Enhanced Investments - Financial Portal

Published: 2022-11-11

PyroGenesis Canada Inc.
Condensed Consolidated Interim
	Financial Statements
		As at September 30, 2022 and for the three and nine months ended September 30, 2022 and
			2021
				(Unaudited)
	September 30, 2022.

PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Financial Position(Unaudited)
		September 30,	December 31,
					2022	2021
					$	$
AssetsCurrent assetsCash and cash equivalents
		2,364,861	12,202,513
Accounts receivable		23,788,454	17,639,616
Costs and profits in excess of billings on uncompleted contracts		2,904,743	4,922,710
Inventory			1,717,746			887,590
Investment tax credits receivable		9			315,988	256,513
Income taxes receivable					46,425	117,029
Current portion of deposits		1,127,051	1,328,452
Current portion of royalties receivable					339,762	311,111
Contract assets					302,374	375,789
Prepaid expenses			1,352,700			717,661
Total current assets			34,260,104	38,758,984
Non-current assetsDeposits
		11			41,270	248,756
Strategic investments		6,698,835	14,901,659
Property and equipment			3,505,033	3,712,937
Right-of-use assets			4,975,106	5,765,993
Royalties receivable					996,904	947,543
Intangible assets			2,234,900	2,774,198
Goodwill		2,660,607	2,660,607
Total assets			55,372,759	69,770,677
LiabilitiesCurrent liabilitiesBank indebtedness
					713,046	–
Accounts payable and accrued liabilities		12,655,409	10,069,177
Billings in excess of costs and profits on uncompleted contracts		7,363,106	9,400,231
Current portion of term loans		14			77,063	83,004
Current portion of lease liabilities			2,664,101	2,934,236
Balance due on business combination		2,915,708	2,242,503
Income taxes payable					192,298	23,048
Total current liabilities			26,580,731	24,752,199
Non-current liabilitiesLease liabilities
			2,965,136	2,389,729
Term loans		14			313,224	107,901
Balance due on business combination		4			989,027	1,709,700
Deferred income taxes					–	42,394
Total liabilities			30,848,118	29,001,923
Shareholders’ equityCommon shares and warrants
			83,229,349	82,104,086
Contributed surplus			23,672,034	19,879,055
Accumulated other comprehensive income					73,066	3,444
Deficit			(82,449,808)	(61,217,831)
Total shareholders’ equity			24,524,641	40,768,754
Total liabilities and shareholders’ equity			55,372,759	69,770,677
Contingent liabilities, Note 22
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
PyroGenesis Canada Inc.	1

PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Comprehensive Income (Loss)(Unaudited)

	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
					$	$	$	$
Revenues				5				5,657,783	9,317,926	15,711,726					23,863,001
Cost of sales and services				17				5,265,395		8,047,554	12,733,979
Gross profit								4,052,531		7,664,172	11,129,022
ExpensesSelling, general and administrative
				17				5,911,488	4,901,131	18,615,390					15,287,141
Research and development, net					290,374	389,806					1,577,370	1,386,847
								6,201,862	5,290,937	20,192,760					16,673,988
Net loss from operations								(2,088,686)	(1,238,406)	(12,528,588)					(5,544,964)
Changes in fair value of strategic investments
				10
								(1,802,477)	1,868,862	(8,103,587)					(10,380,709)
Finance costs, net				18				(183,694)	(6,792)				(523,707)	(99,965)
Net earnings (loss) before income taxes
								(4,074,857)	623,664	(21,155,882)					(16,025,638)
Income taxes					–	–	76,095	–
Net earnings (loss)								(4,074,857)	623,664	(21,231,977)					(16,025,638)
Other comprehensive income (loss)
Items that will be reclassified subsequently to profit of loss
												Foreign currency translation gain on investments in foreign operations
					21,151	–	69,622	–
Comprehensive income (loss)								(4,053,706)	623,664	(21,162,355)					(16,025,638)
Earnings (loss) per shareBasic
				(0.02)	0.00	(0.12)	(0.10)
Diluted				(0.02)	0.00	(0.12)	(0.10)
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
Q3 2022	PyroGenesis Canada Inc.	2

PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Changes in Shareholders’ EquityNine months ended September 30, 2022 and 2021(Unaudited)

			Accumulated
				Number of	Common	other
	common				shares and		Contributed comprehensive
								shares				warrants		Surplus	income			Deficit	Total
											$	$	$							$	$
Balance - December 31, 2021				170,125,795		19,879,055	3,444								(61,217,831)	40,768,754
Shares issued upon exercise of stock options								15	1,200,000	1,125,263		(429,263)	–			–	696,000
Share-based payments								15	–										–	4,222,242	–			–		4,222,242
Other comprehensive income for the period	–										–	–	69,622			–	69,622
Net loss and comprehensive loss	–										–	–	–								(21,231,977)	(21,231,977)
Balance – September 30, 2022				171,325,795		23,672,034	73,066								(82,449,808)	24,524,641
Balance - December 31, 2020				159,145,993		10,480,310	–								(19,007,273)	59,423,106
Shares issued upon exercise of stock options								15	3,477,000		(349,254)	–			–						1,087,768
Shares issued upon exercise of warrants and compensation options
								15	8,337,897	13,085,197							–	–			–				13,085,197
Share-based payments								15	–										–	4,884,219	–			–		4,884,219
Shares purchased for cancellation								15	(166,684)				(347,019)				(863,440)						(1,210,459)
Net loss and comprehensive loss	–										–	–	–								(16,025,636)	(16,025,636)
Balance – September 30, 2021				170,794,206		15,015,275	–								(35,896,349)	61,244,195
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
Q3 2022	PyroGenesis Canada Inc.	3

PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Cash FlowsThree and nine months ended September 30, 2022 and 2021(Unaudited)

		Three months ended September 30,	Nine months ended September 30,
				2022	2022	2021
				$	$	$
Cash flows provided by (used in)Operating activitiesNet earnings (loss)
			(4,074,857)		623,664	(21,231,975)			(16,025,636)
Adjustments for:Share-based payments
		17	931,572		673,194	4,222,242			4,884,219
Depreciation of property and equipment		17	155,481		93,701	446,883			254,079
Depreciation of right-of-use assets		17	157,844		153,177	479,466			404,188
Amortization and write-off of intangible assets		17	218,760		91,333	656,278			104,892
Amortization of contract assets			117,070		118,696	212,420			424,765
Finance costs		18	183,694		523,707	99,965
Change in fair value of strategic investments			1,802,477				(1,868,862)	8,103,587		10,380,709
Income taxes				–	76,095	–
Unrealized foreign exchange				5,880	48,090	–
			(502,079)		(108,302)	(6,463,207)			527,181
Net change in balances related to operations		16	1,089,162				(2,324,191)	(3,439,454)		(16,877,125)
			587,083				(2,432,493)	(9,902,661)		(16,349,944)
Investing activitiesAdditions to property and equipment
				(46,753)	(223,412)	(238,979)			(1,408,300)
Additions to right-of-use assets				–	–	(36,903)
Additions to intangible assets				(54,012)	(100,964)	(116,980)			(208,116)
Purchase of strategic investments		10		–			(1,205,011)	(3,604,000)		(10,401,522)
Disposal of strategic investments			750,390		–	3,703,237			12,374,047
Business combination, net of cash acquired				–	–	1,104,393
			649,625		(424,994)	(256,722)			1,423,599
Financing activitiesBank indebtedness
			(228,134)		–	713,046			(189,207)
Interest paid			(179,572)		(419,028)	–
Repayment of term loans				(8,304)	(24,693)	(9,076)
Repayment of lease liabilities			(464,138)		(80,198)	(656,713)			(161,249)
Repayment of balance due on business combination				–	(217,778)	–
Proceeds from issuance of other term loans				–	203,857	–
Proceeds from issuance of shares upon exercise of warrants				–	–	13,085,197
Proceeds from issuance of shares upon exercise of stock options			696,000		683,323	696,000			1,087,768
Shares purchased for cancellation				–	–	(1,210,459)
			(184,148)		562,476	294,691			12,602,974
Effect of exchange rate changes on cash denominated in foreign currencies				20,793	27,040	–
Net increase (decrease) in cash and cash equivalents			1,073,353				(2,295,011)	(9,837,652)		(2,323,371)
Cash and cash equivalents - beginning of period			1,291,508				18,076,539	12,202,513		18,104,899
Cash and cash equivalents - end of period			2,364,861				15,781,528	2,364,861		15,781,528
Supplemental cash flow disclosureNon-cash transactions:Purchase of intangible assets included in accounts payable
				–	–	19,372
Purchase of property and equipment included in accounts payable				–	–	113,657
Addition of right-of-use assets and lease liabilities				–	–	2,120,894
Accretion of balance due on business combination				43,222	170,310	–
Accretion interest on royalties receivable				39,099	78,012	–
Accretion on term loan				7,816	20,197	–
The accompanying notes form an integral part of the condensed consolidated interim financial statements
PyroGenesis Canada Inc.	4

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
1. Nature of operations
PyroGenesis Canada Inc. and its subsidiaries (collectively, the “Company”), incorporated under the laws of the Canada Business Corporations Act, was formed on July 11, 2011. The Company owns patents of advanced waste treatment systems technology and designs, develops, manufactures and commercialises advanced plasma processes and sustainable solutions to reduce greenhouse gases. The Company is domiciled at 1744 William Street, Suite 200, Montreal, Quebec. The Company is publicly traded on the TSX Exchange under the Symbol “PYR” on NASDAQ in the USA under the symbol "PYR" and on the Frankfurt Stock Exchange (FSX) under the symbol “8PY “.
2. Basis of preparation
(a) Statement of compliance
These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Statements, as issued by the International Accounting Standards Board ("IASB"). These condensed consolidated interim financial statements do not include all of the necessary information required for full annual financial statements in accordance with International Financial Reporting Standards (“IFRS”) and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021.
These financial statements were approved and authorized for issuance by the Board of Directors on November 10, 2022.
(b) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.
(c) Basis of measurement
These financial statements have been prepared on the historical cost basis except for:
(i) strategic investments which are accounted for at fair value,(ii) stock-based payment arrangements, which are measured at fair value on the grant date pursuant to IFRS 2,
			Share-based Payment; and
(iii) lease liabilities, which are initially measured at the present value of minimum lease payments
(d) Basis of consolidation
For financial reporting purposes, subsidiaries are defined as entities controlled by the Company. The Company controls an entity when it has power over the investee; it is exposed to, or has rights to, variable returns from its involvement with the entity; and it has the ability to affect those returns through its power over the entity.
In instances where the Company does not hold a majority of the voting rights, further analysis is performed to determine whether or not the Company has control of the entity. The Company is deemed to have control when, according to the terms of the shareholder’s and/or other agreements, it makes most of the decisions affecting relevant activities.
These consolidated financial statements include the accounts of the Company and its subsidiaries, Drosrite International LLC and Pyro Green-Gas Inc. and its subsidiaries. Drosrite International LLC is owned by a member of the Company’s key management personnel and close member of the Chief Executive Officer ("CEO") and controlling shareholder’s family and is deemed to be controlled by the Company. Pyro Green-Gas Inc. (formerly AirScience Technologies Inc. until the renaming on September 14, 2021) was acquired by the Company on August 11, 2021 (see note 4). All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
(e) Significant accounting policies
These financial statements have been prepared in accordance with the accounting policies adopted in the Company’s most recent annual financial statements for the year ended December 31, 2021.
Q3 2022	PyroGenesis Canada Inc.	5

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
3. Significant accounting judgments, estimates and assumptions
The significant judgments, estimates and assumptions applied by the Company’s in these condensed consolidated interim financial statements are the same as those applied by the Company in its audited annual financial statements as at and for the year ended December 31, 2021.
4. Business combination in fiscal 2021
On August 11, 2021, the Company completed the acquisition of Pyro Green-Gas Inc. and its subsidiaries (formerly AirScience Technologies Inc. prior to its renaming on September 14, 2021), a Montreal-based company which offers technologies, equipment, and expertise in the area of biogas upgrading, as well as air pollution controls, for a maximum purchase price consideration of $4.4 million in cash, subject to customary post-closing adjustments. In addition, 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 of Pyro Green-Gas Inc. This acquisition enables the Company to springboard into the renewable natural gas market and provides an advantage compared to building its own operations. In addition, the Company will now have a presence in Italy and India, and the acquisition will provide potential synergies with the Company’s land-based waste destruction offerings. The purchase price will be paid upon the achievement of various contract and business-related milestones by Pyro Green-Gas Inc. The Company’s assessment is that these milestones will be realized at various moments during the next 30 months. The contingent consideration was estimated using a discount rate of 8%.
The acquisition was accounted for using the purchase method and the final allocation of the purchase price is as follows:
		$
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
				December 31, 2021
		Final
		$
Net assets acquiredCurrent assets 1
			5,186,086
Right of use 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.
The maximum purchase price consideration of $4,355,600 was discounted to $3,842,000, at August 11, 2021 and an accretion expense of $170,310 was recognized in Net finance costs in the Consolidated Statement of Comprehensive Loss for the nine month period ended September 30, 2022.
Q3 2022	PyroGenesis Canada Inc.	6

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
5. Revenues
The following is a summary of the Company’s revenues by product line:
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$			$	$
Revenue from contracts with customers by product line:PUREVAP™
							4,243,138	999,875			5,617,942	5,524,642
DROSRITE™				71,431						1,983,524	1,408,048	6,373,130
Development and support related to systems supplied to the U.S. Navy
				420,809						1,957,981	1,757,168	6,677,188
Torch related sales				684,997	645,894			3,307,150	1,398,729
Biogas upgrading and pollution controls				89,698						3,712,000	3,260,850	3,712,000
Other sales and services				147,710	18,652	360,568			177,312
							5,657,783			9,317,926	15,711,726		23,863,001
The following is a summary of the Company’s revenues by revenue recognition method:
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$	$	$
Revenue from contracts with customers:Sales of goods under long-term contracts recognized over time
							1,997,474			8,405,565	11,406,066		19,122,840
Sales of goods at a point of time				60,309	912,361	705,660			1,440,161
Other revenue: Sale of intellectual properties
							3,600,000	–			3,600,000	3,300,000
							5,657,783			9,317,926	15,711,726		23,863,001
See note 24 for sales by geographic area.
Transaction price allocated to remaining performance obligations
As at September 30, 2022, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the reporting date is $25,965,367 (2021 - $43,458,148). Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over the next 3 years.
6. Cash and cash equivalents
As at September 30, 2022 and December 31, 2021, cash and cash equivalents include the following components:
					September 30, 2022						December 31, 2021
						$	$
Cash			1,678,906						3,568,561
Guaranteed investment certificates			685,955						8,633,952
Cash and cash equivalents			2,364,861						12,202,513

Q3 2022	PyroGenesis Canada Inc.	7

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
7. Accounts receivable
The following table provides details on accounts receivable outstanding:
			September 30, 2022	December 31, 2021
					$	$
1 – 30 days						7,229,866	2,260,428
31 – 60 days						273,550	44,838
61 – 90 days						30,957	6,855,822
Greater than 90 days						14,461,080	7,357,825
Total trade accounts receivable						21,995,453	16,518,913
Other receivables						202,690	270,536
Sales tax receivable						1,590,311	850,167
						23,788,454	17,639,616
As at September 30, 2022 the allowance for expected credit loss is $551,845 ($520,000 at December 31, 2021), which was included through the business combination, other than from the foreign exchange conversion throughout the nine-month period of fiscal 2022.
8. Costs and profits in excess of billings on uncompleted contracts
As at September 30, 2022, the Company had twenty contracts with total billings of $25,613,149 which were less than total costs incurred and had recognized cumulative revenue of $28,517,892 since those projects began. This compares with fourteen contracts with total billings of $16,676,700 which were less than total costs incurred and had recognized cumulative revenue of $21,599,410 as at December 31, 2021.
Changes in costs and profits in excess of billings on uncompleted contracts during the nine-month period are explained by $2,080,367 (2021 - $983,891) recognized at the beginning of the period being transferred to accounts receivable, and $62,400 (2021 - $4,832,968) resulting from changes in the measure of progress.
9. Investment tax credits
An amount recognized in 2022 included $115,856 (2021 - $202,472) of investment tax credits earned in the period, as well as $Nil (2021 - $706,000) of investment tax credits earned in prior years that no longer met the criteria for recognition in 2021. $46,818 (2021 - $148,695) of the investment tax credits recognized in the period was recorded against cost of sales and services, $46,538 (2021 - ($684,709)) against research and development expenses and $22,500 (2021 - $32,486) against selling general and administrative expenses.
10. Strategic investments
			September 30, 2022	December 31, 2021
					$	$
Beauce Gold Fields (“BGF”) shares – level 1						41,032	123,095
HPQ Silicon Resources Inc. (“HPQ”) shares - level 1						5,846,665	12,306,196
HPQ warrants – level 3						811,138	2,472,368
						6,698,835	14,901,659
Q3 2022	PyroGenesis Canada Inc.	8

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
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, 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
Additions1			–			–	6,800,000					3,196,000	6,800,000					408,000
Disposed			–			–	(10,624,500)					(3,703,237)		–	–
Change in the fair value			–					(82,063)				–	(5,952,294)		–	(2,069,230)
Balance, September 30, 2022			1,025,794					41,032	22,928,100					5,846,665	16,394,600					811,138
1On April 20, 2022 the Company participated in an HPQ non-brokered private placement by acquiring 6,800,000 units at a price of $0.53 per unit for a
total investment of $3,604,000. Each unit consists of one common share of HPQ and one common share purchase warrant. Each of these warrants entitles the Company to purchase one common share at a price of $0.60 for a period of 24 months from the closing date of the private placement.
At September 30, 2022 and December 31, 2021, the fair value of the HPQ warrants was measured using the Black-Scholes option pricing model using the following assumptions:
								September 30, 2022	December 31, 2021
Number of warrants			1,200,000	4,394,600			4,000,000								6,800,000	1,200,000	4,394,600					4,000,000
Date of issuance			29-Apr-20					2-Jun-20	3-Sep-20					20-Apr-22	29-Apr-20	2-Jun-20					3-Sep-20
Exercise price ($)	0.10					0.10	0.61					0.60	0.10				0.10	0.61
Assumptions under the Back Sholes model:
													Fair value of the shares ($)	0.26					0.26	0.26			0.26	0.46			0.46	0.46
													Risk free interest rate (%)	3.72					3.72	3.72			3.72	1.22			1.22	1.22
													Expected volatility (%)	84.25							83.67	74.25			75.15	89.88			94.01	110.47
													Expected dividend yield	–					–	–			–	–				–	–
													Contractual remaining life (in months)	7					8	11			19	16					17	20
As at September 30, 2022, a gain from initial recognition of the warrants of $398,857 ($510,573 at December 31, 2021) has been deferred off balance sheet until realized.
11. Deposits
									September 30, 2022	December 31, 2021
					$	$
Current portion:Suppliers
							1,086,810			1,236,211
Security deposit on leased premises							40,241			92,241
Total current							1,127,051			1,328,452
Non-current portion:Suppliers
							2,467			1,952
Security deposit on leased premises							38,803			246,804
Total non-current							41,270			248,756
Total Deposits							1,168,321			1,577,208

Q3 2022	PyroGenesis Canada Inc.	9

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
12. Accounts payable and accrued liabilities
			September 30, 2022	December 31, 2021
					$	$
Accounts payable						5,356,095	5,457,259
Accrued liabilities						6,011,610	3,730,048
Sale commissions payable1						876,369	737,364
Accounts payable to the controlling shareholder and CEO						136,335	144,506
Accrued liabilities - trust beneficially owned by a shareholder						275,000	–
						12,655,409	10,069,177
1	Sale commissions payable relate to the costs to obtain long-term contracts with clients.
13. Billings in excess of costs and profits on uncompleted contracts
The amount to date of costs incurred and recognized profits less recognized losses for construction projects in progress amounted to $18,149,003 (2021 - $21,834,137).
Payments to date received were $25,512,109 on contracts in progress (2021 - $31,234,368).
Changes in billings in excess of costs and profits on uncompleted contracts during the nine-month period are explained by $3,430,725 (2021 - $6,268,910) recognized as revenue at the beginning of the period, and an increase of $1,393,599 (2021 - $9,076,169) resulting from cash received excluding amounts recognized as revenue.
14. Term loans
								Economic	Canada
	Development Agency								Other Term	Other Term			Emergency Business
	of Canada Loan1								Loans2	Loans3	Account Loan4	Total
										$	$			$	$	$
Balance, December 31, 2021								87,985	24,700	28,220	50,000			190,905
Addition								292,942	–			–	–	292,942
Financing costs								(89,085)	–			–	–	(89,085)
Accretion								20,197	–			–	–	20,197
Payments										–	(9,733)		(14,939)	–	(24,672)
Balance, September 30, 2022								312,039	14,967	13,281	50,000			390,287
Less current portion										–	(13,782)		(13,281)	(50,000)	(77,063)
Balance, September 30, 2022								312,039	1,185	–	–	313,224
1	Maturing in 2029, non-interest bearing, payable in 60 equal instalments from April 2024 to March 2029. In January 2022 and April 2022, the Company received additional
contributions of $155,735 and $137,207, respectively, which were discounted using the effective interest method using a rate of 8%.
2	Maturing October 23, 2023 bearing interest at a rate of 6.95% per annum, payable in monthly instalments of $1,200 (including interest in capital) secured by automobile
(carrying amount of $14,033 at September 30, 2022).
3	Maturing 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.
15. Shareholders’ equity
Common shares and warrants
Authorized:
The Company is authorized to issue an unlimited number of common shares without par value.
Q3 2022	PyroGenesis Canada Inc.	10

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
The following table sets out the activity in stock options:
			Weighted
				Number of	average
				options	exercise price
		$
Balance – December 31, 2020				9,040,000	1.57
Granted				2,970,000	4.55
Exercised				(3,482,000)	0.32
Forfeited				(125,000)	4.41
Balance, December 31, 2021				8,403,000	3.10
Granted				2,475,000	3.55
Exercised1				(1,200,000)	0.58
Forfeited				(240,000)	4.07
Balance, September 30, 2022				9,438,000	3.52
(1)	The weighted fair market value of the share price for options exercised in Q3, 2022 was $1.77.
As at September 30, 2022, the outstanding options, as issued under the stock option plan to directors, officers, employees and consultants for the purchases of one common share per option, are as follows:
						Number of	Number of	Number of
						stock	stock	stock			Exercise
						options	options	options	price
Issuance date						31-Dec-21			Granted	Exercised						Forfeitures	30-Sep-22	vested 1			per option	Expiry date
			$
3-Nov-17						2,400,000	–	(1,200,000)							–	1,200,000	1,200,000	0.58	3-Nov-22
3-Jul-18						300,000	–								–	–	300,000	300,000	0.51	3-Jul-23
29-Oct-18						40,000	–								–	–	40,000	40,000	0.52	29-Oct-23
29-Sep-19						100,000	–								–	–	100,000	100,000	0.51	29-Sep-24
2-Jan-20						100,000	–								–	–	100,000	100,000	0.45	2-Jan-25
16-Jul-20						2,243,000	–								–	(40,000)	2,203,000	1,778,000	4.41	16-Jul-25
26-Oct-20						250,000	–								–	(200,000)	50,000	25,000	4.00	26-Oct-25
6-Apr-21						550,000	–								–	–	550,000	410,000	8.47	6-Apr-26
1-Jun-21						200,000	–								–	–	200,000	100,000	6.59	1-Jun-26
14-Jun-21						100,000	–								–	–	100,000	50,000	6.70	14-Jun-26
14-Oct-21						100,000	–								–	–	100,000	10,000	5.04	14-Oct-26
17-Dec-21						1,920,000	–								–	–	1,920,000	1,920,000	3.13	17-Dec-26
30-Dec-21						100,000	–								–	–	100,000	100,000	3.61	30-Dec-26
3-Jan-22												–	450,000	–	–	450,000	450,000	3.36	3-Jan-27
5-Apr-22												–	400,000	–	–	400,000	40,000	2.96	5-Apr-27
2-Jun-22												–	1,500,000	–	–	1,500,000	375,000	3.88	2-Jun-27
13-Jul-22												–	125,000	–	–	125,000	12,500	2.14	13-Jul-27
						8,403,000			2,475,000	(1,200,000)						(240,000)	9,438,000	7,010,500	3.52
(1)	At September 30, 2022, the weighted average exercise price for options outstanding which are exercisable was $3.26.
The fair value of the stock options was estimated by applying the Black Sholes options pricing model using the following assumptions:
Q3 2022	PyroGenesis Canada Inc.	11

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
Grant Date			January 3, 2022	April 5, 2022	June 2, 2022	July 13, 2022
Number of options granted							450,000	400,000	1,500,000	125,000
Exercise price ($)							3.36	2.96	3.88	2.14
Fair value of each option under the Black Scholes pricing model ($)							2.17	1.98	2.61	1.44
Assumptions under the Back Sholes model:
										Market share ($)	3.33	2.96	3.88	2.14
										Risk free interest rate (%)	1.25	2.50	2.87	3.11
										Expected volatility (%)	82.45	83.36	83.31	83.31
										Expected dividend yield	–	–	–	–
										Expected life (number of months)	60	60	60	60
										Forfeiture rate (%)	–	–	–	–
For the three-month and nine-month periods ended September 30, 2022, a stock-based compensation expense of $931,572 and $4,222,242, respectively, was recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive income (loss), ($673,194 and $4,884,219 for the three-month and nine-month periods ended September 30, 2021).
At September 30, 2022, an amount of $4,047,885 ($2,719,354 at December 31, 2021) remains to be amortized until June 2027 related to the grant of stock options.
16. Supplemental disclosure of cash flow information
	Three months ended September 30,							Nine months ended September 30,
			2022	2021	2022	2021
			$	$					$	$
Accounts receivable												(4,582,692)	(3,827,068)	(6,148,838)	(13,292,138)
Costs and profits in excess of billings on uncompleted contracts
												1,290,731	(2,010,805)	2,017,967	(2,220,085)
Inventory												(168,708)	(192,192)	(830,156)	(548,647)
Investment tax credits receivable												(44,424)	(102,727)	(59,475)	255,368
Income taxes receivable			(1,327)	–	115,868	–
Deposits												(189,942)	511,182	1,587,574	(305,204)
Contract assets & other assets												(139,005)	–	(139,005)	–
Prepaid expenses												748,120	1,452,235	(635,039)	(593,106)
Accounts payable and accrued liabilities												3,353,412	1,673,971	2,688,775	1,177,390
Billings in excess of costs and profits on uncompleted contracts
												822,997	171,213	(2,037,125)	(1,350,703)
												1,089,162	(2,324,191)	(3,439,454)	(16,877,125)

Q3 2022	PyroGenesis Canada Inc.	12

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
17. Supplemental disclosure on statements of comprehensive income
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$			$	$
Inventories recognized in cost of sales				212,830	–	626,972	–
Amortization of intangible assets				218,760	91,333	656,278	104,892
Depreciation of property and equipment				155,481	93,701	446,883	254,079
Depreciation of right of use assets				157,844	153,177	479,466	404,188
Employee benefits								3,200,123	2,467,185	8,902,215	6,488,260
Share-based expenses				931,572	673,194					4,222,242	4,884,219
Awarded Government grants				43,012	30,949	137,523	177,693
18. Net finance costs
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$			$	$
Financial expensesInterest on term loans
				1,435	3,100	3,038	12,538
Interest on lease liabilities				94,732	84,586	284,190	221,514
Interest accretion on balance due on business combination
				43,222	–	170,310	–
Penalties and other interest expenses				83,404	3,868	144,181	15,004
				222,793	91,554	601,719	249,056
Financial incomeAccretion interest on royalties receivable
				(39,099)	(84,762)	(78,012)	(149,091)
Net finance costs				183,694	6,792	523,707	99,965
19. Earnings (loss) per share
The following table provides a reconciliation between the number of basic and fully diluted shares outstanding for the three-month and nine-month period ended September 30:
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$			$	$
Weighted daily average of Common shares	170,621,448								168,517,657	170,292,829		165,369,555
Dilutive effect of stock options				–	–	–	–
Dilutive effect of warrants				–	–	–	–
Weighted average number of diluted shares	170,621,448								174,385,624	170,292,829		165,369,555
Number of anti-dilutive stock options and warrants excluded from fully diluted earnings per share calculation
								9,438,000	3,545,000	9,438,000	6,288,000

Q3 2022	PyroGenesis Canada Inc.	13

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
20. Related party transactions
During the three and nine-month periods ended September 30, 2022, the Company concluded the following transactions with related parties:
In January 2020, the Company entered into a lease agreement for the rental of a property with a trust whose beneficiary is the controlling shareholder and CEO of the Company. At September 30, 2022 the carrying amount of the ROU asset and lease liabilities are $849,034 and $929,488 ($1,107,131 and $Nil, respectively, at December 31, 2021).
Rent and property taxes charged by a trust whose beneficiary is the controlling shareholder and CEO of the Company, for the three and nine-month periods ended September 30, 2022 amount to $69,054 and $208,334, respectively ($68,825 and $206,310 for the three and nine-month periods ended September 30, 2021, respectively).
A balance due to the controlling shareholder and CEO of the Company amounted to $136,335 ($144,506 at December 31, 2021) and is included in accounts payable and accrued liabilities.
The Key Management Personnel of the Company, in accordance with IAS 24, are the members of the Board of Directors and certain officers. Total compensation to key management consisted of the following:
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$	$	$
Salaries – key management				270,532	253,805	844,374	714,019
Pension contributions				4,961	4,634	15,641	13,042
Fees – Board of Directors				45,700	72,400	134,700	147,400
Share-based compensation – officers				958,519	264,736	1,771,433			2,057,061
Share-based compensation – Board of Directors
				221,197	251,467	1,979,410			1,963,317
Other benefits – key management				7,897	122,867	21,935	176,219
Total compensation	1,508,806				969,909	4,767,493			5,071,058
21. Financial instruments
As part of its operations, the Company carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed. The Company's overall risk management program focuses on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Company's financial performance. The Company does not use derivative financial instruments to hedge these risks.
Foreign currency risk
The Company enters into transactions denominated in US dollars for which the related revenues, expenses, accounts receivable and accounts payable and accrued liabilities balances are subject to exchange rate fluctuations.
As at September 30, 2022 and December 31, 2021 the Company's exposure to foreign exchange risk for amounts denominated in US dollars is as follows:
					September 30, 2022			December 31, 2021
						$	$
Cash			451,897				1,714,670
Accounts receivable			14,769,360				14,465,011
Accounts payable and accrued liabilities			(989,503)				(1,023,999)
Total			14,231,754				15,155,682
Q3 2022	PyroGenesis Canada Inc.	14

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)

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

Sensitivity analysis

At September 30, 2022, if the US Dollar changes by 10% against the Canadian dollar with all other variables held constant, the impact on pre-tax gain or loss and equity for the period ended September 30, 2022 would have been $1,423,175.

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 by failing to discharge an obligation. The maximum credit risk to which the Company is exposed as at September 30, 2022 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. Two customers accounted for 79% (one customer for 73% at December 31, 2021) of trade accounts receivable with amounts owing to the Company of $16,202,736 ($12,063,636 at December 31, 2021), representing the Company's major credit risk exposure.

The following table summarizes the Company’s concentration of credit risk as a percentage of revenue during the three-month and nine-month periods ended September 30, 2022.

Three months ended September 30,

Nine months ended September 30,

2022

% of total

Revenues

revenues

Revenues

revenues

Customer 1

3,943,430

4,887,541

Customer 2

–

2,291,445

Customer 3

–

1,757,168

Total

3,943,430

8,936,154

Credit concentration is determined based on customers representing 10% 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. The Company 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 of a liability in an orderly transaction between market participants at the measurement date. The fair value estimates are calculated at a specific date taking into consideration assumptions regarding the amounts, the timing of estimated future cash flows and discount rates. Accordingly, due to its approximate and subjective nature, the fair value must not be interpreted as being realizable in an immediate settlement of the financial instruments.

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

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

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

Q3 2022

PyroGenesis Canada Inc.

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
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 and bank indebtedness approximate their carrying amounts due to their short-term maturities.
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 September 30, 2022 is determined using the discounted future cash flows method and management's estimates for market interest rates for similar issuances. Given their recent issuance, their fair market values correspond to their carrying amount.
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk, and on the fair value of investments or liabilities, known as price risks. The Company is exposed to a risk of fair value on cash equivalents, and term loans as those financial instruments bear 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 of changes in market price (other than those arising from foreign currency risk and interest risk), whether those changes are caused by factors specific to the individual financial instrument or its issuers or factors affecting all similar financial instruments traded in the market. The most significant exposure to the price risk for the Company arises from its investments in shares and warrants of public companies quoted on the TSXV Exchange. If equity prices had increased or decreased by 25% as at September 30, 2022, with all other variables held constant, the Company’s investments would have increased or decreased respectively, by approximately $1,978,000 ($4,042,000 at December 31, 2021).
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivery of cash or another financial asset. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities.
The following table summarizes the contractual amounts payable and maturities of financial liabilities and other liabilities at September 30, 2022:
			Total
	Carrying			contractual	Less than
	value		amount		one year	2-3 years	4-5 years	Over 5 years
				$	$						$	$	$	$
Bank indebtedness	713,046		713,046		713,046					–	–	–
Accounts payable and accrued liabilities	12,655,409			12,655,409	12,655,409					–	–	–
Term loans	390,287		529,237		35,893	194,116	180,000	119,228
Balance due on business combination	3,904,735		4,137,820		3,048,920	1,088,900		–	–
Lease liabilities	5,629,237			10,600,618	3,342,450	1,831,758	3,477,088	1,949,322
	23,292,714			28,636,130	19,795,718	3,114,774	3,657,088	2,068,550
The Company's Canadian subsidiary benefits from a line of credit of $500,000, and the Italian subsidiary benefits from a 400,000 Euro ($539,020) line of credit, and security against these credit lines is provided only by the subsidiaries, and not PyroGenesis Canada Inc. At September 30, 2022, $437,121 was drawn on the Canadian facility and 206,176 Euro ($275,925) was drawn on the Italian facility.
Q3 2022	PyroGenesis Canada Inc.	16

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
22. Contingent liabilities
The Company is currently a party to various legal proceedings. If management believes that a loss arising from these proceedings is probable and can reasonably be estimated, that amount of the loss is recorded. As additional information becomes available, any potential liability related to these proceedings is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these proceedings, individually and in aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations.
The Company had received a government grant in prior years of approximately $800,000 to assist with the development of a new system of advanced waste treatment systems technology. The grant is potentially repayable at the rate of 3% of any consideration received as a result of the project, for which funding has been received, to a maximum of the actual grant received. This repayment provision will remain in effect until May 30, 2024. The Company abandoned the project in 2011 and accordingly, no amount is expected to be repaid.
23. Capital management
The Company’s objectives in managing capital are:
a) To ensure sufficient liquidity to support its current operations and execute its business plan; and
b) To provide adequate return to the shareholders
The Company’s primary objectives when managing capital is to ensure the Company continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders.
The Company currently funds these requirements from cash flows from operations and with financing arrangements with third parties and shareholders. The Company is not subject to any externally imposed capital requirements.
The Company monitors its working capital in order to meet its financial obligations. On September 30, 2022, the Company’s working capital was $7,679,373 ($14,006,785 at December 31, 2021)
The management of capital includes shareholders’ equity for a total amount of $24,524,621 and term loans of $390,287 ($40,768,754 and $190,905 respectively at December 31, 2021), as well as cash and cash equivalents amounting to $2,364,861 ($12,202,513 at December 31, 2021).
There were no significant changes in the Company’s approach during the current nine-month period and 2021 fiscal year, however, in order to maintain or adjust the capital structure, the Company may issue new shares, sell portions of its strategic investment and periodically purchase its own shares on the open market.
24. Segment information
The Company operates in one segment, based on financial information that is available and evaluated by the Company’s Board of Directors. The Company’s head office is located in Montreal, Quebec. The operations of the Company are located in three geographic areas: Canada, Italy and India.
Q3 2022	PyroGenesis Canada Inc.	17

PyroGenesis Canada Inc. Notes to the Condensed Consolidated Interim Financial StatementsFor the three and nine month periods ended September 30, 2022 and 2021(Unaudited)
The following is a summary of the Company’s revenue from external customers, by geography:
	Three months ended September 30,		Nine months ended September 30,
				2022	2021	2022	2021
				$	$	$	$
Canada	4,908,188						1,352,895	8,877,823		6,089,789
United States				474,436			1,957,777	1,821,310		6,683,583
Europe				60,770	558,430	1,339,912			620,673
Mexico				58,380	–	317,772		137,856
Asia				65,003			2,112,481	1,727,495		6,364,235
South America				17,133	523,254	179,839		1,153,284
India				73,873			2,813,089	1,447,575		2,813,581
	5,657,783						9,317,926	15,711,726		23,863,001
Revenue by product line and revenues recognized by revenue recognition method are presented in note 5.
25. Subsequent Events
On October 19, 2022, the Company announced that it had completed a non-brokered Private Placement consisting of the issuance and sale of 1,014,600 units of the Company (the “Units”) at a price of $1.30 per Unit, for gross proceeds of $1,318,980 to the Company. Each Unit consists of one Common Share of the Company and one Common Share Purchase Warrant. Each Warrant entitles the holder thereof to purchase one Common Share at a price of $1.75 until October 19, 2024. The Common Shares and Warrants issued in connection with the Private Placement, and the Common Shares underlying the Warrants, are subject to a statutory hold period of four months and one day from the date of the closing, in accordance with applicable securities legislation.
Q3 2022	PyroGenesis Canada Inc.	18