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Stockholders' Equity

12 Months Ended

Dec. 31, 2018

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 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 July 2018, the Company completed a private equity offering of 5,213,543 shares of common stock at a price of $2.25 per share to ClirSPV, LLC (Investor). Gross proceeds from the offering totaled $11.7 million and net cash proceeds approximated $11.6 million. The Stock Purchase Agreement permitted the Investor to purchase from the Company up to an aggregate 478,854 shares of common stock at a price of $4

per share (Additional Purchase Right). Pursuant to the terms of the Additional Purchase Right, the Investor had the right to purchase shares of common stock from the Company, as the warrants previously issued to the investors by the Company in its January 25, 2017 rights offering were exercised and the warrant shares were issued. As of December 31, 2018, no warrants issued in the rights offering had been exercised and the warrants have since expired unexercised on January 25, 2019. The Additional Purchase Right expired on February 1, 2019. The Additional Purchase Right was considered an equity instrument accounted for as a component of the actual price per common share paid by the Investor in the private offering. For basic earnings per share, the common shares associated with the Additional Purchase Right were treated as contingently issuable shares and were not included in basic earnings per share for the year ended December 31, 2018.

The Stock Purchase Agreement also permits the Investor to participate in future capital raising transactions (Participation Right) on the same terms as other investors participating in such transactions. The Participation Right will expire on December 31, 2023.

In no event may the Participation Right be exercised to the extent it would cause the Investor or any of its affiliates to beneficially own 20% or more of the Company’s then outstanding common stock or hold shares with 20% or more of the voting power.

The Company filed a registration statement to register the shares issued in this private offering and shares underlying the Additional Purchase Right. The registration statement was declared effective by the SEC on September 21, 2018.

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 allowed each holder to purchase one share of common stock at an exercise price of $4.00 per share, were non-callable, and were publicly traded on the Nasdaq Capital Market under the symbol “CLIRW” until they expired on January 25, 2019. 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.

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, 2018, the number of shares reserved for issuance under the Plan totaled 2,768,618 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:

	2018			2017
Reserved but unissued shares under the Plan, beginning of year		191,656			266,884
Increases in the number of authorized shares under the Plan		1,106,088			255,261
Grants of stock options		(224,000	)		(127,000	)
Stock option forfeitures		337,583			15,955
Exercise of stock options		-			-
Stock grants		(114,865	)		(219,444	)
Stock grant forfeitures		-			-
Reserved but unissued shares under the Plan, end of year		1,296,462			191,656

Stock Options

In 2018, the Company granted from the Plan to certain employees stock options for the purchase of 224,000 shares of stock. The stock options have exercise prices based on the grant date fair values ranging from $1.85 to $2.10 per share with a weighted average of $1.94 per share, a contractual life of 10 years, and vesting over three 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	6.20 years
Weighted average volatility		70	%
Forfeiture rate		15	%
Weighted average risk-free interest rate		2.74	%
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 $236,000. The recognized compensation expense associated with these grants in 2018 was $43,000.

On December 31, 2018 the Company entered into a consulting agreement with its former Chief Executive Officer, Stephen Pirnat, which expires on December 31, 2020. Pursuant to the terms of the consulting agreement, Mr. Pirnat’s vested options were extended for a period of two years. The compensation expense associated with the extension of the term of the fully vested options was immaterial.

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

	2018							2017
	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		993,860		$	4.81		6.94		882,815		$	4.98		7.51
Granted		224,000		$	1.94		9.23		127,000		$	3.69		9.48
Exercised		-			-		-		-			-		-
Forfeited/Expired/Exchanged		(337,583	)	$	4.19		-		(15,955	)	$	5.15		-
Outstanding at December 31		880,277		$	4.32		9.04		993,860		$	4.81		6.94
Exercisable at December 31		587,962		$	5.17		6.49		754,989		$	4.98		6.32

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

	2018					2017
	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		238,871		$	4.27		335,283		$	5.09
Granted		224,000		$	1.94		127,000		$	3.74
Vested		(122,647	)	$	4.15		(207,457	)	$	5.16
Exercised		-			-		-			-
Forfeited/Expired/Exchanged		(47,909	)	$	3.82		(15,955	)	$	5.15
Non-vested stock options at December 31		292,315		$	2.61		238,871		$	4.27

The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at December 31, 2018 is $0. 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, 2018, there was $377,000 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:

2019		184,000
2020		119,000
2021		63,000
2022		11,000
	$	377,000

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

	2018		2017
Research and development	$	145,000	$	119,000
General and administrative		79,000		250,000
Effect on net loss	$	224,000	$	369,000
Effect on net loss per share	$	0.01	$	0.02

Stock Grants

In May 2018, the Company authorized shares of common stock to be issued under the Plan to its non-executive directors in accordance with board agreements. The shares were earned quarterly for service in 2018. The Company recognized $212,000, represented by 114,865 shares, in general and administrative expense through December 31, 2018.

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 2017, the Company issued 83,334 shares of common stock under the Plan to its three non-executive directors for 2018 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.

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, 2018 totaled 199,705 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 7,500 and

10,000

shares of common stock in 2018 and 2017, respectively, under the Consultant Plan to a consultant for services for the period from January 1, 2017 to September 30, 2018. The fair value of the stock at the time of grant was

$3.50

per share for a total value of

$26,000 and $35,000

in 2018 and 2017, respectively, which the Company recognizes in general and administrative expense on a pro-rated quarterly basis. The Company also granted 10,000 shares of common stock to a second consultant under the Consultant Plan for services performed and to be performed during the period from August 13, 2018 to August 31, 2019. The fair value of the stock at the time of grant was $1.44 per share for a total value of $14,000, for which the Company recognized $4,000 for 2,500 shares in general and administrative expense on a pro-rated quarterly basis in the fourth quarter of 2018. The Consultant Plan expense for 2018 and 2017 was

$30,000 and $42,000, respectively.

Activity under the Consultant Plan is as follows:

	2018			2017
Reserved but unissued shares under the Consultant Plan at January 1		99,159			83,633
Increases in the number of authorized shares under the Consultant Plan		110,546			25,526
Stock grants		(10,000	)		(10,000	)
Reserved but unissued shares under the Consultant Plan at Period End		199,705			99,159

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 expired on January 25, 2019.

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

	2018				2017
	Warrants		Weighted ‎ Average ‎ Exercise ‎ Price		Warrants			Weighted ‎ Average ‎ Exercise ‎ Price
Outstanding at January 1		2,495,784	$	3.98		445,313		$	4.65
Granted		-		-		2,395,471		$	4.00
Exercised		-		-		-			-
Forfeited/Expired		-		-		(345,000	)	$	5.00
Outstanding at Period End		2,495,784	$	3.98		2,495,784		$	3.98

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, 2018:

		Total Outstanding Warrants
Exercise Price		Warrants		Wtd. Avg. ‎ Exercise ‎ Price		Remaining ‎ Life ‎ (in years)
	$1.80		80,000	$	1.80		2.13
	$4.00		2,395,471	$	4.00		0.07
	$10.00		20,313	$	10.00		0.18
			2,495,784	$	3.98

The intrinsic value of the outstanding warrants was $0 at December 31, 2018.