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Good day, and thank you for standing by. Welcome to the PyroGenesis Canada Third Quarter 2022 Business Update Conference Call. [Operator Instructions]. 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 11th, 2022, containing a business update and financial results for the third quarter ended September 30th, 2022, which is also posted on the company's website. If you have any questions after the call, I 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 30th, 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 [ attrition ] provides all speaks only as of the date of this call and is based on the plans, 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 after it, 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 and such forward-looking information, except as required by applicable law. In addition, during the course of this call, there may be -- 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 each of adjusted net loss and adjusted EBITDA and 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 provides 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 as not just viable, but sustainable and secure. We can remain squarely focused on maturing the commercialization plan enacted over the past 2 years. That implies turning a very large pipeline and to sign 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, a focus on large companies seeking technology solutions for greenhouse gas reduction and production output optimization and above and are above industry average margins. Margins that continue 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 [ Lunn ] 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 other clients, we continue to see a positive future with continued strong margins. Importantly, as a global economy continues its transition out of the disruption has faced over the past several quarters. Our return to logistical and resourcing 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 patent ultrahigh-tempture processes for heavy industry. We also continue to build upon established customer relationships, introducing new solutions and entering new markets, selling an ongoing success for years to come. Despite the worldwide macroeconomic headwinds, which have been exasperated by international supply chain volatility most of which have affected our clients planning logistics and spending, PyroGenesis continues 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 resource personal infrastructure availability and the stage setting of the first half of the year continued into Q3. We maintained our focus on production efficiency, steady progression towards full commercialization for our emerging business lines, the pursuit of innovation and expanding the relationship with existing and potential clients. In the face of continued macro uncertainties, we remain 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 commitment to false 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 3 years. Second, concerns focusing on commodity and security are driving optimization efforts across the metal 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 from other mineral production sources previously considered as exhausted. Third, the trends in global shift back to increased electricity-based power will result in more major infrastructure creation across renewables, hydroelectric and even nuclear installations, benefiting industries and technologies such as PyroGenesis with electricity-ready solutions. 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 be ignored. PyroGenesis [ R&D ] has been dedicated over the past 3 decades to plasma-based environmental solutions. These solutions are already impacting heavy industry as they prioritize the many issues facing with 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 destruction of hazardous waste and more rapid and higher-quality metal powder production for component weight reduction are just to name a few.These -- this underscore 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 [ will ] work for several quarters, including the first-ever in-factory trials of plasma furnace within an iron or facilitization furnace. A major upstream step in the steelmaking process with 2 separate global iron ore producers. The conclusion of the certification process for the company's titanium metal prodouters from a global -- from a major global aerospace firm and the potential sale of various aluminum industry solutions related to metal dust 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 of such a commercial nature as to warrant a long-term supportive relationship that the company has experienced in a ramp of various technologies to commercialization. The intense pressure on heavy industry to reduce their fossil fuel and greenhouse gas impact while improving their output allowed pyrogens to expect interest from many industries, but especially aluminum, iron ore and steel making to increase as the plan to fuel switching from fossil fuel burning gases to clean electric sources such as plasma torches role. I'll be back to 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 3 months ended September 30, 2022, was $5.7 million compared to $9.3 million for the same period last year. Total revenue for the first 9 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 a decrease in sales related to drop rate as well as the decrease in support related to the U.S. Navy and biogas upgrading solution total, but offset by an increase in [ Purva and ] towards sales. As of November 10th, 2022, the company had a backlog of signed or awarded contract of approximately $26 million. Gross profit for the 3 months ended September 30th, 2022, was $4.1 million or 73% of revenue compared to a similar profit of $4.1 million or 43% of revenue for the 3 months ended September 30, 2021. As for the 9 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 materials, 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 3 and 9 months period ended September 30th, 2022, respectively. That compares to $4.9 million and $15.3 million for the 3- and 9-month periods of last year, respectively. The increase in SG&A expenses was primarily due to the effect of the Pyro Green Gas acquisition that was completed in August of 2021, an increase in employee compensation, professional fees, office in general, travel, depreciation of property and equipment and the ROU assets and government grant. 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 3 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 ITC. During the first 9 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 3 months ended September 30, 2020, 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 $4.9 million of non-GAAP 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. $51,000 for depreciation of property, equipment, $127,000 for amortization of intangible assets and $177,000 of financial expenses. 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 growth profit this quarter remains high. And even without the one-time IP revenue, raising the gross margin substantially to 73%, and 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 steel, aerospace and defense, and industrial machinery. Also to note for the IT sale. We wanted to mention that we have not press released the details of the IT 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 phases of completion, and those closer to the final delivery stage incur cost and thus corresponding revenue at a slower pace of our different various states. At this point, I'll turn the call back to you, Peter.
Thank you very much, Andre. As you can see, PyroGenesis considers 2022 to be a strong platform for what future growth will stop. 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 relationship with existing and potential clients that have served out successfully to this point. Providing heavy industry with technology solutions to pressing environmental engineering and energy challenges while meeting their carbon reduction goal remains PyroGenesis primary goal and focus. In conclusion, we are 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 value and look forward to providing further updates as developments unfold. I'd like to thank you for joining the call today. At this point, we would like to open the call up to questions. Operator?
[Operator Instructions]. And our first question comes from the line of [ Stephen Cline ].
I have a lot of questions. So on -- 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 war of your company is all these areas that you're in. And with the notion that as you state your technology, you make it 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 the -- and looking at your financials, there's a clear decrease on cash flow and cash available. And so my greatest concern is, will you have the financial -- the financial where [ able ] to 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, it's -- 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?
Steve, very good points. And from the outside, I could see where we may be more of a concern 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, if it haven’t we been committed to one business line alone, and that slowed down, 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, we have multi-legs, 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 de-risk ourselves, but not gone too far afield as to express our reserves 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 to -- 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 your and exciting. All right. So let me...
Well, Steve, let me just point out that -- and I'm sure 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 of a 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 Q3, you'll notice it doesn't say that it was not reviewed. So it was reviewed 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 in HPQ. We're very confident in. So when you look at the other noncash but liquid items, they're quite significant. That's just something to keep in the back of your mind when you're looking at our balance sheet.
But Peter, that's fine. But when you look from -- I have a financial mine 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, yes, we got a 73% gross profit. That's immaterial because that's relative to -- is that going to be consistent with all sales? It's like taking out of context. I mean, look, 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 accept it. All right. Let me go to that question. Let me go on to my next question. You've spoken about is the additive thing. Let me call -- 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 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, it's -- that's a big step because that means other competitors can't get in that quickly. But the real question is -- 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 if I remember, historically, you license stuff off. But what you have now, does it have a uniqueness?
Yes, it does, because how could I make it [ somewhere ]. 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 believes so as well. And the uniqueness depending on the OEM, we have to do with its [ veracity ], how [indiscernible] is or what may have to do with the amount of oxygen that it has incorporated into the powder. And I can go on to a list of different aspects to what makes a powder of a [ call ] makes it more desired over another. Having said that, you do know our history, Steve, which is essentially we delayed coming out with our next-gen 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, 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 and there must be a reason. I know a nice guy to deal with and hang out with a beer in a bar, but I think it's got on to do with 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 sale, as you know, rather than go with the production that we had and pause locked down 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 next-gen, which we have done. And if you recall, we lock that down, I think it was in April. And like we had 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 it me and other people is 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 the time anyways. So I think that's what it is, Steve. I think it's about what's got to do with our overall quality of power. I mean there must be something there. We not going to go 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 the seeing approvals to be finished?
I think in our press release, we mentioned that we had an audit of our quality process, I have to be careful. So I don't want to say something that I haven't said in the press release. But -- and they came up with what I call a number of suggestions. And at last release, I believe we mentioned that we were down with like something like 90% of them, and we're down to the last handful and that should be completed before year-end, and I'm very confident we'll have something coming out before year-end that confirms that.
Go ahead. Finish your [ story ].
Sorry. I was 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 -- how big that could be?
I have absolutely -- I can't comment on that, Steve, here. But I suspect if somebody is qualifying us and they're spending a lot of money to do it. I hope it will be a vision to actually order of powders or also the waste of time for both parties. And I can't speak to quantities. I have some idea, but it's not verified. And these are OEMs. They're large companies, they -- they have a need for titanium powder.
So the bottom line here is, okay. So you've answered the question. You avoided. I'm not [ using ] the improper word, excuse me. Obviously, if they're getting you approved, normally, when someone gets you approved, that means they want to do business with you. And the -- to me, the most -- of everything you're putting out is so – the thing that's so unique is that if you hit on one of these areas, then the financial question goes away in my mind. My next question is you made this acquisition of Biogas. I saw recently, you had an advancement that you can take methane, you can turn it into hydrogen, that's wonderful. But where is this biogas thing? Where's the biogas acquisition actually going? I mean it seems like it's putting a lot of overhead and cost 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 right, it's roughly $4 million, but we didn't pay $4 million for it. It's based on certain milestones occurring. I can…
No, I remember that -- that was very... No, I remember that. That was very [ smart ].
So it was an opportunity to marry up our engineering expertise with a company that has lacked [ the idea ], the discipline that we've developed with our relationships with players like the U.S. Navy, [indiscernible] who've 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 up to some extent with our environmental solutions aspect. But also we perceive it to be a higher 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 [ co carbon ] gas to hydrogen, valuable -- hydrogen is valuable. This [ co carbon ] gas is very similar to the gas, the syngas that comes off of our land-based systems. And what will be a real clue here is if we can take this [ co carbon ] gas conversion concept apply it to our syngas and inside of using that syngas to make cheap electricity and heat to turn it into a more expensive hydrogen. It would catapult our [ non made ] systems into an economically -- significantly economically viable solution. So it will take our land-based systems get on their own but extract significant value from the syngas as opposed to what it was doing -- what we currently doing. So that's the hidden gem there. So the concept behind the acquisition was twofold: one, which just made sense from the industry and the lack of engineering, et cetera. But the secret nugget or the simple nugget that's really excites me is it potential to convert our syngas into more valuable output.
And as I question you in written communications, this syngas that you're talking about, is that not a big man's game? And for you to really materialize there, you would have to then connect with some larger companies to have the capability of scaling head up to the proper level?
Well, I mean, we have smaller systems. A lot of these [ are ] ways, they're small, but almost like many aircraft carriers. They're small like aircraft carriers. So to convert their waste -- to destroy their waste is one aspect and converting to something syngas, which could be used on-site to convert electricity sell back to the grid or provide heat. This is not a syngas gain necessarily. And if we can take that syngas and converted to -- it's an interesting avenue. What you mean -- I don't know if you're talking about, but we've developed smaller systems. And the big game is in the [ Atlantic ] is in the hundreds of tons and things like this, which we would probably -- the strategy there would probably end up being at that end, let's say, the 100 tonnes and more we came up with some, hundred tonnes and less than we can do on our own.
Does that mean that, for example, if there were somewhere else, there's a trash repository and you'd be able to apply your system to that? Maybe I'm getting this wrong, but what my vision here is you're pulling the -- maybe I'm a base here, but I'm presuming there's a -- you're pulling methane and stuff out of trash, out of the trash. Is that not correct? Or am I off base here?
No. On our land base system, see what we do is we take garbage and we destroy it. And we convert the organic component into a syngas, 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 landfills collecting methane No. Our land-based side, we're actually taking waste like it waste or if you're inside the fence or a pharmaceutical, the pharmaceutical ways or on island waste. Yes. So it's a step up from what we do on our newer aircraft carrier. [ It’s aircraft carrier ] doesn't need electricity. So if you take that rate concept, put it on land and then what the syngas you use for you turn the syngas into something valuable, which, in this case, will 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 we make that whole side more valuable, the land-based side more valuable. Go ahead, Steve.
[ You can ] finish, you were talking...
I would say that, but — I think there's a lag. I was just going to say, I don't want to list to think that our focus is on our acquisition and land-based systems exclusively. And then the real excitement -- those are exciting, of course. And if there's nothing else, it would be extremely exciting. But the most exciting things that are happening in the company are actually what you touched upon earlier, the 3D printing powder stuff and 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 silicon 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 somewhat confuses me.
Yes. So on PUREVAP, the HP side of it. And I don't mean to be avoiding -- I don't know [ if need to be avoiding ], Steve or -- but I am not to comment -- I can make mistakes because here because HPQ, I can't remember what HP has press release and what we press released. I'm going to be just general here and speaking about HPQ, we press released something, I think it was last week recently where it was a significant milestone that was reached in the process. And the -- 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 -- I don't want to say anything because I'm afraid, Steve, that I might say something that hasn't been public release. And that's -- it's tough enough for me to remember that from my own company. So when it comes to PUREVAP, I'll let our client speak to that.
All right. Okay. I'll let that go. I just don't -- 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, do you -- as a stockholder, certainly, I would like an expectation of what's a reasonable timeline we're in, you'll start realizing sales or whatever and so forth. So the last question the last line...
Go ahead. Okay.
No. I mean that's -- 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 is in your -- this is complimenting 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 the -- for example, the drops right if I recall, you have an operation in the United States, correct?
We have -- sold our gross [ rate ] systems to a company that has a facility in Mexico, but it's headquartered in the United States. And we sold our largest systems, our technology is being used in Saudi Arabia.
But for example, if all these -- the question really, I think my question originally stemmed. If let's say all these orders come in as you're projecting, I had asked you the question, how you're going to -- how are you going to fulfill the orders and you said, “Well, you have subcontractors and so forth, and you do have structure to be able to do that.†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 asked this question or somebody asked this question in the previous quarters, we have standard ourselves so that we don't have to produce on-site. In fact, I can't recall the last drop system that was produced on our site. They're all produced somewhere else in dropship. We can do the same thing with torches. If things go extremely well, crazy well, the platform will be basically having enough project managers to manage the suppliers. 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 on to your specs, you have to check it out, things like that. There's always problems. Nothing works well, 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 is that we're cognizant of that potential risk if things go really, really crazy 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, I think the most -- one of the most amazing things we've done in addressing these 2 particular marketplaces, which is [ draws rate ] and towards production. So right now, we don't see that to be an issue. What we don't need to be an issue is capacity. We don't see that to be a problem right now. However, we do know there's labor supply issues taking place across the globe that are challenging, will 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 demands are coming a lot more reasonable than what they were maybe towards in the summer months. Might there be any question that you haven’t asked?
And our next question comes from the line of Mike Roberts with Imperial.
My first question actually is just about the -- in the financials, there's a $3.6 million sale of IP. I was just wanting some clarity on that, who exactly that was sold to what terms and deal is? And if possible, if you could let me know why it wasn't a press release for a company that just had to do a raise that seems to be a $3.6 million sale is the definition of material. So it was just surprising to see it in the financials that 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 it was with or anything of that sort. However, our CFO, if you want to and you may want to talk about why we had to account for it the way we did.
Let me just add what Peter said, it's a regular sales and accounts receivables. -- is unusual payment terms. It's really an accounts receivable sales of $3.6 million of the only reason that I mentioned we didn't isolate for our customers to disclose in the [ Aircast ] release as well.
Okay. 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 specified or put into a lift form. If it's all signed and awarded contracts, I would like to see a breakdown of what exactly makes up the backlog, if that would be possible.
That an interesting question, there is no specific reason why you on detail, but what I can give you in terms of breakdown is A little bit of my nature, which massive is our revenue is biggest items in the backlog right now is in drops probably around the $1 million mark, followed by the biogas upgrading, close to $7 million. We had 4 sales and PUREVAP each between $3 million to $4 million. So that's the majority of the backlog. If I look in terms of territory from the [ app is ] in Canada, followed by some in the U.S. and a large portion of [ South ]. So describe the details and there's no reason why some detail on the financial statements.
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 in 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 key factor?
No, when I think it was something from [ Cormac ] maybe in the last earnings call asked what were the 3 things main things that made up of the backlog. You had mentioned that some of the PFAS stuff was one of the 3 largest components. So I just wanted some clarity on that. And if that's still...
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 drops right deal of end up being $20 million, we announced that we thought that the -- that we take there was something in the pipeline that was very significant. And we didn't talk about the industry, but we said it's very significant, it could be a certain value. Why would we do that? Or in the same reason why would we announce something that is awarded but not signed? It's because 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 they 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 draws 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 side, but it could be in the offing. And if they want to sell them, that's up to them or if they want to buy them, that's up to them. But I think they'd be really ticked off. If we had that information, they sold a day or 2 before that was a [ mess ]. So that's one reason. And what I'm trying to protect investors best as I can is from the people on the other side, in maybe other countries, other jurisdictions where the laws aren't as strict that they are here, taking advantage and buying shares from investors who don't know the same -- I don't have the same information as they do. So that's why PFAS was announced as awarded but not yet signed. And we're very clear in the press. 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 launch behind us. 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 have the intelligence to understand what we're doing. So that's a 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 not 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 and t's all good. But is there some more clarity you can provide about why some of these receivables, seems like a fairly large chunk it is up to 12 months or more old? Is there… Can you give...
So Mike, I've done that before, and I'll do it again. Okay. So first of all, our CFO mentioned that may mentioned that not only has it been reviewed internally passed by our Board, but it's also been reviewed by our accountants. And [ only that ] was necessary. So they had a hell of a lot more information than you do or anybody else out there does. And so they made that decision. That's something that you may want to understand which I would say is news to me. But if you reach a different understanding with the client based 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 build them for it, it goes into your receivables. But if you tell them, okay, you want to pay the $1,000 today, you can pay it in a year from now, it's still in your receivables. So you'll notice -- I think we've mentioned in the past in, just the 2 basic areas how you mentioned that... It's basically U.S. Navy and the money coming from a [ off-rig ] sales. We also mentioned that the certain delay U.S. Navy is AAA name and you can't get [ redo the math ]. So I don't think you have a problem with that. And the other one, you go saw recently that they started paying again. And we 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. That’s what 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, Mike.
Okay. 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 in the works there?
What was that , Mike? Sorry, Mike, what are you talking about?
You had said that the decision was made to delay payments because that cash has 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. But you can imagine, you could just put -- it's not -- if you use your imagination can figure out that there may be some -- there's a lot of things that could be that will make a lot of sense under the circumstances. But we'll just let it be.
We will have shown 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 e-mail us with questions, and we'll do our best to answer them within the available information. And if we can't, we'll take [ comment ] of it and try and 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.
This does conclude today's program. Thank you for participating. You may now disconnect. Everyone, have a great day.