Pyrogenesis Canada Inc (PYR) 2022 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the PyroGenesis Canada third-quarter 2022 business update conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host, David Waldman. Please go ahead.

Good morning and thank you for joining PyroGenesis' third-quarter 2022 financial results and business update conference call. On the call with us today are Peter Pascali, Chief Executive Officer; and Andre Mainella, Chief Financial Officer.

The company issued a press release on Friday, November 11, 2022, containing a business update and financial results for the third quarter ended September 30, 2022, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact investor relations. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2022.

I'd like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided in this call speaks only as of the date of this call and is based on the plan, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information.

PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events in such forward-looking information except as required by applicable law.

In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to adjusted net loss and adjusted EBITDA, which do not have any standardized meaning under IFRS and therefore, may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of adjusted net loss and adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which along with the financial statements, are available on the company's website at www.pyrogenesis.com, and the company's corporate filings on SEDAR at www.sedar.com.

With that, I'll now turn the call over to Peter Pascali, President and Chief Executive Officer. Please go ahead, Peter.

Thank you, David, for that introduction, and thanks to everyone for joining us today on our call.

PyroGenesis delivered another quarter with strong margins against a difficult logistical and inflationary environment for heavy industry manufacturers and their customers. This demonstrates our careful yet committed approach to diversification that provide various guards against rising inputs, both direct and macro, such as labor, currency, and supply-chain-disruption-related costs.

With our strong production margins firmly established and our operational and sourcing approach has proven again are not just viable, but sustainable and secure. We can remain squarely focused on maturing the commercialization plan enacted over the past two years. That implies turning a very large pipeline into signing new business; finalizing various ventures that have been in long-term testing, timing, or negotiation; and moving certain of our R&D initiatives into more fully realized customer-ready solutions.

Some of our customers experienced implementation or order delays due to the continued infrastructure, personnel, and parts availability challenges affecting industries across the spectrum. However, we remain confident in our positioning and long-term plans given our continued introduction of niche plasma torch solutions, our focus on large companies seeking technology solutions for greenhouse gas reduction, and production output optimization, and our above industry average margins.

Margins that continued to outpace both the sector we are in and even the industries we serve. Those include the industrial machinery sector at 27.6% gross margin, the aluminum industry at 20.6%, iron and steel at 25.3%, metal mining at 24%, and aerospace and defense at 8.56%. Combined with the upcoming commencement of major trials of our key plasma products and the near completion of various testing and certification process by the clients, we continue to see a positive future with continued strong margins.

Importantly, as the global economy continued its transition out of the disruption it has faced over the past several quarters, a return to logistical and resourcing stability for heavy industry and government customers throughout the rest of 2022 and 2023 is anticipated but with possibly a renewed sense of urgency.

The company's backlog of signed contracts is approximately $26 million, while the potential contract tap volume has expanded significantly. We continue to execute on our business growth strategy by offering technology solutions that provide benefits from greenhouse gas emissions reduction, clean electric fuel sources, safe waste destruction, and improved production output and quality that take advantage of the company's expertise in patented patented ultra-high temperature processes for heavy industry. We also continue to build upon established customer relationships, introducing new solutions and entering new markets, selling ongoing success for years to come.

Despite the worldwide macroeconomic headwinds, which have been exasperated by international supply chain volatility, both of which have affected our clients' planning logistics and spending. PyroGenesis continue to demonstrate its ability to execute productively in Q3 2022.

While existing and prospective customers saw delays as they continue to manage their own backlog of projects to their resourced personal infrastructure availability, the stage setting of the first half ofthe year continued into Q3. We maintained our focus on production efficiency, steady progression towards full commercialization of our emerging business lines, the pursuit of innovation, and expanding the relationships with existing and potential clients.

In the face of continued macro uncertainties, we remained firm in the belief that PyroGenesis is well positioned and remain confident in the potential sales increases cited in the previous Q2 outlook through 2023 and beyond.

The reasons for this are simply fourfold. First, we believe that the heavy industry commitments to fossil-fuel-related carbon reduction measures made years ago are quite frankly, here to stay. This commitment has only intensified in the face of increased pressure from rising carbon pollution penalties, combined with the significant volatility seen in fossil fuel availability over the past three years.

Second, concerns focusing on commodity security are driving optimization efforts across the metals sector with aluminum producers, steel makers, and other metal producers seeking in line technology solutions to improve output percentages of primary, secondary, tertiary, and even unprocessed waste for other mineral production sources previously considered as exhaustive.

Third, the trending global shift back to increased electricity-based power will result in more major infrastructure creation across renewables, hydroelectric, and even nuclear installations, benefiting industry the technology such as PyroGenesis' with electricity-ready solution. Last but not least, PyroGenesis clean electricity-based technology has proven effective, efficient, and to such a degree that even in the absence of the above, its benefits cannot we ignore ignored.

PyroGenesis R&D team has been dedicated over the past three decades to plasma-based environmental solutions. These solutions are already impacting heavy industry as they prioritize the many issues facing them today. Greenhouse gas emissions reduction, fuel switching to combustion-free electric sources, improved value recovery of metal waste streams, enhanced metal production output from the same input, safe structure of hazardous waste, and more rapid and higher-quality metal powder production for component waste reduction are just to name a few.

This underscores our belief that we are well positioned with respect to both our recent critical milestones and our long-term position. We look forward to additional milestones that have been in the works for several quarters, including the first-ever in-factory trials of plasma burners within an iron ore pelletization furnace. A major upstream step in the steelmaking process with two separate global iron ore producers.

The conclusion of the certification process for the company's titanium metal powders from a major global aerospace firm, and the potential sale of various aluminum industry solutions related to metal dross processing and fuel switching.

Over the past several years, PyroGenesis has successfully positioned each of its business lines for growth by strategically partnering with multibillion dollar entities. These entities have identified PyroGenesis offerings to be unique, in demand, and of such a commercial nature as to warrant the long-term, supportive relationships that the company has experienced while it ramps up various technologies to commercialization.

The intense pressure on heavy industry to reduce the fossil fuel and greenhouse gas impact while improving the output allows PyroGenesis expect interest from many industries, but especially aluminum, iron ore, and steelmaking to increase as the trend to fuel switching from fossil fuel to burning gases to clean electric sources such as plasma torches role.

I'll be back with some final thoughts at the end. But at this point, I'd like to turn the call over to our Chief Financial Officer, Andre Mainella, to go over the details -- the financials in detail. Andre?

Thank you, Peter, and good morning, everyone.

I'll begin with the income statement where total revenue for the three months ended September 30, 2022 with $5.7 million compared to $9.3 million for the same period last year. Total revenue for the first nine months of 2022 was $15.7 million compared to $23.9 million for the same period of the comparable year. The revenue variation was mainly due to decrease in sales related to DROSRITE, as well as the decrease in support related to the US Navy and biogas upgrading the pollution control; but offset by an increase in PUREVAP and torch sales.

As of November 10, 2022, the company had a backlog of signed or awarded contracts of approximately $26 million.

Gross profit for the three months ended September 30, 2022 was $4.1 million or 73% of revenue compared to a similar profit of $4.1 million but 43% of revenue for the three months ended September 30, 2021. After the nine months ended September 30, 2022, gross profit was $7.7 million compared to $11.1 million for the same period last year. The increased quarterly gross profit was caused mainly by a decrease in direct material, manufacturing and overhead costs; offset by a variation in employee compensation, subcontracting, and foreign exchange.

Selling, general, and administrative expenses were $5.9 million and $18.6 million for the three- and nine-month period ended September 30, 2022, respectively. That compares to $4.9 million and $15.3 million for the three- and nine-month periods of last year, respectively. The increase in SG&A expenses was primarily due to the effects of the Pyro Green Gas acquisition that was completed in August of 2021, an increase in employee compensation, professional fees, office and general, travel, depreciation of property and equipment and of the ROU assets, and government grants. Additionally, the share-based expense increased to $932,000 for the recent quarter in comparison to just under $700,000 for the same period of 2021.

Research and development expenses for the three months ended September 30, 2022, was $290,000 compared to $394,000 for the same period of last year. The decrease in R&D expenses is primarily related to the decrease in employee compensation, and subcontracting materials and equipment costs; but offset by the variation of ITP.

During the first nine months of fiscal 2022, net spending on internal R&D was just under $1.6 million, and that's comparable to a little over $1.5 million of 2021, but primarily due to a slight increase in R&D activities that were performed.

Comprehensive loss for the three months ended September 30, 2022, was $4.1 million compared to an income of $0.6 million for the same period of last year. The modified EBITDA, which we use to measure ongoing operations, was a loss of $0.6 million for the current quarter, compared to a loss of $0.2 million for the same quarter of 2021. The modified EBITDA excludes [$0.9 million] of non-cash share-based expense and a $1.8 million adjustment to the fair market value of strategic investments due to the decreased market value of common shares and warrants of HPQ Silicon Resources owned by the company.

The modified EBITDA also adjusts for the following items, which increased in the quarter: $61,000 for depreciation of property and equipment, $127,000 for amortization of intangible assets, and $177,000 of financial expense. As of September 30, 2022, the company had a $2.4 million of cash and cash equivalent balance on its balance sheet.

As mentioned, our gross profit this quarter remained high. And even without the one-time IP revenue raising the gross margin substantially to 73%, the gross margin would still approach 30% for the quarter; a number that surpasses many of our competitors and the averages for companies and industries we primarily serve, which include aluminum, iron and steel, aerospace and defense, and industrial machinery. Also to note for the IP sale, we wanted to mention that we have not press released the details of the IP sale as we are still waiting for our customer to also do their press release.

And the final note, it's also beneficial to mention that the company has projects at various stages of completion. And those closer to the final delivery stage incur costs and thus corresponding revenue at a slower pace or our different various statements.

At this point, I'll turn the call back to you, Peter.

Thank you very much, Andre.

As you can see, PyroGenesis continues 2022 to be a strong platform om which future growth will stem. In the face of global headwinds and uncertainty, we are committed to focusing on the production efficiency, steady progression towards full commercialization for emerging business lines, the pursuit of innovation and deepening the relationships with existing and potential clients that has served us successfully to this point. Providing heavy industry and technology solutions to pressing environmental engineering and energy challenges while meeting their carbon reduction goals remains PyroGenesis' primary goal and focus.

In conclusion, we're very pleased with the progress we have made during the quarter and believe we have set the stage for continued success. We remain committed to driving shareholder's value and look forward to providing further updates as developments unfold.

I'd like to thank you for joining the call today. And at this point, we'd like to open the call up to questions. Operator?

(Operator Instructions) [Steven Fine]

I have a lot of questions. So if you want me to stop, I can stop and I can come back. There's other questions. Let's talk about financials. My greatest -- I'm a technical person and my lore of your company is all these areas that you're in. And with the notion that -- as you state your technology is unique, it's serving the purpose. Hopefully, one of these things are going to hit.

But my greatest concern right now is with all the macroscopic issues that you've alluded to, will you have -- and looking at your financials, there's a clear decrease in cash flow and cash available. And so my greatest concern is will you have the financial -- the financial [where we fall] exist for you to be able to continue to realize your goals? Because if I look at last year, I believe you had $10 million in cash. There's $2 million in cash. Now -- this is memory, maybe I'm incorrect. But when you look at the financials, the financials are you're spending more money. And I mean if it's appropriate to spend money to get to your goal, that's one thing. But the other question is, are you going to have enough money to really realize what you need?

Steven, very good points. And from the outside, I could see we maybe more of a conserve than from the inside. To speak to your first point, yes, we are diversified on many different business lines. And that has served us very well as it has saved us in the past because had we been committed to one business line alone and that slowdown, we may have had a significant trouble. But this has allowed us to pursue other business lines that we are managing when something else slows down.

So it's like a multi-legged stool. Instead of having just one leg, a multi-leg, if one of them is a little bit slower or weaker, we can rely on the other. So it served us very well. The trick is, as you point out, Steve, is to know how not to go too far afield. Not to try and be everything to everybody. And I think we've managed that very well. We've established enough business lines to sort of derisk ourselves but not gone too far afield as to stretch our resource to a point where it cripples us.

Having said that, we believe that we have enough tools in our toolbox and enough availability in terms of cash flow to manage all these successes. One thing that you don't have that we have internally is an appreciation of when the cash is coming in from where and how. So without saying something that I shouldn't be saying here because it's not considered to be a public disclosure arena, we are extremely confident that we will be able to manage these cash needs or labor needs as they come forward.

Okay. Obviously, there's a level of trust. I can only look at your numbers. I've seen many -- I've spent my life looking at technical companies like yours. And certainly these areas are quite unique. What you're doing is unique and exciting. Sorry, (multiple speakers)

Well, Steve, let me just point out that -- actually, you're going to have a comment on this, but our accounts receivable are $23 million. And after review, there's been no write up over our reserve, and there's a reason for that. Because we do not think they're impaired. And on that note, for those that are listening to this, this particular of Q3, you'll notice it doesn't say that it was not reviewed. So it was reviewed by our accountants. And so they did not feel it was necessary to take a reserve.

So the accounts receivable are good, $23 million. And we always have, not that we want to tap into it, but we also have a strategic investment HPQ that we're very confident in. So when you look at the other non-cash but liquid items, they're quite significant. So that's just something to keep in the back of your mind when you're looking at our balance sheet.

Peter, that's fine. But when you look from -- I have a financial mind and when I look from quarter to quarter, it seems like there's more being spent, cash going down. The comment, very frankly -- and please take this in all due respect. To make a comment, yeah, we got a 73% gross profit. That's immaterial because that's relative to -- is that going to be consistent with all sales? I mean, if I take it out of context. I mean -- the bottom line is I'm a stockholder. I trust you guys. I'm hanging in. I'm just expressing my concern. I want you to realize your goals and so forth. I'll except that. All right, let me goonto my next question.

I appreciate that. Go ahead.

Let me go on to my next question. You've spoken about the additive segment. Let me -- I'm technical. So you know that. All right. So the 3D additive thing -- and I totally understand what you're going through because I was a hazardous chemical manufacturer. I was ISO, and I had to do the same thing. And as you've described you have to get approved by your various customers. So they know -- and it's a big step.

And the other point that I would like to point out in your favor, once you get accepted, that's a big step because that means other competitors can't get in that quickly. But the real question is -- or the first question is relative to the additive thing, how is your additive offerings unique versus competition? Because you've been in this for a while. And I remember historic play, you licensed stuff off. But what you have now, does it have uniqueness?

I guess it does. Yes, it does, Steve. It does. How could I make it simpler. The quality of powders have many different aspects to it. But basically, our quality of powders we believe are unique and I guess the market believe so as well. And the uniqueness depending on the OEM. It has to do with its [viscosity, how sturdy it is], or it may have to do with the amount of oxygen that it has incorporated into the powder. I can go on to a list of lists of different aspects to what makes a powder, I call it, more desired over another.

Having said that, you do know our history, Steve, which is essentially we delayed coming out with our NexGen production line. And the reason we did that was essentially that we wanted to lock in a better production line than what we had at the time. What do I mean by that, it's cheaper to make. Make -- I mean, the CapEx. It's cheaper to operate, and the production rate is much higher. So for somebody such as ourselves that are engaging with OEMs who have a rule that once they give you a contract, you cannot change your production line, it was imperative for us to get the right production line in place where we can make the most money once -- if we buy a nice contract with them.

Now here's a small company like PyroGenesis telling these multibillion-dollar entities, can you please wait a moment because we want to do something better. They waited, Steve, they waited. So I'm not going to suggest why they waited. There must be a reason. I know I'm a nice guy to deal with and hangout with a beer at a bar, but I think it's got more to do with our powder -- our powder quality, whatever that is.

And so we also took a long-term view of things, which is what we do in this company, Steve, as you know. Rather than go with the production that we had and possibly lockdown a contract quicker and get the press release and the credibility that comes with that. We take a longer approach and a longer view of things that it's best to come out with what we call our NexGen, which we have done. And if you recall, we locked that down. I think it was in April and the like within 30 days, we had a contract from an OEM and a large OEM in North America to qualify our powders. And that's what we've been speaking to in our recent press release.

And as you've been following, Steve and other people, it's progressing quite nicely. So when you ask me why is everybody excited about it? I think it's got to do with the quality of powders. And now, I think people are getting a sense that the cost of production is significantly less than what it was before. And we were probably a little bit under market at that time anyways.

So I think that's what it is, Steve. I think it's about -- it's got to do with our overall quality of power. I mean there must be something there. We're not going into specifics. And I can't speak for our potential clients, but everything seems to indicate that we're doing something that's worth waiting for.

And when do you expect this QC approval to be finished?

I think in our press releases, we mentioned that we had an audit of quality process -- have to be careful to that. I don't want to say something that haven't said in the press release. But I may came up with what I call a number of suggestions. And at last release, I believe we mentioned that we were done with like something like 90% of them, and we're down into the last handful, and that should be completed before year end. And I'm very confident we'll have something coming up before year end that confirms that.

So once -- (multiple speakers). Go ahead, finish the story. Sorry.

I'm going to answer. I think the question you're going to ask what is the next step after that.

Well, the next question -- my next question would be, all right, fine, you're now approved. So are you immediately going to get an order? And do you have any sense of what that -- of how big that could be?

I have absolute -- I can't comment on that, Steve, here. But I suspect if somebody's qualifying us and they're spending a lot of money to do it, I hope it will be a vision to actually order some powders. But also it's a waste of time for both parties. And I can't speak to quantity. I have some idea, but it's not verified. These entities are all very large companies. They have a need for titanium powder.

The bottom line here is -- okay. So you've answered the question. You avoided -- improper words, excuse me. Obviously, if they're getting you approved -- normally, when someone gets you approve, that means they want to do business with you. And to me, the most -- of everything you're putting out there, the thing that's so unique is that if you hit on one of these areas, it then the financial question goes away in my mind.

My next question is you made this acquisition of biogas, all right. I saw recently you had announcement that you can take methane, you can turn it into hydrogen. That's wonderful. But where is this biogas saying -- where's this biogas acquisition actually going? I mean, it seems like it's putting a lot of overhead and costs and so forth. But when is it going to -- where is it going and when is it going to materialize?

Okay. So I don't think I'm talking out of school when I say we bought it -- I can't remember, but it's roughly $4 million. But we didn't pay $4 million straight, it's based on certain milestones occurring. I can (multiple speakers)

No, I remember that. That was very smart.

So it was an opportunity to marry up our engineering expertise with a company that [lacked the idea] the discipline that we've developed with our relationships with players like the US Navy, [multiregional relationship] that taught us how to be disciplined. And we added that value -- or we are adding that value to this company. The reason why we did it was it marries this up to some extent with our environmental solutions aspect. But also, we perceive that to be a tidal wave of need and a lack of suppliers in their space.

Now this is the 30,000-foot-level perspective, Steve. However, and I mentioned this in press releases, the little nugget in there was the technology they had, to convert coal carbon gas to hydrogen. Hydrogen is valuable. Okay.

This coal carbon gas is very similar to the gas -- the same gas that comes off of our land-based systems. And what will be a real cool here is if we can take this coal carbon gas conversion concept, apply to our syngas. And instead of using that syngas to make cheap electricity and heat, to turn into a more expensive hydrogen. It would catapult our land-based systems into an economically -- significantly, economically viable solution. So we take our land base -- this is good on their own. But extract significant value from the syngas as opposed to what it was doing -- what's it currently doing. So that's the hidden gem there.

So the concept behind the acquisition was twofold. One, which just makes sense from the industry and the lack of engineering, et cetera, et cetera. But the secret nugget or the simple -- the nugget that really excites me is its potential to convert our syngas into more valuable output.

And as I've questioned you in a written communication, this syngas that you're talking about, is that not a big man's game for you to really materialize there, you would have to then connect with some larger companies to have the capabilities of scaling that up to the proper level?

Well. So I mean, we have smaller systems. A lot of these island waste, they're small. There are almost like mini aircraft carriers -- small like aircraft carriers. So to convert their waste -- to destroy their waste, there's one aspect, to converting to something syngas, which could be used on site there, to convert electricity, sell it back to the grid, or provide heat. This is not a big man game necessarily.

And if we can take that syngas and convert to -- it's an interesting avenue. What you mean -- I don't know what you're talking about, but we've developed smaller systems. And the big gain is in the land-based, is in the hundreds of tons and things like this, which we would probably -- the strategy there would probably end up being -- as that end, which is 100 tons and more, we team up with someone. 100 tons unless we can do on our own. I mean that's just a --

So does that mean that, for example, if there were somewhere else -- there's a trash repository and you'll be able to apply your system to that.

I mean, maybe I'm getting this wrong, but what my vision here is you're polling -- maybe I'm off base here, but I'm presuming there's a -- you're pulling methane and stuff out of trash, or is that not correct, or I might go off base here?

On our land basis, what we do is we take garbage and we destroy it and we convert the organic component into a syngas, which to an engine, which can then supply electricity to the grid or back to the system so it operates self-sufficiently. So on the land-based side, what we're doing is we're not sitting on top of landfill, collecting methane. No, no, no. Our land-based side, we're actually taking waste, like physical waste or if you're inside the fence of the pharmaceutical -- the pharmaceutical waste; or on an island, the island waste.

So it's a step up from what we do in US aircraft carrier. Except the aircraft carrier doesn't need electricity. So you take that basic concept, put it on land, and then what the syngas you use, you turn that syngas into something valuable, which is in this case, would be heat or electricity. And what I'm trying to suggest is the acquisition has a technology that can convert -- possibly convert that syngas into a higher-value commodity.

So it makes that whole side more valuable -- the land-based side more valuable. But I don't -- (multiple speakers)

Finish. You we're talking.

I think there's a lag. I was just going to say I don't want our listeners to think that our focus is on our acquisition at the land-based systems exclusively. And then the real excitement -- it's also exciting, of course, and there's nothing else would be extremely exciting. But the most exciting things that are happening in the company actually what we touched upon earlier, the 3D printing powders stuff that we -- our torch application to reducing greenhouse gases in various industries.

All right. Next question is -- and if I'm going on too long, I can come back if there were other questions. I want to know more about the of the silicone stuff, the PUREVAP stuff. Where that is, what directed -- did you have any expectation of timelines and where that's going? Because that seems to have a lot to it. And it somewhat confuses me.

So on PUREVAP, I mean, I think the HPQ side of the room. And I don't mean to be avoiding. I don't know -- need to be avoiding, Steve. But I am not current -- I mean, I can make mistakes because -- HPQ, I can't remember what HPQ has press released are what we press release.

So I'll just -- I'm just going to be just general here in speaking about HPQ. We press released something -- I think it was last week or recently, where there was a significant milestone that was reached in the process. And the next step is going to be extremely exciting as well. We're very happy with where we are with respect to HPQ.

I don't want to say anything because I'm afraid, Steve, that I may say something that hasn't been publicly released. It's tough enough for me to think -- remember that for my own company. So when it comes to PUREVAP, I let him -- I let our clients speak to that.

All right. Okay. I'll let that go. I just don't -- I guess, I understand the concept is new, and I understand that there's a need for what you're doing. But I guess the real question here in any of these things would be -- as a stockholder, certainly I would like an expectation of what's a reasonable timeline wherein you'll start realizing sales or whatever and so forth.

So the last question -- (multiple speakers) I can write you on this.

The last question, I guess is one of the things that I thought -- one of my questions, and this in your -- this is complementing you. So let's not state that I don't -- I was a businessman. I ran a -- I was a chemical manufacturer. I appreciate what you're doing. And I was happy to hear, I think last year that some of these -- like, for example, the DROSRITE you -- if I recall, you have an operation in the United States, correct?

We had a dross -- we sold our DROSRITE systems to a company that has a facility in Mexico, but it's headquartered in the United States. And we sold our larger systems, our technology is being used in Saudi Arabia.

But for example, if all these -- the question really, I think -- my question originally stand, if let's say all these orders come in as you're projecting, I had asked you the question, how are you going to fulfill the orders? And you said, well, you have subcontractors and so forth. Then you do have the structure to be able to do that.

I mean, that's a wonderful problem. But the real question is if all these things hit at once, are you able -- are you going to be able to cope with it, both people wise, supply wise, and cash flow wise?

Steve, I hope that we get so much business that we won't be able to cope with it. I mean, that's our goal eventually. And then people can criticize me about that. But as it stands right now, it sounds like when you ask this question or somebody ask the question in the previous quarters, we have established ourselves so that we don't have to produce on-site. In fact, I can't recall the last DROSRITE system that was produced on our site. They're all produced somewhere else and drop shipped. We can do the same thing with torches.

If things go extremely well, crazy well, the backlog will be basically having enough project managers to manage the suppliers. I mean that's because we can't just let suppliers produce. You have to go. You have to keep on top of them. You have to make sure they're manufacturing according to your specs, you have to check it out, things like that. There's always problems. Nothing works well -- I mean 100% well. So you need to have people in place to be able to manage the number of suppliers.

So that might be a place where we have a bottleneck. But the fact that we're very cognizant of that potential risk if things go really, really, really crazy is -- so we could probably address that risk, given that we've already identified it. The fact that we've actually established our commercialization efforts to derisk it, so we don't have to have the manufacturing facilities in place and the labor in place before the contracts come in, is one of I think the most -- it's one of the most amazing things we've done in addressing these two particular marketplaces, which is DROSRITE and torch production.

So right now, we don't see that to be an issue. What we don't see to be an issue is the capacity -- is capacity. We don't see it to be a problem right now. However, we do note this labor supply issues taking place across the globe that are challenging -- it would be challenging even in normal times. But on that note, we do see that pressure coming off a bit, particularly over the past couple of months in terms of supply. We see the candidates out there, there's more of them and their demand are being coming a lot more reasonable than what they were maybe towards the summer.

Okay. Thank you very much.

Thanks a lot. Good to hear from you. Now, might there be any question out there that Steve hasn't asked.

[Mike Roberts]

My first question actually is just about the -- in the financial, there's the $3.6 million sale of IP. I would just wanting some clarity on that, like who exactly that was sold to, kind of what the terms and deal is. And if possible, if you could let me know why it wasn't press released for a company that just had to do a raise. It seems to be -- a $3.6 million sale is kind of the definition of material. So it was just sort of surprising to see it in the financials and it hadn't been mentioned before.

Well, we think it's important. We don't think it's material. We think it's important. As our CFO mentioned, we will be talking more about that as our client becomes in a better position to press release at the same time. And until then, we won't talk about what the IP was, who was with, or anything of that sort. However, our Chief Financial Officer -- if you want to, Andre, you may want to talk about why we had to account for the way we did.

It's the regular sales and sales accounts receivables. There's no additional payment term. It's really, the accounts payable was paid off $3.6 million. The only reason that (inaudible).

Okay. Thank you. Other question would be just about the backlog and what makes that up. And just if there's a reason why -- what makes up the backlog isn't sort of specified or put into like a list form if it's all signed and awarded contracts? I would like to see sort of a breakdown of what exactly makes up the backlog, if that would be possible.

That's an interesting question. There is no specific reason why it [can't be seen]. But I can give you in terms of breakdown a little bit by nature, which matches a bit of our revenue. The biggest item in the backlog right now is DROPRITE, on the million-dollar mark; followed by the biogas upgrading, close to $7 million; we have [PFAS] and PUREVAP, it's $3 million to $4 million. That's the majority of the backlog. If I look in terms of territories, probably half of it is in Canada, followed by some in the US, and a large portion in Saudi. So this is the detailed side. There's no specific reason why [they're not part in] the financial statement.

Okay. And I think in the last -- sorry to interrupt. In the last earnings call, I think there had been somebody to ask about the breakdown of the backlog and that one as well. And you had mentioned that the PFAS made up a significant portion of it. So I just wanted some clarity on that and what exactly that was.

What was what?

The nature of PFAS or?

No, when I think it was somebody from Cormac maybe in the last earnings call asked what were the three main things that made up of the backlog. You had mentioned that some of the PFAS off was one of the three largest components. So I just wanted some clarity on that. And if that's still in the backlog.

Of backlog and awarded contracts. So let me give you some philosophy behind this, Mike. So we will announce things. For instance, when we were doing the major DROSRITE deal that end up being $20 million, we announced that we thought that the -- not that we thought, that was something in the pipeline that was very significant, and we didn't talk about the industry. But we have it very significant, it could be a certain value.

Why would we do that? So it's the same reason why would we announced something that is awarded, but not signed it. It's because the people on the other side of the table have that information as well. And it's to protect investors. I don't mind investors sell or investors buy, but I think it's my duty to try and inform the public as best as I can of what is happening. And then we can make a well-informed decision.

For instance, back in the day when we announced several months before the contract was signed for that large DROSRITE deal of over $20 million, I think people want to know that's in the offing -- or could be in the offing. It's not signed, but it could be in the offing. And if they wanted to sell them, that's up to them. Or if they what to buy them, that's up to them. But I think they'd be really ticked off if we had that information, they sold it today or two before that was announced.

So that's one reason. And what I'm trying to protect investors from as best as I can is from -- people on the other side, maybe other countries, other jurisdictions where the laws aren't as strict as we are here, taking advantage and buying shares from investors who don't know the saying, I don't have the same information they do.

So that's why our PFAS was announced as awarded but not yet signed. And we're very clear in the press release, it hasn't yet been signed. But we wanted to put it in and make people understand that. And so we put in backlog and awarded. So that's the subtlety and the logic behind this. Sometimes, managing this type of information, you have to make decisions which are not all the time servicing everybody in the same way. We're trying to get the information out there as best as we can and we assume that the people that are reading it has the intelligence to understand what we're doing.

So that's the story about behind PFAS. And the reason why it went off the table is because we will not give up our IP to the people who wanted it in order to move forward. And that's the story. And I think we've said that enough about that and we talked enough about that. Do you have another question, Mike?

Yes, actually just about the receivables. Some of it is quite old. And I know you've said that you're confident in it's all good. Is there some more clarity you can provide about why some of these receivables -- it seems like a fairly large chunk it is, up to 12 months or more old. Is there -- (multiple speakers)

So Mike, I've done that. If you want, I'll do it again.

Okay. So first of all, our CFO mentioned that -- or I maybe mentioned that, not only has it been reviewed internally passed by our Board. It's also been reviewed by our accountants and no renewal was necessary. So they have a whole lot more information than you do or anybody else out there does. And so they made that decision.

Something that you may want to understand -- which is news to me. But if you could reach a different understanding with the client based on his term -- on his payment terms, you cannot change that receivable amount. I don't know if you understand what I'm talking about. If you have a contract in, let's say, the person is supposed to pay you $1,000 and you bill them for it, it goes into receivables. But if you tell them okay, you don't have to pay $1,000 today. You can pay it in a year from now. It's still in your receivables. Okay.

So you'll notice -- I think we've mentioned in the past -- you've mentioned that was made in the -- that the two basic areas -- have you mentioned that? -- Is based in the US Navy and the money coming from a DROSRITE sale (inaudible). We also mentioned that the certain delay with -- US Navy's a triple-A name and you can't get better than that. So I don't think you have a problem with that.

And the other one we've signed recently, they started paying again. And we've said that we understood and knew from the outset that there will be delays in payment because the money was being allocated to something that actually serves us at the end better.

So the client approached us. We understood what was happening. We said, okay, it makes sense for us. It makes sense for you. It makes the future much better for all of us. You've got a green light. But we cannot change the AR. The accounting principles won't let us. But what you do have is that we, our Board, and now, the accountants have looked at it and they all agreed that with all the information, there's no reason to take a reserve. And that sums it up. That sums it up. I can't explain it much better than that.

Okay. What -- I don't know if you'd be able to tell me this, but what was the cash allocated that would be better for you than actually getting paid? What was that allocated to or what's kind of in the works there?

Sorry, Mike, what are you talking about?

You had said that decision was made to delay payments because that cash had been allocated to something else that was better for you. So I'm wondering what was it allocated to that's better for you than actually getting paid?

I can't tell you that, Mike. I can't tell you that. (multiple speakers) But you can imagine, you could just put -- it's not a -- if you use your imagination, you can figure out that there may be some -- there's lots of things that could be that will make a lot of sense under the circumstances. But we'll just let it be.

Okay. All right, that's all my questions. Thank you very much, guys.

Thank you. And I'm showing no further questions at this time. And I'd like to turn it back over to management for any closing remarks.

Thank you very much for joining us today. I hope that we were able to answer as many questions we can within a lot of time. Feel free to email us with questions and we'll do our best to answer them within the public available information. And if we can't, we'll take cognizance of it and trying to answer them in the future press release on the topic.

Thank you very much. I look forward to seeing you and speaking to you in the near future. All the best.

Thank you.

This does conclude today's program. Thank you for participating. You may now disconnect. Everyone, have a great day.