Dear Poetech2,

Thank-you for posting and, given the drop today, thank-you for posting “gently”.

I guess I could answer all your questions by noting that “…between today’s high and low I lost over $75MM …and I am not phased at all…”, and leave it at that, but that would not be fair.

Allow me to answer your questions in red below:

By the market reaction, investors clearly did not like this new update, I think that specifically the switch of the business model from selling to leasing. Or did not understand it?

I can think of a few reasons for that:

- As you mentioned, it is more capital intensive for Pyro, so you need to team up with other leasing companies, which translates into more delays (we all know that it takes a long time to sign a clear and detailed contract of that magnitude) and possible shared revenue and more dillution, to satisfy such partner.

 It’s a leasing deal. Nothing more complicated than that.  GE capital does it all the time. There is no dilution or pressure on Pyro in terms of it being capital intensive. Why would we consider this as an alternative if we thought we would make less money?  We own the patent!!! If the delays were not worth it, we wouldn’t consider it. We also never said we wouldn’t continue selling until leasing was in place.

- as an example, we all know about the agreement (I do not recall if a ferm contract has been signed?) with the Japanes company, for leasing Drosrite systems, which has yet to provide any revenue (that we know of) after what, some 2 years or longer? 

And?  Did having this option preclude us from landing one of the biggest Drosrite processing deals in the history of the industry? No! Why would having a more lucrative option which arguably increases the client pool be bad?  This is not rocket science.

-  While you mention that leasing is more advantageous than selling, the revenue will come gradually vs a good one time payment plus recurring maintenance revenues; I assume (please correct me if I am wrong) that , since the equipment is owned by PYR, PYR will be in charge for maintaining it, so the maintenance revenue is gone.

First, maintenance and spare parts are all packaged into the price of releasing. Nothing is lost. With leasing we are also “inside the fence” and, like in Drosrite, would have the opportunity to cross sell other products and services.  In a one-off sale you are gone. To me, leasing has so many obvious advantages.

As I have stated several times this evening on this platform, and at the risk of repeating  myself,  the only reason we decided to pursue this strategy was that we believe we could make a hell of alot more money leasing. Really, nothing more than that…plus recurring revenue at that!!! Who wouldn’t want to rent something out, year in year out, as opposed to a one-off sale and then having to go look for a new sale? 

- It is not clear if Clients A, B, C contracts consider the leasing, or selling the torches. We were silent on that and cannot, regretfully, provide more details than we did in the press release.

- Based on previous releases, it was understood and hoped that Client C had contacted you directly to purchase torches without modelling; while I know that "slow is smooth ..") it sounds like this contract, and therefore revenues coming from it, will be delayed because of the modelling; again, contrary to what market was expecting.

We prefer a modeling contract beforehand for the reasons we spoke to.  I understand some investors who are short sighted would prefer a quick contract, but we at PyroGenesis will be left holding the bag long after that same investor is gone. At Pyro we know that life goes on beyond the contract signing day; that’s where reality sets in and if it doesn’t work as advertised, who suffers? Modeling helps prevent costly mistakes.  We will not enter into a contract just to satisfy the market/investor’s need for a daily dose of meth.   There is a reason we are constantly dealing with the US Navy, and other reputable firms. It is because we are disciplined.  We do not rush forward. We build a solid foundation upon which we erect a solid business.  It’s what we do well.  It is what we do day in and day out.  Investors should appreciate that discipline and what it delivers.  We will not waiver from this strategy as it has served us well.

Can you provide more info to address the above points, please? 

What I am about to say is 110% speculation, but it seems to me that it is a possibility that should be considered is that the recent financing brought in investors who may not be that familiar with PyroGenesis as you are, and got spooked by certain interpretations provided on the blogs…just saying, but I have seen it happen once or twice before over the years. Other than that, I can’t explain the market reaction to the news.   

Hope that helps.

Peter