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Equity
 9 Months Ended
Sep. 30, 2021
Equity  
Equity

Note 6 – 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.

During the nine months ended September 30, 2021, the Company issued common stock pursuant to an At-The-Market Offering Sales Agreement, dated December 23, 2020, with Virtu Americas LLC, as sales agent pursuant to which it may sell shares of common stock with an aggregate offering price of up to $15,000,000 (the “ATM”). As of September 30, 2021, the Company issued 1,092,570 shares of common stock under the ATM program, at an average price of $5.03 per share. Gross proceeds totaled approximately $5,500,000 and net cash proceed was approximately $5,300,000.

Equity Incentive Plan

On June 17, 2021 the Company’s shareholders approved and the Company adopted the ClearSign Technologies Corporation 2021 Equity Incentive Plan (the “2021 Plan”) which permits the Company to grant to eligible participants, including officers, employees, directors, consultants and advisors, options to purchase shares of common stock, stock awards and stock bonuses. 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 September 30, 2021 the number of shares of common stock reserved for issuance under the Plan totaled 3,125,466 plus 3,381,369 shares of common stock subject to issued and outstanding awards under the 2011 Equity Incentive Plan (“2011 Plan”), which plan expired in January 2021.

During the nine months ended September 30, 2021, the Company granted stock options for the purchase of an aggregate 885,000 shares of common stock to employees from the 2011 Plan prior to its expiration. 80,000 of these options were awarded for 2020 bonuses in lieu of cash and the expense of $192,000 was recorded during the year ended December 31, 2020. The remaining 805,000 options awarded have vesting provisions dependent on the achievement of certain performance objectives as defined for each employee. The fair value of this 2021 option award totaled $1,924,000. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

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​

​

​

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2021 Employee Awards

    

2021

​

Expected life

 

5.75

years

Weighted average volatility

 

94

%  

Forfeiture rate

 

0

%  

Weighted average risk-free interest rate

 

0.47

%  

Expected dividend rate

 

0

%  

​

There were forfeitures of stock options for 124,000 shares due to the expiration of option terms or employee terminations during the nine months ended September 30, 2021.

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Outstanding stock option awards at September 30, 2021 and December 31, 2020 totaled 3,220,241 and 2,697,119 options, respectively, with the right to purchase 2,518,901 and 2,379,752 shares that are vested and exercisable at September 30, 2021 and December 31, 2020, respectively. The recognized compensation expense associated with stock option awards for the three and nine months ended September 30, 2021 and 2020 totaled ($85,000) and $344,000 and $48,000 and $163,000 respectively. During the current quarter, $128,000 of prior compensation expense related to the 2021 performance incentive awards was reversed as vesting probability was reassessed based on Q3 2021 events. As of September 30, 2021, $271,000 has been recognized as compensation cost related to vesting of these awards following the achievement of defined milestones, with another $1,642,000 in performance incentive awards that are currently deemed as not probable of vesting and an additional $11,000 which has been forfeited due to employee terminations. Awards for which vesting was assessed as not probable will be reassessed at the end of each reporting period.

The intrinsic value of outstanding stock options was $1,340,000 at September 30, 2021.

The Company’s directors have been compensated with stock option awards for services rendered in the first quarter of 2021. In addition to being compensated for their services as directors, individual directors are also compensated for committee membership, services as a committee chair and for services as a lead director. On January 22, 2021 and July 28, 2021, the Company awarded from the Plan stock options for the purchase of 79,500 shares of common stock as payment for services rendered to the Company in the first quarter of 2021. The stock options have an exercise price based on the grant date fair value, which was $3.97 for 62,500 shares and $4.15 for 17,000 shares. All of the options have a contractual life of 10 years. The recognized compensation expense associated with director stock option awards for the three and nine months ended September 30, 2021 and 2020 totaled $0 and $262,000 and $122,000 and $209,000, respectively. The following weighted-average assumptions were utilized in the calculation of the fair value of the stock options:

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2021 Director Awards

    

2021

​

Weighted average expected life

​

8.93

years

Weighted average volatility

​

90

%

Forfeiture rate

​

0

%

Weighted average risk-free interest rate

​

1.02

%

Expected dividend rate

​

0

%

​

Restricted Stock Units

On July 28, 2021, the Company approved compensation for board service to be paid to its independent directors in restricted stock units (“RSUs”) under the 2021 Plan. Such compensation shall be earned on a quarterly basis commencing with services performed in the second quarter of 2021 and continuing through the end of 2021. The target value of compensation has been approved at $84,000 per quarter. A RSU grant is to be awarded to each independent director following the quarter in which services were performed and the number of RSU’s granted is to be based on the trading value of the Company’s stock two days following the filing of the periodic 10-Qs or 10-Ks.

The vesting criteria of the RSU grants are contingent upon the occurrence of one of four future events which the Company cannot predict or control. Accordingly, stock based compensation has not been recognized for services performed during each of the three months ended June 30 or September 30, 2021 in accordance with FSAB Accounting Standards Codification, Topic 718, Compensation-Stock Compensation, (ASC 718).

During the three months ended September 30, 2021, the Company issued 29,264 RSU’s for services performed in the second quarter of 2021.

There were no RSU grants during the three and nine months ended September 30, 2020.

Stock Grants

During the nine months ended September 30, 2021, the Company issued 64,439 shares of common stock with a fair value of $3.37 per share to its employees. These shares were issued for payment of 2020 bonuses in lieu of cash and the expense of $217,000 was recorded during the year ended December 31, 2020.

Consultant Stock Plan

The Company has a Consultant Stock Plan (the “Consultant Plan”) which 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 awards 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 September 30, 2021 totaled 297,719 with 211,969 of those shares unissued. 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 to a consultant under the Consultant Plan for contracted services performed during the period from August 13, 2019 to 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.The 10,000 shares vested in equal amounts of 2,500 shares at the end of each quarter within the contract term. The Company recognized $10,000 in general and administrative expense related to this grant. The contract was renewed, and the consultant was granted an additional 15,000 shares for services performed from October 1, 2020 through September 30, 2021. The 15,000 shares vest in equal amounts of 3,750 shares at the end of each quarter within the contract term. The fair value of the stock at the time of grant was $2.33 per share for a total value of $35,000, which the Company has recognized $9,000 in general and administrative expense at each vesting date. The Consultant Plan expense for the three and nine months ended September 30, 2021 and 2020 was $9,000 and $27,000, and $3,000 and $8,000 respectively.

Inducement Stock Options

Pursuant to the rules of The Nasdaq Stock Market, the Company has the ability to issue equity awards, including stock options, as an inducement to an individual to accept employment with the Company. These awards need not be granted from a plan approved by the Company’s shareholders. In January, 2019 the Company granted options for the purchase of 600,000 shares of common stock to its President and Chief Executive Officer as an inducement to accept the Company’s offer of employment (See Note 7.) The stock options have exercise prices at the award date with fair values ranging from $1.16 to $2.25 per share, contractual lives of 10 years, and that vest over 2 years. Of these options to purchase 600,000 shares of common stock, an option to purchase 258,618 shares of common stock was issued from the Plan and is accounted for with the stock options described above. Non-qualified stock options covering the remaining 341,382 shares of common stock 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 each of the three and nine months ended September 30, 2021 and 2020 was $0 and $13,000 and $13,000 and $39,000, respectively. There is no remaining unrecognized compensation expense associated with these awards. The intrinsic value of the inducement options issued from the Company’s reserve of unissued shares was $119,000 at September 30, 2021.

Warrants

During the nine months ended September 30, 2021, 37,500 warrants were redeemed at an exercise price of $1.80 per share and 42,500 warrants expired. As of September 30, 2021 the Company had no warrants outstanding for the purchase of shares of common stock.