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Equity | 12 Months Ended
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Dec. 31, 2020
Equity |
Equity | Note 8 – 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 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. These warrants have 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, unpurchased common shares associated with the Additional Purchase Right were treated as contingently issuable shares and were not included in basic earnings per share. 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. In August 2020, the Company completed an offering of common stock whereby 2,587,500 shares of common stock at a price of $2.00 per share were issued and sold for net cash proceeds of approximately $4.8 million. In September 2020, the Company completed a sale of common stock to ClirSPV under the additional purchase right whereby 654,425 shares of common stock at a price of $2.00 per share were issued and sold for net cash proceeds of approximately $1.3 million. Issuance of Shares of Subsidiary to Noncontrolling Interest In December 2019, the Company issued shares of its subsidiary representing a 1% ownership interest to an executive. The fair value of the shares at the date of the issuance was estimated to be $6,000 and was recorded as stock based compensation expense during the year ended December 31,2019. Equity Incentive Plan The ClearSign Technologies 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. At the Company’s Annual Meeting held on May 8, 2019, the shareholders approved an amendment to the Plan that (i) increased the number of shares of common stock in the reserve by 1,231,593 to a total of 4,004,214 shares of common stock, representing approximately 15% of the number of shares of the Company’s stock outstanding and (ii) increased the number of shares that may be issued pursuant to the evergreen provision, if any, to the lesser of 15% 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 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, 2020, the number of shares reserved for issuance under the Plan totaled 4,505,728 shares. Activity under the Plan is as follows:
|  | 2020 |  | 2019
Reserved but unissued shares under the Plan, beginning of year |  | 1,282,027 |  | 1,296,462
Increases in the number of authorized shares under the Plan |  | 500,764 |  | 1,236,346
Grants of stock options |  | (743,161) |  | (1,328,718)
Stock option forfeitures |  | 60,100 |  | 77,937
Exercise of stock options |  | 117,000 |  | —
Reserved but unissued shares under the Plan, end of year |  | 1,216,730 |  | 1,282,027
Stock Options In the year ended December 31, 2020, the Company made awards of stock options for the purchase of an aggregate 743,161 shares of common stock to its employees and directors from the Plan. Of these awards, options covering 444,161 shares of common stock were awarded in lieu of cash bonuses for 2019 and the expense was recorded during the year ended December 31, 2019. Options covering an additional 299,000 shares of common stock have been issued as payment to the Company’s directors and are described below. The 2020 stock option awards have exercise prices at the grant date with fair values ranging from $0.54 to $2.38 per share, contractual lives of 10 years, and that vest on award or with the performance of certain goals. The fair values of the stock options estimated on the dates of grant using the Black-Scholes option valuation model totaled $549,000. During the year ended December 31, 2020, the Company recorded a charge of $192,000 for a stock option for the purchase of 80,000 shares of common stock awarded in January 2021 to its Chief Executive Officer in lieu of a cash bonus for 2020. In the year ended December 31, 2019, the Company made awards of stock options for the purchase of an aggregate 1,328,718 shares of common stock to its employees and directors from the Plan. Of these awards, options covering 159,100 shares of common stock were awarded in lieu of cash bonuses for 2018 and the expense was recorded during the year ended December 31, 2018. An option for the purchase of 258,618 shares of common stock was issued from the Plan to the Company's Chief Executive Officer as part of options for the purchase of an aggregate 600,000 shares of common stock granted to him in conjunction with his recruitment and employment, as described below (see Inducement Stock Options). Options covering an additional 381,000 shares of common stock have been issued as payment to the Company's directors and are described below. The remaining stock option awards covering 530,000 shares of common stock were granted to certain members of management. The 2019 stock option awards have exercise prices either specified at $2.25 or at the grant date fair value ranging from $0.87 to $1.21 per share, contractual lives of 10 years, and vest over a period of one to three years. The fair values of the stock options estimated on the dates of grant using the Black-Scholes option valuation model totaled $664,000. 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 that are 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:
|  | 2020 |  | 2019 |
Expected life |  | 10.00 years |  | 5.75 years |
Weighted average volatility |  | 83 | % | 71 | %
Forfeiture rate |  | 0 | % | 20 | %
Weighted average risk-free interest rate |  | 0.71 | % | 2.52 | %
Expected dividend rate |  | 0 | % | 0 | %
A summary of the Company’s stock option activity and related information is as follows:
|  | 2020 |  | 2019
|  |  |  |  |  |  | Weighted |  |  |  |  |  |  | Weighted
|  |  |  |  |  |  | Average |  |  |  |  |  |  | Average
|  | Options to |  | Weighted |  | Remaining |  | Options to |  | Weighted |  | Remaining
|  | Purchase |  | Average |  | Contractual |  | Purchase |  | Average |  | Contractual
|  | Common |  | Exercise |  | Life (in |  | Common |  | Exercise |  | Life (in
|  | Stock |  | Price |  | years) |  | Stock |  | Price |  | years)
Outstanding at January 1 |  | 2,131,058 |  | $ | 2.53 |  | 7.99 |  | 880,277 |  | $ | 4.32 |  | 6.49
Granted |  | 743,161 |  | $ | 1.07 |  | 9.23 |  | 1,328,718 |  | $ | 1.32 |  | 9.16
Exercised |  | (117,000) |  | $ | 1.08 |  | — |  | — |  |  | — |  | —
Forfeited/Expired/Exchanged |  | (60,100) |  | $ | 2.88 |  | — |  | (77,937) |  | $ | 2.11 |  | —
Outstanding at December 31 |  | 2,697,119 |  | $ | 2.18 |  | 7.53 |  | 2,131,058 |  | $ | 2.53 |  | 7.99
Exercisable at December 31 |  | 2,379,752 |  | $ | 2.26 |  | 7.48 |  | 1,461,073 |  | $ | 2.90 |  | 7.58
A summary of the status of the Company’s non-vested stock options at December 31 and changes during the year is as follows:
|  | 2020 |  | 2019
|  |  |  | Weighted |  |  |  | Weighted
|  |  |  | Average |  |  |  | Average
|  | Number of |  | Grant Date |  | Number of |  | Grant Date
|  | Options |  | Fair Value |  | Options |  | Fair Value
Non-vested stock options at January 1 |  | 669,985 |  | $ | 1.71 |  | 292,315 |  | $ | 2.61
Granted |  | 743,161 |  | $ | 1.07 |  | 1,328,718 |  | $ | 1.32
Vested |  | (1,077,655) |  | $ | 2.25 |  | (902,268) |  | $ | 1.40
Exercised |  | — |  |  | — |  | — |  |  | —
Forfeited/Expired/Exchanged |  | (18,124) |  | $ | 2.41 |  | (48,780) |  | $ | 2.14
Non-vested stock options at December 31 |  | 317,367 |  | $ | 1.60 |  | 669,985 |  | $ | 1.71
The estimated aggregate pretax intrinsic value of the Company’s outstanding vested stock options at December 31, 2020 is $2,966,000. 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, 2020, there was $84,000 of total unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Plan that will be recognized over a remaining weighted average period of 0.7 years. That cost is expected to be recognized in future years as follows:
2021 |  |  | 76,000
2022 |  |  | 8,000
|  | $ | 84,000
The recognized compensation cost associated with the Plan is as follows:
|  | 2020 |  | 2019
Research and development |  | $ | 83,000 |  | $ | 174,000
General and administrative |  |  | 665,000 |  |  | 394,000
Effect on net loss |  | $ | 748,000 |  | $ | 568,000
Effect on net loss per share |  | $ | 0.03 |  | $ | 0.02
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, 2020 totaled 212,276 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 2019, under the Consultant Plan to a consultant for services for the period from September 1, 2019 through August 31, 2020. The fair value of the stock at the time of grant was $1.03 per share for a total value of $10,000, for which the Company recognized $8,000 for 7,500 shares and $3,000 for 2,500 shares in general and administrative expense during the year ended December 31, 2020 and 2019, respectively. The Company also granted 15,000 shares of common stock under the Consultant Plan to the same consultant for the period from September 1, 2020 through August 31, 2021. The fair value of the stock at the time of grant was $2.33 per share for a total value of $35,000, for which the Company recognized $9,000 for 3,750 shares. in general and administrative expense during the year ended December 31, 2020. 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 $11,000 for 7,500 shares in general and administrative expense on a pro-rated quarterly basis in the in the first three quarters of 2019. The Consultant Plan expense for 2020 and 2019 was $17,000 and $14,000, respectively.
|  | 2020 |  | 2019
Reserved but unissued shares under the Consultant Plan at January 1 |  | 190,142 |  | 199,705
Increases in the number of authorized shares under the Consultant Plan |  | 33,384 |  | 437
Stock grants |  | (11,250) |  | (10,000)
Reserved but unissued shares under the Consultant Plan at Period End |  | 212,276 |  | 190,142
Inducement Stock Options Pursuant to the rules of The Nasdaq Stock Market, and in compliance with those rules, the Company may issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. Inducement awards need not be approved by the Company's shareholders. During the year ended December 31, 2019, the Company granted options to purchase 600,000 shares of common stock as an inducement to its President and Chief Executive Officer to accept the Company's offer of employment. (See Note 11.) The stock options have exercise prices ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and vest over 2 years. An option to purchase 258,618 shares was issued from the Company's 2011 Equity Incentive Plan and are accounted for with the stock options described above. Non-qualified stock options covering the remaining 341,382 shares were issued from the Company's reserve of authorized but unissued shares of common stock. The fair value of the non-qualified stock options estimated on the date of grant using the Black-Scholes option valuation model was $176,000. The recognized compensation expense associated with these awards for the year ended December 31, 2020 and 2019 was $52,000 and $111,000. The remaining unrecognized compensation expense associated with these awards is $13,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:
|  | 2019 |
Expected life |  | 5.75 | years
Weighted average volatility |  | 71 | %
Forfeiture rate |  | 20 | %
Weighted average risk-free interest rate |  | 2.55 | %
Expected dividend rate |  | 0 | %
Warrants A summary of the Company’s warrant activity and related information is as follows:
|  | 2020 |  | 2019
|  |  |  | Weighted |  |  |  | Weighted
|  |  |  | Average |  |  |  | Average
|  |  |  | Exercise |  |  |  | Exercise
|  | Warrants |  | Price |  | Warrants |  | Price
Outstanding at January 1 |  | 80,000 |  | $ | 1.80 |  | 2,495,784 |  | $ | 3.98
Granted |  | — |  |  | — |  | — |  |  | —
Exercised |  | — |  |  | — |  | — |  |  | —
Forfeited/Expired |  | — |  |  | — |  | (2,415,784) |  | $ | 4.05
Outstanding at December 31 |  | 80,000 |  | $ | 1.80 |  | 80,000 |  | $ | 1.80
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 31,2020:
|  | Total Outstanding Warrants
|  |  |  | Wtd. Avg. |  | Remaining
|  |  |  | Exercise |  | Life
Exercise Price |  | Warrants |  | Price |  | (in years)
$1.80 |  | 80,000 |  | $ | 1.80 |  | 0.13
The intrinsic value of the outstanding warrants was $90,000 at December 31, 2020.

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