Good day, and welcome to the ClearSign Technologies Third Quarter 2021 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Matthew Selinger of Firm IR Group. Please go ahead.

Good afternoon, and thank you, operator. Welcome, everyone, to the ClearSign Technologies Corporation Third Quarter 2021 Results Conference Call. During this conference call, the company will make forward-looking statements. 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 Clearsense 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 2020 annual report on Form 10-K. Except as required by law, ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and is not intended to do so. So on the call with me today are Jim Deller, ClearSign's President and Chief Executive Officer; and Brent Hinds, ClearSign's Vice President of Finance and Controller. So at this point, I would like to turn the call over to CEO, Jim Deller. Jim, please go ahead.

Thank you, Matthew, and thank you, everyone, for joining us today for our third quarter call. Before we get into the main body of the call today, I want to initially introduce you to our new leader of our finance team and Principal Finance and Accounting Officer, Brent Hinds. Brent has been with ClearSign now for just one month but has already made great progress taking control of our accounting function. Brent joined ClearSign most recently from Enovation Controls, Inc., a stand-alone subsidiary of Helios Technologies, where he served as Vice President of Finance, focused on global sales, manufacturing and application engineering operations, working directly with original equipment manufacturers. His responsibilities there, including consolidation of reporting across four legal entities totaling $120 million in revenue, $600 million in assets and $70 million in net working capital. Prior to joining Enovation Controls, Brent worked for Standard & Associates LLC, a professional advisory firm for public and private companies where he established risk-based audit programs to determine adequacy and effectiveness of internal controls and devised audit reports for executive management and audit committees. Additionally, Mr. Hinds served as a compliance analyst at Baker Hughes Company. Mr. Hinds earned his batches at the science and accounting from Oklahoma State University and is a certified public accountant. With all that said, we are very grateful to have found Brent and welcome Brent to the team. His expertise and experience aligned specifically with our highest priority objectives for our finance function. In the short time we have been working together, I have enjoyed his energy and enthusiasm and look forward to building our ClearSign team and ClearSign business with him. So for the first time, I will now turn the call over to Brent to cover the financial overview. Brent?

Thank you, Jim. I'm excited to be here and I'm also excited to be a part of the ClearSign team. While my time here has been short, I see the potential for ClearSign and the technology offerings we bring to the table. I look forward to putting my passion and my hard work into this business to make it grow and prosper. My initial focus has been to gain a better understanding of the business so I can develop smart, scalable solutions to strengthen the financial reporting systems. But with that, I'd like to give an overview of the financials for the third quarter. The company recognized $190,000 of revenues during the three months ended September 30, 2021. This is clearly an improvement compared to the prior quarter when we reported zero revenues for June 30th. 44% or $82,000 of revenues were generated from the completion and delivery of a multi-burner product. 64% or $108,000 of revenues related to two prior period projects for which we are now able to recognize the revenue. Now let's turn our attention to expenses. ClearSign reported $218,000 decrease in cost of goods sold for the three months ended September 30th compared to prior quarter of June 30, 2021. ClearSign reported a $232,000 increase of operating expenses for the three months ended September 30 compared to the prior quarter of June 30, 2021. This increase is largely attributable to noncash impairment charge of approximately $200,000 of pending patent assets. This impairment was the result of aligning our current and ongoing patent investment with our core technology. This is a continuing initiative to minimize patent spending, along with our overall cost where possible, while still supporting our most important patents. Now let's look at our cash position. ClearSign consumed $1.8 million in cash for the three months ended September 30, 2021 with an ending balance of approximately $8.8 million. While this quarter's consumption is higher than typical, it was for the purpose of demonstrating our products, which Jim will touch on later on in this call. ClearSign did not sell any shares through the 18 facility during this quarter and therefore, our outstanding shares had minimal change aiming the quarter with approximately 31.5 million shares outstanding. We have confidence in our financial position and balance sheet. And with our quarter ending balances, we have sufficient working capital available to carry us well into 2022 and that is without income from orders currently in-house or projected from our sales funnel. And now I would like to turn the call back to Jim Deller for our business update. Jim?

Thank you, Brent. Before proceeding, I do want to acknowledge our extended finance team this past quarter. After the challenges that began with the untimely death of our prior CFO, Brian Fike, early this year, with our rapid quarter action, our 10-Q was completed and filed seamlessly, and I am very encouraged by the processes and procedures that the team has put in place to enable this. For this, I want to thank and acknowledge our hard working temporary staff in Seattle and Brent for diving in and taking ownership from his very recent day one. In this update today, I will start off with an overview of progress in our process burner business where we have both significant equipment startups and new orders and increasingly positive upfront engagement from customers. I will then move on to our boiler burner business where we validated our products for both the fire tube boiler and water boiler businesses and have used some very pleasing product launch activities. Finally, after some more general comments, I will open up the call for Q&A. So in turning our attention to process burners. We issued a press release last week to announce that we have been awarded an order for supply of ultimately 16 burners to be installed in two heaters, that is eight burners each for the Midwest refinery of a Fortune 500 major national refiner. As with many orders, this is being released in stages. This first stage for engineering, developing a computer model of our burners operating in the destination heater, building the first burner and proving the performance in a full scale test furnace. The second phase is anticipated to be for the additional seven burners required to complete the first heater and the third for the final eight burners for the…

Our first question today comes from Amit Dayal with H.C. Wainright.

Jim, so just to begin with on the operating cost side, I know there's been some changes to maybe how things have been reported but the R&D went up quite a bit this past quarter. Could you give us any color on what drove that and how we should think about some of these costs going forward?

Now as we touched on during the call, there were some very significant events that contributed to the increased costs, both this past quarter and in fact the quarter before. These were predominantly or very importantly tied to the launch and commercialization of our projects. They included building the large water tube boiler, the twin burner, the one that we tested in the USA, we built a duplicate of that in China. So that is ready for certification there and we're currently making arrangements for that to be installed and for that process to go ahead. I also discussed the launch activities we just conducted with California Boiler because our goal as always is to get these products to market and to get sales rolling as quickly as possible. And when we get to that point, we pushed ahead and we truly wanted to do that in the most effective way possible as well. That does involve building full size equipment, it does involve some expenses, but we really prioritize doing this right over doing it for the absolute minimal cost. The other element, as Brent pointed out, as part of our routine cost controlling activities, we do focus on our patent portfolio and our IP spend. And as our technologies are developing and becoming refined, it's a necessary process to make sure that we spend money where it needs to be spent but also that we focus on making sure that we are truly doing that. And where we have patents in progress that are not aligned truly with the products that we're bringing to market, we're taking great efforts to make sure that we are very efficient with our spending. So in all of these -- these expenses were necessary, but we also believe that they are really isolated to predominantly to these two quarters. We've not changed our focus. I'm with Brent here. What I really like about Brent, he's really been right on target with watching our costs. We expect to get back down to normal numbers very quickly.

And then with respect to the 16 process business that you received orders for. How big in terms of revenues, what's the total revenues associated with this order? And you said you're going to execute it through potentially three phases. Is that going to take up to a year or less? How should we think about how long before you can recognize revenues from this project?

Right on point, Amit. I think we have, obviously, disclosure requirements for that client, so I cannot give you the exact dollar figure. But I think we can get everyone within the ballpark. We previously disclosed it's public information, the details of the world oil projects that we have taken on. So for everyone, just in round numbers that was an order for the supply of five burners. They're actually quite similar in size to this new order. That project included some engineering and installation just as this project includes some engineering and testing. That project was valued over $600,000 and included five burners. This order is for the supply of 16 burners to this job site. So with some very simple extrapolation, you can get to a very reasonable approximation of the value of this recent order when all the burners are supplied. You asked about the timing and the phases of the project. So for everyone, and I appreciate we've probably got some people who are new to learning about this industry. It's very normal when refiners buy new equipment, especially new burners to want to validate and make sure that the emissions performance and the other operating requirements of the technology is going to meet what they need in the refinery, because when they shut a refinery down number of place equipment, they need to be very confident that it's going to start up. So this is absolutely normal in my past life working with one of the global major burner suppliers and it will be normal for us going forward. And that can be done in two ways. The first is quite common as we have here, you get an initial order for the engineering of the testing to be followed by in order for the…

Just one last one for me. With respect to you know deploying these burners and maybe other projects, et cetera, that you might have in your pipeline. Are you managing through the supply chain issues that the rest of the markets are sort of dealing with in a sort of a comfortable manner?

Obviously, as -- we do work very closely with our partners, so for the process burners, we talk almost daily with Zeeco. We discussed with them, of course, how the business is developing but certainly, the inquiries and proposals that we're looking to put out and the delivery schedule and also, to be honest, the schedule of the test furnaces because for these performance tests, we need to schedule those through in the Zeeco test furnaces. So when we bid these projects, we do bid with a delivery schedule for the product. We are constantly watching the supply times for the materials and that is being factored into the delivery schedule for the burners. From our recent experience, we do see some delays, especially in the supply of the stainless steel materials, but those are being managed by managing the expectations of our customers.

Our next question comes from Jeff , Private Investor.

First, I wanted a clarification. When you mentioned the sales opportunities with respect to those in the, I think it was the San Joaquin Valley. Did you say 15 or 50 sales presentations that you guys are a part of?

Jeff, that was 50, and that was predominantly just in the last few weeks since the demonstration of that 500 horsepower burner that we did. So they come in taking fast.

What is the size of that market? I mean, not that you might -- you guys might not get 100% of it, but what's the potential size of the total number of burners in that market?

I'll give you the numbers that I think are the most meaningful because, obviously, you can slice and dice markets different ways. But the two regions, the South Coast Air Quality Management District and the San Joaquin Valley Air Pollution District have recently both put out their new much tighter NOx emission requirements. The South Coast district is predominantly where the refineries are located. And of course with that large agricultural base, in the San Joaquin Valley, the boilers are predominantly located up there in a more northern section. Your question was related to the boilers. So what we see in that market, the data we have indicates that there is about between 500 and 1,000 burners that are, I would call, low hanging fruits that are in regions where there are new extremely low NOx requirements that fits within the sweet spot of the fire tube boilers that we have of their our design range, which are quite common and where the clients are such that the imposition of adding a very expensive SCR along with the inconvenience of adding ammonia not to mention the concerns they would have over bringing ammonia plant into a food production business we really believe gives us a very strong market advantage. So that region in the short term, and we really see this as the opportunity to get this business kicked off, it's the stronghold of California Boiler. And so we think serving that market initially while the other regions in other regions of the country and the world catch up to speed. But I guess the short answer to your question is we're looking at 500 to 1,000 burners on that top run of the ladder for us.

And you just mentioned that the expense of an SCR, I've heard numbers thrown around. But what is the cost difference between kind of a ClearSign burner versus using SCR installation and then ongoing costs? I think you may have said this in prior calls, but I just wanted some clarification there.

The ratio is different from our refineries to boilers. In the small boiler business, I think a good guide, and I don't have exact numbers for the ongoing operating costs, but the data we have -- we have feedback on projects where SCRs and now our new burner solution have been quoted. And the price of the SCR installation is in the region of 2 times to 3 times the price of retrofitting the boiler with a ClearSign core burner that produces the same results regarding NOx emissions.

And another question on that, these regulations while they're in California, do you see other states adopting similar regulations, such as Texas and other oil refinery and production areas?

So I don't want to pretend to be able to judge the outcome from the air regulators. We know that they have a -- basically a negotiating role with the resin companies within the areas. But we certainly see the Texas Air Quality function in Texas. There is an ongoing process there. Typically, the East Coast, the highly populated regions, the East Coast of the United States, we would anticipate will look to decrease their mission requirements just based on the population density. Typically, Europe is also quite environmentally conscious and we anticipate down the road being a need there as we would in Canada. But the other really big market we need to include in the conversation is China, where the the pollution in the highly polluted regions of Northern China has got the point that the Chinese government is or has -- continues to impose very strict requirements by reducing NOx emissions, and that's really driving what we see as a very big market opportunity for us there in China.

A couple of quick questions on the multi-burner order. You mentioned that it was not so much for the NOx emission, but the throughput. Could you give -- expound on that just a bit, what do you mean by throughput?

The ClearSign Core burner technology basically provides an extremely low NOx emitting flame. But because of the way that flame is structured, it's also quite compact, especially compared to the traditional and high NOx, ultra-low NOx burners that are available on the market. So the comparative burners, the non ClearSign burners, because of the way they're structured the appeal of the air facing mix is more slowly creating a very long and loose flame. But hose flames are get to be quite large and they will brush against or push against the walls of the heater ultimately requiring the operators to turn the burners down so they don't damage the equipment or overheat the process. The result being that they basically cannot push as much product through that heater because they've had to turn the heater put down. But with a ClearSign Core technology by being able to provide all of that heat and in times more back into the furnace and allowing that furnace to run efficiently, those operators can go ahead and turn up heaters back up to at least up to its designed rate. So in the case of these projects, we're able to increase the throughput or at least the anticipated outcome of the project is that we're going to increase the throughput of these heaters, and these are basically to the refinery. And in doing that, it affects the amount of product the refinery can process, which adjust to the mass, will have a direct and very significant return on investment for the customer.

It is flame impingement, I know that's been mentioned in the past, is that a part of the analysis as well as to why they want to use these heaters versus other types of heaters?

It's part of the increased throughput calculation because you don't want to run a heater where you have flames impinging on the process tubes. Ultimately, that will either damage the tube or will lead to a damage or coke buildup on the inside of the tube, which will ultimately reduce throughput and need the heater to be shut down for cleaning, but at least for that to be done more frequently. So the flame impingement and turning the burners down are really one and the same issues. The customers would turn the flames down to prevent flame impingement from occurring because flame impingement is so problematic. So they either have a solution of turning the flames down, which makes them smaller or now with ClearSign, we can offer them a burner that produces smaller flame in the first place, so they no longer would need to turn those flames down.

That’s exciting. Here before, we've talked about the ClearSign burners, you've talked about the ClearSign burners as being low NOx emission, but this is really just an overall cost benefit even if there were no NOx emission regulations at play in there?

And especially the ability to get the throughput back to normal in an environment where we have clients that want to reduce the NOx emissions anyway is basically a win-win situation for them. It allows them to meet their environmental obligations or desires and produce a return on investment at the same time.

One last question and I don't know if you mentioned it and I missed it. Any update on the ClearSign Eye?

During the call, I appreciate that the time is precious, so I'm really focused on the very significant developments and needle movers to the company. The ClearSign Eye is -- it's operational. We have the demonstration unit up and fully functional. In fact, we did give a presentation at a technical conference just a couple of months ago on that product line to the experts in the industry. So it's being promoted. It's up there and working. But I don't have any really significant news beyond on that, Jeff. That's why I didn't include it in the call today.

Our next question comes from Perry Monty, a Private Investor.

I just want to say the best thing that happened to ClearSign in the eight years I've been following it. But anyway, the question I have is ExxonMobil, they put a hold on further testing. I wonder where does that stand right now, is there still communication with ExxonMobil on continuing the project there?

I think -- I appreciate your complement. Thank you for that as well. First of all -- so the Exxon project, we developed that burner, I think, in the last call, I actually went through in detail the performance that, that burner delivered and that that should align with the…

I'm aware of the very high performance, yes…

So at that point, they informed us that the issue was it takes time for that planning to include the burners in the forthcoming shutdown, and that they do not have the time to do that. We do continue to talk to Exxon, both -- obviously a very big customer, they talked to us about their needs going forwards. We are also in -- have ongoing conversations, but we don't have any finality on that particular project at that time. But I would like to emphasize that while we're talking about, I know that the Exxon project had a lot of engagement, I think, largely because we're able to use the Exxon name. But we're currently in the process of starting up our burner in Europe, which is for another equivalent global super majors. So this will actually be our first installation in one of these global super major companies. This refiner actually has very significant refining capacity here in the USA and particularly in California. So just right along the call, we are restricted from using our customer names at times, I don't want to downplay on this but the significance of what we're doing here and the start-up project in Europe. And what this really means for that customer, just as the the Exxon project was their inquiries, so this project in Europe is this company's assessment of our technology. They wanted to put it into heater to assess it, really with their eye on the -- certainly, we believe with their eye on their requirements to comply with the new regulations here in the US.

Jim, you know what bothers me, over the next -- last number of months, you've indicated how easy it is to like insert your technology, your new burner. It's like a weak job to do that. And now all of a sudden, ExxonMobil says, oh, we have to -- we didn't include that in the design. It sounds, it’s like counterintuitive. If it's so easy to retrofit, why did it have such a problem with that? I don't know. I don't know, is there politics involved, I don't know…

I can't speak for Exxon. I can pass on what they've told to us. We demonstrated the burners to meet the requirements of Exxon. We were told -- the planning that goes with these shutdowns is extensive and involves manpower, it involves a lot of other equipment into a shutdown, they've only got limited resources, it doesn't always fit. So I don't want to speculate as to what was behind that. But I would really encourage everyone not to read any more into it than that.

This concludes our question-and-answer session. I'd like to turn the call back over to Jim Deller for some closing remarks.

Well, thank you, everyone for your interest in ClearSign and for taking the time to participate in this call today. We look forward to updating you regarding our developments and certainly speaking with you all on the next call.

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