Good day, and welcome to the ClearSign Technologies Fourth Quarter And Full Year 2020 Conference Call. All participants will be in listen-only mode. 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 fourth quarter 2020 and full year 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.

Thank you, Matthew, and thank you to everyone for joining us today. Our financial results on Form 10-K will be filed with the SEC in the coming weeks. All numbers mentioned here are preliminary. The cash burn for the quarter ended December 31, 2020, was approximately $1.8 million, compared to approximately $1.5 million in the same period of 2019. This increase is specifically due to the extensive product development we have ongoing in our process burner product line and some delayed payments for past projects. Our cash and investment resources were approximately $8.8 million at the end of the fourth quarter of 2020 compared to $10.6 million at the end of the third quarter of 2020. Shares outstanding as of December 31, 2020, were 30,077,436. It is important to note that with our quarter-ending balances, we have sufficient working capital available to carry us well into 2022, and that is without revenue from any other sources. And with that, I would like to turn the call over to our Chief Executive Officer Jim Deller. Please go ahead, Jim.

Thank you, Brian, for the financial overview. Hello, everyone. And welcome to the ClearSign Technologies fourth quarter and full year 2020 conference call. Thank you for joining us. We have had a lot of recent activity, especially in the last few weeks. I'm very excited to share more details with you. Some of this will be new, and some will provide more color on topics covered in press releases issued in the last three months. As there have been many new developments since our last call in late November, I will spend the majority of this update giving more details on these recent activities and how they fit into our overall strategic plan. I will start off discussing two recently completed multi-burner process burner installations. One of these related to our infrastructure project was a topic of a press release issued early today. There may be further comments on this product line in general, and then I will move into developments in our boiler burner product lines, both domestic and significant progress in China that we announced yesterday. I will conclude with my review of our technologies, some comments related to flares, and provide an update on our ClearSign Eye sensor products. After some general business-related topics and my closing remarks, we will open the call for questions and answers. We have been quiet on activities in the Zeeco test facility for the last few weeks because we have been in California installing and starting up our process burners in two installations. Due to the timing of the planned shutdowns, and more importantly, startups, both of these projects needed to be executed concurrently. Both of these projects were multi-burner heaters, both in critical service, meaning the plants cannot run without these heaters, presenting complex operational requirements. This required very talented and dedicated process burner engineers and months of product refinement and optimization. Both projects are now in operation.

Our first question will come from Amit Dayal with H.C. Wainwright. Please go ahead.

Thank you and good afternoon, guys. Congratulations on all the progress. Very impressive stuff. With respect to, you know, revenues for 4Q 20, did you have any revenues in the fourth quarter?

So maybe I can start off with my details. The infrastructure project was on call and that will be an example of a normal operational project that was sold at plant pricing. It was executed as normal, fabricated by Zeeco, shipped to the site, and started up as usual and has just been completed. That project was the other one that we announced very recently. The actual work on revenues for that will fall into Q1, 2021.

Okay. Not a big deal. I just was wondering if there was any revenue in the fourth quarter. Would most of that show up in the first quarter? So I guess...

Correct. Yes.

Okay. And then, just with all of these developments from a commercialization perspective, could you share a bit more at a high level, if you can, like what is in the backlog now? And these projects that you are hoping to deploy, are these all for 2021 you think? Or will some of these go into 2022 also?

Yes. Amit, let me address that. I'm not sure if I can get down to the exact specifics that you asked. We'll start with these two big product lines, starting with the process burner product line. We also have the second super major order that we announced. That project will ship and be installed in Q3 of this year, at least currently scheduled. That's going to be a 2021 project. But we're really looking at a ramp-up from this point. That is a demonstration project for that super major oil refinery. Even though it's going to Europe, they are looking at what we believe they're looking at, the multi-U.S. refineries that they have here as part of their emission reduction programs in the U.S. So success there is going to really lead to that pipeline with a major oil company with multiple refineries to address here in the USA. The situation is similar with the ExxonMobil projects. It’s a single project right now. This is due to be installed again in Q3 of this year. But the purpose of this project is not a one-off sale. This is for the technology to be proven and then included as part of the emission control plans at least the beat down requirements we believe multiple refineries for ExxonMobil. We do also have interest from other clients, but I'm really looking at the big strategic opportunity and the pipeline to really deliver the large growth that we expect, which is going to come from the major oil refineries that have this huge plan and really a huge need for burners and control emissions in regulated states, especially California and Texas. Now, we also talked about fire tube boilers. In the USA, we do see an imminent opportunity there. The San Joaquin Valley has rolled out their new emissions targets. We have developed our fire tube boiler burner that we believe can uniquely meet those targets without an SCR, through collaboration with California Boiler, providing us a channel to market. So we are in a position to start delivering that product and rapidly scale it using their rental boilers to meet those demands. So that is definitely a near- to mid-term sales process. In parallel, now with what we expect will be our certification in China, we will have a product to certify for sale there, which will be the burner that we built in China. That is a Chinese product fabricated with Chinese vendors, installed in China, tested in China. We can repeat that. With the Shuang Liang Group and their massive sales team intending to incorporate our burner into their boilers, we have a very powerful sales channel. I think all of this really leads to a very promising sales expansion in the reasonably near future.

Yes. So with respect to your comments on China, that was going to be one of my questions. Where will these products be manufactured for the Chinese market? How should we think about that in terms of your burden on your balance sheet, etc. to finance some of these things? Is this now going to be shortened a little bit by some of these partners? Or will you still need to make some investments to get some sort of manufacturing setup going over there?

The plan today is to operate very much as we have in the USA. The fabrication of the burner that we have there, and in the future, we plan to be done in third-party fabricators. Now I want to make a distinction. We are not going to a Chinese burner manufacturer for multiple reasons. One being intellectual property. What we've done is develop the technology here in the U.S. We have the drawings, and we will take the different burner components as they have them fabricated in different Chinese fabrication shops unrelated to the burner industry. We will bring those components together to provide the completed burner. But we are doing it with third-party shops. So I won't say never, but certainly at this time, there are no plans to develop our own fabricating facilities in China. We will work through partners and collaboration. We will just bring our technology components together to deliver the final product.

Understood. And with respect to this win in Europe for the demonstration of this super major entity? Was this sort of an organic win, or was this through a distributor? And how did this come about? What are you doing for potential other opportunities in Europe? Are you working with other distributors? Are you attacking that market organically?

Yes. Great question, Amit. Let me explain. This product, this particular order is going to a heater in Europe. The plan is a global super major refining company. Along those lines, it is obviously not Exxon, but I consider it to be in that tier. We know the senior engineers of these companies very well. It is through our relationships with them that they have become very aware of what we are providing and ClearSign Technology and the progress that we've made in developing our product and getting it to the point ready for deployment. They wanted to test the products with an eye to their future installation plans. It just so happened that the heater and installation that made the most sense for them to put this first project happened to be in one of their European refineries. So we did not approach a sales channel in Europe to find the opportunity. It was really a sale to the super major oil company. They were looking for somewhere to test the technology out, and it just happened to be for this destination in Europe. I hope that there will be opportunities in Europe, but at this time, the emissions legislation there is not as tight as in the USA. Quite frankly, I am very interested in getting our business going as quickly as possible. We have a very large addressable market in the USA, especially for the process burners. We are focusing here to get that done quickly rather than spreading ourselves and expanding into Europe at this time.

Okay. Understood. That's all I have for now, guys. I'll step back in the queue. Can you take my questions offline?

Great. Thank you, Amit.

Our next question will come from Robert Sussman with Bentley Capital Management. Please go ahead.

Thank you. A few questions. Can you tell us why Exxon delayed until the third quarter? And you indicated, I think, an issue with your installation in California is slowing down your demo and testing for the Exxon project. Can you give us an idea when the Exxon testing could be done based upon the corrections that you've made in California? Also, why did Exxon delay it until the third quarter?

Okay. I don't want to create a question, but there are some assumptions that I need to address. Firstly, there is no correlation between the installation in California and the testing for Exxon. Exxon has multiple shutdowns. It's a very complex refinery, and I can't speak for Exxon. They did move that installation to Q3. We just very much look forward to getting our product installed in that refinery. The other burners in California, at the World Oil site, that project — it's a little frustrating. But that project worked really well. The burners were installed and ran at a maximum fine level for a very sustained period of time. It gave the refinery confidence at that operating rate, and they finally reduced back down to the normal operating rate. Everything was working very well. Unfortunately, at some point later, there was an anomaly in the fuel gas supply that caused a problem. We can address it, and we can go back and take care of it. That was a no – it’s not related to Exxon. It’s unfortunate, but it should not diminish the results seen in terms of proving ClearSign Technology. Our burners are running for a long period of time very smoothly until it happened. The reason that I mentioned it is really just to be transparent. If our customers want to go and see that site, we'd obviously want them to know that the burners were not all operating as designed right now. We certainly hope they will be as soon as we can get back into that heater. But it’s not a—I wouldn’t want to take that as a reflection on the state of our technology. Our engineers did an incredible job developing the burners to this stage and to get these burners running in such a highly fired heater and performing as smoothly as they did was absolutely incredible. I am personally extremely pleased with our results. It’s very difficult to bring up what happened after. How the concern will be taken in their own mind, but this really was a huge success for ClearSign.

So, can you give us some timeframe for when you think you'd be able to complete the Exxon demo and get Exxon to approve it? What the timeframe might be?

I can't give an exact date. We don't have a date arranged with Exxon yet. With a football analogy, I certainly believe we're at the five-yard line, getting the burners to operate over a fuel gas range from 0% hydrogen to 80% hydrogen. Those may just be numbers to anyone in the industry, but they know that is an extreme fuel range. It's a huge achievement for a burner technology. We've been able to show that and we’ve got the burners to operate over that range. We do have some minor finishing touches to complete. So we're not quite ready to call in for the final demonstration yet. But I'm very pleased with the progress we've made. I think it’s going to be in the best set of reasonably near future.

Okay. My last question is what do you think the timeframe would be, if things go well, to get the approval from the Chinese government to sell your product with your Chinese partner?

So, in the call within this coming quarter?

Within the second quarter is what you mean, I assume?

Yes. The Q1 is pretty much over.

Okay. Thank you very much. That was very helpful.

Thanks, Robert.

Our next question will come from Robert Harvey, a Private Investor. Please go ahead.

Thank you, Jim and Brian. I believe you said sometime last year that the addressable boiler burner market was like 7,000 or 7,500 units in California, but if I recall correctly, like 350,000 in China. California is one of the most populous states in the U.S. How is it that there’s so many? And are these like equivalent? The 7,500 in California are equivalent to each of the 350,000 in China or the Chinese ones are smaller? Just a sense of the addressable market would be helpful. Thank you.

Yes. Well, I'll answer the best I can. The application of boilers in China is a little different. The 7,000 number is our estimate of the fire tube boilers in California. The fire tube boilers are typically the smaller end of the range because these things get quite big. But when you get up to water tube and steam generation, they can be quite massive. The 350,000 boilers and that's not the total number of boilers in China; that’s just the number that we believe need to be converted to ultra-low NOx due to the non-attainment regions within China. They have a lot more boilers than that. But this is their immediate market need. About 80% of those we believe are the fire tube type, with the remainder being the larger water tube. The difference in China is that in the northern regions, they have a district heating model. Whereas here in the U.S., we have personal HVAC systems, in China, the district will have a government-run boiler plant with a series of boilers. They heat up hot water and pipe it around the buildings within their district to provide heating during the cold months. In Beijing and surrounding regions, where it can get really cold, there is a very big government organizations in China that run many, many boilers. This is how the number gets so high. Additionally, we have formed a strong engagement with the Beijing district heating group, which is the largest of these government organizations that provide heating in Beijing. We have a collaborative project with them regarding our fire tube boiler burner. They have a lot of fire tube boilers in their region and are in a non-attainment area. Therefore, they need to get their NOx emissions in compliance with the government requirements. If these numbers are correct, I think the fire tube boilers are significantly larger, but the important difference with China is their large government organizations providing district heating. They also have a pressing government requirement to reduce NOx emissions in highly dense, populated areas where they have NOx attainment problems, along with a mandate to reduce these NOx emissions.

Got it? Thank you very much.

Thank you, Robert.

Our next question will come from Jim Kennedy from Marathon Capital. Please go ahead.

Hi, Jim. Most of my questions have been answered. I just had a quick one on the China market. Are you aware of competing technologies? Do they have an SCR market over there? Or are you one of the only solutions that you're aware of in that market?

Jim, from what we've seen, there is very little activity from SCRs in China. I can't say there's none, but I'm not aware of any and certainly believe there is very low activity. From talking to the operators on my last visit there, which was unfortunate due to COVID some time ago, they prefer simple operations. The Chinese are also focused on efficiency. The horsepower required for blowers and the use of ammonia and the quite large operational costs for an SCR would be a deterrent for the Chinese to deploy that technology. That’s also relevant. When we look at U.S. burner technologies, there are other burners in China. They can't — I don't believe they can achieve NOx levels as low as we can. They tend to use a lot of flue gas recirculation, which again involves blowers and complex controls. We’ve actually received similar responses from the operating companies regarding those systems; they don't like the efficiency, the extra blowers, and the complexity of running those systems. We believe this is the main driver behind the interest of the Beijing district heating group in our technology, as we offer a burner that has a simple blower that doesn’t require any additional ductwork or blower. Basically, what they do is take the flue gas from the stack and blow it back around the burners. There’s extra power and extra destruction there. I believe that we offer the simplest solution in China. As needs arise, I believe that our burners will have the ability to provide the lowest NOx as well.

Got it. Thank you, Jim. Congratulations on the progress.

Thank you, Jim.

Our next question will come from David Brown, a Private Investor. Please go ahead.

Yes. Thanks, Jim. Great progress on many different fronts. It’s just encouraging as an investor and as an author who has written about the company that you have so many different fronts that you're working on and finding success. My question that I haven't heard asked yet is I wanted a little more color on the parts per million requirements, especially in the more restrictive markets like California. You mentioned a victory in the San Joaquin district, where you're able to get this fire tube boiler down below 2.5 parts per million, which is their current and future targets. I know that those targets have kind of moved from below five to now even lower, to below 2.5 in various verticals. Can you tell us a little bit about where ClearSign's core is coming in with the various verticals, the different types of applications, and how you're meeting the regulations?

Yes. I will do the best I can. The first thing to note is especially regarding California and Texas—the San Joaquin Valley issued their latest targets in December. The other regions are in the process of developing their new guidelines. The best indications we have suggest that the other regions of California will come out with numbers similar to those of the San Joaquin Valley. The regulations typically for the process burners, as well as for the boilers, also vary by the size of the equipment. The heaters, like the water heater and the infrastructure projects we just started up, I believe the regulation for that type of heater is going to come in around the PPM level, with the commissioning data indicative that we've measured that will be comfortably below that.

Great, and the same for flares. Now flares usually have a larger PPM. I think if I’m remembering correctly, you’re doing fine as far as keeping your customers happy, and hopefully the regulator happy as well with the flares?

Yes, we are. We are similarly comfortable with the performance compared to the regulations for the flares.

Okay, excellent. I think most of my other questions have pretty much been answered. Let me just echo a little bit about what I'm thinking—I'm hearing from about China, which sounds extremely exciting. So, just one clarifying question about China. So, Manny Menendez is the only ClearSign staff that's over there for the last significant period of time. Good for him for getting this all worked out. You have one demonstration project; is that correct? Or are there more than one fire tube boiler that you can point to when China is vetting this and signing off so that you can hopefully very soon get started selling fire tube boilers in China? Is that correct? You have one demonstration project right now?

So, David, let me jump in as well. Just regarding the staff, Mr. Manny Menendez is the President of ClearSign Asia. He spends the majority of his time there. We do have a full-time Chinese national who oversees our business and it’s certainly their full-time job. So we do have a continuous presence in China. Mr. Menendez is in almost constant touch with Chinese partners when he’s not there; it’s almost like he doesn’t come home. Regarding the fire tube product, we do, yes, have one demonstration burner that we have demonstrated. The burners are in a boiler of the San Joaquin Group, which turns out multiple boilers daily. Our expectation is that as we scale up this product line, they have the setup, and as they have the boilers, it will be a very easy process for us to fit our new burner sizes into new boilers and move through the same processes in China to build our product line there. That is certainly our intention. The beauty of our relationship with California Boiler is that they also have a fleet of rental boilers here in the USA. The technology is the same. So as we develop the burner technology here in the USA, we can then send those drawings to China, have those burners fabricated in the manner that I described earlier, and then install them into larger boilers with the San Joaquin Group going through the certification process and building our product line there.

Well, congratulations. To me, it sounds like the setup in China is beautiful. Hopefully, no glitches. You having that non-binding collaboration framework agreement with the Shuang Liang Boiler Company, which is the top company in boilers in China, is a great victory. So, congratulations on that. I'm extremely excited about that news and look forward to further announcements from the company. So, thank you so much.

Thank you, David.

Our next question will come from Robert Kecseg with Las Colinas Capital Management. Please go ahead.

Hi, Jim. Good to talk to you again. And congratulations. So many things really came together on this. I wanted to focus first on the California boiler because it seems like that's probably the fastest route to go to add new installations and expose the product in the California market. So, really, whether they're 7,000 or 3,000, as far as timing goes, don't you think that's probably the most immediate impact as far as generating some cash for the company?

I think it's a bit of a race, to be honest. I think that California Boiler is in a market where we are seeing immediate demand very shortly after we announced that we had the 2.5 PPM NOx burner. We became aware of a lot of interest flowing in through California Boiler. So that is very encouraging on this front. I mentioned the race also in China, with little things that we have with the company showing their own boiler company. We have been discussing an integrated boiler burner package where they will sell a boiler enabled with a ClearSign burner as a package. That will be a unique offering within China, and we think about the magnitude of that company with a 700-person sales team. I’m not sure which horse I’m going to back in this race; I think they’re both extremely exciting.

When we think about the boiler burner compared to the process heater, larger units, do you think that again is where the sooner cash? I'm concerned about cash flow and financing down the road as well? I'm kind of talking to that, and so the sooner we get cash flow, the better off we are as shareholders.

Certainly.

Could you just speak to that?

Again, I don't think there's a clear answer; both of our major product lines or processes—are positioned to make huge inroads. With the multi-burner installations we now have in California, that is a reference point we've never had before. Seeing the emissions numbers, or at least what we believe will be the emissions numbers on the infrastructure project is not a great validation for us. Completing the Exxon testing and having installed sites with two super majors coming up and demonstrating the operating range that Exxon has put before us is going to be a great reference when the industry is not. These projects aren’t just being watched by their owners. This is a very tight and collaborative industry, and the technical specialists from all the refineries are observing these projects closely. Without success, I believe this will create strong growth in the process burner industry. Whether that ends up growing faster than the boiler business is hard to say; we've obviously got the opportunities before us in China and the relationship with California Boiler here in the U.S. The degree of our technology to fit the new requirements in California is significant. I don't see one as weaker; both have great potential, and I believe we've gotten both to the cusp of changing this business.

I have to say that I think it has to be comforting to know that we're just going for that certification now. Everything is in their hands, and to have that on this call, I think was really significant. Could you just clear up for me on that World Oil? So you put in the five burners, you ran them, demonstrated for them, and the Zeeco fabric was what I have here in my notes? California Boiler made the field installation.

No, Bob. Let me clear that up. Our burners are in there. They are all running at maximum rates. The refinery is in normal operation, and I believe their refinery is running at a very high rate. In terms of productivity from this heater, it is doing everything that could be asked of it. The only blemish that I've mentioned is not down to the burner technology but just an unfortunate occurrence. We had to modify the tip components slightly. The burners were installed, they ran up, and they were operating. They ran at a maximum fine level for a sustained period of time. It gave the refinery confidence at that fall rates, and they reduced back down to the normal operating rate. Everything was working very well. Unfortunately, at some point later, there was an anomaly in the fuel gas supply that caused a problem. We can address it, and we can go back and take care of it. It's not related to Exxon, and it’s unfortunate, but it shouldn't diminish the results seen in terms of proving ClearSign Technology. Our burners are running smoothly and for a long time, until that happened. The reason I mentioned it is really just for transparency. If our customers want to go see that site, we’d obviously want them to know the burners were not all operating as we designed them right now. We certainly hope they will be as soon as we can get back into that heater. But it’s not a reflection on the state of our technology. Our engineers did an incredible job developing the burners to this stage and getting them into operation in such a highly fired heater and performing as smoothly was absolutely incredible. I am extremely pleased with our results. It’s very difficult to bring up what happened after that. How the concern will be taken in their own mind, but this really was a huge success for ClearSign.

Okay. And then there was something I learned years ago in this industry about BACT, the Best Available Control Technology. Is that something still significant that we can look forward to? Or is it not that important?

Bob, let me talk in some more general terms, and I’ll be absolutely honest: I'm not confident enough about the specific requirements to get a formal declaration of BACT. We are working closely with the South Coast Air Quality Management District as part of that World Oil collaboration. We are doing that with them because they need to demonstrate to the industry that there is technology available to meet the requirements they are imposing. As far as I'm aware, especially with our recently completed reference sites, we are the most advanced burner technology they have. But I wouldn’t want to mislead anyone with details; I'm not completely confident in the specifics of that requirement.

It sounds great, though; from the way you just described it, in effect, it can be a real lever for the company to get more business. I can't think of anything else right now. I may call you later. Congratulations to everybody. I really appreciate the news today, Jim.

Great. Thank you, Bob. It’s good to hear from you.

Due to time constraints, this concludes our question and answer session. I'd like to turn the conference back over to Jim Deller for any closing remarks.

Well, everyone, I really appreciate your time today. Thank you for joining the call. On behalf of everyone at ClearSign Technologies, I wish you all the best and thanks for calling in.

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