Good day, everyone, and welcome to the ClearSign Combustion Corporation 2017 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Mr. Lou Basenese, Vice President of Corporate Communications. Sir, please go ahead.

Greeting, and welcome to the ClearSign Combustion Corporation’s fourth quarter and full-year 2017 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 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 2017 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. On the call with me today are Steve Pirnat, ClearSign’s Chairman and Chief Executive Officer; and Brian Fike, ClearSign’s Chief Financial Officer. And with that, I’ll now turn the call over to Brian Fike.

Thank you, Lou, and thanks to, everyone, for joining us today. Before I turn the call over to Steve for his thoughts on the year, I’d like to review our financial results for 2017 as they have been reported today on our Form 10-K. For the year, we incurred a loss of $9.7 million, compared to a loss of $11.2 million for 2016. Our sales for the year were $540,000, compared to $621,000 in 2016, while our margins increased to 30% versus the 22% in 2016. We expect that margin to continue to improve as we start to do more consistent installations across our product segments. Our backlog at the end of the year consists of approximately $500,000 in projects in both the enclosed ground flare and Once Through Steam Generator product lines. These – this backlog should be recognized during the first quarter of 2018. As most of you know, we completed a stock offering on February 27 this last month, where we sold 5,750,000 shares at $2.25 each, raising a net of approximately $11.9 million to fund the company. Our cash resources were about $1.2 million at the end of the year with the proceeds of the right offering added to that and assuming no other revenue other than our known backlog, we have at least one year's worth of cash at this time. And with that, I will turn the remainder of the call over to Steve.

Thank you, Brian, for the financial update. I would like to thank and to welcome the participants on today’s call. On the call today, we intend to update our shareholders, as well as review and provide context for the events that impacted ClearSign in 2017. We will also share insights into future activities for 2018 and beyond. The company continues to make progress towards the expanded commercialization and productization of our Duplex technology. More importantly, we continue to build commercial momentum and increase customer advocacy to the expansion of field installations within our core markets. We successfully completed the installation of our third Once Through Steam Generator project for Aera Energy. This pay unit operated on a challenging waste gas application and achieved the permanent requirements for NOx emissions. Now waste gas by the way is really the waste the gas that comes off the wellhead as opposed to gas it usually goes through a pipeline. Aera was among our first commercial field installations and they have units that have been operating for over two years. As previously disclosed, ClearSign and Aera have negotiated a multiyear multi-unit contract for our Duplex technology on Once Through Steam Generators. The specific commercial terms of this agreement have not been disclosed. However, we can disclose that we are in active discussions with Aera to support their future requirements. ClearSign’s unique patented Duplex technology has been able to achieve NOx emissions performance consistent with Best Available Control Technology or BACT, as the regulators refer to it. Again, this performance was achieved without the requirements for costly Flue Gas Recirculation known as FGR or Selective Catalytic Reduction known as SCR, which are typically required to achieve similar emissions with competing products. Both FGR and SCR had cost to the system thus we provide a superior…

Ladies and gentlemen, at this time, we’ll begin the question-and-answer session. [Operator Instructions] Our first question comes from Robert Hoffman from Princeton Opportunity Management. Please go ahead with your question.

Yes. Hi, Steve, and welcome Lou. Could you state – could you just elaborate a little bit on the Middle Eastern refinery cancellation? Just if you could give us a little more color there, that would be great? Thank you.

Yes. Well, it’s just discussed in the prepared comments that customer change conditions at the last-minute and the changes didn’t allow them to adapt our technology into the heater they selected. It was unfortunate, but they still have like 15-plus additional heaters that are suitable candidates for our technology. So in this particular case, it was more a decision that they had to make not us.

Gotcha. So it’s just – they just pick – they just didn’t. I guess, that explains it. And then can you give us a little more color on the process in China, maybe give us – tell us what has – obviously, it’s taken a fair amount of time and maybe you can flesh out some of the details there for us?

Yes. Well, the situation is that the – this District Heating Authority has literally hundreds of existing boilers with burners that were supplied by a variety of companies. And our basic approach was to retrofit the existing equipment and uses much of the existing componentry valves and controls as possible to minimize the impact to the operating company. And in some cases, we found just to take a specific example, we were trying to reuse one of their control valves and we found that the actual – the solenoid was defective, and so we had to replace it. And frankly is, what happened in Houston, Texas, you jump in, your picked up truck in about an hour. You have a new control valve. But in China, in this particular situation, it took us a week or so to sort that out. And then I might add, and again, I don’t want to get into too much detail, but just and just for color, the control valve has to talk to the burner management system. So we have to get a control valve that is suitable and then we have to go back in, because we are modifying the existing burner management system and get a programmer to make sure that the control system to talk to the control valve. And none of these things are really issues with respect to the viability and efficacy of the technology. They’re just the kind of logistical issues you deal with when you’re trying to retrofit an existing installation. Now going forward, once the technology has been successfully demonstrated, the customer will be more inclined into replacing a lot of the componentry, because they’re interested in keeping the existing equipment will be de minimis, since our technology will displace it completely. So I didn’t want to tear out too much of what they had until they knew we were going to be able to do what we said. And at this point, I think, we’re pretty close to being able to make them work. So that wasn’t a good answer just I’ll try it again, but that’s kind of…

No, no, that was very helpful. I mean, then obviously it’s a little different than going into Aera with their OTSG and turning it off and you just – you finish it up right, whereas they’re you’re trying to do a whole lot of things at the same time?

Well, there’s other issues, there’s regulatory and safety regulations that are different in China and there’s more bureaucracy associated with working with them than there is when you’re working with a U.S.-based company, as you can probably imagine.

And so can you share what the – what you think the timeline is going to be in China? I mean, is it – and what happens after after certain things occur?

I can only speculate on what I think will happen. And if you were to ask me bluntly six months ago what I thought, I thought we’d be done by now.

Okay.

So, events unfold at a pace that it’s more determined by the customer than by us. And I think it’s probably, I’m optimistic that this thing will once we’ve demonstrated the technology in this particular installation, the customer, as I mentioned in my prepared remarks, has already issued us a Memorandum of Understanding on the basis of us working together through our joint venture where they will actively help us promote the technology. So they’re very keen to make it go fast, Rob, I mean, which is really the question. Customer wants this thing to go fast, but we’ve got to demonstrated in a way that makes them feel comfortable that what we have is really applicable. And candidly, the installation that we’re talking about in China is in many cases very similar to the units we have operating in – at Aera in terms of size and scope and the basic thermal dynamics. So, of course, we’re optimistic on that basis. And I think that, it – maybe it’ll take six months for the thing to get going. But once it gets going, it will go very, very fast. And everything you find about China is, it takes them a long time to start. But once they get going, they move very, very fast.

I – so I guess, my follow-on is that, you don’t see subsequent installations taking a long time, it’s really just getting this first one getting all the things out, such that you can cookie-cutter the next one and the next one and the next one?

Yes, that’s absolutely right, because after we did the first one, which required a little bit of adaptive engineering, the others will be to use your term cookie-cutters. And then more specifically, we’ve already got agreement with one of the largest Chinese boiler operators manufacturers, who has a huge field service organization to do all the retrofit service work that’s outside our scope. So we will be doing – if we have to go back and do 50 or 100 of these things, it will be ClearSign people doing it. It will be a subcontract service company that’s already in good stead with the District Heating Authority and well-versed on the technology.

Wonderful. Great. Okay, I’ll go back into the queue. Thank you.

[Operator Instructions] Our next question comes from Robert Kecseg from Las Colinas Capital Management. Please go ahead with your question.

Hello. I got on just a little bit late. And – but I’m going to ask you about the Delek case, because it’s not in China, and we already installed that first Plug and Play. I just want to understand when you say the Plug and Play, my understanding is, it can be put in when the other burners are operating through the shutdown the burner that you want to replace, is that right?

It has that potential. Now I’ll make a couple of comments. One, the safety practices within the refinery have to allow that. It’s physically possible to do that and it actually can be done in my view safely, if you’ve got a typical heater that has six burners and it happens so often. One of the burners fails and the refineries are going to shutdown the whole heater, so they remove that burner. You can unbolt and remove the existing burner and plug in – thus Plug and Play the new burner, that’s a capability that exists with this design.

Okay. It’s capable, but that is and how this first one was put in the whole thing will shutdown?

Well, there was a lot more complexity to it, because the first one was – and again, I’ll give you a full answer to your question. But to give you some color, the first one was designed around 2.6 million BTU an hour heat release in which there were six of them. And when we put the first one in, the customer came back and said, we would really like to have more out heat output and then 2.5. Could you get it all way up to five? And concurrently, they took an existing burners – an existing burner that was actually sitting right next to our burner and they increased the heat release to that burner to five. And they did it in a way that wasn’t necessarily ideally suited to the application. So that burner was interfering with the actual – it was impinging on the flames of the asset and indirectly had some unfavorable effects on the Duplex, which caused a flame scanner to fail. And we went in and flame scanner is a device they should buy, it’s a very commercial device. We went down there last week actually and replaced the flame scanner and got our burner up and running in its original 2.5 million BTU an hour configuration. Now they’ve come back and said, we like your product. We’re now considering replacing all of these burners, the remaining five with new burners. But instead of them being the 2.6 million that we thought we were going to need, can you make them 5 million and we, in fact, can make them 5 million. And I think this is another kind of anecdotal story. But the interesting thing is that Duplex technology is capable in this case of almost doubling the amount of output in the same basic space, which is kind of unique and impressive.

So when you go to put in a 5 million BTU burner, we use in the Plug and Play, will you be able to demonstrate that by leaving the other ones running? Because it seems like there will be less pain for the customer. It seems like it will be easier for the customer to swallow if that’s how you could do it?

Yes, and that again, that was their intention when they were just going to install our 2.6 million and replace existing 2.6 million. But what made this thing kind of get delayed a little bit is, they’re interested in increasing the performance of some of the neighboring burners to 5 million. And that was something they did independently of us and that had some impact on their overall system that created issues for them.

So is there some – what I’m saying, is it not easier for them to install one if they don’t have to shut the other ones off. It’s got less disruptive to their operation, are they willing to do that, so that we can put another one in?

Yes, the answer is yes. And again, I think, you got it exactly right. The question right now is – is enough – is the one they’re going to plug in, is it going – we’re going to plug in one that’s 2.6 million BTUs to replace one that’s there or do we plug in a new one that’s 5 million. And what we think they want to do is plug in one that’s 5 million. And just to make this distinction, in a normal case, if you were to replace an existing traditional burner that’s 2.5 million with 5, it wouldn’t necessarily fit in the same space. So you couldn’t plug it in, because obviously, something that produces twice the output is going to be slightly larger. In our particular case, Plug and Play will actually fit in the same space.

Okay, good.

So that your basic question is yes. They like the idea. They can just unbolt the old one and plug in the new one. And they really like the idea that they can potentially plug in a new one that produces twice the output of the one they have.

Okay, good. I’ll look forward to hearing them do that. Thanks very much.

Okay, great.

[Operator Instructions] Ladies and gentlemen, at this time, we’ll end today’s question-and-answer session. I’d like to turn the conference call back over to management for any closing remarks.

Lou, do you have any closing remarks?

Yes, I just – as many people know, I’ve been an investor and analyst in ClearSign before the company went public following it and just enthusiastic and excited to be on board with the team with you Steve, and look forward to communicating with investors as I have on a regular basis moving forward as we reach important commercial milestone. So I just encourage everyone to stay in touch and we’ll look forward to talking here soon.

Yes, great. Thanks, Lou. And by the way, I’m on behalf of the management and the investors, we’re just thrilled to have you on board.

It’s pleasure to be here.

All right. With that, I guess, that includes – concludes the call. Thank you, everybody.

And ladies and gentlemen, that does conclude today’s conference call. We do thank you for joining. You may now disconnect your lines.