Try our mobile app

Published: 2022-05-16
<<<  go to PYR company page
PyroGenesis Canada Inc.
Condensed Consolidated Interim
Financial Statements
Three months ended March 31, 2022
(Unaudited)
The accompanying unaudited condensed consolidated financial statements of PyroGenesis Canada
Inc. have been prepared by and are the responsibility of the Company’s management. The
Company’s independent auditor has not performed a review of these unaudited condensed
consolidated interim financial statements for the period ended March 31, 2022.
PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
March 31, December 31,
2021
$
AssetsCurrent assetsCash and cash equivalents
66,612,62412,202,513
Accounts receivable717,177,02717,639,616
Costs and profits in excess of billings on uncompleted contracts85,863,9354,922,710
Inventory171,273,161887,590
Investment tax credits receivable9210,628256,513
Income taxes receivable37,305117,029
Current portion of deposits112,402,3311,328,452
Current portion of royalties receivable320,279311,111
Contract assets334,660375,789
Prepaid expenses2,897,821717,661
Total current assets37,129,77038,758,984
Non-current assetsDeposits
11236,297248,756
Strategic investments1014,681,41314,901,659
Property and equipment3,619,6313,712,937
Right-of-use assets5,599,7695,765,993
Royalties receivable939,739947,543
Intangible assets2,580,1272,774,198
Goodwill2,660,6072,660,607
Total assets67,447,35369,770,677
LiabilitiesCurrent liabilitiesBank indebtedness
943,475–
Accounts payable and accrued liabilities129,378,83210,069,177
Billings in excess of costs and profits on uncompleted contracts139,076,6189,400,231
Current portion of term loans1483,23383,004
Current portion of lease liabilities142,937,0132,934,236
Balance due on business combination2,292,2622,242,503
Income taxes payable71,96323,048
Total current liabilities24,783,39624,752,199
Non-current liabilitiesLease liabilities
2,339,7922,389,729
Term loans14211,986107,901
Balance due on business combination1,742,9141,709,700
Deferred income taxes–42,394
Total liabilities29,078,08829,001,923
15
Common shares and warrants82,104,08682,104,086
Contributed surplus21,548,68519,879,055
Accumulated other comprehensive income41,1003,444
Deficit(65,324,606)(61,217,831)
Total shareholders’ equity38,369,26540,768,754
Total liabilities and shareholders’ equity67,447,35369,770,677
Contingent liabilities [notes 22].
Page 1
PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Unaudited)
Three months ended March 31,
20222021
$$
Revenues54,206,7626,264,503
Cost of sales and services173,155,0394,121,493
Gross profit1,051,7232,143,010
ExpensesSelling, general and administrative
175,612,3683,725,435
Research and development, net482,432286,307
6,094,8004,011,742
Net loss from operations(5,043,077)(1,868,732)
Changes in fair value of strategic investments101,176,7555,634,722
Finance costs, net18(183,900)(53,087)
Net earnings (loss) before income taxes(4,050,222)3,712,903
Income taxes56,553–
Net earnings (loss)(4,106,775)3,712,903
Other comprehensive income (loss)
Items that will be reclassified subsequently to profit of loss
Foreign currency translation gain on investments in foreignoperations
37,656–
Comprehensive income (loss)(4,069,119)3,712,903
Earnings (loss) per shareBasic
(0.02)0.02
Diluted(0.02)0.02
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
Page 2
PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
(Unaudited)
Accumulated
Number ofCommonother
commonshares andContributedcomprehensive
shareswarrantsSurplusincomeDeficitTotal
$$$$$
Balance - December 31, 2021170,125,79582,104,0863,444(61,217,831)40,768,754
Share-based payments15––––1,669,630
Other comprehensive income for the year–––37,655–37,655
Net loss and comprehensive loss–––(4,106,775)(4,106,775)
Balance – March 31, 2022170,125,79582,104,08641,099(65,324,606)38,369,265
Balance - December 31, 2020159,145,99367,950,069–(19,007,273)59,423,106
Shares issued upon exercise of stock options 1511,00010,315(3,935)––6,380
Shares issued upon exercise of warrants  and compensation options
155,344,5498,057,581––8,057,581
Share-based payments––922,340––922,340
Net earnings and comprehensive income–––3,712,9033,712,903
Balance – March 31, 2021164,501,54276,017,965–(15,294,370)72,122,310
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
Page 3
PyroGenesis Canada Inc.Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
Three months ended March 31,
2021
$
Cash flows provided by (used in)Operating activitiesNet earnings (loss)
3,712,903
Adjustments for:Share-based payments
922,340
Depreciation of property and equipment76,317
Depreciation of right-of-use assets101,794
Amortization and write-off of intangible assets6,780
Amortization of contract assets134,863
Finance costs53,087
Change in fair value of investments(5,634,722)
Income taxes–
Unrealized foreign exchange–
(626,638)
Net change in balances related to operations16(6,008,484)
(6,635,122)
Investing activitiesAdditions to property and equipment
(549,576)
Additions to intangible assets(75,668)
Purchase of strategic investments–(3,392,184)
Disposal of strategic investments1010,866,302
6,848,874
Financing activitiesIncrease in bank indebtedness
–
Interest paid(50,209)
Repayment of term loans(2,973)
Repayment of lease liabilities(55,086)
Proceeds from issuance of other term loans–
Proceeds from issuance of shares upon exercise of warrants–8,057,581
Proceeds from issuance of shares upon exercise of stock options6,380
898,3397,955,693
Effect of exchange rate changes on cash denominated in foreign currencies–
Net increase (decrease) in cash and cash equivalents8,169,445
Cash and cash equivalents - beginning of period12,202,51318,104,899
Cash and cash equivalents - end of period26,274,344
Supplemental cash flow disclosureNon-cash transactions:Purchase of intangible assets included in accounts payable
53,576
Purchase of property and equipment included in accounts payable177,193
Accretion of balance purchase price payable–
Accretion interest on royalties receivable–
Accretion on term loan–
The accompanying notes form an integral part of the condensed consolidated interim financial statements
Page 4
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2022 and 2021(Unaudited)
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 condensed consolidated interim financial statements do not include all of the necessary informationrequired for full annual financial statements in accordance with IFRS and should be read in conjunction withthe Company’s audited financial statements for the year ended December 31, 2020.
These financial statements were approved and authorized for issuance by the Board of Directors on May 16, 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 statementsof 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).
Page 5
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 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 consolidatedinterim financial statements are the same as those applied by the Company in its audited annual financial statementsas 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 (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:
$
Total consideration
Consideration paid at closing1
Contingent consideration3,841,999
Consideration paid at closing and continent consideration3,842,000
Settlement of pre-existing loan receivable from Pyro Green-Gas1,744,4005,586,400
December 31, 2021
Final
$
Net assets acquiredCurrent assets
1
5,186,086
ROU asset477,608
Property and equipment42,552
Intangible assets and Goodwill24,780,607
Deferred income tax asset79,360
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 andan accretion expense of $82,973 was recognized in Net finance costs in the Consolidated Statement ofComprehensive Income for the three-month period ended March 31, 2022.
Page 6
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2022 and 2021(Unaudited)
5. Revenues
The following is a summary of the Company’s revenues by product line:
March 31,March 31,
20222021
$$
Revenue from contracts with customers by product line:
PUREVAP™441,605625,086
DROSRITE™900,0792,740,725
Development and support related to systems supplied to the U.S. Navy745,2602,586,021
Torch related sales1,041,709195,221
Biogas upgrading and pollution controls990,045–
Other sales and services88,064117,450
4,206,7626,264,503
The following is a summary of the Company’s revenues by revenue recognition method:
March 31,March 31,
20222021
$$
Revenue from contracts with customers:
Sales of goods under long-term contracts recognized over time3,681,6016,049,885
Sales of goods at a point of time525,161214,618
Other revenue:
Sale of intellectual properties (i)––
4,206,7626,264,503
See note 24 for sales by geographic area.
Transaction price allocated to remaining performance obligations
As at March 31, 2022, revenue expected to be recognized in the future related to performance obligations thatare unsatisfied (or partially satisfied) at the reporting date is $41,189,745 (2021 - $43,458,148). Revenue will berecognized as the Company satisfies its performance obligations under long-term contracts, which is expected tooccur over the next 3 years.
6. Cash and cash equivalents
As at March 31, 2022, there are no restrictions on cash and cash equivalents. Cash andcash equivalents include the following components:
March 31,December 31,
20222021
$$
Cash3,612,6243,568,561
Guaranteed investment certificates3,000,0008,633,952
Cash and cash equivalents6,612,62412,202,513
Guaranteed investment certificates are instruments issued by Canadian financial institutions and include$3,000,000 bearing interest at a rate of 0.37%, These instruments are redeemable without penalty andmature between September 2022 and December 2022.
Page 7
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2022 and 2021(Unaudited)
7. Accounts receivable
Details of accounts receivable were as follows:
March 31,December 31,
20222021
$$
1 – 30 days1,158,2602,260,428
31 – 60 days91,98044,838
61 – 90 days74,0776,855,822
Greater than 90 days14,368,6907,357,825
Total trade accounts receivable15,693,00716,518,913
Other receivables286,022270,536
Sales tax receivable1,197,997850,167
17,177,02717,639,616
As at March 31, 2022 the allowance for expected credit loss is $520,000 (2021 - $520,000), which was includedthrough the business combination and has not changed throughout the three-month period.
8. Costs and profits in excess of billings on uncompleted contracts
As at March 31, 2022, the Company had seventeen contracts with total billings of $17,716,248 which were lessthan total costs incurred and had recognized cumulative revenue of $23,580,183 since those projects began. Thiscompares with fourteen contracts with total billings of $16,676,700 which were less than total costs incurred and hadrecognized 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 year are explained by$104,689 (2021 - $983,819) recognized at the beginning of the year being transferred to accounts receivable, and$1,045,913.56 (2021 - $4,832,968) resulting from changes in the measure of progress.
9. Investment tax credits
An amount recognized in 2022 included $10,498 (2021 - $202,472) of investment tax credits earned inthe year, as well as $Nil (2021 - $706,000) of investment tax credits earned in prior years that no longermet the criteria for recognition in 2021. $1,829 (2021 - $148,695) of the investment tax credits recognizedin the year was recorded against cost of sales and services, $1,168 (2021 - ($684,709)) against researchand development expenses and $7,500 (2021 - $32,486) against selling general and administrativeexpenses.
Page 8
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2022 and 2021(Unaudited)
10. Strategic investments
March 31,December 31,
20222021
$$
Beauce Gold Fields (“BGF”) shares – level 1112,837123,095
HPQ Silicon Resources Inc. (“HPQ”) shares - level 111,890,11112,306,196
HPQ warrants – level 32,678,4652,472,368
14,681,41314,901,659
The change in the strategic investments is summarized as follows:
(“BGF”) shares – level 1(“HPQ”) shares - level 1HPQ warrants – level 3
Quantity$Quantity$Quantity$
Balance, December 31, 20201,025,794123,09514,990,20016,489,22025,844,60023,379,435
Additions––8,268,0008,070,109––
Exercised––16,250,00011,700,000(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, 20211,025,794123,09526,752,60012,306,1969,594,6002,472,368
Disposed––(3,887,000)(1,397,001)––
Change in the fair value–(10,258)–980,916–206,097
Balance, March 31, 20221,025,794112,83722,865,60011,890,1119,594,6002,678,465
At March 31, 2022 and December 31, 2021, the fair value of the HPQ warrants was measured using theBlack-Scholes option pricing model using the following assumptions:
March 31, 2022December 31, 2021
Number of warrants1,200,0004,394,6004,000,0001,200,0004,394,6004,000,000
Date of issuanceApril 29, 2020 June 2, 2020 Sept. 3, 2020 April 29, 2020June 2, 2020Sept. 3, 2020
Exercise price ($)0.100.100.610.100.100.61
Assumptions under the Back Sholes model:
Fair value of the shares ($)0.52  0.52  0.520.460.460.46
Risk free interest rate (%)2.22  2.22  2.221.221.221.22
Expected volatility (%)77.75  79.77  85.989.8894.01110.47
Expected dividend yield– – ––––
Contractual remaining life (in months)13  14  17161720
As at March 31, 2022, a gain from initial recognition of the warrants of $430,155 ($510,573 at December 31, 2021)has been deferred off balance sheet until realized.
Page 9
PyroGenesis Canada Inc.Notes to the Condensed Consolidated Interim Financial Statements
For the periods ended March 31, 2022 and 2021(Unaudited)
11. Deposits
March 31,December 31,
20222021
$$
Current portion:Suppliers
2,310,0901,236,211
Security deposit on leased premises92,24192,241
Total current2,402,3311,328,452
Non-current portion:Suppliers
1,9081,952
Security deposit on leased premises234,390246,804
Total non-current236,297248,756
Total Deposits2,638,6281,577,208
12. Accounts payable and accrued liabilities
March 31,December 31,
20222021
$$
Accounts payable6,060,7015,457,259
Accrued liabilities2,474,9903,730,048
Sale commissions payable1737,364737,364
Accounts payable to the controlling shareholder and CEO105,777144,506
9,378,83210,069,177
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 inprogress amounted to $23,658,662 (2021 - $21,834,137).
Payments to date received were $32,735,280 on contracts in progress (2021 - $31,234,368).
Changes in billings in excess of costs and profits on uncompleted contracts during the year are explained by$1,510,567 (2021 - $6,268,910) recognized at the beginning of the year being recognized as revenue, and anincrease of $1,186,953 (2021 - $9,076,169) resulting from cash received excluding amounts recognized asrevenue.
Page 10
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
14. Term loans
EconomicCanada
Development AgencyOther TermOther TermEmergency Business
of Canada Loan1Loans2Loans3Account Loan4Total
$$$$$
Balance, December 31, 202187,98524,70028,22050,000190,905
Addition155,735–––155,735
Financing costs(48,035)–––(48,035)
Accretion4,781–––4,781
Payments–(3,186)(4,980)–(8,166)
Balance, March 31, 2022200,46621,51423,24050,000295,219
Less current portion–(13,313)(19,920)(50,000)(83,233)
Balance, March 31, 2022200,4668,2003,320–211,986
1 Maturing in 2027, non-interest bearing, payable in 60 equal instalments from July 2023 to June 2027.  In January 2022 the Company
received additional contributions of $155,735 which was 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 secured by
automobile (carrying amount of $20,510 at March 31, 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.
Page 11
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
15. Shareholders’ equity
Common shares and warrants
Authorized:
The Company is authorized to issue an unlimited number of common shares without par value.
The following table sets out the activity in stock options:
Weighted
Number ofaverage
optionsexercise price
$
Balance – December 31, 20209,040,0001.57
Granted2,970,0004.55
(1)
Exercised(3,482,000)0.32
Forfeited(125,000)4.41
Balance, December 31, 20218,403,0003.10
Granted450,0003.36
Exercised––
Forfeited(10,000)4.41
Balance, March 31, 20228,843,0003.11
(1)
 The weighted fair market value of the share price for options exercised in 2021 was $5.48.
Page 12
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
15. Shareholders’ equity (continued)
As at March 31, 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 asfollows:
Number ofNumber ofNumber of
stockstockstockExercise
optionsoptionsoptionsprice
December 31, 2021GrantedExercisedForfeituresMarch 31, 2022vested(1)per optionExpiry date
$
November 3, 20172,400,000–––2,400,0002,400,0000.58November 3, 2022
July 3, 2018300,000–––300,000300,0000.51July 3, 2023
October 29, 201840,000–––40,00040,0000.52October  29, 2023
September 29, 2019100,000–––100,000100,0000.51September 29, 2024
January 2, 2020100,000–––100,000100,0000.45January 2, 2025
July 16, 20202,243,000––(10,000)2,233,0001,343,0004.41July 16, 2025
October 26, 2020250,000–––250,000125,0004.00October  26, 2025
April 6, 2021550,000–––550,000320,0008.47April 6, 2026
June 1, 2021200,000–––200,00050,0006.59June 1, 2026
June 14, 2021100,000–––100,00025,0006.70June 14, 2026
October 14, 2021100,000–––100,00010,0005.04October 14, 2026
December 17, 20211,920,000–––1,920,0001,920,0003.13December 17, 2026
December 30, 2021100,000–––100,000100,0003.61December 30, 2026
January 3, 2022–450,000––450,000450,0003.36January 3, 2027
8,403,000450,000–(10,000)8,843,0007,283,0003.11
(1) At March 31, 2022, the weighted average exercise price for options outstanding which are exercisable was $2.64.
For the three-month period ended March 31, 2022, a stock-based compensation expense of$1,669,630 (2021 - $9,762,745) was recorded in Selling, general and administrative expenses in theCondensed Consolidated Statements of Comprehensive income (loss).
At March 31, 2022, an amount of $2,027,944 ($2,719,354 at December 31, 2021) remains to beamortized until January 2027 related to the grant of stock options.
Page 13
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
16. Supplemental disclosure of cash flow information
March 31,March 31,
20222021
$$
Accounts receivable462,589(3,198,880)
Costs and profits in excess of billings on uncompleted contracts(941,225)508,729
Inventory(385,571)–
Investment tax credits receivable45,885(26,650)
Deposits(1,061,420)(1,382,100)
Contract assets–(2,811,894)
Prepaid expenses(2,180,156)–
Accounts payable and accrued liabilities(640,057)3,561,085
Billings in excess of costs and profits on uncompleted contracts(323,610)(2,658,774)
(5,023,565)(6,008,484)
17. Supplemental disclosure on comprehensive income statement
March 31,March 31,
20222021
$$
Inventories recognized in cost of sales212,595–
Amortization of intangible assets218,7596,780
Depreciation of property and equipment142,99076,317
Depreciation of ROU assets166,224101,794
Employee benefits4,380,4992,893,901
Share-based expenses1,669,630922,340
Awarded grants39,43459,179
6,830,1314,060,311
Page 14
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
18. Net finance costs
March 31,March 31,
20222021
$$
Financial expenses
Interest on term loans8513,508
Interest on lease liabilities77,46545,981
Interest accretion on balance due on business combination82,973–
Penalties and other interest expenses23,9753,598
185,26453,087
Financial income
Accretion interest on royalty receivable(1,364)–
Net finance costs183,90053,087
19. Earnings (loss) per share
The following table provides a reconciliation between the number of basic and fully diluted shares outstandingfor the three-month periods ended March 31:
March 31,March 31,
20222021
$$
Weighted daily average of Common shares170,125,795161,221,511
Dilutive effect of stock options–6,103,135
Dilutive effect of warrants–2,310,829
Weighted average number of diluted shares170,125,795169,635,475
Number of anti-dilutive stock options and warrants
excluded from fully diluted earnings per share calculation8,843,0002,445,000
20. Related party transactions
During the three months ended March 31, 2022, the Company concluded the following transactions withrelated parties:
In January 2020, the Company entered into a lease agreement for the rental of a property with a trustwhose beneficiary is the controlling shareholder and CEO of the Company. At March 31, 2022 thecarrying amount of the ROU asset and lease liabilities are $1,051,774 and $Nil ($1,107,131 and $Nil,respectively, at December 31, 2021)
Rent and property taxes were charged by a trust whose beneficiary is the controlling shareholder andCEO of the Company in the amount of $69,054 and $67,945 for the three-month periods ended March31, 2022 and 2021, respectively.
Page 15
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
20. Related party transactions (continued)
A balance due to the controlling shareholder and CEO of the Company amounted to $105,777 ($144,506 atDecember 31, 2021) and is included in accounts payable and accrued liabilities.
The Key Management Personnel of the Company, in accordance with IAS  24, are the members of the Boardof Directors and certain officers. Total compensation to key management, for the three-month periodsconsisted of the following:
March 31,March 31,
20222021
$$
Salaries – key management315,971241,559
Pension contributions5,8934,436
Fees – Board of Directors20,00033,500
Share-based compensation – officers326,074479,617
Share-based compensation – Board of Directors652,147172,216
Other benefits – key management6,4399,988
Total compensation1,326,524941,316
21. 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 March 31, 2022 and December 31, 2021 the Company's exposure to foreign exchange risk foramounts denominated in US dollars is as follows:
March 31,December 31,
20222021
$$
Cash795,1631,714,670
Accounts receivable14,605,69514,465,011
Accounts payable and accrued liabilities(2,518,815)(1,023,999)
Total12,882,04315,155,682
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 March 31, 2022, 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 period ended March 31, 2022 wouldhave been $1,288,204 (December 31, 2021 - $1,516,000).
Page 16
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
21. 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 by failingto discharge an obligation. The maximum credit risk to which the Company is exposed as at March 31, 2022represents 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 investmentcertificates redeemable on relatively short notice by the Company, are held with major reputable financialinstitutions. The Company manages its credit risk by performing credit assessments of its customers. TheCompany 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 three-month period ended March 31, 2022, 3 customers accounted for 49% of revenues fromoperations (3 customers accounted for 91% for the three-month period ended March 31, 2021).
Three months ended March 31, 2022Three months ended March 31, 2022
% of total% of total
RevenuesrevenuesRevenuesrevenues
$%$%
Customer 1745,260182,733,10743
Customer 2723,571172,371,40338
Customer 3594,14214625,08610
Total2,062,973495,729,59691
Two customers accounted for 90% (one customer for 73% at December 31, 2021) of trade accountsreceivable with amounts owing to the Company of $14,582,568 ($12,063,636 at December 31, 2021),representing the Company's major credit risk exposure. Credit concentration is determined based oncustomers 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. 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 andaccrued liabilities and bank indebtedness approximate their carrying amounts due to their short-term maturities.
Page 17
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
21. 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 asLevel 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 March 31, 2022 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 March 31, 2022, with all othervariables held constant, the Company’s investments would have increased or decreased respectively, byapproximately $4,037,000 ($4,042,000 at December 31, 2021).
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated 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 andother liabilities at March 31, 2022:
Total
CarryingcontractualLess than
valueamountone year2-3 years4-5 yearsOver 5 years
$$$$$$
Accounts payable and
accrued liabilities9,378,8329,378,8329,378,832–––
Term loans295,219383,23786,150117,330125,11754,640
Balance due on
business combination4,035,1764,355,6002,395,5801,960,020––
Lease liabilities5,276,8056,614,1923,220,750710,493561,6282,121,321
18,986,03220,731,86115,081,3122,787,843686,7452,175,961
Page 18
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
21. Financial instruments (Continued)
Liquidity risk (Continued)
The Company's Canadian subsidiary benefits from a line of credit of $500,000, and the Italian subsidiarybenefits from a 400,000 Euro ($554,000) line of credit.  At March 31, 2022, $436,237 was drawn on theCanadian facility and 366,157 Euro ($507,238) was drawn on the Italian facility.
22. 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.
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 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. At March 31, 2022,the Company’s working capital was $12,346,374 ($14,006,785 at December 31, 2021)
The management of capital includes shareholders’ equity for a total amount of $ 38,369,265 and termloans of $295,219 ($40,768,754 and $190,905 respectively at December 31, 2021), as well as cash andcash equivalents amounting to $6,612,624 ($12,202,513 at December 31, 2021)
There were no significant changes in the Company’s approach during the current three-month period and 2021fiscal 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.
Page 19
PyroGenesis Canada Inc.Notes to the Consolidated Financial Statements
For the periods ended March 31, 2022 and 2021
24. 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 revenue from external customers, by geography:
March 31,March 31,
20222021
$$
Canada1,367,792799,433
United States745,2872,593,965
Europe382,28820,042
Mexico176,508–
Asia315,831–
Saudi Arabia723,5712,733,107
China–7,618
South America122,471110,338
India373,015–
4,206,7626,264,503
Revenue by product line and revenues recognized by revenue recognition method are presented in note 5.
25. Subsequent event
On April 20, 2022 the Company participated in an HPQ non-brokered private placement by acquiring 6,800,000units at a price of $0.53 per unit for a total investment of $3,604,000.  Each unit consists of one common shareof HPQ and one common share purchase warrant.  Each of these warrants entitles the Company to purchase onecommon share at a price of $0.60 for a period of 24 months from the closing date of the private placement.
Page 20