Good afternoon and welcome to the ClearSign Second Quarter 2015 Results 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] At this time, I will be turning the conference over to Matthew Selinger of Three Part Advisors, Investor Relations for ClearSign Combustion Corporation. Matthew, please go ahead.

Thank you, [Cathia] [ph]. Greetings and welcome everyone to ClearSign Combustion Corporation's second quarter 2015 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 Corporation's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analyses 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. 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 2014 Annual Report and 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. On the call today will be Steve Pirnat, Chairman and CEO of ClearSign Combustion Corporation, and Jim Harmon, Chief Financial Officer. With that, I will turn the call over now to Jim. Jim?

Thank you everyone for joining us this afternoon. Before I turn the call over to Steve, I would like to review the numbers as they've been reported in this afternoon's press release. For the second quarter of 2015, we recorded a loss of $1,796,000 compared with a loss of $1,626,000 in the second quarter of 2014, an increase of $170,000. This increased loss is primarily due to an increase in our field testing of our Duplex Technology. As to our cash resources, we had $14.6 million of cash at June 30 and our cash balance decreased by $1.6 million in the second quarter. As such, you can see that we have about two years of cash on hand based on our current rate of usage. Since we are now working on our first commercial installation, it is worthwhile for me to make some comments about revenue recognition. Regarding our Duplex Technology, in recent months our trial activity has picked up and our pipeline of trials is growing. Oftentimes, these trials include payments once the project is completed and the installed unit is operating in accordance with specifications. As each of these trials are completed, we expect to recognize small amounts of revenue. As we move forward with commercial sales of Duplex, we would anticipate more traditional sales terms, but would still recognize the revenue once we are assured of customer acceptance. Our business plan contemplates licensing our technology after we prove commercial viability. Licensing would significantly change the makeup of our revenue mix, revenue recognition and margin. While we are currently pursuing various licensing arrangements, we have no agreements at this time. So while it is difficult to predict, we are pleased to be nearing the point of our initial revenue and we'll keep you updated as we develop a backlog. With that, I'll turn the call over to Steve.

Thank you, Jim, for the commentary and for walking us through the numbers. As many of you know, I accepted the position of Chairman and CEO earlier this year after three years as an independent Board member of ClearSign. Now after almost eight months in the role of CEO, I am more excited than ever about ClearSign's unique game-changing technology and remain optimistic about the Company's future. I've spent more time lately talking to investors and articulating ClearSign story. I've come to realize that certain aspects of our technology and business model may not be fully appreciated and I would like to spend a moment to discuss the size, market, market drivers and our sales cycle before moving into a discussion of our current pipeline of commercial opportunities and corporate development initiatives. I think it would help to get a perspective on our road to commercialization. ClearSign technology focuses on improving key performance characteristics of combustion systems including emissions control, operational performance, energy efficiency and overall cost-effectiveness. Boilers, furnaces, process heaters account for two-thirds of the energy used in U.S. manufacture. These systems are found in industries like petrochemical, refining, utility, power, commercial heating and steam generation. We have identified and are actively pursuing the commercialization of our technology in three targeted industry segments. They are enhanced oil recovery, steam generation, and refinery and petrochemical. First, you may have heard us mention once-through steam generators or OTSG during previous presentations. These very large steam generators are used for enhanced oil recovery. Simply put, the operator creates steam, injects it into the ground and uses the steam to push oil out of the ground, and therefore to enhance the recovery of the oil. There are over 1,000 once-through steam generators in North America, 768 of which are located in San Joaquin…

[Operator Instructions] The first question comes from Lou Basenese of Disruptive Tech Research. Please go ahead.

Congrats on the progress this quarter. Just a couple of quick questions for clarification. On the refinery installation, can you just give us some color around a timeline when you think final testing might be complete in that installation?

Are you speaking of the one that we talked about for the San Joaquin Valley?

Yes, for the San Joaquin Valley, the one that's unnamed yet, the one that was recently announced.

If we follow the customer's current timeline, and I qualify it by saying that, it should be 30 to 60 days on the outside. The challenge we always have as you know is that we've asked them to make certain modifications to the heater and that requires them to buy some material that again we are hoping it comes in on time and they install it on time. And again, to perhaps defend them a little bit, operators' number one priority is making product, not testing our product. So if there is a glitch in the schedule, they could easily defer that 30 days, and we've experienced a lot of that. But to answer your question, I would be disappointed if 60 days from now we don't have a final resolution.

Okay. And then another question, I think there was one other refiner that was in the backlog from last quarter. Can we just get an update on where that's at?

That one was announced, the name of the refinery, it's an asphalt plant called Tricor, and we are still probably a month away from knowing exactly when they are going to let us into their refinery again. We're ready to go frankly but we've got to work with their schedule.

Okay. And then to confirm, and maybe it's a question for Jim, once these are done and the installations are done, they convert to receivable, right, so it will be revenue coming in from both of these?

If it's successfully input and the customer is satisfied, yes.

Okay. The last question I have, just more general about the competitive landscape, since you are getting the compelling data coming in from Aera below 5 ppm, are you aware of any other emissions control tech that can reduce NOx below that level without FGR or SCR, is there anything else that you are competing directly against?

No.

Okay, great. Thanks for answering the questions. I'll jump back in the queue.

The next question comes from Bill Noble of William Noble. Please go ahead.

So on the ECC, is there any rough estimate on the time period of commercialization on it, number one? And the second question is, once it's commercialized, how do you weigh the revenue potential of the ECC versus the Duplex?

I'd say this, the commercialization of ECC is clearly a year out. I mean we've – again, as I said just a second ago, we're still in the laboratory working on solutions to prove it out. So we are a year out easily. And then candidly to your question, if this turns out, and just think about it, to be the game-changing technology to save the coal industry, I would hesitate to tell you how big the opportunity is because there's people who will think I have fell out of tree or something.

Thank you, Steve.

I'd tell you, I'd love to call you back later once I know.

Thank you.

The next question comes from Joe Pratt of Stifel. Please go ahead.

Just on the Tesoro case, they might need 60 days to test before making a commercial go or no go decision. How many units will they – if they decide to go commercial, what might be the timeline on the commercial installations?

Okay, just to clarify, the 60 day window I was talking about was another refinery in the San Joaquin Valley, it wasn't Tesoro. With respect to a question about the timing of Tesoro, we have a meeting tentatively scheduled in Los Angeles next week to lay out a schedule for the test protocol, but the current schedule that we have is a working document, doesn't have us in their heater testing the technology until the first quarter of 2016. Now they wanted to do it a lot faster than that but I'm only repeating what I know, not what I think is going to happen. So we won't have a meeting until next week and I assume at that meeting the schedule will get moved up. Again, we're as you can imagine pretty anxious to move faster here, and Tesoro has got it pencilled in for the first quarter of 2016, but I understand that they'd like to move that forward and we're ready to go. And then the last piece of it, just not to over-communicate, is they retained a very well-known third-party engineering company to do quite an extensive evaluation of the technology, and the interaction with that third-party engineer, while it's a great idea is only going to add a little bit of complexity and time to the process. And then the answer to your final question, if this is successful, Tesoro will use it in every one of their refineries where applicable. So they've got nine plus refineries and that could be a very, very large opportunity.

Okay. And how many refineries are you doing this commercial testing with?

The ones that we've announced has been Tesoro, has been Tricor and has been the other refinery that we haven't announced which is in Kern County, California. They have asked us not to mention their name. So those are the three that are active. Candidly, there are multiple units that were being talked about while we speak, and as I said again earlier, our practice is, we'll tell you when it happens after it happens and not before, and we're not trying to be secretive but there's so many things that impact the schedule and the customers' ability to move forward that when you try to predict these things, you wind up disappointing people more than you wind up informing them.

Okay. You talked about three refineries but are you further along in the commercial testing with other refineries but you just can't talk about that?

The only three refineries for which there is active commercial testing are the three I mentioned.

Okay, thank you.

The next question comes from Jared Mayer of Confido Holdings. Please go ahead.

Congrats on a great quarter. One quick question, on the ECC you mentioned a little bit about the impact on emissions. Is there any sense from the lab work about what you might see on the efficiency side of the equation?

Not yet really. We see improvement in flame luminescence which would infer an improvement in efficiency but we haven't done any direct efficiency testing. So if you see a change in flame luminescence, you can infer an improvement of efficiency, but again, we're a technology company so we try to stick close to the facts, so the answer is, no.

Okay. I'm just trying to get a sense around…

I know you are, Jared. I'm just trying to give you the facts as opposed to what I would like to happen.

Fair enough. Thanks guys.

[Operator Instructions] The next question comes from Richard Dutch of Ladenburg Thalmann. Please go ahead.

That's Ladenburg Thalmann. I would like to see if you could explain the difference between the Aera facility and the Tesoro facility, so that we can understand whether it's a parallel test where we could have a high level of confidence on the repeatability or whether there are some parameters in size or BTUs that is still open to questions as to how it's going to work out?

They are completely different applications. The Aera facility is a once-through steam generator. It's more like a boiler. The Tesoro and the refinery test we talked about are true refineries. The geometric configuration of them is different and the refineries were firing the burner up and Aera was firing the burner horizontally. The reason that Aera is so significant is Aera is a very large single application. So it's 50 million BTUs an hour. That's probably the size of five or six burners that we would typically use in a refinery. So the general rule of thumb in combustion is it's easier to scale down than it is to scale up. So Aera gives us a much higher level of confidence that if it works at 50 million, it will work at 10 million or 5 million.

Okay. So what are your consultants and your engineers saying might be the positives or negatives in comparing the expectations of what's going to happen with this different configuration? You just mentioned something. I think it was very significant, which is the opposite of what I was thinking, that you are scaling up, which is harder to maintain efficiencies. The fact that you are scaling down, I understand is only one factor, but I guess you're saying that you might get better results and that's not an issue. Are there other issues with the configuration that you are thinking about that we got to put into the formulas to expectations?

I think the essence of what you said is really the case. We are scaling down. So with respect to our confidence level that the refinery applications and that Tesoro application will be successful, we are obviously confident because we are scaling down. But I would say that there's a big difference, and probably more detailed than you'd want to get here, there is a big difference between what takes place in a refinery heater and what takes place in a once-through steam generator. For one thing, typically in a refinery, you are burning a combination of fuels. There's a lot of hydrogen in refinery fuels which burns at a different speed and has different combustion constituents. In a once-through steam generator, we're burning basically natural gas.

So more opportunity for discovery and patent solutions. One other question and I'll get back. You said that you are going to be doing your best during shutdown periods. How long generally is the shutdown period at Tesoro and how many shutdown periods do you think it will take for them to get enough data to go ahead and make a decision?

We only need a couple of days on the outside to get in and get up and operating, and that's not going to be a burden to them. I mean when they schedule the shutdown, they are going to be down for a longer period of time than that. And once we are up and running, then they can take data online for continuous basis. So the question I ask is, do they need to see it for six months before they are satisfied or will they be satisfied in three months? And I don't know the answer to that.

When they shut down, do they shut down all the operations all at once or do they shut down sequentially where you can continue to move your technology from one to the next?

Refineries as a general process have what they call a turnaround, and a turnaround typically gets scheduled on a five to seven year basis, and in those cases the entire refinery is shut down for major maintenance. In this particular case, we are not expecting a major refinery turnaround. We're expecting them to take this heater offline for inspection, which they also do. In the case of a major refinery turnaround, you have two or three weeks to do the work. The kinds of event we are talking about is a couple of days. So we'll slip in and out of that heater in a couple of days and be able to get good data beyond that. And that's what we did to the two heaters that we – certainly the one that we just talked about where we had the preliminary results in Kern County, California. We were in and out of that heater in less than 48 hours.

And have you ever tried your technology with horizontal or is that all been vertical?

The Aera, as I mentioned earlier, the Aera is actually horizontal.

Oh, and the Tesoro is vertical, is that it?

Tesoro will be vertical.

Okay, I got it. Alright, thanks so much. Congratulations on your efforts since you've come in. It's really a great thing to see.

The next question comes from Bob Meeder of UBS Financial. Please go ahead.

I've just got a couple of questions. Could you discuss a little bit what will be the primary driver for sales going forward in your target markets for Duplex? Is it going to be EPA mandates, is it going to be cost savings, and are there any EPA changes on the horizon that could increase urgency? And could you also address what kind of installation capacity you have as you start to get orders before you license this but are really installing that through channel partners or whomever is installing it now?

Three good questions. The first one is that the principal driver is environmental regulations and we're seeing environmental regulations, as I alluded to, continue to march downward. And that interestingly enough, despite the fact that oil prices are now half of what they used to be, the EPA isn't calling up the operators and saying, if oil is $50 a barrel, please feel free to produce 50% more than you did last week. I mean that environmental driver will continue and frankly probably transcends whatever administration is in office. The encouraging thing, as we've been saying for some time, about our technology is our clients are forced to install new burners to reduce emissions, but in our case the energy savings associated with the unique Duplex design gives them a payback. So if you were to just maybe take two sheets of paper and say, if there were no emissions regulations at all, would you put in Duplex Technology because of the energy savings, and the answer is, you might at certain sizes but the payback is going to be a lot slower than it is if you have an environmental issue. And then with respect to the third question, we've set up a series of very confident subcontractors that do the actual installation work for us on a geographic area. We've got a guy in California, we have got a guy in Texas, et cetera, and their bandwidth is more than wide enough to cover the kinds of volume we would expect. And frankly, if we're so blessed that we have twice the business we think, we'll just find another similar subcontractor to help us.

Okay. One more question, on the enhanced oil recovery business, is that new drilling or are you retrofitting existing wells to squeeze more oil or whatever product out of them? I'm trying to get a feel, do we follow the rig count or what do we do?

The 1,000 plus once-through steam generators we talked about are existing wells. And with the current price of oil, I think the amount of new drillings that are going to take place in the next two years is de minimis, but the fact that there is 1,000 add-backs for us with existing wells is really the opportunity that we are dealing with. And then more specifically, there is like 700 of those once-through steam generators in San Joaquin County which have very, very strict, as we had alluded to, emissions requirements. So I think the first tranche of business is going to be the 500 plus once-through steam generators in San Joaquin County.

Okay. And did you mention that this would also have applications for the oilsands in Canada?

Yes. We did in the last call and we have proposals into several of the operators in Western Canada.

Alright, thank you very much.

[Operator Instructions] The next question comes from [Jim Finnerty] [ph], private investor. Please go ahead.

Could you comment on what the implications are, positive or negative, of the Chief Marketing Officer leaving the Company?

As the announcement said, Geoff Osler, who was one of the founders of the Company, left for personal reasons. We intend and will continue to have a business relationship with him and he will do certain work for us on a consulting basis. So we won't completely lose his services, and therefore I don't think there's any major gaps between the capability he was providing us and his current interest in doing some other things. Personally, I like Geoff and so I guess I'm not going to see him as much, so I'll probably miss him, but in terms of business I think we're pretty much covered.

So should we expect to see a new Chief Marketing Officer appointed sometime fairly soon?

No, I think the tasks that Geoff was doing will either be done – continue to be done by him as a consultant or will be reassigned to other people.

Thank you.

The next question comes from Lou Basenese of Disruptive Tech Research for a follow-up question. Please go ahead.

Steve, just had a question, you mentioned, we talked about once-through steam generators and the refinery market, just curious if you could give us some color on the package boiler market. You mentioned in the prepared remarks that there was 300,000 I think boilers. Can you give us any idea where you are at with discussions with potential partners in that market and how you plan to commercialize that, would there be a field test, just any color on that?

We have active discussions with several of the major participants in that space, and to some degree I've had discussions with them for some period of time. We are independently building and testing some burners that will be applicable for that market and are pretty close, like 30 days away, from being able to demonstrate that internally. So we're pretty optimistic about how that will flow out into what will likely be a license agreement. But as I said earlier, Lou, if I started talking about the people I'm talking to, I think I'll have a tougher time negotiating with them later.

Fair enough. I just wanted to get an update on just where the progress was on that vertical, so I appreciate that.

But as you point out, it's a big vertical for us and one that we are all over.

Okay, thanks guys.

The next question comes from [Jason Cavalier] [ph], private investor. Please go ahead.

Just a couple of questions. If I was interested in sort of pencilling out a financial forecast on the Aera relationship and the Tesoro relationship, specifically the once-through steam generator opportunity with Aera, again you said this a couple of times, I might be a little confused, how many once-through steam generators are with that project, and if the tests go well, how open is Aera to an installation on all of their specific units and how can we think about the revenue collection from each of them, each of them being the individual units?

Aera has multiple units and we have been told by Aera that based on the success of the test, the test is over and it's been successful, their intention is to buy more units. But candidly, the recent change in oil prices has really affected their capital budgeting process and they are involved right now in reassessing their capital needs and where they are going to spend money. And until they go through all of that, obviously I'm pretty enthusiastic on why they ought to spend all their money buying solutions for their once-through steam generators, but of course they probably have a broader range of needs than I'm aware of. And so we're not privy to the timing and the magnitude of future sales with respect to Aera, other than we know they have many additional units and that they have an interest in using our technology based on a successful demonstration.

So would the revenue per unit be within 50,000 and 100,000 or 100,000 and 200,000? I mean it sounds like…

I guess I'm not in the position where I want to speculate on that.

And could you comment more specifically on the refinery heaters at Tesoro? Specifically how many – I mean you have made some representations that if the testing goes well that they might very well consider your solution for all of their heaters. How many individual heaters are there as it relates to Tesoro?

We asked them, so I'll tell you what they told us. They have between 35 and 45 heaters per refinery. I seem to recall they have got nine refineries. And then just to be clear, the range of these heaters varies significantly. So a solution for one heater might be $100,000 or $150,000, and on the extreme end it could be $0.5 million or more, and I don't have specific inventory of which heaters would be affected based on this success of the testing. That's a little bit further in the future, but if you could imagine, if there's 10 refineries and they have got 40 heaters, that's 400 heaters. That's a pretty big opportunity.

No question. And last question which is in a slightly different direction, can you give us an update on your patent strategy, what if anything has happened with the patent office, who is the third-party, and if you can comment on them, that's assisting you and/or advising you on the portfolio and next steps?

Our patent strategy really hasn't changed and it's been a fairly good process that the Company has had since its inception. I mean we have a patent agent that we use, Chris Wiklof, who has been…

Who is our employee?

Who is our employee, so he's really not a third-party, he's an employee, and he's got a tremendous experience in IP and he works really as an integral part of our research and development team. And as a practice, our research and development people meet with our patent agent, Chris, regularly, I mean if not monthly certainly quarterly, and review not only inventions that are coming down the pipeline within our organization but look at [prior] [ph] on a global basis and see what else is out there and what steps we have to take to protect what we have or to work within the confines of the space that's available to us. So as I said in the opening remarks, we have over 180 patents filed and we've got three granted. We're looking to accelerate the granting process of certain IP around the Duplex Technology. The patent office tends to move a little more slowly just because of staffing than we would like, and in the case of Duplex because we are so active in marketing that we thought we would push some of those patents forward. But once we are filed, we are protected. So I think our assessment of our patent is that our portfolio of IP is pretty robust.

I think I'd add to that. This is Jim Harmon, by the way. I think I'd add to that that we go forward file our applications as best we can see when we are creating the inventions, and then as we move along the process, we have an opportunity to analyze it and optimize our portfolio so that we're trying to spend the money as cost-effectively as possible to maximize the benefit and minimize the cost.

I think something – again I apologize, something that's obvious to me but maybe not obvious to outside investors is that a lot of the success around IP in the combustion space is based on inherent knowledge of what goes on and the understanding of the technology. In our case, our Chief Technology Officer, Joe Colannino, has spent essentially all of his working career, 30 years, in the combustion market. Dr. Ruiz, Roberto Ruiz, who is our Chief Operating Officer, similarly has spent 30 years in the combustion space. We recently hired Donald Kendrick, Dr. Kendrick, again has been involved in 20 years in the combustion space from the gas turbine perspective. So we have a fairly knowledgeable and experienced group of researchers who thoroughly understand the technology and what exists out there and what unique attributes we're bringing to the party, and that's very, very helpful when it comes to filing claims because it helps you sort through what's there and what's unique about what we are doing, and our guys are pretty excited about the stuff we have done so far.

Thank you very much.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Stephen Pirnat for any closing remarks. Go ahead.

So if there are no further questions, I'd like to thank the investors for their time and we'll talk to you again.