Stockholders' Equity

12 Months Ended

Dec. 31, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 8 – Stockholders’ Equity

Common Stock and Preferred Stock

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

In February 2018, the Company completed an offering of common stock as described in Note 13 whereby 5,750,000 shares of common stock at a price of $2.25 per share were issued and sold for net cash proceeds of approximately $11.9 million.

In January 2017, the Company completed a rights offering and public offering of units comprised of common stock and warrants at a purchase price of $4.00 per unit pursuant to which the Company issued 2,395,471 shares of common stock together with warrants for the purchase of 2,395,471 shares of common stock. The warrants allow each holder to purchase one share of common stock at an exercise price of $4.00 per share, are non-callable, expire on January 25, 2019, and are publicly traded on the NASDAQ Capital Market under the symbol “CLIRW”. Gross proceeds from the offering totaled $9.6 million and net cash proceeds approximated $8.7 million. Expenses of the 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. The net cash proceeds were allocated to the relative fair values of the common stock and warrants on the date of issuance resulting in an allocation of $3.03 per share to the common stock and $0.97 per share to the warrants. In calculating the fair value of the warrants using the Black-Scholes model, the following assumptions were utilized:

Expected life (in years)	2
Volatility	68	%
Risk-free interest rate	1.23	%
Expected dividend rate	-

Equity Incentive Plan

The ClearSign Combustion Corporation 2011 Equity Incentive Plan (the Plan) provides for the granting of options to purchase shares of common stock, stock awards to purchase shares at no less than 85% of the value of the shares, and stock bonuses to officers, employees, board members, certain consultants, and advisors. The Compensation Committee of the Board of Directors is authorized to administer the Plan and establish the grant terms, including the grant price, vesting period and exercise date. As of December 31, 2017, the number of shares reserved for issuance under the Plan totaled 1,662,530 shares. The Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 10% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine. Activity under the Plan is as follows:

	2017		2016
Reserved but unissued shares under the Plan, beginning of year		266,884		455,372
Increases in the number of authorized shares under the Plan		255,261		15,039
Grants of stock options		(127,000)		(171,900)
Stock option forfeitures		15,955		12,485
Exercise of stock options		-		-
Stock grants		(219,444)		(44,112)
Reserved but unissued shares under the Plan, end of year		191,656		266,884

Stock Options

In 2017, the Company granted from the Plan to certain employees stock options for the purchase of 127,000 shares of stock. The stock options have exercise prices based on the grant date fair values ranging from $3.10 to $3.80 per share with a weighted average of $3.69 per share, a contractual life of 10 years, and vesting over one to four years. As permitted by SAB 107, due to the Company’s insufficient history of option activity, 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 was determined through the Company’s historical stock price volatility. The Company estimated the forfeiture rate at the time of grant and will revise it, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company recognizes compensation costs only for those equity awards expected to vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

Expected life	6.25 years
Weighted average volatility	69	%
Forfeiture rate	14	%
Weighted average risk-free interest rate	1.94	%
Expected dividend rate	0	%

The fair value of stock options granted, estimated on the date of grant using the Black-Scholes option valuation model, was $233,000. The recognized compensation expense associated with these grants in 2017 was $59,000.

A summary of the Company’s stock option activity and related information is as follows:

	2017						2016
	Options to Purchase Common Stock		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Options to Purchase Common Stock		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at January 1		882,815	$	4.98		7.51		723,400	$	5.18		8.10
Granted		127,000	$	3.69		9.48		171,900	$	4.22		9.26
Exercised		-		-		-		-		-		-
Forfeited/Expired/Exchanged		(15,955)	$	5.15		-		(12,485)	$	6.17		-
Outstanding at December 31		993,860	$	4.81		6.94		882,815	$	4.98		7.51
Exercisable at December 31		754,989	$	4.98		6.32		547,532	$	4.91		6.85

A summary of the status of the Company’s non-vested stock options at December 31 and changes during the year is as follows:

	2017				2016
	Number of Options		Weighted Average Grant Date Fair Value		Number of Options		Weighted Average Grant Date Fair Value

Non-vested stock options at January 1		335,283	$	5.09		466,009	$	5.79
Granted		127,000	$	3.69		171,900	$	4.22
Vested		(207,457)	$	5.16		(290,141)	$	5.67
Exercised		-		-		-		-
Forfeited/Expired/Exchanged		(15,955)	$	5.15		(12,485)	$	6.17
Non-vested stock options at December 31		238,871	$	4.27		335,283	$	5.09

The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at December 31, 2017 is $207,000. 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 December 31, 2017, there was $436,000 of total unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Plan. That cost is expected to be recognized in future years as follows:

2018	$	211,000
2019		144,000
2020		69,000
2021		12,000
	$	436,000

The recognized compensation cost associated with the Plan is as follows:

	2017		2016
Research and development	$	119,000	$	112,000
General and administrative		250,000		513,000
Effect on net loss	$	369,000	$	625,000
Effect on net loss per share	$	0.02	$	0.05

Stock Grants

In February 2017, the Company granted 136,110 shares of common stock under the Plan to its six officers as payment for bonuses that were accrued at December 31, 2016. The per share fair value of the stock at the time of grant was $3.60 for a total value of $490,000 which the Company had recognized as bonuses in 2016. The common stock was subject to repurchase rights by the Company at $0.0001 per share through February 10, 2018.

In February 2017, the Company issued 83,334 shares of common stock under the Plan to its three independent directors for 2017 compensation in accordance with agreements entered into with each director. The common stock was subject to repurchase rights by the Company at $0.0001 per share through February 10, 2018 upon the termination of the individual’s services as a director or other circumstances as set forth in the award agreements. The fair value of the stock at the time of grant was $3.60 per share for a total value of $300,000, which the Company recognized in general and administrative expense in 2017.

In 2016, the Company granted 44,112 shares of common stock under the Plan to its three independent directors in accordance with agreements for board service. The fair value of the stock at the time of grant was $3.40 per share for a total value of $150,000, which the Company recognized in general and administrative expense in 2016.

Consultant Stock Plan

The 2013 Consultant Stock Plan (the Consultant Plan) provides for the granting of shares of common stock to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities. The Company’s officers, employees, and board members are not entitled to receive grants from the Consultant Plan. The Compensation Committee of the Board of Directors is authorized to administer the Consultant Plan and establish the grant terms. The number of shares reserved for issuance under the Consultant Plan on December 31, 2017 totaled 99,159 shares. The Consultant Plan provides for quarterly increases in the available number of authorized shares equal to the lesser of 1% of any new shares issued by the Company during the quarter immediately prior to the adjustment date or such lesser amount as the Board of Directors shall determine.

The Company granted 10,000 shares of common stock in each of 2017 and 2016 under the Consultant Stock Plan to a consultant for services for each of the twelve months ended May 31, 2018 and 2017 and subject to completion of service each quarter. The fair value of the stock at the time of grant was $3.50 and $4.85 per share for a total value of $35,000 and $49,000, which the Company recognizes in general and administrative expense on a pro-rated quarterly basis. The Consultant Plan expense for 2017 and 2016 was $42,000 and $44,000, respectively.

Activity under the Consultant Plan is as follows:

	2017		2016
Reserved but unissued shares under the Consultant Plan at January 1		83,633		92,130
Increases in the number of authorized shares under the Consultant Plan		25,526		1,503
Stock grants		(10,000)		(10,000)
Reserved but unissued shares under the Consultant Plan at Period End		99,159		83,633

Warrants

In conjunction with the January 2017 rights offering, the Company issued warrants for the purchase of 2,395,471 shares of common stock at $4.00 per share. The warrants expire on January 25, 2019.

A summary of the Company’s warrant activity and related information is as follows:

	2017				2016
	Warrants		Average Exercise Price		Warrants		Average Exercise Price
Outstanding at January 1		445,313	$	4.65		564,272	$	4.14
Granted		2,395,471	$	4.00		-		-
Exercised		-		-		(118,959)	$	2.20
Forfeited/Expired		(345,000)	$	5.00		-		-
Outstanding at Period End		2,495,784	$	3.98		445,313	$	4.65

The following table summarizes the number of warrants, the weighted average exercise price, and weighted average life (in years) by price for both total outstanding warrants and total exercisable warrants at December 31, 2017:

	Total Outstanding Warrants
Exercise Price	Warrants		Wtd. Avg. Exercise Price		Remaining Life (in years)
$1.80		80,000	$	1.80		3.13
$4.00		2,395,471	$	4.00		1.07
$10.00		20,313	$	10.00		1.18
		2,495,784	$	3.98

The intrinsic value of the outstanding warrants was $144,000 at December 31, 2017.