EX-99.2 3 exh_992.htm EXHIBIT 99.2

Exhibit 99.2

 

 

 

PyroGenesis Canada Inc.

 

Condensed Consolidated Interim Financial Statements

 

As at September 30, 2023 and for the three and nine-month period ended September 30, 2023 and 2022

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying unaudited condensed consolidated financial statements of PyroGenesis Canada Inc. have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these unaudited condensed consolidated interim financial statements for the period ended September 30, 2023.

 

 

 

September 30, 2023

 

 

 

 

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited)

(In Canadian dollars)

   Note   September 30, 2023   December 31, 2022 
       $   $ 
Assets               
Current assets               
Cash        873,498    3,445,649 
Accounts receivable   6    12,339,329    18,624,631 
Costs and profits in excess of billings on uncompleted contracts   7    989,544    1,051,297 
Inventory   16    1,856,786    1,876,411 
Investment tax credits receivable   8    304,474    276,404 
Income taxes receivable        16,280    14,169 
Current portion of deposits        493,331    432,550 
Current portion of royalties receivable        603,523    455,556 
Contract assets        620,710    499,912 
Prepaid expenses        1,555,462    771,603 
Total current assets        19,652,937    27,448,182 
Non-current assets               
Deposits        46,297    46,053 
Strategic investments   9    4,564,434    6,242,634 
Property and equipment        2,985,371    3,393,452 
Right-of-use assets        4,382,885    4,818,744 
Royalties receivable        924,699    952,230 
Intangible assets        1,625,371    2,104,848 
Goodwill        2,660,607    2,660,607 
Total assets        36,842,601    47,666,750 
Liabilities               
Current liabilities               
Bank indebtedness        271,726    991,902 
Accounts payable and accrued liabilities   10    9,525,215    10,115,870 
Billings in excess of costs and profits on uncompleted contracts   11    10,884,983    9,670,993 
Current portion of term loans   12    96,191    69,917 
Current portion of lease liabilities        2,790,926    2,672,212 
Balance due on business combination        1,689,030    2,088,977 
Income taxes payable        186,457    187,602 
Current portion of convertible debenture        641,984    - 
Total current liabilities        26,086,512    25,797,473 
Non-current liabilities               
Lease liabilities        2,443,313    2,861,482 
Term loans   12    300,484    320,070 
Balance due on business combination        -    1,818,798 
Convertible debenture        1,889,603    - 
Total liabilities        30,719,912    30,797,823 
Shareholders’ equity   13           
Common shares        90,670,080    85,483,223 
Warrants        410,000    223,200 
Contributed surplus        26,856,590    24,546,960 
Equity portion of convertible debenture        318,092    - 
Accumulated other comprehensive income        (31,578)   402 
Deficit        (112,100,495)   (93,384,858)
Total shareholders’ equity        6,122,689    16,868,927 
Total liabilities and shareholders’ equity        36,842,601    47,666,750 

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.
Contingent liabilities, Note 21.

 

Q3 2023

PyroGenesis Canada Inc.1

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Unaudited)

(In Canadian dollars)

 

       Three months ended September 30,   Nine months ended September 30, 
   Notes   2023   2022   2023   2022 
       $   $   $   $ 
Revenues   5    3,685,725    5,657,783    9,316,826    15,711,726 
Cost of sales and services   16    2,586,333    1,544,607    6,579,046    8,047,554 
Gross profit        1,099,392    4,113,176    2,737,780    7,664,172 
                          
Expenses                         
Selling, general and administrative   16    7,589,674    5,911,488    21,557,511    18,615,390 
Research and development, net        680,889    290,374    1,746,790    1,577,370 
         8,270,563    6,201,862    23,304,301    20,192,760 
Net loss from operations        (7,171,171)   (2,088,686)   (20,566,521)   (12,528,588)
Changes in fair value of strategic investments   9    1,158,156    (1,802,477)   218,885    (8,103,587)
Finance income (costs), net   17    (215,277)   (183,694)   1,631,999    (523,707)
                          
Net loss before income taxes        (6,228,292)   (4,074,857)   (18,715,637)   (21,155,882)
                          
Income taxes        -    -    -    76,095 
                          
Net loss        (6,228,292)   (4,074,857)   (18,715,637)   (21,231,977)
                          
Other comprehensive income (loss)                         
Items that will be reclassified subsequently to profit or loss                         
                          
Foreign currency translation gain (loss) on investments in foreign operations        (28,000)   21,151    (31,980)   69,622 
Comprehensive loss        (6,256,292)   (4,053,706)   (18,747,617)   (21,162,355)
                          
Loss per share                         
Basic   18    (0.03)   (0.02)   (0.10)   (0.12)
Diluted   18    (0.03)   (0.02)   (0.10)   (0.12)

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

 

Q3 2023

PyroGenesis Canada Inc.2

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

(Unaudited)

(In Canadian dollars)

 

                       Equity   Accumulated         
       Number of               component   other         
       common   Common       Contributed   of convertible   comprehensive         
   Notes   shares   shares   Warrants   surplus   debenture   income   Deficit   Total 
           $   $   $   $   $   $   $ 
Balance - December 31, 2022        173,580,395    85,483,223    223,200    24,546,960    -    402    (93,384,858)   16,868,927 
Shares issued upon exercise of stock options   13    300,000    153,000    -    -    -    -    -    153,000 
Private placement, net of issuance costs   13    5,000,000    4,960,483    -    -    -    -    -    4,960,483 
Convertible debentures - equity component        -    -    186,800    -    318,092    -    -    504,892 
Share-based payments   13    -    73,374    -    2,309,630    -    -    -    2,383,004 
Other comprehensive loss        -    -    -    -    -    (31,980)   -    (31,980)
Net loss        -    -    -    -    -    -    (18,715,637)   (18,715,637)
Balance – September 30, 2023        178,880,395    90,670,080    410,000    26,856,590    318,092    (31,578)   (112,100,495)   6,122,689 
                                              
Balance - December 31, 2021        170,125,795    82,104,086    -    19,879,055    -    3,444    (61,217,831)   40,768,754 
Shares issued upon exercise of stock options   13    1,200,000    1,125,263    -    (429,263)   -    -    -    696,000 
Share-based payments   13    -    -    -    4,222,242    -    -    -    4,222,242 
Other comprehensive income        -    -    -    -    -    69,622    -    69,622 
Net loss        -    -    -    -    -    -    (21,231,977)   (21,231,977)
Balance – September 30, 2022        171,325,795    83,229,349    -    23,672,034    -    73,066    (82,449,808)   24,524,641 

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

 

 

 

Q3 2023

PyroGenesis Canada Inc.3

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

(In Canadian dollars)

 

       Three months ended September 30,   Nine months ended September 30, 
   Note   2023   2022   2023   2022 
       $   $   $   $ 
Cash flows provided by (used in)                         
Operating activities                         
Net loss        (6,228,292)   (4,074,857)   (18,715,637)   (21,231,975)
Adjustments for:                         
Share-based payments   16    653,902    931,572    2,383,004    4,222,242 
Depreciation of property and equipment   16    158,500    155,481    476,871    446,883 
Depreciation of right-of-use assets   16    182,251    157,844    503,604    479,466 
Amortization of intangible assets   16    221,752    218,760    665,256    656,278 
Amortization of contract assets        23,088    117,070    50,866    212,240 
Finance costs (income)   17    215,277    183,694    (1,631,999)   523,707 
Change in fair value of investments        (1,158,156)   1,802,477    (218,885)   8,103,587 
Income taxes        -    -    -    76,095 
Unrealized foreign exchange        (33,268)   5,880    (18,979)   48,090 
         (5,964,946)   (502,079)   (16,505,899)   (6,463,387)
Net change to working capital items   15    2,691,828    1,089,162    5,780,930    (3,439,454)
         (3,273,118)   587,083    (10,724,969)   (9,902,841)
Investing activities                         
Additions to property and equipment        (18,448)   (46,753)   (68,789)   (238,979)
Additions to right-of-use assets        -    -    (67,745)   - 
Additions to intangible assets        (71,793)   (54,012)   (185,779)   (116,980)
Purchase of strategic investments   9    -    -    (559,460)   (3,604,000)
Disposal of strategic investments        802,244    750,390    2,456,546    3,703,237 
         712,003    649,625    1,574,773    (256,722)
Financing activities                         
Bank indebtedness        (60,463)   (228,134)   (720,176)   713,046 
Interest paid        (80,515)   (179,572)   (267,504)   (419,028)
Repayment of term loans        (19,994)   (8,304)   (35,185)   (24,693)
Repayment of lease liabilities        (141,897)   (464,138)   (299,455)   (656,713)
Repayment of balance due on business combination        -    -    (100,000)   (217,778)
Proceeds from issuance of convertible debentures        2,913,661    -    2,913,661    - 
Proceeds from issuance of shares upon exercise of stock options        -    696,000    153,000    696,000 
Proceeds from issuance of term loans        -    -    -    203,857 
Proceeds from private placement, net of issuance costs        -    -    4,960,483    - 
Financing costs        (12,630)   -    (12,630)   - 
         2,598,162    (184,148)   6,592,194    294,691 
                          
Effect of exchange rate changes on cash denominated in foreign currencies        6,868    20,793    (14,149)   27,040 
                          
Net decrease in cash and cash equivalents        43,915    1,073,353    (2,572,151)   (9,837,832)
Cash and cash equivalents - beginning of period        829,583    1,291,508    3,445,649    12,202,513 
Cash and cash equivalents - end of period        873,498    2,364,861    873,498    2,364,681 
                          
Supplemental cash flow disclosure                         
Non-cash transactions:                         
Interest accretion on and revaluation of balance due on business combination   17    (19,131)   43,222    (2,118,745)   170,310 
Accretion interest on royalties receivable   17    (35,763)   39,099    (120,437)   78,012 
Accretion on term loan   17    8,646    7,816    25,414    20,197 
Interest on convertible debenture   17    60,600    -    60,600    - 
Accretion on convertible debenture   17    62,218    -    62,218    - 

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements

 

Q3 2023

PyroGenesis Canada Inc.4

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

1.Nature of operations

 

PyroGenesis Canada Inc. and its subsidiaries (collectively, the “Company”), incorporated under the laws of the Canada Business Corporations Act, was formed on July 11, 2011. The Company owns patents of advanced waste treatment systems technology and designs, develops, manufactures, and commercialises advanced plasma processes and sustainable solutions to reduce greenhouse gases. The Company is domiciled at 1744 William Street, Suite 200, Montreal, Quebec. The Company is publicly traded on the TSX Exchange under the Symbol “PYR”, on NASDAQ in the USA under the symbol "PYR" and on the Frankfurt Stock Exchange (FSX) under the symbol “8PY “. In October 2023, the Company notified the NASDAQ of its intention to voluntarily delist its Common shares from NASDAQ, and the Company has also taken steps to have its Common shares quoted on the OTCQX Best Market.

 

2.Going concern

 

These condensed consolidated financial statements have been prepared on the going concern basis, which presumes that the Company will be able to continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

 

The Company is subject to certain risks and uncertainty associated with the achievement of profitable operations such as the successful signing and delivery of contracts and access to adequate financing.

 

The Company has incurred, in the last years, operating losses and negative cash flows from operations, and as a result, the Company has an accumulated deficit of $112,100,495 as at September 30, 2023, ($93,384,858 as at December 31, 2022). Furthermore, there have been unexpected delays in the collection of certain accounts receivable from contracts closed in a prior year. This has resulted in a shortfall in cash flows from operating activities that would be used in funding the Company’s operations.

 

As at September 30, 2023, the Company has working capital deficiency of $6,433,575 ($1,650,709 as at December 31, 2022) including cash of $873,498 ($3,445,649 as at December 31, 2022). The working capital is net of an allowance for credit losses amounting to $9,073,254 ($5,023,283 as at December 31, 2022) as further described in Notes 6 and 7. The Company’s business plan is dependent upon the successful completion of contracts and also the receipt of payments from certain contracts closed in a prior year and expects these payments to be made during fiscal 2023, as well as the achievement of profitable operations through the signing, completion and delivery of additional contracts or a reduction in certain operating expenses. In the absence of this, the Company is dependent upon raising additional funds to finance operations within and beyond the next twelve months. The Company has been successful in securing financing in the past and has relied upon external financing to fund its operations, primarily through the issuance of equity, debt and convertible debentures. The Company completed a private placement in October 2022 for an amount of $1,318,980 and also completed another private placement in March 2023 for net proceeds $4,960,483 (Note 13). In addition, in July 2023, the Company also completed a brokered private placement of convertible debenture units for gross proceeds of $3,030,000 (Note 14). While the Company has been successful in securing financing, raising additional funds is dependent on a number of factors, some of which are outside the Company’s control, and therefore there is no assurance that it will be able to do so in the future or that these sources will be available to the Company or that they will be available on terms which are acceptable to the Company. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue operating as a going concern.

 

The condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and to classifications of the assets and liabilities that might be necessary should the Company be unable to achieve its plan and continue in business. If the going concern assumption were not appropriate, adjustments, which could be material, would be necessary to the carrying value of assets and liabilities, the reported expenses, and the classification of items on the condensed consolidated statement of financial position.

 

Q3 2023

PyroGenesis Canada Inc.5

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

3.Basis of preparation

 

(a)Statement of compliance

 

These financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Statements, as issued by the International Accounting Standards Board ("IASB"). These condensed consolidated interim financial statements do not include all of the necessary information required for full annual financial statements in accordance with International Financial Reporting Standards (“IFRS”) and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022.

 

These financial statements were approved and authorized for issuance by the Board of Directors on November 9, 2023.

 

(b)Functional and presentation currency

 

These consolidated financial statements are presented in Canadian dollars, which is the functional currency of PyroGenesis, and Pyro Green-Gas Inc. The functional currency of Airscience Italia SRL is the euro whereas the functional currency of Airscience Technologies Private Limited is the Indian rupee, and Drosrite International LLC’s functional currency is the US dollar.

 

(c)Basis of measurement

 

These financial statements have been prepared on the historical cost basis except for:

 

(i)strategic investments which are accounted for at fair value,
(ii)stock-based payment arrangements, which are measured at fair value on the grant date pursuant to IFRS 2, Share-based Payment; and
(iii)lease liabilities, which are initially measured at the present value of minimum lease payments

 

(d)Basis of consolidation

 

For financial reporting purposes, subsidiaries are defined as entities controlled by the Company. The Company controls an entity when it has power over the investee; it is exposed to, or has rights to, variable returns from its involvement with the entity and it has the ability to affect those returns through its power over the entity.

 

In instances where the Company does not hold a majority of the voting rights, further analysis is performed to determine whether or not the Company has control of the entity. The Company is deemed to have control when, according to the terms of the shareholder’s and/or other agreements, it makes most of the decisions affecting relevant activities.

 

These consolidated financial statements include the accounts of PyroGenesis and its subsidiaries, Drosrite International LLC and Pyro Green-Gas Inc. and its subsidiaries. Drosrite International LLC is owned by a member of the Company’s management personnel and close member of the Chief Executive Officer (“CEO”) and controlling shareholder’s family and is deemed to be controlled by the Company. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.

 

The accounting policies disclosed in the December 31, 2022 year-end consolidated financial statements have been applied consistently in the preparation of these condensed consolidated interim financial statements. Finance income (costs) and changes in fair value of strategic investments are excluded from the loss from operations in the consolidated statements of comprehensive loss.

 

4.Significant accounting judgments, estimates and assumptions

 

The significant judgments, estimates and assumptions applied by the Company in these condensed consolidated interim financial statements are the same as those applied by the Company in its audited annual financial statements as at and for the year ended December 31, 2022.

 

Q3 2023

PyroGenesis Canada Inc.6

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

5.Revenues

 

The following table is a summary of the Company’s revenues from contracts by product line:

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
High purity metallurgical grade silicon & solar grade silicon from quartz (PUREVAP™)   415,415    4,243,138    1,388,854    5,617,942 
Aluminium and zinc dross recovery (DROSRITE™)   118,745    71,431    324,296    1,408,048 
Development and support related to systems supplied to the U.S. Navy   1,003,592    420,809    2,168,820    1,757,168 
Torch-related products and services   950,290    684,997    2,682,979    3,307,150 
Refrigerant destruction (SPARC™)   104,784    —      360,075    —   
Biogas upgrading and pollution controls   768,396    89,698    1,419,362    3,260,850 
Other sales and services   324,503    147,710    972,440    360,568 
    3,685,725    5,657,783    9,316,826    15,711,726 

 

The following table is a summary of the Company’s revenues by revenue recognition method:

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
Revenue from contracts with customers:                    
Sales of goods under long-term contracts recognized over time   3,141,381    1,997,474    8,010,472    11,406,066 
Sales of goods at a point of time   544,344    60,309    1,306,354    705,660 
Other revenue:                    
Sale of intellectual properties   —      3,600,000    —      3,600,000 
    3,685,725    5,657,783    9,316,826    15,711,726 

 

See Note 22 for sales by geographic area.

 

Transaction price allocated to remaining performance obligations:

 

As at September 30, 2023, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the reporting date is $29,367,812 ($26,741,550 as at December 31, 2022). Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over the next 3 years.

 

Q3 2023

PyroGenesis Canada Inc.7

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

6.Accounts receivable

 

Details of accounts receivable based on past due terms were as follows:

 

     September 30, 2023      December 31, 2022  
     $     $  
Current   6,197,434    6,578,269 
1 – 30 days   600,438    15,959 
31 – 60 days   64,737    57,944 
61 – 90 days   242,778    718,239 
Greater than 90 days   12,451,071    13,790,716 
Holdback receivable1   734,666    1,536,115 
Total trade accounts receivable   20,291,124    22,697,242 
Allowance for expected credit loss   (8,452,254)   (4,693,283)
Other receivables   243,093    240,560 
Sales tax receivable   257,366    380,112 
    12,339,329    18,624,631 

1 Holdbacks are non-interest bearing, non-secured and represents an amount retained by the customers, based on milestones defined in the contract, and are not due until final acceptance of the contract stage of the project or the final inspection of the delivered goods. These amounts are agreed in advance and the terms of payment may exceed the general terms of payment of the Company. The Company only recognizes an amount when it can reasonably determine that these inspection and acceptance steps have been met.

 

As at September 30, 2023 the allowance for expected credit loss on trade accounts receivable is $8,452,254 ($4,693,283 as at December 31, 2022). The amount as at September 30, 2023, includes $7,510,901 attributable to one specific customer, whereby the carrying amount has been reduced from $10,872,758 to $3,361,857. The remaining credit allowance is $941,353 and attributable to all other trade accounts, whereby the carrying value was reduced from $9,418,366 to $8,477,103. On the basis of the Company’s expected credit loss policy, the allowance was determined generally by applying a loss rate of 1% on balances 1-30 days past the invoice date, 2% for 31-60 days, 3% for 61-90 days and a minimum of 10% for those beyond 90 days. Specific consideration was applied for situations where the receivable is a holdback on a contract, and also for customers that have exceeded normal payment terms.

 

The closing balance of the trade receivables credit loss allowance as at September 30, 2023 reconciles with the trade receivables credit loss allowance opening balance as follows:

 

     $  
Loss allowance at December 31, 2021   520,000 
Loss recognized during the year   4,150,000 
Foreign exchange   23,283 
Loss allowance at December 31, 2022   4,693,283 
Loss recognized during the period1   3,757,414 
Foreign exchange   1,557 
Loss allowance at September 30, 2023   8,452,254 

1 For the three-month period ended September 30, 2023. the loss recognized was $2,484,414 and $3,757,414 for the nine-month period ended September 30, 2023.

 

7.Costs and profits in excess of billings on uncompleted contracts

 

As at September 30, 2023, the Company had fifteen contracts with total billings of $15,781,533 which were less than total costs incurred and had recognized cumulative revenue of $17,392,077 since those projects began. This compares with eighteen contracts with total billings of $10,475,299 which were less than total costs incurred and had recognized cumulative revenue of $11,856,596 as at December 31, 2022.

 

The net amount of $989,544 as at September 30, 2023 includes an expected credit loss allowance of $621,000 ($330,000 as at December 31, 2022). On the basis of the Company’s expected credit loss policy, the allowance was determined

generally by applying a loss rate of 2% on all balances, and adjusting for specific situations, such as past due customers, whereby the loss rate varied from 25% to 50% or greater if needed.

 

Q3 2023

PyroGenesis Canada Inc.8

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

Changes in costs and profits in excess of billings on uncompleted contracts during the nine-month period ended September 30, 2023, are explained by $644,813 recognized at the beginning of the period being transferred to accounts receivable, and $583,060 resulting from changes in the measure of progress, including $291,000 due to the variation of the expected credit loss allowance.

 

8.Investment tax credits

 

Investment tax credits earned, for the three and nine-month periods ended September 30, 2023, amount to $55,817, and $135,041, respectively ($44,423 and $115,856) for the three and nine-month periods ended September 30, 2022, respectively.

 

In the nine-month period ended September 30, 2023, an investment tax credit of $135,041 was earned whereby $80,404 was recorded against Cost of sales and services, $32,137 against Research and development expenses and $22,500 against Selling, general and administrative expenses. During the nine-month period ended September 30, 2022, the Company earned $115,856 of investment tax credits, whereby $46,818 was recognized against Cost of sales and services, $46,538 against Research and development expenses and $22,500 against Selling, general and administrative expenses.

 

9.Strategic investments

 

     September 2023      December 31, 2022  
     $      $  
Beauce Gold Fields (“BGF”) shares – level 1   41,032    56,419 
HPQ Silicon Inc. (“HPQ”) shares - level 1   4,523,402    5,415,749 
HPQ warrants – level 3   —      770,466 
    4,564,434    6,242,634 

 

The change in the strategic investments is summarized as follows:

 

     (“BGF”) shares – level 1    (“HPQ”) shares - level 1  HPQ warrants – level 3  Total
     Quantity      $      Quantity      $      Quantity      $      $  
Balance, December 31, 2021   1,025,794    123,095    26,752,600    12,306,196    9,594,600    2,472,368    14,901,659 
Additions   —      —      6,800,000    3,196,000    6,800,000    408,000    3,604,000 
Disposed   —      —      (11,447,500)   (3,922,244)   —      —      (3,922,244)
Change in the fair value   —      (66,676)   —      (6,164,203)   —      (2,109,902)   (8,340,781)
Balance, December 31, 2022   1,025,794    56,419    22,105,100    5,415,749    16,394,600    770,466    6,242,634 
Additions   —      —      5,594,600    651,406    (5,594,600)   (91,946)   559,460 
Disposed1   —      —      (10,302,000)   (2,456,546)   (4,000,000)   —      (2,456,546)
Change in the fair value   —      (15,387)   —      912,793    —      (678,520)   218,886 
Balance, September 30, 2023   1,025,794    41,032    17,397,700    4,523,402    6,800,000    —      4,564,434 

1During the period ended September 30, 2023, 4,000,000 warrants at an exercise price of $0.61 per warrant, were not exercised and have since expired and disposed.

 

 

Q3 2023

PyroGenesis Canada Inc.9

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

At September 30, 2023 and December 31, 2022, the fair value of the HPQ warrants was measured using the Black-Scholes option pricing model using the following assumptions:

 

     September 30, 2023    December 31, 2022
Number of warrants   6,800,000    1,200,000    4,394,600    4,000,000    6,800,000 
Date of issuance   20-Apr-22    29-Apr-20    2-Jun-20    3-Sep-20    20-Apr-22 
Exercise price ($)   0.60    0.10    0.10    0.61    0.60 
Assumptions under the Black-Scholes model:                         
Fair value of the shares ($)   0.21    0.25    0.25    0.25    0.25 
Risk free interest rate (%)   3.79    4.03    4.03    4.03    4.03 
Expected volatility (%)   79.28    80.55    73.74    76.85    74.58 
Expected dividend yield   —      —      —      —      —   
Contractual remaining life (in months)   7    4    5    8    16 

Warrants are subject to a “Holder’s Exercise Limitation” clause, whereby the Company shall not affect any exercise of warrants, nor have the right to exercise any portion of the warrants to the extent that after giving effect to such issuance after exercise, the Company would beneficially own in excess of 9.99% of the HPQ common shares.

 

As at September 30, 2023, a loss from initial recognition of the warrants of $1,199,792 ($280,926 at December 31, 2022) has been deferred off balance sheet until realized.

 

10.Accounts payable and accrued liabilities

 

     September 2023      December 31, 2022  
     $      $  
Accounts payable   5,838,061    6,065,996 
Accrued liabilities   2,175,425    2,891,053 
Sale commissions payable1   924,711    904,724 
Accounts payable to the controlling shareholder and CEO   587,018    254,097 
    9,525,215    10,115,870 

1 Sale commissions payable relate to the costs to obtain long-term contracts with clients.

 

11.Billings in excess of costs and profits on uncompleted contracts

 

The amount to date of costs incurred and recognized profits less recognized losses for construction projects in progress for the nine-month period ended September 30, 2023, amounted to $33,289,034 ($37,374,909 as at December 31, 2022). Payments to date received for the nine-month period ended September 30, 2023, was $44,174,017 on contracts in progress ($47,045,902 as at December 31, 2022).

 

Changes in billings in excess of costs and profits on uncompleted contracts during the nine-month period ended September 30, 2023, is explained by $3,916,485 recognized at the beginning of the period being recognized as revenue, and an increase of $5,130,475 resulting from cash received, excluding amounts recognized as revenue. The variation in billings in excess of costs and profits on uncompleted contracts during the nine-month period ended September 30, 2022, is explained by $3,430,725 recognized at the beginning of the period being recognized as revenue, and an increase of $1,393,599 resulting from cash received, excluding amounts recognized as revenue.

 

Q3 2023

PyroGenesis Canada Inc.10

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

12.Term loans

 

     Economic            Canada     
     Development Agency      Other Term      Other Term      Emergency Business     
     of Canada Loan1      Loans2      Loans3      Account Loan4      Total  
     $      $      $      $      $  
Balance, December 31, 2022   320,070    11,617    8,300    50,000    389,987 
Accretion   25,414    —      —      —      25,414 
Payments   —      (10,426)   (8,300)   —      (18,726)
Balance, September 30, 2023   345,484    1,191    —      50,000    396,675 
Less current portion   (45,000)   (1,191)   —      (50,000)   (96,191)
Balance, September 30, 2023   300,484    —      —      —      300,484 

1 Maturing in 2029, non-interest bearing, payable in equal instalments from April 2024 to March 2029.

2 Matured October 23, 2023, bearing interest at a rate of 6.95% per annum, payable in monthly instalments of $1,200 (including interest in capital) secured by an automobile with a carrying amount of $1,078 at September 30, 2023.

3 Matured in May 2023, payable in monthly instalments of $1,660, bore interest at 7.45%.

4 Loan bearing no interest and no minimum repayment, if repaid by December 2023.

 

13.Convertible debenture

 

2023 Convertible Debenture

 

On July 21, 2023, the Company closed a brokered private placement offering 3,030 unsecured convertible debenture units at a price of $1,000 per debenture unit. Each convertible debenture unit will consist of one 10.0% unsecured convertible debenture with a maturity of 36 months from date of issuance and 1,000 common share purchase warrants. Each warrant shall entitle the holder therefor to acquire one common share at an exercise price of $1.25 for a period of 24 months following the closing date.

 

The convertible debenture shall bear interest at a rate of 10.0% per annum from the date of issue, payable semi-annually in arrears on the last day of June and December in each year, at the sole discretion of the Company, in: (i) cash or (ii) subject to regulatory approval, common shares at a deemed issue price equal to the volume weighted average price for five (5) consecutive trading days ending five (5) trading days preceding the date of repayment on the TSX, or other principal exchange the common shares are listed. Interest shall be computed on the basis of a 360-day year composed of twelve 30-day months. The first interest payment will represent accrued interest for the period from the closing of the offering to December 31, 2023.

 

Commencing on February 21, 2024, the principal amount of the convertible debentures will be repaid on a monthly basis, payable in arrears, in either, at the sole discretion of the Company: (i) cash or (ii) subject to regulatory approval, common shares at a deemed issue price equal to the volume weighted average price for five (5) consecutive trading days ending five (5) trading days preceding the date of repayment on the TSX, or other principal exchange the common shares are listed. For greater clarity, the Company will repay 1/30th of the outstanding principal amount per month for the remaining 30 months remaining until the maturity date.

 

The 2023 convertible debenture is a compound financial instrument, and the total proceeds of the issuance was allocated between a liability for the debenture and an equity component for the conversion feature and warrants. The fair value of the debt liability component at inception was determined using estimated future cash flows discounted using a market interest rate of 25%. The residual amount representing the value of the conversion option equity component and warrants were classified in the shareholders’ (Deficiency) Equity.

 

In connection with the convertible debenture, the Company paid transaction fees in the amount of $116,339 to the agent, and such fees have been allocated between the liability and equity components. The effective interest rate of the liability component is 28.07%.

 

Q3 2023

PyroGenesis Canada Inc.11

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

At the issuance date, the 2023 Convertible Debenture was recorded as follows:

 

     $  
Debt component, net of transaction costs of $96,179   2,408,769 
Conversion option and warrants recognized in equity, net of transaction costs of $20,160   504,892 
Net proceeds   2,913,661 

 

The following table illustrates the variation of the liability component of the convertible debenture from the issuance until the end of period:

     September 30, 2023  
     $  
2023 Convertible Debenture, at issuance   2,408,769 
Interest and accretion expense   122,818 
Balance, end of period   2,531,587 

 

14.Shareholders’ equity

 

Common shares and warrants

 

Authorized:

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

Issuance of units

 

On March 8, 2023, the Company completed a non-brokered private placement consisting of the issuance and sale of 5,000,000 units of the Company at a price of $1.00 per unit, for net proceeds of $4,960,483 (gross proceeds of $5,000,000). Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder thereof to purchase one common share at a price of $1.25 until March 7, 2025. The entire amount is allocated to the common shares as the fair value of the common shares on March 8, 2023, was $1.38.

 

On July 21, 2023, the Company completed a brokered private placement offering 3,030 unsecured convertible debenture units at a price of $1,000 per debenture unit. Each convertible debenture unit consists of one 10.0% unsecured convertible debenture with a maturity of 36 months from the date of issuance and 1,000 common share purchase warrants. Each warrant shall entitle the holder therefore to acquire one common share at an exercise price of $1.25 for a period of 24 months following the closing date. The total net proceeds were allocated to the liability and shareholders equity, whereby a total of $504,892 is recognized as warrants and as the equity portion of the convertible debenture.

 

Stock options

 

The Company has a stock option plan authorizing the Board of Directors to grant options to directors, officers, employees and consultants to acquire common shares of the Company at a price computed by reference to the closing market price of the shares of the Company on the business day before the Company notifies the stock exchanges of the grant of the option. The number of shares which may be granted to any one person shall not exceed 5% (2% for consultants) of total share capital over a twelve-month period.

 

Q3 2023

PyroGenesis Canada Inc.12

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

The following table sets out the activity in stock options:

        Weighted average  
     Number of options      exercise price  
        $  
Balance – December 31, 2021    8,403,000    3.10 
Granted    2,475,000    3.55 
Exercised    (2,440,000)   0.58 
Forfeited    (242,500)   4.07 
Balance, December 31, 2022    8,195,500    3.96 
Granted    3,050,000    0.80 
Exercised1    (300,000)   0.51 
Forfeited    (125,000)   1.92 
Balance, September 30, 2023    10,820,500    3.19 

1 The weighted fair market value of the share price for options exercised in 2023 was $1.01.

 

Grants in 2023

 

In January 2023, the Company granted 150,000 stock options to the President and Chief Executive Officer of the Company, and 500,000 stock options to members of its Board of Directors. The stock options have an exercise price of $1.03 per common share, vest immediately and are exercisable over a period of five years. The Company recorded an expense of $453,204 related to these options in fiscal 2022 as the stock options granted related to the services rendered in 2022, for which there was a shared understanding of the terms and conditions related to such grant prior to the grant date.

 

Also, in January 2023, the Company also granted 975,000 stock options to employees of the Company. The stock options have an exercise price of $1.03 per common share. The 975,000 options will vest as follows: 10 percent as of the day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent on the second anniversary of the date of the grant and 40 percent on the third anniversary of the date of the grant. All options mentioned above are exercisable over a period of five (5) years.

 

In September 2023, the Company granted 450,000 stock options to the President and Chief Executive Officer of the Company, and 975,000 stock options to members of its Board of Directors. The stock options have an exercise price of $0.53 per common share, 50% vested immediately and 50% vest six months following the grant date and are exercisable over a period of five (5) years. The Company recorded an expense amounting to $528,637 related to these options in fiscal 2023.

 

Grants in 2022

 

In January 2022, the Company granted 150,000 stock options to the President and Chief Executive Officer of the Company, and 300,000 stock options to members of its Board of Directors. The stock options have an exercise price of $3.36 per common share, vest immediately and are exercisable over a period of five (5) years.

 

In April 2022, the Company granted 400,000 stock options to employees of the Company. The stock options have an exercise price of $2.96 per common share. The 400,000 options will vest as follows: 10 percent as of the day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent on the second anniversary of the date of the grant and 40 percent on the third anniversary of the date of the grant. All options mentioned above are exercisable over a period of five (5) years.

 

In June 2022, the Company granted 600,000 stock options to the President and Chief Executive Officer of the Company, and 900,000 stock options to members of its Board of Directors. The 1,500,000 options will vest as follows: 25 percent as of the day of the grant, 25 percent at the first anniversary of the date of the grant, 25 percent on the second anniversary of the date of the grant and 25 percent at the third anniversary of the date of the grant. The stock options have an exercise price of $3.88 per common share and are exercisable over a period of five (5) years.

 

Q3 2023

PyroGenesis Canada Inc.13

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

In July 2022, the Company granted 125,000 stock options to employees of the Company. The stock options have an exercise price of $2.14 per common share. The 125,000 options will vest as follows: 10 percent as of the day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent on the second anniversary of the date of the grant and 40 percent on the third anniversary of the date of the grant. All options mentioned above are exercisable over a period of five (5) years.

 

The weighted average fair value of stock options granted for the nine-month period ended September 30, 2023, was $0.80 ($3.55 for the nine-month period ended September 30, 2022). The weighted average fair value of each option granted was estimated at the grant date for purposes of determining share-based payment expense using the Black-Scholes option pricing model based on the following weighted-average assumptions:

 

   2023  2022
Number of options granted   650,000    975,000    1,425,000    150,000    400,000    1,500,000    125,000 
Exercise price ($)   1.03    1.03    0.53    3.36    2.96    3.88    2.14 
Fair value of each option under the Black-Scholes pricing model ($)   0.70    0.70    0.37    2.17    1.98    2.61    1.44 
Assumptions under the Black-Scholes model:                                   
Fair value of the shares ($)   1.03    1.03    0.53    3.36    3.36    3.36    3.36 
Risk-free interest rate (%)   3.38    3.38    4.21    1.25    2.50    2.87    3.11 
Expected volatility (%)   83.15    83.15    86.33    82.45    83.36    83.31    83.31 
Expected dividend yield   —    —    —    —    —    —    — 
Expected life (number of months)   60    60    60    60    60    60    60 
                                    

The underlying expected volatility was determined by reference to historical data of the Company’s share price. No special features inherent to the stock options granted were incorporated into the measurement of fair value.

 

Q3 2023

PyroGenesis Canada Inc.14

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

As at September 30, 2023, the outstanding options, as issued under the stock option plan to directors, officers, employees and consultants for the purchases of one common share per option, are as follows:

 

     Number of               Number of      Number of        
     stock               stock      stock      Exercise     
     options               options      options      price     
Issuance date    31-Dec-22      Granted      Exercised      Forfeitures      30-Sep-23      vested 1      per option    Expiry date
                                  $    
July 3, 2018   300,000    —      (300,000)   —      —      —      0.51   July 3, 2023
September 29, 2019   100,000    —      —      —      100,000    100,000    0.51   September 29, 2024
January 2, 2020   100,000    —      —      —      100,000    100,000    0.45   January 2, 2025
July 16, 2020   2,200,500    —      —      (10,000)   2,190,500    2,190,500    4.41   July 16, 2025
October 26, 2020   50,000    —      —      —      50,000    37,500    4.00   October 26, 2025
April 6, 2021   550,000    —      —      —      550,000    510,000    8.47   April 6, 2026
June 1, 2021   200,000    —      —      —      200,000    150,000    6.59   June 1, 2026
June 14, 2021   100,000    —      —      —      100,000    75,000    6.70   June 14, 2026
October 14, 2021   100,000    —      —      —      100,000    30,000    5.04   October 14, 2026
December 17, 2021   1,920,000    —      —      —      1,920,000    1,920,000    3.13   December 17, 2026
December 31, 2021   100,000    —      —      —      100,000    30,000    3.61   December 31, 2026
January 3, 2022   450,000    —      —      —      450,000    450,000    3.36   January 3, 2027
April 5, 2022   400,000    —      —      —      400,000    120,000    2.96   April 5, 2027
June 2, 2022   1,500,000    —      —      —      1,500,000    750,000    3.88   June 2, 2027
July 13, 2022   125,000    —      —      (70,000)   55,000    37,500    2.14   July 13, 2027
January 2, 2023   —      1,625,000    —      (45,000)   1,580,000    768,000    1.03   January 2, 2028
September 29, 2023   —      1,425,000    —      —      1,425,000    712,500    0.53   September 29, 2028
    8,195,500    3,050,000    (300,000)   (125,000)   10,820,500    7,981,000    3.19    

1 At September 30, 2023, the weighted average exercise price for options outstanding which are exercisable was $3.50.

 

For the three-month and nine-month periods ended September 30, 2023, a stock-based compensation expense of $653,899 and $2,383,004, respectively, was recorded in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss, ($931,572 and $4,222,242 for the three-month and nine-month periods ended September 30, 2022).

 

At September 30, 2023, an amount of $1,877,534 ($3,184,866 at December 31, 2022) remains to be amortized until January 2027 related to the grant of stock options.

 

Share purchase warrants

 

The following table reflects the activity in warrants during the period ended September 30, 2023, and the number of issued and outstanding share purchase warrants at September 30, 2023:

 

     Number of         Number of      Exercise     
     warrants         warrants      price per     
     Dec 31,         Sep 30,      warrant     
     2022      Issued      2023      $      Expiry date
Issuance of warrants – October 20, 2022    1,014,600    —      1,014,600    1.75   October 19, 2024
Issuance of warrants – March 8, 2023    —      5,000,000    5,000,000    1.25   March 7, 2025
Issuance of warrants – July 21, 2023    —      3,030,000    3,030,000    1.25   July 20, 2025
     1,014,600    8,030,000    9,044,600         

 

Q3 2023

PyroGenesis Canada Inc.15

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

15.Supplemental disclosure of cash flow information

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
                     
Accounts receivable   (744,667)   (4,582,692)   6,122,943    (6,148,838)
Costs and profits in excess of billings on uncompleted contracts   210,070    1,290,731    61,753    2,017,967 
Inventory   (36,538)   (168,708)   19,625    (830,156)
Investment tax credits receivable   (55,816)   (44,424)   (28,070)   (59,475)
Income taxes receivable   —      (1,327)   —      115,868 
Deposits   47,100    (189,942)   (61,025)   1,587,574 
Contract assets & other assets   (171,664)   (139,005)   (171,664)   (139,005)
Prepaid expenses   650,441    748,120    (783,859)   (635,039)
Accounts payable and accrued liabilities   (351,176)   3,353,412    (592,763)   2,688,775 
Billings in excess of costs and profits on uncompleted contracts   3,144,078    822,997    1,213,990    (2,037,125)
    2,691,828    1,089,162    5,780,930    (3,439,454)

 

16.Supplemental disclosure on statements of comprehensive loss

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
                     
Inventories recognized in cost of sales   140,005    212,830    354,096    626,972 
Amortization of intangible assets   221,752    218,760    665,256    656,278 
Depreciation of property and equipment   158,500    155,481    476,871    446,883 
Depreciation of ROU assets   182,251    157,844    503,604    479,466 
Employee benefits   3,295,722    3,200,123    10,650,161    8,902,215 
Share-based payments   653,902    931,572    2,383,004    4,222,242 
Awarded grants   35,723    43,012    310,688    137,523 

 

Q3 2023

PyroGenesis Canada Inc.16

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

17.Net finance costs (income)

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
Financial expenses                    
Interest on term loans   62    1,435    591    3,038 
Interest on lease liabilities   80,515    94,732    267,504    284,190 
Interest on convertible debenture   60,600    —      60,600    —   
Interest accretion on and revaluation of balance due on business combination1   (19,131)   43,222    (2,118,745)   170,310 
Interest accretion on long term loans   8,646    —      25,414    —   
Interest accretion on convertible debenture   62,218    —      62,218    —   
Penalties and other interest expenses   58,130    83,404    190,856    144,181 
    251,040    222,793    (1,511,562)   601,719 
Financial income                    
Accretion interest on royalty receivable   (35,763)   (39,099)   (120,437)   (78,012)
Net finance costs (income)   215,277    183,694    (1,631,999)   523,707 

1 In June 2023, the Company determined that a milestone related to the business combination would not be achieved and therefore, a reversal of the liability was recorded. In March 2023, the Company’s Italian subsidiary and a customer agreed on the final acceptance of a contract, prior to final completion, as a result, the contract did not attain the agreed milestone in connection with the balance due on business combination, and a reversal of the liability was recorded.

 

18.Loss per share

 

The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
Weighted average number of common shares outstanding   178,880,395    170,621,448    179,472,660    170,292,829 
Weighted average number of diluted shares outstanding   178,880,395    170,621,448    179,472,660    170,292,829 
                     
Number of anti-dilutive stock options and warrants excluded from fully diluted earnings per share calculation   19,685,100    9,438,000    19,685,100    9,438,000 

 

19.Related party transactions

 

During the three and nine-month period ended September 30, 2023, the Company concluded the following transactions with related parties:

 

Rent and property taxes charged by a trust whose beneficiary is the controlling shareholder and CEO of the Company, for the three and nine-month periods ended September 30, 2023, amount to $101,244 and $251,477, respectively ($69,054 and $208,334 for the three and nine-month periods ended September 30, 2022, respectively).

 

Q3 2023

PyroGenesis Canada Inc.17

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

These expenses are recorded in the captions Cost of sales and services and in Selling, general and administrative in the consolidated statements of comprehensive loss. As at September 30, 2023 the right-of-use asset and the lease liabilities amount to $682,488 and $745,853 respectively, ($799,090 and $881,635 respectively at December 31, 2022).

 

In June 2023, the terms and conditions of the lease agreement between the Company and the trust were modified, to adjust the base rent and duration. As a result, the ROU asset increased by $67,745, the lease liability increased by $48,023, and a reduction of expense of $19,722 was recorded in the statement of comprehensive loss.

 

A balance due to the controlling shareholder and CEO of the Company amounted to $587,018 at September 30, 2023 ($254,097 at December 31, 2022) and is included in accounts payable and accrued liabilities.

 

The Key Management Personnel of the Company, in accordance with IAS 24, are the members of the Board of Directors and certain officers. Total compensation to key management consisted of the following:

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
Salaries – key management   357,396    270,532    1,019,867    844,374 
Pension contributions   6,613    4,961    18,933    15,641 
Fees – Board of Directors   40,700    45,700    140,552    134,700 
Share-based compensation – officers   1,041,988    958,519    2,083,975    1,771,433 
Share-based compensation – Board of Directors   402,046    221,197    804,092    1,979,410 
Other benefits – key management   —      7,897    157,135    21,935 
Total compensation   1,848,743    1,508,806    4,224,554    4,767,493 

 

20.Financial instruments

 

As part of its operations, the Company carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed. The Company's overall risk management program focuses on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Company's financial performance. The Company does not use derivative financial instruments to hedge these risks.

 

Foreign currency risk

 

The Company enters into transactions denominated in US dollars for which the related revenues, expenses, accounts receivable and accounts payable and accrued liabilities balances are subject to exchange rate fluctuations.

 

As at September 30, 2023 and December 31, 2022 the Company's exposure to foreign exchange risk for amounts denominated in US dollars is as follows:

 

     September 30, 2023      December 31, 2022  
     $      $  
Cash   461,795    2,871,062 
Accounts receivable   11,540,479    13,537,912 
Accounts payable and accrued liabilities   (1,378,332)   (1,713,717)
Total   10,623,942    14,695,257 

 

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

 

Q3 2023

PyroGenesis Canada Inc.18

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

Sensitivity analysis

 

At September 30, 2023, if the US dollar had changed by 10% against the Canadian dollar with all other variables held constant, the impact on pre-tax gain or loss and equity for the three-month period ended September 30, 2023 would have been $1,062,400.

 

Credit concentration

 

During the three-month period ended September 30, 2023, three customers accounted for 55%, (Q3, 2022 – one customer for 70%) of revenues from operations.

 

During the nine-month period ended September 30, 2023, two customers accounted for 46%, (Nine-month period ended September 30, 2022 – three customers for 57%) of revenues from operations.

 

     Three months ended September 30, 2023      Nine months ended September 30, 2023  
     Revenues      % of total revenues      Revenues      % of total revenues  
     $    %    $    % 
Customer 1    882,680    24    2,428,857    26 
Customer 2    647,424    18    1,892,671    20 
Customer 3    483,207    13    —      —   
Total    2,013,311    55    4,321,528    46 

 

At September 30, 2023, two customers accounted for 54% and 17%, respectively (December 31, 2022 – three customers for 56%, 16% and 11%, respectively) of the total trade accounts receivable with amounts owing to the Company of $14,351,751.55 (2022 - $18,894,727), representing the Company's major credit risk exposure. Credit concentration is determined based on customers representing 10% or more of total revenues and/or total accounts receivable.

 

Credit risk

 

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The maximum credit risk to which the Company is exposed as at September 30, 2023 represents the carrying amount of cash, accounts receivable (except sales tax receivable), costs and profits in excess of billings on uncompleted contracts, deposits and royalties receivable.

 

Cash is held with major reputable financial institutions.

 

Management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s payment and delivery terms and conditions are offered. The Company’s review could include reviewing external ratings, if they are available, financial statements, credit agency information, industry information and in some cases bank references. The Company’s exposure to credit risk is mainly influenced by the individual characteristics of each customer. In monitoring customer credit risk, customers are identified according to their characteristics such as their geographic location, industry, trading history with the Company and existence of previous financial difficulties.

 

The Company does not generally require collateral or other security from customers on accounts receivable, however, the contract terms may include the possibility of recourse in the event of late payment. The Company believes that there is no unusual exposure associated with the collection of these receivables.

 

The credit risk associated with costs and profits in excess of billings on uncompleted contracts is similar to that of accounts receivable, as these amounts are accumulated and converted to accounts receivable as invoicing milestones are reached.

 

The royalties receivable are due from a company in which the Company has a strategic investments. The Company does not have collateral or other security associated with the collection of this receivable. The carrying amount of the royalties receivable have been discounted to reflect the time value of money and credit risk of the counterparty.

 

Q3 2023

PyroGenesis Canada Inc.19

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

The deposits are payments made to suppliers and entities from which the Company leases property. The Company does not have collateral or other security associated with the collection of these deposits. As at September 30, 2023 and December 31, 2022, no loss allowance has been recognized in connection with these deposits and the maximum exposure is the carrying amount of these deposits.

 

During the nine-month period ended September 30, 2023, and the year-end December 31, 2022, provisions for expected credit losses were recorded, however, the accounts provisioned by the loss are still subject to enforcement activity in order to collect the balances due.

 

Interest rate risk

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk, and on the fair value of investments or liabilities, known as price risks. The Company is exposed to a risk of fair value on term loans and convertible debenture as those financial instruments bear interest at fixed rates and to cash flow risk from the variable interest rate of the bank indebtedness.

 

Price risk

 

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market price (other than those arising from foreign currency risk and interest risk), whether those changes are caused by factors specific to the individual financial instrument or its issuers or factors affecting all similar financial instruments traded in the market. The most significant exposure to the price risk for the Company arises from its investments in shares and warrants of public companies quoted on the TSX Venture Exchange. If equity prices had increased or decreased by 25% as at September 30, 2023, with all other variables held constant, the Company’s investments would have increased or decreased respectively, by approximately $1,184,500 (December 31, 2022 - $1,841,484).

 

Liquidity risk

 

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivery of cash or another financial asset. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities.

 

The following table summarizes the contractual amounts payable and maturities of financial liabilities and other liabilities at September 30, 2023:

 

        Total              
     Carrying      contractual      Less than           
     value      amount      one year      2-3 years      4-5 years      Over 5 years  
     $      $      $      $      $      $  
Bank indebtedness   271,726    271,726    271,726    —      —      —   
Accounts payable and accrued liabilities1   8,116,256    8,116,256    8,116,256    —      —      —   
Term loans   396,675    450,000    96,191    180,000    172,147    1,662 
Balance due on business combination   1,689,030    1,860,020    1,860,020    —      —      —   
Lease liabilities   5,234,239    6,195,191    2,976,241    1,040,296    229,332    1,949,322 
Convertible debenture   2,531,587    3,588,699    1,191,660    1,411,784    985,255    —   
    18,239,513    20,481,892    14,512,094    2,632,080    1,386,734    1,950,984 

1 Accounts payable and accrued liabilities exclude amounts which are not financial liabilities.

 

At September 30, 2023, the Company's Canadian subsidiary benefits from a line of credit of $500,000, of which $271,526 was drawn on this facility. The Italian subsidiary previously benefited from a 400,000 euro line of credit which was paid in full and extinguished in June 2023. The Canadian facility bears interest at a variable rate which is the bank’s prime rate plus 1%, therefore, 8.2%. There are no imposed financial covenants on the credit facility.

 

Q3 2023

PyroGenesis Canada Inc.20

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

Fair value of financial instruments

 

The fair value represents the amount that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value estimates are calculated at a specific date taking into consideration assumptions regarding the amounts, the timing of estimated future cash flows and discount rates. Accordingly, due to its approximate and subjective nature, the fair value must not be interpreted as being realizable in an immediate settlement of the financial instruments.

 

There are three levels of fair value that reflect the significance of inputs used in determining fair values of financial instruments:

 

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

 

Level 3 — inputs for the asset or liability that are not based on observable market data.

 

The fair values of cash, trade accounts receivable, other receivables, deposits, bank indebtedness, accounts payable and accrued liabilities approximate their carrying amounts due to their short-term maturities.

 

Investments in BGF and HPQ shares are valued at quoted market prices and are classified as Level 1.

 

Royalties receivable are discounted according to their corresponding agreements and are classified as Level 2.

 

Investments in HPQ warrants are valued using the Black-Scholes pricing model and are classified as Level 3 (Note 9).

 

The fair value of the term loans, the balance due on business combination and convertible debenture as at September 30, 2023 is determined using the discounted future cash flows method and management's estimates for market interest rates for similar issuances. As a result, their fair market values correspond to their carrying amount. The term loans and convertible debenture are classified as level 2 and the balance due on business combination as level 3.

 

The following table presents the variation of the balance due on business combination:

 

     $  
Balance due on business combination at December 31, 2021 - Current and Non-Current   3,952,203 
Disbursement   (217,778)
Interest accretion   173,350 
Balance due on business combination at December 31, 2022 - Current and Non-Current   3,907,775 
Disbursement   (100,000)
Interest accretion on and revaluation of balance due on business combination   (2,118,745)
Balance due on business combination at September 30, 2023 - Current and Non-Current   1,689,030 

 

21.Contingent liabilities

 

The Company is currently a party to various legal proceedings. If management believes that a loss arising from these proceedings is probable and can reasonably be estimated, that amount of the loss is recorded. As additional information becomes available, any potential liability related to these proceedings is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these proceedings, individually and in aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations.

 

The Company had received a government grant in prior years of approximately $800,000 to assist with the development of a new system of advanced waste treatment systems technology. The grant is potentially repayable at the rate of 3% of any consideration received as a result of the project, for which funding has been received, to a maximum of the actual grant received. This repayment provision will remain in effect until May 30, 2024. The Company abandoned the project in 2011 and accordingly, no amount is expected to be repaid.

 

Q3 2023

PyroGenesis Canada Inc.21

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

In August 2023, the Autorité des marchés financiers (the “AMF”) initiated administrative proceedings against Mr. P. Peter Pascali, President and CEO, Mr. Alan Curleigh, Chair of the Board of Directors, and the Company with the Tribunal administratif des marchés financiers. The allegations largely relate to a series of connected transactions that occurred in 2018. The administrative penalty sought by the AMF and attributable to the Company is $550,000. The Company remains of the view that the AMF’s allegations are without merit.

 

22.Capital management

 

The Company’s objectives in managing capital are:

 

a)To ensure sufficient liquidity to support its current operations and execute its business plan; and

 

b)To provide adequate return to the shareholders

 

The Company’s primary objectives when managing capital is to ensure the Company continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders.

 

The Company currently funds these requirements from cash flows from operations and with financing arrangements with third parties and shareholders. The Company is not subject to any externally imposed capital requirements.

 

The Company monitors its working capital in order to meet its financial obligations. On September 30, 2023, the Company’s working capital deficiency was $6,433,575 (working capital of $1,650,709 at December 31, 2022).

 

The management of capital includes shareholders’ equity for a total amount of $6,122,689 and term loans of $396,675 and $2,531,587 convertible debenture (shareholders’ equity and term loans of $16,868,927 and $389,987 respectively at December 31, 2022) as well as cash amounting to $873,498 ($3,445,649 at December 31, 2022).

 

There were no significant changes in the Company’s approach during the current nine-month period and preceding fiscal year, however, in order to maintain or adjust the capital structure, the Company may issue new shares, sell portions of its strategic investment and periodically purchase its own shares on the open market.

 

Q3 2023

PyroGenesis Canada Inc.22

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at September 30, 2023 and for the three and nine-month periods ended September 30, 2023 and 2022

(Unaudited)

(In Canadian dollars)

 

23.Segment information

 

The Company operates in one segment, based on financial information that is available and evaluated by the Company’s Board of Directors. The Company’s head office is located in Montreal, Quebec. The operations of the Company are located in three geographic areas: Canada, Italy and India.

 

Revenue by product line and revenues recognized by revenue recognition method are presented in Note 5.

 

The following is a summary of the Company’s revenue from external customers, by geography:

 

     Three months ended September 30,      Nine months ended September 30,  
     2023      2022      2023      2022  
    $    $    $    $ 
Brazil   3,085    17,133    17,745    179,839 
Canada   1,503,245    4,877,413    4,926,808    8,847,046 
France   93,935    —      146,774    —   
India   135,916    73,873    412,414    131,903 
Israel   (67,853)   8,757    (69,415)   29,418 
Italy1   (6,421)   25,191    (381,286)   1,236,222 
Mexico   (186)   112,007    58,680    371,399 
Netherlands   34,542    44,144    65,777    74,387 
New Zealand   104,784    —      360,075    —   
Poland   4,736    —      30,356    30,512 
Saudi Arabia   118,931    (41,470)   265,616    1,035,755 
United States of America   1,760,620    420,809    3,475,314    3,083,356 
Vietnam   —      96,822    7,574    661,429 
Other   394    23,104    394    30,461 
    3,685,728    5,657,783    9,316,826    15,711,727 

1 In March 2023 revenue attributable to Italy was reduced following the agreement between the Company’s Italian subsidiary and their customer to deliver a project prior to final completion, which resulted in an adjustment to revenue and to costs and profits in excess of billings on uncompleted contracts.

 

 

 

Q3 2023

PyroGenesis Canada Inc.23