Good afternoon and welcome to the ClearSign Combustion second quarter 2016 results conference call. All participants will be in listen-only mode. [Operator Instructions] During the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the corporation’s projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that can cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties associated with the forward-looking statements made in this conference call are described in ClearSign’s public periodic filings with the SEC, including the discussion in the Risk Factors section of our 2013 [ph] annual report on Form 10-K. Investors or potential investors could read these risks. ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. Please note this event is being recorded. I would now like to turn the conference over to Matthew Selinger at Three Part Advisors.

Thank you, operator. Greetings and welcome to the ClearSign Combustion Corporation second quarter 2016 results conference call. During the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company’s projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that can cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign products will be successfully completed, whether ClearSign will be successful in expanding the market for its products and other risks that are described in ClearSign’s public periodic filings with the SEC, including the discussion in the Risk Factors section of the 2015 annual report on Form 10-K. Investors or potential investors should read these risks. ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. So on the call today will be Stephen Pirnat, Chief Executive Officer of ClearSign Combustion Corporation, and Jim Harmon, Chief Financial Officer. So, now, I will turn the call over to Jim. Jim?

Thank you, everyone, for joining us this afternoon. Before I turn the call over to Steve, I'd like to review our results for the quarter as they’ve been reported in our Form 10-Q and in this afternoon's press release. We incurred a loss of $2.4 million in the second quarter of 2016 as compared to a loss of $1.8 million for the same period of 2015. The increased loss was primarily due to our increased fuel testing and development efforts related to Duplex technology, including the increase in field and R&D headcount from 9.5 to 17.5 full-time employees. As to our cash resources, we had about $5.4 million of cash at the end of the quarter. We project that we have about three quarters of cash on hand based on our current projections. We currently have eight field test projects that we have announced regarding our Duplex technology, three related to once-through steam generators or OTSGs in the enhanced oil recovery industry, one related to wellhead enclosed flares and four related to process heaters in the oil refining industry. Four of these projects are in the design phase and four are in the fieldwork stage. Six of the eight field test projects include payments once the project is completed and installed and is operating to the customer satisfaction. Our field work has been successful in meeting NOx emission levels within the customer and regulatory body specifications. We continue to progress through the customer required field work before we complete the installations and commissioning processes. Our field test application of Duplex on a wellhead enclosed flare is nearing completion. Just last week, we received a purchase order from the prime contractor for the end-user, a major California oil producer. The total value of the order, including the initial testing, exceeds $1…

Thank you, Jim, for that overview. And I'd like to thank everyone for joining the call today. As many of you know, I assumed the role of Chairman and CEO of ClearSign in February 2015 after serving three years as an independent director. Now, after 18 months at ClearSign, I remain as excited as ever about the unique capabilities of our technology and the potential for our customer to transform the combustion industry. As Jim said, we recently received our first major multiunit contract from low emissions flares at a large oil production company in California. This purchase order was issued to us by the oil company's prime contractor and is valued in excess of million dollars. This is also significant as it was ClearSign’s entrance into the enclosed ground flare market, which was based on our ability to successfully apply Duplex technology to a traditional enclosed ground flare and reduce NOx emissions significantly. The recent market study by Frost & Sullivan, which was commissioned by us, indicates that the enclosed flare market in the United States currently approximates $200 million. This represents only a small portion of all flares that are currently installed. We believe that interest among regulators to reduce emissions from this type of equipment is increasing and will increase this market size. Within the refinery segment, we have various up-fired burner installations, which, as previously announced, are progressing based on customer schedules and the refineries’ asset availability. We are actively scheduling several refinery clients for in-person visits to selected installation sites in order for them to evaluate our technology first-hand. More significantly, ClearSign will present a case study paper to the prestigious American Flame Research Committee in September, which will be attended by thought leaders in the combustion industry throughout the world. We continue to receive…

[Operator Instructions] Our first question comes from Jim McElry of Chardon [ph]. Please go ahead.

Yeah, thank you. And good afternoon. Jim, in your prepared remarks, you talked about six of the installations you get revenues or purchase orders on delivery. And I was just wondering if you could get into that, into a little greater detail. So when do the installations turn to revenue or orders or can you just walk me through the cycle of those? I’m not expect you do that for each of the six, but just maybe – and also relative to the $1 million order. Are those other five of similar size or bigger?

Jim, it’s Jim Harmon. Good to have you on the line. I can generally characterize the six units or six installations that you’re referring to by saying that payment of the sales amount is conditional upon us having a successful installation on their site. So once they've been satisfied we complied with the contract, then we would receive payments for those six installations.

And that successful installation then is going to depend on whatever contractual relationship [ph] you’ve entered into with each particular site as to how long it has to operate and what metrics you're using to determine whether or not it’s success?

Right. The overview that I’d give to you is that it’s performing to the metrics of the contract and satisfies the customer. And generally speaking, how long does that – I'm going to call it a test, although that’s probably the wrong term for it. But how long does that test typically last? Are they looking to see that these metrics are achieved over a one-week period or one-year period or somewhere in between?

Steve, how about if I turn that one over to you.

Jim, it varies by client. The principal criteria for the performances is really NOx emissions to be able to demonstrate we can meet their permitted or the regulatory requirement for NOx. And the amount of time it takes could be as short as a couple months. In some cases, the client who might be looking to make a long-term investment in the technology across a broad range of units, as is the case with our potential client in Western Canada, they’d like to see field demonstration testing in the six-month to a year range. So it does depend on the client and the circumstances.

And since these clients are trying to reduce SOx and other things, is part of what’s taking – is part of what’s a long sales cycle because they're not just looking at what you're offering, but they need to do you and – I think Jim mentioned that there are five components that are regulated here. Do they need to get a solution for the other five before they're going to deploy your solution for NOx?

No, the reason for the protracted, if you will, cycle is everything from them needing to get an experimental permit with the regulators, to try our technology, and for them to agree internally what asset they will allow us to use as not a test, but let’s call it a demonstration site, and there is always some internal discussion on what asset should they use and filing for the experimental permit and then determining the economics of using our technology versus some alternatives that might be possible. But, in general, it's not uncommon for the client to take six months and even to a year to make this determination. In the case of, again, the project that we’re doing in Western Canada, which involves numerous large once-through steam generators, we just finished, what they call as, a process has-ought-to [ph] meeting. When you sit down with the operators and you go through each piece of equipment, every valve, every control, every TLC, and you do a what-if scenario in terms of the operability, safety and reliability of that equipment and it’s usually applied to some criteria within the refinery based on their experience. And it's not uncommon for that process to take a week or two and then result in some reiteration of the engineering based on the fact that they prefer this type of valve versus that type of valve. So as you’d expect, with a refinery customer it tends to be a very detailed, very rigorous process.

Right, okay. And just wondering if there's a goal that you can share with us for how many installations you would like to have by year-end and what you're shooting for next year? Or if next year is really going to be a year of we’ve proven this technology in a number of markets and now we can go about more selling instead of demoing?

We have not yet committed to any specificity around the two points you asked, but we do, given the relative success of this year and what we see is the completion of these demonstrations that Jim had mentioned earlier, expect to see a ramp up and deal flow next year for sure.

Okay, great. It’s been a – I know it’s been a tough road, but there’s been a lot of progress. So congratulations on that and good luck with everything.

Yeah, yeah. Thanks, Jim.

Thank you, Jim.

Our next question comes from Lou Basenese of Disruptive Tech Research. Please go ahead.

Hi, Steve. Hi, Jim. How are you doing?

Lou, how are you?

Good. Congrats on a quick turnaround on the flare installation and the follow-on orders. I just was curious if you could comment whether it was a competitive situation and what incumbent technologies you displaced to get that business.

Well, it was really a specific customer request. He had a problem and he actually had gone back to the supplier of the original flare, which was more of a traditional flare design, and they were unable to come anywhere close to meeting the emissions he needed. So we really were able to assess what was needed and give them what we thought was a fair price and were also pleased that in a fairly short period of time, as you point out, we’re able to modify the existing flare and install our technology with a very, very good result. We really had a dramatic reduction in the NOx emissions of this flare. And as a consequence of that, as we stated earlier, we got a contract for $1 million and are optimistic that there’s other opportunities like that in the making. But, yeah, we were quite pleased because, as you know, a lot of our focus with Duplex has been on burners, both boiler burners and process burners. And I think the striking thing to me is the fact that we were able Duplex technology to a flare application, just opens up a huge opportunity for another entire vertical market.

Right. Just in a follow-up to that about what you said and how dramatically you can reduce the emissions, is there any other technology that you're aware of that can get to those levels in flare installations and then how does that impact how quickly word spreads to other owners of flares in terms of this solution being unique?

Not that I'm aware of. And then the follow-up answer is not even close to. They’re big numbers. Now, the feedback we've gotten, and we’re a little cautious of that, revealing the customer and the whole nature of the transaction for a bunch of obvious reasons, is we’ve gotten very good feedback from the regulators with respect to their interest in the technology and the possibility of regulating this type of asset, a flare. Most flares really aren't controlled with respect to emissions. They’re controlled with respect to smoking, but not with respect to emissions. And given our success at this particular client, there is a strong possibility that they could look at our technology and regulating flares as a good option for them. But a lot of water has to flow into the bridge where stuff like that happens.

Okay. Just a quick question on the major Canadian oil producer with the OTSG, are you still on schedule to complete that first inflation? I think it’s by early October, was the guidance.

The answer is yes.

Okay, good. And then just – maybe this is for Jim. A question about the eight projects in process, is there any reason – do you have any reason to believe you won't be able to perform to the metrics of each contract? And then assuming that you do on all of them, what are we looking at in terms of just a range of potential revenue on the backlog?

First of, yes, we’re – and there’s a range of answers with regard to those six. But I’ll tell you that the overall substance of – excuse me, with regard to all eight. But the overall substance of it is, yes, our guys are confident that they’ll be able to complete those. With regard to how much revenue will be recognized, we’ve always characterized it as a relatively de minimis amount. We have a review of the amount. But as each one clicks off, it’s enough to be handy and be useful. But I don’t think it’s going to dramatically change any sort of projection that you have for the company, Lou.

Okay. And then just a last follow-up, do you believe that these eight installations could be completed by year-end?

Which ones…?

The eight installations that you have in various stages. Not accepted, but just the installation work completed so that the customer can do – enter the evaluation period.

Lou, there could be – based on the dates we’re currently getting, the latest one is the refinery in Texas that said they would put – reinstall equipment in the fourth quarter of this year. So that might be the latest one.

Okay.

But in theory – and again, I’m not trying to hedge my bet here because I have the exact date, time and hour that I expect them to be completed. It’s just that my ability working with our clients to predict these things because of all the things that happen internally to change their schedule is pretty large. But the answer to your question is a short yes. There is no reason right now for me to think that they all won't be installed by the end of the year.

Okay, great. Congrats on the progress and appreciate you taking my questions.

Yeah. Thanks, Lou.

[Operator Instructions] Our next question comes from David Brown, a private investor. Please go ahead.

Hi. Congratulations again on the first commercial revenue order. Great news there. I’ve got several questions. The first is about the NOx levels, if you can give any more specificity about the various verticals. I know you said that you’re meeting the regulatory requirements, which would be 5 ppm for one-through steam generators and for refinery heaters. Could you reveal possibly what close to the median numbers that you are getting in those verticals? And also, I was glad to hear that you mention the wellhead flares was actually under 10 ppm, which I know the current regulation is 15 ppm. So if you could give me any more color on those metrics, I'd appreciate it.

I say that – in the field, we’re producing NOx emissions that are comfortably below the regulatory requirements. And when I say comfortably below, the clients themselves like, if you will, a little wiggle room in the performance of the equipment relative to their permit because there is other variability with respect to fuel constituents and heat rate and how hard the burner is being fired, which could impact NOx emissions relative to the original design. But because we, again, are comfortably below the regulatory requirement, we’ve been able to satisfy our customers’ needs over a variety of operating ranges.

And also, it’s a technology that's embedded. So there's no like real wiggle room or cheating like Volkswagen did. I'm sure the regulators are happy with that aspect.

What happens – and the process with respect to refiners is they put in our equipment and they very often – and this is almost axiomatic – they bring in a third-party independent inspection company who is certified with equipment that’s certified that’s extremely accurate and they really measure the heck out of the performance. And that actually plays to our strength because the smarter our customers are and the harder they try to make sure everything is right, the better we look.

That’s great. I like to hear that. A separate question, just a very quick one, I believe I've heard you say that once the customer is ready and the installation is ready to go – and this may vary on the different verticals – the time of the actual installation is relatively quick. I was thinking like two days for some of your processes. Could you tell me a little more about how long it takes to actually install the Duplex once the customer is ready and the once-through steam generator is closed down and you're ready to go?

It’s true that on refineries, if you have unobstructed access to the asset, it's a couple days on once-through steam generators. Some of these things can be pretty large, the ones in Western Canada are actually five times the size of the ones in California.

Right, right.

So it might take a week. That said, the real issue from a client standpoint is that we're not taking the asset out of service for a period that’s so long that it makes it economically attractive.

Great.

And by the way, that’s a good point to emphasize because the best solution in the world, if it’s going to take you a couple months to apply it, the impact financially on the client is pretty big.

Right.

Just to emphasize that one, Richard [ph], think about refineries as the process – production of oil into various oil products, it’s very difficult to isolate particular burners and take them down. Meanwhile, OTSGs in a field, much easier to isolate one and take it down, the field doesn’t shutdown because there’s still dozens or, in some cases, hundreds of OTSGs still operating.

Great points. Thank you. And another question. I hear that the company – obviously, you’ve answered this and mentioned it in other conference calls about the boiler – the commercial boiler space. I understand that the company has perhaps purchased a commercial boiler and is retrofitting it for demonstration project. Could you give me a little color on that?

Geez, if you would know that, you shouldn’t.

Okay.

Were you up here visiting or something?

You know what, I won’t comment because you might have been standing in the parking lot when it was delivered, but not sure what you want to say.

Okay. And then just news regarding companies and the EPA, my last question. So, for instance, Marathon Petroleum was in the news in June 9 of this year about having to agree with the EPA to spend $334 million to reduce pollution of their refineries in five states. Obviously, Tesoro, which we already have a book of business with, hopefully that is successful in the not-too-distant future, is also – was in the news regarding fines from the EPA. Is the company basically actively pursuing companies that are coming up against these kind of fines and such?

The answer is yes, we are. And the answer is yes. Typically, as part of this process, we sign an NDA, a non-disclosure agreement, because the clients themselves want to keep their solution and the timing of it on a confidential basis.

Okay, great.

But in the case of Tesoro, they were fine with us announcing it. In fact, they, I think, for their own reasons felt this was a good message to send to the regulators. But for the most part, the refineries themselves, who, of course, themselves are aware of our technology are inclined to have us keep the work we do with them as confidential.

Sure, that makes sense. And I would assume then that regulators are – the news about the successes that ClearSign is having with Duplex is spreading pretty well with regulators.

Well, just to be clear, and people have done very well with this, when the actual refinery try our technology, they typically file for an experimental permit. That information is publicly disclosed.

Right.

So if you really want to look hard, you can find – you can – you don’t have to pull up in the parking lot to see who delivers a boiler. But you can find this information out. And what I'm saying to you is that my obligation with these refineries is to not disclose it. The information could be made available through other sources.

Okay. And just one question – one more general question about the boiler space. Is there a model businesswise that you would like to be working on in the boiler space? Obviously, you can't go – there are so many boilers all over the world and the country even, the US, that you couldn’t go to – it would be doubtful in my mind that you could go to every boiler company or place where there are boilers or other large industrial heaters and things like that and do all the installation. So is there a thought of some kind of a licensing or something like that in that space where you would be with some other company that would be similar to like what Energy Recovery did with – I'm blanking on the company – one of the large companies has licensed their technology. Is that kind of in your thoughts? Maybe you don’t want to comment.

No, we’ve previously commented on this.

Okay.

The reality of it is, just as you said, there is 300,000 plus installations of boilers in the United States. So it’s not practical for us to necessarily go to each one, but focusing on boiler OEMs who have not only existing boiler/burner capabilities, but also have field service organizations, a license agreement with a large boiler OEM would be ideal. And what we’re in the process of doing, and we've been doing this for quite a while actually, is developing enough field experience with boilers that we can make a compelling case for licensing our technology and having more leverage based on the confidence that we validated this technology in the field. If you go too early and you really can't prove you can make it work, then you're not in as strong a negotiating position as we are now or as we will be in a few months from now.

Sure, exactly. All right. Thank you. That’s all.

This is why you buy a boiler.

Thank you, David.

Yeah. Thank you, David. Appreciate the questions.

You’re welcome.

Our next question comes from Richard Deutsch of Ladenburg Thalmann. Please go ahead.

Yeah. Thank you for taking my call. And congratulations on your transformation process and how you’re executing going from a patent-rich company to one that's actually right now becoming commercial, as we speak. The issues here are moving from an academic discussion to what's really important to shareholders and possible shareholders in terms of pricing your security. There is a problem that you're in such a broad array of commercial and pre-commercial operations that it’s almost hard to pick out a question that’s most relevant to shareholders. But I'm going to settle on your plan over the near-term in terms of financing alternatives. Having such a small market cap and small number of shares outstanding, you’ve got huge leverage to the upside. And I'd like a little bit of your thinking as to where you would like to go under ideal circumstances and what your confidence level is in your financial needs and how they’re going to be met. And specifically, you’ve just got into a little bit of the conversation with Mr. Brown about licensing. In a technology company, with as broad a base as you have both in domestic and international opportunities and with the company's expertise and experience in the field now validating, as Steve was just saying, the increasing value of any licensing agreements, I'd like to see whether you’re willing to discuss a little bit about your partnering joint venture or licensing arrangements and how they might intersect with potential financing. So if that hasn’t been too confusing, maybe you can address that for me right here.

Richard, what was the question?

How you expect to finance the company over the next near-term 6 to 12 months and whether there is a possibility of a joint venture or licensing agreement now that you’ve field tested and demonstrated multiple commercial major client performance levels?

Yeah. I'd say that, to the core of your question, we’re comfortable that we can continue to properly finance the company and we’re looking at various financing options. We’re really not in a position to comment on any specific path. You’ve highlighted one of them. Yes, of course, at some point, licensing opportunities and the possibility of perhaps strategic investment by licensing partners are always an option for a company like ours. But suffice it to say that we’re looking at our options for financing, that we’re comfortable that we will be able to properly finance the company going forward. The times have never been so exciting, the opportunities have never been so clear to us. And we have not, for a minute, taken our foot off the pedal with respect to commercializing the technology nor do we feel we’re going to be out of opportunity to finance the company.

Okay. And just one drill-down question, over a year ago, I believe, you announced a contract with Tesoro and that did generate quite a bit of investor interest, in which the market capitalization was substantially higher than it is now, even though you’ve, obviously, progressed massively since then. And one of the issues is that, we never got any clarity on any follow-through with that contract. As I understand it, they are committed. They would like you to progress. But can you give us some sort of progress report on what you feel it will be the actual expected installation date for that already announced contract?

Well, not to kind of go through too many of the steps, we have had the initial meetings with Tesoro that were announced where we met with their engineering subcontractor and did, what’s called, the process has-ought-to identify how they would install our equipment in their refinery. And then further, we have been actively trying to schedule a fairly large group, seven to ten people, to go visit a site where we have ClearSign technology in a refinery, so they can see it firsthand. And we’re working on a schedule that we expect to see sooner rather than later. But since this thing has been scheduled once last month and had to get delayed for a variety of reasons, I hesitate to say what it’s going to be. But, of course, they are interested in doing this is pretty great. So we think they'll do it at their earliest convenience and we’re perfectly willing to accommodate them and meet them in places and arrange for them to visit our installation sites. And so far, the clients we’ve spoken to are very accommodating. You find that other refineries are very willing to help their colleagues dealing with safety, health and environmental issues. They all kind of work together when they have a common objective. So we haven't had any pushback at all from our installed client base about showing not only Tesoro, but some of the other refiners that have its best interest in seeing these sites.

Just for clarification, once they make the visit, would you consider the timeframe of moving forward to be within a matter of weeks or would that be further? And second, how would you characterize Tesoro’s interest? They’re a big company. They’ve got massive amounts of different things going on. And how far up on the senior management’s radar is this pollution control, regulatory and actual safety and maintenance issues for your technology up on their radar? Do you find them very interested or could they just simply [indiscernible]? Thank you.

Well, they’re interested. And I think what drives their interest is regulations. And the reason I can't give you really a crisp answer to your question, Richard, is I'm not privileged to what other things are on their list. I don't know whether they are working on is or whether they’re putting in a new hydrocracker.

Okay. The second question, though, is after they make the visit, do you have any idea as to how quickly they may move forward?

I really don't. I’d hesitate to say a couple of weeks because in the industry nothing seems to ever happen in couple of weeks. But the fact that they have – and this goes for the discussion somebody else suggested about Marathon. The fact that, as an industry sector, refiners are under scrutiny to improve their emissions give them an interest in our technology. They're the ones who’ve said, ‘hey, we want to work with you; we’ve given you a trial order; we’ve paid you to do engineering; we want you to arrange a visit.’ So all of the signs that would indicate interest are favorable to them being interested.

Okay. Well, thanks a lot. And again, congratulations for not dropping the ball and really having such a great number of different verticals all coming through at the same time. That’s pretty amazing out of young technology companies that I’ve followed in the past. So keep up the good work and stay healthy.

Yeah, thank you. We will definitely hang on to the ball.

Okay.

[Operator Instructions] Our next question comes from Joe Basset, private investor. Please go ahead.

Yeah. Hi, guys. Congratulations on all the amazing progress. It’s pretty exciting. My question was kind of sort of answered. But just wanted to kind of re-emphasize it again. How much basically runway do we have left? And then, when would a strategic investment and your capital raise need to materialize, at what point? Thank you.

Yeah. This is Jim Harmon, Joe. So you characterize as – this has been addressed, but we have three quarters of cash left based on our current projects. And as Steve mentioned, we have a plan with regard to any capital raises that are required that we feel very comfortable with. And we’re taking action with regard to those plans.

All right. Thank you so much.

Yeah, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Pirnat for any closing remarks.

Thank you. Since there are no further questions, I'd like to thank everyone once again for attending today and for your ongoing support and enthusiasm.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.