Rick Rutkowski - Chairman & CEO Jim Harmon - CFO

Richard Deutsch - Ladenburg Thalmann Lucas Pipes - Brean Capital

Welcome to the Clearsign Third Quarter Results Conference Call. (Operator Instructions). Before we get started, during the course of this conference call the company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes any projections in earnings, revenues, cash or other financial statements, any statements about plans, strategies or objective of management for future operations. Any statements concerning proposed new products, any statements regarding expectations for the success of our products in the U.S. and international markets; the outcome of product research and development. Any statements regarding future economic conditions or performance, statements or believes and any statements of assumptions, underlying any of the foregoing. These statements are based on expectations and assumptions as of the date of this conference call and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks are described in the section of today’s press release titled cautionary note on forward-looking statements and then reports we filed with the Securities and Exchange Commission. Investors or potential investors should read these risks. ClearSign Combustion Corporation assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. Please note this is event is being recorded. I’d now like to turn the conference over to Rick Rutkowski, Chairman and Chief Executive Officer. Please go ahead sir.

Good afternoon. Thanks for joining us on Veterans Day and I’m sure you all share my appreciation for our military and it's a special day in that regard. Lots to report here at Clearsign so we will jump right in. I’m going to turn it over to Jim Harmon to take us through the numbers, certainly no surprises. There we continue to be largely on plan and on budget with respect to the financial picture and I’ll let Jim describe that more in detail.

Thanks Rick and good afternoon to all. As Rick mentioned we continue to be on our plan through the third quarter in our results. I remind everyone that we remain a development stage company but I will go into that in greater depth here after I go to the expenses because this is the first quarter that we in fact have recorded some revenue. So let me come right down on expenses first in our net loss. Our loss for the quarter was a $1.362 million which was an increase of about $230,000. That difference in terms of R&D cost was an increase of about 139,000 which is comprised about a $100,000 of increased personnel level and then about $50,000 of increased consumables in our lab operations. On the G&A side our marketing and business development efforts increased cost by about $75,000 whereas G&A for the quarter went up to $100,000. For the nine months ended September 30, our loss was $4.1 million which is an increase of $1.1 million again largely with same rationale, our R&D compensation was up by about $350,000 which is increased head count in our lab. Our consumables are up by $180,000 in the lab and on the G&A side our cost are up about a $1.5 million in total. Marketing and business development efforts about a $140,000 and we had a differential related to our expenses of being a public company, we went public last year in April so we had along the period of time we were public this year both increased costs of about $320,000. That kind of explains the expense side of things, let me go back to revenue. We recognized $50,000 of revenue during the quarter related to the initial phase of a solid fuel burner co-development project that we completed for a major waste to energy company. The cost of the project though was largely made up of R&D cost that we would otherwise be incurring, however of course we directed our resources towards the efforts to advance this solid waste burner for our partner. So the gross margin associated with that was $16,000 on a $50,000 revenue. It's considered immaterial for us, or insignificant. There is two tests that one goes through to figure out if you no longer qualify as a development stage company and it centers around whether you’ve commenced in your planned principal operations. Our operations are the sale of our technologies whether it be through say licensing or sale of our IP or perhaps sale of finished products, you get the idea of what that would be - these co-development agreements are part of our principle, planned principal operations so they wouldn’t have qualified. But even so even if they did these are not considered to be significant revenues for us so they wouldn’t qualify on that side. It needs to be significant planned principal operations to no longer qualify as a development stage company. That’s a little bit of accounting geek-dom, I got a little bit more for you and that is that last week the Financial Accounting Standards Board came out with an exposure draft to in fact just get rid of all development stage designations because it was developed in 1975 and they finally recognized that it really doesn’t make sense in the day and age of the Internet four years later when you can get all kinds of information on companies number one, and number two the development and sale of intellectual properties far more come in these days than it was in the mid-70s. Don’t anticipate that adoption of that if it is in fact adopted, will have material effect on us. It will be a little lighter for me on quarterly closes and I will have little less work to do, there will be a little less disclosure in our financial statements in that you no longer have [inception] [ph] to date information et cetera. However I don’t consider that to be material information; it's simply not cost beneficial information and that’s why the FASB has proposed to drop it. Lastly I will mention that in terms of our working capital, at the end of the quarter we had about $4 million of cash and this continue to be an up to last several weeks until April of 2014, with that I’ll turn it back to you.

Thanks I want to pick up on a point that Jim made about the contract revenue because it's certainly was a small number in the last quarter but we do expect more of this in 2014 and going forward from this point where we will report some more on the current quarter contract revenue and just to highlight the point that Jim made you know as you view these and try to figure out what kind of contribution there would be from contract revenue. [It’s good] [ph] to recognize that yes there is a gross margin contribution but if we look at the cost side of the equation apart from third party cost and/or materials the balance of the cost are allocated costs. So on a net basis the contribution is actually quite high, it can be as much as 80% or 90% of the contract value going forward. So if you’re watching the headlines unfold over the next several quarters and you watch us book contract revenue I think that will give you better appreciation of how to view that as offsetting the expenses that we have. We have cut the design in internal R&D program obviously which is for the most part highly synergistic with what would be required by prospective partners to commercialize the technology and there has been a real emphasis on applied research, big D small R although, a fair amount of what we are doing is so ground-breaking that it's tremendous source of innovation and intellectual property as a consequence. So I think the way I like to sort of frame this brief discussion today is to sort or recapture a couple of eye elements one of which I think first and foremost as I look at what we are developing and what we continue to develop it's really important to appreciate the disruptive nature and the competitive position of the technology. Again the model is about developing intellectual property really becoming the dominant player in certain categories of combustion and emissions can cool using suite of technologies including Electrodynamic Combustion Control the duplex architecture and looks like there is couple of others that maybe emerging here as well. But of course the goal in any situation is to design products and or enable products that do things better or more cost effectively than current products available on the market and I think it sounds mundane and simplistic really but it really is ultimately the basis for forming these partnerships. In other words the companies that we’re actively in discussions with right now are looking to derive some market advantage from the use of technologies and the deployment of those technologies in the market and if we look at the two pieces of news today or the piece of news from this morning and how we framed it this afternoon press release as well. I think that’s what’s really ultimately significant about this. We have if we look at the NOx control marketplace the performance set feature set that we have described this morning is very, very much unique. It stands alone among Ultra-Low NOx burners, the ability to achieve low single digit NOx without the use of external flue gas recirculation while maintaining high turndown ratios and low (indiscernible). All of those correlate directly to energy efficiency and therefore to the cost of ownership. Historically to achieve these levels so ever, you haven't really been able to get there was just an ultra-low NOx burner. You had to add-on to that ultra-low NOx burner some what’s called after treatment or post combustion technologies like selective catalytic reduction technologies and those have an even higher cost of ownerships, in many cases the multiple of the cost of ownership and the cost of ultra-low NOx burners. So that puts us in a very enviable position and our perspective partners in that the market overwhelming would prefer typically an ultra-low NOx burner solution but has been unable to get one absent these kinds of compromises or increased cost. So this is indeed very big news, our phones are ringing pretty actively here and of course as you know we have been in discussions with a number of the leading companies in these categories you know both in the U.S. and more recently overseas as well. So that’s really the name of the game is delivering technology that is both less expensive and higher performance than current generation technologies. And I think that point there is perhaps a more subtle aspect of that goes to the nature of the incentives of end users, okay? So historically when it comes to emissions control it always is an added expenses and therefore I don’t get an economic return for it, what I achieve in investing in emissions control technology is that I comply with environmental regulations and so the incentive structures that typically follow from that and especially when we factor into that the very real trend that as we have gone from 30 parts per million to 15 to 10 parts per million, to 5 parts per million of NOx. What history showed us is that at each step it gets more expensive. So there hasn’t really been an incentive to adopt the emissions control technology ahead when regulators require it. So I think two things are of note, one of which is that as we’re looking at the regulatory landscape currently. There is a lot of concern and consternation in fact it's been the main topic of discussion at industry conferences with regard to how one is going to cost effectively comply with new regulations emerging in particular in Southern California, the South Coast Air Quality Management District in Houston, Texas. Those are generally regarded as sort of regions as leading indicators of what you might see in other parts of the country as well so that’s another reason for the focus on those regions but that aside and the pressure to come up with cost effective solutions is real and time sensitive. These regulations begin taking effect, 9 parts per million is already in effect, 5 parts per million will begin taking effect over the next two years for variety of systems and indeed the only available solution in the market at the moment is this combination of low NOx to ultra-low NOx burners in selective catalytic reductions which in addition to being very, very expensive. Again a step function increase in cost versus compliance let’s say 15 or 10 parts per million, also involves the use of hazards materials like anhydrous ammonium which have other environmental and regulatory concerns associated with it. So at 5 parts per million this is a very, very competitive offering and again what the feature set that I described before and we think it's a kind of thing that can set the stage for a market leadership position and especially as we look to join forces with companies who have the distribution foot print, the market presence, the brand, the customer relationships that will allow us to leverage that and move rapidly into the market. The two categories as you probably know that we have identified for this particular duplex burner architecture, are packaged boilers and petrochemical refinery heaters. Off the $11 billion by the way in NOx control spending and that’s an annual figure estimated for 2014 by filtration and separation magazine. About 80% of that is really up at the utility scale, those are very, very enormous selective catalytic reduction and non-selective catalytic reduction systems that operate at that scale. But the second largest category is for things like commercial and industrial boilers and refinery heaters and things of that nature. So we’re in a market that we estimate about $2 billion annually world-wide. I have some other interesting emissions control numbers for you in just a moment when it gets to the emerging economies in China and the numbers are simple staggering with respect to the expenditures they are anticipated over the next several years. So to summarize what we have is very encouraging and very disruptive innovation with regard to price performance and indeed could be viewed as setting a new benchmark to shoot at. Now we’re not there yet, we have some work to do to turn what we’re doing into the laboratory, into commercial instantiation but I want to emphasize that with respect to what we have done with this packaged boiler demonstration that it is in fact pretty close to a set of real world conditions both with respect to scale at a million Btus per hour and with respect to the system configuration that we’re operating in what’s called the Morrison Tube or a Fire Tube and the test protocols and our analogous to what you would see at most research entity. So in principle we believe we can move very quickly from this instantiation to commercial instantiation. I emphasize in principle because we will be introducing the variable of entering into partnerships and that will affect the timeline associated with that but we’re very encouraged with what we see happening there as well and indeed in deep conversations with both end users who many of whom are households name, certainly on the refinery and petrochemical and chemical side as well as suppliers of emissions control and combustion equipment into that space and we’re very pleased with the activity in the funnel. What we have seen is enormous upturn recently partly as a result of needy exposure, partly as a result of Joe’s presentations at conferences recently. So we’re very pleased with the level of interest and activity in the business development funnel as it relates to forming these joint development agreements going forward. So that is the game plan here and that’s really sort of the next point on my agenda is to convert these technological results into real world product offerings and deliver those to the marketing in conjunction with market leaders in the various categories and a bit of repetition for folks who are new. The three segments that we’re targeting which are very high value segments are packaged boilers, refinery and petrochemical heaters, process heaters more generally. Those would both be addressed by what we call the duplex technology. As well as industrial scale solid fuels and in that domain the duplex doesn’t yet apply but what does apply is the electrodynamics portion of what we do, the Electrodynamics Combustion Control and without saying too much I will sort of stick to what’s here in the press release. We did enter into early phase sort of scale up concept proof if you will with a waste energy company who funded this early work and the early results of that were really quite successful and quite impressive. The rule there based on our partners preferences we asked them to rank feature in other words emissions control versus energy efficiency versus throughput or capacity an on top of their list by some measure was increased capacity. So in other words by shaping and spreading this flame more uniformly in a solid fuel combustor configuration you accomplish two very significant things that co-relate directly to increased return on those capital assets and reduce cost of operating those capital assets and the first is that you actually increase the furnace capacity in many cases by as much as 15% or 20% when you push that flame down and spread it to the side you now have are not limited by that tall flame that’s impinging on process tubes anymore and analogous to what happens in refinery world with the duplex burner but using a completely different methodology. Well once you’ve made that heat more uniformed you’re also reducing hot spots which can cause very significant cost associated with maintenance of the process tubes inside the heaters and that can contribute to increased lifetime if you can have more uniformed heat transfer and reduced maintenance and repairs and in particular the real bugaboo for guys in this domain in unscheduled maintenance when you’ve a rupture of a process tube that is typically caused by hotspot. So we anticipate that this is going to be equally big news, ironically although it's the first area where we have had third party sponsorship and a word on that in a moment, it's actually an earlier stage of development than the work with the duplex burner which has progressed very, very rapidly. I’ll talk in a moment about the game plan going forward for each of these. So with regard to finishing up on this solid fuel system the markets that we want to address with industrial solid fuel certainly include waste energy. We see solid fuels used significantly in the forest products industry, the paper industry and industries like cement accounts where solid fuels are used in significant quantities in the west. But the real giant in terms of solid fuel is in China and an important distinction of course we burn enormous quantities of coal at the utility scale in the western world but in China in addition to utility scale combustion of pulverized coal, coal is also used pervasively throughout the economy at an industrial scale and that’s very different from what we tend to see in most of the developed world and of course again we’ve talked in the past about the nature of the environmental crisis. So let me share a few data points from a very recent research article on what’s happening in China. The country is cutting it's industrial capacity, in other words cutting production of iron, steel, et cetera to reduce pollution because the pollution levels have become literally crippling. People can’t leave their homes, 1.2 million are dying annually. The world health organization just to put this in perspective calls for concentration averages of 2.5 micron level particulate matter of 10 and maybe peaking as much as 25 last week this was reported October 24, so would have been the last week prior to that. Several Chinese cities reported levels of 1000 towards a magnitude higher than what would be considered normal or average levels. Cancer is now the leading cause of death in Beijing which reports to 465% increase in lung cancer in the last 30 years of opening up economically. Environmental complains have become China’s largest source of civil unrest. State run media now talks about population control opening and often and pollution used to be among the lowest government priorities. It is now among the very highest, so here is what’s interesting environmental authorities plan to spend $279 billion on pollution upgrades, a 164 billion in the Beijing area alone over the next five years. Publically traded companies that sell pollution control devices in China are up 30% to 40% just in the last two months. So this is becoming a very topical issue and indeed as we had mentioned before has approached crisis level consideration. So again putting in context the nature of the innovation and the opportunity in both cases very, very large markets that are being addressed by this set of three initiatives with our duplex burner and electrodynamics combustion control for packaged boilers or refinery heaters and industrial scale combustion of solid fuel. So ours strategy has been to develop these technologies, demonstrate them to perspective partners, join forces with companies that are established in the domain and move into market and there are really some interesting permutations emerging in terms of how that might play out but we’re very encouraged with the caliber of company that we’re actively engaged and we still forward to reporting those development contracts in the current quarter and the next quarters to come as we move into 2014. So we believe we’re very well positioned and that each time by the way we have one of these technical successes, the important of it in that context is that it galvanizes the level of interest that we’re seeing from perspective partners, customers and by the way yes more recently environmental protection agency and the South Coast Air Quality Management District. We have showed up on both radar screens very recently and are getting lots of encouragement as you might imagine including being invited to comment on new requirements for best available retrofit control technology in the context of a refinery heaters and other heaters with regard to NOx control. We believe that designation is potentially achievable more broadly achievable and I want to sort of plan the seed of the thought here where you know industry has thought for a long time about the goal of near zero emissions and we believe now that goal certainly is achievable with respect to NOx. We’ve reported 5 parts per million in the packaged boiler configuration, we believe that we will match our previous achievement of 2 parts per million and an upward configuration and we have set a demanding goal for Joe and his team of actually getting us to very, very near zero, as in zero point whatever parts per million of NOx. Now I want to entertain that possibility just for a momentum really to illustrate and prove some thought about strategically what that might mean and I’m just going to pose this as a what if. So what if, it's possible to achieve zero parts per million of NOx and zero parts per million of carbon oxide in a packaged boiler refinery heater? Well it's an interesting question because it really is very disruptive to not just the end users but to providers of this technology. It means that if I’m an end-user of this technology I can now install this solution and I don’t have to worry about upgrading it three or five years from now in the face of new regulations. We’re not going to get to regulations that require negative numbers to be produced. So it's a very, very big idea. It's very provocative and actually I will tell you I think it's we aren’t in position to report that yet but we think it's achievable and we think it's uniquely achievable at least as far as we can tell with the system architecture that we have designed and protected aggressively with an intellectual property strategy by the way that is we think unique in the industry as well. So we’re bringing a lot to the table with respect to the discussions we’re having with partners and as you reflect on some of the implications of this might be, now if we back it up a little bit you know even at 5 parts per million and 2 parts per million you’re sort of in the same domain because let’s say I’m in an environment where we’re at 15 parts per million or 20 or 30, and we aren’t really required to get installed single digit missions control. In many cases you’re going to be able to make the same kind of business case for upgrading to this piece of capital equipment that you would for another piece of capital equipment which is I’m not going to do it because I’ve to, I’m going to do it because it's less expensive than what I’m currently paying to reach 50 parts per million because I don’t know the external flue gas recirculation. I don’t have the higher level of accessory, I don’t have the loss and turndown ratio and by the way if future proves me against the next several rounds of regulation if I’m in one of those districts. So we have heard from customers by the way relative to selective catalytic reduction and in many cases we’re looking at installing in just sort of future proof and even though it's more expensive they know that they can sort of stick to their (indiscernible), go back to business as usual and not worry about regulatory compliance. So a very provocative thought about you know what begins to happen and we have allowed ourselves to entertain that kind of thinking here as we have gotten down into these low, low numbers that we have achieved. What we have already done is unprecedented and we think standalone in the marketplace and the good news is we have perspective partner companies often here who I think very much appreciate what that means is a potential for their business franchise. Another aspect of this, that is very provocative is we were able to do this with an off the shelf burner, in other words we achieve this unprecedented result by modifying an existing burner. So again the point there is really to emphasize the very close resemblance to real world context of what a retrofit situation might look like, there is a good many of these burners in the field that are identical to the one that we were able to retrofit and upgrade. So you know strategically this is very proactive steps and by the way it's not always positive for everyone. If you’re a partner with us and you’ve access to this highly competitive technology well that’s going to bode well for you in terms of market share, in terms of potential profitability and growth if on the other hand you’re trying to compete against this technology and you don’t have these advantages that we have enumerated multiple times over that can pose a significant threat to the growth of business franchise. So there is a lot happening in the context of what are some very interesting discussions both in the U.S., in the Middle-East and both China and Japan. Japan is very interesting case with respect to the use case because the value of fuel efficiency in particular is exaggerated as compared to the U.S. because they are paying such significant premiums for supplies of natural gas versus the prices that we pay here. So every percentage point of energy efficiency savings is worth that much more and it's literally a multiple, it's about 4x to 5x the U.S. prices because of the long term contracts that we’re locked into. So I think on the solid fuel side what we have done to-date we have worked with two companies that number will very likely expand here, we’re probably going to open this up to several other interested parties including some end users. So I think you expect to see in the weeks ahead, announcements relating to this group of folks with similar interest that share these problems. So you’re going to see this as I mentioned in the forest products industry, you will see it in industries like sugar refining for example where lots of sugarcane waste and in agricultural operations where lots of waste is combusted, biomass is combusted and in different configuration. So I think you can expect to see other folks join the party and we will be sourcing funds from members of that group as well as aligning with that group to seek funding from other third parties including groups within the department of energy and others with shared interest of that type. So we’re very, very encouraged with the state of affairs in the funnel right now and again with the core value proposition that has emerged here and we have set some new very aggressive goals for ourselves in that regard. I think I’ve covered a lot of the key points here, many of you were on the call a few weeks ago where we sort of amplified some of the use case surrounding this NOx, we talked to Dave Wilson from Marathon [ph] and Jim Seebold from Chevron and Dr. Frank (indiscernible) from Berkeley and other subject matter experts and in fact Dr. Frank having made the point of the fact that we’re able to bring NOx CO down independently those sometimes correlate inversely to one another. So in some we’re in a very, very strong position. I think this will begin to be appreciated as the nature of these relationships emerge going forward and again we’ve seen a higher level of interest emerging both from end users. And one element that our Chief Marketing Officer, Jeff Osler pointed out to me recently that there was a tremendous spike in traffic to our website following the recent publication in the MIT Technology. And I think you will see a progression because I’ve experienced this in the past from the technical press to the technical business press to the business press and we’re already getting indications that that progression is underway. You know very often the more mainstream technical business press looks to publications like Discovery Magazine or Popular Science or MIT Technology review which have already published over things like Scientific American for example to as a source for news for publications like the New York Times Science Section for example. So I think you will see that and with that we hope broader awareness not only among customers and industry but within the financial world as well. So we’re very encouraged by that too. So I think that said we continue to look during this quarter and next quarter to complete agreements in all three of these domains, industrial solid fuel combustion as well as petrochemical refineries and packaged boilers, those discussions are I think largely on track and we’re involved with the leading companies in those respective spaces in the U.S. Newer interest coming out of Asia and the Middle-East some of you may know that underway in some of the oil producing nations is a desire to diversify more broadly the role that they play in energy, so for example we’re seeing more emphasis on refining the product in producing nations as opposed to shipping in it's raw form only. It will be a mix of those things. So it's a fascinating time to be in this space. There are enormous opportunities emerging in the developing world as they deploy you know energy at an unprecedented rate and new combustion systems and you’re seeing not just in China but also in India places like that an enormous requirement for new kinds of solutions. So our effort is Asia as we have mentioned would be to structure one and more joint ventures to capitalize on the technology. We will likely consolidate the development activities here. Those will likely be commercialization, although we will also have technical partners in those as well and the interest level is also strong, we will be traveling over there during the next month to begin those discussions in earnest although our agents over there have already identified and briefed pretty thoroughly. Several high quality prospective partners for those joint ventures and we would expect that they would involve some mix of academic private enterprises and in the case of China certainly some connection to state owned enterprises and regional governments as well. So it's a big job, it's highly leverageable in that there is been a lot of consolidation in the industry so we don’t have 100s and 100s of perspective customers, we have dozens of them around the world. We have seen for example companies like John Zink acquire multiple companies over the past years and again we see this sort of private equity element to the marketplace for this kind of interesting as well because new companies are coming and ownership often wants to have more aggressive growth mandates and find new technology is often a means to achieve that by their increasing market share or potentially entering new markets. So the strategic rationale is a very, very strong one when it comes disruptive technology in this domain and again not only regulatory compliance issues but there is more subtle issue of sort of reversing that cost trend and future proofing into the bargain can be very powerful and you know you sort of have to ask yourself well at a certain point again allow ourselves to imagine there is a certain point if you can get to that zero parts per million why wouldn’t you do that if it's costing you about the same or less to operate that system you’re going to make a return on it and not have to worry about upgrades going forward. So that’s kind of world we’re inhabiting here and we’re inhabiting it largely by ourselves and that’s certainly a very gratifying place and we extend our congratulations and gratitude Jones team for helping place us in our perspective partners in that position. So it sounds simple. I assure you it's not, there is a lot of inertia, a lot of time in the day that goes by in these conversions but we continue to move very rapidly on the intellectual property front. We continue to keep pace with innovation, continue to find innovation in this scale-up of the solid fuel, some very novel techniques emerged for isolating the electrical charge in the heater cabin which was a key challenge that our partners had identified. One last note on that we will be releasing some video, we will also be releasing I believe the name of our waste to energy partner and we will also be identifying several other partners as they join our effort in the industrial solid fuels domain and again of course the real big price with industrial scale combustion solid fuels is China and even a small piece of that $160 billion it's being spent over the next five years would obviously we welcome that as I’m sure you would. So with that I think I will turn it over to questions because I’m sure that I’ve left something out but it doesn’t appear that there are too many folks queuing up for questions at the moment. So why don’t we give it a moment here. Here we have one.

Okay. We’ve our first question from Daniel Pavnos [ph] a private investor. Please go ahead.

Do you anticipate that the completion of agreements in the next quarter or two will affect cash flow such that by Q3, 2014 the company will not reach the depletion of it's funds and if not is a secondary public offering coming around the bend, and also is there a consideration of a sector time based exclusive development relationship and for example the petrochemical industry in order to gain the cash infusion that might be preclude or augment a secondary offering.

Good questions. Hang on one second, just making notes here because I want to make sure I cover all of them. Look it's certainly the case that these contracts will offset our burn rate for 2013 current year our total burn rate for the year is going to be about $5.3 million, $5.4 million all in. So if we go back to my earlier statement it doesn’t take a lot of contract dollars to sort of cut it then I’m going to stop short of prognosticating about whether it would break us even in a third quarter of next year that’s not so much the goal as is really optimizing the potential for growth in these very, very significant product franchises that we have described, but it does have a bearing in that I think you make a very good point which is the point about capital efficiency. We have designed this model to be capital efficient; we’re being very successful being capital efficient already. I mean again if we look just at the scale of the market opportunities that we’re addressing and have identified there and how convincingly I think we have set the table here with respect to real measurable performance measures against the very small budget with which we have achieved that and capital efficiency is something that investors got to be very attuned to here and certainly we’re as large shareholders ourselves. So yes it will certainly minimize dilution to the extent that we can be successful with these contracts that will reduce our near term needs for capital and the same would be true for example with joint ventures which might be separately funded and things of that nature. So with respect to a pull on secondary we don’t see the need for that anytime soon. We would likely engage in some sort of private placement of a small number of shares because it's all that we require and again especially if we’re right about some of our prognostications which we think would have a significant impact on the share price. I think we would be wise to continue to be frugal and cheery about issuing shares in the short term when we see significant news developments also in the short and intermediate terms. So I think we have hit upon a key concept which is yeah there is enormous capital efficiency in this model. With respect to the exclusivity whenever you’ve a game changing technology like this, yes you want to sort of consolidate the opportunity so that because you want the perspective partner that you’re handing off to, to invest aggressively in bringing the technology to market and gaining share in an uninhibited and uncompromising fashion. So it's very typical to see incentive structured around certainly short run exclusivities but to see those preferential rates also tempered with requirements for performance they are called diligence requirements in other words it can be you got to invest so many dollars in marketing or you have to show proof that you’ve gained XYZ market share or sell XYZ minimum units guarantees of things of that nature and typically those you can then extend that short-run exclusivity by virtue of meeting and/or exceeding those requirements and you know sort of reupping and paying the premiums for it. So we got a fair amount of sophistication on our team in terms of how one structures those to align interest and to protect our interest and of course our number one concern is opportunity cost. We want to make sure that partner is fully committed to bringing the technology to market. There is the old, the famous example of the 10 year old light bulb you know it was really an incentive for light bulb companies to introduce a longer lasting light bulb and if someone came up with that it was the risk that would, the formula would be locked in a safe. So you know as long as you’re getting paid against the opportunity cost then all is good and certainly there are always sort of conflicting agendas which is part of the process of insuring that you’ve got the right partners but these requirements can also be addressed within the context of how the diligence requirements are structured, the performance requirements for those, but I think you highlighted two great issues and I think we’re very much on top of both of them. With respect to investment we - the opportunity is also to gain more sponsorship here. We have strong interest from both existing and new investors, should we reach the point when we’re ready to add some additional capital on the balance sheet but you make a very good point in terms of how much capital might be required net of those the contributions from those contracts and the short answer is not very much and again it really emphasizes from our perspective the capital efficiency. I will close by just saying you know we have had people make the comparison to a biotech with respect to gosh, you have these enormous upside, this sort of pent up demand scenarios with conditions that no one else has been able to cure yet or cure cost effectively so that pent up demand nature is there, what isn't there is the enormous expense of developing biotech, biomedical solutions or the third party regulatory risk of having those expensive R&D efforts brought to an abrupt halt by an FDA. So we think it's really the best of two worlds. We enjoy that enormous pent up demand but in a model that is very capital efficient both intrinsically by virtue of the fact that we have had such high productivity on the R&D side and by virtue of a model which we think allow us to further offset those costs and leverage investor capital through these joint development agreements and license fees which again should have a significant effect offsetting our development costs.

Our next question will come from Richard Deutsch of Ladenburg Thalmann. Please go ahead. Richard Deutsch - Ladenburg Thalmann: Rick you laid out such a broad level of opportunity, it's almost too hard to be able to understand how to value these things. You mentioned you’ve several negotiations going on which might result in some sort of an agreement even before the end of the year. Can you just lay out what you feel is most likely to happen over the nearest term? Now is which one do you think is a low hanging fruit you know that what arena? What segment of the markets that you’re talking about? Which one do you think we should expect that might be the easiest to conclude the earliest?

Well the packaged boiler and refinery heaters are very much in play. Process heaters potentially more broadly speaking and that one could get you know segmented into a couple of different ways [ph] in other words you’ve some companies that play only in very, very large process heater, some companies that play more broadly. The thing that’s efficient about that from our perspective is there is enormous overlap in the system architecture by example I’ll illustrate what was done here when we went from our earlier work with a duplex which was done in an up fire configuration where the burner fire straight up in an open furnace that’s very analogous to what you would see in a refinery heater, like a crude heater for example. What we wanted to show with the work related to package boilers was that we could achieve the same results with the same methodology by titling that on it's side and firing it horizontally into steel sheet called Morrison tube and which is used in what we call fire tube boilers which are the bulk the overwhelming majority of packaged boilers are also water tube boilers but they are less common. So those are kind of moving forward more and less in parallel. Those two are pretty closer, it would be a very close call to tell you which of those is likely to drop first and at least one case we have a company that’s interested in both of those opportunities for example and there is enormous optionality in that with respect to their business franchise but there is a lot of congruity in terms of developing those two things in parallel. One thing to keep note of is that the scale milestones to get into to packaged boilers are little bit lower, we begin to see, you know we’re already at a million Btus per hour, you’ve packaged boilers out there that operate at that scale and you know certainly the great bulk of them on average are about the 3.5 million. The ones where you get really pressing regulatory problems are a little bit bigger. So that might be if I were to prognosticate about which would likely you would see in a commercial instantiation first that might be the case. And having said that I will be quick to add we’re getting enormous pull from end users, refinery operators who in some cases are encouraging us to jump ahead in this schedule and try and do some more aggressive things with respect to installing in a real world refinery configuration. So to that end something like I’m glad that you brought this up because I neglected to mention this. We have under construction here in our facility a furnace that will allow us to operate up in the 5 million Btu per hour range which we think is going to be highly referenceable and we begin to see burners for refinery type of applications. That’s under construction as we speak, I think we expect to begin firing in that furnace in the current quarter and certainly working with the duplex configuration in the first quarter of next year at that scale and at that point that then becomes a sort of lateral movement into demonstration facilities that our partner companies and things of that nature. There is another element of this that I will and I will just digress just a small bit Rick because it's not something that we’ve talked about really much but it's significant and it feels a little bit like an infomercial when I keep saying but wait there is more. We did talk on the last call someone asked us about scalability and talking with Joe and Roberto here about scalability one of the things they pointed out is well you know if you appreciate the nature of the duplex burner architecture and the role that that first stage burner plays in it. It's a pretty narrow role in that really what you’re doing is you’re heating the furnace cabin, the heater cabin to temperature past the auto-ignition point and then you’re releasing the flame to the second stage. So because of that and because of the nature the role that those two things play together you eliminate a lot of the tolerance that often accompanies the scaling of ultra-low NOx burners and in fact you introduce the potential for modularity and I’ll simply it a bit for effect if you want help me to it but what that means is let’s say you had a requirement for a 1 million Btu duplex system, you could have a 1 million Btu bottom stage and the tile of whatever dimensions it needs to be for that Morrison tube or other heater located at some distance from it. But if you then needed a 5 million Btu version of that you might have five of the same first stage heaters now with a tile of different dimensions and larger dimensions and what that now means for the manufacturing and fabrication side begins to become apparent. If I’m the person making these burners now my production requirements became more efficient because instead of having to make you know 4 or 5 different burners to serve different applications I have got this one modular unit and the variety of different tiles that go into the equation. I mentioned it because I think it's another aspect of this that architecture that has real muscle and real strength to it and by the way increasing potential the deeper we dig into it for intellectual property protection. We will have insured order here some third party patent opinion works been done on the duplex in particular because it can be instantiated electrically as well as mechanically and so we have heard from the council that’s doing that work and we’re very satisfied that we’re going to be able to report multiple aspects of this architecture that are proprietary but I thought that last point about the sort of platform nature and the scalability not just in development terms but in terms of manufacturability and inventory risk and all the things that go with being a manufacturer are pretty provocative as well. Richard Deutsch - Ladenburg Thalmann: Just follow-up, Rick thanks, to model the financial aspects of these contracts. Do you envision them as having a cash upfront to get in the door and then pay for the R&D or do you envision just supporting the R&D and dropping you cash burn or both and on top of that will you be naming you know any of these parties so you can see who you’re dealing with?

Yes so dealing with the back end first I mean naming can go both ways, some folks are more sensitive to it than others. Some think you know it really depends on the partner strategy and more certainly differential to that, again this type of business model has that sort of awkwardness to it intrinsically whether you’re burner manufacturer or manufacturer of microchips that enable next generation products. People going often like to telegraph their product plans too early in the cycle. So in the past when we did this deals at Microvision we saw both, we saw companies they were more than happy to identify themselves and companies that were more reluctant in the near term and we saw companies who initially didn’t want to identify themselves but we’re happy to do it later. So I anticipate we will see some of the same here and certainly have seen that, our waste to energy partner was originally reticent to disclose their identify but as I mentioned earlier I think in short order that will change and we will be able to talk about who they are and what’s some of the benefits are. With respect to how these are structured, what we’re really trying to do here is get our partners into the market as quickly as possible and cost effectively, we’re valuing the investment that we have made not just in technology but in intellectual property. So it's really a balancing act, so the question in some respect you can say well do you hold out for more money or do you try and do the deal quickly and the answer is really very much dependent on the situation and the context what’s I think most important is that there is alignment of interest in terms of bringing this to market to quickly and gaining share and enjoying the growth potential and market share gaining potential of the technology to the fullest. So all of those considerations are certainly there but they are also being balanced and there are couple of not all of the deals are identical and if you look at kind of some of the things we did at Microvision they certainly weren’t all identical but typically we will build sort of hesitate to say it, some premiums into the development charge out rates to account for the fact that it's not just engineering time but it is an option in effect that you’re buying on a suite of intellectual property that has cost associated with it as well. So I guess we did indicate that we expect the contribution from these to be a substantial offset you know in dollar to dollar terms against our embedded cost and so we look at it very much as sort of capacity utilization metrics right it's one way to think of my business development job is to go out and cover as much of the development work that has been done here as we can through interest parties and I will throw out sort of one last one that we think is kind of thing can sort of jump into the funnel. So we’re starting to see the beginnings of regulation for smaller point systems including those used at the residential scale for NOx and those of who you heard me talk about this before, regulatory requirements are sort of chicken egg, I’m laughing because I just remembered there is a book called if you give mouse a cookie they ask for a glass of milk, if you give them a glass of milk they want a bed time story. And it's somewhat analogous to what happens and in the regulatory world if regulators get wind [ph] there is something is possible well they want immediately begin talking to point source producers about you know meeting goals with that and a big part of that conversation is also about not only is it possible, is it possible affordably and we had this Scott Isaacson on our Board was here the other day, we had a board meeting, Scott is Head of Environmental Affairs for Cal Portland Cement. He said it's absolutely right, I have been in situations where you know regulator will see something written up in a magazine and want to know when I can install it and so we sort of like that to be honest and I think we particularly like it because we are not talking about this being another you know burden for industry in that uncannibal progressive escalating cost curve, we’re talking about it as a relief from that. So it's really unique in that way that you can say we’re going to go to much lower levels of emission by the way it's going to cost you less than it did to comply with the emissions at 15 and 20. So I mentioned a residential piece of this, that you will probably won't see us go out and announce joint development agreement or anything that will probably be something that out of the blue turns into a commercial license with one of the large providers because the cost of instantiating the duplex in a residential scale heater at the development level here is very, very low. In other words we can initiate skunk works and in short order be able to demonstrate a reference system for carrier trainer, LINUX [ph] or any of the big providers and at some point the regulators are going to look down market and in fact in our conversations with the EPA there was a bit of light bulb that went on when we talked about packaged boilers and refinery heaters because there are larger numbers of those and there are coal fired power plants and if you look at regulatory trends not only have the regulations become more stringent, there is a key point to make here but they have begun to apply to smaller and smaller systems and we don’t see that trend stopping and by the way we see that chicken egg best available control technology dynamic very much playing into that. If it's showing that it can be done and especially that it can be done cost effectively there is a strong chance that there will be regulatory pressure to help those kinds of things along. So you know obviously there is a balancing act there, we’re not in business to alienate our customers by forcing them to buy things that they don’t think they need but it's an important strategic dynamic to be sensitive too.

Our next question will come from Lucas Pipes of Brean Capital. Please go ahead. Lucas Pipes - Brean Capital: Quick follow-up question, you addressed most of my questions in your previous answers but do you have a sense of when you might be able to give specific revenue guidance and things of that nature?

Well certainly once we book a couple of contracts it becomes a lot easier to do that and I think that’s the short answer is it's easy to do that from a backlog position harder to do that when everything is the funnel. We do have a lot of activity in the bottom of the funnel and you know a sense for what those numbers look like but we have stopped short of providing that kind of guidance partly because it distracts a little bit from I think the bigger picture which is so important here and I sort of you know defer back to our biotech model, a value is created certainly in this stage of development of this business not by the dollar value of these revenue contract, many more than you could extrapolate the value of what we’re doing from our R&D budget. You know this is the point I was making about capital efficiency, so these contracts are going to reflect the same kind of capital efficiency with some premiums associated with it and therefore you know wouldn’t be the first way you want to value the company on the basis of that revenue. Those are really just an indicator of the much bigger revenue to follow. So how is value created at this stage? Value is created through the systematic retirement first of technology risk which we have done by achieving these milestone performance goal, scaling the technology to commercial closer and closer to commercial instantiations and then market risk which we reduce and retire by entering into partnerships with folks who are well positioned in the channel, have the customer relationships and by creating the kinds of pull that we’re seeing from larger refinery operators, other end use customers and many of the folks. You will see for example on the solid fuel domain we will be both producers of emissions control and combustion equipment that relates to the uses of solid fuels but in many cases there will be significant end users of those fuels as well. So it's not a strong correlation between value and these contract dollars because again what we really want to do is cover our cost and get product and leverage our capital and get product from market quickly and as I mentioned to Rick before it's a bit of balancing act between you know getting full value on the front end and extracting the real value under the curve which is you know the longer term of market penetration in these enormous markets. So I imagine as we get into the first part of next year we certainly can talk more in those terms with a couple of these things under our belt but then we’re going to be likely to arrear [ph] on the conservative side and that being the case you could have a situation where if you get two contracts booked and we have visibility and what billings are going to look like or we think we got visibility and then the third contracts jumps into the gets closed, you know you could see a significant increase in revenue a 30% increase in revenue and that would be not tremendously useful, necessarily as an indicator by itself certainly not taken out the other context that we made here.

And ladies and gentlemen that will conclude our question and answer session. I would like to turn the conference back over to Rick Rutkowski for any closing remarks.

Well again thank you everyone for joining us this afternoon. We certainly appreciate the ongoing support and high level of interest that we have from so many of you and we hope that we continue to reward it with the kinds of breakthroughs that Joe and his team continue to deliver and again I think these are the leading indicators with every step that we make towards disruptive performance and cost implications that galvanizes the attention and interest of the companies that we’re actively engaged with and discussing the strategy for how we bring this to market. So it's a very busy time here we have got. As I mentioned the new level of interest from EPA regulators and others in that domain I think promises to sort of take that to a whole other level as well. So we continue to very pleased. I think you will see some news of some market leading companies joining forces with us to bring what we believe is a very disruptive technology to market and again what we like about this is that the economic benefits stand on their own, the business case for installing this system is unique and environmental controls. We have used the phrase before turning the economics of emissions control on it's head. So in a solid fuel case gosh you’re getting an increase in capacity while you’re reducing NOx and in the refinery case you’re getting an increase in process through-put and a single refinery site could be worth 10s and millions of dollars a year while further reducing emissions control. This is really the heart of the matter is the compelling incentives that exists and/or implied by not just the performance attributes of this technology but the substantially reduced cost of ownership and in many cases a positive ROI typically associated with process through-put or increased capacity by having not just reduce emissions but better control of the heat distribution and heat transfer function within the system. So that’s really unprecedented in the category and that’s what is at the end of the day so exciting and it's pretty exciting to be looking at a country like a China with a scale that it is and beginning potentially on the ground floor of a massive public expenditure, unprecedented really in human history. And potentially have that begin as early as next year and early part of next year that is huge prospect for us and you know certainly allows us to get out of bed in the morning with a spring in our step and we hope that does you too. So thanks again and I’m sure on all of our behalves I want to thank any of you veterans in the audience or any of you got family members I certainly did, my dad was in U.S. military for many, many years and it's an important day and we’re here and able to have talk about these kinds of things and talk about protecting our environment because they protected us so very well and continue to. Thank you all of you.

Ladies and gentlemen the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.