ClearSign Technologies Corp (CLIR) 2017 Q2 法說會逐字稿

Good day and welcome to the ClearSign Combustion second-quarter 2017 results conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Matthew Selinger of Three Part Advisors. Please go ahead.

Thank you, Brandon. Greetings, everyone, and thank you so much and welcome to the ClearSign Combustion Corporation's second-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 analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statement. The risks and uncertainties associated with the forward-looking statements made in this conference include, but are not limited to, whether field testing and sales of ClearSign's products will be successfully completed; whether ClearSign will be successful in expanding the market for its products; and other risks that are described in ClearSign's public periodic filings with the SEC, including 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. On the call with me today are Steve Pirnat, ClearSign's Chairman and Chief Executive Officer, and Brian Fike, ClearSign's Chief Financial Officer.

So with that, I will turn the call over now to Brian Fike. Brian?

Thank you, Matt. And thank you to everyone for joining us on the call this afternoon. Before I turn the call over to Steve, I'd like to review our results for the quarter as they have been reported on our Form 10-Q.

For the quarter, we incurred a loss of $2.3 million compared to a loss of $2.4 million for the same period in 2016. And a loss of $4.6 million for the 6 months ending on June 30, 2017, compared to a net loss of $5 million in the same period of 2016.

Our cash resources at the end of the quarter were about $5.4 million. And our current backlog of orders is about $1 million, which consists largely of a previously reported flare retrofit project and continuing refinery projects.

And with that, I will turn the remainder of the call over to Steve.

Thank you, Brian, for the financial update. And thank you and welcome to the participants on today's call. We have had several significant events occur since our last call and I'm happy to provide insight into their importance to ClearSign and our long-term shareholder value. I would also like to update you on topics discussed during the last call.

Now, let me go over some of the recent developments that we have announced and discussed within ClearSign. First, let's talk a little bit about our supermajor oil company order. We are extremely pleased to have received our first order from a supermajor oil company for a series of tests to demonstrate our Duplex technology in our research laboratory in Seattle.

These tests are designed to simulate a series of conditions in our laboratory that will test our Duplex technology's wide range of capabilities with respect to operational performance, emissions, fuels, and safety beyond what can normally be demonstrated in an actual refinery furnace.

These tests are a prerequisite to installing our Duplex technology in the customer's actual refinery furnace. And when successful will lead to further deployment of our Duplex technology more broadly throughout the supermajor oil company's vast refinery operations.

The exciting aspect of these tests is that this supermajor oil company chose to pursue our technology after they carefully reviewed our actual field performance in a refinery in California. And reviewed detailed case study information of this installation provided by ClearSign at the American Flame Research conference.

The fact that they were willing to pay ClearSign for these tests is extraordinary, since most companies would gladly provide this testing for free in exchange for an opportunity to work with this supermajor. Thus, this order reflects the seriousness of their intentions and the compelling nature of our technology for them.

We are building significant momentum among regulators. Another announcement we made just a couple weeks ago was the South Coast Air Quality Management District technical committee approval of a recommendation to their Board of Directors for funding of a ClearSign demonstration project in a Southern California refinery. As mentioned in this release, this is subject to final approval by the Board at a meeting coming in September. However, we have high confidence that this project will receive approval.

Why is this important? Well, let's look at it on multiple levels. Here we have a regulator who has seen our technology at work and wants to fund an installation at an operation in their district. They see the value and advantages of the solution that our technology brings to the emissions problems in their district.

What's the benefit to ClearSign? First, another significant successful demonstration with a new customer who has the ability to deploy our technology throughout their operations. Second, and probably more importantly, the district is considering BACT designation for ClearSign technology based on a successful outcome from this demonstration.

BACT stands for best available control technology and is the top destination issued by regulators for this type of technology. Thus, operators would be compelled to use our technology based on this designation.

Joining us in this project will be Tesoro refinery, now PBF Energy and formally known as ExxonMobil Torrance. They will participate in the demonstration and proposed funding and provide us with a strong partner. We believe other Southern California refineries will also want to engage in this process at some point and we are having discussions with several.

Beyond Southern California, we've had keen interest at the San Joaquin Valley air quality management district, who has advised us that they are considering approval of our Duplex technology as best available control technology for once-through steam generators and plan to do so in September. This would help facilitate multiple OTSG orders for major enhanced oil recovery operators throughout California.

Further, California regulators are fully aware of ClearSign's refinery and the close flare performance results. And they are considering ClearSign for additional BACT designation of our technology in these applications. This regulatory interest should drive increased sales of Duplex technology to additional refineries and drive expansion of sales of our unique enclosed ground flare technology currently operating in Central California.

Of course, continued progress within the refinery and enclosed flare space creates interest and incentive for potential licensing agreements. And selective discussions with key channel partners are in progress.

Now let me update you more specifically on the status of certain projects discussed during the last call. The Delek refinery test, which had been delayed for several months as reported earlier, is now scheduled for installation this week. Delek has also agreed to publish a joint technical article with us for the results of this installation in one of the major trade magazines.

We again are focused on reducing flame impingement problems at Delek, not just NOx emissions. The successful demonstration of our ability to eliminate flame impingement and improve furnace throughput will provide a tremendous opportunity at Delek and other refineries for debottlenecking key assets like coker heaters and crude furnaces. Of course, this has huge potential business applications globally.

Regarding the enclosed ground flare retrofit project underway, we have successfully retrofitted three of six ground flares and are working with the client to schedule the completion of the final three. During our last call, we were told that this same customer would need multiple additional flares and units and are optimistic that we will still see future business from this client.

However, they have not been able to identify specific needs or timeframes for these additional flares as yet. In point of fact, there's been some discussions internally regarding the value and productivity of the geology in the fields they are looking at. So they are really undecided as to how many wells they are going to have to drill and what kind of production they can expect.

Nevertheless, we have been requested by this same enhanced oil recovery customer to provide a proposal to retrofit one of several once-through steam generators based on our ability to reduce NOx and eliminate the needed FGR, thus saving them considerable operating and fuel costs. We expect to receive a contract for these retrofits shortly.

Let's talk a little bit about the pipeline and additional opportunities. Beyond the projects discussed, our pipeline of proposals and project interest among customers continues to grow from both refineries, once-through steam generators, boiler manufacturers, and flares.

We have seen customer inquiries, both in the US and in Europe and in China. China in particular has severe air pollution problems for which ClearSign technology provides an ideal solution.

We had previously announced a significant retrofit project for Duplex technology on a large water tube boiler at a major district heating supplier in China. This demonstration project is estimated to be completed within six months and represents a huge opportunity to enter the Chinese market.

This particular customer has several thousands -- that's several thousand boilers that would be potential candidates for retrofit. And success at this state-owned enterprise would provide a great reference for a broader deployment for our technology throughout the heating district market within China.

When successful, this heating district client has expressed a keen interest in partnering with ClearSign in a WFOE to promote ClearSign technology throughout China. This opportunity has led to other broader interest by strategic investors among several potential Chinese partners. We are very pleased but not surprised by the intense level of interest in China for our game-changing technology.

Now I'll talk a little bit about our R&D efforts. We are making good progress on our small, high-volume fire tube boiler burner. We are striving to achieve the same performance we have already achieved in the once-through steam generators or sub-5 ppm NOx at 3% oxygen without FGR. We have several boiler OEMs ready to license this technology in the US, Europe, and China once we achieve this performance.

Testing within our laboratories continues to be very promising. And we have been able to achieve significant improvements as of last Friday: 5 PPM NOx, but at a much higher oxygen level. Nonetheless, we still believe that we can achieve our state-of-the-art stretch goals of 5 ppm at 3% oxygen.

Organizational changes. We were pleased to announce that Stephen Sock join ClearSign as Head of Business Development. Steven is a longtime industry veteran with extensive experience in the energy and combustion space. Steve spent 30 years of increasing responsible positions with Amec Foster Wheeler.

Steve will take over for Andrew Lee, who has announced his intention to retire in September. Andrew has agreed to provide consulting services to the Company to facilitate a smooth transition between himself and Steve Sock. I'd like to thank Andrew for his years of service and dedication to ClearSign.

I remain very excited about the many opportunities among key customers, regulators, and potential strategic partners like China. Nevertheless, I remain as impatient as ever to see some of these materialize faster.

It is important to note that some of the delays that we have experienced have resulted from clients' needs and schedules. And ClearSign has consistently been able to adapt to meet their needs. This has enabled us to not only promote our technology, but also to establish strong relationships and advocacy among our customers.

With that, I'd be happy to answer any questions.

(Operator Instructions) Lou Basenese, Disruptive Tech Research.

Congrats on the progress with the supermajor international front regulators. Just wanted to see if we could spend some time, maybe some give us some more color on each of those.

China specifically, you mentioned that the potential there in the thousands of units and that the timeline was about six months. It's my understanding their heating season starts typically late October, early November. I know you guys tend to be conservative with timeline estimates. Is it unreasonable to assume that they would want to get that installation done before the heating season?

That's absolutely right. When I say completion of the project -- let's say we got it in in October towards the beginning of heating season. We would expect they would want to see the thing operating for three months before anybody would declare victory.

Okay, that makes sense then. So the actual installation is sooner. It's just the completion of the project is about six months?

Yes, that's absolutely the case. And again, this particular client is frankly over the moon happy with what they think we can achieve. And have been very forthright in offering to promote our technology throughout other heating districts within China.

Are they -- I know the partner is unnamed, but do they have any type of influence over other state-owned heating districts? Are they on a chair of any Boards that would give them some additional sway?

It's a very insightful question. It turns out the person who is head of this company, the head of this state owned entity, is actually the head of the China heating district.

Okay. All right, thanks. And then maybe just moving onto the regulator South Coast Air Quality Management District. I think you mentioned in your prepared remarks about Tesoro and PVF at the Torrance refinery. Any insights into how you selected -- or how the regulator selected the initial sites for installation?

Well, the regulators left a lot of the flexibility to us to pick someone. Bluntly, I would've expected Tesoro to move faster, given the head start they had in terms of their relationship with us.

But it turned out to be PVF, and of course, we went with the first person to raise their hand. We still expect to see Tesoro get engaged, but from what we can understand so far from Tesoro management is that they are taking a more cautious wait-and-see approach to better understand what the requirements are actually going to be and with the timeline is.

As you probably know, the South Coast Air Quality Management District went from basically a cap and trade to a kind of a command-and-control process. So I think Tesoro wants to see what that is going to mean to them.

But Tesoro made it clear when they were here that to meet any kind of south coast standard would require a huge expenditure towards currently putting in SCRs. And the ClearSign technology is certainly a much, much more cost-effective option.

So just want to drill down there more a little bit because of that transition with the regulator. If they move from cap and trade to command-and-control, that means this test that they are doing with you and PVF could be the foundation for them to not just recommend but require ClearSign's technology be used. Because at that point, they would have all the data.

Yes, that's exactly right. That's exactly right, Lou. In fact, if you -- there is on our website a YouTube link that shows the actual technical committee meeting. And in that meeting, one of the directors suggests that they might want to be in a position where they just require people to use the technology.

Okay, great. And then maybe moving on to the international markets. I know in recent quarters you had made a big push there. You hired Clarence for sales in Europe and then added Steve. Can you just comment on maybe any early traction they are getting? Or what might be reasonable to expect in terms of new business coming in the next quarter or two from their additions?

Yes, we have a handful of projects that are opened with Clarence. I actually spoke to him this morning. If you can imagine, he's in Europe, so his morning is a lot earlier than my morning. But we have got a handful of customers. Some of them are refiners, but others are actually boiler OEMs who have expressed interest in working with us in various forms.

Okay. I mean, are those things we can expect to move across the finish line into formal agreements here the next three months? Six months? Or any kind of indication on where they are at in the pipeline?

With respect to the individual, let's say, refinery projects, I'd certainly think those things will happen in three months or less. But with respect to negotiating the long-term license agreement with a major European boiler company, I wouldn't want to paint myself into a corner for a timeline. As you know, I think we had kind of fallen victim to that a few years ago.

And I can say with certainty that the companies that we have spoken to have said if you can do 5 ppm at 3% oxygen with no FGR, we want to license the technology. And frankly, Lou, that's not a real big commitment on their part because all that they are saying is if you come up with the best technology known to man in the industry, we would like to license it. Well, I guess so.

Yes. I guess that maybe leaves just two more quick questions. One is on the technology side. You mentioned that you had good success with the boiler headquarters at 5 ppm, but higher oxygen concentrations. For a layman, what's involved with getting the same results in terms of emissions at a lower oxygen rate? I mean, what kind of wood needs to be chopped together?

We continue to experiment. It is continued experimentation. I guess I should clarify. The higher oxygen percentage has an impact on efficiency. So we are getting the lower NOx levels, but we are getting it at maybe 8% oxygen instead of 5%. And that has inherent fuel consumption issue.

We can get -- at 3% oxygen, we can get about 10% NOx. Maybe that's more of a steady-state way to look at it. And quite frankly, in most places, 10% ppm at 3% NOx is an acceptable alternative technology. It's just that we're trying to kind of hit a home run here.

And back to answering your question, I think in simple terms if we could bring the boiler OEM and then either the large US guy we are talking to or the large European guy we're talking to, bring him into our lab and show him 5 ppm at 3% oxygen, we could sign a deal in a week. So the delay is not the negotiation part, Lou. It is the technology part.

Would you characterize the work that has to be done? I mean, what is your confidence level based upon all the development you guys have done to date? Highly confident that you can bridge that final gap?

I'm absolutely confident we can bridge the final gap. And bluntly, I'm confident because three smarter guys than I am are confident.

All right. Well, lastly, I just want to ask Brian if he might be able to comment on the cash burn. It seemed to be down a little bit. And what the current thinking is on the balance sheet and funding.

Realistically, the cash burn is down. I mean, it's just something that we continue to put some pressure on, kind of staying with the asset-light capabilities that we have been at and want to be. So it's something that's just always under management and being looked at to find better ways to go.

Yes, we are always cognizant of our capital needs. And we still remain confident that we can -- some combination of the technology and the pipeline of business and our ability to convert backlog into income, develop new clients. The potential opportunities with strategic discussions with people in China. And of course, interest among investors will allow us to keep going.

Okay, great. Thanks for answering all my questions. I appreciate you taking the time.

Jared Mayer, Confido Holdings.

Thanks for taking my questions. First, on the supermajor, obviously without names, can you give a little bit of an idea around sort of timeline and potential size of opportunity post-test?

Post-test, I would be reluctant to guess, Jared. But I know they want to come in in the next couple months and witness the demonstration test here.

And then the reason I'm a little reluctant is my experience is that the technical guys will I'm sure leave here excited about the capabilities. But then they've got go back to a refinery operator and negotiate what asset will they take out of service and what heater in what refinery will they install this.

And they have already suggested a refinery, but if I told you the name of the refinery, then you know the name of the client. So I guess I'm not going to do that.

But you know? I think the point being -- the point here, and I want to make sure I don't let people miss it, is you've got a supermajor oil company that's so excited about the technology that they actually paid for something they're used to getting for free.

And if it works the way they envision, it is obviously important enough to them that they want to put it in, see how it works. Because ultimately, it will save them a lot of money compared to alternative NOx reduction strategies.

That's certainly a big [burn for them].

So my point is if it works the way they think, there's going to be some gravitational forces at the client level to pull the technology in. Because they will see it as a lower-cost alternative to putting in something like an SCR.

And I guess we have become accustomed to having some of the field tests run for a bit of a time in order to meet the client requirements. What does it look like when you're doing these tests sort of more in a lab than in the field in terms of how long it needs to run and the kind of data that you can get?

Well, the lab tests will only take maybe three weeks. And the lab tests -- and I'll emphasize this. They want us to do things in the lab that you would never, never, never do in a refinery. Run the burner out of air, pick fuel combinations that are on the ragged edge of stability. And do a lot of things that give them an extraordinary comfort level that if things get a little bit sideways in the actual field application, the burner is safe enough, stable enough to operate. And I think what they are doing is really a clever idea and something we are pleased to do.

Okay. That's helpful.

But because the testing is very defined, it's a few weeks. It's not like a let's put it in the field for year and see how it works. When we get done wringing out this test, then they will have seen a lot of conditions in our lab that they hopefully will never see in the field. But have a higher level of confidence that if something goes wrong and it happens, they are covered.

And for potential other customers that would have maybe similar units at least in terms of vertical, is that data that you're free to then show to other potential future customers?

We have actually gone ahead and asked this particular company if they would mind if we had some other oil companies attend the test. And they haven't said yes yet, but they didn't say no.

Okay.

So to answer your question, I really think -- one of the things about oil companies is they tend to be pretty good at sharing information if they think it's for the good of the industry. And I believe this company looks at our technology as something that lifts all boats.

If they can come up with a technology that will dramatically reduce emissions and is cost effective and reliable, that's something they considered to be good for the industry.

Okay. And then touching on smart pilot, which should come up in one of the presentations, help me understand a little bit more kind of what breakthrough there was there and the potential uses that you would see in the field.

The whole conversation is premature because the slide talked -- and I have to think about how it got into the public view. But it was an internal slide as part of a research report that was made.

And what the smart pilot does, to answer your question, is the pilot has the ability to be able to make real-time estimates of fuel air constituents and combustion efficiency. So we think the thing is really very, very slick. And it's based on certain elements of our original ECC platform.

But the concern I have about delving too far into it is we haven't quite figured out what the final version of this thing is going to look like. We haven't figured out therefore what the final cost will be. And we haven't quite figured out exactly how much we can sell it for, which we figure will be a lot of money. But until we really do a little bit better job of framing the market opportunity, it's still premature.

Okay. And then can you touch on Lou's question --

And by the way, it is good and it's upside.

Right. It served that call option at the moment. Touching on Lou's question of around China, you mentioned there being thousands of potential units that would be retrofits. What would it look like to actually take on that kind of a size project on the other side of the world? And how do you approach that?

Well, I was trying to convince Brian Fike to move to China. No, but -- he's -- look at him, smiling. For us to do that, we would -- and the client himself has talked to us about setting up what's called a WFOE, which is a wholly foreign owned entity. And they would help us provide resources to set up a company that would have a service capability and a mild, let's say, subcontract capability. That's one option.

The other option is to take the current supplier of these boilers and burners, because these thousands of units have been supplied by an existing incumbent company, and working with them on some form of a partnership specifically in the form of a licensing agreement.

And the reason that that answers the question is then we wouldn't have to go out and hire people and build the capability. We would just leverage the existing capability and turn it into a royalty stream. The advantage of that, of course, is you turn a potential competitor into a partner. And you use existing resources which are already substantially trained and are in operation.

Okay. That makes sense. And then lastly from me on the Europe front. Help me understand how investors should be thinking about timeline there looking for field tests to sort of hit the ground. Are we looking for licensing? And when can we expect to start to think about some penetration?

Well, I think with respect to -- let me just bifurcate the opportunity, if you will. There's the refinery petrochemical piece. And we are just in this kind of go-to-market sequencing. We are hoping to get several installations in Europe that we can use as the basis to enlist some interest among potential refinery burner suppliers in Europe.

And then on the boiler side, there are some fairly large boiler OEMs in Europe who have already expressed interest. This is just the work of our business development director in Europe about licensing the technology.

But the next step there is to get the demonstration site we have in our lab up and running and then bring them over and show it to them. And then figure out how we can integrate their designs with our designs. So they are kind of separate timelines.

With respect to the boiler opportunity, the driver there is going to be our ability to get the 5 ppm 3% O2 no FGR burner developed and operating. And we are getting a lot closer, but we're not there yet.

That said, we have been able to achieve that level of performance on once-through steam generators. So without getting too much into the weeds technically, it is certainly possible; we've done it before. But scaling it down, it turns out, is harder than scaling it up.

With respect to getting installations in Europe for refinery applications, we've already demonstrated an ability to provide solutions to refinery operators. And once we have some, let's say a handful, three or five installations in Europe, we are going to approach some of the current European burner manufacturers about partnerships, either subcontract or license or some combination of both.

And our discussions around the installations, are those discussions underway? Are those things that we could see in this calendar year where you'd actually start a retrofit? Or should we be thinking about that more as a calendar 2018 type thing?

Well, I'd say that -- and to me, to be -- I'd say to be conservative, it is probably a 2018 event. Because as far as I'm concerned, it's September. So we don't have that much 2017 left. But it's more than a dream; it's ongoing discussions and there are projects that are -- we expect to close soon.

So just understanding the timeline, we have to get an order and then we have to get access to the asset. And we have to install the equipment and we have to operate it for at least a couple of months before I'm sure the customer will accept that as a success. And so you start to run out of time in 2017 to do those things.

Okay. I'll let the rest of the queue jump in. Thanks so much.

Robert Kecseg, Las Colinas Capital.

I wanted to ask you about the current installations. I guess it's four separate customers. I just wanted to confirm that they continue to perform as previously reported.

Yes.

As far as -- okay. And I think you might have answered this when you said that the OTSG was the 3%. I'm a little bit confused on the 3%. So take the California refinery and the Tricor asphalt guy, what sort of -- what's the difference in their operation? What's the percentage used there in oxygen?

The Tricor application is a refinery application, not a boiler application. So it's kind of apples and oranges. In a refinery application, it is probably still running at 3% oxygen, to answer your question. But it's a less difficult thing to do it in a refinery heater than in a boiler. And it's a lot harder to do it in a fire tube boiler than in a large once-through steam generator, which also a boiler.

And the reason for that is that the heat density of these fire tube boilers is significantly higher. The amount of heat that's generated in a cubic foot of boiler is much higher in fire tube boilers. And they are tended to be used in schools and in hospitals and smaller applications. So that becomes the challenge.

Of course, as I said earlier, we're pretty optimistic we can get that done. But again, it's a different design and requires some continued experimentation.

So is it fair to say that the $1 million or so in quarterly R&D, a lot of that is being diverted to that? Does it have to do with this issue of the amount of oxygen and the amount of parts per million of NOx? That the Company is working on [sort of thing].

The R&D spending goes into a lot of different things. Yes, it goes into boiler development. It goes into additional characterization testing of the Duplex technology itself. When I say just in characterizations, different fuels and different heat releases and different sizes. So the answer is, yes, to a lot of things.

And then also on that Southern California air quality management, it looked to me like they were expecting to be at a 3 part per million NOx. And I thought that most of the stuff the company was striving for kind of as advertised was basically I guess less than 5. Is that the requirement that they are expecting to get in order to pass?

They would like as low as we can achieve. That's one of the reasons they want to fund this thing. We have certain permitted sites that are actually operating below 3 parts per million. Because the -- ultimately the information is available through the Freedom of Information Act, some enterprising analysts have actually gotten the information.

But our obligation to our customers is not to disclose beyond the 5%, which is the permitted value of what we are actually getting. So the expectation with the South Coast Air Quality Management District is that they would be able to collaborate with us during the testing and get every aspect of the data for themselves as part of their, let's say, intention to consider us as BACT.

And the thing that I think is interesting to mention with respect to SCRs, and it was clearly evidenced in the video from their technical meeting, is SCRs can arguably produce 3 ppm NOx consistently. But in order to do that, they use an ammonia reagent, which tends to provide 7% -- 7 ppm ammonia slip.

So while they are reducing emissions with ammonia, they are introducing -- reducing emissions with NOx, they're introducing ammonia into the atmosphere.

(multiple speakers)

Pardon me?

So they have introduced a whole new emission.

Yes. Again, the thing that I think if you're really interested, and you sound like you are in the whole discussion, the technical committee actually made a very detailed presentation to their Board. And it is captured on a YouTube video on our website.

Yes. I watched that. Thanks. I wanted to ask you about the funnel of flow. Even the relatively smaller operators like Delek, could take them a while to get to the funnel to actually make an installation.

It seems like if you are trying to get to, say, 40 installations a year to generate X number of millions of dollars, it would seem like you would have to have a lot more of these trials than what we have. And I know you can't snap your fingers and make that happen, but I just think it seems like there's this pace.

There is this pace that they have and they all seem to have the same pace, which unfortunately drags out for a long time. So I just was wondering, is there some way or some plan to try to get up the prospects up to 40 or 50 prospects to be able to somehow get towards that breakeven?

Yes, I think there's a couple ways to get where we want to be here. One is to work a license agreement with an OEM that's currently making 300 or 400 boilers a month and they want to buy our burner. So then we are selling to them and they are helping us comanufacture it.

In the case of -- let's pick a supermajor, you have a successful test. And they decide that you've become their new technology standard, so they buy, let's call it, 50 burners a month for their normal use. And all of a sudden, you're getting 50 burners a month.

You look at Delek in particular, the test that they are doing, which has been delayed, is in a cabin heater that I believe has four or five other burners. So when this test is successful, the next thing they would do is give us an order for four or five additional burners and then try to test them all together. So the numbers could build up pretty quickly.

You look at once-through steam generators, and I'll mention that early days, we talked about our client Aera, who negotiated as part of our original test program a multiyear multiunit contract which they haven't executed on. Their current gating process is to have us start up and test a unit at a site in California.

And they want us to operate on what's called race gas, gas that comes off a wellhead. And assuming we can do that, which we think is a slam-dunk, they've agreed to then release the additional units. And in part, because they would like to reduce the amount of fees they are paying for their excess emissions. The refiners refer to them as fees; you and I would call them fines. But reduce the amount of fines.

So a success at somebody like that would result in multiple units based on what we have done so far. So there's a lot of opportunities for add-on business with existing customers. And certainly, the strategy overall is the multiplying effect you would get for having someone like a Chinese district heating company that, if successful, has really literally thousands of potential installations. Or a supermajor oil company or licensing the technology to an existing burner company that already has a huge book of business.

All of that said, there's no doubt that we are starting to see increased numbers of inquiries, which is all very promising, but not at the pace that we are hoping to get to, which is really 20, 30, 40, 50, to your point. The math we're doing that the way we're doing it would require an extraordinary amount of time.

And that's not how we plan on doing it. We think it's going to happen through licensing and through bolt-on business with existing customers that already have additional demand and they're waiting to see how the technology performs. So I think there's a lot of upside opportunity for accelerating the demand curve.

I think I really understand (technical difficulty).

(Operator Instructions) David Brown, private investor.

Congratulations on all the recent business deals. My questions have been answered quite a bit, but there was just one point that I know a lot of long-time investors like myself are rather frustrated right now. Because we're at this kind of I would call it a schizophrenic time, where we've had great news really about lots of new business deals.

The thing we are lacking is revenue. I think that is what the market is fearful of is the slowness of the revenue and possibly fears of more dilution in the share price. So what -- I know we don't necessarily talk primarily about share price at a conference call, but it is the reality that many of us investors are dealing with.

I think you answered it just now a bit with what you've talked about. But can you give me a little more color about how we can get from this frustrating point at which we have seen the share price go up a little bit with the announcement of the supermajor, a little bit with the Chinese announcement, but then it comes right back down again?

I don't know what question you're asking me to answer.

I guess I'm asking what is it going to take to get the revenue to start to flow? Because that's been the real challenge.

Okay. Well, that was I guess the question I tried to answer for the previous caller. The revenue will start to flow when we get our project in China moving, when we get our testing done with our supermajor oil company, where we start to see some add-on business from some of our current once-through steam generator OEMs.

When we perfect our fire tube boiler burner, as I described, at 5 ppm low oxygen, where we can then start licensing it to the various boiler OEMs that really use hundreds of these things. I'd say hundreds of them a month. That's how you kind of create the inflection point where you start to see some momentum.

And then in the backdrop of all of this, you have interest among potential license orders through our current incumbents that perhaps see our technology as an opportunity to not only accelerate their business. But based on the value proposition that we can provide, maybe a way to enhance some of their margins.

Because they are selling equipment that's in some cases more expensive to make and isn't as productive in terms of fuel consumption or emissions performance. So I think those four things is what's going to drive revenues to the point where we start to see some momentum around sales. And I agree; I think if we had a $25 million, $30 million backlog, I think the stock price would go up. If that's your question, I agree.

Robert Hoffman, Princeton OPportunity Management.

Thanks for taking -- I have a couple of disparate questions. It sounds like the supermajor testing, it's not that they don't believe your system works under normal circumstances. They've kind of bought into that. They are really just trying to push the extremes? Is that a good characterization of what --?

Yes, I think that's a good -- that's very insightful. As I said in the opening remarks, they based their interest on a case study that we did at a refinery in Central California. And they were given very comprehensive performance information through a article that was written by Dr. Ruiz and submitted to the American Flame Research Institute.

So they vetted the technology operating under normal stances very carefully. But what they were wondering is -- and that's why refineries tend to want to let something run for two or three years before they decide. What they are doing in this case is they are saying let's in a laboratory environment, where we can really challenge the system to do things that might be black swan events, let's try to challenge the technology under some extreme examples.

And based on how it performs, determine if we've wrung out more of the risk than we would normally see in a typical year or two of normal refinery operation. You know, for example, what they like to do is they like to reduce the amount of available oxygen so that the burner basically snuffs out. And we can control something like that in our laboratory, but you would never do that in a refinery.

Right. And by doing that, it's not like they expect it when oxygen gets to be 1% for you to have the NOx low. They just want to make sure that there's not some ancillary event that happens when it gets to be that low or no oxygen at all.

Yes, that's right. They just want to better understand the behavior. And in some cases, that will tell them what kind of safety instrument protocol they need to install.

Got it. Getting from lowering the oxygen level to keep the NOx or get the NOx under 5%, for those of us who aren't combustion engineers, what does it take to do that? Is it a tweaking of the fuel mixture? Is it a tweaking of the design of the tiles or where the tiles go? When you say you're confident that you will get there, can you just kind of give us some parameters of what it takes?

Yes, I think what we are looking at is different orientation of the tiles and different configurations of the tiles. How many holes, how thick, how wide, how long? And I guess I'm a little bit reluctant to disclose intellectual property in our lab over the phone, given the fact that half the callers are competitors.

I understand. So it's a -- but it sounds like it's a little bit like [what airline] -- yes.

It's not like we have to find -- yes.

You don't have to find a new material for the tiles or anything like that. It just sounds more like a tile design and placement issue from what you said.

Yes. I mean, to answer your question in a way we use to kid about it, we don't have to find unobtainium to make this work. But in these smaller, higher-heat density applications, we are pushing the temperature limits on some of the refractory material. So we are looking at existing materials, but materials that have higher melting points.

Got it. And to follow up on one of the questioner's question about installing -- if you are to get a 1,000-unit order in China. And I think you talked a little bit about the legal structure and then a little bit about the installation personnel structure.

But I want to make sure I understand that the production of tiles or the manufacture of tiles will never be a gating issue. Once you come up with a design, the manufacture of those, which are outsourced, should be very scalable, correct?

Yes. I mean, that's correct. One of the largest suppliers of the more common variety of ceramic materials is actually in China.

It looks like we have run out of time, so this concludes our question-and-answer session. I would now like to turn the conference back over to Steve Pirnat for any closing remarks.

Okay. Well, once again, I'd like to thank everyone for joining the call today and we appreciate your continued support.

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