (upstream oil production and down-stream refining), commercial/industrial boiler, chemical, petrochemical, and power industries. Our Duplex technology uses a porous ceramic tile above a burner to significantly reduce flame length and achieve very low emissions without the need for external flue gas recirculation, selective catalytic reduction, or excess air systems. Our ECC technology introduces a computer-controlled high voltage electric field into a combustion volume in order to better control gas-phase chemical reactions and improve system performance and cost-effectiveness. To date, our operations have been funded primarily through sales of our equity securities.normal commercial applications. We have ~~earned limited revenue since inception on January 23, 2008. We are headquartered in Seattle, Washington with an office in Tulsa, Oklahoma.~~generated nominal revenues from operations to date to meet operating expenses.

We have incurred losses since ~~our~~ inception totaling ~~$47,418,000~~$92.8 million and we expect to experience operating losses and negative cash flow for the foreseeable future. As of September 30, 2017, we had cash and cash equivalents totaling $3,511,000. We currently anticipate that our cash and cash equivalents will be sufficient to fund our ongoing business activities into the first quarter of 2018. In order to continue business operations beyond that point, we currently anticipate that we will need to raise additional capital. We have historically financed our operations primarily through issuances of equity ~~securities,~~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 ~~until the growth of revenue streams increases~~acceptance to ~~a level that covers operating expenses it is our plan to continue to fund operations in this manner.~~

~~Management~~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 ~~co-development agreements or strategic partnering agreements~~ to ~~adequately~~ 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. Management has made estimates of future results of operations, using a wide range of assumptions regarding the level of revenue generated, operating expenses incurred, and future cash flows from financing activities and is working to execute these plans. While historically we have had success, there can be no assurances that we will raise the necessary capital in the short-term in order to fund operations beyond the first quarter of 2018. Furthermore, thereThere 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 ~~obtain profitable operations or~~ continue in the long-term as a going ~~concern.~~concern.

18

~~Our Market Opportunities~~

Our initial target markets center on the energy sector, including upstream crude oil production through the use of once through steam generators (OTSGs) and wellhead enclosed flares and downstream oil refineries through the use of process heaters and boilers. We are focusing on these targets in multiple regions, including North America, Europe, and China. In recent years, the energy sector has been significantly affected by the volatile market price of crude oil and marginal economic growth. Crude oil prices have stabilized during 2016 and early 2017 and enjoyed appreciation with the general post-election upswing in certain commodities and improved economic outlook. According to the U.S. Energy Information Administration, the spot price of West Texas intermediate crude oil in the last five years has ranged from approximately $110 per barrel to approximately $25 per barrel, with 2016 prices reaching a low of $27 per barrel and September 2017 prices approximating $46+ per barrel. Regardless of the effect of crude oil prices, based upon our experience and feedback from current and prospective customers, we believe that the market continues to validate the appeal of our Duplex technology to the energy sector due to the technology’s ability to lower emissions and maintain certain operational efficiencies.

~~Operators in all of our target markets are under intense pressure to meet current and proposed federal, state and local pollution emissions standards. The standards applicable~~With respect to our target markets have been developed over the past 50 years with broad political input. Due to the localized effects of poor air quality, we expect these standards to continue to become more stringent regardless of political leadership. As an illustration, air pollution emission standards are most stringent in the states of California and Texas, historically politically leaning in opposite directions. As a result, these standards are a significant driver in our development and sales efforts and that our Duplex technology can provide a unique, cost-effective pollution control solution for operators in comparison to competing products.

Emissions standards in the United States largely emanate from the Clean Air Act, which is administered by the Environmental Protection Agency (EPA) and regulates six common criteria air pollutants, including ground-level ozone. These regulations are enforced by state and local air quality districts as part of their compliance plans. As a precursor to ground-level ozone, nitrogen oxides (NOx) are regulated emissions by local air quality districts in order to achieve the EPA limits. The 8-hour ground-level ozone regulations have been reduced from 84 parts per billion (ppb) in 1997, to 75 ppb in 2008, and 70 ppb in 2015, with the requirement of realizing these levels approximately 25 years following the year of legislation. The areas of non-attainment related to this 1997 limit of 84 ppb are depicted below in the map on the left and the projected areas of non-attainment related to the 2015 limit of 70 ppb are depicted below in the map on the right.


~~Non-attainment areas under the 1997 limit of 84 ppb~~	~~Projected non-attainment areas under the 2015 limit of 70 ppb~~
~~Source: EPA, August 2016~~	~~Source: URS, August 2015~~

We have noted that local air quality districts in EPA designated “severe non-attainment zones” in California are uncertain as to how they will achieve the 2015 standard. As such, we believe that local regulators are in search of additional means beyond those included in the current regulations to comply with the impending standards. For example, although NOx emissions from refineries and other oil production and processingChina operations, are highly regulated since they are historically a significant source of stationary NOx emissions, enclosed ground flares have not historically been viewed as a source requiring the same level of regulation. We believe that our Duplex technology is uniquely able to address the emissions challenges being faced by oil producers and other industries as those challenges relate to both current and reasonably predictable future local air emission standards.

In the process of attempting to develop our ECC technology beyond laboratory scale for a potential process heater design in 2013, we developed Duplex, which is a simplified application for gaseous fuel. While we continued to pursue development of our ECC technology through laboratory testing, in 2014 we began to pursue field development and conditional sales of our Duplex technology. We engaged in a number of field development projects in which we successfully demonstrated the technology operating with thermal output of up to 62 million BTU/hr. and pursued business development and marketing activities with established entities that use steam generators, process heaters, enclosed flares, boilers, and other combustion systems as well as original equipment manufacturers.

We have had numerous field test projects in three target markets using our Duplex technology: one related to wellhead enclosed flares, four related to process heaters in the oil refining industry, and three related to OTSGs in the enhanced oil recovery industry. We believe that the successful completion of these field development projects, which resulted from years of research and development work, are fundamental to the commercialization of our Duplex product. We reported our first meaningful product sales of $621,000 during the second half of 2016 from the installation of our Duplex technology through retrofits in a wellhead enclosed flare for a major California oil producer, an enhanced oil recovery OTSG, and two refinery process heater projects. Furthermore, we entered into an agreement to supply the oil producer with five additional wellhead enclosed flare retrofits for $900,000 and in the first quarter of 2017 we delivered two units generating sales revenue of $360,000. Our laboratory research currently focuses on enhancing our Duplex products and includes the development of a packaged boiler application that enhances operational performance by eliminating flue gas recirculation.

~~Product Applications of Duplex~~

~~Process Heaters in the Oil Refining Industry~~

We have to date applied our Duplex technology through retrofits of existing burners. These often involve engineering around an existing burner architecture that can complicate the Duplex installation. Because of this, we believe that the retrofit market is best suited for larger projects and larger applications of Duplex.

~~We have recently completed laboratory testing as well as our first field testing of a new burner product for refinery and industrial process heater applications. The Duplex Plug & Play~~™ design provides a more simplified, pre-engineered and standardized direct burner replacement for traditional refinery process heaters. We believe that this product will reduce the customized engineering associated with typical retrofits and lend itself to mass production. The product derives its name from the fact that it is designed to allow a multi-burner heater or furnace to continue operating during installation rather than be shut down. If ongoing field testing confirms this design attribute, the ability to install the Duplex Plug & Play while the remaining burner system is operational will allow customers to limit down time and shorten the sales cycle often prolonged by annual or semi-annual scheduled maintenance. We believe that this product, our first complete burner product, will be suitable for licensing and potential manufacturing arrangements with OEMs with established manufacturing and distribution capabilities.

~~Wellhead Enclosed Ground Flares~~

A major California oil producer approached us in early 2016 to address a unique emission compliance need relating to wellhead enclosed ground flares. We developed a Duplex application, completed the wellhead enclosed ground flare retrofit and received payment in the third quarter of 2016, thereby recognizing $260,000 of revenue in that quarter. This was an important milestone because it demonstrated a broad application of our Duplex technology. As a result, we entered into an agreement to supply this oil producer with five additional wellhead enclosed flare retrofits for $900,000, with 2 units completed in the first quarter of 2017. The remaining three units are expected to be completed during the fourth quarter of 2017 and in early 2018, depending on the oil producer customer’s schedule. We previously received 40% of the contract amount as an initial payment on all units. These funds, net of costs through quarter end, are reflected as contract liabilities on our balance sheet. These sales will be recognized as each of the remaining three units are installed and accepted by the customer and the performance obligations are completed. Our expectation is that our Duplex retrofit sales will normalize over time to gross margins approximating 50%.

Based upon discussions with local regulators and regulatory reports, we believe that flare emissions are a potential target for increased regulation, in part based upon the success of our installations to date. In anticipation of this, we are pursuing potential customers with target ground flare applications that would benefit from our proven installations.

~~OTSGs in Enhanced Oil Recovery Industry~~

We have successfully installed Duplex in two OTSG projects in the enhanced oil recovery industry in Southern California. In March 2017 we entered into an agreement to complete a third installation for this customer fueled by oil field waste gas. We believe that our successful installations in the OTSG market to date are gaining regulator acceptance by the Southern California regulatory authorities and, as a result, market acceptance.

We have now achieved emission results which exceeded current local Best Available Control Technology (BACT) levels in multiple installations in California related to three of our target industries. We intend to continue to demonstrate Duplex capabilities through (i) working with local air quality officials to demonstrate the effectiveness of the technology, (ii)operating in-place units, (iii) engineering and testing with new customers and applications, (iv) pursuing additional lab research and development of new applications (e.g. packaged boilers) and next generation improvements to Duplex design and standardization, including the pursuit of more complete systems, similar to the Duplex Plug & Play, for application in other vertical markets, and (v) assisting our customers in making emission results available for designation as BACT by local regulatory bodies.

~~We are pursuing development of our ECC technology through laboratory research where~~ we have ~~demonstrated certain attributes of~~a satellite office located in Beijing, China to support our ~~proprietary technology operating in our research facility at lab scales.~~

Our business plan contemplates licensing our technology after we prove commercial viability and generate interest from original equipment manufacturers (OEMs). Licensing would significantly change the makeup of our sales mix, sales recognition, and margins.~~Licensing our technology within one or an array of selected vertical markets (e.g. burners for~~ ~~refinery process heaters or~~packaged boilers) could dramatically accelerate the global sales and market adoption rate of our technology. However, in order to create channel flexibility and meet end user demand, we intend to continue to pursue end user customers through direct sales, sub-contractors, or channel partners.~~While we are currently pursuing various licensing arrangements, we have no agreements at~~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 do not anticipate entering into any such agreements prior to completing the field development projects discussed above and completing a meaningful number of installations and sales. We believe that the continuing development of Duplex, the completion of sales and an increase in end-users will enhance2022, our ~~ability to license our technology.~~China operations reported zero revenues.

~~Our Funding and Operating Expenses~~

~~Historically, we have funded our operations through the sale of our securities, including the following:~~

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

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

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

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In January 2017, we completed a rights offering and public offering pursuant to which we sold 2,395,471 units for $4.00 per unit (the Rights Offering) with each unit consisting of one share of common stock and one warrant to purchase one share of common stock for $4.00 per share resulting in gross proceeds of $9.6 million and net proceeds of approximately $8.7 million.

Our costs include employee salaries and benefits, compensation paid to consultants, materials and supplies for ~~research,~~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~~publicly traded technology company. We currently have 16 full-time employees. ~~We anticipate increasing the number of employees required to support our activities in the areas of research~~Because using third party expertise and ~~development, sales and marketing, and general and administrative functions. We~~resources is more efficient than maintaining full time resources, we also expect to incur ongoing consulting expenses related to technology development and some administrative, sales and legal functions commensurate with our current ~~levels and we expect to incur increasing expenses to protect our intellectual property.~~ 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 ~~will~~ undertake development and commercialization efforts with reasonable diligence, there can be no assurance that the net proceeds from our ~~planned~~ 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 ~~technology~~technologies will be accepted, that we will ever earn revenues sufficient to support our operations, or that we will ever be profitable. Furthermore, we have no committed source of financing, and we cannot assure that we will be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to scale back our development ~~plans~~ by reducing expenditures for employees, consultants, business development and marketing efforts or to otherwise severely curtail, or even to cease, our operations.

~~CRITICAL ACCOUNTING POLICIES~~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~~operations. These policies and estimates require the application of significant judgment by ~~our management or~~management. These estimates can be materially affected by changes from period to period inas economic factors orand conditions ~~that are~~ outside of our ~~control.~~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 ~~Sales~~. Goods Sold.

The Company ~~reviews each contract to identify contract rights, performance obligations,~~recognizes revenue and ~~transaction prices, including the allocation~~related cost of ~~prices to separate performance obligations.~~goods sold in accordance with FASB ASC 606 Revenue from Contracts with Customers (ASC 606). Revenues and ~~costs~~cost of ~~sales~~goods sold are recognized once the goods or services are delivered to the customer’s control ~~and~~or non-refundable performance obligations are ~~satisified. Typically, the~~satisfied. The Company’s ~~customer~~ contracts ~~include~~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 ~~emission levels~~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 ~~metrics~~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

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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 ~~measured at project completion.~~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 by replacing failed parts.~~contract. Accruals for product warranties are based on ~~historical~~expected warranty experience and current product performance trends ~~and~~which are recorded ~~at the time revenue is recognized~~ as a component of cost of ~~sales.~~sales at the time revenue is recognized. The warranty liabilities are reduced by material and labor costs ~~used to replace parts over~~during the warranty period in the periods in which the costs are incurred. The Company periodically assesses the adequacy of ~~its~~our recorded warranty liabilities and adjusts the amounts as necessary, and such adjustments could be material ~~in the future~~ if estimates differ significantly from actual warranty expense. The warranty liabilities are included in accounts payable and accrued liabilities in the unaudited condensed consolidated balance sheets.

Research and Development.

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

~~Patents and Trademarks. Patents and trademarks are recorded at cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets once they are issued.~~Stock-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. Share-based~~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 ~~granted~~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.

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RESULTS OF OPERATIONS

Comparison of the Three and Nine Months ~~Ending~~Ended September 30, ~~2017~~2023 and ~~2016~~ 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

~~Sales~~Revenues and Gross Profit. Gross profit of $94,000, or 26%, was realized on product sales totaling $360,000 in the nine months ended September 30, 2017, whereas a gross profit of $213,000 was realized on product sales of $260,000 in

Consolidated revenues for the three and nine months ended September 30, ~~2016. A $15,000 increase~~2023, were $85 thousand and $1,129 thousand, respectively, compared to ~~warranty reserves was taken~~$324 thousand for the same time periods in 2022. Revenues for the three months ~~ending~~ended September 30, ~~2017 reducing the gross profit~~2023, were generated from ~~prior sales and resulting in~~ a negative gross margin during the quarter. The 2017 sales resulted from the installation of our Duplex technology in two enclosed ground flares for a major California oil producer. Our contract with this customer includes three more installations totaling approximately $540,000 and involves terms typical to the industry with progress payments made over the delivery schedule, which we expect to be completed during the fourth quarter of 2017 and in early 2018 depending on the oil producer customer’s schedule. The 2016 installation of our Duplex technology in an enclosed ground flareboiler burner order. Revenues for the ~~same major California oil producer was completed under a conditional sales contract. Because the conditions had not been met~~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 prior quarters, $144,000 of project costs, including design and start-up costs associated with unique aspects of this market vertical, were previously expensed. Including these costs, the gross profit duringconsolidated revenues for the three and nine months ended September 30, ~~2017 would have been $69,000, or 26%. We earned no revenues~~2022, were predominantly generated from ~~sales during~~ the ~~quarter ended September 30, 2017.~~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.

~~Operating Expenses~~~~. Operating expenses, consisting of research and development (R&D) and general and administrative (G&A) expenses, decreased by approximately $1,606,000 to $2,460,000~~Gross profit for the three months ended September 30, ~~2017, referred to herein as Q3 2017, as~~2023, decreased by $99 thousand compared to ~~$4,066,000~~$123 thousand in profit for the same period in ~~2016 (Q3 2016). The Company increased its R&D expenses by $103,000~~2022, mostly due to ~~$1,329,000~~a lower margin profile for ~~Q3 2017,~~the boiler burner sold in the third quarter of 2023 as compared to ~~$1,226,000~~the margin from the ExxonMobil technology validation project during the 2022 comparable period. The margin profile for ~~Q3 2016 primarily due~~the boiler burner order sold in the 2023 quarter was lowered to ~~increased field testing~~incentivize the sale and ~~development costs~~adoption of our ~~Duplex~~ technology. ~~G&A expenses decreased by $1,709,000 to $1,131,000~~Gross profit for the quarter ended September 30, 2023, was approximately 28.2% of revenues, resulting in ~~Q3 2017 as~~a decrease of approximately 9.8% compared to ~~$2,840,000~~the same quarter in ~~Q3 2016, resulting primarily from decreased intellectual property writeoff expenses offset by increased consulting costs~~2022.

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Table of ~~$164,000 mainly from added consultants operating in Europe and Asia.~~Contents

~~Operating expenses, decreased by approximately $1,896,000 to $7,213,000~~Gross profit for the nine months ended September 30, ~~2017~~2023, increased by $136 thousand compared to ~~$9,109,000~~$123 thousand for the same period in ~~2016.~~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 ~~Company decreased its~~ 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 ~~$123,000~~$33 thousand or 2.3% when compared to ~~$3,644,000~~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, ~~2017, as~~2023, compared to ~~$3,767,000 for~~ the same period in 2016, primarily due to decreased field testing and development costs of our Duplex technology. G&A expenses decreased by $1,773,000 to $3,569,000 in 2017 as compared to $5,342,000 in 2016 resulting primarily from decreased intellectual property writeoff expenses, this was partially offset by added consulting costs of $289,000 mainly caused by added consultants working in the European and Asian markets.2022.

Net Loss ~~from Operations~~~~. Due to the decrease in intellectual property costs, our~~

Net loss ~~from operations decreased during Q3 2017 by $1,378,000, from $3,853,000 in Q3 2016 to $2,475,000 in Q3 2017 and decreased~~ for the ~~nine~~three months ended September 30, ~~2017 by $1,777,000 to $7,119,000 as compared with $8,896,000 for the nine months ended September 30, 2016.~~

~~Net Loss~~~~. Primarily as a result of the decrease in intellectual property costs, our net loss for Q3 2017~~2023, was ~~$2,472,000~~$1,332 thousand as compared to ~~a net loss of $3,846,000~~$1,312 thousand for ~~Q3 2016, resulting~~the same quarter in a2022, or an approximate 1.5% increase. The $20 thousand increase is primarily attributable to the $99 thousand decrease in ~~net loss~~gross profit referenced in the above explanation.

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Table of ~~$1,374,000 and our net~~Contents

Net loss for the nine months ended September 30, ~~2017~~2023, was ~~$7,087,000~~$4,239 thousand as compared to ~~a net loss of $8,866,000~~$4,440 thousand for the same period in ~~2016, resulting in a~~2022, or an approximate 4.5% decrease. The $201 thousand decrease in net loss ~~of $1,779,000.~~is primarily attributable to the $136 thousand increase in gross profit referenced in the above explanation.

Liquidity and Capital Resources

At September 30, ~~2017,~~2023, our cash and cash equivalent balance totaled ~~$3,511,000~~$7,235 thousand compared to ~~$1,259,000~~$6,451 thousand at December 31, ~~2016. This~~2022, an increase ~~resulted primarily from $8.7 million~~ of ~~net proceeds we received from our Rights Offering~~$784 thousand. The increase in January 2017 offset by our operating costs for the nine months ended September 30, 2017 associated with the ongoing research and development of our technology as well as general and administrative expenses. As of September 30, 2017, we had cash and cash ~~equivalents totaling $3,511,000 . We expect this cash and cash equivalents will be sufficient~~equivalent balance is primarily attributable to ~~fund our ongoing business activities into~~ the ~~first quarter~~change of 2018. In order to continue business operations beyond that point, we currently anticipate that we will need to raise additional capital. Our research and development and general administrative costs are ongoing and we expect to require additional funding to meet these expenses. To that end we may undertake offerings of our securities, debt financing, selling or licensing our developed intellectual or other property, or other alternatives. We filed a Form S-3 shelf registration statement with the Securities and Exchange Commission on December 29, 2015 that was declared effective on January 7, 2016. The registration statement allows us to offer common stock, preferred stock, warrants or units from time to time as market conditions permit to fund the ongoing operations of the Company. Until the growth of revenue streams increases to a level that covers operating expenses it is the Company’s plan to continue to fund operations in this manner.

short-term held-to-maturity investments. At September 30, ~~2017,~~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 ~~$2,691,000~~$4,947 thousand as compared to ~~$208,000~~$8,586 thousand at December 31, ~~2016. The increase in working capital resulted primarily~~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 ~~net proceeds~~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 ~~Rights Offering offset by~~common stock.

We filed a Form S-3 shelf registration statement with the ~~funds used~~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 ~~operations and invested~~this manner, although the volatility in ~~intangible and fixed assets.~~the capital markets may negatively affect our ability to do so.

Operating activities for the nine months ended September 30, ~~2017~~2023, resulted in cash outflows of ~~$6,076,000 which were~~$1,783 thousand, primarily due ~~primarily~~ to the loss for the period of ~~$7,087,000 and net changes in working capital, exclusive of cash, which reduced cash flow by $252,000. These were~~$4,239 thousand, offset ~~primarily by other~~with non-cash expenses of ~~$217,000~~$678 thousand, and ~~services paid with common stock and stock options~~an increase of ~~$542,000.~~ $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, ~~2016~~2022, resulted in cash outflows of ~~$6,417,000, which were~~$4,264 thousand, primarily due ~~primarily~~ to the loss for the period of ~~$8,866,000 and net changes in working capital, exclusive of cash, which reduced cash flow by $284,000. These were~~$4,440 thousand, offset ~~by impairment losses on abandoned capitalized patents pending of $1,971,000, other~~with non-cash expenses of ~~$126,000, and services paid with common stock and stock options of $636,000.~~

$520 thousand.

Investing activities for the nine months ended September 30, ~~2017~~2023, resulted in cash ~~outflows~~inflows of ~~$250,000 for development~~$2,595 thousand, which is primarily attributable to the redemption $4,847 thousand of ~~patents and $89,000 for acquisition~~short-term held-to-maturity U.S. treasuries, offset by $2,162 thousand of ~~fixed assets, compared to $834,000 in disbursements for patent development and $176,000~~purchases for the ~~acquisition~~same type of ~~fixed assets during the same period of 2016.~~investments.

~~There were net cash inflows from financing activities of $8,667,000 from our Rights Offering in the nine months ended September 30, 2017. There were no financing~~Investing activities for the nine months ended September 30, ~~2016.~~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.

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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~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

~~ITEM 4.~~

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures,

~~Disclosure controls~~ as defined in Rules 13a-15(e) and ~~procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits~~15d-15(e) under the Securities Exchange Act of 1934, as amended, (the ~~“Act”~~“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 ~~the issuer’s~~our management, including ~~its~~our principal executive officer and principal accounting and financial ~~officers, or persons performing similar functions,~~officer, as appropriate, to allow timely decisions regarding required disclosure. ~~Our management,~~

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer ~~(CEO)~~ (principal executive officer) and our ~~Interim~~ Chief Financial Officer ~~(CFO)~~ (principal ~~financial~~accounting and ~~accounting~~financial officer), ~~has concluded that, as~~ of ~~September 30, 2017,~~the effectiveness of the design and operation of our disclosure controls and procedures ~~are effective.~~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 ~~material~~ changes in our internal control over financial reporting that occurred during the quarter ended September 30, ~~2017~~2023 that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting.

~~Inherent~~ Limitations on Effectiveness of Controls and Procedures

Our management, including our ~~CEO~~Chief Executive Officer (principal executive officer) and ~~CFO,~~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-designed~~well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control ~~system’s objectives will be~~system are met. ~~The~~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. ~~Further, because~~Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that ~~misstatements due to error or fraud will not occur or that~~ all control issues and instances of fraud, if any, have been detected. 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 onupon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. ~~Projections of any evaluation of the effectiveness of controls to future periods are subject to risks.~~ Over time, controls may become inadequate because of changes in conditions, or ~~deterioration in~~ the degree of compliance with policies or

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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

~~PART II – OTHER INFORMATION~~

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

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~~

ITEM 1A.RISK FACTORS

We incorporate herein by reference the risk factors included under “Part I - Item 1A1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2022 which we filed with the Securities and Exchange Commission on ~~February 14, 2017.~~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.

25

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

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

On September 30, ~~2017,~~2023, we issued ~~2,500~~3,750 shares of common stock ~~having~~at a price per share ~~value~~ of ~~$3.50,~~$0.66, the closing price of our common stock on ~~August 3, 2017,~~November 17, 2022, the date of grant, from our 2013 Consultant Stock Plan to our investor relations firm, ~~Three Part Advisors, LLC,~~Firm IR, for services provided induring the three months ended September 30, ~~2017. The issuance of such~~2023. These shares ~~was deemed to be exempt~~were issued in reliance upon the exemption from registration ~~under~~provided by Section 4(a)(2) of the Securities Act of 1933, as amended, ~~in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D promulgated thereunder).~~for a transaction by an issuer not involving a public offering.

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

~~ITEM 5.~~

~~OTHER INFORMATION~~

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.

~~Not applicable.~~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.

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ITEM 6.EXHIBITS

Exhibit ~~Number~~		~~Document~~
Number		Document
~~3.1~~
3.1		~~Articles~~Certificate of Incorporation of ClearSign ~~Combustion~~Technologies Corporation, ~~amended on February 2, 2011~~a Delaware corporation (1)
3.2		Bylaws of ClearSign Technologies Corporation, a Delaware corporation (1)
~~3.1.1~~ 31.1*		~~Articles of Amendment to Articles of Incorporation of ClearSign Combustion Corporation filed on December 22, 2011 (1)~~

~~3.2~~		~~Bylaws (1)~~

~~10.1~~		~~Confidential Separation Agreement and General Release with Andrew U. Lee dated September 7, 2017 (2)~~

~~10.2~~		~~Consulting Agreement with Andrew U. Lee dated September 7, 2017 (2)~~

~~31.1~~		Rule 13a-14(a)/15d-14(a) Certification of ~~Chief~~Principal Executive Officer*Officer
31.2*
~~31.2~~		Rule 13a-14(a)/15d-14(a) Certification of ~~Interim Chief~~Principal Financial Officer*Officer
32.1**
~~32.1~~		Section 1350 Certification of ~~Chief~~Principal Executive Officer and ~~Interim Chief~~Principal Financial ~~Officer+~~Officer
101.INS		Inline XBRL Instance Document*
~~101.INS~~ 101.SCH		XBRL Instant Document*

~~101.SCH~~		Inline XBRL Taxonomy Extension Schema Document*
101.CAL
~~101.CAL~~		Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
~~101.DEF~~		Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
~~101.LAB~~		Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
~~101.PRE~~		Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed herewith

+**Furnished herewith

+ Agreement with management or compensatory plan or arrangement.

~~(1)~~

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

~~(2)~~

~~Incorporated by reference from the registrants release on Form 8-K, originally filed with the Securities and Exchange Commission on September 8, 2017.~~

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

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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 ~~COMBUSTION~~TECHNOLOGIES CORPORATION
	~~(Registrant)~~

Date: November ~~9, 2017~~14, 2023	By:	/s/ ~~Stephen E. Pirnat~~Colin James Deller
		~~Stephen E. Pirnat~~ Colin James Deller
		Chief Executive Officer
		(Principal Executive Officer)


	~~By:~~	~~/s/ Brian G. Fike~~
		~~Brian G. Fike~~
Date: November 14, 2023	By:	~~Interim~~ /s/ Brent Hinds
		Brent Hinds
		Chief Financial Officer (Principal Financial and Accounting Officer)

30

~~PART I~~	~~FINANCIAL INFORMATION~~	3
PART I	FINANCIAL INFORMATION
~~Item 1.~~	~~Condensed Financial Statements~~	3
Item 1.	Unaudited Condensed Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016 (Unaudited)~~2022	3 1

	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2017~~2023 and ~~2016 (Unaudited)~~2022	4 2

	Unaudited Condensed ~~Statement~~Consolidated Statements of Stockholders’ Equity for the three month periods during the nine months ended September 30, ~~2017 (Unaudited)~~2023 and 2022	5 3

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2023 and ~~2016 (Unaudited)~~2022	6 5

	Notes to Unaudited Condensed Consolidated Financial Statements	7 6

Item 2.	Management’s Discussion and Analysis of Financial ~~Condition~~Conditions and Results of Operations	18 21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25 27

Item 4.	Controls and Procedures	25 27

PART II	OTHER INFORMATION	25 28

Item 1.	Legal Proceedings	25 28

Item 1A.	Risk Factors	25 28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26 28

Item 3.	Defaults Upon Senior Securities	26 28

Item 4.	Mine Safety Disclosures	26 28

Item 5.	Other Information	26 28

Item 6.	Exhibits	27 29

~~SIGNATURES~~	SIGNATURES	28 30

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016

Sales	$	-		$	260,000		$	360,000		$	260,000
Cost of goods sold		15,000			47,000			266,000			47,000

Gross profit		(15,000	)		213,000			94,000			213,000

Operating expenses:
Research and development		1,329,000			1,226,000			3,644,000			3,767,000
General and administrative		1,131,000			2,840,000			3,569,000			5,342,000

Total operating expenses		2,460,000			4,066,000			7,213,000			9,109,000

Loss from operations		(2,475,000	)		(3,853,000	)		(7,119,000	)		(8,896,000	)

Other income:
Interest income		3,000			7,000			32,000			30,000

Net Loss	$	(2,472,000	)	$	(3,846,000	)	$	(7,087,000	)	$	(8,866,000	)

Net Loss per share - basic and fully diluted	$	(0.16	)	$	(0.30	)	$	(0.46	)	$	(0.69	)

Weighted average number of shares outstanding - basic and fully diluted		15,603,880			12,957,029			15,358,655			12,914,665

											Total
	Common Stock				Additional			Accumulated			Stockholders’
	Shares		Amount		Paid-In Capital			Deficit			Equity

Balances at December 31, 2016		12,983,938	$	1,000	$	42,574,000		$	(40,331,000	)	$	2,244,000
Shares issued in rights offering ($3.03 per share)		2,395,471		1,000		7,257,000			-			7,258,000
Warrants issued in rights offering ($0.97 per warrant)		-		-		2,324,000			-			2,324,000
Issuance costs of rights offering		-		-		(915,000	)		-			(915,000	)
Shares issued in payment of accrued compensation ($3.60 per share)		136,110		-		490,000			-			490,000
Shares issued for services ($4.85 per share)		5,000		-		24,000			-			24,000
Shares issued for services ($3.50 per share)		2,500		-		9,000			-			9,000
Shares issued for 2017 board services ($3.60 per share)		83,334		-		-			-			-
Share based compensation		-		-		509,000			-			509,000
Net loss		-		-		-			(7,087,000	)		(7,087,000	)

Balances at September 30, 2017		15,606,353	$	2,000	$	52,272,000		$	(47,418,000	)	$	4,856,000

	For the Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(7,087,000	)	$	(8,866,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services		258,000			144,000
Share based payments		284,000			492,000
Depreciation and amortization		209,000			139,000
Amortization of right of use asset		119,000			106,000
Payments of lease liabilities		(111,000	)		(106,000	)
Abandonment and impairment of capitalized patents pending		-			1,971,000
Other		-			(13,000	)
Change in operating assets and liabilities:
Contract assets		(126,000	)		(144,000	)
Accounts receivable		103,000			-
Prepaid expenses and other assets		(40,000	)		(287,000	)
Accounts payable and accrued liabilities		108,000			89,000
Accrued compensation and taxes		322,000			(260,000	)
Contract liabilities		(115,000	)		318,000
Net cash used in operating activities		(6,076,000	)		(6,417,000	)

Cash flows from investing activities:
Acquisition of fixed assets		(89,000	)		(176,000	)
Disbursements for patents and other intangible assets		(250,000	)		(834,000	)
Net cash used in investing activities		(339,000	)		(1,010,000	)

Cash flows from financing activities:
Proceeds from issuance of units of common stock and warrants for cash, net of offering costs		8,667,000			-
Net cash provided by financing activities		8,667,000			-

Net increase (decrease) in cash and cash equivalents		2,252,000			(7,427,000	)
Cash and cash equivalents, beginning of period		1,259,000			10,985,000
Cash and cash equivalents, end of period	$	3,511,000		$	3,558,000

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	129,000

Right-of-use assets obtained in exchange for new operating lease liabilities
For operating lease:
Weighted average remaining lease term (in years)		2.43
Weighted average discount rate		5.00	%

			Payments due
	Discounted lease		under lease
	liability payments		agreements
2017	$	38,000	$	43,000
2018		159,000		173,000
2019		158,000		164,000
2020		37,000		37,000
Total	$	392,000	$	417,000

2017	$	54,000
2018		215,000
2019		193,000
2020		109,000
2021		38,000
Thereafter		29,000
	$	638,000

		Total Outstanding Warrants
Exercise Price		Warrants		Wtd. Avg. Exercise Price		Remaining Life (in years)
$	1.80		80,000	$	1.80		3.38
$	4.00		2,395,471	$	4.00		1.32
$	10.00		20,313	$	10.00		1.43
			2,495,784	$	3.98