ClearSign Technologies Corp Q4 FY2022 Earnings Call

Good afternoon and welcome to the ClearSign Technologies Fourth Quarter and Full-Year 2022 Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Matthew Selinger of Firm IR Group. Please go ahead.

Good afternoon and thank you operator. Welcome everyone to the ClearSign Technologies Corporation fourth quarter and full-year 2022 results conference call. During this conference call, the company will make forward-looking statements. Any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and prospects. These statements are based on judgments and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call include, but are not limited to, whether field testing and sales of ClearSign's products will be successfully completed, whether ClearSign will be successful in expanding the market for its products and other risks that are described in ClearSign's public periodic filings with the SEC, including the discussion in the Risk Factors section of the 2022 Annual Report on Form 10-K. Except as required by law, ClearSign assumes no responsibility to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. So on the call with me today are Jim Deller, ClearSign's President and Chief Executive Officer; and Brent Hinds, ClearSign's Vice President of Finance and Controller. At this point in the call, I would like to turn the call over to the VP of Finance, Brent Hinds. So Brent, please go ahead.

Thank you, Matthew, and thank you to everyone joining us here today. Before I begin, I'd like to note that our financial results for the year ended December 31, 2022 were included in our 2022 Annual Report on Form 10-K which was filed with the SEC on March 31. With that, I'd like to give an overview of the financials for the year ended December 31, 2022. The company recognized $374,000 in revenues during the 12 months ended December 31, 2022, compared to revenues of $607,000 for the 12 months ended December 31, 2021. Our net cash used in operations for the year ended December 31, 2022 was approximately $4.9 million, compared to approximately $6.7 million for the same period in 2021. That is a year-over-year decrease of approximately $1.8 million. With the recent news and fears about liquidity, I think it is only fair to mention that we do not foresee risk, specifically banking risk with our cash. Our cash has held at a large national U.S. Institution and we invest a substantial portion of our cash in U.S. Government backed securities. Now turning our focus from cash to profit. Our net loss for the 12 months ended December 31, 2022 was approximately $5.8 million, compared to approximately $7.9 million for the same period in 2021. That is a year-over-year improvement of approximately $2.1 million. This favorable improvement was driven in large part to our reduced R&D costs as we shifted from R&D activities to commercialization efforts. We have approximately $9.1 million in cash and short-term investments as of December 31, 2022, and there were 38,023,701 shares of our common stock issued and outstanding as of December 31, 2022. We have confidence in our financial position and balance sheet. And with our year ending balances, we have sufficient working capital available to carry us through to 2024 and that is without cash from any other sources. Nevertheless, I think it is fair to mention that given our current backlog of customer projects, we expect customer cash collections to significantly increase in 2023, as compared to 2022 and that increase will begin in the first quarter of this year. And with that, I would like to turn our call over to our CEO, Jim Deller. Jim?

Thank you, Brent for the financial overview. I'd like to thank everyone for joining us on this call today and for your continued interest in ClearSign. For the call today, I'll go through our business segments, starting with process burners. From there, I'll discuss the recent sales and developments in our boiler burner business and then touch briefly on China and our prospects there. Before I do, I have a few comments on acknowledgments. Some of the progress I'll discuss involves burner testing. We had two projects of major importance to ClearSign in the testing phase concurrently at the facility of our partner Zeeco. For those of you not familiar with industrial scale burner testing, this is done in large heaters, outdoors, and is a methodical process that is time-consuming when working with new technology, especially over the winter months. Both tests were a huge success. I want to recognize the effort and determination it took to get there from our combined Zeeco and ClearSign test and engineering teams. Also, Susanne Meline stepped down as a Director of ClearSign. Susanne was instrumental in the operation of the ClearSign Board and I want to thank her for her service. I'm also delighted to have Catharine de Lacy join us as a new Board Member. She has truly hit the ground running and I very much look forward to working with her in the future. I will now move on to developments in our process burner product line. During our last call, we identified two important tests that were on the horizon involving our process burner technology. The first was the multi-burner phase of our testing and the final performance demonstration for our 20 burner project for a California refinery. This test was a progression after the initial single burner test that concluded in November. The final witness testing was completed smoothly in the presence of representatives from our customer and the global engineering companies supporting this project. The burner data comfortably met all requirements and since the completion of this testing, the data has been sent to the air district. The permit for our customers to proceed with the project was issued and we have in turn been formally requested to proceed with the fabrication of the burners for delivery later this year. Only the final step remains, which is to install the burners in our clients' refinery. The initial installation date was to be late this year, however, we have recently been notified that this has been pushed into 2024, due to revisions in the refinery's turnaround planning. However, we are scheduled to be fully complete with the manufacture and delivery of our burners this year, so basically over 90% complete with this order, both in terms of our work and from a financial perspective regarding revenue and income. I want to stress that we have successfully completed all of the product set up and demonstration to our customer and that this project is moving forward. Our conversations have now turned to shipping and special requirements for our personnel to be on-site to assist with the installation and startup. Additionally, regarding cash, I want to note that we expect invoicing from the majority of the order, and that only a small portion will remain until final installation. Successfully getting to this point and with such positive results is a major benefit to us beyond just the progress to completing this sizable commercial order. These burners demonstrate NOx emissions numbers significantly below the 5 PPM guarantee and robust performance throughout their operating range. In short, they show what we have always believed our technology is capable of and providing our customer with the best burners in the world. The burners used for the performance demonstration will not be part of the shipment to California and will be kept for demonstration purposes at the facility of our partner Zeeco. In the coming months, we plan to host industry demonstrations to show key stakeholders this performance, as we have presented that our burner technology for most people, seeing is believing. The second test that we were preparing for was our 100% hydrogen ultra-low NOx burner project funded by our $250,000 Department of Energy Grant. As a reminder, the goal of this project is to develop ultra-low NOx hydrogen burner technology capable of burning up to 100% hydrogen in the fuel gas while maintaining low single-digit NOx emissions. The purpose of this first phase was to prove that our technology is capable of achieving these results. While burning hydrogen does not produce CO2, it does produce a significantly higher concentration of NOx than with natural gas. Therefore, the objective of the overall project is to develop and commercialize a range of burners that will enable the control of emissions of NOx to levels required to control ground level ozone in critically polluted areas combined with the adoption of hydrogen fuel for industrial heating. The anticipated outcome is to achieve reductions in the industrial emissions of both carbon dioxide and nitrogen oxides. Currently available solutions for burning hydrogen provide the former, not the latter. As noted in the press release yesterday, we were successful in completing the objectives of this first phase of work. Results have been documented and submitted to the Department of Energy for the requirements of this grant. We have always described this work as a Phase 1 grant as our ambition is to continue with this work and are in the process of applying for a follow-on grant for the commercial development and commercialization of this hydrogen-focused burner technology. The funding for the Phase 2 grant can be up to $1.6 million over a period of two years. On a more general note regarding government-funded and industry-funded grants, we do see other opportunities also some that we plan to pursue for ourselves and some that may provide opportunities in partnership with customers. Nearly all are related to decarbonization and/or pollution reduction and generally have a consideration of social equity, which supports our business and target markets well. While there are seeds of grant money as a plus, we see these grants as a means to accelerate the development of our technology and more importantly to incentivize the critical initial installations necessary to gain the confidence of customers and the air regulators. Beyond these projects, we continue to see an increased pipeline of potential commercial orders and projects both in the USA and abroad. I will temper these comments with a caution that when chasing orders, nothing should be taken for granted. But from my vantage point today, we have multiple proposals for varying projects that I consider promising. And accordingly, I'm encouraged and do foresee an increased project flow gaining traction in 2023. Now moving on to boiler burners. We have been encouraged in the New Year with our boiler burner business starting with some initial success and booking our first two sales in succession. The first boiler burner order was sold in conjunction with our partner, California Boiler in the San Joaquin Valley Air Pollution Control District of California and is scheduled to be installed there in the second quarter of 2023. While this first sale was significant in that it was our first California and Commercial Firetube Boiler Burner order, it is also encouraging because the customer came to us for our solution after competing products failed to meet the district's new 5 PPM NOx emissions requirements. Additionally, we are excited that this sale is into a whole new business vertical of medical and business waste services. This last point helps demonstrate that these burners have a very broad market of diverse industries in the United States and around the world. The second order was also sold into the California market to a national provider of recycling services to the food production and restaurant industries. This burner is part of a recycling plant upgrade that will increase energy efficiency for one of this customer's nationwide sites. The boiler burner will be installed into a new boiler and was sold as a package with our partner California Boiler in the San Joaquin Valley Air Pollution Control District of California. The burner and boiler are scheduled to be installed in the third quarter of 2023. This second burner in particular will truly set the bar for boiler burners. This burner is larger and is in the size range that requires sub 2.5 PPM NOx emissions, a capability that we believe is unique to ClearSign burners. As stated in the press release at the time, this burner is our first commercial boiler burner sale guaranteeing sub-2.5 PPM NOx, specifically developed to enable clients like this to operate in compliance with California Central Valley’s regions’ new regulations, and without the need for ammonia and the hazards associated with such potent chemicals. The manufacture of these burners for both of these orders is underway. We are very optimistic that getting these two installations up and running will provide a great catalyst for others and also provide a benchmark for the air districts in California and the rest of the United States as they consider modifications and updates to their clean air regulations. That said, the rate that we are seeing new requests to quote boiler burners through Rogue Combustion has picked up this year, which we take as an indication that our combined promotional and sales efforts are having a positive effect. You may also have seen news from Rogue Combustion that they have formed their relationship with a company called Gulf Coast Boiler to extend their reach into Texas and Louisiana with the intention of accelerating sales of our boiler burner products there. We are also seeing opportunities and receiving inquiries for our boiler burner products from other regions outside California and also for applications other than boilers. An example of this was the news release we issued earlier this week announcing the purchase order we received for the supply of a boiler burner into the Texas market. This order is both significant and exciting for a number of reasons. After California, we anticipate the Texas Gulf Coast region will be the next large market for us and this order is our first into this region. It is also the first for this global chemicals company and the first into the industrial chemical sector. This is also the first application of our boiler burner technology into a non-boiler heater and importantly, our first sale to a heater manufacturer, who has included our burner as their chosen solution to meet their customers' needs. As I previously said, when talking about our asset-light strategy, heater manufacturers are a prominent channel to market for burner equipment as burners are part of almost everything they sell. I'm pleased we are establishing relationships with some of these manufacturers. In general, we are very encouraged by the accelerated cadence of the early boiler burner orders this year, but we are also encouraged by our list of outstanding proposals and look forward to adding to this list. Turning to China. Shortly after our last call, our President of Asia, Manny Menendez was able to get into the country. While there, we were able to maintain our engagements and relationships. I was also pleased to be able to participate in a meeting via phone during which they reiterated their enthusiasm for our business plans, as did I. I also took this opportunity to let them know how much we appreciate their work preparing for the upcoming burner certification projects. As everyone has read, early this year, China ended their COVID restrictions. With the anticipated and realized short-term effect, that COVID could spread widely and rapidly. With this on the horizon, we brought Mr. Menendez back to the United States. With the work environment in China now back close to normal, Mr. Menendez is planned to return the first week of May soon as the Chinese May Day holiday is over. The primary objectives are to get the 2,500-horsepower water tube and 500-horsepower fire tube boiler burner certified with the 500-horsepower being the top priority, as we along with Strongly On believe there is a large readily addressable market in the region of Shenzhen, where the government has recently rolled out new NOx emissions requirements. We are also planning a trip, which funnels into that region to promote our joint capabilities and unique offering to both customers in that area and the local government officials responsible for administering the new air quality standards. Once those certifications are complete, we expect to see some early sales and anticipate that we will be able to have some initial deployments of our technology and commercial results from our partnership in China in 2023. While I don't have any timelines to give right now, I hope to do so in the near future. Looking forward to the rest of the year 2023. In terms of our process burner business, we will proceed with the manufacture of a large California refinery order following the successful customer demonstration early this year, which we believe will also deliver significant revenue and profit. You will see increased promotion for performance achieved with these burners and also we will use the ability to fire and demonstrate the burners to stakeholders in the industry. In terms of our pipeline, we have more and more opportunities with both new and existing customers. I expect to see orders from these. We're also very optimistic about our prospects for the follow-on hydrogen burners development brand and believe we are well positioned to further ground and aid in accelerating the adoption of our technology. For our boiler burner business, we will deliver our first orders and look forward to having those units in commercial operation in California and Texas. We expect to build on this and the increased level of inquiries that we are seeing to keep momentum in California and look to expand that business into new markets like Texas. With the complications created by COVID now essentially behind us in China, we look to progress our plans with Strongly On, including burner certifications and winning and delivering our first orders under that collaboration. From a more general perspective, the progress we have made in getting commercial orders in progress for our boiler burners and the revolutionary results achieved in our recent process burner testing mark a significant development in our path to mainstream commercialization. We have come a long way over the past few years to get to this point. We have developed our process burners to meet the new stringent NOx emissions levels while also meeting our objectives of being simple to install, what we call plug and play, and also to light off and operate in a manner that will seem familiar to an operator in any typical oil refinery or chemical plant. We have developed our boiler burner technology to be a single-component, standard design that installs into a boiler similar to a typical commercial boiler burner. We have this technology proven and thereby de-verified to meet the emission requirements of the most stringent new California regulations. Perhaps as importantly, we have addressed barriers to entry and channels to market through developing partnerships with a global burner supplier Zeeco for process burners, providing international level quality assurance and a globally recognized testing facility. And a prominent California-based boiler service company, California Boiler and subsidiary Rogue Combustion dedicated to promoting unique boiler burners throughout the USA along with their full installation and service capability. Going forward with all this and the achievement of the technical and commercial milestones just described, you will see an increase in our reach. As an example of this, we have presentations planned at a TCEQ that is Texas Commission on Environmental Quality, the government body that administers the air quality regulations in Texas, their commerce in Austin, and that American Petroleum Institute conference in Seattle. To attract attention, we will have a new six-foot tall, full-size, highly polished stainless-steel replica of our ClearSign core process burner technology in Seattle and a full-size replica of the 5G boiler burner in Texas. In closing, our recent sales and testing results provide good momentum, which we expect to continue and build on going forward. With that, I'd like to open up the call for questions. Please, operator?

Thank you very much. We will now begin the question-and-answer session. Today's first question comes from Amit Dayal with H.C. Wainwright. Please go ahead.

Thank you. Good afternoon, everyone. Jim, could you remind us what the 4Q revenues were made up of? I might have missed it. Thank you.

Yes, I can answer that.

Maybe I'm going to pass that to Brent.

Yes, for Q4 revenues, there was $500,000 in that comprised spare parts sales.

Thank you. Regarding the sales pipeline for 2023 and beyond, can you clarify the differences between boiler burners and process burners? How should we understand your sales efforts? Are you engaging directly with the pipeline or primarily through your partners? Also, what percentage of the pipeline do you think you could potentially close?

Yes. Thank you, Amit. There's a number of topics there, so I'll try and cover them all. So one of the questions you asked was about how we're actually going about selling and our outreach? At this point, primarily is actually different for two major product lines that is different for our process burners and the other boiler burners. The process burner sales, we are largely pursuing through our connections. We have a number of people here within ClearSign, very experienced and established within the industry. And we have good and frequent contacts with them personally. In addition, we do meet with them at times when they visit Zeeco, we meet with them frequently at conferences. And quite frankly, they know us and also call us as they have needs. In addition, we are through those conferences also reaching out and visiting new customers. But those activities are primarily driven by ClearSign employees directly just because of our experience and those are our strengths. The boiler burner business is delivered through our partnership with California Boiler and their subsidiary Rogue Combustion. We are very heavily involved in those sales, but due to the location of those customers and that the California boiler sales team are visiting them very frequently, if not on a weekly basis. We are primarily assisting them with their sales and providing support at a local level. The activities of ClearSign are more strategic and at the higher level looking at other channels to market and means to reach out to new customers and quite frankly to spread the word of what the ClearSign burners can deliver. Now, you asked about the pipeline going forward? You know, this is very encouraging. I've always said that the by successful lead to success, one of the key things we have to do is to get functional equipment out in the field, so that our customers can witness that for themselves and talk to the owners, who are operating their equipment, so they can get confidence in deploying our technology, I think they understand the value of it and why this is so special, but being new that is a big concern. I'm very excited to have these orders now going out into the boilers in California. So we will finally have some installations that we can refer our customers to and that will give them the confidence to pursue using our new technology rather than just something they are familiar with, even though the other option would not be as great a value to them. Along with the increased inquiries we're seeing through Rogue and California Boiler and just the other context we have in the boiler industry, I'm very encouraged for our future sales in the boiler pipeline. I'll also bring up the and the third order, which is a boiler burner, is not into a boiler. This is going into a heater, but having that technology installed and operating in the Texas market is actually very important for us. Texas is probably the biggest market for us in the country, and to have some equipment finally down there installed and operating in Texas again is going to be a very powerful aid to our future sales. I think the outlook is similar on the process burners. Again, one of the key elements of that is this very prominent California order. The success we had in the burner test and the ability to demonstrate those burners to industry in the Zeeco test furnace to have that data available for presentations and the customers, who witnessed that presentation also very prominent in the industry. Able to pass on their experiences is going to benefit us. We greatly believe as we pursue future sales. And similar to the boilers, we have other process burner close and interested customers that we believe are on the near horizon.

Well, understood. Thank you, Jim. Just another one for me on sort of the revenue side of things. With deliveries and installations, sort of, starting to materialize in 2023, how should we think about revenue cadence over the next four quarters? Is it going to be lumpy or will you be able to smooth out revenues a little bit more across some of these new orders that you've received?

I would like to say a few words before passing it over to Brent, who can provide more accurate information regarding revenue and the recognition requirements. This industry tends to be inherently variable, particularly with process burners, where orders are often quite large. While this is advantageous, the size of these orders and their dependence on critical milestones can lead to fluctuations in revenue once those milestones are achieved. At this point in our development, we expect our financials to exhibit variability from quarter to quarter. Now, I will hand it over to Brent for more details.

Yes. So, for Q1 specifically to talk about Q1 and give just some color. If you look at the milestones that we met, as Jim talked about, we’ve as performance test, we've met those milestones, the contractual obligations, we've received cash for those contractual obligations. So, for Q1 revenues will be recognized and they'll be significant, very significant. Just to give some color, they'll be way more than what we recognized in all of 2022.

Great. Thank you. Thank you, Brent. No, that's helpful. And maybe I can follow up with some other questions around this topic offline, as well as you guys had some success in Europe, I believe, last year. Is there any further traction in that market for you guys?

We are in discussions with European customers. We’ve as I said before, we have very good context throughout the industry, especially with heater manufacturers and the refiners and we meet with them. I mentioned the American Petroleum Institute conference we'll be attending in Seattle, so we meet with them frequently. We talk about their upcoming projects. The most important aspect of that European relationship today is that that was a installation in a major global refiner, who also has very prominent refineries in the California market. So the what we're really focusing on with our client and our discussions are their progress with the regulation obligations where the South Coast and the heater projects that they have in California. So, this truly is a global industry and that European installation gave this client a chance to install our burner to get in their hands on it to see it operating it's been operating in their refinery now for, I believe, over a year. So given them good experience as they look to their much bigger requirement for low emission equipment in California.

Understood. Yes, that's all I have, guys. Thank you so much.

Thank you, Amit.

The next question comes from Robert Kecseg with Las Colinas Capital Management. Please go ahead.

Hi, Jim. Thanks for all the great news and thanks for all the hard work everyone has put in at the company, the pace to be patient. I was going to say on your boiler burner…

Thank you for that.

Regarding the recent boiler burner deal with Tulsa Company, what stood out to me was their decision to replace the existing heater and the SCR. Is this a typical aspect of what we offer to the Tulsa heaters, and does their choice to go with us stem from the need for that SCR replacement? I’m curious if this indicates our potential approach to partnering with similar companies to distribute our product.

Yes, Bob, you've clearly examined this closely. We found it exciting to clarify what transpired here. The new heater from Tulsa Company is set to replace the current one, and they have chosen to use our burner to satisfy the client's permit requirements instead of installing an SCR like the old heater had. We have always viewed our competition as SCRs rather than other burner technologies due to the significant NOx reduction our burners can deliver. This clearly illustrates that point. It enables Tulsa Company to utilize a more efficient and cleaner heater since there is no need for ammonia or the risk of ammonia slip in the heater's emissions. We believe we are offering a superior solution for Tulsa in the midstream market and providing an enhanced option for this client in Texas.

Yes. And I think that they already have an established company with customers that they've serviced for a number of years. Could you kind of speak to that a little bit? And then are there other kinds of companies like Tulsa heaters that then would be maybe awakened as to the other side?

Yes. For clarification, the technically, the client for this order was Tulsa Heaters Midstream. At Tulsa Heaters Midstream, and their sister company Tulsa Heaters are very closely related in Tulsa, but they are separate companies. But from their name Tulsa Heater Midstream has a product that is targeted for the midstream industry and that is their strength. They are very well known. They have a very good reputation. They are very well run. And I do believe they have a lot of respect in the industry. And I very much look forward to the other heater companies seeing what Tulsa Heaters Midstream have done. I'm sure they are watching this project, and I really look forward to the news of the installation and look forward to our burner getting out into the industry and into that Texas market?

Yes. I'm asking that because the previous question about the pipeline that kind of gives us some sort of improved belief that our pipeline can expand through companies like them and other ones that do more work?

Yes. Paul, thanks for taking, you know, I mentioned it briefly in the comments earlier that the heater companies provide a big channel to market for us is one that I believe will pick up significantly once they get confidence, including our technology as part of their solution. Because for them to install ClearSign burners rather than including an SCR in the heaters will save their money up it makes the products lighter. It also avoids having to include all of the equipment to handle ammonia and for their clients, it gives their clients what we believe is a much better solution. I believe what's holding them back is obviously, they are making guarantees to their customers and they are putting their names behind their products. And there is some reluctance to do that with a brand new technology, no matter how good you believe it is, when you do not have references and experience of others to point to in the field. Getting these products out to market is so important to us, because it truly gives our customers confidence, we also believe it will give channel customers such as heater manufacturers confidence to work with us in the future for what we believe is going to be a much better solution for them and a better product for their customers.

Sure. I appreciate that answer a lot. And I was going to say on the boiler burners, now that it's going to a couple of different customers, I guess with Rogue Combustion, it's kind of an automatic process for them to basically make the sale with such and such type of boiler in this runner? And is there a lot of difference between the different boiler companies and are they different from burner companies and the boiler burner business?

Hope I heard you correctly, yes. There are differences between the boilers in the details. But generally, the configuration of the boilers and the way that they operate is very similar. But that leads to one of the most notable differences between our process burner and boiler burner product lines and one of the reasons that we have a different type of partner. The boiler burners very much lead themselves to a standard product that is basically off the shelf. And once designed correctly, we will pretty much supply exactly the same burner over and over again for different heaters, so it makes it very efficient. They require very few man hours. And it's something that we can scale very easily by outsourcing ourselves. The detailed work on that product line is the installation and the service and that's the work that's being handled by California Boiler, compared to the process burners, those orders tend to be very large. But because of the complex nature of the oil refineries, the burners are while there are standard technology, they are a boutique and customized for each application. That's the reason they have to go through the test furnaces such as the recent testing we have mentioned regarding the California Refinery order. But I think back to your original question, Bob, I guess the short answer was yes, the boilers are while there are differences and the boiler manufacturers all claim that there are the best, the other reality is that from our perspective, there is little that is significantly different about them that would affect the design of the burners.

Okay. Yes. And the R&D change was pretty significant, which I guess, kind of, also gives us a lot more optimism going forward that a lot of that money has already been spent. Do you think we will be at the level that we saw in 2022, is something to project out or is there somewhere in between as far as the expenditures for R&D?

Bob? Brent, you get that?

Yes. Bob, thank you for the question. It looks like you're looking at the financials. Our net loss improvement year-over-year is $2.1 million, the driver for that was our reduction in R&D cost as we shift from R&D activities to commercialization activities. As far as projecting expenses 2022 was an exceptional year. We can't keep a trend of cutting $2 million out year-over-year without cutting into the meat too deep. But I would expect, if you look back the past two years, the run rate for the past two years and not to be materially off from that.

Are you talking about overall expenditures or R&D only?

Sorry, I was referring to total operating expenses. R&D expenditures will remain low.

Okay. Got it. I was just simply kind of looking at the R&D line by itself. And I didn't know whether this was a maintainable level in the current future $0.5 million a year in R&D. I was just simply looking at that instead of the overall expenses.

Yes. Bob also, we did talk about the government grants those are directed to product development. So I think there's a difference between the R&D expenditures that would show up as direct expenditures from the company versus those that are part of a government-funded project. I mean, I think the underlying point is, yes, we are very determined to continue to progress our technology. And as we see opportunities in the market, we do intend to develop the technology to meet those needs.

Okay. Great. Well, again, thanks very much for bringing us this kind of progress. It really looks great. Thanks, Jim.

Thanks for the questions, Bob.

The next question comes from Jeff Feinglas, Private Investor. Please go ahead.

Yes. Hey, Jim. Thank you and congrats on a number of levels, especially with respect to the burger test, that was significant for you guys. And hopefully, the gentleman who made the remark that it's the best burner that he's seen or best burner in the world will be a voice to the industry for you guys. Amit covered, I guess, my first couple of questions. But one other point I wanted to ask was recently I saw something come out, I guess, from the EPA, they call it, the good neighbor letter, which was the first time I've seen anything that really focused on NOx emission, the whole environmental mantra has been C02, but this is the first time I've seen anything really where it looked like the EPA maybe on a national level was focused on NOx submission? Are you familiar with what I'm talking about in that regard?

Yes, I am. But not in great detail, but I am familiar with the neighboring and the NOx transport issue.

Yes, I was wondering if that has led to any new inquiries. It seemed to be focused on several Midwest-related industries. Does ClearSign have products that can serve these other industries aside from oil and gas and the combustion industry we're currently addressing? Also, has there been any new interest or inquiries coming from anyone in the past few weeks?

Thank you, Jeff. The main point regarding good neighboring and NOx transport is about the movement of NOx from one area to another, where it can impact regions that did not originate the emissions. Even if the source area does not struggle with serious ozone problems, it should still be required to cut NOx emissions due to the effects on neighboring areas. The key focus nationwide, particularly with the EPA, is ground-level ozone, and when regions do not meet compliance standards, states must enforce regulations to lower NOx emissions since NOx contributes to ground-level ozone. The regions facing severe non-attainment are primarily responsible for achieving very low emissions that create our market opportunities. There are established low NOx burners available from major players in the industry, which have been in the market for many years. They are relatively inexpensive and perform moderately well in reducing NOx emissions. However, these reductions apply to many regions across the country, which will be directly influenced by regulations like the good neighbor rule. If you're monitoring ClearSign and our markets, I advise you to focus on local initiatives and states that are actively decreasing NOx emissions to the lowest possible levels. We're observing particular interest in Colorado, Salt Lake City, and California, which is currently our most active market. We are also closely watching developments in Texas.

Got it. Okay, thank you. I have no further questions.

Thanks, Jeff.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Deller for closing remarks.

Well, thank you everyone for your interest and for taking the time to participate today. We look forward to updating you regarding our developments and speaking with you on our next call. Thank you, operator.

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