Good afternoon, and welcome to the ClearSign Combustion First Quarter 2019 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matthew Selinger, Investor Relations. Please go ahead.

Thank you, operator. And welcome everyone to ClearSign Combustion Corporation first quarter 2019 results conference call. During 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 could cause actual results to differ materially from those described in the forward-looking statements. The 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's 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 Factor section of the 2018 Annual Report on the 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. On the call with me today are Rob Hoffman, ClearSign's Chairman of the Board; Jim Deller, ClearSign's Chief Executive Officer; and Brian Fike, ClearSign's Chief Financial Officer. So, with that, I would now like to turn the call over to Brian Fike. Brian, please go ahead.

Thank you, Matthew. And thank you to everyone for joining us today. Before I turn the call over to Rob, I'd like to review our preliminary results of operations for the first quarter, which ended March 31, 2019. The net loss for the quarter was $2.3 million, compared to $2.3 million in the same period of 2018. Shares outstanding at March 31, 2019 were 26,699,761. Our cash and investment resources were about $13.7 million at the end of the first quarter of 2019. It is important to note that we have sufficient working capital available as of today to carry us well into 2020, even assuming no revenues or changes in expenditures. With that, I would like to turn the call over to the Chairman of our Board, Rob Hoffman. Please go ahead, Rob.

Thanks, Brian. Before getting into the meat of the call, I wanted to take this opportunity to comment a little on how much progress the company has made in the mere three months since Jim Deller arriving. When I introduced Jim on the last call, I remarked on how his carrier experience is in the combustion industry, checked every box from operational field engineer to sales to sales support all the way through running one of the U.S.’s most well respected burner rents, but of course those accolades were based only on the extensive interviews and references we have gone through in a whopping three day on the job. With the NFL draft having taken place a few weeks ago, I think there is an interesting analogy between searching for a CEO and selecting a perspective [efforts]. The stakes are high and as the Arizona Cardinals will test [indiscernible] are very expensive and uncertainty remains. The question is not what they did in college. The issue is whether they can translate to even better performance in the NFL. In the case of Jim Deller and ClearSign, we have already seen tremendous evidence that he will succeed with his bigger role of CEO. While younger investors might not grasp the analogy, Jim is the Bart Starr as opposed to the Joe Namath of the combustion industry. As investors get to know Jim, they will discover that he will never be like Broadway Joe and “Guarantee Victory” nor will he ever be the flashiest guy in investor conference. Conversely like Bart Starr, he will be the understated field general getting the most out of his team all at the same time being the most important cog in driving that team to victory and making the correct decisions when it is most important. I don’t want to preamp Jim’s commentary today, but suffice it to say that our draft pick has already demonstrated that he is game ready. And I'm excited for him to share his vision for ClearSign success with you today. With that, I will turn the call over to ClearSign's Chief Executive Officer, Jim Deller.

Great well thank you. I clearly have to get onto Google. I was born in 1968 in England. Who was the Bart Starr and [Joe]?

Well I guess, that’s what Google was invented for. Maybe you won't be the only one on the call that has to look those up.

I guess part of my education. Anyway, good afternoon everybody. I was well pointed out on the last call I had literally just joined the company by couple of days. To review, I said that my immediate task on joining the company was to assess the status of the technology internally, as well as with our current and prospective customers. I mentioned that traditional burn of business is very competitive due to high barriers of entry in terms of infrastructure requirement and its inheritance very careful nature of the business. I also mentioned that our business model variations, which may be different from the traditional burner supply business that should be explored and that could serve ClearSign’s objective of exciting commercialization. In my remarks here, I want to discuss what I believe our technology is today, how it fits into the market, and our path to capture our share of that market. Since that last call in February, we have been focusing on optimizing our technology. The goal of rapidly leading our technology towards full commercialization. In addition to our progress towards arranging supply partnerships, which I will talk about later, we are modifying the structure of the company from [indiscernible] only focus on R&D to a structure that it supports our anticipated commercial operations. We have also cut expenditures where this could be done without hindering us on our path to commercializing ClearSign Technology. I and the rest of the ClearSign team are very aware of the expectations you as shareholders have for results and share your disappointment and see like a progress, especially with the knowledge of the developments being made and the potential for ClearSign in the future. We recognize that revenue and profit are the two measurements of success and with that sole objective in mind,…

Thanks Jim. Excuse me. Before wrapping up our prepared comments and moving into the Q&A, I'm going to take my Chairman hat of for a bit and put on my investor hat. One of the tenants of my investing philosophy has been to lean on others who are experts in their respective fields, and essentially piggyback on their assessments. So, I’m turning this concept of investing by proxy. In the case of ClearSign, there are a number of proxy indicators that one can look for. Perhaps the most recent one is the decision by Jim to join ClearSign and even more recently [indiscernible] join us as well. Here we have two people who are basically trading the stability and comfort of working for Honeywell with the outside of working for ClearSign. They know the combustion business, they know that there is a true innovation within the industry, so they recognize that game changing technologies does not come along every day. Given their knowledge in the industry, they are confident enough in our future success to essentially bet their carriers on it. The next example is the South Coast Air Quality Management District that Jim referenced. The district has an engineering staff whose full-time focus is emissions control. Not only is the district putting its reputation behind ClearSign Technology, but they are actually investing in an installation. In other words, they are literally putting their money with [indiscernible] with the anticipation that a successful demonstration project will enable them to use a much larger stick to encourage ClearSign adoption within their operating geography. Third, we had the Chinese heating district. Have we accomplished our goal there? Not yet. But the fact that not only are we being asked to continue our work on the water tube boiler, but also expand our…

[Operator Instructions] Our first question comes from John Reynolds, Retail. One moment.

Thanks for the update guys. What is the roadmap of the company or how are you going to tell the investment community where you're going? We've been patient, small microcap companies like this need communication and effective communication with the investment community [Technical Difficulty]. We haven't heard anything since the last quarterly call and I really appreciate this update that you just gave and what does this do to compress the sales cycle and ultimately drive revenues for the company?

Okay. There were several parts to that. Certainly, I appreciate your comment about communications. We’ve mentioned several things today, which are going to be key milestones for ClearSign as we conclude them. We will be keeping out press releases and it is absolutely my intention to keep up our investment community informed. I think the bigger question we can collaborate on or we’re absolutely trying to compress the scheduled to commercialization. The developments we’ve made here have been quite substantial in the technology. We are actively in conversations with our supply partners. These supply partners have a large range of test facilities. A very large and very experienced and capable staff and we will be – what we anticipate be very rapidly able to walk with our team, you know the Duplex technology to create an entire product range and to market that as they also have a wide network of sales channels and relationships with the customers and the heat manufacturers and in the case of the boilers, the boiler engineering companies, who can connect the new technology to the ultralow NOx needs of the marketplace. So, I really believe that we are on the fastest track to getting this product commercialized and to getting mainstream sales. As you said, the difference is, we’re not going to do this as a small team. We're going to do this by partnering with a large team, bringing the critical parts that we have and also recognizing and leveraging that the supply partners that we are looking to work with have some extensive and very necessary resources of our own and that we will do this together and not allowing us just ClearSign.

So, are you saying that you're going to do this through a value-added reseller channel, is [this part of that] strategy?

No. We will be doing this in collaboration with the partner and that collaboration will include the development of a product range within the facilities, but I really need to be clear here. We, every agreement like there is, is a result of a negotiation and obviously, while the outcome is also partly due to the input of the other party that we're working with. So, I can't say with certainty exactly all the details, obviously [indiscernible] will be. My intention is that we will truly find a win-win scenario because we need the supply partners to benefit greatly from this relationship as we do for ClearSign and as we do for the end users. Now, we have to find that win-win-win. When we do that, our supply partners will be motivated to develop a product range and to promote the sales and to seek opportunities to sell ClearSign technology and it’s absolutely our desire, but I really believe that to achieve that and our motivation and mentality going into these negotiations is that we need to find that right balance and make sure this truly is a great very good deal for all parties involved.

Okay. So, the second half of 2019, are you confident that you're going to have some of those win-win-wins in place and therefore some revenues to report to the shareholders?

I don't have a perfect crystal ball. What I can tell you is that we have already discussed this type of arrangements with several key and global potential supply partners. They have expressed great interest. We’ve had ongoing communications. The point that have signed NDAs in place to continue those discussions and we actually have dates confirmed or multiple partners to come to Seattle to do their own due diligence and to see the newly optimized technology really as their own betting before getting down to the nitty-gritty and the final working out of details for these supply partnerships. So, we're well along the way to developing these relationships. I can’t give guarantees of what clients and customers will need [indiscernible].

You know just from the long-term loyal shareholder, I just, I think that we have earned the right to be communicated with in a more effective manner. This has been very, very discouraging as a shareholder with the type of communication and Rob, I’ll put on you as well. You’ve been involved with the company long enough; this has been unacceptable and that’s [indiscernible] still [leaving] with that. So, thank you.

Thank you.

The next question comes from [indiscernible], Retail.

Yes, hi. Thanks for taking my call. I’m a long-term investor as well, although a small investor, but nevertheless I’m quite encouraged and maybe I will have a smaller short track record, so I don't know what to anticipate in terms of communication, but these conference calls have been, this one particularly has been very encouraging. The one question that’s kind of haunted me that I’ve almost not wanted to ask because I was afraid of the answer was, is there ever time when you're starting the mechanics of the system, when you're starting from a coal boiler and warming it up and transitioning into your Duplex tiles. Is there ever a moment where you got periods of instability, essentially where something could go wrong where the thing explodes, I guess that’s what I'm saying, I am wondering about?

First of all, even going back to the original technology, we’re a very conservative company and we recognize the severity and the importance of control and maintaining stable combustion. As a key and I think really to put your mind at ease the changes that we have made over the last three months and that I described in the comments, what we simplify the operation of the technology, we have made three-step to two-step process, we have eliminated any transition or what was the Duplex flame or the combustion from the initial primary pre-heat burner when that used to transition up to the Duplex head. That step has gone away. What we have now is an ignition/pilot system that provides a flame that is at exactly the same facility as the permanent flames. You would now like this pilot burner or the pilot device and then you can immediately turn on the main fuel gas. That flame will, as with the standard burner lie on the pilot and stabilize on the flame stabilizing device. The flame stabilizing device in that case happens to be this wonderful Duplex technology we have. So, in terms of the operation of the technology it is now exactly the same as for a regular industrial burner.

Alright. That’s great to hear. Very good. Thank you. And a real quick other question. So, the tiles, they burned very hot. They last for a year or for five years or forever before the actually replace or can you speak to that?

Well, we don't have forever yet.

[Indiscernible] want to.

We do – we have had Duplex burners and these tiles in operation now for several years. We have had the opportunity to go back into that equipment and to see it, and we’ve had inspirations where it has been cycled or cycled up and down almost on a daily basis over the period of longer than a year. And whilst I have not claimed in those years myself, the reports that we have back is that the tiles are looking as new.

Is that right? Terrific. And obviously they are made in the United States and then how easy or difficult would it be to pirate the technology, pirate the tiles.

So first of all – as to your second part of the question, the – I really don't want to get into the source of the material. We do have other special technology embedded into the bonus that we are selling all the parts that we are providing. Also, the ClearSign and Duplex technology is very heavily covered by patent. So, certainly in the combustion industry, we do recognize that the spare parts business is very fruitful. We are very cognizant of that. And as we arrange our agreements going forwards and design our equipment’s we certainly are careful to recognize the value to ClearSign of the ongoing life-cycle service down the road and make sure that we maintain what’s due to us.

Very good. Thank you for taking my call. I’m very encouraged. Thank you.

Thanks [Rodger].

[Operator Instructions] And I believe we may have a question from [indiscernible].

Amy, thank you. This is Matthew Selinger. Does anyone here in the room, by the way we had our Annual General Meeting, so we do have investors live here with the us, is there anyone here in the room have a question to ask. If you could step forward if you don't mind.

Yes. Jim, can you give me more color on China and the opportunity there?

Certainly. Thank you. So, China is a very interesting part of the world. The mission requirements of China, we’ve all seen the small kind of [indiscernible] in China and the government, I know of my prior knowledge and also reports since joining ClearSign, the government has taken that very seriously and the government actually in China, they don't really negotiate, the pretty much tell their clients what they have to do. The relationships we have with the heating districts are very strong, it is beyond just handshakes and words, we have signed agreements with them. These agencies are like government agencies and operates hundreds of thousands of boilers, many of them in the highly polluting regions where the NOx emissions are being greatly reduced. We see the China market as at least as big for us as the United States market. It’s extremely important. The opportunities for our newly optimized fire tube technology there are huge and one really nice thing with the fire tube boiler is a very repeatable and consistent boiler. So, as you finalize a product and get that certified, you can actually take those products and repeat them over and over again into all the boilers of that same standard size. So, it’s a very, very rapidly scalable technology once approved. So, within China, with the channels to market that we expect to achieve through our relationships with the heating district's and this very repeatable products, which is – has a very readable and addressable market with a very large potential return for ClearSign.

Thank you.

The next question comes from Robert Kecseg at Las Colinas Capital Management.

Yes. Thank you, Jim for giving us the kind of a new life and what may be able to happened. As far as the efficacy of the product and the things that we heard about the low NOx and the low carbon monoxide emissions, I think it was originally in the steam generators, the OTSGs, we actually heard of them real big as it was very low. Is there anything suspect there or is there other things that need to be changed to really accomplish those really low NOx [indiscernible] emission?

The technology does provide those very low NOx and very low sure omissions. So, [indiscernible] and back to the communications we’ve not said a lot about the OTSGs over the last few months, but we do maintain a very [indiscernible] relationship with them, but we have really focused on what we have seen as the big potential moneymakers for ClearSign in the plug and play burners where we clearly see the U.S. is a very strong market, and the [indiscernible] boiler burners where there is some market in the U.S. but also a very big potential in China, the goal is to get those products into those markets as quickly as possible. So, we’re certainly working on the OTSGs and aware of that, but to focus on something you’ve got to resource it to get that done. And really a story with the OTSG is apart from the – and obviously the work that we do being very dependent on our customers. They have not been priority number one and two for ClearSign over the last few months as we really pushed the fire to boiler burner and the plug and play burner for the refining’s, as our first priority. So, hopefully that explains. We are working on those products. We do have plans for them. We just prioritize where we think we can get more money more quickly first.

Okay. So, on the plug and play, has the company every really installed one, you are under the understanding that they were, that something [indiscernible] Texas, so has there ever been an unit installed in the [indiscernible] for a refinery?

Yes.

Okay. And the last thing was, it seems like in the US there is a big problem with regulators and that type of thing where the industry doesn't want to try something new unless they are kind of forced to by the regulators, can you, kind of, give us your feeling about that? What is the situation?

Well we have recognized the industry that our customers in there, they are extremely careful, and obviously very prudent looking at our own profits. I think our goal is to work in the environment win. We can’t change the political relationship between [indiscernible] and our customers. Our task is to find the regions where the industry being smart, realize what regulations are coming down the road and our future operations, and as we discussed also bringing to light the increased efficiency, and in the case of the plug and play the ability of the burners to work in more closer confines then standard burners and to recognize that there are markets outside of those driven purely by the emissions regulations, and in our own work to make sure that we express that value and work with customers with those needs also for the benefit of ClearSign, but I don't think there is room to honesty criticize the customers or the regulators. Our job is just to recognize the landscape we are working in and work out, has to position ourselves best within that.

Alright. And the anticipating in Seattle or is it going to be more economical to be in the [indiscernible] some other area?

I'll be probably a little bit more problematic. First of all, we are in Seattle. The company is based here, obviously we are invested with quite a large infrastructure built-up in the buildings here in Seattle. Of course, we also have to recognize that the – at least the vast majority of the top quality global burner suppliers are based in [indiscernible] where you also have an office, and not coincidentally Jeff Lewallen who has recently joined us is based in Tulsa and will remain in Tulsa in anticipation that we will have closer relationships going forwards with companies in Tulsa. And if there is bifurcated business that the – at least the commercial arm of the business will likely have a bigger presence in Tulsa, obviously at the end of the day you have to be close to your partners and you have to close to your customers.

Thank you, Jim.

Thank you.

I believe we may have a question at ClearSign HQ.

Would you like coming forward?

Alright.

Would you mind stating your name, if you don't mind.

I'm [indiscernible]. I am considering myself a loyal shareholder even in the face of last 15 months and 80% decline in the share price, but I have heard some real encouraging comments from the conference call today. The area I want to ask you about is, during the past three or four conference calls the shareholders have kind of had this Exxon discussions care dangled in front of them, and I understand Mr. Deller’s comments that now we anticipate some modest revenue from the engineering face order, could you shed some light on maybe – what’s the horizon for an implementation order with Exxon? And we may be – I may be getting ahead of ourselves with that question, but I think you addressed the – some revenue from an engineering face order and how that would be different from an implementation order, what is the horizon of an implementation order specifically with Exxon and the status of that? I don't know if that goes to Mr. Deller or Mr. Hoffman.

So, to look at this project, because our project with Exxon – Exxon is a very diligent, very highly engineering capable oil company. They have recognized the value of ClearSign Technology from a very long time ago, and over the years have invested in research here in our lab. They have collected data, they have had a series of meetings, I have recently been part of those, and I just spoke with Exxon before coming here by the way as well. And they continue to support ClearSign, I know that we have had conversation with [indiscernible] this week. We had a [indiscernible] down at the low club [API meeting], but the order we have in-house. This is a modest order in terms of money, but for Exxon to actually place an order for the engineering of a supply or for a part of a supply agreement is the start of a supply agreement. This is quite a normal way of buying burners at the industry. They will place an order for engineering, you get the engineering done, and then basically it is, you release the order for the second phase. So, this is the purchase of ClearSign burners to be installed in a heater down in Texas or demonstration improving by Exxon, so the significance of this order is absolutely huge for ClearSign. We are expecting to start on this. We are working through the final details of a purchase or as we speak. So, this is not something that’s out in the future, this is something today, and in terms of communications we very much look forward to announcing the completion of receiving the order. I know this is underway. We expect to be working on this in the next month through the rest of the year. So, this is going to be starting very, very soon. This isn't something that’s out sometime in the future.

This is Rob Hoffman. I think it’s interesting to kind of just oppose where we see Exxon and one of the questions previous was where do we stand with the regulators and that’s what’s so, I think so interesting or fascinating, not sure, if I'm even getting the right word. Exxon is not reacting to environmental regulations today. When the regulations in Texas, while they are moving in the direction that will benefit us, they are not in the same time line as let’s say the ones in California. And but Exxon is forward thinking, and so they – and as we mentioned they are very engineering focused, but they are not, before the SPV put money in, I did some diligence on Exxon not with specificity of Duplex, but with the process, and what I discovered is that when they went to the safety committee that was a big deal. Exxon doesn't, I guess they look at lots of things and they don't bring it all to the safety committee. So, the fact that this technology went to the safety committee was a big deal. And then this engineering study, again from a revenue perspective is not significant, but it’s an indication that Exxon is very interested in making those next steps. And as Jim said, we are at the – we’re holding to their timeline in terms of when we actually put the burners that they planned on, but we know what heater it is going in. We do the engineering work. So, the other thing to remember about Exxon is they don't do these things to solve one heater. This is not trying to solve a heater problem that some of our installations to date have been, you know some of our early customers have been where they have got a heater that’s giving them problems, let us try this out because nothing else will work. Exxon is looking at it differently. Let’s see how these things work because if they work the way we think they can there is a lot more behind it. That’s kind of how we look at it.

Do we have any other questions live here? Sir, would you mind coming forward?

Just want to say my first question was answered.

Okay. Would you mind identifying yourself please?

[Indiscernible]. And my question was, is because this company is involved with multiple changes in leadership and I know I missed [indiscernible] you have to take it by heart or [indiscernible] I am sure everybody would like to have their growth and value their investment grow. So, my question is, where do you see this company be from now two months, or two months from now? The second one is, what was your least successful investment and your idea [indiscernible] strategy?

Okay. So, the first one is pretty easy to answer. I mean, I can’t give definite timelines, but what we expect to see, is leveraging the resources and the marketplace, we have the technology. We did not see our future at ClearSign manufacturing plans. We are not going to be another burner manufacturer. It is to find partners around the world in different technologies in different verticals, however it best suits the breakup of the markets, and the ClearSign Technologies and then with those partners to grow with them to develop marketing with them to give them groundbreaking technology to enable them to sell a burner with the ClearSign call that is better than anything else from the market. And they can meet the emissions requirements or the heater efficiency requirements going forwards, but it truly is a collaborative model where we are looking to find partners that want to work with us and then together, we can develop a very, very good business of, we're part of that partnership. I think if ClearSign tries to do this themselves or ourselves, we will get there, but it will be much slower and it will be much smaller. And the goal here is to get very big and as quickly as possible, and that truly is a collaborative model for us. I honestly can't answer your second two questions. I mean, investments have gone wrong. I have gone something they’ve gone broke. That’s bad. Now one like that. That is probably the worse there anything could happen.

I'll give you one of mine. Because I have been in professional investment for 45 years and I [just oppose] why this was a difficult one versus what I see here. I invested in a dental laser company, great technology, the client would supposedly be more comfortable. What I realized though is that the, to convince the marketplace you basically had to convince every single dentist one by one. So, the selling process was there is very little operating leverage. Gross margin on the product was very good, but in terms of ramping the market, it was very challenging. So, you can trace that with the ClearSign business model as – I say this kind of [tongue and cheek] is, we have to sell the Exxon once. We don't have sent to every Exxon service station around the world. Obviously, we're not doing anything to Exxon service stations, but that is my point is, we have a hockey stick operating future. When adoption occurs, more adoption will occur. Any you don't need to actually sell to every single, you don't have to educate every dentist on the advantage of laser dentistry. They will already know and that’s the other highlight of what an Exxon brings to us. As everybody knows how diligent Exxon is. So, if and when they start to adopt, which we anticipate, that will hopefully open more flood gates.

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

Thank you, operator. Well thank you all, are there any more questions, okay. So, if there are no further questions, I would like to thank our investors for participating on this call and for their continued support of ClearSign. Thank you.

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