ClearSign Technologies Corp (CLIR) 2017 Q1 法說會逐字稿

Good afternoon and welcome to the ClearSign Combustion first-quarter 2017 results conference call. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Matt Selinger, Three Part Advisors. Please go ahead.

Thank you, Amy, and greetings again, everyone. Welcome to the ClearSign Combustion Corporation first-quarter 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 announcements 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-tested and sales of ClearSign 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 a discussion in the risk factors section of the 2016 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.

Now on today's call will be Steve Pirnat, ClearSign's Chairman and CEO; Brian Fike, ClearSign's Controller; and Jim Harmon, Chief Financial Officer. So with that I will turn the call over to Steve Pirnat. Steve?

Thank you and welcome to the first-quarter results call. As many of you may have seen today's press release, we announced the resignation of CFO Jim Harmon. I wanted to take a brief moment to thank Jim on behalf of the Company and the Board for his tenure and service which predates our IPO.

Brian Fike, ClearSign's Controller, will assume Jim's duties until a permanent successor is appointed. Jim will provide consulting services to the Company in order to assist with a smooth transition of responsibility. As a brief background, Brian has been with the Company and working with Jim since January 2016 after a 15-year career at Darigold, which is a $2.3 billion dairy manufacturing co-op of approximately 500 members.

Brian helped install ClearSign's current accounting system and is very familiar with ClearSign's day-to-day operations. He has quickly developed an effective working relationship with ClearSign's leadership team, which is essential in a startup company like ours. We feel we are in good hands with Brian. And with that I am going to turn the call over to Brian to go over the financials. Brian?

Thank you, Steve, and thanks to everyone joining us this afternoon on this call. Before I turn the call back over to Steve I want to review the results for this quarter as they have been reported on our Form 10-Q.

I am pleased to report that we recorded product sales of $360,000 during the first quarter from the installation of our Duplex technology in two wellhead enclosed flares for a major California oil producer. This is a portion of the follow-on contract that we announced during the third quarter of 2016 for $900,000.

We expect the remaining three flares to be completed in the next three to six months depending on the availability of the customer's equipment. The gross profit of the recorded sales was $109,000 for a margin of 30%.

As we build sales momentum and experience with the product we expect these margins to approach 50% depending on the size and scope of the total contract. I will let Steve provide some more color in a moment on our sales pipeline.

For the quarter we incurred a loss of $2.4 million compared to a loss of $2.6 million for the same period of 2016, and a loss of $2.3 million for the last quarter which ended December 31, 2016.

I should note that we adopted two new accounting standards during the quarter, one related to revenue recognition and the other related to lease accounting. We adopted these as early as permitted so as to minimize their impact on our organization.

The revenue recognition standard functionally resulted in no change to our previously adopted completed contract method of accounting. The lease accounting standard resulted in the capitalization of our two facility leases resulting in fixed assets and corresponding lease liabilities approximating $470,000. There was no affect on our previously reported results.

During the quarter we successfully closed an equity shareholder's rights offering of units consisting of one share of common stock and one warrant with a two-year term and a $4 exercise price. This offering brought in $8.6 million in net funding to the Company. As to our cash resources, we had about $7.5 million at the end of the quarter. And with that I will turn the remainder of the call over to Steve.

Thank you, Brian, for the financial update. I am pleased to report the continued progress ClearSign is making within our core markets and the further opportunities we are seeing through increased customer inquiries among existing and new customers, both domestically and in Europe and China.

There are exciting times ahead for ClearSign and I believe the next 12 to 18 months will prove to be a meaningful inflection point in our business supported by our innovative patented disruptive technology and our focus on building continual customer confidence and validation via successful installations in our core market.

My principal objective for this quarterly call is to provide our investors with a -- greater clarity and context for the progress ClearSign continues to make and the enterprise value being created through the proactive actions of the ClearSign team.

As I have said before, success drives success. As previously announced, we continue to get additional orders from several existing satisfied refinery customers in California. We also received our first water tube boiler order and a significant additional order for another Once Through Steam Generator from Aera.

This latest Aera contract was for their first permitted OTSG unit using our Duplex technology. Prior units were operated on experimental permit, thus this is significant because we are now on a path to have our technology classified as best available control technology, or BACT, from the local regulators.

ClearSign units already perform at better than the required emissions levels for BACT designation. And this new installation will help drive the use of Duplex technology on future units.

While we have not had any direct discussions regarding additional sales at Aera, we understand management is looking to eliminate the current environmental fees being paid by them and they have multiple units which will benefit from a Duplex solution.

Regarding additional OTSG customers, we have received an inquiry and request for bid from another large enhanced oil recovery client for the supply of our Duplex OTSG technology. Of interest, this is the same customer that has given us a contract to retrofit five enclosed ground flares, which was announced last quarter.

While we are talking about OTSGs, we continue to see delays in the project for a non-disclosed client in Western Canada. As you recall, we received a paid engineering contract to design a solution for this client but have not yet gotten an approval to install it in one of their operating sites.

This delay has been the result of several factors. The most significant is the recent acquisition by this undisclosed client of one of their major competitors which clearly postponed our demonstration project. We also understand that further uncertainty about future environmental requirements in Western Canada may have delayed this action further.

On the regulation front, we continue to experience interest from environmental regulators on the potential adoption of our technology for refinery and boiler burners, as well as enclosed ground flares, as our technology provides an economically attractive solution for achieving low emissions performance.

Frankly we expected to have a press release last week indicating regulatory interest in a collaboration for a demonstration and validation test with a major California refinery. We were actually very pleased to hold off issuing this press release until July while the regulators agreed to seek approval for funding the demo project.

We have already gotten commitments from several refineries who are interested in participating with us. Of course this is a very exciting opportunity for ClearSign and the refinery operators who may now collaborate in a meaningful way to validate our innovative American technology to cost-effectively solve emissions challenges.

I will mention that a similar project previously announced for a major Southern California refinery is still under consideration and it would likely be a great fit for this demonstration project. While we have no specific indications as to the current implementation timeframe for these projects, we expect something to still happen this year.

Also, as previously announced, our previously announced demonstration for our Duplex Plug & Play Burner is back on track. It had been delayed in part due to the recent acquisition by Delek of their sister company Alon. The new combination Delek Alon Refinery should be a great new customer for ClearSign. Again, we expect this project to be completed by 2017.

Regarding new products, we have received a significant inquiry from a major production and exploration company in California. Based on our previously successful installation and retrofit of their five enclosed ground flares, we have been asked to bid multiple unit project for which will consist of between five and perhaps as many as 40 enclosed ground flares.

ClearSign will provide their own enclosed ground flare design in order to better incorporate the features and performance of our Duplex technology and eliminate the design problems we experienced with the original flares supplied by other OEMs at that time. Depending on the final scope this would be a multimillion dollar project for ClearSign over the next year or so.

We have been conducting lab tests for a new fire tube boiler burner design which we expect will provide sub 5 ppm NoX without the requirement for costly flue gas recirculation.

This performance, while state-of-the-art for small fire tube boiler burners, is very consistent with the performance we have already achieved on large water tube boilers and represents a huge potential market both domestically and internationally. Preliminary interest among boiler OEMs around the world is very keen. We are optimistic we can achieve this best-in-class performance and testing continues in our lab in Seattle.

Beyond the expanding opportunities for refinery burners and the emerging interest in our low emission enclosed ground flares and OTSGs; we are seeing strong interest in our technology in Europe and China. China holds particular interest since there is a critical need for our disruptive technology to resolve their overwhelming environmental air quality problems.

Both Europe and China provide significant market opportunities for ClearSign. We are encouraged by the interest among various potential licensors, strategic partners, potential strategic investors -- all of whom recognize the potential impact ClearSign's game changing technology could have on their local markets.

Needless to say, we are having active and ongoing dialogue with potential partners and OEMs both domestically and internationally. This interest and opportunity is very exciting for ClearSign.

Finally, let me again thank Jim Harmon for his contribution as CFO and his willingness to support us as we may need from time to time to smooth the transition. Also I would like to thank our shareholders for their commitment to the Company and our unique technology.

I believe we are approaching a significant inflection point in our business. We are seeing dramatic increased interest among customers, potential licensors and strategic investors in our technology and I feel we are very close to a major breakthrough in all of these areas.

This is an exciting time to be at ClearSign. And I can say after 2.5 years I am more excited about getting up and coming to work than I have ever been before. At this point I'd be pleased to answer some questions.

(Operator Instructions). Lou Basenese, Disruptive Tech Research.

I guess maybe just a little clarity. It sounds like the big potential with the flare customer. Can you confirm whether that's a competitive bid situation or if you've just been the only one asked to put a bid in for that project?

Currently we are the only one who could meet the customer's emissions requirements and that was based on, as I alluded to, our demonstrated success with the previous units. So again, right now they've asked us to bid a minimum of five. And depending on what the geology predicts it could be as many as 40 additional flares and we are pretty excited about that.

So just to be clear, so these are new potential flares so they're not retrofits then?

That's correct and that's a good distinction, Lou, because the retrofit was a smaller unit contract. This particular project will require us to build a complete flare. And as I alluded to, we have a keen interest in doing that because we believe that our own flare design will allow us to optimize the performance of the Duplex technology and avoid some of the challenges we faced in the retrofitting of the original flares.

Because the flares that were purchased by this client originally had certain performance problems that were adherent inherent in that design. So this will give us a clean sheet of paper solution which I think will benefit the customer as well as of course ClearSign.

Okay, I'm not sure you can give what an ASP might look like for a new flare, but could you at least confirm that the expected margins would be the same? You guys have guided at least 50% gross margins. Is that still consistent even on a new installation?

Let me be blunt. I can tell you exactly what each one cost because we quoted it, but I would prefer not to since it's an active bid. And I think as Brian alluded to in his comments, I think depending on the final scope and complexity, we expect the margins to approach 50%. But again, it depends on the final scope and complexity of the project.

Okay, fair enough.

In simple terms, Lou, to be clear, the more the Duplex technology itself constitutes the percent of the contract the more likely it will be 50%. If the customer requests us to buy ancillary equipment from a third party, that would tend to reduce the margin because you are buying and reselling something else. Does that make sense?

Right, okay, understood. Yes, no, it does. And then I guess just a follow-up question on Aera as well. Very encouraging that they have moved from experimental permits to actual operating permits. Just curious why you might not be having direct conversations about multiunit orders. Because, if I remember correctly, they are under a time sensitive preferred pricing agreement. Is that correct?

They are. There's a couple reasons. They've had a change in leadership there. They had a key guy retire, a person that we've worked with before. And that doesn't necessarily mean anything specifically other than they are not ready to sit down and say, hey, this is how many units we need and this is when we need them.

And we are ready to go tomorrow. We have the capability and of course a keen interest in retrofitting the dozens, literally dozens of units, as you know, that are currently paying fees and we could eliminate those fees with our technology.

But bluntly, I've got to wait for them to tell me when and where. Otherwise I would speculate as I have on other occasions and I tend to be more wrong than right. So, just as a rule here, when they tell me exactly what they need and when they need it I will issue the press release.

Okay. And have they given you a timeline for this most recent order, when they would like that installed? Just any kind of guidance there (multiple speakers)?

That one they want as soon as possible.

Okay, great. And then last is just if Jim is there, I just wanted to thank him for his hard work and I've enjoyed talking with him over the last several years. But just curious if he might be able to comment. I've noticed in the last couple calls he's been increasingly optimistic about what's going on at the Company and just curious why choose now to retire when you're so close.

Well, I appreciate the kind words, Lou. I have been with the Company for six years and it's a time where I wanted a transition to another opportunity. I don't know exactly what that is by the way, but it's been an extensive period of time.

Transitions like this are always difficult. As the saying goes, there is no good time. Brian has come along to the point where he can satisfy all the needs of the Company. As Steve explained, we are in good hands there. And I have the opportunity to provide a lot of support over the next year in accordance with the consulting contract that I've signed, so that part is all good.

For myself, too, I've got other things going on in my life. I'm going to actually enjoy a little bit of the summer here and then pursue some other endeavors.

Now the other side of all this is, yes, I remain a big believer in the Company. Steve talked about some of the bigger things that are coming down the road and I think we are moving in a good direction there. As you pointed out and I pointed out several times, I fully participated in the rights offering, I'm fully invested in the Company and I don't plan on going anywhere anytime soon. So from an equity standpoint I am in.

I appreciate that, Jim. It's been a pleasure working with you and I wish you the best of luck.

Thank you.

Robert Kecseg, Las Colinas Capital.

I wanted to ask about potential more verticals. What about electric utilities? There's such a big demand for natural gas -- source of fuel for electric utilities, that's a big one. They certainly come under all the scrutiny as everybody else does for environmental issues. What's the prospect for something happening there?

Well, it's just a natural extension of what we are doing with water tube boilers. Electric utility will have a large gas-fired water tube boiler and it is just a question of scaling what we have. The Once Through Steam Generators at Aera are, let's pick a number, 60 million BTUs an hour. So even a small utility would probably be 10 times that. It's all very achievable but we haven't done it yet.

And separate and apart I'd say a lot of times the transition for gas-fired utilities tends to be a conversion of a coal-fired plant. So the requirements for just installing gas versus coal are fairly -- a low bar for the operating utility. That said, and as I alluded to, the real opportunity for us in the power industry is places like China and in Europe.

So we are pretty keen on, as you point out, scaling best to a larger size boiler and have had some discussions with the larger boiler companies in that regard. But we are bootstrapped in our way up through the technology and wanted to demonstrate some success on some of the smaller units before we get there. And it's just in my view kind of a path along the way.

And then the other thing is since some of these companies that you are dealing with now are pretty large, and to me large is synonymous with slow because that's just -- they're big and slow. I was just wondering what kind of confidence we can have to get enough cash flow going by the end of the year by the time the $7.5 million is gone.

I think that's what really -- I'm speaking from the standpoint of the markets saying I think the market's concerned about that. And with the experience so far and the slowness of the lay so forth is understood -- I guess that kind of asked the question.

It's a good question and it's certainly one that we are focused on. I think extrapolating a little bit on what we see the opportunities to be on these grounds flares and what we see to be the opportunity to be for Once Through Steam Generators, we see a lot of stuff in the pipeline that's near-term that's the next 12 months that we expect to convert into business. So it's certainly not outside the realm of possibility that we'll have some significant orders and we'll have them sooner rather than later.

Again, and as I mentioned briefly to Lou, our point of view has always been work hard to get the business and announce it when you have it. Because suggesting when it's going to occur and how it's going to be and how much margin is going to be involved, at this stage of our development that's a pretty high risk -- when I say high risk, it's a high risk fairly uncertain projection to make.

And what I'm suggesting, certainly for the next six months, is we've got enough things that we expect to actually happen that we can report that there's probably not a real value in saying, hey, it's going to happen in July or August. Why don't we just wait until July and August and see it materialize?

I was going to say since the flares have come into being -- it's an example of something that was a little bit quicker as far as exposure they got from the customer that you're dealing with. I'm just saying as a different vertical it seems to be a little bit faster to be able to get a turnaround decision and installation. That's why I was talking about other potential verticals (multiple speakers).

And let me make an important distinction, because I think you really gleaned a key point there. The first year or two I was here we called customers and said, hey, we'd really like you to try this. In this case, this customers calling us once a week saying we really need these flares.

Right.

So the whole process is different -- this is also a very large customer, but now their need and their urgency about getting delivery and the fact that our technology is uniquely capable of meeting their requirements puts a sense of urgency with them.

And I see similar opportunities with the OTSG, the Once Through Steam Generator market, where, as we move from an experimental permit to an operating permit, the regulators will declare us best available control technology, which means the operators will be pushed harder to install our technology to meet their environmental permitting requirements. And those are the kinds of things that we are hoping bring quicker momentum to the order flow for us.

And then I haven't really talked about this, but I see a lot of things in the pipeline that weren't even available to us a year ago in Europe and in China as a result of some of our business development work.

And in both those cases there's just people who are -- want to fly to Seattle, they want to come into our test labs, they want to see our fire tube boiler burner working. They want to arrange to chart out an arrangement by which they can license the technology. So it's all pretty exciting.

And the reason I'm not being more specific is frankly when you are negotiating a license agreement with a couple people you're better off play your cards a little closer to your vest.

Sure. One other thing that just came to mind to me now was you are working within those certain regulatory jurisdictions there in California, and of course whatever the jurisdiction is in Texas. Are you better to stay in those jurisdictions with different customers because you're under that regulatory body to speed the process? Or is there nothing lost in going to another jurisdiction because that's where the customer has their equipment?

Well, yeah, I see your point. Because we are a relatively small Company we tend to triage the opportunity. So, no question that in Harris County Texas, where the emissions issues are severe and the regulatory environment is favorable to our technology, that would probably be a place where we would continue to focus as in Southern California, Central California.

Those are places where the regulatory pressure on the operating companies is well suited to our technology. As opposed to -- if what you're saying is opposed to going to someplace -- pick a place like Nebraska where the regulatory regime is not so severe. That's clearly what we are doing.

But in complement to that there's a lot of pressure in China in the city of Beijing to dramatically reduce emissions in the district heating environment because the pollution is terrible and President Xi lives in a high-rise building in Beijing and he looks out his window he'd prefer not to see soot.

And in the case of places like Europe like the Netherlands or the UK or France, they have some pretty severe environmental regulations. And in many cases they mirror the kinds of stringent air quality that you see in Southern California. And because of our success, as I said earlier, success breeds success, the industry finds out that we've done well in places like Southern California and people in these other markets seek us out.

So back to your basic question, what makes me think the momentum and the speed of market momentum will increase, I think the first couple years we were really knocking on people's doors trying to get them to consider the technology and try it and it hadn't been demonstrated.

We are now two years down the road and two things are clearly true: people are calling us; and two, we've got 10 installations where works. So, we are not necessarily in a situation where we have to prove we can validate and demonstrate the technology successfully. And I've said this a few times, and you'd have to call my wife to agree with this, there's nobody who is less patient than I am.

And is there any backstop of extra funds considered to be available in the event that you need to stretch more time with the money that you have by -- and I'm getting to the point of saying that we don't want to spend as much dollars on the ECC? In other words you kind of have that as an extra?

Well, I think to the broader question, the potential for some of these orders materializing and to supplement our cash position are as I explained. I guess we always have options with respect to funds, but it would be a fairly complicated and evaluated decision.

So I don't know that I'd want to comment right now on where we would get alternative funds or what the timing of securing those funds would be. And just as an aside, we are still doing some testing on ECC, but it's not a whole lot of money. So given the potential, cutting off the spending on it as small as it is wouldn't be something I'd consider to be a viable way to save cash.

Okay, great. Thank you very much.

[David Brown], Private Investor.

Thank you. First of all, gentlemen, congratulations on the many accomplishments of the past couple years, actually for the whole ClearSign team, not just the people on the call. The way I see it, the Company's currently set up for really tremendous success. So kudos to you all for that because we have four large verticals and pregnant deals in each one of them with significant TAM in each one.

So the frustrating part, as you have all alluded to, is that we have this very nice set up that's gotten even better over the last 6 to 12 months, but the orders remain frustratingly slow.

And I guess the other part -- and this is kind of my question or my first question -- is that the Company also seems to be getting far less recognition and respect from the broader market and from institutional investors than I think it deserves. So I guess my first question then is what is the Company doing to remedy this situation so that the market cap grows and there's a lot more recognition of what you all have accomplished?

Well, I would say we reach out through trade press and we talk to investors and I spend a lot of time talking to analysts and the kind of things that are just fundamental to your question. But bluntly, and I think one of the analysts alluded to this, as soon as we see -- which I'm expecting will be sooner rather than later -- our first multimillion dollar multiunit order, I think the stock price will adjust to more accurately reflect the value of the enterprise.

And that's just -- it's event driven. And some of these things that I've spoken to have to occur, they will occur. And if I hang up and they happen Tuesday I'm going to feel like a really smart guy. If it takes two weeks I'll probably get three or four calls asking me what's taking so long. But I accept all of that. I accept the fact that it's management's job to make stuff happen faster. It's not the shareholder's job to be patient.

Correct. My second question is that given the relatively tiny current market cap of below $60 million, it seems to some investors that the Company could be a takeover target. And some of us kind of fear this because we see the prospects of being great. But what would stop a larger fish from saying we are going to give you $300 million to the shareholders and we are buying up ClearSign Combustion right now?

Well, what would stop them would be the shareholders not accepting $300 million for their shares.

Right.

I guess I'll pass on asking the question, but if somebody offered us $300 million would you take it?

I wouldn't be happy about it myself, but I just fear that some people would say, oh, that's an easy quadruple or more of my holdings. And so some -- there might be some quite tempted folks.

That's a fair answer. I'm just giving you a fair answer. I think the shareholders themselves would have to decide what that would mean. But frankly I think there's a lot of long-term value in the company. As it's been said before, This is a industry changing technology that's going to fundamentally change the way combustion is administrated and executed for decades and what's that worth.

And it would be probably worth noting that we get interest from large strategic partners and potential licensors that see it that way. We're not there yet, but it would be inaccurate for me to suggest that people [aren't] talking to us -- not about buying the whole Company, but about having a proprietary exclusive relationship with us in certain markets or for certain parts of our technology -- of course.

And I would assume that that would be another way in which the Company's stock price and market cap would adjust if there was a large licensing deal signed that was significant.

Yes, all of those things are really opportunities. They are opportunities that are a lot closer to my field of view today than they were 12 months ago for all the reasons that I just articulated. And that combined with the possibilities of strategic investors anywhere from Europe to China to even in the United States -- all of those things are in play and frankly are, as a shareholder, are all exciting to us shareholders.

Indeed. And I'm very excited and that is why I wanted to, despite what the market cap is right now, just congratulate you all. Because the setup is really truly in my eyes fantastic right now.

Well, thank you.

Richard Deutsch, National Securities.

Yes, thank you very much. Steve, I've been following ClearSign, as you well know, for two or three years and I've watched this thing from lab experiments, which in the early days were announced as you achieved each milestone and your stock reached double digits.

Since that level of success your stock has fallen down to below where you started and yet you seem to be in multiple ways having many shots on goal to become not just a Company with increasing sales but actually industry standards, because I don't see any competition that's emerged in the last couple years that fulfills the customer requirements at the (technical difficulty) technology does. So you see any competitive products out there in the field that are possibly competitive with your technology?

There are people who are trying. There are some, for example, boiler burners that could be applied to Once Through Steam Generator's that can produce NoX that is close to what we're doing. But no one can do it without FGR and the energy penalty for FGR is -- for the flue gas recirculation is very, very, very, very high. And quite frankly, we're now being asked to look at retrofitting some of these technologies to use our ClearSign because of the inherent energy savings.

So, the answer currently is no. I always maintain a certain level of healthy paranoia about what my competitors can do because there's some pretty smart guys working at these companies. And that obviously is good for a couple reasons. One, they're smart enough to know how good our technology is an maybe they will want to license it, rather than trying to figure out how to do what we already can do that they have not yet been able to do.

And you also actually failed to mention something that in my research among industry people comes a very high on the list separately from pollution control. And that's the safety claim impingement, coking maintenance improvements that your technology brings forth. Is that not something you're getting any interest in? Or is that just you've got so many things to talk about it's just like left on the sidelines?

Not to disagree but to remind everyone, we are certainly -- remind us that the original initiative behind Delek's interest in our technology was not because of low emissions but because of inflame impingement and coking problems they had at their FFC heater, fluid ice [cat] cracker. Jim is still kicking me under the chair saying I use too many acronyms, but --.

And so, the ability to resolve operational problems independently of NoX is a very key attribute of our technology. And I think we've maintained, and this was a number we've gotten from several industry experts that 20% of the opportunity for us to retrofit burners and heaters is not due to emissions but due to the fact that they've got mechanical or flame impingement related problems. And I would say that's conservatively the case.

And that's, again, one of the reasons we are anxious to get the Delek unit in and operating because that will be a great installation to show people how we've solved the flame impingement problem. And in the case of this particular heater, they have other heaters that have this problem.

So, I think you make a good point, as always, Rick. And there is an opportunity, as we say in our various disclosures, that the technology is an emissions play, but it also improves operational performance and efficiency. It does all three things.

Okay. And I will just leave one more question before I go back into the queue. And this would be the almost biggest thing that we could cover right here and that is your discussions with the Chinese. Two things: number one, there's different levels of discussion and there's different potential outcomes. So number 1, just how serious are these people? Are they curious or are they serious?

And the second thing is, going back to the financing, would there be any likelihood that there would be some upfront money if you were able to conclude a deal before the end of the year that would extend your run rate further out to allow the market capitalization to get into gear?

Well in this order, I think the people we are talking to you we believe are very serious. I think having dealt in China in the combustion business with my former company and the rotating equipment business before that for 20 years I think you bring a good point.

The reality of it is I think we've been pretty diligent about distilling out people in China that really have a keen interest in our technology. So, I think the people we're talking to are serious.

Relative to being able to bring money into the Company either through a licensing deal or a strategic investor, I'm absolutely certain that will happen in China from some form or another. Relative to the timing, quite bluntly you could bring it in faster if you want a fast deal. You bring it in a little more slowly if you want a really good deal.

Right. Okay. All right, well, I'm counting on it happening. I'm buying it expecting it to happen. We'll be expecting some good news from you in the upcoming months. Thanks a lot, Steve.

This concludes the question-and-answer session. I'd like to turn the conference back over to Steve Pirnat for closing remarks.

Okay, if there are no further questions, I'd like to thank everyone once again for attending today and for your ongoing support and enthusiasm. Thank you, Amy.

Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.