| PyroGenesis Canada Inc. |
| Management’s Responsibility |
| Management is responsible for the preparation and presentation of the accompanyingconsolidated financial statements, including responsibility for significant accounting judgmentsand estimates in accordance with International Financial Reporting Standards as issued by theInternational Accounting Standards Board. This responsibility includes selecting appropriateaccounting principles and methods, and making decisions affecting the measurement oftransactions in which objective judgment is required. |
| The Board of Directors and Audit Committee are composed primarily of Directors who areneither management nor employees of the Company. The Board of Directors is responsible foroverseeing management in the performance of its financial reporting responsibilities, and forapproving the financial information included in the annual report. The Board fulfils theseresponsibilities by reviewing the financial information prepared by management and discussingrelevant matters with management and the external auditor. The Audit Committee has theresponsibility of meeting with management and the external auditors to discuss the internalcontrols over the financial reporting process, auditing matters and financial reporting issues. TheAudit Committee is also responsible for recommending the appointment of the Company'sexternal auditor. |
| Raymond Chabot Grant Thornton LLP, an Independent Registered Public Accounting Firm, isappointed by the shareholders to audit the financial statements and report directly to them; theirreport follows. The external auditor has full and free access to, and meets periodically andseparately with, both the Audit Committee and management to discuss their audit findings. |
| March 31, 2022 |
| [Signed by P. Peter Pascali] | [Signed by Andre Mainella] |
| P. Peter Pascali, Chief Executive Officer | Andre Mainella, Chief Financial Officer |
| | 3 |
| Report of Independent Registered Public Accounting Firm |
| To the Shareholders and Board of Directors ofPyroGenesis Canada Inc. |
| Opinion on the Consolidated Financial Statements |
| We have audited the accompanying consolidated statements of financial positionof PyroGenesis Canada Inc. (the Company) as of December 31, 2021, therelated consolidated statements of comprehensive income (loss), changes inshareholders’ equity, and cash flows for the year ended December 31, 2021, andthe related notes (collectively referred to as the "consolidated financialstatements"). In our opinion, the consolidated financial statements present fairly,in all material respects, the consolidated financial position of the Company as ofDecember 31, 2021, and its consolidated operations and its consolidated cash flows for the year ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. |
| The consolidated financial statements of the Company as of December 31, 2020,were audited by other auditors whose report dated March 31, 2021, expressedan unqualified opinion on those statements. |
| Basis for Opinion |
| These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the Company'sconsolidated financial statements based on our audit. We are a publicaccounting firm registered with the Public Company Accounting Oversight Board(United States) ("PCAOB") and are required to be independent with respect tothe Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commissionand the PCAOB. |
| We conducted our audit in accordance with the standards of the PCAOB. Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. |
| 4 |
| PyroGenesis Canada Inc. Consolidated Statements of Financial Position |
| December 31, 2021 and 2020 |
| December 31, December 31, |
| | 2021 | 2020 |
| | $ | $ |
| AssetsCurrent assetsCash and cash equivalents [note 7] |
| 12,202,513 | | | 18,104,899 |
| Accounts receivable [note 8] | 17,639,616 | | | 3,329,653 |
| Costs and profits in excess of billings on uncompleted contracts [note 9] | 4,922,710 | | | 1,073,633 |
| Inventory [note 24] | | 887,590 | – |
| Investment tax credits receivable [note 10] | | 256,513 | 567,059 |
| Income taxes receivable | | 117,029 | – |
| Current portion of deposits [note 13] | 1,328,452 | | | 1,421,246 |
| Current portion of royalties receivable [note 12] | | 311,111 | – |
| Contract assets | | 375,789 | 694,301 |
| Prepaid expenses | | 717,661 | 145,996 |
| Total current assets | 38,758,984 | | | 25,336,787 |
| Non-current assetsDeposits [note 13] |
| | 248,756 | 301,341 |
| Strategic investments [note 11] | 14,901,659 | | | 39,991,750 |
| Property and equipment [note 14] | 3,712,937 | | | 2,529,570 |
| Right-of-use assets [note 15] | 5,765,993 | | | 3,701,000 |
| Royalties receivable [note 12] | | 947,543 | | 1,060,000 |
| Investment tax credits receivable [note 10] | | – | 705,316 |
| Intangible assets [note 16] | 2,774,198 | | 905,614 |
| Goodwill [note 17] | 2,660,607 | | – |
| Total assets | 69,770,677 | | | 74,531,378 |
| LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities [note 18] |
| 10,069,177 | | | 4,708,051 |
| Billings in excess of costs and profits on uncompleted contracts [note 19] | 9,400,231 | | | 6,592,972 |
| Current portion of term loans [note 20] | | 83,004 | 12,208 |
| Current portion of lease liabilities [note 15] | 2,934,236 | | 225,977 |
| Balance due on business combination [note 5] | 2,242,503 | | – |
| Income taxes payable | | 23,048 | – |
| Total current liabilities | 24,752,199 | | | 11,539,208 |
| Non-current liabilitiesLease liabilities [note 15] |
| 2,389,729 | | | 2,762,565 |
| Term loans [note 20] | | 107,901 | 100,499 |
| Balance due on business combination [note 5] | 1,709,700 | | – |
| Deferred income taxes [note 31] | | 42,394 | 706,000 |
| Total liabilities | 29,001,923 | | | 15,108,272 |
| Shareholders’ equity [note 22]Common shares and warrants |
| 82,104,086 | | | 67,950,069 |
| Contributed surplus | 19,879,055 | | | 10,480,310 |
| Accumulated other comprehensive income | | 3,444 | – |
| Deficit | (61,217,831) | | | (19,007,273) |
| Total shareholders’ equity | 40,768,754 | | | 59,423,106 |
| Total liabilities and shareholders’ equity | 69,770,677 | | | 74,531,378 |
| Contingent liabilities, subsequent events [notes 29 and 33].The accompanying notes form an integral part of the consolidated financial statements. |
| Approved on behalf of the Board: |
| [Signed by P. Peter Pascali] P. Peter Pascali | | | | | [Signed by Andrew Abdalla] Andrew Abdalla |
| | | | | | 6 |
| PyroGenesis Canada Inc. Consolidated Statements of Comprehensive Income (Loss) |
| For the years ended December 31, 2021 and 2020 |
| 2021 | 2020 |
| $ | $ |
| Revenues [note 6] | | | 31,068,350 | 17,775,029 |
| Cost of sales and services [note 24] | | | 18,636,539 | 7,472,361 |
| Gross profit | | | 12,431,811 | 10,302,668 |
| ExpensesSelling, general and administrative [note 24] |
| | | 27,237,135 | 12,334,553 |
| Research and development, net [note 10] | | | 2,535,987 | (731,077) |
| | | 29,773,122 | 11,603,476 |
| Net loss from operations | | | (17,341,311) | (1,300,808) |
| Changes in fair value of strategic investments [note 11] | | | (21,426,218) | 44,626,698 |
| Finance costs, net [note 25] | | | (404,370) | (524,074) |
| Net earnings (loss) before income taxes | | | (39,171,899) | 42,801,816 |
| Income taxes [note 31] | | | (739,960) | 1,033,412 |
| Net earnings (loss) | | | (38,431,939) | 41,768,404 |
| Other comprehensive income (loss) |
| Items that will be reclassified subsequently to profit of loss |
| | | | | Foreign currency translation gain on investments in foreign operations |
| 3,444 | – |
| Comprehensive income (loss) | | | (38,428,495) | 41,768,404 |
| Earnings (loss) per share [note 26]Basic |
| (0.23) | 0.28 |
| Diluted | (0.23) | 0.27 |
| The accompanying notes form an integral part of the consolidated financial statements. |
| | | | | | 7 |
| PyroGenesis Canada Inc. Consolidated Statements of Changes in Shareholders’ Equity |
| For the years ended December 31, 2021 and 2020 |
| Accumulated |
| | Number of | Common | Equity portion | other |
| | common | shares and | | | Contributed | of convertible | comprehensive |
| | shares | warrants | | | Surplus | debentures | income | | Deficit | Total |
| | | | | | | | | $ | $ | $ | $ | | | | | | | $ | $ |
| Balance - December 31, 2020 | | 159,145,993 | | | | | | | | | | | 67,950,069 | 10,480,310 | | | | | | | | – | – | | | | | | | | | | | | | | (19,007,273) | 59,423,106 |
| Shares issued upon exercise of stock options [note 22] | | 3,482,000 | 1,473,818 | | | (364,000) | | | | | | | | – | – | | | | | | – | | | | | | | | | 1,109,818 |
| Shares issued upon exercise of sharepurchase warrants and compensation options [note 22] |
| | 8,337,897 | | | | | | | | | | | 13,085,197 | – | | | | | | | | – | – | | | | | | – | | | | | | | | | 13,085,197 |
| Share redemptions for cancellation [note 22] | | (840,094) | (404,998) | | | – | | | | | | | | – | – | | | | | | | | | | | | | | (3,778,619) | (4,183,617) |
| Share-based payments | | – | – | | | 9,762,745 | | | | | | | | – | – | | | | | | – | | | | | | | | | 9,762,745 |
| Other comprehensive income for the year | | – | – | | | – | | | | | | | | – | 3,444 | | – | 3,444 |
| Net loss | | – | – | | | – | | | | | | | | – | – | | | | | | | | | | | | | | (38,431,939) | (38,431,939) |
| Balance – December 31, 2021 | | 170,125,796 | | | | | | | | | | | 82,104,086 | 19,879,055 | | | | | | | | – | 3,444 | | | | | | | | | | (61,217,831) | 40,768,754 |
| Balance - December 31, 2019 | | 141,303,451 | | | | | | | | | | | 47,073,243 | 6,679,730 | 401,760 | – | | | | | | | | | | | | | | (60,237,656) | (6,082,923) |
| Shares issued upon public issuance [note 22] | | 3,354,550 | | | | | | | | | | | 12,076,380 | – | | | | | | | | – | – | | | | | | – | | | | | | | | | 12,076,380 |
| Share issuance cost | | | (1,640,052) | | | – | | | | | | | | – | – | | | | | | – | | | | | | | | | (1,640,052) |
| Shares issued upon exercise of stock options [note 22] | | 2,118,000 | 1,244,207 | | | (484,807) | | | | | | | | – | – | | | | | | – | | | | | | | | | 759,400 |
| Shares issued upon exercise of share purchase warrants [note 22] | | 7,060,617 | 5,623,323 | | | – | | | | | | | | – | – | | | | | | – | | | | | | | | | 5,623,323 |
| Issuance of convertible loan – equity component [note 22] | | | – | | | – | | | | | | | | 98,422 | – | | | | | | – | 98,422 |
| Conversion of loan into shares [note 21] | | 3,225,000 | 925,982 | | | – | (98,422) | – | | | | | | – | | | | | | | | | 827,560 |
| Conversion of debentures into shares [note 21] | | 3,369,375 | 3,073,356 | | | – | (360,981) | – | | | | | | – | | | | | | | | | 2,712,375 |
| Share redemptions for cancellation [note 22] | | (1,285,000) | (426,370) | | | – | | | | | | | | – | – | | | | | | (538,021) | | | | | | | | | (964,391) |
| Equity component of convertible debentures [note 22] | | – | – | | | 40,779 | (40,779) | – | | | | | | – | – |
| Share-based payments | | – | – | | | 4,244,608 | | | | | | | | – | – | | | | | | – | | | | | | | | | 4,244,608 |
| Net earnings and comprehensive income | | – | – | | | – | | | | | | | | – | – | | | | | | | | | | | | | | 41,768,404 | 41,768,404 |
| Balance – December 31, 2020 | | 159,145,993 | | | | | | | | | | | 67,950,069 | 10,480,310 | | | | | | | | – | – | | | | | | | | | | | | | | (19,007,273) | 59,423,106 |
| The accompanying notes form an integral part of the consolidated financial statements. |
| | | 8 |
| PyroGenesis Canada Inc. Consolidated Statements of Cash Flows |
| For the years ended December 31, 2021 and 2020 |
| 2021 | 2020 |
| $ | $ |
| Cash flows provided by (used in)Operating activitiesNet earnings (loss) |
| | | (38,431,939) | 41,768,404 |
| Adjustments for:Share-based payments |
| | | 9,762,745 | 4,244,608 |
| Depreciation of property and equipment | 356,103 | 63,118 |
| Depreciation of right-of-use assets | 570,411 | 408,335 |
| Amortization and write-off of intangible assets | 465,913 | 27,190 |
| Amortization of contract assets | 513,572 | 161,291 |
| Finance costs | 404,370 | 524,074 |
| Change in fair value of investments | | | 21,426,218 | (44,626,698) |
| Loss on disposal of property and equipment | – | 2,795 |
| Income taxes | | | (584,246) | 706,000 |
| Unrealized foreign exchange | (10,623) | 30,704 |
| | | (5,527,476) | 3,309,821 |
| Net change in balances related to operations [note 23] | | | (12,585,956) | (4,124,808) |
| | | (18,113,432) | (814,987) |
| Investing activitiesAdditions to property and equipment |
| | | (1,502,231) | (702,111) |
| Additions to intangible assets | | | (246,630) | (113,564) |
| Purchase of strategic investments | | | (10,588,857) | (4,158,240) |
| Disposal of strategic investments | | | 14,252,730 | 9,905,447 |
| Business combination, net of cash acquired | 807,945 | – |
| | | 2,722,957 | 4,931,532 |
| Financing activitiesInterest paid |
| | | (253,791) | (395,013) |
| Repayment of term loans | (20,507) | | | (117,154) |
| Repayment of scientific research and experimental development loans | – | | | (440,233) |
| Repayment of lease liabilities | | | (263,078) | (1,363,050) |
| Repayment of promissory notes | – | | | (295,000) |
| Repayment of convertible debentures | – | | | (358,500) |
| Proceeds from issuance of convertible loans | – | 903,000 |
| Proceeds from issuance of other term loans | – | 195,919 |
| Proceeds from issuance of shares upon exercise of warrants | | | 13,085,197 | 5,623,322 |
| Proceeds from issuance of shares upon exercise of stock options | | | 1,109,818 | 759,400 |
| Proceeds from issuance of shares [note 22] | – | | | 12,076,380 |
| Share issue costs | – | | | (1,640,052) |
| Shares repurchased for cancellation | | | (4,183,617) | (964,391) |
| | | 9,474,022 | 13,984,628 |
| Effect of exchange rate changes on cash denominated in foreign currencies | 14,067 | (30,705) |
| Net increase (decrease) in cash and cash equivalents | | | (5,902,386) | 18,070,468 |
| Cash and cash equivalents - beginning of year | | | 18,104,899 | 34,431 |
| Cash and cash equivalents - end of year | | | 12,202,513 | 18,104,899 |
| | | | | 9 |
| PyroGenesis Canada Inc. Consolidated Statements of Cash Flows |
| For the years ended December 31, 2021 and 2020 |
| 2021 | 2020 |
| $ | $ |
| Supplemental cash flow disclosure |
| Non-cash transactions:Purchase of intangible assets included in accounts payable |
| 81,693 | 113,826 |
| Purchase of property and equipment included in accounts payable | 22,557 | 27,870 |
| Addition to contract assets included in accounts payable | 195,060 | – |
| Settlement of accounts receivable on business acquisition | | | 1,744,400 | – |
| Accretion of balance purchase price payable | 110,203 | – |
| Accretion interest on royalties receivable | 132,809 | – |
| Accretion on term loan | 12,185 | – |
| Issuance of common shares upon exercise of convertible debentures | – | | | 2,695,500 |
| Issuance of common shares upon conversion of loan | – | 827,560 |
| Initial recognition of contract assets and commissions payables | – | 855,592 |
| Proceeds from disposal of strategic investments included in otherreceivables |
| – | 892,609 |
| HPQ shares received in lieu of payment of accounts receivable | – | 395,514 |
| Fair value of HPQ warrants exercised | | | 9,181,250 | 337,500 |
| Initial recognition or modification of lease liabilities and right-of-useassets [note 15]: |
| Right-of-use assets | | | 2,157,796 | 366,566 |
| Prepaid rent expense | (36,903) | – |
| Lease liabilities | | | 2,120,893 | 366,566 |
| The accompanying notes form an integral part of the consolidated financial statements |
| | | | | 10 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 1. Nature of operations |
| PyroGenesis Canada Inc. and its subsidiaries (collectively, the “Company”), incorporated under the laws of theCanada Business Corporations Act, was formed on July 11, 2011. The Company owns patents of advanced wastetreatment systems technology and designs, develops, manufactures and commercialises advanced plasmaprocesses and sustainable solutions to reduce greenhouse gases. The Company is domiciled at 1744 WilliamStreet, 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 thesymbol “8PY “. |
| 2. Basis of preparation |
| (a) Statement of compliance |
| These financial statements have been prepared in accordance with International Financial Reporting Standards(“IFRS”) as issued by the International Accounting Standards Board ("IASB"). These financial statements wereapproved and authorized for issuance by the Board of Directors on March 31, 2022. |
| (b) Functional and presentation currency |
| These consolidated financial statements are presented in Canadian dollars, which is the Company’s functionalcurrency. |
| (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 Companycontrols an entity when it has power over the investee; it is exposed to, or has rights to, variable returns from itsinvolvement 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 todetermine 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 affectingrelevant activities. |
| These consolidated financial statements include the accounts of the Company and its subsidiaries, DrosriteInternational LLC and Pyro Green-Gas Inc. and its subsidiaries. Drosrite International LLC is owned by a member ofthe Company’s key management personnel and close member of the Chief Executive Officer ("CEO") andcontrolling shareholder’s family and is deemed to be controlled by the Company. Pyro Green-Gas (formerlyAirScience Technologies Inc. until the renaming on September 14, 2021) was acquired by the Company onAugust 11, 2021 (see note 5). All transactions and balances between the Company and its subsidiaries have beeneliminated upon consolidation. |
| The accounting policies set out below have been applied consistently in the preparation of the financial statements of all years presented. Finance costs and changes in fair value of strategic investments are excluded from the lossfrom operations in the consolidated statement of comprehensive income (loss). |
| | 11 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies |
| (a) Business combinations |
| Business combinations are accounted for using the acquisition method. Goodwill is measured as the excess of thefair value of the consideration transferred over the net recognized amount of the identifiable assets acquired andliabilities assumed, all measured at the acquisition date. |
| The consideration transferred is measured as the net of the fair values of assets transferred, liabilities assumed,and equity instruments issued by the Company at the acquisition date, including any asset or liability resulting froma contingent consideration arrangement, in exchange of the acquiree. |
| The obligation to pay the contingent consideration is classified as a liability, and measured as a financial instrumentor as a provision. Changes in fair values that qualify as a measurement period adjustments of preliminarypurchase price allocations are adjusted in the current period and such changes are applied on a retroactive basis. |
| Acquisition costs that the Company incurs in connection with a business combination are recognized in profit orloss as incurred, except for costs associated with the issuance of debt or equity securities. |
| (b) Revenue recognition |
| Revenue from contracts is recognized for each performance obligation either over a period of time or at a point intime, depending on which method reflects the transfer of control of the goods and services underlying the particularperformance obligation. |
| i) Long-term contracts |
| Long-term contracts involve made-to-order customized equipment and machines and are generally priced ona fixed fee basis. Under these contracts, the equipment or machines are made to a customer’s specificationsand if a contract is terminated by the customer, the Company is entitled to the greater of the amounts invoicedat the termination date and the reimbursement of the costs incurred to date of termination, including areasonable margin. Agreements that contain multiple deliverables require the Company to determine whetherthey contain separately identifiable performance obligations and to allocate the consideration received to eachperformance obligation. |
| Revenue relating to long-term contracts is recognized over time based on the measure of progressdetermined by the Company’s efforts or inputs towards satisfying the performance obligation relative to thetotal expected inputs. The degree of completion is assessed based on the proportion of total costs and/orhours incurred to date, compared to total costs and/or hours anticipated to provide the service under the entirecontract, excluding the effects of inputs that do not depict performance, e.g. uninstalled materials. Forlong-term contracts with uninstalled materials, the Company adjusts the transaction price and recognizesrevenue on uninstalled materials to the extent of those costs incurred, i.e. at a zero percent profit margin, whencertain conditions are met. |
| Estimates are required to determine anticipated costs and/or hours on long-term contracts. A provision ismade for the entire amount of expected loss, if any, in the period in which they are first determinable. |
| Contract modifications are changes in scope and/or price that are approved by the parties to the contract.Approval may be written, oral or implied by customary business practices, and are legally enforceable. TheCompany accounts for modifications as a separate contract if the modifications add distinct goods or servicesthat are priced commensurate with stand-alone selling prices or if the remaining goods or services are distinctfrom those already transferred, otherwise modifications are accounted for as part of the original contract. |
| | 12 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (b) Revenue recognition (continued) |
| i) Long-term contracts (continued) |
| Costs and profits in excess of billings on uncompleted contracts and trade receivables are both rights toconsideration in exchange for goods or services that the Company has transferred to a customer, however theclassification depends on whether such right is only conditional on the passage of time (trade receivables) or ifit is also conditional on something else (costs and profits in excess of billings on uncompleted contracts), suchas the satisfaction of further performance obligations under the contract. Billings in excess of costs and profitson uncompleted contracts is the cumulative amount received and contractually receivable by the Companythat exceeds the right to consideration resulting from the Company’s performance under a given contract. |
| The costs to obtain long-term contracts such as sale commissions are recognized as Contract assets andrecognized as selling expenses over time based on degree of completion of the related contract. |
| ii) Sales of goods |
| Revenue related to sales of goods, which may include powders and spare parts are measured based on theconsideration specified in contracts with customers. The Company recognizes revenue at a point in time whenit transfers control of the goods to the buyer. This is generally at the time the customer obtains legal title to theproduct and when it is physically transferred to the custody transfer point agreed with the customer. |
| iii) Sale of intellectual property |
| Sale of intellectual property is recognized at the date the recipient obtains control of the asset. Variableconsideration related to the sale of intellectual property is recognized to the extent that it is highly probable thata reversal will not occur when the uncertainty associated with the variable consideration is subsequentlyresolved. |
| (c) | Foreign currency translation |
| i) Foreign currency transactions |
| Revenue and expense transactions in foreign currencies are translated into Canadian dollars using theaverage exchange rates prevailing at the time of the transaction. Foreign currency balances are translated intoCanadian dollars at year end exchange rates for monetary items and at historical rates for non-monetaryitems. Translation gains or losses are included in the determination of net earnings. |
| ii) Foreign operations |
| The assets and liabilities of foreign operations are translated into Canadian dollars using exchange ratesprevailing at the end of the reporting period. Revenue and expense items are translated at the averageexchange rates for the period. Exchange differences arising from the translation process of foreign operationsare recognized as foreign currency translation adjustments in other comprehensive income and accumulatedin equity. |
| (d) Cash and cash equivalents |
| Cash and cash equivalents are financial instruments readily convertible to a known amount of cash and not subjectto a significant risk of changes in value. Cash equivalents include instruments with a maturity of three months orless from the date of acquisition and instruments with an original term longer than three months if there is nosignificant penalty for withdrawal within a three-month period from the date of acquisition. |
| (e) Inventory |
| Inventory is composed of spare parts for resale. Inventory is valued at the lower of cost and net realizable value. Thecost of inventory is based on the first-in, first-out principle and comprises all costs of purchases. Net realizable value is theestimated selling price in the ordinary course of business, less estimated costs of completion and selling costs. |
| | 13 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (f)Deferred income taxes |
| i) Current tax |
| Current tax assets and liabilities for the current and prior years are measured at the amount expected to berecovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount arethose that are enacted or substantively enacted by the date of the statements of financial position. |
| ii) Deferred tax |
| Deferred tax is provided using the liability method, providing for temporary differences between the tax basesof assets and liabilities and their carrying amounts in the financial statements. The temporary difference is notprovided for if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in atransaction other than a business combination that at the time of the transaction affects neither accounting nortaxable profit or loss. The amount of deferred tax provided is based on the expected manner of realization orsettlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted atthe financial position reporting date and whose implementation is expected over the period in which thedeferred tax is realized or recovered. A deferred tax asset is recognized only to the extent that it is probablethat future taxable profits will be available against which the asset can be used. |
| Deferred tax assets and liabilities are presented as non-current. Assets and liabilities are offset where theentity has a legally enforceable right to offset current tax assets and liabilities or deferred tax assets andliabilities, and the respective assets and liabilities relate to income taxes levied by the same taxation authorityon the same taxable entity or different taxable entities which intend to settle the liabilities and assets on a netbasis. |
| (g) Earnings (loss) per share |
| The Company presents basic earnings (loss) per share data for its common shares. Basic loss per share iscomputed by dividing net earnings (loss) by the weighted average number of common shares outstanding duringthe year. Diluted loss per share is computed similarly to basic earnings per share, except that the weighted averagenumber of shares outstanding is increased to include shares from the assumed exercise of stock options andshare purchase warrants, if dilutive. The number of additional shares is calculated by assuming that outstandingshare options and warrants were exercised and that the proceeds from such exercises were used to acquirecommon shares at the average market price during the year. Potential shares from all outstanding stock optionsand share purchase warrants are excluded from the calculation of diluted loss per share as their inclusion isconsidered anti-dilutive in years when a loss is incurred. |
| (h) Property and equipment |
| Property and equipment are measured at cost less accumulated depreciation and accumulated impairment lossesif applicable. Cost includes expenditures that are directly attributable to the acquisition of the asset and bringing theasset into operation. Borrowing costs capitalized to asset under development represents the interest expensecalculated under the effective interest method and does not include any fair value adjustments of investmentsdesignated at fair value through profit and loss. Government assistance and investment tax credits related to thepurchase or development of property and equipment are recorded in reduction of the cost. When major parts of anitem of property and equipment have different useful lives, they are accounted for separately. Property andequipment are depreciated from the acquisition date over their respective useful life. Depreciation of an asset underconstruction begins when it is available for use, i.e. when it is in the location and condition necessary for it to becapable of operating in the manner intended by the Company. |
| Depreciation is calculated using the following methods and rates: |
| Computer equipment | | Straight line over 3 years |
| Machinery and equipment | | Straight line over 10 years |
| Automobiles | | Straight line over 7 years |
| Leasehold improvements | | | Lesser of the lease term or the useful life (20 years) |
| | | | 14 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| Impairment – non-financial assets |
| The carrying amounts of the Company’s non-financial assets are assessed at each reporting date to determinewhether there is an indication of impairment. If any such indication exists, then the asset’s recoverable amount isestimated. |
| Impairment losses recognized in prior periods are assessed at each reporting date as to whether there are anyindications that the previously recognized losses may no longer exist or may be decreased. An impairment loss isreversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would havebeen determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. |
| Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjustedprospectively if appropriate. |
| (i)Leases |
| Under IFRS 16, at inception, the Company assesses whether a contract is, or contains, a lease based on whetherthe contract conveys the right to control the use of an identified asset for a period of time in exchange forconsideration. |
| The Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease, i.e. thedate the underlying asset is available for use. |
| Right-of-use assets |
| Right-of-use assets are measured at cost, less any accumulated depreciation and accumulated impairmentlosses, and adjusted for any remeasurement of lease liabilities. Cost of right-of-use assets is comprised of: |
| – the initial measurement amount of the lease liabilities recognized.– any lease payments made at or before the commencement date, less any lease incentives received; and– any initial direct costs incurred; and– an estimate of costs to dismantle and remove the underlying asset, restore the site on which it is located or |
| restore the underlying asset to the condition required by the terms and conditions of the lease contract. |
| Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlyingasset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that theCompany expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life ofthe underlying asset based on periods detailed above. The depreciation starts at the commencement date of thelease. Right-of-use assets are assessed for impairment whenever there is an indication that the right-of-use assetsmay be impaired. |
| Lease liabilities |
| Lease liabilities are initially measured at the present value of the lease payments that are not paid at thecommencement date over the lease term. The present value of the lease payments is determined using thelessee’s incremental borrowing rate at the commencement date if the interest rate implicit in the lease is not readilydeterminable. The incremental borrowing rate is a function of the lessee’s incremental borrowing rate, the nature ofthe underlying asset, the location of the asset, the length of the lease and the currency of the lease contract.Generally, the Company uses the lessee’s incremental borrowing rate for the present value. At the commencementdate, lease payments generally include fixed payments, less any lease incentives receivable, variable leasepayments that depend on an index (e.g. based on inflation index) or a specified rate, and payments of penalties forterminating the lease, if the lease term reflects the lessee exercising the option to terminate the lease. Leasepayments also include amounts expected to be paid under residual value guarantees and the exercise price of apurchase option if the Company is reasonably certain to exercise that option. |
| | 15 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (i) | Leases (continued) |
| Lease liabilities (continued) |
| Variable lease payments that do not depend on an index or a specified rate are not included in the measurement oflease liabilities but instead are recognized as expenses in the period in which the event or condition that triggers thepayment occurs. |
| After the commencement date, the carrying amount of lease liabilities is increased to reflect the accretion of interestand reduced to reflect lease payments made. In addition, the carrying amount of lease liabilities is remeasuredwhen there is a change in future lease payments arising from a change in an index or specified rate, if there is amodification to the lease terms and conditions, a change in the estimate of the amount expected to be payableunder residual value guarantee, or if the Company changes its assessment of whether it will exercise a termination,extension or purchase option. The remeasurement amount of the lease liabilities is recognized as an adjustment tothe right-of-use asset, or in the profit and loss statement when the carrying amount of the right-of-use asset isreduced to zero. |
| Classification and presentation of lease-related expenses |
| Depreciation charge for right-of-use assets, expenses related to variable lease payments not included in themeasurement of lease liabilities and loss (gain) related to lease modifications are allocated in the Company’s profitand loss statement based on their function within the Company, while interest expense on lease liabilities ispresented within finance costs. |
| Cash flow classification |
| Lease payments related to the principal portion of the lease liabilities are classified as cash flows from financingactivities while lease payments related to the interest portion of the lease liabilities are classified as interest paidwithin cash flows from financing activities. Lease incentives received are classified as cash flows from investingactivities. Variable lease payments not included in the measurement of lease liabilities are classified as cash flowsfrom operating activities. |
| (j) | Government assistance and investment tax credits |
| Investment tax credits are comprised of scientific research and experimental development tax credits. Governmentassistance and investment tax credits are recognized when there is reasonable assurance of their recovery andrecorded as a reduction of the related expense or cost of the asset acquired, as applicable. Investment tax creditsare subject to the customary approvals by the pertinent tax authorities. Adjustments required, if any, are reflected inthe year when such assessments are received. |
| (k) | Intangible assets and Goodwill |
| Intangible assets acquired separately are measured at cost on initial recognition. Following initial recognition,intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. |
| Identifiable intangible assets acquired in a business combination are recognized separately from goodwill if theymeet the definition of an intangible asset and if their fair value can be measured reliably. The cost of these intangibleassets equals their acquisition-date fair value. |
| Subsequent to initial recognition, identifiable intangible assets acquired in a business combination are recorded atcost less accumulated amortization and impairment losses, if they are amortizable, otherwise only at cost net ofaccumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. |
| Intangible assets with finite lives are amortized over the useful life of the asset and assessed for impairmentwhenever there is an indication of impairment. Amortization expense on the intangible assets with finite lives isrecognized in the statements of comprehensive loss. |
| | 16 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (k) | Intangible assets and Goodwill (continued) |
| Research costs are charged to comprehensive loss in the year they are incurred, net of related investment taxcredits. Development costs are charged to comprehensive loss in the year they are incurred net of relatedinvestment tax credits unless they meet specific criteria related to technical, market and financial feasibility in orderto be recognized as intangible assets which include: |
| – the technical feasibility of completing the intangible asset so that it will be available for use or sale;– the Company has the intention to complete and the ability to use or sell the asset;– the asset will generate future economic benefits;– the Company has the resources to complete the asset; and– ability to measure reliably the expenditure during development. |
| Costs to establish patents for internally developed technology are considered development costs and are chargedto comprehensive loss in the year they are incurred unless they meet specific criteria related to technical, marketand financial feasibility. Patent costs include legal and other advisor fees to obtain patents, and patent applicationfees. |
| Amortization of the development costs is calculated on a straight-line basis over the remaining useful life of therelated patent and begins when development is complete. During the period of development, the asset is testedannually for impairment. Residual values and useful lives are reviewed at each reporting date. |
| Amortization is calculated on a straight-line basis: |
| | Useful life |
| Production backlog | | 30 months |
| Patents and development costs | | 1 to 21 years |
| Goodwill represents the future economic benefits arising from a business combination that are not individuallyidentified and separately recognized. Goodwill is carried at cost less accumulated impairment losses. Goodwill isnot amortized, but is tested for impairment annually or if there is an indication of impairment. Impairment lossesrecognized for goodwill cannot be reversed. |
| Impairment testing of goodwill, other intangible assets, property and equipment and right-of-use assets |
| For impairment assessment purposes, assets are grouped at the lowest levels for which there are largelyindependent cash inflows (cash-generating units). As a result, some assets are tested individually for impairmentand some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that areexpected to benefit from synergies of a related business combination and represents the lowest level within theCompany at which management monitors goodwill. |
| Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All otherindividual assets or cash-generating units are tested for impairment whenever events or changes in circumstancesindicate the carrying amount may not be recoverable. |
| The recoverable amount of an asset or cash-generating unit (CGU) is the greater of its value in use and its fairvalue less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value of money and therisks specific to the asset. For the purposes of testing non-financial assets for impairment, management hasidentified one CGU. |
| An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its recoverable amount.Impairment losses are recognized in the statement of comprehensive loss. Impairment losses recognized inrespect of the CGU are allocated first to reduce the carrying amount of goodwill allocated to the units, and then toreduce the carrying amounts on a pro-rata basis of the other assets in the unit. |
| | | 17 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (l) Employee benefits |
| Share-based payments |
| The Company applies a fair value-based method of accounting to all share-based payments. Employee anddirector stock options are measured at their fair value of each tranche on the grant date and recognized in itsrespective vesting period. Non-employee stock options are measured when the services are rendered by theconsultant at the fair value of the services received, if the fair value can be measured reliably. In the case the fairvalue of the services cannot be measured reliably, the services are measured indirectly using the fair value of theequity instruments granted. If there are unidentifiable services, then they are measured at grant date. The cost ofstock options is presented as share-based payment expense. On the exercise of stock options, share capital iscredited for the consideration received and for the fair value amounts previously credited to contributed surplus. TheCompany uses the Black-Scholes option-pricing model to estimate the fair value of share-based payments. |
| Deferred profit-sharing plan |
| The Company established a yearly Deferred Profit-Sharing Plan (“DPSP”) for all eligible employees who havematerially and significantly contributed to the prosperity and profits of the Company. The significance of anycontribution of any employee to the prosperity and profits of the Company for purposes of eligibility in the DPSP isdetermined by the Board of Directors of the Company upon such relevant information as the Board, in its solediscretion, may find relevant. All related persons to the Company are excluded from participating in the DPSP. |
| For all eligible employees, the Company is required to contribute to the DPSP out of the profits of the Company.The amount of the Company’s contribution will be such amount which, in the opinion of its Board of Directors, iswarranted by the profits and overall financial position of the Company. During the year, the Company contributed$Nil to the DPSP ($Nil in 2020). Obligations for contributions to the DPSP are recognized as an employee benefit expense in the statement of comprehensive loss in the periods during which services are rendered by employees. |
| Short-term employee benefits |
| Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. |
| A liability is recognized for the amount expected to be paid under the short-term incentive plan if the Company has apresent legal or constructive obligation to pay this amount as a result of past service provided by the employee, andthe obligation can be estimated reliably. |
| (m) Equity Instruments |
| Issuance of equity instruments |
| Incremental costs directly attributable to the issue of equity-classified shares are recognized as a deduction fromthe common shares and warrants, net of any tax effects. |
| Extinguishing financial liabilities with equity instruments |
| When equity instruments issued to a creditor to extinguish all or part of a financial liability are recognized initially, theCompany measures them at the fair value of the equity instruments issued, unless that fair value cannot be reliablymeasured. If the fair value of the equity instruments issued cannot be reliably measured, then the equityinstruments shall be measured to reflect the fair value of the financial liability extinguished. |
| Contributed surplus |
| Contributed surplus includes amounts related to equity-settled share-based payments until such equity instrumentsare exercised or settled, in which case the amounts are transferred to common shares or reversed upon forfeitureif not vested. It also includes the unexercised conversion option at the maturity of the convertible debentures. |
| 18 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (n) Financial Instruments |
| Financial assets are classified at amortized cost, fair value through profit or loss (“FVTPL”) or fair value throughother comprehensive income (“FVOCI”) based on the Company's business model for managing the financialassets and the contractual cash flow characteristics of these assets. Assessment and decision on the businessmodel approach used is an accounting judgment. |
| A financial asset is measured at amortized cost if it is held within a business model whose objective is to holdfinancial assets in order to collect contractual cash flows and its contractual terms give rise on specified dates tocash flows that are solely payments of principal and interest on the principal amount outstanding. The Companyincludes in this category cash and cash equivalents, trade accounts receivable, other receivables, royaltiesreceivable and deposits. |
| A financial asset is measured at fair value through profit or loss (“FVTPL”) if: |
| (a) Its contractual terms do not give rise to cash flows on specified dates that are solely payments of principal and |
| interest (SPPI) on the principal amount outstanding; or |
| (b) It is not held within a business model whose objective is either to collect contractual cash flows, or to both |
| collect contractual cash flows and sell; or |
| (c) | At initial recognition, it is irrevocably designated as measured at FVTPL when doing so eliminates orsignificantly reduces a measurement or recognition inconsistency that would otherwise arise from measuringassets or liabilities or recognizing the gains and losses on them on different bases. |
| The Company includes in this category strategic investments in equity instruments. |
| Changes in fair value of financial liabilities attributable to changes in the entity's own credit risk are to be presented inother comprehensive income unless they affect amounts recorded in income. All financial liabilities, other thanthose measured at fair value through profit or loss, are included in the financial liabilities measured at amortizedcost. The Company includes in this category accounts payable and accrued liabilities, term loans, and convertibledebentures. The balance due on business combination is measured at FVTPL. |
| Recognition: |
| The Company recognizes a financial asset or a financial liability when it becomes a party to the contractualprovisions of the instrument. |
| Purchases or sales of financial assets that require delivery of assets within the time frame generally established byregulation or convention in the market place (regular way trades) are recognized on the trade date, i.e. the date thatthe Company commits to purchase or sell the asset. |
| Initial measurement |
| Financial assets and liabilities (other than financial assets at FVTPL) are measured initially at their fair value plusany directly attributable incremental costs of acquisition or issue. |
| Financial assets and financial liabilities at FVTPL are recorded in the statement of financial position at fair value. Alltransaction costs for such instruments are recognized directly in profit or loss. |
| Subsequent measurement |
| Financial assets (other than financial assets at FVTPL) are measured at amortized cost using the effective interestmethod less any allowance for impairment. Gains and losses are recognized in profit or loss when the debtinstruments are derecognized or impaired, as well as through the amortization process. |
| Financial liabilities are measured at amortized cost using the effective interest method except for derivatives andfinancial liabilities designated at FVTPL. Gains and losses are recognized in profit or loss when the liabilities arederecognized, as well as through the amortization process. |
| | 19 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (n) Financial Instruments (continued) |
| Fair value measurement principles |
| Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. |
| Where financial assets and financial liabilities measured at fair value though profit or loss have a quoted price in anactive market at the reporting date, the fair value is based on this price. A financial instrument is regarded as quotedin an active market if quoted prices are readily and regularly available from a stock exchange and those pricesrepresent actual and regularly occurring market transactions on an arm’s length basis. |
| Securities traded on stock exchanges are stated at market price based on the closing price on the relevantvaluation day. |
| Derecognition |
| A financial asset is derecognized where the rights to receive cash flows from the asset have expired, or theCompany has transferred its rights to receive cash flows from the asset. The Company derecognizes a financialliability when the obligation under the liability is discharged, cancelled or expired. |
| Offsetting of financial instruments |
| Financial assets and financial liabilities are offset, and the net amount reported in the statement of financial positionif, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention tosettle on a net basis, or to realize the assets and settle the liabilities simultaneously. |
| Impairment of financial instruments |
| The Company applies the “expected credit loss” (“ECL”) model to financial assets measured at amortized cost.The Company’s financial assets subject to this impairment model are cash and cash equivalents, trade and other receivables, royalties receivable and deposits. |
| The trade accounts receivable have no financing component and have maturities of less than 12 months atamortized cost and, as such, the Company applies the simplified approach for expected credit losses (ECLs) to allits trade accounts receivable. Therefore, the Company recognizes a loss allowance based on lifetime ECLs ateach reporting date. |
| The Company’s approach to ECLs reflects a probability-weighted outcome, the time value of money andreasonable and supportable information that is available without undue cost or effort at the reporting date about pastevents, current conditions and forecasts of future economic conditions. |
| The Company uses the provision matrix as a practical expedient to measure ECLs on trade receivables, based ondays past due for groupings of receivables with similar loss patterns. The provision matrix is based on historicalobserved loss rates over the expected life of the receivables and is adjusted for forward-looking estimates.Impairment losses are recognized in profit or loss and reflected in an allowance account presented in reduction ofreceivables. |
| Write-off |
| The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations ofrecovering a financial asset in its entirety or a portion thereof. |
| 20 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (n) Financial Instruments (continued) |
| Compound Financial Instruments |
| Compound financial instruments issued by the Company comprise convertible debentures that can be convertedinto common shares at the option of the holder, and the number of shares to be issued does not vary with changesin their fair value. |
| The component parts of the compound instrument issued by the Company are initially classified separately asfinancial liabilities and equity in accordance with the substance of the contractual arrangements and the definitionsof a financial liability and an equity instrument. The conversion option that will be settled by the exchange of a fixedamount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equityinstrument. |
| At the date the convertible debentures are issued, the liability component is initially recognized at the fair value ofsimilar debt instruments which do not have an equity conversion option. The initial amount of the liability componentis determined by discounting the face value of the convertible debentures using a rate of interest prevailing forsimilar non-convertible instruments at the date of issue for instruments of similar terms and risks. The conversionoption classified as the equity component is determined by deducting the amount of the liability component from thegross proceeds. The equity component is recognized net of income tax effects within the other equity account. |
| Subsequently, the liability component is accounted for at amortized cost and is accreted using the effective interestmethod, up to the face value of the convertible debentures during the period they are outstanding. Interest expenseon the convertible debentures is composed of the interest calculated on the face value of the convertible debenturesand a non-cash notional interest representing the accretion of the carrying value of the convertible debentures. Theequity component is not remeasured. |
| The conversion option classified as equity remains in the other equity account until the conversion option isexercised, in which case, the balance recognized in other equity is transferred to share capital. When theconversion option remains unexercised at the maturity date of the convertible debentures, the balance recognizedin other equity will be transferred to contributed surplus. No gain or loss is recognized in the consolidated incomestatement upon conversion or expiration of the conversion option. |
| Transaction costs related to the issuance of convertible debentures are allocated to the liability and equitycomponents in proportion to the allocation of the gross proceeds. Transaction costs relating to the equitycomponent are recognized directly in other equity. Transaction costs relating to the liability component are includedin the carrying amount of the liability component and are amortized over the term of the convertible debenturesusing the effective interest method. |
| Effective Interest Method |
| The effective interest method is a method of calculating the amortized cost of a financial asset/financial liability andof allocating interest income/expense over the relevant period. The effective interest rate is the rate that exactlydiscounts estimated future cash receipts/payments (including all fees and points paid or received that form anintegral part of the effective interest rate, transaction costs and other premiums or discounts) through the expectedlife of the financial instrument, or (when appropriate) a shorter period, to the net carrying amount on initialrecognition. |
| (o) Future Changes and Amendments to Accounting Standards and Interpretations |
| i) | IAS 1 Presentation of Financial Statements - Accounting Policies |
| In 2021, the IASB amended IAS 1, Presentation of Financial Statements , to require entities to disclose their materialaccounting policy information rather than their significant accounting policies. Additional amendments to IAS 1 aremade to explain how an entity can identify a material accounting policy. The amendments are effective for annualreporting periods beginning on or after January 1, 2023, with earlier application permitted. |
| | 21 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 3. Significant accounting policies (continued) |
| (o) Future Changes and Amendments to Accounting Standards and Interpretations (Continued) |
| ii) | IAS 1 Presentation of Financial Statements - Classification of Liabilities |
| The IASB released Classification of Liabilities as Current or Non-current (Amendments to IAS 1) , which clarifies thethe guidance in IAS 1 Presentation of Financial Statements on whether a liability should be classified as eithercurrent or non-current relating to the right to defer settlement of the liability for at least twelve months after thereporting date. The amendment is effective for annual reporting periods beginning on or after January 1, 2023, withearlier application permitted. |
| iii) | IAS 12 Income Taxes |
| The IASB released Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction (Amendmentsto IAS 12) . The amendment relates to the recognition of deferred tax when an entity accounts for transactions, suchas leases or decommissioning obligations, by recognizing both an asset and a liability. The objective of thisamendment is to narrow the initial recognition exemption in paragraphs 15 and 24 of IAS 12, so that it would notapply to transactions that give rise to both taxable and deductible temporary differences, to the extent the amountsrecognized for the temporary differences are the same. The amendment is effective for annual reporting periodsbeginning on or after January 1, 2023, with earlier application permitted. |
| iv) | IAS 37 Provisions, Contingent Liabilities and Contingent Assets |
| The IASB released Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37). The amendmentsspecify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessingwhether the contract is onerous. Costs to be included comprise the costs that relate directly to the contract, whichinclude both incremental costs of fulfilling the contract and an allocation of other costs that relate directly to fulfillingthe contract. The amendment is effective for annual reporting periods beginning on or after January 1, 2023, withearlier application permitted. |
| The Company is currently assessing the impact of these future changes and amendments on its consolidatedfinancial statements. |
| 4. Significant accounting judgments, estimates and assumptions |
| The preparation of financial statements requires management to make judgments, estimates and assumptionsbased on currently available information that affect the reported amounts of assets, liabilities and contingent assetsand liabilities at the date of the financial statements and reported amounts of revenues and expenses during thereporting period. Estimates and judgments are continuously evaluated and are based on management’s experienceand other factors, including expectations of future events that are believed to be reasonable under thecircumstances. However, actual results could differ from those estimated. By their very nature, these estimates aresubject to measurement uncertainty and the effect of any changes in estimates on the financial statements of futureperiods could be material. |
| In the process of applying the Company’s accounting policies, management has made the following judgments,estimates, and assumptions which have the most significant effect on the amounts recognized in the financialstatements. |
| Critical judgments in applying accounting policies |
| (a) Assessment of whether there is any indication that property and equipment, right-of-use assets and intangible |
| asset may be impaired |
| At each reporting date, the Company reviews the carrying amounts of its property and equipment, right-of-use assets and intangible assets with a finite useful life to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Management’s judgment is required in assessingwhether there is any indication that an asset may be impaired. |
| | 22 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 4. Significant accounting judgments, estimates and assumptions (continued) |
| Critical judgments in applying accounting policies (continued) |
| (b) Intangible assets |
| The recognition of development costs as intangible assets requires judgments to determine whether the requiredcriteria for recognition are met including management estimates of future economic benefits. |
| (c) | Sale of intellectual property |
| The recognition of variable consideration related to the sale of intellectual property requires management’sjudgments to determine whether it is highly probable that a reversal will not occur when the uncertainty associatedwith the variable consideration is subsequently resolved. |
| (d) Assessment of investment tax credits |
| The investment tax credits are estimated by management based on quantitative and qualitative analysis andinterpretation of various government programs, related restrictions, limitations, definitions, and eligibilityconditions. Uncertainty over the eligibility and final assessment by taxation authorities of investment tax creditsrequires judgment. Management involves its technical staff and external specialists in determining if theexpenditures meet the requirements of the different tax credit claims. |
| Key sources of estimation uncertainty |
| (e) Revenue recognition |
| Revenue recognition for long-term contracts completion requires the use of estimates to determine the recordedamount of revenues, costs in excess of billings and billings in excess of costs and profits on uncompletedcontracts. |
| The determination of anticipated costs for completing a contract is based on estimates that can be affected by avariety of factors, including the cost of materials, labour and sub-contractors, as well as potential claims fromcustomers and subcontractors. |
| As risks and uncertainties are different for each project, the sources of variations between anticipated costs andactual costs incurred will also vary by project. The determination of estimates is based on the Company’s businesspractices as well as its historical experience. Estimates are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised. |
| Given this estimation process, it is possible that changes in future conditions could cause a material change in therecognized amount of revenues and costs and profits in excess of billings on uncompleted contracts and accruedexpenses. |
| Agreements that contain multiple deliverables require the use of judgment to determine whether they containseparately identifiable performance obligations and to allocate the consideration received to each performance obligation. |
| (f)Stock-based payments |
| The Company uses the fair value method of valuing compensation cost associated with the Company’s stockoption plan. Estimating fair value requires determining the most appropriate valuation model for a grant of equityinstruments, which is dependent on the terms and conditions of the grant. This also requires determining the mostappropriate inputs to the valuation model including the expected life of the option and volatility. The assumptions andmodels are discussed in note 22. |
| | 23 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 4. Significant accounting judgments, estimates and assumptions (continued) |
| Key sources of estimation uncertainty (continued) |
| (g) Useful lives of property and equipment and intangible assets |
| The Company estimates the useful lives of property and equipment based on the period over which the assets areexpected to be available for use. The estimated useful lives of property and equipment are reviewed periodically andare updated if expectations differ from previous estimates due to physical wear and tear and legal or other limits onthe use of the relevant assets. In addition, the estimation of the useful lives of property and equipment are based onmanagement’s experience with similar assets. It is possible, however, that future results of operations could bematerially affected by changes in the estimates brought about by changes in factors mentioned above. Theamounts and timing of recorded expenses for any period would be affected by changes in these factors andcircumstances. Useful lives, depreciation rates and residual values are reviewed at least annually. |
| (h) Impairment of non-financial assets and goodwill |
| In assessing impairment, management estimates the recoverable amount of each asset or cash generating unitbased on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates toassumptions about future operating results and the determination of a suitable discount rate (see Note 3 (k)). |
| (i) | Fair value of investments |
| Where the fair values of investments recorded in the statement of financial position cannot be derived from activemarkets, they are determined using valuation techniques including the Black-Scholes models. The inputs to thesemodels are taken from observable markets where possible, but where this is not feasible, a degree of judgment isrequired in establishing the fair values. The judgments include considerations of inputs such as the expectedvolatility and the initial allocation of the consideration paid between the fair value of the common shares andwarrants received. Should any of the inputs to these models or changes in assumptions about these factors occur,this could affect the reported fair value of the investments. |
| (j) | Right-of-use assets and lease liabilities |
| In determining the carrying amount of the right-of-use asset and corresponding lease liabilities, assumptions includethe non-cancellable term of the lease plus periods covered by an option to renew or purchase the leases, estimateduseful lives of the related assets, and incremental borrowing rate. Renewal and purchase options are only includedin the lease term if management is reasonably certain to renew. Management considers factors such as marketconditions, comparable rental rates and similar property values. The Company is also required to estimate theincremental borrowing rate specific to each portfolio of leased assets with similar characteristics if the interest ratein the lease is not readily determined. Management determines the incremental borrowing rate using base rate forsimilar loans plus a risk premium. |
| (k)Income taxes |
| The Company has unused available tax losses, deductible temporary differences and investment tax credits. TheCompany recognizes deferred income tax assets for these unused tax losses and deductible temporarydifferences only to the extent that, in management’s opinion, it is probable that future taxable profit will be availableagainst which these available tax losses and temporary differences can be utilized. The Company recognizesinvestment tax credits when it has reasonable assurance that it has complied with the conditions of the programand that the amounts will be realized (i.e. that it will generate future federal income taxes payable against which thetax credits can be applied). The Company’s projections of future taxable profit involve the use of significantassumptions and estimates with respect to a variety of factors, including future sales and operating expenses.There can be no assurance that the estimates and assumptions used in our projections of future taxable incomewill prove to be accurate predictions of the future, and in the event that our assessment of the recoverability of thesedeferred tax assets and investment tax credits changes in the future, a material increase or reduction in thecarrying value of these deferred tax assets and investment tax credits could be required, with a correspondingcharge to net earnings. |
| | 24 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 4. Significant accounting judgments, estimates and assumptions (continued) |
| (l) | Business combinations |
| Fair value of assets acquired and liabilities assumed in a business combination is estimated based on informationavailable at the date of acquisition and involves considerable judgment in determining the fair values assigned to theidentifiable assets acquired and liabilities assumed on acquisition. Among other things, the determination of thesefair values involves the use of discounted cash flow analyses and estimated profit margins on contracts inprogress. In addition, the determination of the contingent consideration due on the business combination is basedon the estimations of the probability and timing of completing the predetermined milestones (see note 5); |
| (m) COVID-19 pandemic |
| The COVID-19 pandemic continues to cause significant financial market and social dislocation. The situation isdynamic with various cities and countries around the world responding in different ways to address the outbreak.While the Company has experienced the impact of the outbreak of the Coronavirus (COVID 19) on its operations, ithad continued to operate during the current pandemic. During the year ended December 31, 2020, the Companyrecognized payroll subsidies totaling $775,967 principally under the Canadian Emergency Wage Subsidy program,which amount required estimation (see note 24). In the event of a prolonged continuation of the pandemic, it is notclear what the potential impact may be on the Company’s business, financial position and financial performance. |
| 5. Business combination |
| On August 11, 2021, the Company completed the acquisition of Pyro Green-Gas Inc. and its subsidiaries (formerlyAirScience Technologies Inc. prior to its renaming on September 14, 2021), a Montreal-based company whichoffers technologies, equipment, and expertise in the area of biogas upgrading, as well as air pollution controls, for amaximum purchase price consideration of $4.4 million in cash, subject to customary post-closing adjustments. Inaddition, the Company settled a pre-existing loan receivable from Pyro Green-Gas Inc. of approximately $1.7 million.The transaction was executed essentially through a purchase of the entirety of the common class “A” shares ofPyro Green-Gas Inc. This acquisition enables the Company to springboard into the renewable natural gas marketand provides an advantage compared to building its own operations. In addition, the Company will now have apresence in Italy and India, and the acquisition will provide potential synergies with the Company’s land-basedwaste destruction offerings. The purchase price will be paid upon the achievement of various contract andbusiness-related milestones by Pyro Green-Gas Inc. The Company’s assessment is that these milestones will berealized at various moments during the next 30 months. The contingent consideration was estimated using adiscount rate of 8%. |
| The acquisition was accounted for using the purchase method and the final allocation of the purchase priceis as follows: |
| | December 31, 2021 |
| | | Final |
| | | $ |
| Total considerationConsideration paid at closing |
| | | 1 |
| Contingent consideration | | | | 3,841,999 |
| Consideration paid at closing and continent consideration | | | | 3,842,000 |
| Settlement of pre-existing loan receivable from Pyro Green-Gas | | | | 1,744,4005,586,400 |
| | | | | 25 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 5. Business combination (continued) |
| December 31, 2021 |
| | Final |
| | $ |
| Net assets acquiredCurrent assets |
| | | 1 | 5,186,086 |
| ROU asset | | 477,608 |
| Property and equipment | | 42,552 |
| Intangible assets and Goodwill | | | | | 2 | 4,780,607 |
| Deferred income tax asset | | 79,360 |
| Current liabilities | | | | (4,507,907) |
| Non-current liabilities | | (471,906) |
| | | | 5,586,400 |
| 1 Includes $807,946 of cash and trade receivables with a net fair value of $3.3 million, including an allowance for doubtful accounts of $0.5 million.2 The goodwill of $2.7 million recorded on the transaction is mainly attributable to the expected growth in biogas upgrading market and the expertise of the workforce, and it is not expected to be deductible for tax purposes. |
| During the period ended December 31, 2021, the Company recognized revenue of $6.8 million and net earnings of$0.8 million related to the operations generated by Pyro Green-Gas Inc. since the acquisition date. |
| In connection with this acquisition, the Company incurred acquisition-related costs of $0.1 million, recognizedwithin Selling, General and Administrative expenses in the consolidated statement of comprehensive income (loss). |
| The maximum purchase price consideration of $4,355,600 was discounted to $3,842,000, at August 11, 2021 andan accretion expense of $110,203 was recognized in Net finance costs in the Consolidated Statement ofComprehensive Income for the year ended December 31, 2021. |
| 6. Revenues |
| Revenues by product line: |
| The company's revenues are generated primarily from the following: |
| 2021 | 2020 |
| $ | $ |
| Revenue from contracts with customers by product line:PUREVAP™ |
| | | | | | 6,138,111 | 4,163,059 |
| DROSRITE™ | | | | | | 7,940,771 | 9,976,696 |
| Development and support related to systems supplied to the U.S. Navy | | | | | | 7,522,809 | 1,425,883 |
| Torch related sales | | | | | | 2,084,511 | 1,452,455 |
| Biogas upgrading and pollution controls | | | | | | 6,800,090 | – |
| Other sales and services | | | | | | 582,058 | 756,936 |
| | | | | | 31,068,350 | 17,775,029 |
| The following is a summary of the Company’s revenues by revenue recognition method: |
| 2021 | 2020 |
| $ | $ |
| Revenue from contracts with customers:Sales of goods under long-term contracts recognized over time |
| | | | | | 25,918,594 | 12,432,666 |
| Sales of goods at a point of time | | | | | | 1,533,910 | 1,730,273 |
| Other revenue: Sale of intellectual properties (i) |
| | | | | | 3,615,846 | 3,612,090 |
| | | | | | 31,068,350 | 17,775,029 |
| See note 32 for sales by geographic area. |
| | | | | | | 26 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 6. Revenues (continued) |
| (i) Sale of intellectual properties |
| During the year, the Company sold intellectual property to a subsidiary of a company in which it holds a strategicinvestment for a non-refundable fee of $3.3 million. Under the terms of the sale agreement, control of the intellectualproperty was transferred to the purchaser and the Company has no obligation to undertake activities that willsignificantly affect the intellectual property. The terms of the agreement also include royalty payments based on thepercentage of sales. No royalty income was recognized at the time of the transaction. |
| In September 2020, the Company sold intellectual property to a subsidiary of a company in which it holds astrategic investment for a non-refundable fee of $2.4 million. Under the terms of the sale agreement, control of theintellectual property was transferred to the purchaser and the Company has no obligation to undertake activities thatwill significantly affect the intellectual property. The terms of the agreement also include additional variableconsideration that can be received from based on the greater of 10% of sales made by the purchaser, and minimum royalties of $50,000 in 2021, $100,000 in 2022, $150,000 in 2023, and $200,000 in 2024 and every year thereafter(see note 11). The Company has also amended a previous agreement with a company in which it holds a strategicinvestment to reinstate minimum royalties that were previously waived by the Company related to a sale ofintellectual property that occurred in 2016. The terms of this agreement also include additional variableconsideration that can be received based on the greater of 10% of sales made by the purchaser, and minimumroyalties of $200,000 in 2021 and $250,000 in 2022 and every year thereafter (see note 12). |
| The Company only recognizes variable consideration, including minimum royalties, arising from these agreementsin the period(s) when it is highly probable that a reversal will not occur when the uncertainty associated with thevariable consideration is subsequently resolved. Minimum royalties are recognized for the period the Companyevaluates the collectability of the minimum royalties is probable, which the Company has estimated over four years. |
| (ii) Transaction price allocated to remaining performance obligations |
| As at December 31, 2021, revenue expected to be recognized in the future related to performance obligations thatare unsatisfied (or partially satisfied) at the reporting date is $43,458,148 (2020 - $29,999,009). Revenue will berecognized as the Company satisfies its performance obligations under long-term contracts, which is expected tooccur over the next 3 years. |
| 7. Cash and cash equivalents |
| As at December 31, 2021 and 2020, there are no restrictions on cash and cash equivalents. Cash andcash equivalents include the following components: |
| 2021 | 2020 |
| $ | $ |
| Cash | | | 3,568,561 | 10,104,899 |
| Guaranteed investment certificates | | | 8,633,952 | 8,000,000 |
| Cash and cash equivalents | | | 12,202,513 | 18,104,899 |
| Guaranteed investment certificates are instruments issued by Canadian financial institutions and include$3,000,000 bearing interest at a rate of 0.37%, $5,000,000 bearing interest at a rate of 0.86%, and $633,952 bearinginterest at a rate of 0.08%. These instruments are redeemable without penalty 60 days, 30 days and 30 days fromthe date of acquisition and mature in January 2022, September 2022, and December 2022. |
| | | | | 27 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 8. Accounts receivable |
| Details of accounts receivable were as follows: |
| December 31, | December 31, |
| | | 2021 | 2020 |
| | | $ | $ |
| 1 – 30 days | 2,260,428 | | | 309,362 |
| 31 – 60 days | | | 44,838 | 226,713 |
| 61 – 90 days | 6,855,822 | | | 253,141 |
| Greater than 90 days | 7,357,825 | | | 218,008 |
| Total trade accounts receivable | 16,518,913 | 1,007,224 |
| Unbilled trade receivables | | | – | 1,132,911 |
| Other receivables | | | | | 1 | 270,536 | 931,041 |
| Sales tax receivable | | | 850,167 | 258,477 |
| 17,639,616 | 3,329,653 |
| 1 |
| At December 31, 2020 comprised mainly of an amount of $893,000 to be received upon the sale of HPQ concluded prior to year end. |
| As at December 31, 2021 the allowance for expected credit loss is $520,000 (2020 - $Nil), which was includedthrough the business combination and has not changed throughout the period. |
| 9. Costs and profits in excess of billings on uncompleted contracts |
| As at December 31, 2021, the Company had fourteen contracts with total billings of $16,676,700 which were lessthan total costs incurred and had recognized cumulative revenue of $21,599,410 since those projects began. Thiscompares with seven contracts with total billings of $8,378,093 which were less than total costs incurred and hadrecognized cumulative revenue of $9,451,726 as at December 31, 2020. |
| Changes in costs and profits in excess of billings on uncompleted contracts during the year are explained by$983,891 (2020 - $93,415) recognized at the beginning of the year being transferred to accounts receivable, and$4,832,968 (2020 - $1,044,072) resulting from changes in the measure of progress. |
| 10. Investment tax credits |
| An amount recognized in 2021 included $202,472 (2020 - $131,871) of investment tax credits earned in the year, aswell as ($706,000) of investment tax credits earned in prior years that no longer met the criteria for recognition in2021. $148,695 (2020 - $18,420) of the investment tax credits recognized in the year was recorded against cost ofsales and services, ($684,709) (2020 - $1,141,468) against research and development expenses and $32,486(2020 - $30,000) against selling general and administrative expenses. |
| Eligible scientific research and experimental development ("SR&ED") expenses for the year amounted to$2,000,853 (2020 - $775,824) less investment tax credits of ($684,709) (2020 - $1,141,468), less governmentgrants of $149,575 (2020 - $365,433) totalling $2,535,987 (2020 - ($731,077)). |
| 11. Strategic investments |
| December 31, | December 31, |
| | | 2021 | 2020 |
| | | $ | $ |
| Beauce Gold Fields (“BGF”) shares – level 1 | | | 123,095 | 123,095 |
| HPQ Silicon Resources Inc. (“HPQ”) shares - level 1 | 12,306,196 | 16,489,220 |
| HPQ warrants – level 3 | 2,472,368 | 23,379,435 |
| 14,901,659 | 39,991,750 |
| | | | | | 28 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 11. Strategic investments (continued) |
| The change in the strategic investments is summarized as follows: |
| (“BGF”) shares – level 1 | (“HPQ”) shares - level 1 | HPQ warrants – level 3 |
| Quantity | | | $ | Quantity | | | $ | Quantity | $ |
| Balance, December 31, 2019 | 1,025,794 | | | | | | | 133,354 | 18,450,000 | 1,476,000 | 17,750,000 | | | | | – |
| Additions | – | | | | | | | – | 7,887,000 | 3,395,742 | 5,200,000 | | | | | 560,000 |
| Received in lieu of payment of services |
| rendered | – | | | | | | | – | 4,394,600 | 395,514 | 4,394,600 | | | | | – |
| Exercised | – | | | | | | | – | 1,500,000 | 540,000 | (1,500,000) | | | | | (337,500) |
| Disposed | – | | | | | | | – | (17,241,400) | | | | | | (10,798,056) | – | | | | | – |
| Change in the fair value | – | | | | | | | (10,259) | – | | | | | | | | 21,480,020 | – | | | | | 23,156,935 |
| Balance, December 31, 2020 | 1,025,794 | | | | | | | 123,095 | 14,990,200 | 16,489,220 | 25,844,600 | | | | | 23,379,435 |
| Additions | – | | | | | | | – | 8,268,000 | 8,070,109 | – | | | | | – |
| Exercised | – | | | | | | | – | 16,250,000 | 11,700,000 | (16,250,000) | | | | | (9,181,250) |
| Disposed | – | | | | | | | – | (12,755,600) | | | | | | (14,252,732) | – | | | | | – |
| Change in the fair value | – | | | | | | | – | – | | | | | | | | (9,700,401) | – | | | | | (11,725,817) |
| Balance, December 31, 2021 | 1,025,794 | | | | | | | 123,095 | 26,752,600 | 12,306,196 | 9,594,600 | | | | | 2,472,368 |
| The Company owns 9.64% on a fully diluted basis of HPQ as at December 31, 2021 (2020 – 11.55%) and hasother business transactions with this entity– see note 12. |
| The following table sets out the details and activity of the HPQ warrants: |
| | | | | | | | Number of | Number of |
| | | | | | | | warrants | warrants |
| | | | | | | | | | | Exercise |
| Expiry date | | | | | | | | | | | | Dec. 31, 2020 | Additions | Exercised | | | Dec. 31, 2021 | price ($) |
| | | | | | |
| August 21, 2021 | | | | | | | | 16,250,000 | – | | | | | | | | (16,250,000) | – | 0.16 |
| April 29, 2023 | | | | | | | | 1,200,000 | – | | | | | | | | – | 1,200,000 | 0.10 |
| June 2, 2023 | | | | | | | | 4,394,600 | – | | | | | | | | – | 4,394,600 | 0.10 |
| September 3, 2023 | | | | | | | | 4,000,000 | – | | | | | | | | – | 4,000,000 | 0.61 |
| | | | | | | | 25,844,600 | – | | | | | | | | (16,250,000) | 9,594,600 |
| 2021 Transactions |
| 12,755,600 HPQ common shares were disposed for cash amounts totaling $14,252,732 resulting in a realized gainof $9,893,900. 16,250,000 shares purchase warrants were exercised in cash for a total amount of $2,518,750. Anamount of $9,181,250 was transferred to the share value on the exercise of the warrants. |
| 8,268,000 common shares of HPQ were purchased in cash for an amount of $8,070,109. |
| 2020 Transactions |
| 1,200,000 common shares and 1,200,000 warrants of HPQ were purchased in cash for an amount of $60,000 inApril 2020. |
| 4,394,600 common shares of HPQ and 4,394,600 warrants of HPQ were received in May 2020 to settle tradereceivables from HPQ in the amount of $395,414. At the transaction date, this non-monetary transaction wasmeasured at the fair value of the trade receivables. |
| 4,000,000 common shares and 4,000,000 warrants were purchased in cash for an amount of $2,400,000 inSeptember 2020. |
| | | | 29 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 11. Strategic investments (continued) |
| 2020 Transactions (continued) |
| 2,687,000 common shares of HPQ were purchased in cash for an amount of $1,495,742 and 16,429,400 commonshares of HPQ were disposed for an amount of $10,798,056. The disposal of the common shares of HPQ in 2020had resulted in a realized gain of $6,773,512. |
| 1,500,000 HPQ warrants were exercised in cash for an amount of $202,500 in December 2020. |
| At inception, the fair value of the HPQ warrants purchased in 2020 was measured using the Black-Scholes optionpricing model using the following assumptions: |
| Number of warrants | 1,200,000 | 4,394,600 | 4,000,000 |
| Date of issuance | April 29, 2020 | | | June 2, 2020 | Sept. 3, 2020 |
| Exercise price ($) | | | | | 0.10 | 0.10 | 0.61 |
| Assumptions under the Back Sholes model: |
| Fair value of the shares ($) | | | | | 0.04 | 1.05 | 1.05 |
| Risk free interest rate (%) | | | | | 0.30 | 0.20 | 0.20 |
| Expected volatility (%) | 97.45 | 114.80 | 112.52 |
| Expected dividend yield | | | | | | | |
| Contractual remaining life (number of months) | | | | | 36 | 29 | 32 |
| As at December 31, 2021 and 2020, the fair value of the HPQ warrants was measured using the Black-Scholesoption pricing model using the following assumptions: |
| | | | | | | | | 2021 | 2020 |
| Number of warrants | | | | | | | | 1,200,000 | 4,394,600 | 4,000,000 | 1,200,000 | 4,394,600 | 4,000,000 |
| Date of issuance | | | | | | | | April 29, 2020 June 2, 2020 Sept. 3, 2020 April 29, 2020 | June 2, 2020 | | | | | | | Sept. 3, 2020 |
| Exercise price ($) | | | | | | | | | | | | 0.10 | 0.10 | 0.61 | 0.10 | 0.10 | 0.61 |
| Assumptions under the Back Sholes model: |
| Fair value of the shares ($) | | | | | | | | | | | | 0.46 | 0.46 | 0.46 | 1.05 | 1.05 | 1.05 |
| Risk free interest rate (%) | | | | | | | | | | | | 1.22 | 1.22 | 1.22 | 0.2 | 0.2 | 0.2 |
| Expected volatility (%) | | | | | | | | | | | | 89.88 | 94.01 | 110.47 | 115.3 | 114.8 | 112.52 |
| Expected dividend yield | | | | | | | | | | |
| Contractual remaining life (in months) | | | | | | | | | | | | 19 | 20 | 23 | 28 | | 29 | 32 |
| As at December 31, 2021, a gain from initial recognition of the warrants of $510,573 ($859,998 – 2020) has beendeferred off balance sheet until realized. |
| 12. Royalties receivable |
| | December 31 | December 31 |
| | | | | | 2021 | 2020 |
| | | | | | $ | $ |
| Opening balance | | 1,060,000 | – |
| Accretion interest | | 132,809 | – |
| Royalties recognized during the year | | 450,000 | 1,600,000 |
| Discounting | | (134,155) | (390,000) |
| Amounts received during the year | | (250,000) | (150,000) |
| Balance at end of the year | | 1,258,654 | 1,060,000 |
| Current portion | | 311,111 | – |
| Non-current portion | | 947,543 | 1,060,000 |
| | 1,258,654 | 1,060,000 |
| | | | | | | | | | | | | 30 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 12. Royalties receivable (continued) |
| The Company sold intellectual property to HPQ Silicon Resources Inc. ("HPQ") in 2016 (“HPQ 2016 contract”) andits wholly owned subsidiary, HPQ Nano Silicon Powders Inc. in 2020 (“HPQ Nano contract”). In addition, in 2021 theCompany sold intellectual property to HPQ Silica Polvere Inc. ("HPQ Polvere contract"), a wholly owned subsidiaryof HPQ. The terms of those sales contracts include, in addition to the purchase price amounts already received of$1,000,000 in 2016 and $2,400,000 in 2020 and $3,300,000 in 2021, respectively, the following variableconsideration in the form of royalty payments: |
| HPQ 2016 contract: |
| Royalties are 10% of net sales, with minimum payments of $200,000 in 2021 and $250,000 in 2022 and every yearthereafter. Payment is due no later than 30 days after the year end of HPQ Silicon Resources Inc. An amount of$200,000 has been received under this agreement in 2021 ($150,000 was received in 2020). |
| HPQ Nano contract: |
| Royalties are 10% of net sales, with minimum payments of $50,000 in 2021, $100,000 in 2022, $150,000 in 2023,and $200,000 in 2024 and every year thereafter. Payments are due no later than 10 days after the year end of HPQNano Silicon Powders Inc. An amount of $50,000 has been received under this agreement in 2021. |
| HPQ Polvere contract: |
| Royalties are 10% of net sales with minimum payments of $50,000 in 2023, $100,000 in 2024, $150,000 in 2025 and $200,000 in 2026 and every year thereafter. Royalty payments are limited to the total net sales for the period. Payments are due no later than 10 days after the year end of HPQ Silica Polvere Inc. |
| During the year ended December 31, 2021, the Company recognized an additional $250,000 and $200,000 for the HPQ 2016 contract and HPQ Nano contracts, respectively, of royalties receivable, which have been discounted using 12.5% discount rate. See note 6. |
| During the year ended December 31, 2020, the Company recognized $1,100,000 and $500,000 for the HPQ 2016and HPQ Nano contracts, respectively, of royalties receivable, which amounts have been discounted using a 12.5%rate. See note 6. |
| The HPQ Nano contract and the HPQ Polvere contract each provide the Company with the option to convert, at any time, the future royalties that would be owed to it into a 50% equity stake in HPQ Nano Silicon Powders Inc. and HPQ Silica Polvere Inc., respectively. Each option is considered an embedded derivative that is initially measured at fair value and subsequently remeasured at fair value at each reporting period. The Company determined that the embedded derivatives had a fair value of $Nil at the inception of the contracts and $Nil at each of the reporting dates. |
| 13. Deposits |
| December 31 | December 31 |
| | | 2021 | 2020 |
| | | $ | $ |
| Current portion:Suppliers |
| 1,236,211 | 1,421,246 |
| Security deposit on leased premises | | | 92,241 | – |
| Total current | 1,328,452 | 1,421,246 |
| Non-current portion:Suppliers |
| | | 1,952 | 1,099 |
| Security deposit on leased premises | | | 246,804 | 300,242 |
| Total non-current | | | 248,756 | 301,341 |
| Total Deposits | 1,577,208 | 1,722,587 |
| | | | | 31 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 14. Property and equipment |
| Machinery | Equipment |
| | | Computer | and | Leasehold | under |
| | | equipment | equipment Automobiles improvements | construction | | | | | Total |
| $ | | | $ | | | | $ | $ | $ | $ |
| CostBalance at December 31, 2019 |
| | | 521,988 | 1,621,899 | | | | | | | | | 21,912 | 165,006 | 1,671,962 | | | | | | | | | 4,002,767 |
| Additions | | | 27,671 | – | | | | | | | | | 306,164 | 15,895 | 268,272 | | | | | 618,002 |
| Impairment | | | – | – | | | | | | | | | (21,912) | – | – | | | | | (21,912) |
| Balance at December 31, 2020 | | | 549,659 | 1,621,899 | | | | | | | | | 306,164 | 180,901 | 1,940,234 | | | | | | | | | 4,598,857 |
| Acquired through business combination | | | 13,585 | 28,967 | | | | | | | | | – | – | – | | | | | 42,552 |
| Additions | | | 245,984 | 384,092 | | | | | | | | | 30,495 | 752,204 | 84,143 | | | | | | | | | 1,496,918 |
| Balance at December 31, 2021 | | | 809,228 | 2,034,958 | | | | | | | | | 336,659 | 933,105 | 2,024,377 | | | | | | | | | 6,138,327 |
| Accumulated depreciation |
| Balance at December 31, 2019 | | | 491,906 | 1,421,613 | | | | | | | | | 18,782 | 92,985 | – | | | | | | | | | 2,025,286 |
| Depreciation | | | 17,206 | 20,029 | | | | | | | | | 22,083 | 3,800 | – | | | | | 63,118 |
| Impairment | | | – | – | | | | | | | | | (19,117) | – | – | | | | | (19,117) |
| Balance at December 31, 2020 | | | 509,112 | 1,441,642 | | | | | | | | | 21,748 | 96,785 | – | | | | | | | | | 2,069,287 |
| Depreciation | | | 88,410 | 182,739 | | | | | | | | | 59,959 | 24,995 | – | | | | | 356,103 |
| Balance at December 31, 2021 | | | 597,522 | 1,624,381 | | | | | | | | | 81,707 | 121,780 | – | | | | | | | | | 2,425,390 |
| Carrying amountsBalance at December 31, 2020 |
| | | 40,547 | 180,257 | | | | | | | | | 284,416 | 84,116 | 1,940,234 | | | | | | | | | 2,529,570 |
| Balance at December 31, 2021 | | | 211,706 | 410,577 | | | | | | | | | 254,952 | 811,325 | 2,024,377 | | | | | | | | | 3,712,937 |
| Equipment under construction includes the leasehold improvements of a clean room and the costs related tobuilding the new Plasma Powder Production equipment. |
| 15. Leases |
| The Company has entered into lease contracts mainly for buildings and computer equipment, which expire atvarious dates through the year 2036. Some leases have extension or purchase options for various terms. Somelease payments are based on changes in price indices. The lease contracts do not impose any financial covenants. |
| As of January 1, 2020, a lease for rent of a property with a trust whose beneficiary is the controlling shareholder and CEO of the Company was modified to amend the lease term, fix the annual rent increase at a rate of 2%, exercise the option to extend the term of the lease for five years and prepay the rent amount of $1,178,530, which was presented against the lease liability. At the date of modification, the lease liability was remeasured and an amount of $366,566 was recorded as an adjustment to the right-of-use asset. Thelease liability was recalculated using a discount rate of 4%. As at December 31, 2020, the right-of-use asset and the lease liabilities related to this lease amount to $1,328,557 and $221,496 respectively (2019 -$1,350,487 and 1,218,958). In 2020, the variable components of the leases which are not included in the lease liabilities under IFRS 16, comprise property taxes for an amount of $258,042 (2019 - $266,581) which were charged to the Company. In return the trust agreed to convert the 2020 Convertible loan approximately one year before its due date. |
| | | | 32 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 15. Leases (Continued) |
| a) Right-of-use assets |
| Land and | Computer |
| building | equipment | Total |
| | | | $ | $ | $ |
| Balance at January 1, 2020 | 3,724,696 | 18,073 | 3,742,769 |
| Remeasurement of lease liabilities | 366,566 | – | 366,566 |
| Depreciation | (402,947) | (5,388) | (408,335) |
| Balance at December 31, 2020 | 3,688,315 | 12,685 | | | | 3,701,000 |
| Addition - business combination | 477,608 | – | 477,608 |
| Addition | 2,157,796 | – | | | | 2,157,796 |
| Depreciation | (566,182) | (4,228) | (570,411) |
| Balance at December 31, 2021 | 5,757,537 | 8,457 | | | | 5,765,993 |
| b) The table below summarizes changes to the lease liabilities: |
| | | $ |
| Balance at January 1, 2020 | | | | | | 3,985,026 |
| Remeasurement | | | 366,566 |
| Payments | | | | | | (1,363,050) |
| Balance at December 31, 2020 | | | | | | 2,988,542 |
| Addition - business acquisition | | | | | | | | | | | 477,608 |
| Additions - other | | | | | | | | | | | 2,120,893 |
| Payments | | | | | | | | | | | (263,078) |
| Balance at December 31, 2021 | | | | | | 5,323,965 |
| Current portion | | | | | | 2,934,236 |
| Non-current portion | | | | | | 2,389,729 |
| | | | | | 5,323,965 |
| c) Amount recognized in the statement of comprehensive loss: |
| | | | | 2021 | 2020 |
| | | | | $ | $ |
| Depreciation of right-of-use assets | | 570,411 | 408,335 |
| Interest on lease liabilities | | 307,691 | 211,666 |
| Expense related to lease payments not included in the measurement of lease liabilities | | 178,707 | 118,476 |
| d) | Maturity analysis – contractual undiscounted cash flows of lease liabilities as at December 31, 2021 |
| | | $ |
| 2022 | | | | | | | | | | | | | | | | | 3,220,750 |
| 2023 | | | | | | | | | | | | | | | | | 353,380 |
| 2024 | | | | | | | | | | | | | | | | | 357,113 |
| 2025 | | | | | | | | | | | | | | | | | 332,296 |
| 2026 | | | | | | | | | | | | | | | | | 229,332 |
| Thereafter | | | | | | | | | | | 2,121,321 |
| | | | | | 6,614,192 |
| | | | | | | | | 33 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 16. Intangible assets |
| Production | Development |
| backlog | | Patents | costs | Total |
| | | | | | $ | $ | $ | $ |
| CostBalance at December 31, 2019 |
| – | | 572,486 | 244,871 | 817,357 |
| Additions | – | | 305,420 | – | 305,420 |
| Write-off | – | | (109,514) | – | (109,514) |
| Balance at December 31, 2020 | – | | 768,392 | 244,871 | | | | 1,013,263 |
| Acquired through business combination | 2,120,000 | | – | – | | | | 2,120,000 |
| Additions | – | | 214,497 | – | 214,497 |
| Write-off | – | | (85,544) | – | (85,544) |
| Balance at December 31, 2021 | 2,120,000 | | 897,345 | 244,871 | | | | 3,262,216 |
| Accumulated amortizationBalance at December 31, 2019 |
| – | | 47,443 | 33,016 | 80,459 |
| Amortization | – | | 10,682 | 16,508 | 27,190 |
| Balance at December 31, 2020 | – | | 58,125 | 49,524 | 107,649 |
| Amortization | 353,333 | | 10,528 | 16,508 | 380,369 |
| Balance at December 31, 2021 | 353,333 | | 68,653 | 66,032 | 488,018 |
| Carrying amountsBalance at December 31, 2020 |
| – | | 710,267 | 195,347 | 905,614 |
| Balance at December 31, 2021 | 1,766,667 | | 828,692 | 178,839 | | | | 2,774,198 |
| The Company’s development costs have been incurred to develop plasma related technologies and the patentsprotect the design and specification of these technologies. |
| 17. Goodwill |
| The Company tests goodwill for impairment annually, or more frequently when an indicator of impairment isidentified. Goodwill is considered impaired if the recoverable amount is less than the carrying amount. |
| The recoverable amount of an operating segment is determined based on value-in-use calculations, covering adetailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful livesusing a declining growth rate determined by management. The present value of the expected cash flows ofthe operating segment is determined by applying a suitable discount rate reflecting current market assessments ofthe time value of money and risks specific to the segment. |
| For the purpose of impairment testing, goodwill is allocated to the sole operating segment, Pyro Green-Gas,which is expected to benefit from the synergies of the business combination in which the goodwill arises,and is compared to its recoverable value. |
| At December 31, 2021, it was determined that the recoverable amounts exceed the carrying amount, andno impairment was required. The recoverable amount in the most recent impairment test performed wasdetermined using a pre-tax discount rate of 8% and terminal growth rate of 2%. |
| | | | | | | | | 34 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 18. Accounts payable and accrued liabilities |
| December 31 | December 31 |
| | | 2021 | 2020 |
| | | $ | $ |
| Accounts payable | 5,457,259 | 2,206,249 |
| Accrued liabilities | 3,730,048 | 1,701,554 |
| Sale commissions payable | | | | | 1 | 737,364 | 731,671 |
| Accounts payable to the controlling shareholder and CEO | | | 144,506 | 68,577 |
| 10,069,177 | 4,708,051 |
| 1 |
| Sale commissions payable relate to the costs to obtain long-term contracts with clients. |
| 19. 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 inprogress amounted to $21,834,137 (2020 - $6,831,326). |
| Payments to date received were $31,234,368 on contracts in progress (2020 - $13,424,298). |
| Changes in billings in excess of costs and profits on uncompleted contracts during the year are explained by$6,268,910 (2020 - $1,282,217) recognized at the beginning of the year being recognized as revenue, and anincrease of $9,076,169 (2020 - $4,790,536) resulting from cash received excluding amounts recognized asrevenue. |
| | | | | | 35 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 20. Term loans |
| Canada | 2019 SR&ED | 2018 SR&ED |
| | | | Other Term | Other Term | Emergency Business | Other Term | Tax Credit | Tax Credit |
| | | | | | | | EDC Loan | 1 | Loans | | | | | | 2 | Loans | 3 | | | | | Account Loan | 4 | Loans | 5 | | | | | | | | | | | loan | 6 | | | | | | | | | | | loan | 7 | Total |
| | | | | | | | | $ | $ | $ | $ | $ | $ | | | | | | | | | | | $ | $ |
| Balance, December 31, 2019 | | | | | | | | – | – | – | – | | | | | | 110,933 | 185,331 | 199,736 | | | | | | | | | | | | 496,000 |
| Addition | | | | | | | | 157,058 | 38,861 | – | – | | | | | | – | – | – | | | | | | | | | | | | 195,919 |
| Financing costs | | | | | | | | (83,119) | – | – | – | | | | | | – | – | – | | | | | | | | | | | | (83,119) |
| Accretion | | | | | | | | 1,861 | – | – | – | | | | | | 4,267 | 40,902 | 14,264 | | | | | | | | | | | | 61,294 |
| Payments | | | | | | | | – | (1,954) | – | – | | | | | | (115,200) | (226,233) | (214,000) | | | | | | | | | | | | (557,387) |
| Balance, December 31, 2020 | | | | | | | | 75,800 | 36,907 | – | – | | | | | | – | – | – | | | | | | | | | | | | 112,707 |
| Assumed through business combination | | | | – | 36,520 | 50,000 | | | | | | – | – | – | | | | | | | | | | | | 86,520 |
| Accretion | | | | | | | | 12,185 | – | – | | | | | | – | – | – | | | | | | | | | | | | 12,185 |
| Payments | | | | | | | | – | (12,207) | (8,300) | – | | | | | | – | – | – | | | | | | | | | | | | (20,507) |
| Balance, December 31, 2021 | | | | | | | | 87,985 | 24,700 | 28,220 | 50,000 | | | | | | – | – | – | | | | | | | | | | | | 190,905 |
| Less current portion | | | | | | | | – | (13,084) | (19,920) | (50,000) | | | | | | – | – | – | | | | | | | | | | | | (83,004) |
| Balance, December 31, 2021 | | | | | | | | 87,985 | 11,616 | 8,300 | – | | | | | | – | – | – | | | | | | | | | | | | 107,901 |
| 1 maturing in 2027, non-interest bearing, payable in equal instalments from July 2023 to June 2027 |
| 2 maturing October 23, 2023 bearing interest at a rate of 6.95% per annum, payable in monthly instalments of $1,200 secured by automobile (carrying amount of |
| $23,749 as at December 31, 2021) |
| 3maturing in May 2023, payable in monthly instalments of $1,660, bearing interest at 7.45% |
| 4 loan bearing no interest and no minimum repayment, if repaid by December 2023 |
| 5 bore interest at 8% per annum, repaid July 2020. |
| 6 bore interest at 16.68%, repaid July 2020. |
| 7 bore interest at 16.68%, repaid May 2020. |
| EDC Loan |
| On March 5, 2020, the Company entered into a repayable contribution agreement up to $450,000 under theRegional Economic Growth through Innovation program from the Economic Development Agency of Canada(“EDC”). The contribution is repayable in 60 equal monthly instalments due and payable 24 months following thecompletion of the project. During the year ended December 31, 2020, the Company received contributions totaling$157,058. The loan was discounted using the effective interest method. The effective interest rate on the loan is15%. |
| Canada Emergency Business Account ("CEBA") Loan |
| The Company's subsidiary participated in the CEBA program whereby it obtained an interest free and partiallyforgivable loan. The loan bears no interest and no minimum repayment terms, and one third of the loan amount isforgiven if repaid by December 31, 2022. The unpaid balance, if any, at December 31, 2022 would be converted toa 24 month term loan bearing interest at 5% and be reimbursed entirely by December 31, 2024. In January 2022 theGovernment of Canada amended the program and the repayment date has been extended by 1 year, untilDecember 31, 2023. |
| | | | | | 36 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 21. Convertible debentures |
| 2020 Convertible | 2018 Convertible | Total |
| | | | loan | debentures |
| | | | | | $ |
| Balance at December 31, 2019 | | | | – | 2,898,358 | | 2,898,358 |
| Liability component at issuance | | | | 804,578 | – | 804,578 |
| Effective interest accretion | | | | 22,982 | 155,642 | 178,624 |
| | | | 827,560 | 3,054,000 | | 3,881,560 |
| Repayment of debentures including accommodation fees, in cash | | | | – | (358,500) | (358,500) |
| Conversion into common shares | | | | (827,560) | (2,695,500) | | (3,523,060) |
| Balance at December 31, 2020 | | | | – | – | – |
| Balance at December 31, 2021 | | | | – | – | – |
| 2020 Convertible loan |
| On March 18, 2020, the Company closed a $903,000 non-brokered secured convertible loan (“2020 Convertible loan”) at 12% perannum, with a trust whose beneficiary is the controlling shareholder and CEO of the Company. The loan bore interest at the rate of12% per annum, with interest payable in cash on a quarterly basis in arrears with an initial maturity date of September 17, 2021. Theloan was convertible before maturity, in whole at anytime or in part from time to time at a conversion price of $0.28 at the option ofthe lender. The convertible loan was secured by a deed of hypothec charging on the universalities of movable assets. |
| At the issuance date, the 2020 Convertible loan was recorded as follows: |
| | | $ |
| Liability component | | | 804,578 |
| Conversion option recognized in equity, net of transaction cost of $47,338 | | | 98,422 |
| Net proceeds | | | 903,000 |
| On September 30, 2020, the 2020 Convertible loan was converted into 3,225,000 common shares. Upon conversion, the equitycomponent of $98,422 was allocated to share capital. The conversion was performed in return for the modification of a leaseagreement for rent of a property with the same trust whose beneficiary is the controlling shareholder and CEO of the Company(note 15). |
| 2018 Convertible debentures |
| On March 30, 2020, the Company reached an agreement to extend the maturity date of its $3,000,000 2018 convertible debenturesto September 30, 2020, from the original maturity date of March 29, 2020. Under the terms of the agreement, the Companyredeemed $300,000 (representing 10% of the principal amount), paid a onetime accommodation fee of $54,000, and is no longersubject to any prepayment penalties going forward. Upon redemption, an amount of $40,779 corresponding to the equity componentwas reclassified to contributed surplus. |
| At the date of modification, the fair value of the 2018 Convertible debentures was determined using estimated cash flows discountedusing a market interest rate of 17.5%. At the remeasurement date, a residual amount of $16,875 representing the value of theconversion option equity component was classified in the shareholders’ Equity (Deficiency). |
| Upon conversion of the debentures in May and June 2020, 3,369,375 common shares were issued and the equity component of$360,981 was classified in share capital. |
| 22. Shareholders’ equity |
| Common shares and warrants |
| Authorized: |
| The Company is authorized to issue an unlimited number of common shares without par value. |
| Shares issued upon public issuance |
| On November 3, 2020, the Company closed a bought-deal short form prospectus offering of 3,354,550 units at a price of $3.60 perunit for aggregate gross proceeds to the Company of $12,076,380, including the full exercise of the over-allotment option. Inconnection with the offering, the Company paid issuance costs of $1,640,052 in cash and issued 191,414 compensation options.Each compensation option entitles the holder thereof to purchase one unit at a price of $3.60 until November 10, 2022. Each unit iscomprised of one common share of the Company and one-half of one common share purchase warrant of the company. Eachwarrant entitles the holder to purchase one additional common share at an exercise price of $4.50 for a period of 24 months. |
| | | | | | | | 37 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 22. Shareholders’ equity (continued) |
| Shares issued upon public issuance (continued) |
| Under the warrant indenture, the Company has the right to accelerate the expiry date of the warrants to the date that is 30 days afterdelivery of a notice (the “Acceleration Notice”) to the holders of warrants and the warrant agent confirming that the volume weightedaverage trading price of the Company’s common shares on the Toronto Stock Exchange is greater than $6.75 for 20 consecutivetrading days (the “VWAP Requirement”). The VWAP Requirement was met as of close of business March 10, 2021. The Companydelivered the Acceleration Notice and indicated that the warrants will expire on April 14, 2021. |
| Shares issued upon exercise of stock options, share purchase warrants and compensation options |
| During the year ended December 31, 2021, 3,482,000 (2,118,000 - 2020) stock options and 8,146,483 (7,060,617 - 2020) sharepurchase warrants were exercised for net proceeds of $1,109,818 and $12,396,107 ($759,400 and $5,623,323 – 2020) respectively.The amounts credited to share capital from the exercise of stock options include an ascribed value from contributed surplus of$364,000 ($484,807 – 2020). In addition the 191,414 compensation options were also exercised for net proceeds of $689,090. |
| Conversion of loan into shares |
| On September 30, 2020, the 2020 Convertible loan with a carrying value of $827,560 was converted into 3,225,000 common shares.Upon conversion, the liability component of $98,422 was transferred to share capital (note 21). |
| Share redemptions for cancellation |
| In fiscal 2019, the Company had been authorized to repurchase, for cancellation, on the open market, or subject to the approval ofany securities authority by private agreements, between November 1, 2019 and October 31, 2020, or at an earlier date if theCompany concludes or cancels the offer, up to 6,7500,000 of its common Shares. In January 2021, the Company announced it hadbeen authorized to repurchase 5,000,000 Common shares from January 14, 2021 to January 13, 2022. |
| During the year 2020, the Company repurchased and cancelled 1,285,000 Common shares at a weighted average price of $0.75,for a total cash consideration of $964,391 including commissions of $12,845. The excess of the total consideration over the carryingamount of the shares, in the amount of $538,021, was applied against deficit. |
| During the year 2021, the Company repurchased and cancelled 840,094 Common shares at a weighted average price of $4.96 pershare, for a total cash consideration of $4,183,617 including commissions of $16,678. The excess of the total consideration over thecarrying amount of the shares, in the amount of $3,778,619 was applied against deficit. |
| The repurchases were made in the normal course of business at market prices through the TSX. The Company was under noobligation to repurchase its Common Shares as at December 31, 2021. |
| Stock options |
| The Company has a stock option plan authorizing the Board of Directors to grant options to directors, officers, employees andconsultants to acquire common shares of the Company at a price computed by reference to the closing market price of the sharesof the Company on the business day before the Company notifies the stock exchanges of the grant of the option. The number ofshares which may be granted to any one person shall not exceed 5% (2% for consultants) of total share capital over a twelve-monthperiod. |
| The following table sets out the activity in stock options: |
| Weighted |
| | Number of | average |
| | options | exercise price |
| | | $ |
| Balance – December 31, 2019 | | 8,438,000 | 0.37 |
| Granted | | 2,810,000 | 4.23 |
| Exercised | | | | (1) | (2,118,000) | 0.36 |
| Forfeited | | (90,000) | 1.02 |
| Balance, December 31, 2020 | | 9,040,000 | 1.57 |
| Granted | | 2,970,000 | 4.55 |
| Exercised | | | | (1) | (3,482,000) | 0.32 |
| Forfeited | | (125,000) | 4.41 |
| Balance, December 31, 2021 | | 8,403,000 | 3.10 |
| (1) | | | | | . |
| The weighted fair market value of the share price for options exercised in 2021 was $5.48 ($1.22 in 2020) |
| | | | | | 38 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 22. Shareholders’ equity (continued) |
| Stock options (continued) |
| Grants in 2021 |
| On December 30, 2021, the Company granted 100,000 stock options to a member of its Board of Directors The stock options havean exercise price of $3.61 per common share, vest immediately and are exercisable over a period of five (5) years. |
| On December 17, 2021, the Company granted 1,920,000 stock options to the President and Chief Executive Officer of theCompany. The stock options have an exercise price of $3.13 per common share, vest immediately and are exercisable over aperiod of five (5) years. |
| On October 14, 2021, the Company granted 100,000 stock options to the Chief Financial Officer of the Company. The stock optionshave an exercise price of $5.04 per common share. The 100,000 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 at the second anniversary of the date of the grant, and 40percent at the third anniversary of the date of the grant and are exercisable over a period of five (5) years. |
| On June 14, 2021, the Company granted 100,000 stock options to an officer of the Company. The stock options have an exerciseprice of $6.70 per common share. The 100,000 options will vest as follows: 25 percent at the date of the grant, 25 percent at the firstanniversary of the date of grant, 25 percent at the second anniversary of the date of grant, and 25 percent at the third anniversary ofthe date of grant and are exercisable over a period of five (5) years. |
| On June 1, 2021, the Company granted 200,000 stock options to a member of its Board of Directors. The stock options have anexercise price of $6.59 per common share. The 200,000 options will vest as follows: 25 percent at the date of the grant, 25 percentat the first anniversary of the date of grant, 25 percent at the second anniversary of the date of grant, and 25 percent at the thirdanniversary of the date of grant and are exercisable over a period of five (5) years. |
| On April 6, 2021, the Company granted 150,000 stock options to the President and Chief Executive Officer of the Company, 100,000and 200,000 stock options to two members of the Board of Directors and 100,000 stock options to an employee of the Company.The stock options have an exercise price of $8.47 per common share. Of these options, 250,000 will vest immediately, 200,000options will vest as follows: 30 percent as of the day of the grant, 35 percent at the first anniversary of the date of the grant and 35percent on the second anniversary of the date of the grant and the remaining 100,000 options will vest as follows: 10 percent as ofthe day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent at the second anniversary of the date ofthe grant, and 40 percent at the third anniversary of the date of the grant. All options mentioned above are exercisable over a periodof five (5) years. |
| Grants in 2020 |
| On October 26, 2020, the Company announced that it granted stock options to acquire 200,000 common shares of the Company toa member of the Board of Directors, and 50,000 common shares to an executive officer of the Company. The stock options have anexercise price of $4.00 per common shares and are exercisable over a period of five (5) years. |
| On July 16, 2020, the Company granted an aggregate of 1,700,000 stock options to its directors entitling them to purchase anaggregate of 1,700,000 common shares of the Company, at a price of $4.41 per common share. The 1,700,000 options will vest asfollows: 25 percent at the date of the grant, 25 percent at the first anniversary of the date of grant, 25 percent at the secondanniversary of the date of grant, and 25 percent at the third anniversary of the date of grant. |
| The Company also granted an aggregate of 760,000 stock options to employees entitling them to purchase an aggregate of 760,000common shares of the Company, at a price of $4.41 per common share. Of these options, 660,000 will vest as follows: 50 percentas of the date of grant and 50 percent at the first anniversary of the date of grant. The remaining 100,000 will vest as follows: 25percent as of the date of grant, 25 percent at the first anniversary of the date of grant, 25 percent at the second anniversary of thedate of grant and 25 percent at the third anniversary of the date of grant. All option grants disclosed above are exercisable for aperiod of five years. |
| On January 2, 2020, the Company granted 100,000 stock options to a Board of Directors, in his capacity of Chair of the AuditCommittee of the Company. The stock options have an exercise price of $0.45 per Common Shares, vest immediately and isexercisable over a period of five (5) years. |
| 39 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 22. Shareholders’ equity (continued) |
| The weighted average fair value of stock options granted for the year ended December 31, 2021 was $2.99 ($2.88 in 2020) peroption. The weighted average fair value of each option granted was estimated at the grant date for purposes of determiningshare-based payment expense using the Black-Scholes option pricing model based on the following weighted-averageassumptions: |
| Years ended December 31, | 2021 | 2020 |
| Number of options granted | | | 2,970,000 | 2,810,000 |
| Exercise price ($) | 4.55 | 4.23 |
| Fair value of each option under the Black Scholes pricing model ($) | 2.99 | 2.88 |
| Assumptions under the Black Scholes model: |
| Fair value of the market share ($) | 4.52 | 4.23 |
| Risk free interest rate (%) | 1.11 | 0.38 |
| Expected volatility (%) | 83.00 | 88.49 |
| Expected dividend yield | – | – |
| Expected life (number of months) | 60 | 60 |
| Forfeiture rate (%) | – | – |
| The underlying expected volatility was determined by reference to historical data of the Company’s share price. No special featuresinherent to the stock options granted were incorporated into the measurement of fair value. |
| | | | | 40 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 22. Shareholders’ equity (continued) |
| As at December 31, 2021, 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 asfollows: |
| Number of | Number of | Number of |
| stock | stock | stock | Exercise |
| options | options | options | price |
| | | vested | | | | | (1) |
| Dec 31, 2020 | | | | Granted | Exercised | Forfeitures | Dec 31, 2021 | | per option | | | | | Expiry date |
| | | | | | | | | | $ |
| September 25, 2016 | 3,000,000 | | | | – | (3,000,000) | – | – | – | 0.18 | | | | | Sept 25, 2021 |
| November 3, 2017 | 2,420,000 | | | | – | (20,000) | – | 2,400,000 | 2,400,000 | 0.58 | | | | | Nov 3, 2022 |
| May 10, 2018 | 250,000 | | | | – | (250,000) | – | – | – | 0.52 | | | | | May 10, 2023 |
| July 3, 2018 | 300,000 | | | | – | | – | 300,000 | 300,000 | 0.51 | | | | | July 3, 2023 |
| October 29, 2018 | 70,000 | | | | – | (30,000) | – | 40,000 | 40,000 | 0.52 | | | | | Oct 29, 2023 |
| September 29, 2019 | 200,000 | | | | – | (100,000) | – | 100,000 | 100,000 | 0.51 | | | | | Sept 29, 2024 |
| January 2, 2020 | 100,000 | | | | – | | – | 100,000 | 100,000 | 0.45 | | | | | Jan 2, 2025 |
| July 16, 2020 | 2,450,000 | | | | – | (82,000) | (125,000) | 2,243,000 | 1,343,000 | 4.41 | | | | | Jul 16, 2025 |
| October 26, 2020 | 250,000 | | | | – | – | – | 250,000 | 125,000 | 4.00 | | | | | Oct 26, 2025 |
| April 6, 2021 | – | | | | 550,000 | – | – | 550,000 | 320,000 | 8.47 | | | | | Apr 6, 2026 |
| June 1, 2021 | – | | | | 200,000 | – | – | 200,000 | 50,000 | 6.59 | | | | | June 1, 2026 |
| June 14, 2021 | – | | | | 100,000 | – | – | 100,000 | 25,000 | 6.70 | | | | | June 14, 2026 |
| October 14, 2021 | – | | | | 100,000 | – | – | 100,000 | 10,000 | 5.04 | | | | | Oct 14, 2026 |
| December 17, 2021 | – | | | | 1,920,000 | – | – | 1,920,000 | 1,920,000 | 3.13 | | | | | Dec 17, 2026 |
| December 30, 2021 | – | | | | 100,000 | – | – | 100,000 | 100,000 | 3.61 | | | | | Dec 30, 2026 |
| 9,040,000 | | | | 2,970,000 | (3,482,000) | (125,000) | 8,403,000 | 6,833,000 | 3.10 |
| (1) At December 31, 2021, the weighted average exercise price for options outstanding which are exercisable was $2.59. |
| For the year ended December 31, 2021, a stock-based compensation expense of $9,762,745 (2020 -$4,244,608) was recorded in Selling, general and administrative expenses to the ConsolidatedStatements of Comprehensive income (loss). |
| As at December 31, 2021, an amount of $2,719,354 (2020 - $3,904,882) remains to be amortized untilOctober 2025 related to the grant of stock options. |
| | | | | | | 41 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 22. Shareholders’ equity (continued) |
| Share purchase warrants |
| The following table reflects the activity in warrants during the years ended December 31, 2021 and thenumber of issued and outstanding share purchase warrants at December 31, 2021: |
| Number of | Number of |
| warrants | warrants |
| Dec 31, | Dec 31, | Price per |
| 2020 | | | Issued | Exercised | Expired | 2021 | warrant | | | | Expiry date |
| | | | | | | | $ |
| Issuance of units – September 28, 2018 | 3,448,276 | | | – | (3,448,276) | – | – | 0.58 | | | | Jan 28, 2021 |
| Issuance of units – October 19, 2018 | 100,000 | | | – | (100,000) | – | – | 0.58 | | | | Feb 13, 2021 |
| Issuance of units – May 15, 2019 | 1,355,500 | | | – | (1,355,500) | – | – | 0.85 | | | | May 15, 2021 |
| Issuance of units – May 28, 2019 | 750,000 | | | – | (750,000) | – | – | 0.85 | | | | May 24, 2021 |
| Issuance of units – June 19, 2019 | 500,000 | | | – | (500,000) | – | – | 0.85 | | | | Jun 19, 2021 |
| Issuance of units – October 25, 2019 | 225,000 | | | – | (225,000) | – | – | 0.75 | | | | Oct 25, 2021 |
| Issuance of units – November 10, 2020 | 1,677,275 | | | – | (1,672,000) | (5,275) | – | 4.50 | | | | Nov 10, 2022 | | 1 |
| Issuance of warrants – November 10, 2020 | 95,707 | | | – | (95,707) | – | – | 4.50 | | | | Nov 10, 2022 | | 1 |
| 8,151,758 | | | – | (8,146,483) | (5,275) | – | 1.52 |
| 1On March 10, 2021, the Company has delivered the Acceleration Notice to accelerate the expiry date of the warrants to April 14, 2021 issued on November 10, |
| 2020 |
| | | | | 42 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 23. Supplemental disclosure of cash flow information |
| 2021 | 2020 |
| $ | $ |
| Accounts receivable | | | (12,372,139) | (2,622,018) |
| Costs and profits in excess of billings on uncompleted contracts | | | (3,849,077) | (950,653) |
| Inventory | (839,352) | – |
| Investment tax credits receivable | | | 1,015,862 | (562,980) |
| Royalties receivable | (65,845) | | | (1,060,000) |
| Deposits | 145,379 | | | (1,394,160) |
| Contract assets | – | (855,592) |
| Prepaid expenses | 39,111 | (39,042) |
| Accounts payable and accrued liabilities | | | 1,953,208 | (148,678) |
| Billings in excess of costs and profits on uncompleted contracts | | | 1,485,969 | 3,508,315 |
| Income taxes | (99,072) | – |
| | | (12,585,956) | (4,124,808) |
| 24. Supplemental disclosure on comprehensive income statement |
| The amount of inventories recognized in cost of sales is $326,279 for the year ended December 31, 2021($Nil in 2020). |
| The aggregate amortization and write-off of intangible assets expense for the year ended December 31, 2021was $465,913 (2020 - $27,190) and was recorded in cost of sales and services. |
| Depreciation on property and equipment amounted to $356,103 and ROU assets was $570,411 for the yearended December 31, 2021, as compared to (2020 - $63,118 and $408,335 respectively) and is recorded inselling, general and administrative. During the year ended December 31, 2021 costs to obtain long termcontracts of $Nil (2020 - $161,219) were recognized to selling, general and administrative expenses. |
| Employee benefits totaled $21,855,957 in the year ended December 31, 2021 (2020 - $11,801,314) andinclude share-based compensation of $9,762,745 (2020 - $4,244,608). |
| The Company has been awarded various grants during the year, which were recognized when they becamereceivable. The grants, received in 2021, are unconditional and amounted to $226,420 (2020 - $419,661). Anamount of $149,575 (2020 - $365,433) was recorded as a reduction to the related expenses in research anddevelopment, an amount of $76,845 (2020 - $54,228) was recorded as a reduction to the related expenses inselling, general and administrative. |
| The Company in 2020 applied for an amount of $775,967 in wage subsidy under the CEWS program. Anamount of $118,416 was recorded as a reduction to employee compensation under cost of sales andservices, $504,339 was recorded as a reduction to employee compensation under selling, general andadministrative expenses, and $153,212 was recorded as a reduction to employee compensation underresearch and development costs. |
| | | | | 43 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 25. Net finance costs |
| 2021 | 2020 |
| $ | $ |
| Financial expenses |
| Interest and fees on convertible debentures | – | 171,042 |
| Interest accretion of convertible debentures | – | 182,700 |
| Interest on term loans | 99,960 | 20,957 |
| Interest on lease liabilities | 307,691 | 211,666 |
| Interest accretion on promissory notes and on balance due on business combination | 110,203 | 17,937 |
| Penalties and other interest expenses | 19,325 | 57,550 |
| Capitalized borrowing costs on Equipment under construction | – | (137,778) |
| 537,179 | 524,074 |
| Financial income |
| Accretion interest on royalty receivable | (132,809) | – |
| Net finance costs | 404,370 | 524,074 |
| 26. Earnings (loss) per share |
| The following table provides a reconciliation between the number of basic and fully diluted shares outstandingas at December 31, 2021 and 2020: |
| 2021 | 2020 |
| $ | $ |
| Weighted daily average of Common shares | | | 166,645,546 | 148,315,445 |
| Dilutive effect of stock options | – | 5,375,592 |
| Dilutive effect of warrants | – | 4,611,720 |
| Weighted average number of diluted shares | | | 166,645,546 | 158,302,757 |
| Number of anti-dilutive stock options and warrants |
| excluded from fully diluted earnings per share calculation | 8,403,000 | 4,664,396 |
| 27. Related party transactions |
| During the year ended December 31, 2021 and 2020, the Company concluded the following transactions withrelated parties: |
| In 2021, rent and property taxes were charged by a trust whose beneficiary is the controlling shareholder andCEO of the Company in the amount of $274,934 (2020 - $274,106). As of January 1, 2020, a lease for rentalof a property with a trust whose beneficiary is the controlling shareholder and CEO of the Company wasmodified and extended for five years. At the date of modification, the lease liability was remeasured using a discount rate of 4% and an amount of $366,566 was recorded as an adjustment to the right-of-use asset. Themodified agreement included a requirement to prepay the rent amount of $1,178,530 and the municipal taxamount of $260,000. In return for the modification of the lease agreement, a 2020 convertible loan of $903,000from a trust whose beneficiary is the controlling shareholder and CEO of the Company, was converted into3,225,000 common shares of the Company. These expenses are recorded in captions cost of sales andselling and general in the statement of comprehensive income (loss). As at December 31, 2021 theright-of-use asset and the lease liabilities amount to $1,107,131 and $Nil respectively (2020 - $1,328,557 and$221,496). |
| An amount of $Nil (December 31, 2020 - $58,050), of interest payable was accrued on the 2020 convertibleloan of $903,000 from a trust whose beneficiary is the controlling shareholder and CEO of the Company. |
| | | | | 44 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 27. Related party transactions (continued) |
| A balance due to the controlling shareholder and CEO of the Company amounted to $144,506 (2020 -$72,188) is included in accounts payable and accrued liabilities. |
| An amount of $Nil (2020 - $17,937), of interest accretion was expensed in net financing costs on the loan of$295,000 from the controlling shareholder and CEO of the Company. |
| The key management personnel of the Company are the members of the Board of Directors and certainofficers. Total compensation to key management consisted of the following: |
| 2021 | 2020 |
| $ | $ |
| Salaries – key management | | | 3,049,501 | | 2,148,420 |
| Pension contributions | 59,377 | | | | 18,529 |
| Fees – Board of Directors | 187,600 | | | | 150,000 |
| Share-based compensation – officers | | | 6,182,573 | | 1,989,144 |
| Share-based compensation – Board of Directors | | | 2,338,650 | | 846,410 |
| Other benefits – key management | 237,903 | | | | 544,402 |
| Total compensation | | | 12,055,604 | | 5,696,905 |
| 28. Financial instruments |
| As part of its operations, the Company carries a number of financial instruments. It is management's opinionthat the Company is not exposed to significant interest, currency or credit risks arising from these financialinstruments except as otherwise disclosed. The Company's overall risk management program focuses onthe unpredictability of the financial market and seeks to minimize potential adverse effects on the Company'sfinancial 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 ratefluctuations. |
| As at December 31, the Company's exposure to foreign exchange risk for amounts denominated in US dollars is as follows: |
| 2021 | 2020 |
| $ | $ |
| Cash | | | 1,714,670 | | 1,366,627 |
| Accounts receivable | | | 14,465,011 | 621,817 |
| Accounts payable and accrued liabilities | | | (1,023,999) | (252,463) |
| Total | | | 15,155,682 | | 1,735,981 |
| Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in foreign exchange rates. |
| Sensitivity analysis |
| At December 31, 2021, if the US Dollar changes by 10% against the Canadian dollar with all other variablesheld constant, the impact on pre-tax gain or loss and equity for the year ended December 31, 2021 would have been $1,516,000 (December 31, 2020 - $174,000). |
| | | | | | 45 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 28. Financial instruments (continued) |
| Credit risk and credit concentration |
| Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party byfailing to discharge an obligation. The maximum credit risk to which the Company is exposed as atDecember 31, 2021 represents the carrying amount of cash and cash equivalents, accounts receivable (except sales tax receivable), deposits and royalties receivable. Cash and cash equivalents, which only comprise guaranteed investment certificates redeemable on relatively short notice by the Company, are held with major reputable financial institutions. The Company manages its credit risk by performing credit assessments of its customers. The Company does not generally require collateral or other security from customers on accounts receivable. The Company believes that there is no unusual exposure associated with the collection of these receivables. During the year ended December 31, 2021, four customers accounted for79% (December 31, 2020 – two customers for 79%) of revenues from operations. |
| 2021 | 2020 |
| % of total | % of total |
| | | Revenues | revenues | | | Revenues | revenues |
| | | | | $ | % | | | | | $ | % |
| Customer 1 | | | 7,308,191 | 24 | | | | | | | 9,523,353 | 53 |
| Customer 2 | | | 7,019,953 | 23 | | | | | | | 4,444,022 | 26 |
| Customer 3 | | | 6,417,373 | 21 | | | | | | | – | – |
| Customer 4 | | | 3,551,900 | 11 | | | | | | | – | – |
| Total | | | 24,297,417 | 79 | | | | | | | 13,967,375 | 79 |
| One customer accounted for 73% (December 31, 2020 – two customers for 69%) of trade accountsreceivable with amounts owing to the Company of $12,063,636 (2020 - $1,211,177), representing theCompany's major credit risk exposure. Credit concentration is determined based on customers representing10% or more of total revenues and/or total accounts receivable. |
| The royalties receivables are due from a company in which the Company has a strategic investments. TheCompany does not have collateral or other security associated with the collection of this receivable. |
| 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 ofa liability in an orderly transaction between market participants at the measurement date. The fair valueestimates are calculated at a specific date taking into consideration assumptions regarding the amounts, thetiming of estimated future cash flows and discount rates. Accordingly, due to its approximate and subjectivenature, the fair value must not be interpreted as being realizable in an immediate settlement of the financialinstruments. |
| There are three levels of fair value that reflect the significance of inputs used in determining fair values offinancial 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 and cash equivalents, trade accounts receivable, deposits, accounts payable and accrued liabilities approximate their carrying amounts due to their short-term maturities. |
| | | 46 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 28. Financial instruments (continued) |
| 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. |
| The fair value of the term loans and the balance due on business combination as at December 31, 2021 isdetermined using the discounted future cash flows method and management's estimates for market interestrates for similar issuances. Given their recent issuance, their fair market values correspond to their carryingamount. |
| Interest rate risk |
| Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change ininterest rates. Changes in market interest rates may have an effect on the cash flows associated with somefinancial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets orliabilities, known as price risk, and on the fair value of investments or liabilities, known as price risks. TheCompany is exposed to a risk of fair value on cash equivalents, and term loans as those financial instrumentsbear interest at fixed rates. |
| Price risk |
| Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market price (other than those arising from foreign currency risk and interest risk), whether thosechanges are caused by factors specific to the individual financial instrument or its issuers or factors affectingall similar financial instruments traded in the market. The most significant exposure to the price risk for theCompany arises from its investments in shares and warrants of public companies quoted on the TSXVExchange. If equity prices had increased or decreased by 25% as at December 31, 2021, with all othervariables held constant, the Company’s investments would have increased or decreased respectively, byapproximately $4,042,000 (December 31, 2020 25% - $11,874,375). |
| Liquidity risk |
| Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated withfinancial liabilities that are settled by delivery of cash or another financial asset. The Company manages itsliquidity 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 as at December 31, 2021: |
| Total |
| | Carrying | contractual | Less than |
| | value | amount | | | one year | 2-3 years | 4-5 years | Over 5 years |
| | | | | | | | $ | $ | | | | | | | | $ | $ | $ | | | | $ |
| Accounts payable and |
| accrued liabilities | | 10,069,177 | 10,069,177 | 10,069,177 | – | – | | | | | | – |
| Term loans | | 190,905 | 263,232 | | | 85,731 | 67,561 | 62,823 | | | | | | 47,117 |
| Balance due on |
| business combination | | 3,952,203 | 4,355,600 | | | 2,395,580 | 1,960,020 | – | | | | | | – |
| Lease liabilities | | 5,323,965 | 6,614,192 | | | 3,220,750 | 710,493 | 561,628 | 2,121,321 |
| | 19,536,250 | 21,302,201 | 15,771,238 | 2,738,074 | 624,451 | 2,168,438 |
| | | | 47 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 28. Financial instruments (continued) |
| Liquidity risk (Continued) |
| A standby letter of credit issued by the Company's subsidiary, in the amount of USD $66,300 ($84,055) wasoutstanding at December 31, 2021. In addition, the subsidiary has a maximum available line of credit of$500,000, expiring in January 2023. At December 31, 2021, $436,000 was drawn against this facility. |
| 29. Contingent liabilities |
| The Company is currently a party to various legal proceedings. If management believes that a loss arisingfrom these proceedings is probable and can reasonably be estimated, that amount of the loss is recorded. Asadditional information becomes available, any potential liability related to these proceedings is assessed andthe estimates are revised, if necessary. Based on currently available information, management believes thatthe ultimate outcome of these proceedings, individually and in aggregate, will not have a material adverseeffect 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 thedevelopment of a new system of advanced waste treatment systems technology. The grant is potentiallyrepayable at the rate of 3% of any consideration received as a result of the project, for which funding hasbeen received, to a maximum of the actual grant received. This repayment provision will remain in effect untilMay 30, 2024. The Company abandoned the project in 2011 and accordingly, no amount is expected to berepaid. |
| 30. 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 goingconcern 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 financingarrangements with third parties and shareholders. The Company is not subject to any externally imposedcapital requirements. |
| The Company monitors its working capital in order to meet its financial obligations. As at December 31, 2021,the Company’s working capital was $14,006,785 (2020 - $13,797,579). |
| The management of capital includes shareholders’ equity for a total amount of $40,768,754 (2020 -$59,423,106) and term loans of $190,905 (2020 - $112,707), as well as cash and cash equivalents amountingto $12,202,513 (2020 - $18,104,899). |
| Although there were no significant changes in the Company’s approach during the current and precedingfiscal year, in 2020 the Company was able to retire its term loans and convert its convertible debentures tocommon shares. In order to maintain or adjust capital structure, the Company may issue new shares, sellportions of its strategic investment and periodically purchase its own shares on the open market. |
| 48 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 31. Income taxes |
| a) Income tax expenses is comprised of the following: |
| 2021 | 2020 |
| $ | $ |
| Current tax |
| Current year | (155,714) | 327,412 |
| Deferred tax |
| Origination and reversal of temporary differences | | | (5,095,595) | 6,816,080 |
| Recognition of previously unrecognized tax assets | - | | | | | (170,082) |
| Change in unrecognized deductible temporary differences | | | 4,511,349 | (5,939,998) |
| (584,246) | 706,000 |
| Income tax expense (recovery) | (739,960) | | | 1,033,412 |
| b) Reconciliation of effective tax rate |
| 2021 | 2020 |
| $ | $ |
| Income (loss) before income taxes | | | (39,171,899) | 42,801,816 |
| Income tax rates | 26.5% | 26.5% |
| Income tax expense (recovery) at the combined basic Federal and Provincial tax rates | | | (10,380,553) | 11,342,481 |
| Permanent differences | | | 5,079,805 | (5,072,219) |
| Tax rate changes | 8,334 | 37,443 |
| Prior year adjustment | 60,533 | 835,787 |
| Recognition of previously unrecognized tax assets | - | | | | | (170,082) |
| Change in unrecognized deductible temporary differences | | | 4,511,349 | (5,939,998) |
| Other | (19,428) | – |
| Income tax expense (recovery) | (739,960) | | | 1,033,412 |
| The applicable statutory tax rates are 26.5% in 2021 and 26.5% in 2020. The Company's applicable tax rate isthe Canadian combined rates applicable in the jurisdiction in which the Company operates. |
| c) Deferred tax assets and liabilities |
| Recognized deferred tax assets and liabilities: |
| As at December 31, 2021 and 2020, recognized deferred tax assets and liabilities are attributable to thefollowing: |
| | | | | | Assets | Liabilities | Net |
| | | | | | 2021 | | 2020 | 2021 | | 2020 | 2021 | 2020 |
| | | | | | $ | | $ | $ | | $ | $ | $ |
| Non-capital losses |
| carried forward | | | | | | | | | | 1,705,073 | 4,982,328 | – | | – | 1,705,073 | 4,982,328 |
| Strategic investments | | | | | | | | | | – | – | | | | (656,507) | (4,919,499) | (656,507) | | | (4,919,499) |
| Investment tax credits | | | | | | | | | | – | – | – | | (273,854) | – | (273,854) |
| Royalty receivable | | | | | | | | | | – | – | | | | (333,543) | (280,900) | (333,543) | (280,900) |
| Property and equipment | | | | | | | | | | – | – | | | | (147,127) | (25,273) | (147,127) | (25,273) |
| Intangibles | | | | | | | | | | – | – | | | | (468,167) | – | (468,167) | – |
| Deferred income | | | | | | | | | | – | – | | | | (21,000) | – | (21,000) | – |
| Right-of-use assets net of liabilities | | | | | | | | | | – | – | | | | (121,123) | (188,802) | (121,123) | (188,802) |
| Tax assets (liabilities) | | | | | | | | | | 1,705,073 | 4,982,328 | (1,747,467) | (5,688,328) | (42,394) | (706,000) |
| Set off of tax | | | | | | | | | | (1,705,073) | (4,982,328) | 1,705,073 | 4,982,328 | – | – |
| Net tax assets (liabilities) | | | | | | | | | | – | – | | | | (42,394) | (706,000) | (42,394) | (706,000) |
| | | | | | | | | | | | 49 |
| PyroGenesis Canada Inc. Notes to the Consolidated Financial Statements |
| For the years ended December 31, 2021 and 2020 |
| 32. Segment information |
| The Company operates in one segment, based on financial information that is available and evaluated by theCompany’s Board of Directors. The Company’s head office is located in Montreal, Quebec. The operations ofthe Company are located in three geographic areas: Canada, Italy and India. |
| The following is a summary of the Company’s total revenues by geography: |
| 2021 | 2020 |
| $ | $ |
| Canada | | | 7,395,312 | 5,828,186 |
| United States | | | 7,535,411 | 1,463,510 |
| Europe | | | 2,576,884 | 265,711 |
| Mexico | 786,154 | 174,818 |
| Asia | 420,268 | – |
| Israel | 491 | 4,007 |
| Saudi Arabia | | | 7,019,954 | 9,523,353 |
| China | 134,664 | 296,031 |
| South America | | | 1,475,607 | 181,184 |
| India | | | 3,723,605 | – |
| Africa | – | 38,229 |
| | | 31,068,350 | 17,775,029 |
| Revenue by product line and revenues recognized by revenue recognition method are presented in note 6. |
| The following is a summary of selected asset categories by geographic market, at December 31: |
| | 2020 | | | | 2021 |
| | | | | $ | $ | $ | $ | $ |
| | | | | | | | Canada | Italy | India | Total | Total |
| Property and equipment | | | | | | | | 3,685,974 | – | 26,963 | 3,712,937 | 2,529,570 |
| Right-of-use assets | | | | | | | | 5,765,993 | – | – | 5,765,993 | 3,701,000 |
| Intangible assets | | | | | | | | 2,774,198 | – | – | 2,774,198 | 905,614 |
| Goodwill | | | | | | | | 2,660,607 | – | – | 2,660,607 | – |
| In 2020, the asset categories above were all located in Canada. |
| 33. Subsequent event |
| On February 11, 2022, the Company announced that it has received acceptance from the TSX of its notice ofintention for a Normal Course Issuer Bid, enabling it to acquire for cancellation up to 7,500,000 commonshares from February 15, 2022 to February 14, 2023. |
| | | | | 52 |
