PyroGenesis Canada Inc. (NASDAQ:PYR ) Q3 2021 Earnings Conference Call November 16, 2021 10:00 AM ET

Rodayna Kafal - Vice President, Investor Relations and Strategic Business Development

Peter Pascali - President and Chief Executive Officer

Andre Mainella - Chief Financial Officer

Mark Robins - Forest Capital

Greg MacDonald - Loderock Research

Good day, ladies and gentlemen and welcome to the PyroGenesis Third Quarter 2021 Business Update call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

And I like to introduce your host for today's conference, Rodayna Kafal with PyroGenesis. Thank you, please go ahead.

Good morning, everyone. And thank you for joining PyroGenesis’ third quarter 2021 financial results earning call. On the call with us today are Peter Pascali, Chief Executive Officer; Andre Mainella, Chief Financial Officer; Pierre Carabin, Chief Technology Officer; Kosta Darsaklis, Controller; and David D'Aoust and Alex Pascali from the Business Development Department.

The company issued a press release yesterday Monday November 15, containing third quarter 2021 financial results, 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 the IR department. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter and nine months ended September 30, 2021.

I would 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 call. 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 each of adjusted net loss and adjusted EBITDAs 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 will now turn the call over to Peter Pascali, President and Chief Executive Officer. Please go ahead, Peter.

Thanks very much Rodayna. And thanks for everyone, for joining us today on our first ever quarterly earnings conference call. As Rodayna mentioned, I'll be speaking from a prepared text. And I mean, I find that very boring. So I'll try and get through that. So we can get to the question and answers, which I'm very excited about. Extremely excited about where we are in the third quarter and nine months 2021. We've had some very exciting developments. And we want to take this opportunity to provide an update on our progress. And as I said answer questions from investors later on.

I'm pleased to report that we've exceeded our revenue guidance for the third quarter, and we actually reported a $9.3 million of revenue versus 8.1 million for the same period last year. This is the fifth quarter in a row that PyroGenesis posted more revenues in each quarter than for all of 2019. And the company has now at nine months exceeded the record revenues of 2020, which in and of themselves was a record revenue year. At the same time, we recorded positive net income as well as positive earnings per share for the third quarter.

We're also proud to report to achieve a record, as I mentioned, nine months revenue of $23 million, compared to 11 million for the nine months ended September 30, 2020. We also achieved a backlog of signing and/or awarded contracts of approximately $44.5 million, which is a historical high as well for PyroGenesis, and we truly expect this trend to continue. We maintain a clean balance sheet and continue to be well positioned to execute on all of our organic growth strategies, while continuing to actively pursue growth through synergistic mergers and acquisitions.

We have, as you probably know, been focusing on our environmentally friendly offerings offerings and highlighting our greenhouse gas emission reduction benefits to our customers in the market. Most of our product lines do not depend on environmental incentives such as tax credits, GHG certificates, environmental subsidiaries, or other things to be economically viable. For the most part, we are cheaper when all is considered the legacy technologies. And that is why we say we make sustainability sustainable.

We consider our offerings to be timely, as many governments are stimulating the respective economies by promoting and funding both environmental technologies and infrastructure projects. We expect that these incentives will provide a strong tailwind to support an already strong pipeline, which would further increase revenues and add directly to shareholder value.

That said, over the past several years, we have successfully positioned each of our business lines for rapid growth by strategically partnering with very discerning multibillion dollar entities who arguably have already vetted the technology. And these entities have identified PyroGenesis’ offerings to be unique, in demand and significant commercial value. We believe our organic growth will be spurred on by one, the natural growth of our existing offerings, which can now be accelerated given our strong balance sheet and two, leveraging off something that we call our Golden Ticket advantage.

We have described in the past our Golden Ticket advantage as one that occurs when selling directly or engage directly with the end user and as such, we are inside the fence. It affords us the opportunity to either cross sell other products, or identify new areas of opportunity that can be uniquely addressed by PyroGenesis. We call this ladder, our Coffee and Donuts strategy because simply guys you're selling a coffee, you could generate additional revenues with little additional effort by adding on donuts.

We expect that the strong relations that we have built with our clients are now positioned us to transition into significant revenue streams, particularly in iron ore pelletization, DROSRITE, 3D printing and most recently something I'm extremely excited about, our land-based units for the destruction of an emerging hazardous waste stream called PFAS.

Let me turn first to our plasma torch offering to the iron ore pelletization industry, where we recently announced a major milestone as we achieved the second commercial plasma torch order with a multibillion dollar iron ore producer. This order is to supply four high powered plasma torches together with ancillary equipment to a client for approximately $6 million. And this client has advised as we press release, they would upon successful implementation installation of these four torches, will be looking at a series of orders of approximately 130 torches.

Now, this is particularly interesting, given that this particular client does not have the largest need amongst the iron ore pelletizers. For example, there's another client with over 10 iron ore plants each possibly requiring up to 50 plasma torches, and they have a significantly higher need. As a side note, we estimate the net present value of each of these torch sales to be approximately $7 million to the company.

As you may or may not know the iron ore pelletization industry is under extreme pressure to reduce their carbon footprint and greenhouse gas emissions. And they're looking for technology solutions to help them meet the carbon footprint and GHG targets. In fact, we find that they're under increasing pressure from not only investors and shareholders, but by lending institutions who’re tying their lending facilities to the iron ore palletizers reducing their carbon footprint and meeting their GHG targets. Our priority plasma torches significantly reduce greenhouse gas emissions, an attractive solution as environmentally friendlier or alternative to fossil fuel burners.

As sales of our PyroGenesis plasma torches increase, we should also benefit from providing proprietary spare parts and services and we expect will generate significant high margin recurring revenue. We believe iron ore pelletization represents an enormous opportunity for PyroGenesis, as there is very little to no competition in the industry and we have extremely strong IP with respect to replacing diesel burners, fossil fuel burners with plasma torches. We are also proactively targeting other industries which are experiencing significant pressure to reduce greenhouse gases as well and which utilize fossil fuel burners.

Turning now to our aluminum dross recovery business line, following our successful joint venture agreement, which we announced this quarter, with a leading residue processor to transform aluminum dross residues to high value chemical products, we decided to create a new division specifically dedicated to the aluminum industry and we named this division PyroGenesis Aluminum, pretty innovative.

And anyway it includes five main offerings; one, dross rate for sales and towing services; two, the valorization of downstream dross residues; three, the upstream applications which we've announced; four, PyroGenesis high power plasma torches geared towards replacing fossil fuel burners and five, the repurposing of spent pot lining residues, which are currently being landfilled.

The combination of these offering is designed to position PyroGenesis Aluminum as a unique one stop shop for all zero landfill and reduce carbon service solutions, which cater to aluminum industry and upstream offerings. We are confident that we're well positioned to address many of the key challenges facing that industry. And we're currently bidding on an upstream opportunity valued at approximately $40 million. This process is plasma based, and not only reduces greenhouse gases, but seems to be cheaper than latency technologies.

This project is located in the Middle East and is currently experiencing delays to allow the processing of government documentation to catch up with the bidding process. And more interestingly is that we also identified a second opportunity where again, we seem to be the preferred contender for the same type of offering. Despite the delays, which are beyond our control, we are excited by the fact that in both instances we are the lead contender and as such, we are confident that we have identified a very compelling new offering in its upstream application.

With respect to our additive manufacturing segment, we expect to see continued significant year-over-year improvement in our 3D metal powders offering as our NexGen facility has finally kicked into gear and is incorporating all the previously disclosed benefits including increased production rates, lower CapEx and lower OpEx to be realized by our production line. There are major top tier aerospace companies and OEMs in both Europe and North America, eagerly awaiting powders from this new state of the art production line. And I can confirm that we are in the process of providing them with these powders.

Whereas in the past, we'd been primarily targeting the very demanding aerospace industry. We have recently expanded that target market to address the unique needs of electric vehicles marketplace, but recently approached us with certain unique powder needs. If this wasn't enough, we are also very excited this quarter to announce that we were selected by a large operator of a public water systems to provide a $9.2 million land-based system to destroy Perfluoroalkyl and Polyfluoroalkyl Substances, also known as PFAS, which I referred to earlier on. This represents our first commercial land-based system sourced outside the military, and it has opened up a significant opportunity for our land-based system within this segment.

The first phase of the order is to provide pilot testing and the second phase is geared to a full fabrication furbishing and commissioning of a fully commercial land-based system to address the PFAS. And we're currently pursuing two additional opportunities within the same state in the US. And the reason why I believe this is important is that each state has its unique regulatory environment. And we won this particular $9.2 million bid. And given that these additional two are in the same state, we think we're well positioned to win those as well.

For those who don't know, PFAS are manmade chemicals that have been widely used in consumer products in various industries such as aerospace, automotive construction amongst others. Some products that may contain PFAS include nonstick cookware, stain resistant coatings used on carpets, upholstery and other fabrics, water resistant clothing, cleaning products, personal care and cosmetic products such as shampoo, and other products that resist grease, water and oil.

Because there's widespread use and strong chemical bonds and properties, which account for their persistence in the environment, PFAS are proven to be persistent pollutants that affect humans and wildlife. And they're consistently and they're under increasing pressure and they're considered to be an emerging hazardous waste stream. And it doesn't seem to be a viable solution in handling them. And that's why we're very proud to be selected in a highly competitive bidding process to provide that proprietary patent based environmental solution to this significant problem facing the world.

And at the same time, in the background, we continue to constantly evolve our technology and we have been recently granted a new US patent covering our high power DC steam plasma torch, used in a technology that we call SPARC. This technology is designed to destroy ozone depleting substances, including end of life refrigerants like CFCs, HCFCs, and HFCs, which have high global warming potential. Just to give you a sense that we're still doing things behind the scenes to improve our technology and build new technologies.

We're also expanding our role as HPQ's technology provider for the game changing family of silicon processes which were developing exclusively for HPQ and its wholly owned subsidiary HPQ NANO Silicon Powders Inc. and HPQ Silicon Powder Inc. Specifically, we developed several processes. First, we developed a PUREVAP Quartz Reduction Reactors.

It’s an innovative patent pending process, which should permit the one step transformation of lower purity quartz than any traditional process can handle into a silicon of higher purity level that can be produced by any traditional smelter at reduced cost, energy input and carbon footprint. The unique capabilities of this process could position HPQ as a leading provider of the specialized silicon material needed to propagate its considerable renewable energy potential.

Second, we developed a PUREVAP Nano Silicon Reactor, which if successful, could position itself the new proprietary low cost process that can transform the silicon made by the PUREVAP Quartz Reduction Reactors into the Nano silicon materials silicon powders and silica nanowires sought after like energy storage batteries, electric vehicle manufacturers and clean hydrogen sectors participants. The aim of the ongoing work is to position HPQ Nano as the first to market with a commercial scale low cost nanoparticle production system.

And third, we developed a new plasma-based process that can convert silica into fumed silica, also known as pyrogenic silica in one step. This new process could be a low cost and environmentally friendly option that combines HPQ’s silicon high purity quartz initiatives, with PyroGenesis’ industry leading know how the development of commercial plasma processes. It is envisioned that the process will eliminate harmful chemicals presently generated by traditional methods. This new process could revolutionize the manufacturing of fumed silica while repatriating production back to North America.

In total, the recent government participation of 1.3 million in a 5.3 fumed silica project with HPQ is a strong validation of these technology and sets the stage for potentially significant upcoming developments. At the same time, we're pursuing synergistic merger and acquisition opportunities to speed our growth. We recently announced the acquisition of AirScience Technologies a Montreal based company with experience in biogas upgrading to renewable natural gas, as well as air pollution controls for a cash purchase price of approximately $4.4 million, which upon signing provide us with a backlog of over $10 million of signed contracts.

This acquisition springboards PyroGenesis into the renewable natural gas market, where we believe there is significant unmet need for renewable natural gas providers, particularly in North America. And this acquisition also provides us with a 15 year over a 15 year advantage in the renewable natural gas market. In addition, we now have a presence in Europe via Italy and India, where AirScience has already developed relationships with at least one multibillion dollar company who is currently using their technology. We believe this acquisition position as well to address the opportunities arising from this growing need to generate renewable natural gas.

The acquisition of AirScience, which we also renamed to Pyro Green-Gas, provide potential synergies with our land-based waste destruction offering, which is I think, overlooked by the market. We believe that AirScience’s technology, which convert coke-oven gas to high valuable hydrogen can be used to convert the syngas that comes off our land-based system and it's typically converted into cheap electricity and heat can actually be used to also convert the syngas into a high value hydrogen output. And if that's so, will significantly improve the economic benefits of our land-based system.

Our goal over the next 12 to 18 months to strengthen Pyro Green-Gas operation and quality control systems, while at the same time increasing the backlog of signed contracts, and successfully delivering on the existing pipeline of contracts, which runs around $15 million to eventually position Pyro Green-Gas as a significant player in the marketplace. At the same time, we will evaluate, on a very conservative basis, additional M&A options to accelerate the role of our environmental solutions.

At the end of September, we announced that Pyro Green-Gas had been selected to supply its landfill biogas purification system to Carbonaxion Bioénergies Inc., the promoter of GNR Neuville project, which is being developed at the environmental complex nearby. The contract has an expected value in excess of $5 million, and is expected to be fully commissioned in the first half of 2023. This contract came in less than one month after closing the strategic acquisition of AirScience, and provides further validation of the technology and its value proposition to our customers.

The project is expected to reduce 3500 tons of greenhouse gas per year, which is basically equivalent to removing 1000 cars from the road every year. We believe there is significant demand for upgrading biogas facilities worldwide, particularly given the legislative trend across North America towards regulating minimum amounts of RNG to be incorporated within gas pipelines.

Overall, we're in a very strong financial position with over $50 million of cash and nil debt as of September 30. We have a strong and clean balance sheet. And we believe we're well positioned to execute on our strategy of growth both organically and through synergistic mergers and acquisitions. Overall, we believe our financial results illustrate the long-term growth prospects as we've built one of the highest concentrations of plasma expertise under one roof, the goal to solidify our position as emerging leader in the reduction of greenhouse gas emissions.

Before I turn the call over, I'm pleased to welcome and introduce Andre Mainella to the management team as Chief Financial Officer. Andre joined us at the end of September and brings an impressive set of financial and accounting skills in publicly traded companies combined with an extensive background in financial reporting consolidation. We're very excited to have him join our team at this pivotal point in our growth trajectory.

At this point, I'd like to turn the call over to our Chief Financial Officer, Andre, to go over the financials in detail. Please go ahead, Andre.

Thank you, Peter. I'll take the opportunity to review the Q3 financial statements, financial information. So as Peter said, the total revenues for the three months ended September 30, 2021, increased by 14% to 9.3 million, compared to 8.1 million for the same period last year. Total revenues for the first nine months of the year, increased by 117% to 23.9 million, compared to 11 million for the same period last year.

The revenue increase for the three months ended September 30, 2021 is mainly due to the development and support related to system supplies to the US Navy, which increased to approximately $2 million. It was increase in torch sales which are now sitting at 646,000 and new revenue of 3.7 related to the biogas upgrading and pollution control, all related to the acquisition of AirScience.

The revenue increase for the nine month ended September 30, 2021 is attributed mainly to the increase in PUREVAP sales, which are now at 5.5 million. Then increase in development support to the US Navy, which increased to 6.7 million, an increase in torch sales, which are now 1.4 million, added to this the new revenue 3.7 million related to the biogas upgrading and pollution that I mentioned earlier. As of yesterday’s filing November 15, 2021, the company had a backlog of signed and/or awarded contract of 44.9 million.

Gross profit for the three months ended September 30, 2021 was 4.1 million, which is 44% of revenues compared to a gross profit of 5.5 million for the same three month period last year. The decrease in gross profit was primarily related to an increase in employee compensation, direct materials, manufacturing costs, FX, ITCs and amortization among others. As a result, the decrease in gross margin was primarily related to the aforementioned expenses, but also partly to a shift in the product mix.

Gross profit for the nine months ended September 30, 2021 was 11.1 million, compared to a gross profit of 7.1 million for the nine month period ended September 30, 2020. Total SG&A expenses were 4.9 million and 15.3 million for the three and nine months period ended September 30, 2021, respectively. This compares to 5.3 million and 8.3 million for the three and nine months period of the comparative year.

If we look at the SG&A expenses, excluding the cost associated with share based expenses, which is a non-cash item, such expenses will be 4.2 million for the quarter and 2.3 million for the same quarter last year. The increase in SG&A expenses in Q3 2021 over the same period of Q3 last year were mainly due to the operating activities of AirScience, which is now known as Pyro Green-Gas and the costs associated with employee compensation, professional fees, travel, depreciation, and public company expenses such as the D&O insurance.

Additionally, share base expenses decreased by 78% in the current quarter, over the same period last year, as a result of the stock options granted in the past two years 2020 and 2021. This was directly impacted by the vesting structure of the stock option plan.

R&D expenses were 390,000 net of government grants in Q3 2021, an increase of almost 200% when compared to 132,000 for the same quarter last year. The increase in Q3 2021 was primarily related to an increase in employee compensation, subcontract, material costs, equipment and other expenses altogether totaling 443,000, compared to 237 in the same quarter last year. During the first nine months of 2021, net spending on internal R&D was 1.4 million as a result of primary to the increase in R&D activity. This compares to 151,000 in 2020.

Moving on to EBITDA, EBITDA in Q3 2021 was 959,000, compared to 15.5 million at Q3 2020. The $14.5 million decrease in EBITDA is due to the decrease in comprehensive income of almost 14.7. This decrease was primarily attributable to a non-cash expense associated with a decreased market share value of the strategic investment in HPQ. Adjusted EBITDA in Q3 was 1.6 million compared to 18.5 million at Q3 2020. The decrease of 15.8 million in Q3, is attributable to the decrease in EBITDA, and also to a reduction of 2.3 million of share based expenses.

Net income in the current quarter was 624,000, compared to 15.3 million in Q3 2020. Net loss for the first nine months of 2021 is now 15 million compared to a net income of 18.8 million for the first nine months of 2020. With all that being said, we're proud of our Q3 results. We've had a strong balance sheet and we've ended the quarter with 15.8 million of cash and cash equivalents.

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

Thank you very much. I think at this stage, we're open for questions.

Thank you. [Operator Instructions] Your first question comes to the line of Mark Robins from Forest Capital. Your line is now open.

Hey, Peter, congratulations on another very strong quarter and in particular the growth in the backlog. I've got a handful of questions, so I'll try to move through them pretty quickly. The first one, if you could just give me a quick overview of the difference between the iron ore pelletization and steelmaking? I know that may sound like a basic question, but it'll be helpful.

So basically our torches are used, what I would call in the upstream portion of the process in iron ore pelletization. The purpose of iron ore pelletization is essentially to take your iron ore and make it into iron ore pellets. Once that's completed, it's moved on downstream and it's turned into steel. So it's two very different parts of the process. It involves taking iron ore and eventually make it into steel.

Got it, thanks. Second is, we've heard about other solutions to reduce greenhouse gases in the iron ore pelletization industry using bio fuel or hydrogen, maybe you could just give me a sense of how this competes with PyroGenesis’ plasma torches.

That's interesting, because we've been getting a lot of questions with respect to competing technologies. And I think if my memory serves me correctly, hybrid is one that is mentioned, there's a whole bunch that are mentioned. And those are typically solutions that are being used what I would say downstream in the steel making process. Remember I mentioned, there's the iron ore process that makes the pellets and then downstream they make the pellets into steel.

There's been a lot of press about how in that particular side of the industry, there are technologies and processes to reduce greenhouse gas. And oftentimes people confuse of what we're doing. And we get questions like, oh, my goodness, hybrid, they're competing with you? Not at all, they're downstream. But my point is very exciting with all these downstream technologies, it speaks to the overall concern of the industry to reduce their carbon footprint and their greenhouse gases. So we're in the right place.

Now, your question speaks to other competing technologies and I guess, at our – in our section, what we call the iron ore pelletization section, where they take the sexy way of describing how they take iron ore and convert it to the pellets before going down to the steelmaking section. And, basically, you might – I don't consider those competitors, okay, that's my personal opinion. But there's basically hydrogen, and biofuels.

And hydrogen – and they're both very early stage, they're basically still on the drawing board. But one of the disadvantages of hydrogen, you have to understand, you need to build a large scale higher production facility to feed the whole iron ore pelletization plant. Now, that seems pretty cool, right, except when you step back and realize that you actually usually electrolysis of water and that consumes a large amount of electricity. So they use electricity to produce high – and we just take that electricity and we convert it directly into heating the plant.

So quite frankly, we bypass the need for hydrogen altogether, which is pretty cool. And that's what's so exciting about this is that the next competitive consideration something that just doesn't make sense at all. And then forget about the storing and the transporting of the hydrogen, which is very dangerous as well. Forget about all that. So hydrogen, yeah, good luck. So the other one is biofuels. Biofuels – what's the name, sorry, Jim, is it Roger, okay, so anyways, biofuels reminds me, remember that guy from Virgin Atlantic, I can’t remember.

At some point he was going around toning how we could use corn to solve all of, our problems until we started using corn and the corn prices went shooting up into the brands and things. Obviously, shooting up into the ozone and South America couldn't afford to – the ingredients into their food product. So biofuels, forget about it. Biofuels shouldn't even be considered. I’ll explain to you why. At the end of the day, they still emit CO2. Basically they still emit CO2.

And then the bio-oil is not an infrastructure ready fuel. This means that the whole fuel chain from transportation, storage, piping to the gasket, burning combustion chamber, they must all be designed to meet its special characteristics. In combustion applications, the physical, chemical products of bio-oil, it has different characteristics like high water and oxygen content, I think got high viscosity, surface tension, a wide volatility distribution, it’s got chart content. I mean, I can go on and on.

They’ve many negative impacts on atomization quality iron ore to palettes. And at the end of the day, plasma reduces total carbon emissions not only fossil carbon emissions. As I said biofuels still – when you look at from cradle to grave, they still emit carbon. So here we got one – we’re talked about hydrogen which makes no sense to me, uses electricity as well in huge amounts. It's dangerous to handle and transport. You got biofuels which is basically a fuel good concepts if you don't look from cradle to grave, and neither have already.

So that's why I am totally over the top excited about what we're doing in iron ore pelletization because I really don't see any other alternative right here and now and iron ore pelletizers are under extreme pressure. I like talking about pressure. I'm just talking about environmentalist running around with bunch of cards outside your head office. I'm talking about real pressure from shareholders, from Directors, and probably the most powerful of all their lending institutions, right.

The lending institutions are saying, we don't want to be associated with you admitting this type of crap. We're tying your lending facilities to whether you perform good or not. And when you're talking about the purse strings the banks, they got the by the short and curly. They're running around trying to find a solution, hydrogen out, biofuels not even on the playing field. Its plasma torches as far as I know. And at the end of the day, when you look at plasma torches, it's so simple to put them in.

You take up the diesel burner, sell them to the scrap yard, put in our plasma torch, just make a few adjustments and you're off to the race. I've said this from day one. And you don't have to shut down the furnace, you can continue operating it as you’re changing out the diesel burners. And when you look at it all it makes economic sense. So I'm very excited. And despite what people are saying, it's been going gangbusters.

These multibillion dollar companies who – they didn’t hear about it 18 months ago, had to make sure we’re real, had to refocus their strategy, how to get money, even a small amount of money for a computer simulation, they got to get authorization for it. Sorry, I think does that answer your question. I was so over the topic site about this man, and we get a lot of questions on this.

Like, what about hybrid? What about this? It's all downstream. Guess what, downstream. Downstream is – we’re at the iron ore pelletization side. I haven’t started talking about the steelmaking process. We can use plasma torches in the steelmaking process as well. We can use it for pre heating gases. We can use it for tundish heating. We can use in the continuous casting process. We haven't even touched down there. So I'm a little excited.

No, thanks. That was definitely very helpful. So can you give us a quick breakdown of the backlog?

Oh, my goodness. You know what I could – Kosta, is here in the background. I'm going to ask him to figure out the backlog. I mean, we press released all the contracts. I don't think it's saying anything out of line. Kosta, can you tell me what the breakdown of the backlog is? I think – I’ll get that right for you in a second. I don't have this off the top of my head. Do you have another question while he’s looking for it?

That’s fine. Yeah. In the meantime, yeah. Just in terms of the strategic investments, the value went down, there wasn't any – the cash didn't go up, can you give a little bit of color on that.

So essentially, what we have to do is quarter-to-quarter mark-to-market our investment in an HPQ. So we do it on the income statement as well as on our investment. So that was basically – I think, because HBQ costs went down from

As you compare to the year end. And that's why it went down. It was just a market adjustment of the lower price of the investment. And it was – that's why you wouldn't see that go to cash. And the breakdown of the backlog is –

With the guidance we have the HPQ, 1.5 million [indiscernible]. We have the US Navy 3.8 million. We have DROSRITE 4.2 million.

We’re talking about backlog right?

Yeah, it's a little hard to hear if you can say that again.

Just do it in percentages, we'll get back to –

So basically we have our growth –

Hold a second. I'll get it to you right now. Hold on a second.

Mark to give you the big ticket items. So we have HPQ, one of our contracts about 1.5 million backlog. We have US Navy 3.8 million. We have DROSRITE 4.2 million. We have a second – we have a fumed silica 1.9 million. We have 4 megawatt high power torches at 6 million. We have a plasma production of HCP at a million backlog. Then AirScience Canada our new acquisition Pyro Green-Gas. The total backlog from them is almost 7 million. And then we have two awarded contracts where the backlog is 9.2 million and 5 million. So those are the key backlog amounts.

That's great. It sounds like we're firing on all cylinders. And also thanks for that explanation on strategic investments. That's what I figured. I just wanted to get some clarification. Last question, then I'll let – sorry for monopolizing time. But can you just really quickly give us a sense of what impact COVID had on the company?

It could be argued to say it had none. Obviously, it had some. I would expect to come into the office and things like that and the supply chain is affecting everybody. Other than that, we are managing those challenges by having a work from home schedule that seems – we seem to actually get more work out of people when they work from home than within the office. But that's one thing. But we're also managing the supply chain by buying a lot of material in advance. So, so far, so good. We've been very lucky. And we're very thankful for having managed the COVID crises as well as we have.

It's fantastic. Well, again, congratulations. Great quarter. Keep up the good work.

Thank you. [Operator Instructions] Your next question comes to line Greg MacDonald from Loderock Research. Your line is now open.

Thank you. Good morning, guys. Good morning, Peter, Andre and team.

Yeah, there's a lot going on. A lot of exciting opportunities still going on here. But I wanted to focus in on some of the more commercial stuff. I guess the first question I had is piggybacking on the last question, with respect to the backlog. Six months ago, the backlog was 30 million, it's nicely increasing. Six months ago, most of that backlog was going to be executed over the one year forward period. Is there any change in the new backlog timeline for execution? I ask this kind of in relation to COVID.

Yeah, the new – interest in the new backlog. So I would conservatively say between one and two years is probably a downward curve with most of it being in the first year and tailing off small parts towards the latter part. So I'd say about one to two years, most of it being within 18 months.

And, Peter, is that because of the new business coming on having a longer timeline? I mean, it isn't in new business lines, right. So that seems reasonable. Or is this a function of the existing businesses having a COVID impact?

I'm throwing concerns relative to the COVID supply chains, for sure.

Okay. Thanks for that. Secondly, on DROSRITE, I'll ask the same question on pelletization too, but on DROSRITE, with the two opportunities that you have delays related to government documentation. So this doesn't seem to be a processing delay issue. It seems to be – or sorry, a decision delay issue, it seems to be a processing delay issue. Is there anything to add on that? I know these things can be a little difficult when it gets to government level. But is there anything to add on that in terms of expectation on timeline?

So I think the takeaway on that, the excitement I get on that is, once we're inside the fence, we identify an opportunity upstream that could benefit from our plasma torch know how, and we took a chance and proposed something and it worked. They liked it and the advice we got, we had the winning bid. And it might have been even cheaper than – significantly cheaper actually not just cheaper than legacy technologies. Ours reduced greenhouse gases, environmental footprint the others didn’t.

What was interesting is that we decided to try it again with somebody else and we got a similar response. What's really exciting is that we've come upon a really nice offering, we can identify it for a number of reasons. But it's something that associates with IP. But the takeaway for me is that there's a huge opportunity. When we went out and it seems like we were frontline contenders, and two out of two. So that's what's exciting.

Now with respect to the delays. This is not in North America. So I'm not used to the delays in this particular part of the world. We're led to believe that in the first instance, it’s because they had to get their paperwork together and make the application – we revised the application. How long it's going to take? I have no clue. But if you want to be conservative, what you can take away from the fact is we have a very compelling offering that we've come upon inside the fence is part of the Coffee and Donuts strategy. And with very little marketing effort, we think we can build that out into something quite significant. That should be the concern of takeaway, nothing else.

Alight. And as far as the –

I thought you wanted me to apply that to the iron ore pelletization as well.

Well, just a follow on this one and then pelletization. So is the paperwork related to regulation? Is that specifically what it is? And how can you think about –

Permitting. I think it's permitting, but don't hold me to – permitting.

And how can we think about government's incentive to actually cut through the red tape, because we see a lot of governments obviously, changing their tune when it comes to processing things that help their environmental causes these days.

So if you're asking me, how can we further incent the governments to move faster?

No, I'm asking, does this – is this government one that has the incentive, actually wants to get this – get the process completed with respect to the application?

I'm not so sure this particular part of the world whether that is the main incentive. If you want me to comment without knowing, I would say that they're eagerly want to get this plant up and running, so they can make money off of the mining of the natural resource.

Got it. Okay, and switching to pelletization then. To me this seems to be the biggest near term opportunity has been for quite a while. And you've made references to company A, B, and C. And today, you talked a little bit about that. Is there any update with respect to the timeline there in terms of decisions?

Well, it's not – we're running the playbook on this – I don't know how many times a company comes out, and takes a multibillion dollar company by surprise with a new technology you’ve never heard of, which addresses a significant and burning issue with them. What I'm trying to say is, you can just imagine a multibillion dollar company. He's got a strategic plan on how to address this – the environmental complaints and pressures that are before them. And comes PyroGenesis out of nowhere basically, with a solution that seems unbelievable.

Now, first of all they got to make sure that we’re for real, right. And we're a small company relative to them. And then someone has to have the confidence to go forward in front of the decision makers at a billion dollar company, which are already married to a particular strategy, and convince them not only to pay attention to PyroGenesis, but to free up some cash and to free up some cash, with the goal of moving away from their current strategy to the one that PyroGenesis would do.

So just to get a cash for a computer simulation is not an easy process. And then to get some torches ordered – and again, I don't know for people who don't have the background, typically it seems – again, we're right in the playbook, right. What they want to do is do a computer simulation of their unique furnace just to make sure that nothing untoward is happening. And then it seems those order one to five torches to put in situ and so they go test it out to see again, if nothing untoward is happening.

To give you some color here, when we were going through the computer simulation with client A, they were already processing the order for the torch. So a lot of this is just ticking the boxes and making sure that nobody's put their career on the line, okay. So we’re doing this. Now, how long will the torch have to be in operation? We're not 100% sure. I mean, I believe in my heart that it's going to be very quick because everything's moving quickly.

As I said, while we're doing the computer simulation, they're ordering the torches. While we’re ordering the torches, client A has apparently already identified the furnace because they asked us for a request for estimate for 36 torches. So while they’re ticking the box they're already taking decisions and identifying the actual furnace, how many torches and putting real effort into it and so I think it's going to go very quickly. I think it's going to be all done in a week, no. I think it's going to be a year, no.

It's going to be somewhere between there. Because there's huge pressure on them to address this issue. The issue is at the end of the day once the green light is given, can we address all the torches that may come that may be as a result of the decision to move forward? Can we produce those torches? We don't see, at this point, a bottleneck at PyroGenesis for any reasonable order of size, because we have a supply chain, which enables us to manufacture the torches outside of our facilities, drop ship them to the iron ore palletizers, who have quite a bit of engineering expertise on site, and can actually install and commission it themselves.

And to put this in perspective, there's 1000s upon 1000s upon 1000s of torches that needs – that could be – just in iron ore pelletization, we have a patent. And if you just take around a number of 1000 torches or 7 million net present value. I'm doing this in my head, is it $7 billion, as I said, a billion dollars. I mean, if you do it over 20 years, that's $350 million a year. I mean, I'm doing this quickly, I think those are the numbers. I mean, this is huge. Just a 1000 torches, which is a small number for the iron ore pelletization industry and footnote there's other industries under the same pressure.

So I guess my question is really, do you really care if it is hit, it's going to be right out of the park? Does one really care whether it's a week or a year? I mean, it’s somewhere. If I go out and say I really don't know, but I think [indiscernible] through that.

Yeah, I don't think the market cares, either. Whether it's inside a week or a year, I think the market is asking tough questions on COVID supply chain delays, right. But as you say, there wouldn't be a material impact on your ability to deliver. If one year becomes two years, I think the market would be fine with that. I think what the market wants to see is these companies signing, right. So I think that’s the big issue. There was another issue, Peter, also in terms of government legislation vis-à-vis infrastructure and stimulus happening. And companies may be sitting on the sidelines a little bit to wait and see what happens there. Has that process now completed itself and do these companies now feel comfortable where they stand on things to go forward?

I can't speak for. I don't even know if they're actually delayed because of that. I would imagine they are. And I just think another. I think where these government incentives help are with companies that are on the fence like they don't have the money to do it, okay. Then it pushes them into an arena where they can afford it and then they come forward to us. That's good, because we've created a client where without these government incentives they wouldn't be there. But the companies we're talking about, the iron ore pelletization companies, they got tons of money.

But I suspect if you're smart – I mean, multibillion dollar companies that are smart, every penny counts. They could structure a transaction where they get government incentives where maybe their lower interest rate or they get some sort of grants associated with some benefit. It makes sense for them to delay it several months to get access to that benefit. So that I would think we would expect that. However, I don't see that being a good – I mean, I think that this the process in without these incentives would probably be playing out the way it is. I find despite some of the criticisms in the marketplace, I find it's moving externally quickly for multibillion dollar company.

Thanks for those answers. I have just another questions that I'm going to call you later on those, so I'm not hogging the puck, let some others ask if they have questions. Thanks Peter.

If you want to go you can go to the bottom of the queue. We'll see if we have time later on. But call if you wish anytime.

Your next question comes from the line of Philip [indiscernible] from Scotts Co Management. Your line is now open.

Hello, Peter. I just have a question. Let's start with, what type of gross margins do you expect on your various products such as torches, DROSRITE systems, 3D printing inks?

Yeah. So we don't specify, we don't project gross margins. If you look, historically, our gross margins were somewhere between I'm going to give 35% and 45%, 50% even higher. I suspect that in cases where we can then order in volume in bulk, the gross margins will go even higher, because we get the advantages of buying in bulk. But we're very happy what they've been historically there should be no reason why they should be lower than that they should actually improve.

Okay. Your 3D printing inks, what is your capacity per line in terms of revenues?

So I guess, it depends what powder we're producing and what the market is for that particular powder. But then again, we don't talk about our production lines capacity, et cetera. Like we have, we have said that we can produce at least from what we know, there's nobody else in the world that can produce using plasma production rates of what we're doing which is over – we don't say what we're doing. I think we say it’s over 25 kilograms an hour. We can put these together at significant lower CapEx – sorry CapEx on our OpEx is lower. So we're very – we hold on hold that information close to our chest for competitive reasons.

Okay, you mentioned new applications –

But I don't need to be arrogant about it. Let me see if I can answer differently. These are whose out there in the marketplace and what we used to do. We have increased our production rate from somewhere around 10 kilograms an hour to over 25 kilograms an hour. And we know of nobody else in the marketplace that can go over 12 kilograms an hour. We can do it at a reduced CapEx, which is very significant when you're looking at building these things out and at lower OpEx. So when you look at all the variables, which would speak to some degree to your question, we seem to be beating not only in the marketplace, but what we did previously, which was pretty good. But we don't want to speak to some of the other items for competitive reasons.

Okay. You mentioned the new application for your printing inks, which would be in EV vehicles. Is that the same titanium 3D printing ink as you would use for aerospace?

No, it's a specialty powder that they're considering using our process for to produce.

Okay, do you have several 3D printing inks that you're working on? Or is it just focusing on titanium at the moment?

So we've done titanium. We've done Inconel in the past, we announced it. We've done a specialty chemical – a specialty wire to powder for a US government agency. And that's what we press released to date.

Okay. You also had mentioned on your last couple of calls, synthetic bio gas to hydrogen, where are you at with that application? Just developing it?

I think you refer to our acquisition of AirScience. And AirScience, typically what they did was what they're known for is taking landfill gases and repurposing into a pipeline ready fuel. So that's what they're known for. But they also have another technology that converts coke-oven gas from the steel industry and converting that coke-oven gas into a valuable hydrogen. It so happens that coke-oven gas is very similar to the syngas that comes off our land-based systems. And what we use that syngas for is to produce a cheap electricity.

If we can take that syngas, which is similar to the coke-oven gas and convert it into high value hydrogen, that's where we find the – that'll be very interesting because by default, we're taking a process which our land-based process which converted garbage into a syngas into electricity. We can now convert it to high value hydrogen, so it makes our land-based systems more valuable. Where do we stand with that? I mean, we just acquired the company a couple of weeks ago, a couple months ago. So we're in the process of looking at it.

It's just something that that's out there. That was one that – when you look at the reasons why we bought it? That was one of the reasons we articulated. So we're still getting our head around it and trying to figure out. First, we got to figure out, integrate it into our entire company properly, build out its business and at the same time not to get too distracted from it. Look and see how we can use the coke-oven gas conversion capacity with our land-based systems. Very, very exciting. It's all very exciting, but it takes time.

Okay. You're growing very rapidly. Are you able to hire the right people for the jobs that you have available? In the States it’s very hard to get people at the moment.

Yeah, at the moment it is hard. But we also are a very specialized company, in the sense that we're plasma based and plasma expertise to a large degree. And when people graduate with a plasma expertise, the graduates but they gravitate towards PyroGenesis, because we're a premier plasma company, and they'd be very proud to work here. With respect to the other jobs. Yeah, it is challenging. It's challenging these days. But it's not like a basic job has gone through 100%. I mean, we can live with it, and we can manage it so far.

And I get a sense that it's at least here, the pressure seems to be coming off as people are going back to work and entering the workspace, and more people are coming out of it. I think like Uber’s [ph], when there's no Uber’s around, the price goes up, and then people come out and Uber’s come out and the price goes down. So I think this is probably an Uber situation in slow mode. It'll basically rectify itself I believe in time, but so far, challenging, but we're managing it.

Your next question comes to the line of Steven Fine, a private investor. Your line is now open.

Hi. I want to applaud all the opportunities that you guys have created. It's quite a bro. And it's just hard to simulate and imagine what can happen to this company. I think, Peter, you will exceed Richard Branson of Virgin Atlantic as you were referencing him. Anyway, my first question is with regard to the Air Gas acquisition, what type of gross margins are you talking there?

Steven, thanks for the compliment. But that compliment won't get you confidential information. It's a good it's a Steven. It's a very good question. I like to answer it this way. It's going to exceed I believe, our historical margins, which is one of the reasons why we added it. And the interesting – again, underscore the interesting thing was the conversion of the landfill gas to – repurpose it to renewable natural gas. And the real thing Steven is that that doesn't seem to be a not enough of these suppliers of RNG in North America, as the regulations become more and more stringent, and are requiring more and more RNG to be part of the gas pipelines.

So that's, I think, where it’s really, really exciting and we expect it to meet our historical margin. But again, as I mentioned earlier to the other gentleman, the opportunity to convert our land-based syngas into something more valuable cannot be dismissed as well. So far, the acquisition is going very well. We haven't really paid a penny for the acquisition, believe it or not 4.4 million. It's based on certain hurdles and none of those hurdles have been met yet.

We've already converted part of the receivables, $2 million we received the other day, we landed a $200,000 additional contract with Tata Steel. And we landed another $5 million job, which we announced this quarter. So all in all the acquisition is going well. Acquisitions are always difficult to incorporate and we're doing that well, as well. And the margins we expect to be healthy. And looking forward to growing that business and see what we'll do with it in 18 months from now.

And the reason I asked that question to – and I don't have that in front of me, but you had like a 43% gross profit, which I think was lower than your last quarter and thrown into that mixture, was the Air Gas. So I was just thinking that does the Air Gas bring down the margins? But as long as your margins are above 35 – within that 35 to 50 range, you'll be fine. I know when you say you need to do – let’s talk about the air gas, when you say and I think that – by the way, I compliment you the way you bought that company with the goals that was brilliant. But when you say you need to do QC work where you don't make them tighter. Can you elaborate on that a little bit?

Okay. So Steve, let me just go back to your original question. I want to just make sure we're fully transparent. Those gross margins that you noted are I think, a comparison to second quarter, I think it was. And if it was, you have to remember that in Q2, we had a patent sale of several million dollars to HPQ, which improved that quarters margins significantly, you can imagine went right to the bottom line. So I just want to put that in context for full transparency.

So meaning that this is a more realistic?

Probably. Now, I apologize. I forgot the last – your subsequent question.

You mentioned, when you were talking about the Air Gas, and I've seen that you've mentioned that you've got to clean them up QC wise. Very briefly what does that mean?

Well, actually it was very interesting in acquiring them. And here in lies the opportunity is, they're a small company. And it was like going down memory lane when we picked them up. Small company, they're trying to keep the lights on. They're running left and right. They don't have the procedures in place. They're not paying attention to quality control. The procedures don't have quality control as we do here, because we have a relationship with US Navy that we were built on quality control, reporting and processes and things like that.

And they don't have an extreme – they don't have a large depth of engineering experience. So when I was talking about cleaning them up was bringing them to a, what I call a PyroGenesis level of operations, which is one that has earned us a good reputation with multibillion dollar companies like the US Navy. And to bring them in – they're not ISO qualified, like we are. So to bringing them up – those standards up to what we consider to be PyroGenesis level standards.

Develop the backlog, go to client, you can imagine a small company, not a very strong balance sheet. And they managed to do business with Tata Steel a multibillion dollar Indian company, go figure. And you bring PyroGenesis in with a very strong background, a very strong reputation for quality. And I think that we will bring a lot more confidence to the table. And again, improve their quality control, improve their reporting procedures, and their margin will increase as a result. And that's what we meant basically by the comment we’ll improve the QC et cetera.

Yeah, well, but the fact that you're ISO and you know ISO that's big, and you'll be you should be able to integrate that. I mean, I have a lot of experience with ISO. Alright, with regards – that's real exciting, but with regard to additive manufacture, what happened to the – a couple years ago before COVID, the joint venture with that huge company in Europe with additive manufacture with titanium?

Steve, we have to bring that up. Okay, so basically it goes like this, okay. We're a little naive. So again, we get a relationship with this multibillion dollar company out of Europe, and the exclusivity was this mutual exclusivity to provide them with titanium powders for Europe, exclusively for 3D – for additive manufacturing industry, and they would buy exclusively from us. Interesting because we were told in their 100 year history, they've never bought something they don't own, okay. That's the first step. We're very excited about that.

The second step is, which is where we were naïve. We didn't realize that we could have locked down a contract with an OEM with the idea of improving our production line over time. When you lock down a contract with an OEM of these type, your production line is locked down. And we had significant improvements that we wanted to incorporate into the production line, which was increasing, as a minimum, increasing our production rate from 10 kilograms an hour to over 25 kilograms an hour and lowering our OpEx at the same time. And this is – it's huge what we did with what we call our NexGen production line.

So here's the thing, we could have gone out with our old production line and made powders and have the press release and get everybody excited. But we'd have to live with a contract without five and 10 years, and make less money than if the production line was what it is today. So we decided to ask them very politely to wait. And we also asked the Tier 1 OEM in North America to also wait. I'll put that in perspective. Whereas by the time we walk $20 million, $15 million market cap asking these multibillion dollar companies to just can you wait a bit, and they did.

I think that's something that people should think about. They see something in our production, in our powders that's unique enough for them to wait. And when our NexGen came out, which was – and we did it on our own, because if we start asking for money from these entities, they're going to extract significant benefits, which go way beyond what they're providing. So what we did was we did on our own. Cash was tight, as everyone knows, because we're a small company, and we did it on our own, we came up with NexGen. I can't remember was it April, May? Somewhere in that period of time.

And right away, that first tier OEM that we were talking about, within hours, within 24 to 48 hours, signed an agreement with us to qualify our powders. Now, that's quite a move. They spend a lot of money to qualify a company. They spend a lot of time, a lot of effort and I’ve been told between $300,000 and $500,000, to qualify a company. So you don't go around qualifying companies just willy-nilly like that. In my opinion, I would suggest it's with a goal of buying powders. And I would suspect at the end of the day some significant volume to justify that type of effort.

So yes, we still have that relationship with Aubert & Duval who’s parent of Eramet the multibillion dollar company I referred to out of Europe. And we still have that relationship, we're still providing powders and things are going well. We're providing powders to the OEM, amongst others. We don't press release every day, every little thing we're doing, until we get something really significant going on. I mean, that's when we press release next. But I hope Steve that answers it.

Basically, it was our desire to lock down our production line with a production line that would be at the end of the day having significantly more economic value to the company and shareholders over the long-term. And I hope you appreciate the fact that we weren't chasing the press release going for long-term value.

Yeah, I do appreciate that. Because that's just good decisions. There's – your investment guide has another company that's in nuclear, and they were involved with a very big company. And I remember I spoke to the CEO there, and he just said, hey, the bureaucracy of dealing with them, we bought our way out of it. So that's probably a good decision. Alright, so anyway, let's talk about your plan. So I read in all your beautifully written purpose of these things, how you've expanded this plant, and you have this huge plant. So number one, how many people are in the plant, if you can devote that? And number two, what are you going to do in the plant? Is everything going to be done in the plant?

So how do you answer that? So we're busting out at original plant. As you can see, things are happening on all fronts. We have two plants now and a head office, so three separate locations. Basically we’re going to do manufacturing in the plants, in the two plants, focusing on robotization, DROSRITE, US Navy, HPQ, our normal business lines. To speak to the number of people, I don't have in my head broken down into each one of these plants. But I'll tell you something that maybe people haven't focused on.

We were somewhere between around 50 people pre-COVID if my memory serves me correctly, and we're currently over 115 people. Now, as you take into consideration some people left of that original 50 people, they left on their own volition or we got rid of them. And so we've actually doubled more than double the size of the company in the past 18 months. And it was done and I'm speaking a bit to a challenge here, Steve. It was done interviews over Zoom. People working from home for the most part. Obviously, not in our fabrication, but in other departments.

And then the really weird challenge Steve, to you to actually come post-COVID, we had our first company lunch the other day have over 100 people and half the people hadn't met the other staff. So there's a challenge of incorporating them into the Pyro family culture that we have. And so that's taking place as well. And we're having fun doing it. I mean, we're having fun doing it. We’re very fortunate that we expanded that. We more than doubled during COVID where other companies regretfully shut down. So we now have 115 people, over 115 people working for us. And they are mostly in the plants, a handful are in the administration side over here, but most of them are in the plants.

Right. So when you get the huge order for the iron pellets, and you said that you're going to have to – that you have subcontractors set up to make that. How are you going to control the QC of the subcontractors?

That's very good. It's something that we've learned using our experience with the US Navy, actually. They made sure, as part of that experience, you had to have multiple suppliers, and you had to manage them. And what you do is you have a particular – you assign somebody to that project, and those suppliers, and then you go and you make sure and you visit and you have pictures sent back and forth.

So there's a process that we use to manage the quality suppliers. So you can rest assured, that is not something we're learning that is something that we perfected, and we just cookie cut it amongst the number of suppliers that we have. Obviously, the more suppliers you have, you have to hire project managers to manage just that, your suppliers. So that's something that we're familiar with and that's not a challenge to us.

No, you’re into it. Obviously you come from an M&A background and having followed you and conversed with you in writing, what's your sense – I mean, you're going to be a $200 million company in two years, I mean, what's your projection, going to be a $100 million company in a year?

Steve, why do you do this to me? Look, I'd like to be – I think it’s one or two contracts in some of our business segments we could easily do that I believe. I mean, I spoke a bit just to iron ore pelletization. I just spoke to iron ore pelletization few moments ago and it doesn't take many torches to get there does it? It doesn't take too much.

So then Peter when you talk – I think I've wrote you this question, when you talk that the net present value of the iron torches are 7 million, does that mean you're going to raise the prices to these people from the 1.6 million that you charge them for the first torches?

Sorry Steve, I didn't need to mislead people. What I’m talking about is net present value and I broke it down in many of the press releases, so I didn't think I – you're right I should probably speak to that a bit. So our original estimate – value the torch at around one $1 million to $1.3 million and what we're selling them at is around 1.5 to 1.8. And then what we assumed originally was the sales and – sorry not sales, servicing and the maintenance of about $250,000 a torch. You can do the numbers over three years, five years, I can't remember what originally projected.

But these torches last like the furnaces for like 30 years. So we're looking at is the net present value of selling torches I think it was around 1.5 million and sales and servicing for 20 years. And that present value to us right now would be 7 million per torch. To try and give people an idea of how valuable each torch sale is. It's not just sell a torch and get out, there's a huge after sales service and maintenance that goes with it.

All right. When you talk about the computer simulations with regard with the pellets. How large your confidence factor is that when they do the computer simulation?

I don't want to minimize. We had to do the computer simulation. But basically everybody was already – and when we started, it wasn't like a challenge, it was just to confirm what everybody expected on both sides of the table. And in fact, the confidence was so high with client A that they were already in the process of ordering the first torch and entered into those negotiations on contract while the computer simulation was going on.

So I think between me and you Steve, I think it's basically a need to check the boxes and make sure that nothing untoward is happening even though they don't expect anything untoward to be happening and ticking the boxes along the way. They're very conservative group. And nobody really wants to stick their head out. And so they're doing this confirmation steps, which also includes buying an input and putting the one and four torches into situ and seeing how it operates and making sure nothing untoward is happening.

Last question, going back to the titanium curation in the additive manufacturing. Years ago when I was researching your company years ago, you licensed to a guy in in Canada who was bought out by GE, so allegedly they have that original process. So is your present process with titanium superior to what you licensed years ago?

Perfect. 90 days Steve. The old technology just to give you some history, we developed as an R&D facility to produce some powder for NATO, titanium powder for NATO for an R&D project. So it’s an R&D process. We would never have gone forward with that process. If we were going full commercial. It has a significant amount of challenges. I mean, when you produce powder to an order, you have a lot that – the order is let's say for zero to – let’s say from 15 to 20 microns or zero to 30 micron, we get to produce so much to get that and you’ve to store the balance. So it's not really commercially ready, that particular system. And so it's night and day. You can't compare.

So then if it is superior, why don't you go sell it to GE?

Because we can make a – I think we can make a lot of money developing it, demonstrating it, producing powders and getting it to other business lines, you see.

But you're into so many – one of the issues is you're into so many areas with more tentacles, it'll help you move faster. I've always believed in that concept. I mean, you're doing – you have so much as I said initially. It's mind boggling. I mean, when I referred to your company, I referred your company as potentially explosive beyond comprehension. And it's just hard to comprehend it. And it's very esoterically technical. And I know, we'll be sitting here years from now. And anyway, I congratulate you gentlemen on everything and everything you've done. It's awesome. And then thank you so much for having this type of earnings call because I think it's very important that your stockholders as myself understand the humanity of your people. Thank you.

Well, thank you very much, Steve and look forward to hearing from you.

Your next question comes to the line of James Trilling, a private investor. Your line is now open.

Hey, congratulations on the great results you had. I think it speaks to your value proposition you’re offering in all your lines. I was impressed by the amount of internal R&D you spent for last nine months. I think it's 150 for last year, and you're up to 144 million this year. Do you hope to continue or plan, I guess, to continue investing that much in R&D as you continue to grow.

We're an innovative company. I mean, that's what we do and that's what we do well. I don't see why we would stop doing something that we do well and we benefit commercial from it at the end of the day. So our goal is to – I tell our people that have everything works the way it should, one day our technology offering whichever you want to pick will become obsolete. And I challenge them to make it obsolete and not let someone else make it obsolete. So yeah, I expect that we will continue doing R&D.

That's great. That's why I bought your stock, okay. With all the commercial stuff going on, your R&D doesn't get the coverage it should. But again, thank you for all the work you're doing, okay. Thank you. Bye.

Your next question counsellor line of Abbie Creamier, a private investor. Your line is now open.

Hi, Peter, congratulations on a great quarter. And I am so excited about the future of your company. I have two questions. The first question has to do with the DROSRITE system. Have you guys looked at other metals besides aluminum and zinc?

We have, but we're actually – I think, copper we looked that at one point. We're actually concentrating on aluminum because it's just so big. And as the gentleman beforehand was commenting, I think, Steve fine, he meant we're getting to a lot of things. So we can't be everything. So we choose what we – we would choose to focus right now on aluminum, what we want to do is concentrate on aluminum, find some opportunities that are associated with aluminum inside the fence.

Because that's like I said, Coffee and Donuts strategy, which it's very easy to do, as opposed to going out and trying to convince a whole new market to embrace our DROSRITE system. So not that it's – we won't do it, it's not the right time to expand too much. So we're concentrating on it, laying the groundwork, providing the foundation to build a company, which maybe down the road, then will expand into other metals on the back of success in the aluminum industry.

Maybe with the Coffee and Donuts approach some of the metal companies that have other types of mines, that opportunity might open up. But my second question is have you guys considered basically, instead of selling the equipment as to let mining companies use the equipment on a royalty basis as a percentage of the mine?

Well, that's a home run idea. Yes, we have. That's exactly where – I'd like to present the technology to investors. I apologize, what we do is we sell it. I mean, we make it we sell it, we get maintenance and spare parts, benefits from it. That's easy. We can do that. And next level is really to see how we can extract additional benefits by providing the system maybe leasing it, maybe providing some sort of a royalty. If you lease the system, you're no longer in that difficult CapEx budget, but you're in the OpEx budget. And if you're doing it cheaper than legacy, then it's easier to get into the OpEx budget. So there's a lot of different strategies that come into play. But you hit the nail on the head. That is something that's very interesting. And it's something that we're considering.

I think that's a great idea. There's just several royalty companies that are just making out like bandits by providing financial resources to these mines when you guys have something that could dramatically increase the production of the mine. Anyway thank you so much for your time. Great job, you guys.

I think that brings us to the end of the questions in queue and I think toward the timeframe allotted for the questions. I just want to thank everybody for attending our first earnings call. I hope you've enjoyed as much as I have. We've had an amazing third quarter. During the third quarter from June 30 alone, we've announced over $30 million worth of contracts. We've entered a new market with – $1.2 million market to destroy medical waste. We have recently announced a $9.2 million land-based system, which is again a new market. It's our first non-military contract.

During the same quarter we signed a joint venture agreement. We did a strategic acquisition. We appointed or acquired in another acquisition our new CFO. We've had new patents. We've two new entities in Pyro Green-Gas and PyroGenesis Aluminum. And we also had an online charity aligned with our swag. So it's been an amazing third quarter by any measure and I appreciate all the support and interest from investors and thank you again for attending.

This concludes today's conference call. Thank you all for participating and have a wonderful day. You may all disconnect.