40-F
PyroGenesis Canada Inc. (PYRGF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
40-F
☐
REGISTRATION STATEMENT
PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
Commission File Number:
December 31, 2022
001-39989
PYROGENESIS CANADA INC.
(Exact name of Registrant as specified in its charter)
Canada
3599
N/A
(Province or Other Jurisdiction
of Incorporation or
Organization)
(Primary Standard
Industrial Classification Code)
(I.R.S. Employer Identification
No.)
1744, William St. Suite 200
Montréal
,
QC
,
H3J1R4
CANADA
Attention:
P. Peter Pascali
Chief Executive Officer
Tel:
1
-
514
-
937-0002
(Address and telephone number of Registrant’s principal executive offices)
National Registered Agents, Inc.
1209 Orange St.
Wilmington
,
Delaware
19801
Tel:
202
-
572-3133
(Name, address (including zip code) and telephone number (including area code) of agent for
service in the United States)
Securities registered or to be registered pursuant to section
12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class
Trading Symbol(s)
Registered:
Common Shares, no par value
PYR
The Nasdaq Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g)
of the Act:
None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
None
For annual reports, indicate by check mark the information
filed with this Form:
☒
Annual Information Form
☒
Audited Annual Financial Statements
Indicate the number of outstanding shares of each of the
Registrant’s classes of capital or common stock as of the close of the period covered
by the annual report:
Title of Each Class
Number of outstanding shares
Common Shares, no par value
173,580,395
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant
was required to submit and post such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 12b-2 of the Exchange Act.
Emerging growth company
☒
If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a
report on and attestation to its management’s assessment of the effectiveness of its internal control
over
financial reporting under Section 404(b) of the Sarbanes-Oxley
Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☐
2
EXPLANATORY
NOTE
PyroGenesis
Canada Inc.
(the
“Company”
or
the
“Registrant”)
is
a
Canadian
issuer
that
is
permitted,
under
the
multijurisdictional disclosure system adopted in the
United States, to prepare this Annual Report
on Form 40-F pursuant to
Section 13
of
the
Securities
Exchange
Act
of
1934,
as
amended
(the
“Exchange
Act”),
in
accordance
with
Canadian
disclosure requirements. The Company is a “foreign private issuer” as defined in
Rule 3b-4 under the Exchange Act. Equity
securities
of
the
Company
are
accordingly
exempt
from
Sections
14(a),
14(b),
14(c),
14(f) and
16
of
the
Exchange
Act
pursuant to Rule 3a12-3.
FORWARD LOOKING
STATEMENTS
This
Annual
Report,
including
the
exhibits
attached
hereto
and
incorporated
herein
may
contain
“forward-looking
statements”
within
the
meaning
of
applicable
Canadian
and
United
States
securities
laws.
All
statements
other
than
statements of historical
fact are
forward-looking statements. The
forward-looking statements contained
in this
Annual Report
are made
only as
of the
date hereof.
The forward-looking
statements contained
in the
exhibits incorporated
by reference
into this Annual
Report are made
only as of
the respective dates
set forth in
such exhibits. The
Registrant does
not have,
or undertake,
any obligation
to update
or revise
any forward
-looking statements
whether as
a result
of new
information,
subsequent events or otherwise, unless otherwise required
by law.
Generally, forward-looking information can be
identified by the
use of forward-looking terminology
such as “plans”,
“expects”
or
“does
not
expect”,
“is
expected”,
“budget”,
“scheduled”,
“estimates”,
“forecasts”,
“intends”,
“anticipates”
or
“does
not
anticipate”, or “believes”,
or variations of
such words and
phrases or statements
that certain actions,
events or results
“may”,
“could”, “would”, “might” or “will be taken”, “occur”
or “be achieved”. Forward-looking statements are
based on a number of
material
assumptions,
which
management
of
the
Registrant
believe
to
be
reasonable,
including,
but
not
limited
to,
the
Registrant’s ability to generate sufficient
cash flow from operations and obtain financing,
if needed, on acceptable terms or
at
all;
the
general
economic,
financial
market,
regulatory
and
political
conditions
in
which
the
Registrant
operates;
the
interest of potential purchasers in
the Registrant’s products; anticipated and unanticipated costs; the government
regulation
of the Registrant’s activities and products; the timely receipt of any required regulatory
approvals; the Registrant’s ability to
obtain
qualified
staff,
equipment
and
services
in
a
timely
and
cost
efficient
manner;
the
Registrant’s
ability
to
conduct
operations in a safe,
efficient and effective
manner; and the Registrant’s
expansion plans and
timeframe for completion
of
such plans
Forward-looking
information
is subject
to
known
and
unknown
risks,
uncertainties
and
other
factors
that
may
cause
the
actual
results,
level
of
activity,
performance
or
achievements
of
the
Registrant
to
be
materially
different
from
those
expressed
or
implied
by
such
forward-looking
information.
Although
the
Registrant
has
attempted
to
identify
important
factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be
other factors that cause results not to be as
anticipated, estimated, intended or projected. There
is no assurance that such
statements will
prove to
be accurate,
as actual
results
and future
events could
differ materially
from those
anticipated
in
such
statements.
Accordingly,
readers
should
not
place
undue
reliance
on
forward-looking
statements.
Readers
should
carefully consider the maters as
further discussed under the heading "Risk
Factors" in the Registrant’s Annual
Information
Form for the year ended December 31, 2020, which is
filed as Exhibit 99.1 hereto and incorporated by reference
herein
The forward-looking statements
contained in, or incorporated
by reference into, this
Form 40-F are made as
of the date of
this Form
40-F or
as
otherwise
specified.
Except as
required
by
applicable
securities
law,
the
Registrant
undertakes
no
obligation
to
update
publicly
or otherwise
revise
any forward
-looking
statements
or the
foregoing
list
of
factors
affecting
those statements, whether as
a result of
new information, future events
or otherwise or
the foregoing lists of
factors affecting
this information. All
forward-looking statements
contained in this
Form 40-F are
expressly qualified
in their entirety
by this
cautionary statement.
DIFFERENCES IN UNITED STATES
AND CANADIAN REPORTING PRACTICES
The
Registrant
is
permitted,
under
a
multijurisdictional
disclosure
system
adopted
by
the
United
States,
to
prepare
this
report
in
accordance
with
Canadian
disclosure
requirements,
which
are
different
from
those
of
the
United
States.
The
Registrant prepares its
financial statements, which
are filed with
this Form 40-F in
accordance with International
Financial
Reporting Standards as issued by the International Accounting
Standards Board.
3
PRINCIPAL DOCUMENTS
Annual Information Form
The
Registrant’s
Annual
Information
Form for
the
fiscal year
ended
December 31,
2022
is
filed
as
Exhibit 99.1
and
incorporated by reference in this Annual Report on Form 40-
F.
Audited Annual Financial Statements
The audited consolidated financial statements of the Registrant for the fiscal year
ended December 31, 2022, including the
Independent Auditor’s
Report with
respect thereto,
are filed
as Exhibit 99.3
and incorporated
by reference
in this
Annual
Report on Form 40-
F.
Management Discussion and Analysis
The Registrant’s Management Discussion and Analysis for the fiscal year ended
December 31, 2022 is filed as Exhibit 99.2
and incorporated by reference in this Annual Report
on Form 40-
F.
CERTIFICATIONS AND
DISCLOSURES REGARDING CONTOLS AND
PROCEDURES
Certifications
The required certifications are attached hereto as Exhibits
99.4, 99.5, 99.6, and 99.7.
Disclosure Controls and Procedures
The information provided in the section entitled “Controls and Procedures” under the sub-heading “Disclosure Controls and
Procedures”
contained
in
the
2022
MD&A
filed
as
Exhibit 99.2
to
this
Annual
Report
on
Form 40-F is
incorporated
by
reference herein.
Management’s Annual Report on Internal Control
over Financial Reporting
The information provided in the section entitled “Controls and Procedures” under the sub-headings “Management’s
Annual
Report
on
Internal
Controls
over
Financial
Reporting
and
Remediation
Plan”
contained
in
the
2022
MD&A
filed
as
Exhibit 99.2 to this Annual Report on Form 40-F is incorporated
by reference herein.
Attestation Report of Independent Auditor
In accordance
with the
United States
Jumpstart Our
Business Startup
Act (the
“JOBS Act”)
enacted on
April 5, 2012,
the
Registrant qualifies as
an “emerging growth
company” (an “EGC”),
which entitles the
Registrant to take
advantage of certain
exemptions
from
various
reporting
requirements
that
are
applicable
to
other
public
companies
that
are
not
EGCs.
Specifically,
the JOBS
Act defers
the
requirement
to
have
the
Registrant’s
independent
auditor
assess
the
Registrant’s
internal
control
over
financial
reporting
under
Section 404(b) of
the
Sarbanes-Oxley
Act.
As
such,
the
Registrant
is
exempted
from
the
requirement
to
include
an
auditor
attestation
report
in
this
Form 40-F
for
so
long
as
the
Registrant
remains an EGC, which may be for as long as five years
following its initial registration in the United States.
Changes in Internal Control over Financial Reporting
The
information
provided
in
the
section
entitled
“Controls
and
Procedures”
under
the
sub-heading
“Changes
in
Internal
Controls over Financial Reporting” contained in the 2022 MD&A filed as Exhibit 99.2 to this
Annual Report on Form 40-F is
incorporated by reference herein.
NOTICES PURSUANT TO REGULATION
BTR
The Registrant
was
not required
by Rule
104 of Regulation
BTR to
send
any notices
to
any
of its
directors
or executive
officers during the fiscal year ended December
31, 2022.
AUDIT COMMITTEE FINANCIAL EXPERT
The
board
of
directors
of
the
Registrant
has
determined
that
Mr. Andrew
Abdalla,
the
chair
of
the
Registrant’s
audit
committee,
qualifies
as
an
audit
committee
financial
expert
for
purposes
of
paragraph
(8) of
General
Instruction
B
to
4
Form 40-F.
The board
of directors
has further
determined that
Mr. Abdalla
is also
independent, as
that term
is defined
in
the corporate governance
requirements of the
Nasdaq Capital Market
(“Nasdaq”). The Commission
has indicated that the
designation of Mr.
Abdalla as an audit
committee financial expert
does not make
him an "expert"
for any purpose,
impose
any duties, obligations or liabilities on him that are greater than those imposed on
members of the audit committee and the
board of directors who do not carry this designation or affect
the duties, obligations or liabilities of any other member of
the
audit committee or the board of directors.
CODE OF ETHICS
The Registrant has adopted a
written Code of Business Conduct
and Ethics (the "Code")
that is applicable to
all employees,
contractors,
consultants,
officers
and
directors
of
the
Registrant,
and
is
filed
as
an
exhibit
to
this
Annual
Report
on
Form 40-
F.
All departures
from,
all
amendments
to
the Code,
and
all waivers
of the
Code
with respect
to any
of the
senior officers
covered by it,
which waiver may
be made only
by the board
of directors of
the Registrant in
respect of senior
officers, will
be disclosed as required. The Code is located on the Registrant’s website at www.pyrogenesis.com.
Information contained
in or
otherwise accessible
through the
Registrant’s website
does not
form part
of this
Form 40-F,
and is
not incorporated
into this Form 40-F by reference.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The
fees
paid
to
the
independent
auditor
are
included
under
the
heading
"Audit
Committee -
External
Fees
by
Audit
Category" in the AIF,
which is filed as Exhibit 99.1 hereto and incorporated
by reference herein.
The Registrant’s audit committee
has adopted a pre-approval
policy.
Under this policy,
all non-audit services must
be pre-
approved
by
the
Audit
Committee.
The
Registrant
did
not
rely
on
the
de
minimis
exemption
provided
by
Section (c)(7) (i)(C) of Rule 2-01 of Regulation S-X.
OFF-BALANCE SHEET ARRANGEMENTS
The Registrant
has
not
entered
into any
“off-balance
sheet arrangements”,
that
have or
are reasonably
likely
to
have
a
current or
future effect
on the Registrant’s
financial condition,
changes in
financial condition,
revenues, expenses,
results
of operations, liquidity,
capital expenditures or capital resources that are
material to investors.
CONTRACTUAL OBLIGATIONS
Below is a tabular disclosure of the Registrant’s
contractual obligations at December 31, 2022:
Total
Carrying
contractual
Less than
Over 5
value
amount
one year
2-3 years
4-5 years
years
$
$
$
$
$
$
Bank indebtedness
991,902
991,902
991,902
—
—
—
Accounts payable and
accrued liabilities
9,620,591
9,620,591
9,620,591
—
—
—
Term
loans
389,987
520,444
59,917
190,587
180,000
89,940
Balance due on
business combination
3,907,775
4,137,820
2,177,800
1,960,020
—
—
Lease liabilities
5,533,694
6,745,329
2,984,243
1,165,281
703,816
1,891,989
20,443,949
22,016,086
15,834,453
3,315,888
883,816
1,981,929
IDENTIFICATION OF
THE AUDIT COMMITTEE
The Registrant’s Board of Directors has a separately
designated standing Audit Committee established in accordance
with
Section 3(a)(58)(A) of
the
Exchange
Act.
The
members
of
the
Audit
Committee
are
Andrew
Abdalla
(Chair
of
the
Committee), Robert Radin and Ben Naccarato.
5
MINE SAFETY DISCLOSURE
Not applicable
NASDAQ STATEMENT
OF CORPORATE
GOVERNANCE DIFFERENCES
The Registrant is
a “foreign private
issuer” as defined
in Rule 3b-4
under Exchange Act
and its common
shares are listed
on Nasdaq
and the
Toronto
Stock Exchange
(the “TSX”).
Rule 5615(a)(3)
of Nasdaq
Stock Market
Rules permits
foreign
private issuers to follow
home country practices in
lieu of certain provisions of
Nasdaq Stock Market Rules. A
foreign private
issuer that follows home country practices in lieu of certain provisions of Nasdaq Stock
Market Rules must disclose ways in
which its corporate
governance practices
differ from
those followed
by domestic
companies either
on its website
or in the
annual report
that
it distributes
to shareholders
in the
United States.
A description
of the
ways in
which
the Registrant’s
governance practices
differ
from those
followed
by domestic
companies
pursuant
to Nasdaq
Stock
Market Rules
are as
follows:
Majority Independent
Directors
: The
Registrant
does not
follow Nasdaq
Stock
Market Rule
5605(b)(1),
which requires
listed companies
to have
a majority
of the
board of
directors comprised
of “Independent
Directors” as
defined in
Nasdaq
Stock Market Rule 5605(a)(2). In lieu of following Nasdaq Stock Market Rule 5605(b)(1),
the Registrant follows the rules of
the TSX.
Executive
Sessions
:
The
Registrant
does
not
follow
Nasdaq
Stock
Market
Rule
5605(b)(2),
which
requires
listed
companies
to
have
their
Independent
Directors
regularly
schedule
meetings
at
which
only
Independent
Directors
are
present. In lieu of following Nasdaq Stock Market Rule 5605(b)(2),
the Registrant follows the rules of the TSX.
Audit
Committee
Charter
: The
Registrant
does
not
follow
Nasdaq
Stock
Market
Rule 5605(c)(1),
which requires
listed
companies to adopt
a formal written
audit committee charter
that specifies the
scope of its
responsibilities and the
means
by
which
it
carries
out
those
responsibilities;
the
outside
auditor's
accountability
to
the
audit
committee;
and
the
audit
committee's responsibility to ensure the independence of the outside auditor. In lieu of following Nasdaq Stock Market Rule
5605(c)(1), the Registrant follows the rules of the TSX.
Compensation Committee Charter
: The Registrant does not follow
Nasdaq Stock Market Rule 5605(d)(1), which requires
listed companies
to adopt
a formal
written compensation
committee charter
and have
a compensation
committee review
and reassess
the adequacy
of the
charter on
an annual
basis. In
lieu of
following Nasdaq
Stock Market
Rule 5605(d)(1),
the Registrant follows the rules of the TSX.
Composition of Compensation Committee
: The Registrant does not follow Rule Nasdaq Stock Market 5605(d)(2), which
requires listed companies to have a compensation committee comprised of at least two
members, with each member being
an Independent Director as defined under
Nasdaq Stock Market Rule 5605(a)(2).
In lieu of following Nasdaq Stock Market
Rule 5605(d)(2), the Registrant follows the rules of the
TSX.
Independent
Director Oversight
of Director
Nominations
: The
Registrant does
not follow
Nasdaq Stock
Market Rule
5605(e)(1), which requires Independent Director involvement
in the selection of
director nominees, by having a
nominations
committee
comprised
solely
of
Independent
Directors.
In
lieu
of
following
Nasdaq
Stock
Market
Rule
5605(e)(1),
the
Registrant follows the rules of the TSX.
Nominations Committee
Charter
: The Registrant
does not follow
Nasdaq Stock
Market Rule 5605(e)(2),
which requires
listed companies to adopt a
formal written nominations committee charter or
board resolution, as applicable, addressing the
director
nomination
process
and
such
related
matters
as
may
be
required
under
the
federal
securities
laws.
In
lieu
of
following Nasdaq Stock Market Rule 5605(e)(2), the Registrant
follows the rules of the TSX.
Shareholder Meeting Quorum
Requirements
: The Registrant does
not follow Nasdaq Stock
Market Rule 5620(c) which
requires
that
the
minimum
quorum
requirement
for
a
meeting
of
shareholders
be
33
1/3
%
of
the
outstanding
common
shares. In
addition, Nasdaq Stock
Market Rule
5620(c) requires
that an
issuer listed on
Nasdaq state
its quorum
requirement
in its by-laws.
In lieu of following Nasdaq Stock Market Rule 5620(c), the
Registrant follows the rules of the TSX.
The foregoing is consistent with applicable laws, customs
and practices in Canada.
UNDERTAKING
The Registrant
undertakes to make
available, in
person or by
telephone, representatives
to respond
to inquiries
made by
the Commission
staff, and
to furnish
promptly,
when requested
to do
so by
the Commission
staff, information
relating to:
6
the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an Annual Report on
Form 40-F arises; or transactions in said securities.
DISCLOSURE REGARDING FOREIGN JURISDICTION
THAT PREVENT
INSPECTIONS
Not applicable.
CONSENT TO SERVICE OF PROCESS
The Registrant has previously filed with the Commission
a written irrevocable consent and power
of attorney on Form F-X.
Any change
to the name
or address of
the Registrant’s agent
for service shall
be communicated promptly
to the Commission
by amendment to the Form F-X referencing the file
number of the Registrant.
The following documents are being filed with the Commission
as exhibits to this Form 40-
F.
EXHIBIT INDEX
Exhibit Number
Exhibit Description
99.1
Annual Information Form for the year ended December 31, 2022
99.2
Management’s Discussion and Analysis for the year ended December 31, 2022
99.3
Audited Annual Consolidated Financial Statements for the year ended December 31, 2022
99.4
Certification of The Principal Executive Officer
99.5
Certification of The Principal Financial Officer
99.6
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350
99.7
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350
99.8
99.9
Code of Business Conduct and Ethics
101
Interactive Data File
SIGNATURES
Pursuant to the requirements
of the Exchange Act, the
Registrant certifies that it
meets all of the requirements
for filing on
Form 40-F and has
duly caused this
Annual Report to
be signed on
its behalf by
the undersigned, thereunto duly
authorized.
Date: March 31, 2023
PYROGENESIS CANADA INC.
By:
/s/ P.
Peter Pascali
P.
Peter Pascali
Chief Executive Officer
pyrex99d1
Table
of Contents
Exhibit 99.1
PYROGENESIS CANADA INC.
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2022
Dated March 30, 2023
Table
of Contents
3
TABLE OF CONTENTS
1.
Explanatory Notes
5
2.
Forward-Looking Statements
5
3.
Market and industry data
6
4.
Corporate Structure
6
4.1.
Name, Address and Incorporation
6
4.2.
Subsidiaries
7
5.
General Development of the Business
7
5.1.
Year Ended December 31, 2020
7
5.2.
Year Ended December 31, 2021
9
5.3.
Year Ended December 31, 2022
10
5.4.
Recent Developments
11
6.
Business of the Company
12
6.1.
General
12
6.2.
Products and Services
12
6.3.
Installation & Servicing
16
6.4.
Research and Development, Internal and External Funded Projects
by Customers
16
6.5.
Markets and Opportunities
16
6.6.
Growth Strategy
20
6.7.
Employees
20
6.8.
Facilities
21
6.9.
Distribution Methods
21
6.10.
Intellectual Property and Research and Development
21
6.11.
Environmental Protection
23
6.12.
Foreign Operations
23
6.13.
Competition
23
7.
Dividends and Distributions
23
8.
Description of Capital Structure
24
8.1.
Authorized Share Capital
24
8.2.
Stock Options
24
9.
Market for Securities
24
9.1.
Trading Price and Volume
24
9.2.
Prior Sales
25
10.
Directors and Executive Officers
25
10.1.
Name and Occupation
25
10.2.
Biographies
28
10.3.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
30
10.4.
Conflicts of Interest
31
10.5.
Board Independence
32
11.
Audit Committee and Other Committees
32
11.1.
Audit Committee
32
Audit Committee Charter
32
Composition of the Audit Committee
33
Pre-Approval Policies and Procedures
33
External Fees by Audit Category
33
11.2.
Other Committees
33
Nominating and Corporate Governance Committee
33
Compensation Committee
34
12.
Risk Factors
34
12.1.
Risks Related to the Company’s Business and Industry
34
12.2.
Risks Related to the Company’s Securities
43
12.3.
Risks Related to the Company’s Status as a Foreign Private Issuer
45
13.
Legal Proceedings
47
Table
of Contents
4
14.
Interest of Management and Others in Material Transactions
47
15.
Transfer Agent and Registrar
48
16.
Auditors
48
17.
Material Contracts
48
18.
Additional Information
48
19.
Glossary of Terms
48
SCHEDULE “A” CHARTER OF THE AUDIT COMMITTEE
51
Table
of Contents
5
1.
Explanatory Notes
The
information
in
this
annual
information
form
(this
“
AIF
”)
of
PyroGenesis
is
stated
as
at
December
31,
2022,
unless otherwise indicated.
For an explanation
of the capitalized
terms and expressions and
certain defined terms, please
refer to the
“Glossary
of Terms”
at the end of this AIF.
In
this
AIF,
unless
the
context
otherwise
requires,
references
to
the
“Company”
or
“PyroGenesis”
refer
to
PyroGenesis Canada Inc. together with its subsidiaries.
In this AIF,
unless otherwise indicated,
all references to
“$” are to Canadian
dollars, all references to
“US$” are to
U.S. dollars, and all references to “€” are to euros. Amounts
are stated in Canadian dollars unless otherwise indicated.
This
AIF
should
be
read
in
conjunction
with
the
information
contained
in
the
Company’s
consolidated
financial
statements
and
related
notes
for
the
year
ended
December
31,
2022,
and
the
management’s
discussion
and
analysis
thereon.
The Company has certain proprietary or
contractual rights to certain company names, product
names, trade names
and
trademarks
used
in
this
AIF
that
are
important
to
its
business,
including
PyroGenesis,
PYROGENESIS
(LOGO),
PYROGENESIS
ADDITIVE,
PYROGENESIS
ADDITIVE
(LOGO)
PYROGENESIS
ALUMINUM,
PYRO
GREEN-GAS,
PYRO
GREEN-GAS
(LOGO),
SPHEROGENESIS,
NEXGEN,
DROSRITE,
PUREVAP,
SPARC,
APT,
APT-HP,
RPT,
MINIGUN, SPT,
PPRS and,
PAGV.
The Company
has omitted
the registered
trademark (®)
and trademark
(™) symbols
and any other related symbols
for such trademarks and
all related trademarks, including
those related to specific
products
or services, when used in this AIF.
2.
Forward-Looking Statements
This
AIF
contains
forward-looking
statements
and
forward-looking
information
(collectively,
“
forward-looking
statements
”) within the meaning
of applicable securities
legislation. All statements
other than statements of
historical fact
contained in this AIF
are forward-looking statements,
including, without limitation,
the Company’s statements
regarding its
products and services; the execution of its growth strategy; relations with suppliers and
customers; future financial position;
business strategy; potential acquisitions; potential
business partnering; litigation; and plans
and objectives. In certain
cases,
forward-looking
statements
can
be
identified
by
the
use
of
words
such
as
“plans”,
“expects”
or
“does
not
expect”,
“is
expected”, “budget”, “scheduled”,
“estimates”, “forecasts”, “intends”,
“anticipates” or “does
not anticipate”, or
“believes”, or
variations of such words and phrases
or state that certain actions,
events or results “may”, “could”,
“would”, “might” or “will
be taken”, “occur” or “be achieved” and similar words or the negative
thereof. These forward-looking statements are based
on
management’s
current
expectations
and
are
subject
to
a
number
of
risks,
uncertainties,
and
assumptions,
including
market
and
economic
conditions,
business
prospects
or
opportunities,
future
plans
and
strategies,
projections
and
anticipated events
and trends
that affect
the Company
and its
industry.
Although management
of the
Company believes
that
the
expectations
reflected
in
such
forward-looking
statements
are
reasonable
and
are
based
on
reasonable
assumptions
and
estimates
as
of
the
date
hereof,
there
can
be
no
assurance
that
these
assumptions
or
estimates
are
accurate or that any of these expectations will prove accurate.
Actual
results
and
developments
are
likely
to
differ,
and
may
differ
materially,
from
those
anticipated
by
the
Company and expressed or implied by
the forward-looking statements contained in this AIF. Such statements are based on
a number of assumptions and risks which may prove to be incorrect.
Important assumptions relating to the forward-looking
statements contained in this AIF include, among other things,
assumptions concerning:
•
the Company’s business strategies, strategic objectives
and growth strategy;
•
the Company’s expected production volumes, rates
and costs;
•
the Company’s current and future capital resources
and the need for additional financing;
•
the Company’s ability to increase sales from new and existing customers, and the results of the successful
completion of the Company’s current projects;
•
management’s expectation that the Company will achieve
growth and profitability;
Table
of Contents
6
•
the Company’s overall financial performance;
•
the Company continuing to maintain sufficient
and effective production and research and development;
•
there being no significant reduction in the availability of
qualified and cost-effective human resources;
•
there will be adequate liquidity available to the Company
to carry out its operations;
•
the Company’s ability to obtain and retain key
personnel; and
•
the success of intellectual property applications.
By their nature, forward-looking statements require assumptions and are subject to inherent risks and
uncertainties
including
those
discussed
herein.
There
is
significant
risk
that
predictions
and
other
forward-looking
statements
will
not
prove
to
be
accurate.
Readers
are
cautioned
to
not
place
undue
reliance
on
forward-looking
statements
made
herein
because a
number
of factors
could cause
actual future
results, conditions,
actions
or events
to differ
materially from
the
targets, expectations, estimates or intentions expressed in the
forward-looking statements.
The future
outcomes that
relate to
forward-looking statements
may be
influenced by
many factors,
including, but
not limited to, the risk
factors described under
the heading “Risk Factors”.
The Company cautions that
the foregoing list of
factors
is
not
exhaustive,
and
that,
when
relying
on
forward-looking
statements
to
make
decisions
with
respect
to
the
Company, investors
and others should carefully consider these factors, as well as other uncertainties and potential events,
and the inherent uncertainty of forward-looking statements.
Although the forward-looking statements
contained in this AIF
are based upon
what management currently believes
to be reasonable assumptions, the Company cannot assure investors that actual results, performance or achievements will
be
consistent
with
these
forward-looking
statements
and
additional
risks
and
uncertainties
discussed
in
the
Company’s
materials filed with the
Canadian securities regulatory
authorities from time
to time, available
under the Company’s
profile
on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov. There can be no
assurance that forward-looking statements
will prove
to be
accurate, as actual
results and
future events
could differ materially
from those
anticipated in
such statements.
Accordingly,
readers
should
not
place
undue
reliance
on
forward-looking
statements.
Forward-looking
statements
are
provided
as
of
the
date
of
this
AIF,
and
the
Company
assumes
no
obligation
to
update
or
revise
such
forward-looking
statements to reflect new events or circumstances except as
required under applicable securities laws.
The
forward-looking
statements
contained
in
this
AIF
are
expressly
qualified
in
their
entirety
by
this
cautionary
statement and are made as of the date of this AIF or such
other date specified herein.
3.
Market and industry data
Unless otherwise indicated, information contained in
this AIF concerning the industry and the
markets in which the
Company operates, including
its general expectations, market
position and market
opportunity, is based on information
from
industry publications and
reports generated by
several third parties
and management estimates.
Unless otherwise indicated,
management estimates are derived from
publicly available information released by independent industry
analysts and third-
party sources, as well
as data from the
Company’s internal research, and are
based on assumptions made by
the Company
based on such data and its knowledge of
such industry and markets, which the Company believes to be
reasonable. These
industry
publications
and
reports
generally
indicate
that
the
information
contained
therein
was
obtained
from
sources
believed to
be reliable,
but do
not guarantee
the accuracy
and completeness
of such
information. The
Company has
not
independently verified the
data in such
publications, reports
or resources, and
such information is
inherently imprecise. In
addition, projections,
assumptions and estimates
of the Company’s
future performance
and the future
performance of the
industry in which the Company operates are necessarily subject
to a high degree of uncertainty and risk due to a variety of
factors, including those described under “Forward-Looking
Statements” and “Risk Factors”.
4.
Corporate Structure
4.1.
Name, Address and Incorporation
PyroGenesis is a corporation
governed by the provisions
of the Canada Business
Corporations Act (“
CBCA
”) and
results from an amalgamation
completed on July 11,
2011,
under the CBCA, of Industrial
Growth Income Corporation
and
PyroGenesis
Canada
Inc.,
a
predecessor
entity
incorporated
on
June
5,
2006,
to
form
the
Company.
Prior
to
the
Table
of Contents
7
amalgamation,
which
constituted
its
qualifying
transaction,
Industrial
Growth
Income
Corporation
was
a
capital
pool
company listed on the TSX-
V.
The Company’s head and registered
office is located at 1744
William Street, Suite 200,
Montréal, Québec, Canada,
H3J 1R4.
4.2.
Subsidiaries
On
August
11,
2021,
PyroGenesis
acquired
all
of
the
issued
and
outstanding
shares
of
Pyro
Green-Gas
Inc.
(formerly AirScience Technologies
Inc.) (“
Pyro Green-Gas
”), a private corporation incorporated under the laws of Canada.
Pyro Green-Gas has three subsidiaries: 1) AirScience
Technologies
Pvt. Ltd., a private corporation incorporated under the
laws of India;
2) AirScience Italia
S.r.l., a
private corporation incorporated
under the laws of
Italy; and 3)
Alga-Labs Inc., a
private corporation
incorporated under
the laws
of Canada.
Pyro Green-Gas
owns 99.99%
of the
issued and
outstanding
shares of
AirScience
Technologies
Pvt. Ltd.
and
90.00%
of the
issued
and outstanding
shares
of AirScience
Italia
S.r.l.
Alga-Labs Inc. is a wholly owned subsidiary of Pyro Green-Gas.
5.
General Development of the Business
The following is a summary of the significant events
that have influenced the general development
of the business
of the Company over the last three completed years.
5.1.
Year Ended December 31,
2020
Business Highlights and Milestones
On
March
4,
2020,
the
Company
announced
the
successful
completion
testing
of
a
900
kilowatts
plasma
torch
system valued
at more
than
$1,000,000
which had
been installed
pursuant
to an
agreement
entered
into
on January
7,
2019, between the Company and RISE Energy Technology
Center AB, a Swedish company.
On March 24,
2020, the Company announced it
had received the first
payment of approximately $1.44
million under
the
Drosrite
International
Exclusive
Agreement
dated
August
29,
2019,
between
Drosrite
International
LLC
(“
Drosrite
International
”), a US-based company,
and PyroGenesis (the “
Drosrite International Exclusive
Agreement
”). Under the
terms
of
this
agreement,
Drosrite
International
had
received
the
required
rights
from
PyroGenesis
to
perform
Drosrite
International’s obligations under a 2019 agreement it had entered into with
Radian Oil & Gas Services Company, an oil and
gas services company
operating in the
Middle East (the
“
Dross Processing Service
Agreement
”). For more
information
on the Drosrite
International Exclusive Agreement, the
Dross Processing Services Agreement,
and the relationship
between
Drosrite International and PyroGenesis, see “Directors
and Executive Officers - Conflicts of Interest”.
On April 30, 2020, PyroGenesis announced it
had successfully completed the first phase of
a multi-phase modeling
contract with a
client that
aimed at
evaluating the
performance of
PyroGenesis’ proprietary
torches in an
existing iron
ore
industrial furnace. On
September 1,
2020, the
Company announced the
completion and acceptance
of its
modeling contract,
which demonstrated that replacing fossil fuel burners with PyroGenesis’ proprietary
plasma torches could play a significant
role
in
reducing
the
client’s
greenhouse
gas
(“
GHG
”)
emissions
and
assist
the
client
in
attaining
its
GHG
reduction
objectives.
On June 11, 2020, the Company
announced it had signed a second multi-phase torch modeling contract, aimed
at
evaluating the
performance of
PyroGenesis’ proprietary
torches in
an existing
iron ore
industrial furnace
with the
goal of
replacing existing fossil fuel burners with PyroGenesis’ plasma
torches.
On August 18, 2020, the Company announced the realization of a development agreement with HPQ Nano Silicon
Powders Inc.
(“
HPQ Nano
”), a
wholly owned
subsidiary of
HPQ Silicon
Resources Inc.
(“
HPQ
”), which
aims to
transform
silicon
into
spherical
silicon
nano
powders
and
nanowires
for
use
in
lithium-ion
batteries.
The
agreement,
valued
at
approximately
$3,000,000,
includes
royalty
rights
on
the
future
sales
of
nano
silicon
powders
and
wires
by
HPQ
Nano,
royalty rights that can be converted by PyroGenesis into
a 50% ownership stake in HPQ Nano.
On September
4, 2020,
the Company
announced an
$11.5
million contract
to provide
waste destruction
systems
for two US Navy ships.
Table
of Contents
8
On
September
22,
2020,
the
Company
announced
a
business
initiative
to
increases
its
presence
as
an
on-site
processor of aluminum dross, with the aim to reduce landfill waste, reduce harmful GHG emissions, and recover aluminum
while minimizing the creations of potentially toxic minerals.
On November
24, 2020,
the Company
announced it
had signed
a plasma
torch contract
to provide
one high
powered
(approximately one
megawatt) plasma
torch with
ancillary equipment
to a
major iron
ore producer
in connection
with the
pelletization process.
On December 16,
2020, the Company
announced it had
signed an addition
al contract with
a US-based
tunneling
client to design, manufacture, test, and supply a plasma torch system
tailored for tunneling.
Corporate Developments and Financings
On March
18, 2020,
the Company
completed a
$903,000 non-brokered
secured convertible
loan with
Fiducie de
Crédit Mellon Trust (the “
Pascali Trust
”), a trust of which Company’s Chief Executive Officer, P.
Peter Pascali, is a trustee,
officer
and
beneficiary
(the
“
2020 Convertible
Loan
”).
The
2020
Convertible
Loan
bore
interest
at
the
rate
of
12%
per
annum, with interest
payable in cash
on a quarterly
basis, had a
September 17, 2021,
maturity date,
and was convertible
into common
shares of
the Company
at a
conversion price
of $0.28
per common
share. The
2020 Convertible
Loan was
secured
by
a
hypothec
on
the
universality
of
all
of
the
present
and
after
acquired
moveable
property
and
assets
of
the
Company.
The
2020
Convertible
Loan
was
subsequently
converted
in
common
shares
in
accordance
with
its
terms
on
September 30, 2020, resulting
in 3,225,000 common shares
being issued. As the
2020 Convertible Loan was
provided by
the Pascali Trust,
the 2020 Convertible Loan
constituted a “related party
transaction” as defined in
MI 61 101. The
related
party transaction was exempt from
the formal valuation and minority
approval requirements of MI 61-101,
as the transaction
had
a
value
of
less
than
25%
of
the
Company’s
market
capitalization
(calculated
in
accordance
with
MI
61-101).
The
transaction was unanimously
approved by the
board of directors
of the Company.
See “Directors and
Executive Officers -
Conflicts of Interest”.
On July 28,
2020, the Company
requested that
the Pascali Trust
convert the
2020 Convertible
Loan on or
before
September 30, 2020.
The Pascali Trust
agreed to such
request subject to
the prepayment of
5 years rent,
plus estimated
yearly municipal taxes, no
later than December 31,
2020, for a
total prepayment of $1,438,530.
As a result
of the conversion
of the 2020 Convertible Loan, the Company saved approximately $110,000 of interest payments that would otherwise have
been
required
to
be
paid
under
the
2020
Convertible
Loan.
The
agreement
with
the
Pascali
Trust
in
respect
of
the
prepayment
of
rent
constituted
a
“related
party
transaction”
as
defined
in
MI
61101.
The
related
party
transaction
was
exempt from the formal
valuation and minority
approval requirements of
MI 61-101, as
the transaction had
a value of less
than
25%
of
the
Company’s
market
capitalization
(calculated
in
accordance
with
MI
61-101).
The
transaction
was
unanimously
approved
by
the
board
of
directors
of
the
Company.
See
“Directors
and
Executive
Officers
-
Conflicts
of
Interest”.
On September 1,
2020, PyroGenesis announced that it
had acquired 4,000,000 units
of HPQ in
a private placement
at a
price of
$0.60 per
unit for
a total
investment $2.4
million. Each
unit consists
of one
common share
of HPQ
and one
common share of HPQ purchase warrant. Each warrant entitles the Company to purchase one common share of HPQ at a
price of $0.61 for a period of 36 months following the
issue date.
On September
22, 2020,
at the
Company’s
annual general
meeting, the
five then
current members
of the
Board
were
re-elected
and
two
additional
nominees,
Ms.
Rodayna
Kafal
and
Mr.
Rodney
Beveridge,
were
also
elected
to
the
Board.
On
November
10,
2020,
the
Company
closed
a
bought-deal
short
form
prospectus
offering
(the
“
2020
Public
Offering
”) pursuant to an underwriting agreement dated October 20, 2020, entered into between the
Company and Mackie
Research
Capital
Corporation,
as
sole
underwriter
and
sole
bookrunner.
Under
the
2020
Public
Offering,
the
Company
issued 3,354,550 units of the
Company (“
2020 Units
”) at a price of
$3.60 per unit for
aggregate proceeds of $12,076,380,
including the
full exercise
of the
over-allotment option
by the
underwriter.
Each unit
is comprised
of one
Common Share
and one-half of one Common Share
purchase warrant. Each whole warrant (a
“
2020 Public Offering Warrant
”) entitles the
holder thereof to purchase one additional Common Share at an exercise price of $4.50. The 2020 Public Offering Warrants
are governed by
a warrant indenture
dated November 10,
2020 (the “
2020 Warrant
Indenture
”). On March
15, 2021, the
Company announced
its exercise
of its
right under
the 2020
Warrant
Indenture to
accelerate the
expiry date
of the
2020
Public Offering
Warrants
to April
14, 2021.
The Company
paid the
underwriter
a
cash commission
equal to
6.5% of
the
gross proceeds of the 2020 Public
Offering and issued it an
aggregate of 191,414 non-transferable
compensation options,
which were
exercisable into
2020 Units
at a
price of
$3.60 per
unit at
any time
up to
24 months
from closing
of the
2020
Public Offering.
Table
of Contents
9
On November 20, 2020, the
Common Shares commenced trading
on the TSX under the
trading symbol “PYR”, at
which time the Common Shares were delisted from the
TSX-
V.
On December 22,
2020, PyroGenesis announced
it had submitted
a formal application
to list its
Common Shares
on the NASDAQ.
5.2.
Year Ended December 31,
2021
Business Highlights and Milestones
On March 17, 2021, PyroGenesis announced that it
had received a grant from the Quebec
Ministry of the Economy
and Innovation to fund a project aimed at developing
a solution to recover residues of spent pot lining,
which are produced
in the primary aluminum industry and are considered harmful.
On April 8, 2021, PyroGenesis announced the appointment of
Ms. Nannette Ramsey as an independent director.
On
April
19,
2021,
PyroGenesis
unveiled
that
its
additive
manufacturing
NEXGEN
powder
production
line
was
operational and
producing
powders. PyroGenesis’
NEXGEN
plasma
atomization
system has
recorded
a production
rate
exceeding 25 kg/h, surpassing all published plasma-atomized
production rates for titanium known to the Company.
On May 27, 2021, PyroGenesis announced that it had received a
grant from Sustainable Development Technology
Canada for
the financing
of the
development of
a novel
production
process to
transform
quartz into
fumed silica
using a
plasma
reactor,
reducing
hazardous
waste
and
GHG
emissions
attributed
to
the
established
fumed
silica
production
process.
On July 6, 2021, PyroGenesis
announced the signature of a
contract valued at approximately
$4 million with HPQ
Silica Polvere
Inc. (“
HPQ Polvere
”), a
wholly owned
subsidiary of
HPQ. Under
this contract,
PyroGenesis was
tasked to
design, develop and manufacture a
novel one-step plasma-based reactor and
process for the conversion
of quartz to fumed
silica.
The
contract
includes
annual
royalty
payments
by
HPQ
Polvere
to
PyroGenesis
on
future
sales
arising
from
the
project and PyroGenesis may,
at any time, convert said royalties into a 50% ownership stake
in HPQ Polvere.
On August 17,
2021, the Company
announced the signing
of a
$1.2 million contract
for two
air plasma torch
systems
with an existing Asian client. These torches are to be incorporated
into the client’s medical waste destruction
systems.
On
September
22,
2021,
PyroGenesis
announced
that
Pyro
Green-Gas
had
been
selected
to
supply
its
landfill
biogas purification system
to Carbonaxion Bioénergies Inc.,
the promoter of
the GNR Neuville
project, which is
being carried
out at the environmental complex of the Régie régionale
de gestion des matières résiduelles de Portneuf.
On October 19, 2021, PyroGenesis announced that
it had been awarded an Innovative Solutions Canada
phase 2
(prototype development) contract to develop a unique hybrid ceramic powder processing system for the National Research
Council Canada, Canada’s largest federal research
and development organization.
On
October
20,
2021,
PyroGenesis
announced
the
creation
PyroGenesis
Aluminum,
a
new
division
bringing
together PyroGenesis’
aluminum industry
offerings to
provide the
following primary
products and
services:
i) DROSRITE
sales and tolling services; ii) conversion
of dross residues into valuable chemicals; iii)
upstream applications where plasma-
based solutions
are expected
to reduce
GHG emissions;
iv) high
powered plasma
torches geared
to replacing
fossil fuel
burners; and v) conversion of spent pot lining residues
into a valuable end-product.
On October
28, 2021,
PyroGenesis announced that
it had
been selected
to provide
a $9.2
million land-based system
to destroy
perfluoroalkyl and
polyfluoroalkyl substances.
The Company
would provide
its plasma
based thermal
process
equipment in a two-phase
project geared toward providing
a land-based system
to destroy these substances.
On October
7, 2022, the Company announced that contract negotiations had
been suspended and discontinued.
On December
8, 2021,
PyroGenesis announced
the launch
of a
new zero-carbon
emission hydrogen
production
project
which
aims
to
compete
with
conventional
technologies
to
produce
an
environmentally
friendly
hydrogen.
If
successful,
PyroGenesis’
new
hydrogen
production
technology
would
convert
methane
to
hydrogen,
thereby
creating
a
zero-carbon emission hydrogen.
Table
of Contents
10
Corporate Developments and Financings
During the year, the Company repurchased and cancelled 840,094 common shares at a weighted average price of
$4.96 per share, for total cash considerations of $4,183,617,
including commissions of $16,678.
On January 12, 2021, PyroGenesis announced
that it intended to implement a normal
course issuer bid according
to which the Company could purchase
over a twelve-month period up
to 5,000,000 common shares (approximately
3.14%
of the then issued and outstanding).
On March 3, 2021, PyroGenesis announced the appointment
of Mr. Ben Naccarato
as an independent director.
On March 10,
2021, the Company
announced that
its application to
list its Common
Shares on the
NASDAQ had
been approved. Trading commenced on March 11, 2021, under the ticker symbol “PYR” and trading of its Common Shares
ceased to be traded on the OTCQB. In connection with the NASDAQ listing, the Company
announced that, to maintain the
overall
independence
of
the
Board
of
Directors,
Mr.
Michael
Blank
resigned
as
a
director
and
member
of
the
Audit
Committee but would continue to serve as the Company’s
acting Chief Financial Officer.
On August
11,
2021, PyroGenesis
finalized
its strategic
acquisition
of Pyro
Green-Gas
and its
subsidiaries
for a
total cash
consideration of approximately
$4.4 million. Montreal-based
Pyro Green-Gas designs
and builds
(i) gas upgrading
systems to convert
biogas into renewable
natural gas (“RNG”), (ii)
pyrolysis-gas purification systems, (iii)
biogas and landfill-
gas flares
and thermal
oxidizers, and
(iv) systems
for the
purification of
coke-oven gas
(a by-product
in the
primary steel
industry arising from
the conversion of coal
into coke) into high
purity hydrogen. Pyro
Green-Gas is also known
for its line
of landfill gas flares which reduce GHG emissions from
landfills.
On September 20, 2021, PyroGenesis announced that it had been added to the FTSE
Global Total
Cap Index and
FTSE Global
Micro Cap
Index. The
FTSE Global
Total
Cap Index
is a
market-capitalization
weighted index
representing
the performance of
large, mid and
small cap stocks,
across emerging and
developed companies.
The FTSE Global
Micro
Cap
Index
provides
deep
representation
of
micro
cap
stocks.
Both
indexes
are
used
as
the
basis
for
performance
benchmarks and investment products, such as funds, derivatives, and
exchange-traded funds by investment professionals
globally.
On September 27,
2021, PyroGenesis announced the
appointment of Mr. Andre Mainella,
as Chief Financial
Officer
(CFO) of the Company.
5.3.
Year Ended December 31,
2022
Business Highlights and Milestones
On February 2, 2022,
PyroGenesis announced the
receipt of a US$3,000,000
purchase order for
the first of
three
10-tonne DROSRITE systems from an existing client.
On February 7,
2022, PyroGenesis
announced that
it had signed
an agreement
with a European
research center
for the
sale
of a
plasma
torch
system which
will
be used
to develop
a process
to convert
hydrocarbons,
including GHG
producing gases such as methane, into non-hazardous
chemicals.
On April
25, 2022,
PyroGenesis confirmed
that the
Company’s DROSRITE
dross recovery
technology (a
total of
seven DROSRITE systems) had been successfully commissioned
for Ma’aden Aluminum.
On May
19, 2022,
PyroGenesis announced
that it
had completed
a commercial
order for
titanium powders.
The
order
derived
from
the
Company’s
partnership
agreement
with
Aubert
&
Duval,
a
multinational
specializing
in
upscale
metallurgy,
and
the
powder
in
question
was
produced
at
PyroGenesis’
production
facility
using
its
NexGen
plasma
atomization system.
On
September
7,
2022,
the
Company
announced
that
it
had
been
selected
by
an
international
producer
of
magnesium metal, to
test PyroGenesis’
zero-emission plasma torches as
part of their
process for transforming mining
waste
and recycled minerals into high-value metal.
On October
6, 2022,
PyroGenesis
confirmed
that
its Gen3
PUREVAP
Quartz
Reduction
Reactor pilot
plant had
completed the
month-long power-up
process and
was initiating
the testing
phase of
its transformation
of quartz
into high
Table
of Contents
11
purity
silicon.
The
plant
is
designed
to
produce
multiple
systems
that
can
operate
under
harsh
conditions,
including
at
extremely high temperatures and under vacuum.
On November 2, 2022, PyroGenesis announced that it had passed its annual quality audit for two key international
standards: ISO 9001:2015, and AS9100D.
The audits encompassed all of
PyroGenesis’ facilities for the purpose
of meeting
compliance with the existing quality management designations.
On November 10, 2022, PyroGenesis
announced that it had successfully
produced hydrogen from methane
using
zero-carbon emission hydrogen production technology.
Corporate Developments and Financings
On October
19, 2022, PyroGenesis
announced the
completion of
a non-brokered
private placement
consisting of
the issuance and
sale of 1,014,600
units of the
Corporation at a
price of $1.30
per unit, for
gross proceeds of
$1,318,980
to the Company.
Each unit consisted
of one Common
Share and one
warrant entitling the
holder thereof to
purchase one
Common Share at a price of $1.75 until October 19, 2024.
On November 22,
2022, PyroGenesis received
a notice (“Notice”)
from the NASDAQ
stating that the
Company is
not in compliance
with the
minimum bid
price requirement
(“Minimum Bid
Requirement”) of
US$1.00 per
share under
the
NASDAQ Listing
Rule 5550(a)(2) based
upon the
closing bid
price of
the Company’s Common
Shares for
the 30
consecutive
business days prior
to the date
of the Notice.
The Notice has
no immediate effect
on the listing
or trading of
the Common
Shares on NASDAQ,
and the Company’s
operations are not
affected by the
receipt of the
Notice. Under NASDAQ
Listing
Rule
5810(c)(3)(A),
the
Company
had
180
calendar
days
from
the
date
of
the
Notice,
or
until
May
22,
2023,
to
regain
compliance with the Minimum Bid Requirement, during which time the Common Shares will continue to trade on NASDAQ.
If at
any time
before May 22,
2023, the bid
price of
the Common Shares
closes at
or above
US$1.00 per share
for a minimum
of 10 consecutive business days, the Company will regain compliance with the Minimum Bid Requirement.
If the Company
does
not
regain
compliance
with
the
Minimum
Bid
Requirement
by
May
22,
2023,
the
Company
may
be
eligible,
upon
satisfaction of certain NASDAQ listing
requirements, for an additional
period of 180 calendar days
to regain compliance or
the
Common
Shares
may
be
subject
to
delisting
from
NASDAQ.
The
Company
will
closely
monitor
the
situation
and
is
considering various strategies to regain compliance with the Minimum
Bid Requirement under the Nasdaq Listing Rules.
5.4.
Recent Developments
On January
10,
2023,
PyroGenesis
announced
a contract
to provide
its SPARC™
refrigerant
waste destruction
system to
a subsidiary
of The
Trust
for the
Destruction of
Synthetic Refrigerants,
a New
Zealand government
-mandated
organization. The project,
initially valued at $6
million, aims to assist
New Zealand in its
stated goals of reducing
synthetic
gas emissions by 25% no later than 2035.
On January 12, 2023, PyroGenesis announced
an initial contract with a
major European multinational chemical, oil,
and gas conglomerate to assess the
applicability of PyroGenesis’ plasma torches for use
in the client’s chemical production
process.
On
January
17,
2023,
PyroGenesis
announced
that
Pyro
Green-Gas
signed
a
contract
with
a
North
American
lithium-ion battery
recycler
for the
delivery of
a system
to decontaminate
the dust
generated during
the battery
recycling
process.
On February
8, 2023,
PyroGenesis announced
that Mr.
Alan Curleigh
is returning
to lead
PyroGenesis’ Board
of
Directors
as
Chair.
Mr.
P.
Peter
Pascali
stepped
down
as
Chair
and
will
continue
to
serve
as
Chief
Executive
Officer,
President and Director of PyroGenesis. The Board now
has eight directors, of whom six are independent.
On March 8, 2022,
PyroGenesis announced the
completion of a non-brokered
private placement consisting
of the
issuance and sale
of 5,000,000 units
of the Company
at a price of
$1.00 per unit, for
gross proceeds of $5,000,000
to the
Company. Mr. Pascali subscribed to 2,500,000
Units under the
private placement. Each
unit consists of
one Common Share
and one warrant entitling the holder to purchase one Common Share at a price of $1.25
until March 7, 2025. The Common
Shares
and
warrants
issued
in
connection
with
the
private
placement
as
well
as
the
Common
Shares
underlying
the
warrants are subject to a hold period of four months and one day
from the date of closing.
Table
of Contents
12
6.
Business of the Company
6.1.
General
PyroGenesis
is
a
high-tech
company
and
a
leader
in
the
design,
development,
manufacture,
and
commercialization
of
advanced
plasma
processes
and
sustainable
solutions
aimed
at
reducing
GHG
and
providing
economically
attractive
alternatives
to
conventional
“dirty”
processes.
PyroGenesis
has
created
proprietary,
patented,
advanced
plasma
technologies
that
are
being
vetted
and
adopted
by
industry
leaders
in
five
markets:
(i)
iron
ore
pelletization; (ii) aluminum; (iii) waste management; (iv)
steel making; and (v) additive manufacturing.
With a team of experienced engineers, scientists and technicians working at its Montreal head office and 3,800 m2
and 2,940 m2
manufacturing facilities, the
Company endeavours to
continuously innovate and provide
original and inventive
cleantech products to the marketplace. Its core competencies allow PyroGenesis to provide plasma torches, plasma waste
processes, high-temperature metallurgical
processes, and additive manufacturing
powders to the global
marketplace. The
operations of PyroGenesis are ISO 9001 and AS9100D
certified.
6.2.
Products and Services
The Company’s specialized products and
services are commercialized to
customers operating in a
wide range of industries,
including
the
defense,
metallurgical,
mining,
advanced
materials
(including
3D
printing),
oil
&
gas,
and
environmental
industries. The products and services of PyroGenesis
include:
•
Plasma torches systems, used for, among other things, replacing conventional burners in pelletizing of iron
ore furnaces (mining sector) and other industrial furnaces
(mainly metallurgy sector);
•
Waste destruction and waste-to-energy systems,
offered predominantly to customers in the environmental
and defense industries, and for the destruction of end-of-life
refrigerants;
•
Systems for
the recovery
of aluminum
and other
metal from
dross (a
residue
generated by
primary and
secondary metal producers), offered mainly to customers
in the mining and metallurgical industries;
•
Production
of
high
purity
spherical
metal
powders,
which
are
predominantly
offered
to
customers
in
the
additive manufacturing (also known sometimes as 3D printing)
industry;
•
Development
of
processes
to
produce
high
purity
silicon
metals,
nano
powders
and
nanowires,
offered
predominantly
to
customers
in
the
mining
and
metallurgical
industries
as
well
as
those
in
the
battery
manufacturing and/or disposal business;
•
Systems
for
upgrading
of
biogas
and
landfill
gas
into renewable
natural
gas,
used
in
the
environmental
industry;
•
Systems
used
in
the
petrochemical
and
metallurgical
industries
for
the
purification
of
industrial
gases,
including
the
extraction
of
hydrogen
from
coke
oven
gas,
the
purification
of
natural
gas
into
high
purity
methane, and the purification of pyrolytic gases;
•
Development of a process to produce fumed silica, used
in the polymer, cosmetics,
and paint industries;
•
Installation, commissioning, and start-up services; and
•
Internally and externally funded research and development
projects.
Plasma Torches for Iron Ore Pelletization
PyroGenesis
manufactures
and
commercializes
proprietary
plasma
torches
and
plasma
torch
systems
used
to
replace fossil
fuel burners
in industrial
iron ore
pelletization process.
The Company’s
plasma torches
can heat
gas up
to
10,000°F,
which is as hot as the surface of the sun.
Pelletization is the
process in which
iron ore fines
are agglomerated into
small balls with
some additives and
then
heated
at
high
temperatures
in
an
induration
furnace
to
make
them
more
resistant.
The
resulting
pellets
are
then
used
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13
downstream and typically on a different site to make iron and steel in blast furnaces
and in direct reduction of iron (DRI). In
conventional technology,
the process
heat is
provided by
fuel oil or
natural gas
burners. The
combustion of
fossil fuels
in
these burners results in the production
of GHGs, notably carbon dioxide. Because plasma
torches use renewable electricity
to generate heat, they offer an environmentally
attractive alternative to fossil fuel burners.
The objective of
the Company is
to be
a significant player
in the
world-wide movement to
reduce the carbon
footprint
in mining and
manufacturing. PyroGenesis
offers a patented
process to replace
fossil fuel burners
with electrically heated
plasma torches, thereby reducing GHG emissions for
the iron ore pelletization industry. The Company believes its solutions
can be economically attractive
with greater environment
benefits than the traditional
alternatives. By using
the Company’s
solutions, companies
can convert
their existing
burners
and systems
often without
needing to
shut down
their facility
for
installation and with minimal changes to their processes.
Waste Destruction and Waste-to-Energy
Systems
PyroGenesis manufactures and
commercializes a broad
range of waste destruction
and waste-to-energy systems
to customers in the environmental and defense industries. At the core of these systems are the Company’s plasma torches
and
plasma
gasification
reactors.
The
Company
believes
it
offers
one
of
the
most
complete,
easy-to-operate,
high
temperature,
plasma-based
treatment
systems.
The
waste
destruction
and
waste-to-energy
systems
offered
by
the
Company include the following:
•
Plasma Arc Waste Destruction Systems
(“
PAWDS
”) for waste destruction onboard ships;
•
Steam
Plasma
Arc
Refrigerant
Cracking
(“
SPARC
”)
systems
for
the
destruction
of
certain
refrigerants,
including
chlorofluorocarbons
(“
CFCs
”),
hydrofluorocarbons
(“
HFCs
”)
and
hydrochlorofluorocarbons
(“
HCFCs
”);
•
Plasma Arc Chemical
Warfare Agent
Destruction Systems
(“
PACWADS
”), which
are mobile platforms
for
the onsite destruction of chemical warfare agents;
•
Plasma
Resource
Recovery
Systems
(“
PRRS
”)
for
land-based
waste
destruction
and
waste-to-energy
applications;
•
Plasma torches for waste gasification and combustion; and
•
Plasma Arc Gasification and Vitrification (“
PAGV
”).
Plasma Arc Waste Destruction System (PAWDS)
Originally
developed
by
the
Company
in
the
late
1990s
for
the
gasification
of
waste
onboard
US
Navy
aircraft
carriers, PAWDS
was the
first plasma
destruction system
for marine
use on
US Navy
aircraft carriers.
PAWDS
uses the
plasma eductor for the fast gasification
of milled waste. Navy waste
is comparable to the combustible
fraction of municipal
solid
waste,
comprised
of
paper,
cardboard,
plastics,
wood
and
rags.
Since
launching
PAWDS
in
1999,
the
Company
received orders
for four
PAWDS
for the
US Navy,
two of
which have
been delivered
and installed
on the
Gerald R.
Ford
(CVN-78) and the
John F.
Kennedy (CVN-79) aircraft
carriers, and two
of which are
to be installed
in two planned
aircraft
carriers during
the construction
of those
vessels. Developed
in collaboration
with the
US Navy,
at 1/5th
the size
and half
the weight of a
typical marine incinerator, the patented PAWDS has a capacity of 3.5
tons/day. PAWDS
is a highly compact,
inherently safe and efficient alternative to the shipboard
waste incinerators.
Steam Plasma Arc Refrigerant Cracking (SPARC)
The SPARC
process is
the Company’s
patented technology
for the
destruction of
old refrigerants
such as
CFCs,
HFC and HCFCs. The system is pre-assembled on skids
and has demonstrated high destruction and removal efficiency
of
more
than
99.9999%.
The
SPARC
system
uses
a
water
vapour
(steam)
torch
to
destroy
the
refrigerants
quickly
and
efficiently. The system is designed to handle wastes that have very high
chlorine and fluorine content. An integrated caustic
scrubber ensures that
hydrochloric acid (HCl)
and hydrofluoric acid (HF)
emissions are well
below accepted limits. The
base
system is designed for a destruction capacity of 50 kilograms
per hour based on the refrigerant R12.
Plasma Arc Chemical Warfare Agent
Destruction System (PACWADS)
PACWADS
was developed by the Company
for the US and UK
special forces to destroy
chemical warfare agents
on site. The system
is installed on
two trailers and
can be deployed
quickly in areas
where chemical warfare
agents must
Table
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14
be immediately destroyed. Performance tests
on simulants have demonstrated destruction
and removal efficiency
of more
than 99.99999%.
The system
is designed
to destroy
the equivalent
of two
barrels (or
approximately 318
litres) per
day of
sarin, a deadly nerve gas, and is also suitable for the destruction
of a variety of other chemical warfare agents.
Plasma Resource Recovery System (PRRS)
The PRRS is used to convert waste to syngas (synthesis
gas) and inert slag (a glass-like by-product left
over after
a desired
metal
has
been
separated
(i.e.,
smelted)
from
its
raw ore).
The
PRRS
combines
a direct
current
graphite
arc
furnace, where the
inorganic portion of
waste is vitrified,
and the organic
portion is gasified.
The produced
syngas is then
cleaned up in a
plasma-fired eductor, similar to the one used
in the PAWDS technology, where tars are converted into clean
syngas (i.e. carbon monoxide and hydrogen).
The resulting syngas is further cleaned
of contaminants (such as HCl, sulfur
compounds, particulates
and volatile heavy
metals) using filters
and scrubbers.
The resulting syngas
can be used
as fuel
in a gas engine. The inert slag can be used as construction
material.
Plasma Torches
for Waste Gasification Systems
PyroGenesis’
plasma
torch
systems
are
used
in
waste-to-energy
applications,
advanced
material
production,
metallurgical
processing,
thermal
treatment
and
nanotechnology
manufacturing.
As
a
cleantech
alternative
to
fossil
fuel
burning, PyroGenesis’ electricity-driven plasma torch systems are easy to operate and offer a high level of safety, reliability
and service life of wear components.
Plasma Arc Gasification and Vitrification (PAGV)
PAGV systems convert incinerator ash and other hazardous inorganic material to
an inert, non-toxic slag. Slag is a
glass like
material, composed
of several
oxides, typically
silica
based. Using
the Company’s
unique furnace
design, the
proprietary arc plasma technology uses graphite electrodes and an electrical current to create arcs between the electrodes
and the melt, generating a high
temperature environment (typically above 1500°C) and melting the mineral matter into
slag.
This slag can be
used in a wide
range of applications, namely as
a building material for construction (e.g.
aggregate asphalt
and flooring as
well as partial
replacement for
cement in
concrete). The
PAGV
systems minimize
future legacy
issues for
operators of
incinerators (notably
municipalities
as well
as managers
of incineration
operations
for industrial,
hazardous,
biomedical, and animal
(slaughterhouse) waste) with a
relatively simple melting
process for their
grate and fly
ash. Asbestos
waste from decommissioning operations is also an excellent use
for this technology.
Systems for the Recovery of Aluminum and Other
Metal from Dross
Dross, a by-product of the
smelting process for aluminum and other metals, presents
the metallurgical industry with
challenges
and
opportunities.
A
dross
is
normally
composed
of
roughly
60%
metal
and
40%
residue.
Traditional
dross
treatment techniques
typically contaminate
the residues
with salt.
Metallurgical companies
aim to
recover metal
found in
dross while properly disposing of the oft-contaminated
residue.
PyroGenesis produces
systems for
the recovery
of aluminum
and other
metal from
dross through
its DROSRITE
process. This
process is
a salt-free,
cost-effective, sustainable
process for
maximizing metal
recovery from
dross without
any hazardous by-products. By using the DROSRITE technology, the residues can be converted into high-margin chemical
and metallurgical
products, including ammonium
sulphate and
aluminum sulphate. DROSRITE
allows the
treatment of dross
at its
source of
generation in a
controlled atmosphere,
tilting rotary furnace,
and minimizes
costly loss
of metal
while reducing
a smelter’s carbon footprint and energy consumption.
Table
of Contents
15
The following images compare the traditional
process for the recovery and treatment
of dross with the DROSRITE
process:
These systems are predominantly offered to customers in the metallurgical industry, targeting mainly the aluminum
and zinc industries.
Production of High Purity Spherical Metal Powders
The Company
produces
high purity
spherical
metal
powders
through
its plasma
atomization
process,
which
are
predominantly offered to customers in the additive
manufacturing (also known as 3D printing) industry.
PyroGenesis’
plasma
atomization
process
(known
as
NEXGEN
plasma
atomization)
allows
the
Company
to
produce and
sell high purity
spherical metal powders,
including titanium alloy
powders. Many existing
reactive metals cannot
easily
be
transformed
into
high
purity
spherical
powders,
especially
not
in
finer
size
cuts
such
as
-45μm/+15μm.
PyroGenesis’ NEXGEN process
offers an
improved yield
in the
finer size
cuts along
with a
higher production
rate. In
addition,
PyroGenesis can
convert a
wider variety
of metals
and alloys
into high
purity spherical
powders since
its plasma
torches
use argon gas and the reactor is backfilled with argon. This ensures the powders produced are
not exposed to any oxygen
during the
production process
and, as
a result,
PyroGenesis is
able to
produce high
purity powder
such as
titanium alloy
powders (Ti 6Al-4V grade 23).
Development of Processes to Produce High Purity
Silicon Metals, Nano Powders and Nanowires
The Company
is developing
processes
to produce
high purity
silicon metals
through
its PUREVAP
process
and
nano powders and
nanowires through
its PUREVAP
NSiR process.
These applications are
expected to be
predominantly
offered to
customers in
the mining
and metallurgical
industries, including
those involved
in the
making and/or
disposal of
batteries.
PUREVAP is a patent pending, one-step proprietary process being developed by the Company that uses a plasma
arc within
a vacuum furnace
to produce
high purity metallurgical
grade silicon and
solar grade silicon
from quartz. PUREVAP
reduces the
quartz with
carbon using
a plasma
submerged
arc. Under
vacuum,
and at
very low
operating
pressure, the
silicon is
refined in
a one-step
process removing
impurities and
transforming
it to
a purer
form, resulting
in a
high purity
silicon.
The
Company
expects
that
the
silicon
grades
produced
by
PUREVAP
will,
when
commercialized,
be
used
for
different applications, including solar energy.
The PUREVAP
NSiR process
is designed to
transform silicon
into spherical
silicon nano
powders and
nanowires
for use
in lithium-ion
batteries. This proprietary
process is
designed to
be highly
scalable and
is hoped
to allow
the production
of silicon
nano
powders
in
large
quantities
at
a competitive
cost
with
other
materials
used
in
the
lithium-ion
space.
The
PUREVAP NSiR can
use different purities of silicon as feedstock.
HPQ
Nano
acquired
the
intellectual
property
rights
to
the
PUREVAP
NSiR
system
in
2020
and
PyroGenesis
is
entitled to a royalty of 10% on the future sales of nano silicon powders and wires by
HPQ Nano, subject to the terms of the
contract.
The
royalty
stream
can,
at
any
time,
be
converted
by
PyroGenesis
into
a
50%
ownership
of
HPQ
Nano.
PyroGenesis has retained
a royalty-free, exclusive,
irrevocable, worldwide
license to use
the new system
for all purposes
other than the manufacturing of nano silicon powders and wires.
Table
of Contents
16
Upgrading of Biogas and Landfill Gas Into Renewable
Natural Gas (RNG)
Through Pyro
Green-Gas, the
Company offers
equipment for
the upgrading
of biogas
and landfill
gas into
RNG.
Pyro
Green-Gas'
equipment
combines
different
technologies
and
effects
the
removal
of
contaminants
from
biogas
and
landfill gas,
such as
hydrogen sulfide,
oxygen nitrogen,
volatile organic
compounds,
and moisture.
Pyro Green
-Gas can
offer both individual equipment and fully integrated
turnkey systems to its customers.
Systems for the Purification of Industrial Gases
Through Pyro
Green-Gas, the Company
offers equipment for
gas purification and
air emission
controls. Pyro Green-
Gas can
offer
both individual
equipment
and fully
integrated
turnkey systems
to its
customers. The
technologies
can be
used,
for
example,
for
coke
oven
gas
purification,
natural
gas
purification
into
high
quality
methane,
and
purification
of
pyrolytic gas and syngas (similar to the substances produced
during the application of the Company’s PRRS).
Development of a Process to Produce Fumed Silica
From Quartz
This plasma-based process allows a direct quartz-to-fumed silica transformation, removing the
usage of hazardous
chemical in the conventional making of fumed silica
and eliminating the hydrogen chloride gas normally
associated with its
manufacturing.
Furthermore,
the
process
requires
15,000
kWh
to
produce
a
metric
ton
of
fumed
silica,
representing
a
significant reduction in the energy footprint normally associated
with manufacturing fumed silica. And because the process
uses quartz as
feedstock, it is
expected that capital
requirements to build
a plant using
this plasma-based
process will be
significantly less than the capital requirements required to
build a traditional fumed silica plant.
HPQ Polvere acquired the intellectual property
rights to the fuming silica
patent in 2021 and PyroGenesis is
entitled
to a royalty
of 10% on
the future
annual gross
sales of fumed
silica by HPQ
Polvere, subject
to the terms
of the contract.
The royalty stream can,
at any time, be
converted by PyroGenesis
into a 50% ownership
of HPQ Nano.
PyroGenesis has
retained
a
royalty-free,
exclusive,
irrevocable,
worldwide
license
to
use
the
new
system
for
all
purposes
other
than
the
manufacturing of nano fumed silica.
6.3.
Installation & Servicing
PyroGenesis
offers
to
its
client
installation,
commissioning,
and
start-up
services.
These
services
are
typically
quoted
as
an
option
in
equipment
sales
contracts.
Separately,
PyroGenesis
offers
aftersales
services
to
its
customers,
including the sale of spare and replacement parts, consumable
parts, and onsite or remote service on installed systems.
6.4.
Internally and Externally Funded Research and Development
Projects
The
Company
relies
on
a
combination
of
internally
funded
and
externally
funded
R&D
to
grow
its
intellectual
property portfolio.
For externally
funded R&D,
the company
typically retains
intellectual property
rights for
the developed
technology,
while providing
licensing rights
to the client
in the sector
of application
and the
geographic area
of interest
to
the client.
6.5.
Markets and Opportunities
Waste Destruction and Waste-to-Energy
Systems
Marine Waste Treatment
Market (PAWDS)
Marine waste has been
an issue for lawmakers
and corporations for decades.
The disposal of waste
overboard is
harmful
to
the
marine
environment.
National
governments
and
international
organizations
(such
as
the
International
Maritime Organization) have adopted
rules to minimize the discharge
of harmful waste and
effluents from commercial
and
non-commercial ships.
At the
same time,
onboard storage
of waste
takes up
valuable space
within the
hull of
a ship
and
the eventual disposal in port is
costly and, if not handled properly, harmful to the environment. To mitigate this, modern ship
builders have incorporated onboard marine incinerators
to treat waste. However, these incinerators
also occupy significant
space, sometimes ascending through several decks of
a ship.
Table
of Contents
17
PyroGenesis’ PAWDS
provides an innovative
solution to these
issues. The
entire system
can fit in
the headroom
of a single
deck. It
is also
capable of
being started
up or
shut down
in a matter
of minutes.
Finally,
it does
not create
the
same level of GHG and other harmful emissions associated
with traditional incinerators.
At present, the
most attractive target
market for the
PAWDS
is military navies.
PyroGenesis has and
continues to
do
business
with
the
US
Navy
and
its
contractors.
PyroGenesis
has
already
outfitted
US
Navy
aircraft
carriers
with
its
PAWDS
and will
continue
aggressively
exploring this
market. The
price of
each
PAWDS
built for
the US
Navy
currently
ranges between US$5 to 6 million and new US aircraft carriers
are built every five to seven years.
In addition to new navy vessels, PyroGenesis also sees a potential market in the retrofitting of existing ships. As of
March 2023,
the U.S.
Navy fleet
comprises approximately
240 active
in commission
ships, including
11
aircraft carriers.
1
The Company
believes some
or all
of these
existing aircraft
carriers may
be candidates
for retrofitting
their legacy
waste
management systems with a PAWDS.
Waste-to-Energy Market (PRRS)
Waste management is a large and
growing market on a global scale. The methods
of managing waste are shifting
from disposal towards recycling and
resource recovery.
Governments, industries, and society
in general are seeking more
sustainable waste management
practices that have
lower environmental impacts
than traditional solutions
such as landfill
or incineration.
Just as
responsible waste
treatment systems
are seen
as an environment
and societal
priority,
solutions that
are
capable of
transforming waste
into energy
has also
seen major
growth on
a global
scale. Recent
research identified
the
global waste to energy
market as valued in excess of
US$35 billion in 2019, with
projections that it will
exceed US$50 billion
by 2027.
2
PyroGenesis looks to continue to expand its business in this fast-growing area. The Company believes its PRRS is
already a viable and economic alternative for small capacity projects compared to conventional
incinerators.
The system is
well suited for the
decentralized treatment of industrial, hazardous, and
clinical waste. As such, in
the short to medium
term,
the
Company
is
targeting
markets
that
are
readily
accessible
for
plasma
waste-to-energy
conversion,
which
include
industrial, hazardous, non-hazardous remote communities, military bases, and
medical wastes. In the medium
to long term,
the Company also intends to target the municipal solid
waste market with larger system capacities of up to 100
tons/day.
PyroGenesis is currently engaged in pilot testing of its PRRS technology with two
Canadian clients. The aim of the
testing is to
establish the design
basis for larger
commercial systems
that will be
proposed to the
customers following
the
end of pilot
testing. PyroGenesis
is working with
one such client,
Aluminerie Alouette,
to create a
plasma solution to
treat
the
hazardous
solid
wastes
produced
by
this
industrial
client.
The
Aluminerie
Alouette
project
aims
to
not
only
produce
energy rich
syngas that
the client
will use
to reduce
its consumption
of purchased
fuels, but
also to
generate a
valuable,
safe material from the client’s waste.
End-of-Life Refrigerant Destruction (SPARC)
The
international
community
has
long
recognized
that
certain
substances
have
been
having
harmful
effects
of
ozone depleting substances (“ODS”) as well
as impacting climate change. These substances
often attack the ozone layer,
the protective shield
that covers
earth’s atmosphere
and protects its
ecologies and inhabitants
from harmful solar
UV and
UVC
radiation.
They
also
can
lead
the
emission
of
GHGs,
which
alters
the
global
climate.
Refrigerants
used
in
the
refrigeration
cycle
of air
conditioning
systems
and
heat
pumps
have
played
a significant
factor
in
both.
CFC
and HCFC
refrigerants are potent ODSs, while CFC, HCFC, and HFC
refrigerants all contribute to GHG emissions.
While emissions
from ODS
have started
to fall
and the
ozone layer
slowly heal,
there remains
an active
need for
safe
and
effective
means
of
controlling
and
disposing
of
these
harmful
refrigerants.
PyroGenesis’
SPARC
system
uses
plasma technology
to destroy
CFCs, HCFCs
and HFCs,
including from
end-of-life cooling
apparatus. These
gases must
typically be destroyed when they cannot be recycled.
1
https://www.nvr.navy.mil/NVRSHIPS/FLEETSIZE.HTML.
2
https://www.alliedmarketresearch.com/waste-to-energy-
market#:~:text=The%20global%20waste%20to%20energy,4.6%25%20from%202020%20to%202027.
Table
of Contents
18
PyroGenesis
continues
to
explore
potential
applications
for
the
SPARC
technology,
especially
in
markets
with
limited conventional incineration capacity.
An example is the project initiated with The Trust for the Destruction of Synthetic
Refrigerants,
a
New
Zealand
government-mandated
organization,
in
which
the
SPARC
system
will
be
used
to
destroy
refrigerants and assist New Zealand in its ambitious goals
to reduce synthetic gas emissions.
Plasma Torch Market
A plasma
torch
is a
device
for generating
a
directed
flow
of
plasma
and,
as indicated
in
numerous
parts
of
this
document,
can
be
used
in
several
applications.
PyroGenesis’
plasma
torches
are
used
in,
among
other
things,
waste
treatment systems
(waste gasification
and vitrification),
its PAWDS
and PRRS
systems,
thermal spray
(plasma spray)
in
advanced materials production, and metallurgical applications.
Plasma torches can
be effective
and relatively
safe replacements
to conventional
fuel or gas
burners in industrial
furnaces. For
example, customers
use PyroGenesis’
patented pelletizing
apparatus
to perform
the induration
of iron
ore
concentrate pellets in
a tunnel
furnace heated by
plasma torches. By
using PyroGenesis’ electricity powered
plasma torches
instead of
burning natural
gas, heavy
oil, or
pulverized
coal to
power burners,
the generation
of harmful
GHGs
(notably
carbon dioxide) is greatly reduced relative to conventional iron ore
pelletizing processes.
The Company
sees excellent
potential for growth
in the
sale of plasma
torch systems.
The global
iron ore
pellets
market alone
already exceeds
US$45 billion
and the
demand for
iron ore
pellets is
expected to
near 540,000
kilotons by
2027.
3
To date, PyroGenesis
occupies only a fraction of this market. But given the global appetite for more environmentally
sustainable and economically viable industrial solutions, the Company expects more new and existing customers to look to
refit existing burners with its plasma torch systems and
considers itself well placed to see growth in this area.
Systems for the Recovery of Aluminum and Other
Metal from Dross
Dross is a by-product of the smelting process for aluminum
and other metals. As described early in this document,
dross presents
both a challenge
and an opportunity
for those in
the metallurgical
industry.
Dross is typically
composed of
both metal
and residue
and companies
want to
recover the
valuable metal
while treating
and/or disposing
of the residue,
which is usually contaminated.
Aluminum is one of the most popular metals in
the world. Global annual production of aluminum exceeds 65 million
metric tons
and, from
that aluminum
production, nearly
5 metric tons
of dross
is generated
annually.
4
While this
presents
exciting opportunities
for PyroGenesis,
it is
important to
note that
more than
half of
all aluminium
is produced
in China,
a
market that the Company
does not do much
business in and which
is traditionally complicated
to enter (for reasons
which
include
a
relative
lack
of
intellectual
property
protection,
restricted
market
conditions,
and
a
sometimes
politicized
commercial environment).
Over the past several years,
PyroGenesis has shifted its
DROSRITE marketing strategy from
a model focused on
selling
equipment
to
one
in
which
DROSRITE
is
offered
as
a
service
via
a
tolling
agreement.
In
a
tolling
arrangement,
PyroGenesis would build, own and operate the DROSRITE system and associated equipment for the aluminum smelter on
the smelter plant location. Although tolling revenues can vary widely
depending on the sector and geographic location, this
tolling model offers PyroGenesis the opportunity to
create recurring revenues.
Because the DROSRITE technology not only
allows users to recover valuable metal
but also treat dross and
create
valuable residues, PyroGenesis has the
opportunity to become a leader
as an onsite dross processor
that delivers a zero-
landfill/reduced carbon solution.
Production of High Purity Silicon Metals, Nano Powders and
Nanowires
Solar Industry
Solar photovoltaic (PV) systems have grown at a
tremendous rate. The International Energy Agency estimates that
Solar PV generation increased by a
record 179 TWh (up 22%)
in 2021 to exceed 1
000 TWh and already accounts for
3.6%
3
Iron Ore Pellets Market Size, Share & Trends Analysis Report By Product (Blast Furnace, Direct Reduced), By Trade (Captive,
Seaborne), By Region, And Segment Forecasts, 2020 – 2027. See https://www.grandviewresearch.com/industry-analysis/iron-ore-
pellets-market.
4
On trending technologies of aluminium dross recycling: A review, by Ankur Srivastava and Arunabh Meshram (March 2023). See
https://www.sciencedirect.com/science/article/abs/pii/S0957582023000113
Table
of Contents
19
of global
electricity
generation5. Solar
grade silicon
metal (SOG
Si), used
in manufacturing
solar cells,
is a
key material
needed to meet the growing demand for solar energy. Each new gigawatt of solar energy capacity requires 5,000 tonnes of
solar grade silicon metal and strong demand is expected to fuel
growth.
Battery Industry
Battery manufacturing is another
high-growth industry. The lithium-ion battery market size
is estimated to grow
from
US$44.2
billion
in
2020 to
US$94.4
billion
by
2025,
equivalent
to
a
compound
annual
growth
rate
of
16.4%.
6
Research
indicates that
replacing graphite
with nano
silicon powders
could allow the
manufacturing of
high-performance lithium-ion
batteries with the capability of delivering an almost
tenfold (10x) increase in anode capacity,
inducing a 20-40% gain in the
energy density of
the next generation
of lithium-ion batteries
7
.
Manufacturing of silicon
nano powders is
not yet commercially
feasible with selling prices of US$30,000/kg.
8
Production of Fuming Silica
Fumed
silica
(pyrogenic
silica)
is
a
white
microscopic
powder
with
high
surface
area
and
low
bulk
density.
Its
commercial applications encompass various industries including personal care, pharmaceuticals,
agriculture (food & feed),
adhesives, sealants, construction, batteries and automotive to name a few. Demand for fumed silica is growing but present
manufacturing processes are hindering its growth potential
9
.
Production of High Purity Spherical Metal Powders
The
global
metal
additive
manufacturing
(also
known
as
the
3D
printing)
continues
to
see
strong
growth
and
is
expected to
continue to
expand. The
market size
reached US$
6.36 billion
in 2022
and is
expected to
reach US$
22.60
billion by 2030.
10
At present, PyroGenesis
focuses its additive
manufacturing sales and
marketing efforts on
titanium and its
alloys.
Titanium is a
highly sought-after material
in the aeronautical, biomedical,
and high-end automotive
industry due to its
high
strength, low density, high fracture toughness, excellent corrosion resistance and superior biocompatibility. Titanium
is also
a high margin
material (in part
because of its
attributes and desirability).
PyroGenesis will consider
additional high margin
materials to maximize the potential of its NEXGEN technology.
While plasma atomized powders can be of a higher
quality than gas atomized powders, their widespread
adoption
has so far been limited
by their higher price.
In addition to PyroGenesis,
some of the key
players in the making
of additive
manufacturing powders through plasma
atomization are 6K Additive,
Tekna
Advanced Materials, and AP&C,
which is part
of GE. With its
NEXGEN technology,
PyroGenesis aims to
gain a competitive advantage
in the market by
producing high-
quality powder by
plasma atomization
at rates comparable
to gas atomization,
all while maximizing
the yield of
powder in
the preferred size range for additive manufacturing.
PyroGenesis’ additive manufacturing sales
and marketing efforts are
done on an international footing.
Through an
exclusive
distribution
agreement,
Aubert
&
Duval
supports
PyroGenesis’
sales
in
the
European
market.
PyroGenesis
continues
its
own
sales
efforts
in
the
North
American
and
Asian
markets
and
is
in
frequent
discussions
with
potential
customers,
including
well-established
aerospace
companies.
PyroGenesis
draws
on
its
plasma
torch
and
powder
production expertise to design and develop its own torches
and equipment for additive manufacturing.
Renewable Natural Gas
The biogas industry
is well established
on a
global level and
remains strong in
North America. Investments
in biogas
production and purification represent approximately $20 billion.
There are many RNG plants in operation or in development
and the market for RNG purification remains highly competitive.
5
Solar PV Report, by Piotr Bojek (September 2022). See https://www.iea.org/reports/solar-pv
6
Markets and Markets: “Lithium-Ion Battery Market – Global Forecast to 2025”.
7
Chemical Engineering News: “In the Battery Materials World, the Anode’s Time Has Come”, Volume
97, Issue 14 (2019).
8
HPQ-Silicon Resources Inc.: Innovative Silicon Solutions, 2020.
9
https://hpqsilicon.com/press-release/hpq-silicon-and-pyrogenesis-sign-an-agreement-to-develop-a-new-environmentally-friendly-
process-to-manufacture-fumed-silica/
10
“Metal 3D Printing Market Size to Hit $22.60 Billion by 2030”, by Grand View Research, Inc. (September 13, 2022). See:
https://www.prnewswire.com/news-releases/metal-3d-printing-market-size-to-hit-22-60-billion-by-2030---grand-view-research-inc-
301623035.html
Table
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20
6.6.
Growth Strategy
As interest in the Company’s products and services
has increased and the variety of uses for its core technologies
has
expanded,
the
Company
has
evolved
its
strategy
to
concentrate
its
solution
set
under
three
categories.
These
categories represent economic drivers that are key to
global heavy industry:
Energy Transition & Emission Reduction:
•
fuel
switching,
utilizing
the
Company’s
electrically
powered
plasma
torches
and
biogas
upgrading
technology to help reduce fossil fuel use and greenhouse
gas emissions.
Commodity Security & Optimization:
•
recovery of viable metals, and optimization
of production to increase output, to
maximize raw materials and
improve availability of critical minerals.
Waste Remediation:
•
safe destruction of
hazardous materials, and
the recovery and
valorization of underlying
substances such
as chemicals and minerals.
Currently,
within
each
category
the
Company
offers
several
solutions
in
different
stages
leading
up
to
commercialization, including the partial list in the diagram
below:
Going forward,
the Company’s
efforts will
be focused
around helping
customers overcome
challenges within
this
spectrum. More
information
can be
found on
each of
these solutions
and the
markets in
which they
operate above
(see
“Products and Services” and “Markets and Opportunities”)
Levering off its expertise in ultra-high temperature industrial processes, the Company typically aims to introduce its
products to markets by selling to, or partnering with,
industry-leading companies. These industry leaders not
only bring the
credibility sought when introducing new
technology but also valuable insight into
the market and potential
customers as well
as important market
feedback. This corporate
strategy of
leveraging off
these strategic partnerships
seeks growth
geared
at (i) broadening the customer base and (ii)
increasing sales to existing customers. Each of the Company’s existing product
lines has been, or
is in the process
of being, vetted or
adopted by industry
leaders. The Company
also seeks eco-friendly
business, primarily targeting offerings that reduce GHGs as opposed
to those who do not. As
part of its growth strategy, the
Company
will
also
selectively
consider
opportunities
to
broaden
and
enhance
its
product
and
market
scope
through
acquisitions.
6.7.
Employees
The Company had, as of December
31, 2022, 107 part-time and
full-time employees. Pyro Green-Gas
has 9 part-
time and full-time employees.
Table
of Contents
21
The Company prides
itself in hiring
talented individuals
with a complementary
mix of professional
experience and
industry
knowledge.
The
Company
continues
to
develop
a
working
environment
wherein
everyone
is
valued
for
their
contribution
to
the
team
and
rewarded
for
their
accomplishments.
The
Company
believes
that
it
has
one
of
the
highest
concentrations of plasma expertise under one roof in the world. As of December 31, 2022, all of the Company’s employees
were non-unionized.
6.8.
Facilities
The headquarters of the Company
are located at 1744 William
Street, Suite 200, Montréal, Québec,
Canada, H3J
1R4
in
leased
premises,
which
are
leased
from
the
Pascali
Trust,
a
related
party
of
which
P.
Peter
Pascali,
the
Chief
Executive Officer of the
Company,
is a trustee, officer
and beneficiary.
See “Directors and Executive
Officers - Conflicts
of
Interest”.
The Company operates two manufacturing facilities, one facility which is 40,902 sq. ft. (3,800 m2) and is located at
5655 Philippe-Turcot,
Montréal, Québec,
Canada, H4C
3K8 (the “Turcot
Facility”) and
the second
facility which
is 31,632
sq.
ft.
(2,939
m2)
and
is
located
at
9371
Wanklyn
Street,
LaSalle,
Québec,
Canada,
H8R
1Z2
(the
“Wanklyn
Facility”).
These facilities are used
to manufacture systems, produce metal
powders, and host various
pilot systems for demonstration
and testing, as well as to provide spare parts to the Company’s
existing client base.
The
Company
leases
the
Wanklyn
Facility.
Although
the
Company
continues
to
pay
rent
pursuant
to
a
lease
agreement for the Turcot
Facility,
it exercised its contractual
option to purchase the
property in 2022. The
exercise of said
option
and
the
ownership
of
the
Turcot
Facility
are
the
subject
of
legal
proceedings
described
below
(see
“Legal
Proceedings”).
The Company’s subsidiaries Pyro Green-Gas, Air Science
Technologies
Private Limited and Air Science
Italia S.r.l.
lease office premises in Montreal (Québec, Canada),
India and Italy,
respectively.
6.9.
Distribution Methods
The
Company
sells
its
products
and
systems
primarily
through
direct
sales
by
its
own
internal
sales
team.
The
marketing of the Company’s products is provided
by its internal sales and marketing group located
in Montréal, Canada.
Under a mutual exclusive agreement with Aubert &
Duval, PyroGenesis supplies plasma atomized titanium powder
to Aubert & Duval for distribution to the additive
manufacturing market in Europe. In addition, Drosrite
International has the
right to
manufacture,
market,
sell
and
distribute
DROSRITE
systems
and
the
DROSRITE
technology
in
the
Kingdom
of
Saudi Arabia and certain other countries in the Middle
East, on an exclusive basis. See “Directors and
Executive Officers -
Conflicts of Interest”.
The business
of the
Company is
neither cyclical
nor seasonal.
The Company’s
products have
long sales
cycles,
which are generally unaffected by seasonal variations.
The Company’s agreements are
typically for the
sale of equipment. The
Company gets paid on
milestone payments
that reflect progress on the projects. Usually,
the Company tries to also obtain advance payments. For the sale of powders
and parts, the Company generally invoices and gets paid
upon delivery.
6.10.
Intellectual Property and Research and Development
The intellectual property and proprietary rights of
PyroGenesis as well as its research and development
efforts are
important
to
its
business.
Considering
the
time
and
investment
required
to
develop
new
products
and
obtain
marketing
authorization,
the
Company
places
considerable
importance
on
protecting
its
research
findings,
trade
secrets
and
technologies.
Intellectual Property
In
efforts
to
secure,
maintain,
and
protect
its
intellectual
property,
proprietary
rights
and
exclusive
technology,
PyroGenesis
relies
on
a
combination
of
patents,
trademarks,
trade
secrets,
and
other
rights
as
well
as
licenses,
non-
disclosure agreements, and various other contractual arrangements. Nothing, however,
can guarantee that the Company’s
protective measures are sufficient to prevent illicit or wrongful appropriation or misuse of its technology or the development
of the same or similar technology by a third part
y.
Table
of Contents
22
Tradenames and Trademarks
PyroGenesis uses
the following
tradenames and trademarks
in connection
with the
sale of
its services
and products,
some of which are registered:
●
PYROGENESIS
●
PYROGENESIS ADDITIVE
●
PYROGENESIS ALUMINUM
●
PYRO GREEN-GAS
●
AIRSCIENCE TECHNOLOGIES
●
NEXGEN
●
DROSRITE
●
PUREVAP
●
SPARC
●
APT
●
APT-HP
●
RPT
●
MINIGU
●
SPT
●
PAWDS
●
PACWADS
●
PPRS
●
PAGV
●
AVITA
The tradenames and logos are used
everywhere the Company does business and the
common law trademarks are or have
been used
in connection
to the
sale of
specific products.
In addition,
PyroGenesis has
registered trademarks
or filed
for
registered
trademark
protection
in
the
following
jurisdictions:
Australia,
Brazil,
Canada,
China,
European
Union,
United
Kingdom, Indonesia, Israel,
India, Japan,
Korea (Republic
of), Mexico, New
Zealand, Russian
Federation, Turkey,
United
States and Vietnam.
Patents
As of March 1, 2023, the
Company owned a total of
148 patents (32 granted,
116 pending)
relating to its products
and processes.
Research & Development
The
Company’s
competitive
strategy
includes
a
strong
innovation
culture
and
a
long-standing
commitment
to
performing research and development.
The Company’s research
and development projects in various
areas, including but
Table
of Contents
23
not limited
to, the
production
of metallic
powders and
the development
of plasma
torches, are
performed and
conducted
internally out of its Montréal facility.
As
of
February
27,
2023,
the
Company
employed
twelve
engineers,
scientists
and
technicians
who
are
fully
dedicated to research and development projects. Separately, the Engineering and Process Startup and Optimization teams
are also involved
in research
and development
projects. Most
research and
development projects
are funded
by external
customers or government
grants and are
initiated to respond
to a specific
customer need. Follow
-on work and
equipment
sales can often result from these initial
research and development projects. Research and development projects are mainly
focused on product extension.
Internal research and
development expenses vary
widely from year to
year and depend on
Company priorities.
6.11.
Environmental Protection
The Company currently has active permits, including from the City
of Montréal, to carry out manufacturing activities
at the Wanklyn Facility and conduct research
and development and operate production systems at the
Turcot Facility.
The Company usually needs to
apply for a new permit each time
a new project involving testing occurs.
There are
no costs to these permits except the time required to
prepare the documentation for the City of Montréal. The time to
obtain
a permit is usually between two and four months.
6.12.
Foreign Operations
The Company, through its subsidiaries Air
Science Technologies Private Limited and Air Science
Italia S.r.l., carries
out operations in
India and Italy, respectively. The Company is in
the process of developing
a European operational strategy
to produce titanium metal powders
on the European continent. The
Company continues to consider expanding its
corporate
footprint in other jurisdictions, including the United States.
6.13.
Competition
PyroGenesis competes with
a substantial number
of companies in
the industries in
which it operates,
some of which
have greater technical and financial resources.
There can be no assurance that such
competitors are not already devoting
(or will not
devote in the
future) substantially
more resources
to the development
and marketing
of products
and services
that compete
with
those
of
the Company
or that
new
or existing
competitors
will
not enter
the
various
markets
in which
PyroGenesis is
active. There
can be
no assurance
that competitors
will not
develop new
and unknown
technologies with
which
the
Company
may
have
difficulty
competing.
Furthermore,
failure
to
remain
cost
competitive
may
result
in
PyroGenesis losing business to its competitors.
For
example,
the
Company
faces
competition
from
Europlasma
in
the
waste
destruction
and
waste-to-energy
systems markets, the Company faces competition from Altek, a division of Harsco Corp., in the systems for the recovery of
aluminum and
other metal
from dross
market, and
the Company
faces competition
from AP&C,
a GE
Additive company,
and Tekna,
a portfolio company
of Arendals Fossekompani
ASA, in the
production of high
purity spherical
metal powders
market.
Several companies
in the
world develop
and promote
thermal plasma
torches, most
notably Europlasma
S.A. in
France, Scanarc Plasma
Technologies
AB in Sweden,
Tetronics
Technologies
Ltd. in the
UK, Phoenix Solution
Company
in the USA, and Plazarium in Russia and Germany.
7.
Dividends and Distributions
The Company has
not paid any
dividends, has no
policy on paying
dividends or distributions,
and has no
present
intention to pay dividends. The Company currently intends
to reinvest any earnings to fund the development
and growth of
its
business.
Any
future
payments
of
dividends
will
be
at
the
discretion
of
the
Board
and
will
depend
on
many
factors,
including, among other things, the Company’s
financial condition, current and anticipated capital
requirements, contractual
requirements, solvency tests imposed by applicable corporate
law and other factors it may deem relevant.
8.
Description of Capital Structure
Table
of Contents
24
8.1.
Share Capital and Issued and Outstanding Shares
The sections
below describe some
of the
material terms of
the Common Shares
and the
number of
Common Shares
issued and outstanding. These descriptions are not
meant to be exhaustive and are
subject to, and qualified in their
entirety
by reference to, the terms and provisions of the Company’s
articles of incorporation (the “
Articles
”).
Description of Common Shares
The Company
is authorized
to
issue
an
unlimited
number
of
Common
Shares
without
par
value.
Subject
to the
rights,
privileges,
restrictions
and
conditions
attaching
to
any
preferred
shares
authorized
in
the
future,
the
rights
of
the
holders of Common Shares, as a class, are equal in all respects
and include the following rights:
•
Voting: The right to vote at
any meeting of shareholders;
•
Dividends:
The
right
to
receive,
as
and
when
declared
by
the
directors
of
the
Company,
any
dividends
payable on such dates, for
such amounts and at such
place or places as the
Board may from time to
time
determine; and
•
Liquidation
or
Dissolution:
The
right
to
receive
the
remaining
property
of
the
Company
on
liquidation
or
dissolution.
Outstanding Common Shares
As at the date of this AIF,
there were 178,580,395 Common Shares issued and
outstanding.
8.2.
Stock Options and Warrants
The following table sets forth, as of the
date of this AIF,
the aggregate number of exchangeable securities
that are
outstanding.
Number of exchangeable
Number of listed
Description of Security
securities
securities
Stock Options
(1)
9,815,500
9,815,500
Warrants
(2)
6,014,600
6,014,600
Notes:
(1)
Details
of stock
options outstanding:
(i) 300,000
stock options
exercisable at
a price
of
$0.51 until
July 3,
2023, (ii)
100,000 stock
options
exercisable at a price
of $0.51 until September
29, 2024, (iii) 100,000
stock options exercisable at
a price of
$0.45 until January 2,
2025, (iv)
2,195,500 stock options exercisable at a price of
$4.41 until July 16, 2025 (v) 50,000 stock options
exercisable at a price of $4.00 until October
26, 2025, (vi) 550,000 stock options exercisable
at a price of $8.47 until April
6, 2026, (vii) 200,000 stock options
exercisable at a price of $6.59
until June 1, 2026,
(viii) 100,000 stock options
exercisable at a price of
$6.70 until June 14,
2026, (ix) 100,000 stock
options exercisable at a
price of $5.04 until
October 14, 2026, (x) 1,920,000
stock options exercisable at a
price of $3.13 until December
17, 2026, (xi) 100,000 stock
options exercisable at a price
of $3.61 until December 30,
2026, (xi) 450,000 stock
options exercisable at a
price of $3.33 until January
3, 2027,
(xii) 400,000 stock options exercisable at a
price of $2.96 until April 5,
2027, (xiii) 1,500,000 stock options exercisable at
a price of $3.88 until
June 2, 2027, (xiv) 125,000 stock options exercisable
at a price of $2.14 until July 20, 2027, (xv)
1,625,000 stock options exercisable at a price
of $1.03 until January 2, 2028.
(2)
For more
details on
the share
purchase warrants
outstanding, please
refer to
the Company’s
audited consolidated
financial statements
and
related notes thereto for the year ended December
31, 2022.
9.
Market for Securities
9.1.
Trading Price and Volume
The Common Shares are listed on the
TSX under the symbol “PYR”. The
following table sets forth, for the periods
indicated, the reported
high and low
prices and the
aggregate volume
of trading
of the Common
Shares on
the TSX. The
Common Shares are also
listed on the
NASDAQ since March 11, 2021, under the symbol
“PYR” and on
the Frankfurt (FRA)
exchange under the symbol “8PY”.
Table
of Contents
25
Period
High ($)
Low ($)
Average Daily
Trading Volume
January 2022
3.89
2.19
424,821
February 2022
3.90
2.20
402,998
March 2022
3.23
2.02
199,866
April 2022
3.13
2.30
219,418
May 2022
3.35
2.16
250,945
June 2022
3.89
2.30
284,496
July 2022
2.61
1.54
267,611
August 2022
2.42
1.74
194,559
September 2022
2.08
1.51
167,318
October 2022
1.68
0.94
324,916
November 2022
1.39
0.97
268,102
December 2022
1.14
0.84
221,204
9.2.
Prior Sales
The following table summarizes
the issuances of
unlisted securities of the
Company during the financial year ended
December 31, 2022.
Number of
Price
Securities
Per
Total
Date of Grant
Type of Security
Issued
Issued
Security
Consideration
January 3, 2022
Stock Options
450,000
$
3.36
n/a
April 5, 2022
Stock Options
400,000
$
2.96
n/a
June 2, 2022
Stock Options
1,500,000
$
3.88
n/a
July 13, 2022
Stock Options
125,000
$
2.14
n/a
October 19, 2022
Warrants
1,014,600
$
1.75
n/a
10.
Directors and Executive Officers
The Articles of the
Company provide for a minimum
of three directors and a
maximum of 15 directors. Each
director
holds office until the close of
the next annual general meeting of
the Company,
or until his or her successor
is duly elected
or appointed, unless his or her office is earlier vacated.
10.1.
Name and Occupation
The following table lists the names of the directors and executive officers of the Company as of the date of this AIF
and
their
province/state
and
country
of
residence,
their
positions
and
offices
held
with
the
Company,
their
principal
occupations during
the past
five years,
the date
on which
they first
became officers
or directors
of the Company,
and the
number
and
percentage
of
Common
Shares
which
is
beneficially
owned,
directly
or
indirectly,
or
over
which
control
or
direction is exercised, by each of them.
Table
of Contents
26
Name,
Positions
Committee
Director or
Principal
Number (and
Province/State
and Offices
(s) of the
Officer of
Occupation for the
Percentage) of
and Country
Held with
Board of
the
Previous Five Years
Common
the
Directors
Company
Shares Owned
Company
Since/Until
or Controlled
P.
Peter Pascali
President
None
2006
President and Chief
Executive Officer of the
Company since 2006.
80,925,698
(1)
Chief Executive Officer
Chair of the Board of
Directors
(45.32)%
Québec, Canada
Pierre Carabin
Chief Technology
Officer & Chief
Strategist
None
2006
Chief Technology
Officer & Chief Strategist
of the Company since
- Previously, Chief
Technology officer from
2016 to 2018.
506,500
(0.28)%
Québec, Canada
Alan Curleigh
Independent Director –
Board of Directors
Chair of the Board of
Directors
2023 (Also a
Director and
Chair from
2010 until 2019
Corporate director (was
Chair of the Board of
Directors of the Company
from 2010 until 2019)
60,000
(0.03)%
Québec, Canada
Robert M. Radin
Lead Independent
Director – Board of
Directors
Member of the Audit
Committee
2012
President of Radin &
Associates Consulting,
LLC since 2011.
673,500
Chair of the
Compensation
Committee
Member of the
Nominating and
Corporate Governance
Committee
Member of the
Strategic Initiatives
Committee
(0.38)%
South Carolina, USA
Andrew Abdalla, CPA, CA
Independent Director –
Board of Directors
Chair of the Audit
Committee
2018
Senior Partner at
chartered accountancy
and business advisory
firm MNP LLP.
107,800
Member of the
Compensation
Committee
Member of the
Nominating and
Corporate Governance
Committee
(0.06)%
Québec, Canada
Dr. Virendra Jha
Independent Director –
Board of Directors
Chair of the
Nominating and
Corporate Governance
Committee
2019
Corporate director
100,000
Table
of Contents
27
Member of the
Compensation
Committee
(0.06)%
Québec, Canada
Rodayna Kafal
Vice President,
Investor Relations and
Strategic Business
Development
Officer since
2016
Vice President, Investor
Relations and Strategic
Business Development of
the Company.
17,407
Director – Board of
Directors
Director since
2020
(0.01)%
Québec, Canada
Nannette Ramsey
Independent Director -
Board of Directors
Member of the
Compensation
Committee
2021
Corporate director
1,000
Member of the
Nominating and
Corporate Governance
Committee
Chair of the Strategic
Initiatives Committee
(0.001)%
Florida, USA
Ben Naccarato
Independent Director –
Board of Directors
Member of the Audit
Committee
2021
Executive Vice President
and Chief Financial
Officer at Perma-Fix
Environmental
Services Inc.
350
Member of the
Compensation
Committee
Member of the
Strategic Initiatives
Committee
(0.0002)%
Georgia, USA
Andre Mainella
Chief Financial Officer
None
2021
Chief Financial Officer
since 2021
7500
Director of Consolidation
and Corporate
accounting, Cogeco
Communications Inc. until
2021
(0.004)%
Québec, Canada
Mark Paterson
General Counsel
None
2023
General Counsel since
2023
0
General Counsel of Tanet
Fintech Group Inc. from
2021-2022
Director - Legal Affairs of
Future Electronics Inc.
from 2010-2021
(0.00)%
Québec, Canada
Notes:
●
Mr.
Pascali
holds
66,642,941
Common
Shares
directly,
and
indirectly
holds
or
controls
(i)
7,251,000
Common
Shares
through
a
holding
company,
8339856
Canada
Inc.,
of
which
he
is
the
sole
shareholder,
(ii)
4,000,000
Common
Shares through
a foundation,
The
2 Percent
Solution
Foundation,
and
(ii)
3,031,757
Common
Shares
Table
of Contents
28
through the
Pascali Trust,
a family
trust of
which he
is a
trustee, officer
and a
beneficiary.
“Description of
Capital
Structure - Stock Options ”.
All
executive
officers
of
the
Company
are
full
time
employees
of
the
Company
and
none
are
independent
contractors.
As of the date of
this AIF, the directors and executive officers of the Company, as a group, beneficially own, directly
or indirectly, or exercise control or direction over,
an aggregate of 82,399,755 Common Shares representing 46.14% of the
issued and outstanding Common Shares.
10.2.
Biographies
The following
biographies provide certain
selected information in
respect of
the persons who
are serving
as directors
and executive officers of the Company:
P.
Peter Pascali – President and, Chief Executive Officer
and Director
Mr. P.
Peter Pascali, after
graduating with an
MBA from McGill
University in 1983,
became an investment
banker
specializing in
mergers and
acquisitions and
public offerings.
He initially
worked for
the Bank of
Nova Scotia
and then,
in
1987,
joined
Westpac
Banking
Company.
In
1989,
he
joined
DeGeorge
Financial
Company
as
a
strategic
advisor.
Mr.
Pascali
has
been
with
the
Company
since
its
incorporation
in
2006
where
he
has
been
responsible
for
developing
the
business
strategy
and
marketing
focus
for
commercializing
the
Company’s
technologies
and
running
the
business.
Mr.
Pascali continues to develop the Company’s strategy and oversee the operational management as the President and Chief
Executive Officer.
In his leadership role, Mr.
Pascali spearheads the Strategic Management
Team
which is responsible for
the strategic planning and execution of the Company’s
business plans.
Alan Curleigh – Director and Chair of the Board of Directors
Alan Curleigh
has a
wealth
of experience
in
international
business,
capital
projects,
and board
governance.
For
many years
he was
a senior
executive and
Board member
of a
leading Canadian
engineering contracting
company.
Mr.
Curleigh subsequently served
as a
representative on multiple
corporate boards and
associations. Most notably, Mr. Curleigh
was
federally
appointed
by
Canada’s
International
Trade
Minister
to
Chair
the
Board
of
Directors
of
the
Canadian
Commercial Corporation,
a crown
corporation mandated
to support
the growth
of international
trade by helping
Canadian
exporters
gain
access
to,
and
negotiate
with,
foreign
government
procurement
markets
–
a
role
he
held
for
7
years.
Additionally, Mr.
Curleigh was Chair of the Audit Committee for Veterans
Affairs Canada, was the Chair of the Board of the
Canadian Manufacturers
and Exporters, Canada’s
largest industry
association, was a
board member and
treasurer of the
Canadian Exporters Association;
and a
Board Member for
NorthStar Trade Finance. Mr. Curleigh
has been a
visiting Faculty
Member at
the Directors
College, a
joint initiative
between The
Conference
Board of
Canada and
McMaster
University’s
DeGroote School
of Business
and Canada’s
premier school
of governance,
where he
has lectured
extensively on
Board
governance issues since
the school’s
inauguration. For his
many contributions to
leadership and business
in Canada, Mr.
Curleigh is the
recipient of numerous awards,
including the Queen Elizabeth
II Diamond Jubilee Medal
for dedicated service
to peers and country in building a stronger export sector
for Canada.
Robert M. Radin – Director,
Member of the Audit
Committee, Member of the
Nominating and Corporate Governance
Committee,
Chair of the Compensation Committee, and Member
of the Strategic Initiatives Committee
Robert M. Radin retired from
the U.S. Army in 2011
after serving for over 35
years and attaining the rank
of Major
General.
His
last
assignment
was
as
the
U.S.
Army
Assistant
Deputy
Chief
of
Staff,
G-4,
(Logistics),
the
Pentagon,
Washington,
DC. In
this position
he was
responsible for
policy development,
strategic planning
and budget
programming
for distribution,
logistics force structure,
readiness reporting, Army
pre-positions stocks, contingency
contracting and
support
of U.S. Army worldwide operations. Prior to
joining the Army Staff, he served as
the Commanding General of the U.S. Army
Sustainment Command
at Rock
Island, Illinois.
Other key
assignments include:
Deputy Chief
of Staff
for Operations
and
Logistics for the U.S. Army Materiel Command
from 2005 to 2007; Commanding
General of the Joint Munitions Command
from
2004
to
2005;
and
from
2003
to
2004
was
deployed
to
Kuwait
as
the
Commanding
General,
U.S.
Army
Materiel
Command-SWA and was responsible for support of U.S. land forces in Kuwait, Iraq, Afghanistan and Djibouti. After retiring
from the Army in
June 2011,
he founded Radin
& Associates Consulting,
LLC, a firm that
assists clients with
supply chain
related issues.
Mr.
Radin has
graduated from
the U.S.
Military Academy
at West
Point and
holds postgraduate
degrees
from the Florida Institute of Technology
and the National Defense University.
Table
of Contents
29
Dr. Virendra
Jha – Director,
Member of the Compensation
Committee,
and Chair of the Nominating
and Corporate
Governance Committee
Dr. Virendra Jha, member of the order
of Canada, has over 42
years of experience in the
Canadian Space Program
ranging from in-depth engineering work
to senior management positions in both
the private and the public
sectors. Dr. Jha
began his
space career
in 1972 when
he joined
the aerospace
group of
RCA Limited
Montréal, which
later became
Spar
Aerospace Limited. In 1988, he became the
Director of Engineering at Spar Aerospace
Limited. In 1991 Dr.
Jha joined the
Canadian Space Agency as
Director of the Space Mechanics
Group. In 1996, he
was promoted to the
position of Director
General, Space Technologies
Branch of the CSA. From 2003 till 2008, he was the
Vice-President responsible for Science,
Technology
and Programs
at the Canadian
Space Agency.
As Vice
President, Dr.
Jha provided strategic
direction, vision
and leadership to all
core technical sectors of
the Agency.
From November 2005 until
February 2006, Dr.
Jha also served
as the Acting President of the Canadian Space Agency.
He was Chief Engineering Adviser at the Canadian Space Agency
until his retirement in 2014.
Dr. Jha received his B. Tech. degree in Mechanical Engineering from the Indian Institute of Technology Delhi India,
his
Master’s
degree
in
Mechanical
engineering
from
McMaster
University,
Hamilton,
Canada,
and
his
Ph.D.
degree
in
Mechanical
Engineering
from
Concordia
University,
Montréal,
Canada
and
the
C.Dir.
(Chartered
Director)
Degree
from
McMaster
University,
Hamilton,
Canada.
Dr.
Jha’s
technical
contributions
in
Canadian
Space
Program
as
well
as
in
International
Space activities
have been
significant.
His leadership
and commitment
to the
profession
is reflected
by his
recognition and active participation in many groups, committees
and advisory boards.
Dr.
Jha currently
serves as
a director
on the
Board of
the Atomic
Energy of
Canada Limited,
a Canadian
federal
Crown corporation and Canada’s largest nuclear science
and technology laboratory.
Andrew Abdalla
– Director
,
Member of
the Compensation
Committee,
Member of
the Nominating
and Corporate
Governance Committee and Chair of the Audit Committee
Andrew Abdalla,
CPA,
CA, is
a partner
at MNP
LLP,
a leading
national accounting,
tax and
business
consulting
firm in Canada. Mr.
Abdalla brings to the Board
of Directors more than 20
years of strategic planning,
and tax advice, with
a specific focus on sales and income tax, acquisitions and divestitures, business valuations,
corporate reorganizations and
spinoffs. Mr. Abdalla
received his Chartered Professional Accountant
(CPA, CA)
designation in 1987. He holds a Bachelor
of Commerce and a graduate diploma in public accounting
from Concordia University in Montréal.
Rodayna Kafal – Director and Vice
President, Investor Relations and Strategic Business Development
Upon graduating
from McGill
University in
2009 (Bachelor’s
degree in
Chemical Engineering),
Ms. Kafal
took on
lead roles in process engineering at
the Natural Gas Technologies Centre in Montréal, Québec, where she was responsible
for
managing
a
number
of
high-level
projects.
Thereafter,
she
enrolled
in
a
two-year
graduate
program
in
Industrial
Engineering
and
Project
Management
at
École
Polytechnique
de
Montréal.
Ms.
Kafal
joined
PyroGenesis
with
a
strong
background
in
process
engineering,
combined
with
practical
experience
in
sales,
promotional
activities
and
business
relations. Ms.
Kafal has
been a
member of
PyroGenesis’ Strategic
Management
Group since
2016 where
she has
been
instrumental in providing input
into all aspects
of PyroGenesis’ growth and
represented the views of
the investor community.
As Vice President,
Investor Relations and
Strategic Business Development,
Ms. Kafal continues
to oversee PyroGenesis’
complete investor relations program, while managing the Company’s
marketing team.
Ben Naccarato – Director,
Member of the Compensation Committee, Member of the Audit Committee,
and Member
of the Strategic Initiatives Committee
Mr. Naccarato, CPA, CMA, is the Executive Vice-President and Chief Financial Officer at Perma-Fix Environmental
Services Inc., a NASDAQ-listed environmental
services company,
providing unique radioactive mixed and
industrial waste
management services. Mr.
Naccarato brings to the Board more
than 30 years of experience
in senior financial positions in
the environmental industry.
Mr. Naccarato
is a graduate
from the University
of Toronto
with a Bachelor
of Commerce and
Finance Degree as well
as being a Chartered Professional
Accountant and Certified Management Accountant (CPA, CMA).
Nannette
Ramsey –
Director,
Member
of
the
Compensation
Committee,
and
Chair
of
the
Strategic
Initiatives
Committee
Ms.
Ramsey
holds
undergraduate
degrees
in
Economics,
Engineering
and
an
MBA.
She
brings
process
engineering and machining and
materials expertise from Caterpillar
Tractor Company,
J.I. Case and more recently
served
as the
Site Manager
and Associate
Director
of Engineering
for Edgewood
Chemical
Biological Center’s
site at
the Rock
Table
of Contents
30
Island Arsenal
in Illinois.
She was
responsible for
strategic planning,
budgeting, industrial
base analysis,
engineering and
testing, quality assurance and information technology solutions
to a variety of customers.
Pierre Carabin – Chief Technology
Officer and Chief Strategist
Mr.
Pierre
Carabin,
P.
Eng.,
has
over
thirty
years
of
experience
in
process
engineering
and
environmental
technologies. Throughout
his 23
years at
PyroGenesis,
he has
been instrumental
in the
development
of the
Company’s
various
technology
platforms.
He
is
the
inventor
or
co-inventor
of
more
than
one
hundred
pending
and
issued
patents
relating to high temperature chemical processes.
As Chief Technology
Officer,
he leads PyroGenesis’ engineering team in
the design and development of plasma systems and is also member of the Company’s Strategic Management Team
which
is responsible for the strategic planning and execution
of the Company’s business plan.
Prior
to
joining
PyroGenesis
in
1998,
Mr.
Carabin
worked
in
the
pulp
and
paper
industry
for
8
years,
notably
developing
paper
recycling
machinery.
Mr.
Carabin
holds
a
Master’s
degree
in
Chemical
Engineering
with
honors
from
McGill University,
and, to
date, he
has contributed
to more
than 50
technical communications
for various
journals and
at
technical conferences. Mr.
Carabin also volunteers
for the Air
and Waste
Management Association
(AWMA)
and Ecotech
Québec, the cleantech cluster in Québec.
Andre Mainella – Chief Financial Officer
Upon graduating from Concordia University,
Mr. Mainella has since then accumulated
over 20 years of experience
in accounting.
Andre began his
career at Raymond
Chabot Grant Thornton.
As a senior
audit manager,
he worked on
a
diverse
list
of
audit
and
non-audit
related
mandates
for
private
and
publicly-traded
companies.
His
broad
experience
includes clients in various business sectors such as
manufacturing, distribution, retail, real estate and airlines.
Mr. Mainella
had
the
opportunity
to
assist
in
the
implementation
of
accounting
standards,
initial
public
offerings
as
well
as
business
acquisitions and divestitures.
From 2013
to
2015,
Mr.
Mainella
occupied
the
role
of
finance manager
for the
Canadian
operations
of
Orica,
a
provider of
commercial explosives
and blasting
systems for
the mining
and construction
sectors.
Andre was
responsible
for the
financial information,
budgeting &
forecasting, in
addition to
advising on
new sales
contracts and
capital projects,
among others.
Subsequently,
Mr.
Mainella
joined
Cogeco,
a
telecommunications
and
media
company,
as
their
director
of
consolidation
and
corporate
accounting.
He
managed
the
activities
of
corporate
accounting,
shared
services,
and
the
consolidation of
the Canadian
and American
financial results.
Mr.
Mainella was
part of
the Cogeco
corporate team
for 6
years
and
contributed
in
various
manners
to
the
implementation
of
the
company’s
numerous
acquisitions,
enterprise
resource planning implementation, new accounting standards,
and involvement in the corporate insurance policies.
Mr.
Mainella
received
his
Chartered
Professional
Accountant
designation
in
2001.
He
holds
a
Bachelor
of
Commerce and a graduate diploma in public accounting
from Concordia University in Montreal.
Mark Paterson – General Counsel
Mark Paterson is a senior business lawyer with comprehensive corporate
and commercial experience, including in
senior in-house roles as
well as private practice.
He has an
extensive legal understanding in
a wide array of
areas, including
in contract negotiations,
M&A management, conflict
resolution, human resources,
and corporate and
regulatory compliance.
Prior
to
joining
PyroGenesis,
Mr.
Paterson
was
General
Counsel
for
Tenet
Fintech
Group,
a
publicly
traded
company
specialized in
innovative fintech
and AI
applications. From
2010 to
2021, he
served as
Director –
Legal Affairs
for Future
Electronics, a large, multinational distributor of electronic components. Before joining
Future Electronics, Mr. Paterson was
General
Counsel
and
Vice-President
of
Strategic
Alliances
for
Luxury
Retreats,
a
provider
of
high-end
vacation
accommodations.
He began
his
legal career
at Fasken,
one
of the
leading business
law firms
in Canada,
working in
its
corporate
law
department.
Mr.
Paterson
is
a
member
of
the
Quebec
bar
and
holds
BCL
and
LLB
degrees
from
McGill
University. He also
holds a B.A. from Bishop’s University.
10.3.
Cease Trade Orders, Bankruptcies,
Penalties or Sanctions
Except as
indicated below,
to the knowledge
of the Company,
no director
or executive
officer of
the Company
is,
as
at
the
date
of
this
AIF,
or
was
within
10
years
before
the
date
of
this
AIF,
a
director,
chief
executive
officer
or
chief
financial officer of any company (including the Company), that: (a) was subject
to a cease trade order, an order
similar to a
cease trade
order,
or an
order that
denied such
company access
to any
exemption under
securities legislation
(each an
Table
of Contents
31
“
Order
”) that was issued while the director or executive officer was acting in the capacity as director, chief executive officer
or chief financial officer, or (b) was subject to an Order that was issued after the director or executive officer ceased to be a
trustee, director,
chief executive
officer or
chief financial
officer and
which resulted
from an
event that
occurred while
that
person was
acting in
the capacity
as director,
chief executive
officer or
chief financial
officer.
As announced
on February
23, 2023
by the
Company,
the AMF
issued an
order suspending
a private
placement of
units of
the Company.
The AMF
alleged in the order that the Company did not satisfy all of the requirements
necessary to complete the financing under the
listed issuer financing exemption under Part 5A of National
Instrument 45-106 – Prospectus Exemptions.
To
the knowledge
of the
Company,
no
director
or executive
officer
of the
Company,
or a
shareholder
holding
a
sufficient number of securities
of the Company to
affect materially the
control of the Company,
(a) is, as at
the date of this
AIF,
or has been
within the
10 years
before the date
of this
AIF,
a director or
executive officer
of any company
(including
the
Company)
that,
while
that
person
was
acting
in
that
capacity,
or
within
a
year
of
that
person
ceasing
to
act
in
that
capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or
instituted
any
proceedings,
arrangement
or
compromise
with
creditors
or
had
a
receiver,
receiver
manager
or
trustee
appointed to hold its assets; or (b) has, within
the 10 years before the date of this
AIF,
become bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement
or compromise
with creditors,
or had a
receiver,
receiver manager
or trustee
appointed to
hold the
assets of
the director,
executive officer or shareholder.
To
the knowledge
of the
Company,
no
director
or executive
officer
of the
Company,
or a
shareholder
holding
a
sufficient
number
of
securities
of
the
Company
to
affect
materially
the
control
of
the
Company
has
been
subject
to
any
penalties
or
sanctions
imposed
by
a
court
relating
to
securities
legislation
or
by
a
securities
regulatory
authority
or
has
entered into
a settlement
agreement with
a securities
regulatory authority,
or has
been subject
to any
other
penalties or
sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable
investor making
an investment decision.
10.4.
Conflicts of Interest
There are
potential
conflicts
of interest
to
which
the
directors
and officers
of the
Company
may be
subject
to
in
connection
with
the
operations
of
the
Company.
In
particular,
the
Pascali
Trust,
of
which
P.
Peter
Pascali,
the
Chief
Executive
Officer
of
the
Company,
is
a
trustee,
officer
and
beneficiary
is
the
landlord
under
the
lease
regarding
the
Company’s corporate headquarters. See “Business of the
Company - Facilities” and “General
Development of the Business
-
Year
Ended
December
31,
2020
-
Corporate
Developments
and
Financings”.
Over
the
past
three
completed
financial
years, P.
Peter Pascali has also participated in financings of the Company, and he may continue to do so in the future. See
“General Development
of the
Business -
Year
Ended December
31, 2020
- Corporate
Developments and
Financings”. In
addition
to
being
the
Chief
Executive
Officer
of
the
Company,
P.
Peter
Pascali
is
also
a
controlling
shareholder
of
the
Company. See “Risk
Factors - Influence of the Significant Shareholders”.
On October 9,
2019, Drosrite International, a
US-based private company owned
by Alex Pascali,
the son of
P. Peter
Pascali, entered
into the
Dross Processing
Service Agreement
with Radian
Oil &
Gas Services
Company,
an oil
and gas
services company operating in
the Middle East (the
“Dross Processing Service Agreement”). The
Dross Processing Service
Agreement
was
structured
as a
“BOOT”
agreement
(build,
own,
operate
and
transfer)
having
a
20-year
term
and
using
PyroGenesis’
DROSRITE
technology.
The Dross
Processing
Service Agreement
provides that
Drosrite
International
will
manufacture and
deliver to
Radian Oil
& Gas
DROSRITE TPY
systems which
will be
installed at
the aluminium
smelting
facility
of
Ma’aden
Aluminum
Company
located
at
Ras
Al-Khair,
in
Saudi
Arabia.
In
addition,
Drosrite
International
will
oversee the
installation of
the systems
at the
Ras Al-Khair
facility.
Drosrite International
will also
supply spare
parts over
the 20-year
duration of
the
Dross Processing
Service Agreement
and be
entitled to
receive
an annual
royalty.
The
total
value of
the
project
exceeds
US$17 million.
The amount
remaining
to be
collected
is approximately
US$9
million of
the
initial US$17 million purchase order with remaining billings of roughly US$1 million to be issued. There is also an additional
approximately
US$450,000
to
be
collected
for
transportation,
storage,
and
insurance
fees.
See
also
the
Company’s
consolidated
financial
statements
and
related
notes
for
the
year
ended
December
31,
2022,
and
the
management’s
discussion and analysis thereon.
In connection with the Dross Processing Service Agreement between
Drosrite International and Radian Oil & Gas,
the Drosrite International Exclusive
Agreement was entered into
between PyroGenesis and Drosrite
International on August
29, 2019, under which Drosrite International received the required rights from PyroGenesis
to perform its obligations under
its
agreement
with
Radian
Oil
&
Gas.
Under
the
Drosrite
International
Exclusive
Agreement,
PyroGenesis
will
receive
payments
equal
to
the
payments
received
by
Drosrite
International
under
its
Dross
Processing
Service
Agreement
with
Radian Oil & Gas.
Table
of Contents
32
The sole
director,
officer,
and shareholder
of Drosrite
International is
Alex Pascali,
an employee
of the
Company
and
the
son
of
P.
Peter
Pascali,
Chief
Executive
Officer
of
the
Company.
Drosrite
International
does
not
receive
any
management, administration or other fee from the Company.
Drosrite International is, on an accounting basis, a subsidiary
of the Company and
not a client, as
under applicable accounting standards the
Company is considered to effectively control
Drosrite
International.
The
Company
has
to
indemnify
Drosrite
International
for
any
claims
and
liabilities
incurred
in
connection with
the Drosrite
systems. The
Company’s
Drosrite technology
was protected
by patents
until 2017
and new
patent applications pertaining to the technology have been
filed before 2017, which patent applications are pending.
To the best of
the Company’s knowledge,
other than
as disclosed
in this
AIF, there are no
known existing
or potential
conflicts of interest among the Company, the directors and officers of the Company or other members of management or of
any proposed
promoter,
director,
officer
or other
member
of
management
as a
result of
their
outside
business
interests
except that
certain of the
directors and officers
serve as directors
and officers of
other companies, and
therefore it is
possible
that
a
conflict
may
arise
between
their
duties
to
the
Company
and
their
duties
as
a
director
or
officer
of
such
other
companies.
A director who has a
material interest in a matter
before the Board or any
committee on which he
or she serves is
required to disclose such interest as soon as the director becomes aware of it. In situations where a director has a material
interest
in
a
matter
to
be
considered
by
the
Board
or
any
committee
on
which
he
or
she
serves,
such
director
may
be
required to
absent himself
or herself
from the
meeting while
discussions and
voting with
respect to
the matter
are taking
place. Directors are also required
to comply with the relevant
provisions of applicable corporate
laws regarding conflicts of
interest. Under the CBCA, directors who have a
material interest in any person or entity that is a party
to a material contract
or a proposed material contract
with the Company are required under
the CBCA, subject to certain
exceptions, to disclose
that
interest
and
generally
abstain
from
voting
on
any
resolution
to
approve
such
a
contract.
In
addition,
directors
and
executive officers are required to act honestly
and in good faith with a view to the best interests of the
Company.
10.5.
Board Independence
The Board believes that sound
corporate governance practices
are essential to the effective,
efficient and prudent
operation of the Company and to the enhancement of
shareholder value.
Under National Instrument
58-101 - Disclosure
of Corporate Governance
Practices, a director
is considered to
be
independent if the director is independent
within the meaning of section 1.4
of
NI 52-110
. Pursuant to section 1.4 of NI
52-
110, an independent
director is a director who is free
from any direct or indirect relationship
which could, in the view of
the
board, be reasonably expected to interfere with a director’s independent judgment. Based on information provided by each
director concerning their background, employment
and affiliations, the Board has
determined that, of the eight directors on
the Company’s
Board, P.
Peter Pascali
and Rodayna
Kafal are
not independent
under section
1.4 of
NI 52-110
because
they are executive officers of the Company.
11.
Audit Committee and Other Committees
11.1.
Audit Committee
The
Company’s
Audit
Committee
is
responsible
for
assisting
the
Board
in
monitoring
the
performance
of
management in ensuring that
the Company is operating
in an ethical
manner and encouraging management
to demonstrate
a strong commitment to integrity.
The Audit Committee is also responsible for providing assistance to the Board in fulfilling
its financial reporting and
control
responsibilities
to
the
shareholders
of
the
Company
and
to
the
investment
community.
The
Audit
Committee’s
primary responsibilities in this regard are to: (i) oversee the accounting and financial reporting process of the Company and
the audit of its financial statements; (ii) monitor the Company’s financial reporting process and internal control systems; (iii)
review and
appraise
the audit
activities of
the Company’s
independent
auditors;
(iv) meet
periodically
with
management
and with the independent auditors; and (v) assess the relevance and reliability of the Company’s financial reports to ensure
they accurately portray the underlying economic circumstances
and financial performance of the Company.
Audit Committee Charter
The
Audit
Committee’s
mandate
is
to
promote
and
ensure
that
the
Company
complies
with
high
standards
of
financial reporting,
risk management
and ethical
behavior.
The Audit
Committee Charter
is attached
hereto as
Schedule
“A”.
Table
of Contents
33
Composition of the Audit Committee
The Audit Committee
is comprised of
three directors,
Messrs. Abdalla (Chair
of the Audit
Committee), Naccarato,
and Radin.
Each of
the three
members meets the
independence requirements for
members of
the Audit
Committee pursuant
to NI 52-110,
NASDAQ Rule
5605 and Rule
10A-3 under the
Securities Exchange
Act of 1934,
as amended.
Each of the
three members is financially literate within the meaning of NI 52-
11
0 and NASDAQ Rule 5605, has an understanding of the
accounting
principles
used
to
prepare
financial
statements
and
varied
experience
as
to
the
general
application
of
such
accounting principles, and
has an understanding
of the internal
controls and procedures
necessary for financial
reporting.
For additional details regarding the
education and experience of each
member of the Audit Committee,
see “Directors and
Executive Officers”.
Pre-Approval Policies and Procedures
The
Audit
Committee
must
pre-approve
all
non-audit
services
to
be
provided
to
the
Company
by
its
external
auditors.
External Fees by Audit Category
Fees incurred with the
auditors for audit and
non-audit services in the
last two fiscal years
for audit fees are
outlined
in the following table.
Fees paid to RCGT LLP in Fiscal
Fees paid to RCGT LLP in Fiscal
Year ended December 31,
2022
Year ended December 31,
2021
Audit Fees
(1)
$
531,818
$
325,500
Audit-Related Fees
(2)
$
13,000
$
—
Tax
-Related Fees
(3)
$
—
$
9,975
All Other Fees
$
57,725
$
21,000
Total
Fees
$
602,543
$
356,475
Notes:
(1) “Audit
Fees” include
fees necessary
to perform
the annual
audit of
the Company’s
consolidated financial
statements,
and for services that are normally
provided in connection with statutory
and regulatory filings or engagement
related to the
annual consolidated financial statements.
(2)
“Audit-Related
Fees”
include
translation
services
and
fees
for
accounting
consultations
on
matters
reflected
in
the
financial statements.
(3) “Tax
-Related Fees” includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes
assistance with tax audits and Research and Development
tax credits.
11.2.
Other Committees
In
addition
to
the
Audit
Committee,
the
Board
has
established
three
other
standing
committees,
namely
the
Nominating and Governance Committee, the Compensation
Committee, and the Strategic Initiatives Committee.
Nominating and Corporate Governance Committee
The Company’s
Nominating and
Corporate Governance
Committee consists
of four
directors, each
of whom
is a
person determined by
the Board to
be an independent
director, and
is charged with
reviewing, overseeing and
evaluating
the
Company’s
corporate
governance
and
nominating
policies.
The
Nominating
and
Corporate
Governance
Committee
comprises Dr.
Virendra Jha
(Chair), Andrew
Abdalla, Robert
M. Radin,
and Nannette
Ramsey.
The Board
has adopted
a
written
charter
setting
forth
the
purpose,
composition,
authority
and
responsibility
of
the
Nominating
and
Corporate
Governance Committee.
Table
of Contents
34
Compensation Committee
The Company’s Compensation
Committee consists of
five directors, each
of whom is a
person determined by
the
Board
to
be
an
independent
director,
and
is
charged
with
reviewing,
overseeing
and
evaluating
the
Company’s
compensation policies.
The Compensation
Committee comprises
Robert M.
Radin (Chair),
Andrew Abdalla,
Dr.
Virendra
Jha, Ben Naccarato and
Nannette Ramsey. The Board has adopted
a written charter setting
forth the purpose, composition,
authority and responsibility of the Compensation Committee.
Strategic Initiatives Committee
The Company’s
Strategic Initiatives
Committee consists
of three
directors, each
of whom
is a person
determined
by the Board to be an independent director and is charged with
assisting the Board by providing input to strategic decisions
and
their
implementation.
The
Strategic
Initiatives
Committee
comprises
Nannette
Ramsey
(Chair),
Ben
Naccarato
and
Robert M.
Radin. The
Board has
adopted a
written charter setting
forth the
purpose, composition, authority
and responsibility
of the Strategic Initiatives Committee.
12.
Risk Factors
The Company has identified below
certain significant risks relating to
the business of the
Company and the industry
in which
it operates.
The following
information
is only
a summary
of certain
risk
factors and
is qualified
in its
entirety by
reference to,
and must
be read
in conjunction
with, the
detailed information
appearing elsewhere
in this
AIF.
These risks
and uncertainties
are not the
only ones facing
the Company.
Additional risks
and uncertainties
not currently
known to the
Company, or that the Company currently considers immaterial, may also impair the operations of the Company. If any such
risks
materialize
into
actual
events
or
circumstances,
the
Company’s
assets,
liabilities,
financial
condition,
results
of
operations (including future
results of
operations), business and
business prospects, are
likely to
be materially
and adversely
affected. There is no assurance
that risk management steps
taken will avoid future loss due
to the uncertainties described
below
or
other
unforeseen
risks.
An
investment
in
the
Common
Shares
or
other
securities
of
the
Company
is
highly
speculative
and
involves
a
high
degree
of
risk.
Before
making
any
investment
decision,
prospective
investors
should
carefully consider all the information contained in this document
including, in particular,
the risk factors described below.
12.1.
Risks Related to the Company’s Business
and Industry
Operating Income (Loss) and Negative Operating Cash
Flow
The Company
has a
history
of
losses
and
negative
cash
flows.
The
Company’s
operations
have
not
generated
sufficient
earnings
and
cash
flows
to
date
to
result
in
consistent
profitability
or
positive
cash
flows.
For
the
year
ended
December 31,
2022, the
Company had
net losses
of $32,167.027,
cash flows
used in operations
of $11,128,885,
and an
accumulated deficit
of $93,384,858.
To
the extent
that the
Company has
net losses
and negative
operating cash
flows in
future periods, it may
need to allocate
a portion of its
cash reserves to
fund such negative
cash flows. The
Company may
also be required
to raise additional
funds through the
issuance of equity
or debt securities,
or otherwise. There
can be no
assurance that the Company will be able to generate positive cash flows from its operations, that additional capital or other
types of financing will be available when needed or that
these financings will be on terms favourable to the Company.
The Company’s ability to continue as a going
concern is dependent upon its ability in
the future to grow its revenue,
achieve
profitable
operations,
successfully
develop
and
introduce
new
products
and,
in
the
meantime,
to
obtain
the
necessary financing
to meet
its obligations
and repay
its liabilities
when they
become due.
While the
Company has
been
successful
in
securing
financing
in
the
past,
raising
additional
funds
is
dependent
on
a
number
of
factors
outside
the
Company’s control, and as such there is no assurance that it will be able to do so in the future. If the Company
is unable to
obtain sufficient additional financing,
it may have to curtail operations
and development activities, any of which
could harm
the business,
financial
condition and
results of
operations. In
addition, the
Company may
not generate
significant
gains,
and may suffer losses, from the value of its strategic
investments in the future.
Actual Financial Position and Results of Operations May Differ Materially from
the Expectations of the Company’s
Management
The
Company’s
actual
financial
position
and
results
of
operations
may
differ
materially
from
management’s
expectations. The
Company has
from time to
time experienced
changes in
its operating
plans and delays
in the timing
of
its plans. As
a result, the Company’s revenue,
net income and cash
flow may differ materially from
the Company’s projected
revenue, net income and cash flow. The process for estimating the Company’s revenue, net income and cash flow requires
the use of judgment in determining the appropriate assumptions
and estimates. These estimates and assumptions may be
Table
of Contents
35
revised as additional information becomes available
and as additional analyses are
performed. In addition, the assumptions
used in planning may not prove to be accurate, and other factors may affect the Company’s financial condition
or results of
operations.
Revenue Risks
PyroGenesis
may
experience
delays
in
achieving
revenues,
particularly
with
plasma
gasification
projects
which
have a long
sales cycle. Revenues
may be delayed
or negatively
impacted by issues
encountered by the
Company or its
clients including:
●
unforeseen engineering and/or environmental problems;
●
delays or inability to obtain required financing, licenses, permits
and/or regulatory approvals;
●
supply interruptions and/or labour disputes;
●
foreign exchange fluctuations and/or collection risk; and
●
competition from other suppliers and/or alternative energy
solutions that are less capital intensive.
There is no assurance that the business of the
Company will perform as expected or that returns from the
business
will support the expenditures needed to develop it.
Concentration Risk
To
date, a
small number
of customers
have accounted
for a
majority of
PyroGenesis’ revenues.
As its
business
expands, the Company
expects that revenue
distribution will be
over a larger
number of different
customers. For
the year
ended December 31, 2022, sales
of PyroGenesis to its
two principal customers accounted for approximately
52% of its total
revenue. For
the year
ended December
31, 2021,
sales to
two principal
customers
accounted for
approximately 79%
of
PyroGenesis’
total
revenue.
The
loss
of,
or
a
reduction
in,
purchase
orders
or
anticipated
purchase
orders
from
PyroGenesis’ principal
customers could
have a
material adverse
effect
on its
business, financial
condition and
results of
operations.
Additionally,
if
one
of
PyroGenesis’
customers
is
unable
to
meet
its
commitments
to
PyroGenesis,
the
Company’s business, financial condition and results
of operations could be adversely affected.
As
a
result
of
the
Drosrite
International
Exclusive
Agreement
and
the
Dross
Processing
Service
Agreement,
significant
revenues
may
be
generated
by the
Company
from payments
made to
Drosrite
International
under
the Dross
Processing
Service
Agreement.
The
Company
will
no
longer
receive
payments
under
such
arrangement
if
the
Dross
Processing
Service
Agreement,
which
involves
a
third
party
in
a
foreign
jurisdiction,
is
terminated,
which
could
have
a
material adverse effect on the business, financial
condition and results of operations of the Company.
Technology Development and Manufacturing
Capability Risks
PyroGenesis recently expanded into new
areas of business and, as a result,
many of the Company’s products
are
at various
stages of
the development
cycle. The
Company may
be unable
to commercialize
such products,
or it
may be
unable
to
manufacture
such
products
in
a
commercially
viable
manner.
Whilst
management
is
confident
in
both
the
Company’s technology and in
its team of
experienced engineers, scientists and
technicians, management cannot know with
certainty
which
of
the
Company’s
products
will
be
commercialized,
when
any
such
products
will
be
commercialized,
or
whether any such products will be manufactured and distributed
profitably.
Additional financing and dilution
PyroGenesis may require additional financing. There
can be no assurance
that additional financing will be
available
to the Company when needed, or on terms acceptable to the Company.
PyroGenesis’ inability to raise financing to support
ongoing operations or
to fund capital
expenditures could limit
the Company’s growth and
may have a
material adverse effect
upon the Company.
The Company
does not
exclude raising
additional funds
by equity
financing. In
addition,
as of
the date
of this
AIF,
9,815,500 stock
options and 6,014,600
warrants are
currently issued
and outstanding.
The exercise
of stock
options
and/or warrants, as well as any new equity financings,
represents dilution factors for present and future shareholders.
Table
of Contents
36
Reliance on Third Party Suppliers, Service Providers
,
Distributors and Manufacturers
The Company’s
direct and
indirect suppliers,
service providers,
distributors and
manufacturers
may elect,
at any
time,
to
breach
or
otherwise
cease
to
participate
in
supply,
service,
distribution
or
manufacturing
agreements,
or
other
relationships,
on
which
the
Company’s
operations
rely.
Loss
of
its
suppliers,
service
providers,
distributors
and
manufacturers
could
have
a
material
adverse
effect
on
the
Company’s
business
and
operational
results.
Further,
any
disruption
in
the
manufacturing
process
done
by
third
party
manufacturers
could
have
a
material
adverse
effect
on
the
business,
financial
condition
and
results
of
operations
of
the
Company.
The
Company
cannot
ensure
that
alternative
production capacity would
be available in
the event
of a disruption,
or if it
would be available,
that it could
be obtained on
favorable terms.
Manufacturing Facilities
The
vast
majority
of
the
Company’s
products
are
manufactured
in
its
two
manufacturing
facilities
located
in
Montréal,
Québec.
Accordingly,
the
Company
is
highly
dependent
on
the
uninterrupted
and
efficient
operation
of
its
manufacturing facility.
If for
any reason
the Company
is required
to discontinue
production at
its facility,
it could
result in
significant delays in
production of the
Company’s products
and interruption of
the Company’s
sales as it
seeks to resume
production. The
Company
may be
unable to
resume production
on a
timely basis.
If operations
at the
facility
were to
be
disrupted
as
a
result
of
equipment
failures,
natural
disasters,
fires,
accidents,
work
stoppages,
power
outages
or
other
reasons, the Company’s business, financial condition
and/or results of operations could be materially adversely
affected.
Sales Cycle and Fixed Price Contracts
PyroGenesis sales cycle is long and the signing of
new contracts is subject to delay,
over which the Company has
little control. The Company also enters
into sales contracts with fixed pricing,
which may be impacted by changes
over the
period of implementation. There is no assurance that delays or problems in fulfilling contracts with clients will not adversely
affect the Company’s activities, operating
results or financial position.
Reliance on Technology
PyroGenesis
depends
upon
continuous
improvements
in
technology
to
meet
client
demands
with
respect
to
performance and cost, and to explore additional
business opportunities. There can be no assurance
that the Company will
be successful in its
efforts in this regard or
that it will have
the resources available to
meet this demand. Whilst
management
anticipates that
its research
and development
efforts will
allow the
Company to
explore additional
business opportunities,
there
is
no
guarantee
that
such
business
opportunities
will
be
presented
or
realized.
The
commercial
advantage
of
the
Company will depend to a significant extent on the intellectual property and proprietary
technology of PyroGenesis and the
ability
of
the
Company
to
prevent
others
from
copying
such
proprietary
technologies.
PyroGenesis
currently
relies
on
intellectual property rights and
other contractual or proprietary
rights, including (without limitation)
copyright, trade secrets,
confidential
procedures,
contractual
provisions,
licenses
and
patents,
to
protect
its
proprietary
technology.
PyroGenesis
may have to engage in
litigation in order to protect
its patents or other
intellectual property rights, or to
determine the validity
or
scope
of
the
proprietary
rights
of
others.
This
type
of
litigation
can
be
expensive
and
time
consuming,
regardless
of
whether or
not the
Company is successful.
PyroGenesis may seek
patents or
other similar
protections in
respect of
particular
technology; however, there can be no assurance that any future patent applications
will actually result in issued patents, or
that,
even
if
patents
are
issued,
they
will
be
of
sufficient
scope
or
strength
to
provide
meaningful
protection
or
any
commercial
advantage
to
the
Company.
Moreover,
the
process
of
seeking
patent
protection
can
itself
be
long
and
expensive. In the meantime, competitors may develop technologies that are similar or superior to PyroGenesis’ technology
or design around the patents owned by the Company, thereby adversely affecting the Company’s competitive advantage in
one or more of its areas of business. Despite the efforts
of the Company, its intellectual
property rights may be invalidated,
circumvented, challenged, infringed or
required to be licensed to others.
It cannot be assured that
any steps the Company
may take
to protect
its intellectual
property rights
and other
rights to
such proprietary
technologies that
are central
to the
Company’s operations will prevent misappropriation
or infringement of its technology.
Changes to Contracts
PyroGenesis
is
dependent
upon
its
ability
to
establish
and
develop
new
relationships
and
to
build
on
existing
relationships
with
current
clients.
The
Company
cannot
provide
assurance
that
it
will
be
successful
in
maintaining
or
advancing
its
relationships
with
current
clients
or
procure
additional
clients.
In
addition,
PyroGenesis
cannot
provide
assurance that its customers and the
end users of its products will
continue to provide the Company
with business, or that
existing customers
and end
users will
not seek
to renegotiate
or terminate
existing contracts
providing for
the sale
of the
Company’s products and
technology based on
circumstances on which
the Company is
not currently
aware. Any termination
Table
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37
or amendment of
a contract under
which the Company
derives an important
portion of its
revenues, including
the Drosrite
International
Exclusive
Agreement
and
the
Dross
Processing
Service
Agreement,
and
any
adverse
change
in
the
relationship
of the
Company
with its
customers
and end
users, will
have an
adverse
effect
on the
Company’s
business,
financial condition and results of operations.
Sales to governments and governmental
entities are subject to specific
additional risks, such as delays
in funding,
termination of
contracts
or sub-contracts
at the
convenience
of the
government,
termination, reduction
or modification
of
contracts or sub-contracts in
the event of changes
in the government’s policies
or as a result of budgetary
constraints and
increased or unexpected costs resulting in losses or reduced
profits under fixed price contracts.
Foreign Exchange Exposure
PyroGenesis’ products
and services
are increasingly
being sold
in markets
outside of
Canada, whilst
most of
its
operating expenses
and capital
expenditures are
denominated in
Canadian dollars.
As a result,
the Company
is exposed
to
fluctuations
in
the
foreign
exchange
rates
between
Canadian
dollar
and
the
currency
in
which
a
particular
sale
is
transacted,
which
may
result
in
foreign
exchange
losses
that
could
affect
earnings.
Foreign
sales
are
predominantly
denominated in U.S. dollars. The Company has not to date sought to hedge the risks associated with fluctuations in
foreign
exchange rates.
Competition
The industry in which the Company
operates is competitive and PyroGenesis
competes with a substantial number
of companies which have
greater technical and
financial resources. There can
be no assurance that
such competitors will
not substantially increase the resources devoted to the development
and marketing of products and services
that compete
with those of
the Company
or that new
or existing
competitors will
not enter
the various
markets in which
PyroGenesis is
active. There
can be
no assurance
that competitors
will not
develop new
and unknown
technologies with which
the Company
may have difficulty
competing. Furthermore,
failure to
remain cost competitive
may result in
PyroGenesis losing
business
to its competitors.
The plasma
technology
of
PyroGenesis
competes
against
other
plasma
and
conventional
technologies.
Without
limitation,
the
demand
for
the
plasma
technology
of
PyroGenesis,
particularly
in
waste
destruction
and
waste-to-energy
systems, can be impacted by the commodity prices of the energy source used for the process and the price at which waste
is accepted by
landfills and
traditional waste
processing plants.
While the Company
believes that
demand for sustainable
waste management practices
that have
lower environmental impacts
than traditional solutions
such as landfill
or incineration
is
increasing,
the
high
flows
of
electricity
necessary
to
operate
the
waste
destruction
and
waste-to-energy
systems
of
PyroGenesis have an
impact on the
operational costs
of the Company’s
systems, and traditional
solutions may
constitute
lower-cost solutions, particularly if commodity prices (including
of oil and natural gas) are low or experience a decline.
Management and Key Personnel
PyroGenesis
depends
on
the
skills
and
experience
of
its
executive
and
management
team
and
other
key
employees.
The
Company
relies
heavily
on
its
ability
to
attract
and
retain
highly
skilled
personnel
in
a
competitive
environment. PyroGenesis may be
unable to recruit, retain, and
motivate highly skilled executives
and employees in order
to assist the Company’s
business, especially activities
that are essential to
the success of
the Company.
Failure to recruit
and retain
highly skilled
executives
and
employees
may adversely
affect
PyroGenesis’
business, financial
condition
and
results of operations.
Implementation of a Strategic Plan
PyroGenesis’ commercial strategy aims to leverage its products, consumables, and services whilst focusing on the
resolution of problems
within niche markets within
the industries served by
the Company.
There can be no
assurances as
to the
success
of the
Company’s
strategic
plan,
which
should
be considered
under
the risks
perspective
and
difficulties
frequently encountered by a developing business.
Adverse Decisions of Sovereign Governments
PyroGenesis
conducts
an
increasing
portion
of
its
business
internationally.
There
is
no
assurance
that
any
sovereign government, including Canada’s, will not establish laws or regulations that may be detrimental to the Company’s
interests or
that PyroGenesis
will continue
to have
access to
the regulatory
agencies in
the countries
in which
it sells
or
seeks
to
sell,
directly
or
indirectly,
its
products
and
services.
Governments
have,
from
time
to
time,
established
foreign
Table
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38
exchange controls, which could
have a material adverse effect
on the Company’s business,
financial condition and results
of operations.
Risks Related to International Operations
A substantial
portion of the
Company’s sales
are made to
customers and
end users
outside Canada,
including in
the United States, the European Union and
the Middle East. The Company conducts
its international operations directly or
through distributors
or other
agents or
intermediaries, including
Drosrite International.
The Company
plans to
continue to
expand its international sales and marketing
efforts. International operations are subject
to a number of inherent risks, and
the Company’s future results could be adversely affected
by a number of factors, including:
•
unfavorable political or economic environments;
•
requirements
or
preferences
for
domestic
products
or
solutions,
which
could
reduce
demand
for
the
Company’s products;
•
differing existing or future regulatory and certification
requirements;
•
unexpected legal or regulatory changes;
•
greater difficulty in collecting accounts receivable
and longer collection periods;
•
difficulties in enforcing contracts;
•
any inability to effectively protect intellectual property;
•
tariffs
and
trade
barriers,
export
regulations
and
other
regulatory
and
contractual
limitations
on
the
Company’s ability to sell its products; and
•
potentially adverse tax consequences, including multiple and
possibly overlapping tax structures.
Fluctuations
in currency
exchange rates
could materially
adversely
affect
sales denominated
in currencies
other
than the Canadian dollar
and cause a reduction
in revenues derived from
sales in a particular country.
Financial instability
in
foreign
markets
could
also
affect
the
sale
of
the
Company’s
products
in
international
jurisdictions.
In
addition,
the
Company may be denied
access to its end
customers as a result
of a closing of
the borders of the
countries in which it
its
products are sold due to economic, legislative, political, military
and other conditions in such countries.
There can be
no assurance
that such factors
will not materially
adversely affect
the operations,
growth prospects
and sales of
the Company
and, consequently,
its results
of operations. In
addition, revenues
the Company earns
in other
jurisdictions may be
subject to taxation by
more than one
jurisdiction, which could materially
adversely affect the Company’s
earnings. Each of these factors could have an adverse effect on the Company’s business, financial condition and results of
operations.
Governmental Regulation
PyroGenesis is subject to a variety of federal, provincial, state, local and international laws and regulations relating
namely to
the environment,
health and
safety,
export controls,
currency exchange,
labour and
employment and
taxation.
These laws and regulations
are complex, change frequently
and have tended to become
more stringent over time. Failure
to comply with these
laws and regulations may
result in a variety
of administrative, civil and
criminal enforcement measures,
including assessment
of monetary
penalties, imposition
of remedial
requirements and
issuance of
injunctions as
to future
compliance. The Company
may be subject to
compliance audits by regulatory
authorities in the various countries
in which
it operates.
Government-funded Defense and Security Programs
Like most
companies that
supply products
and services
to governments,
the Company
is subject
to routine
audit
and investigation procedures
of government agencies.
These agencies may
review the Company’s
performance under its
contracts,
business
processes,
cost
structure,
and
compliance
with
applicable
laws,
regulations
and
standards.
The
Company’s incurred costs for
each year are
subject to audit
by government agencies, which
can result in
payment demands
related to costs
they believe
should be
disallowed. The
Company works
with governments
to assess
the merits
of claims
and
where
appropriate
reserve
for
amounts
disputed.
The
Company
could
be
required
to
provide
repayments
to
Table
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39
governments, which may have a negative effect on its results of operations. Contrary to cost-reimbursable contracts, some
costs may not
be reimbursed or
allowed under fixed-price
contracts, which may
have a negative
effect on the
Company’s
results of operations if it experiences costs overruns.
Environmental Liability
PyroGenesis
is
subject
to
various
environmental
laws
and
regulations
enacted
in
the
jurisdictions
in
which
it
operates,
which
govern
the
manufacturing,
processing,
importation,
transportation,
handling
and
disposal
of
certain
materials used
in the
Company’s
operations. Management
believes that
it has
adequate procedures
in place
to address
compliance with current environmental laws and regulations. Furthermore, management monitors the Company’s practices
concerning the handling of environmentally hazardous materials. However,
there can be no assurance that the Company’s
procedures
will
prevent
environmental
damage
occurring
from
spills
of
materials
handled
by
the
Company
or
that
such
damage has not
already occurred.
On occasion, substantial
liabilities to third
parties may be
incurred. The Company
may
have
the
benefit
of
insurance
maintained
by
it
or
the
operator,
however
the
Company
may
become
liable
for
damages
against which it cannot adequately
insure or against which it
may elect not to
insure because of high costs
or other reasons.
The Company’s
clients are
subject to similar
environmental laws
and regulations,
as well as
limits on emissions
to the air
and discharges
into surface
and sub-surface
waters. While
regulatory developments
that may
follow in subsequent
years
could have
the effect
of reducing
industry activity,
the Company
cannot predict
the nature
of the
restrictions that
may be
imposed. The
Company may
be required
to increase
operating expenses
or capital
expenditures in
order to
comply with
any new restrictions or regulations.
Product Liability and Other Lawsuits
PyroGenesis is
subject to
a variety
of potential
product liabilities claims
and other
lawsuits related with
its operations,
including
liabilities
and
expenses
associated
with
product
defects.
The
Company
maintains
product
liability
and
other
insurance coverage that management believes is generally
in accordance with the market practice in its industry,
but there
can be no assurance that the Company will always be
adequately insured against all potential liabilities.
A
malfunction
or
the
inadequate
design
of
the
Company’s
products
could
result
in
product
liability
or
other
tort
claims.
Accidents
involving
the
Company’s
products
could
lead
to
personal
injury
or
physical
damage.
Any
liability
for
damages resulting
from malfunctions
could be
substantial and
could materially
adversely affect
the Company’s
business
and
results
of
operations.
In
addition,
a
well-publicized
actual
or
perceived
problem
could
adversely
affect
the
market’s
perception of the Company’s products and affect
its reputation. This could result in a decline in demand for the
Company’s
products, which would materially adversely affect
the Company’s financial condition and results
of operations.
The sale
and use
of products
and processes
developed or
sold by
the Company
may entail
potential liability
and
possible
warranty
claims.
The Company
is also
required
to
indemnify
Drosrite
International
for any
claims
and
liabilities
incurred in
connection with the
Drosrite systems. The
Company may be
subject to personal
injury claims for
injuries resulting
from use of its products. Although the
Company maintains product liability insurance,
there can be no assurance that such
insurance will
continue to
be available
on commercially
reasonable terms
or that
the risks
covered or
coverage amounts
will be sufficient to cover all claims.
Information Systems Disruptions
The Company
relies
on various
information
technology
systems
to manage
its operations.
Over
the last
several
years,
the
Company
has
implemented,
and
it
continues
to
implement,
modifications
and
upgrades
to
such
systems,
including changes
to legacy
systems, replacing
legacy systems
with successor
systems with
new functionality, and acquiring
new systems with
new functionality.
These types
of activities subject
the Company
to inherent costs
and risks
associated
with replacing and
changing these systems,
including impairment of
the Company’s ability
to fulfill
customer orders, potential
disruption of
its internal
control structure, substantial
capital expenditures, additional
administration and operating
expenses,
retention of
sufficiently skilled
personnel to
implement and
operate the
new systems,
demands on management
time and
other
risks
and
costs
of
delays
or
difficulties
in
transitioning
to
or
integrating
new
systems
into
the
Company’s
current
systems. These
implementations, modifications,
and upgrades
may not result
in productivity
improvements at
a level that
outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may
cause
disruptions
in
the
Company’s
business
operations
and
have
a
material
adverse
effect
on
its
business,
financial
condition, or results of operations.
Table
of Contents
40
Security Breaches
As part
of its
day-to-day business,
the Company
stores its
data and
certain data
about its customers
in its global
information technology system.
Unauthorized access to
the Company’s data,
including any regarding
its customers, could
expose the Company to a risk of
loss of this information, loss of
business, litigation and possible liability. Security measures
may
be
breached
by
intentional
misconduct
by
computer
hackers,
as
a
result
of
third-party
action,
employee
errors,
malfeasance
or
otherwise.
Additionally,
third
parties
may
attempt
to
fraudulently
induce
employees
or
customers
into
disclosing sensitive information
such as usernames,
passwords or other
information in order
to gain access
to the data
of
the
Company’s
customers
or
the
Company’s
data,
including
the
Company’s
intellectual
property
and
other
confidential
business
information,
or
the
Company’s
information
technology
systems.
Because
the
techniques
used
to
obtain
unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a
target, the Company may
be unable to anticipate
these techniques or
to implement adequate preventative
measures. Any
security breach could
result in a
loss of
confidence by the
Company’s customers, damage its
reputation, disrupt its
business,
lead to legal liability and negatively impact its future sales,
business, operations and financial results.
Public Health Crises
Public
health
crises,
including
local,
regional,
national
or
international
outbreak
of
a
contagious
disease,
could
have
an
adverse effect on
local economies, the
global economy,
and the markets
in which the
Company operates
and markets its
products, and may
adversely impact the
price and demand
for the Company’s
products and the
ability of the
Company to
operate and market
its products. Any
such alterations or
modifications could cause
substantial interruption to
the Company’s
business, any
of which
could have
a material
adverse effect
on the
Company’s operations
or financial
results, and
could
include temporary closures of
one or more
of the Company’s or
its partner’s offices or
facilities; temporary or long-term
labor
shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; the potential
of increased network vulnerability and
risk of data loss resulting
from increased use of remote
access and removal of data
from the Company’s facilities.
2020
and
2021
saw
The
global
outbreak
of
COVID-19
have
devasting
effects
on
populations
and
led
to
governments
worldwide enacting emergency
measures to protect
against the spread of
the virus. In 2022,
the detrimental effects
of the
COVID-19 pandemic
on economies
and businesses
lessened with
the lifting
of most
public health
restrictions
during the
year. Like most businesses, PyroGenesis was affected
by the pandemic. However, the Company took measures to protect
its
employees
and
the
company
in
general
and
continued
its
operations
throughout
the
pandemic.
Notwithstanding
the
foregoing, there
is no
guarantee that
the global
effects of the
pandemic will
continue to improve
and if
new strains, outbreaks,
or other adverse
effects arise,
the Company and
its vendors and
suppliers may
be unable to
continue operations
or keep
up with increasing
demands as
a result
of COVID-19
and customers
may experience
delays or interruptions
in service
or
the delivery
of products, which
may be detrimental
to the
Company’s reputation, business, results
of operations and
financial
position.
The
Company
cautions
that
it
is
impossible
to
fully
anticipate
or
quantify
the
effect
and
ultimate
impact
of
the
COVID-19 pandemic as the situation still continues to evolve.
Litigation
The Company may from time
to time become party
to litigation, including in the
ordinary course of business
which
could adversely
affect its
business. Should
any litigation
in which
the Company
becomes involved
be determined
against
the Company,
such a decision could
adversely affect the
Company’s ability to
continue operating and
the market price for
the Common Shares
and could use
significant resources.
Even if the
Company is
involved in litigation
and wins, litigation
can redirect significant Company resources. Litigation may also create a negative perception of the Company’s
brand. See
“Legal Proceedings”.
Trade Secrets May Be Difficult to Protect
The
Company’s
success
depends
upon
the
skills,
knowledge
and
experience
of
its
scientific
and
technical
personnel,
consultants
and
advisors,
as
well
as
contractors.
Because
the
Company
operates
in
a
highly
competitive
industry,
it
relies
in
part
on
trade
secrets
to
protect
its
proprietary
products
and
processes.
However,
trade
secrets
are
difficult
to
protect.
The
Company
generally
enters
into
confidentiality
or
non-disclosure
agreements
with
its
corporate
partners,
employees,
consultants,
outside
scientific
collaborators,
developers
and
other
advisors.
These
agreements
generally
require
that
the
receiving
party
keep
confidential,
and
not
disclose
to
third
parties,
confidential
information
developed by the receiving
party or made known to
the receiving party by
the Company during the course
of the receiving
party’s relationship with the Company. These agreements also generally provide that inventions conceived by the receiving
party
in
the
course
of
rendering
services
to
the
Company
will
be
its
exclusive
property,
and
the
Company
enters
into
assignment agreements to perfect its rights.
Table
of Contents
41
These
confidentiality,
inventions
and
assignment
agreements,
where
in
place,
may
be
breached
and
may
not
effectively
assign intellectual
property rights
to the
Company.
The Company’s
trade secrets
also could
be independently
discovered by
competitors, in
which case
the Company
would not
be able
to prevent
the use
of such
trade secrets
by its
competitors. The enforcement of a claim alleging that a party illegally obtained and was using the Company’s trade secrets
could be difficult, expensive and time consuming and the outcome could be unpredictable. The failure to obtain or maintain
meaningful trade secret protection could adversely affect
the Company’s competitive position.
Risks Related to Acquiring Companies
The Company
has in
the past
and may
in the
future acquire
other companies
and there
are risks
inherent in
any
such acquisition.
Specifically,
there could
be unknown
or undisclosed
risks or
liabilities of
such companies
for which
the
Company is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely
affect the Company’s financial performance and results of
operations. The Company could encounter additional transaction
and integration
related costs
or other factors
such as
the failure to
realize all
of the
benefits from
such acquisitions.
All of
these factors could cause dilution
to the Company’s earnings per
share or decrease or
delay the anticipated accretive effect
of the acquisition and cause a decrease in the market price of the Company’s
securities. The Company may not be able to
successfully integrate and combine the operations, personnel and technology infrastructure of any such acquired company
with its existing operations.
If integration is not
managed successfully by
the Company’s
management, the Company
may
experience interruptions in its business activities, deterioration in its employee and customer relationships, increased costs
of
integration
and
harm
to
its reputation,
all
of which
could
have
a
material
adverse
effect
on
the
Company’s
business,
financial
condition
and
results
of
operations.
The
Company
may
experience
difficulties
in
combining
corporate
cultures,
maintaining
employee
morale
and
retaining
key
employees.
The
integration
of
any
such
acquired
companies
may
also
impose substantial demands on
the management. There is no
assurance that any acquisition will
be successfully integrated
in a timely manner or at all.
Global Economic Uncertainty
Demand
for
the
Company’s
products
and
services
are
influenced
by
general
economic
and
consumer
trends
beyond
the
Company’s
control.
There
can
be
no
assurance
that
the
Company’s
business
and
corresponding
financial
performance
will
not
be
adversely
affected
by
general
economic
or
consumer
trends.
In
particular,
global
economic
conditions are still tight, and if such conditions continue, recur or worsen, there can be no assurance that they will not have
a material adverse effect on the Company’s
business, financial condition and results of operations.
Furthermore, economic conditions may produce downward pressure on
stock prices and on the availability
of credit
for financial
institutions and
corporations. If
any market
disruption and
volatility continue,
the Company
might experience
reductions
in
business
activity,
increased
funding
costs
and
funding
pressures,
as applicable,
a decrease
in
the
market
price
of
the
Common
Shares,
a
decrease
in
asset
values,
additional
write-downs
and
impairment
charges
and
lower
profitability.
Inability to Renew Leases
The
Company
may
be
unable
to
renew
or
maintain
its
leases
(commercial
or
real
property)
on
commercially
acceptable
terms
or
at
all.
Any
inability
to
renew
a
lease,
or
any
renewal
of
a
lease
with
a
rental
rate
higher
than
the
prevailing rate
under the
applicable lease
prior to
expiration, may
have an
adverse impact
on the
Company’s operations,
including disruption of its operations
or an increase in its cost
of operations. In addition, in the
event of non-renewal of any
of the Company’s
leases, the Company
may be unable
to locate suitable
replacement properties
for its facilities
or it may
experience delays in relocation that could lead to a disruption in its operations. Any disruption in the Company’s operations
could have an adverse effect on its financial condition
and results of operations.
Financial Reporting and Other Public Issuer Requirements
As
a
public
company,
the
Company
is
subject
to
the
reporting
requirements
of
the
Canadian
Securities
Administrators, or the
CSA, and
the U.S. Securities
Exchange Act
of 1934, as
amended, and the
rules and regulations
of
the listing standards of the TSX
and NASDAQ and the U.S. Sarbanes-Oxley Act.
The requirements of these laws, rules and
regulations have increased and will continue
to increase the Company’s legal,
accounting, and financial compliance costs,
make some activities
more difficult,
time-consuming, and
costly,
and place significant
strain on the
Company’s personnel,
systems, and resources. The Company is continuing to
develop and refine its disclosure controls and other
procedures that
are designed to ensure that information required to
be disclosed by the Company in the reports
that it will file with the CSA
is
recorded,
processed,
summarized,
and
reported
within
the
time
periods
specified
in
CSA
rules
and
forms
and
that
Table
of Contents
42
information required
to be
disclosed in
reports under
applicable securities
laws is
accumulated and
communicated to
the
Company’s principal
executive and
financial officers.
The Company
is also
continuing to
improve its
internal control
over
financial reporting. In order to
improve the effectiveness
of its disclosure controls and
procedures and internal control over
financial reporting, the
Company has expended,
and anticipate
that it
will continue to
expend, significant
resources, including
accounting-related costs and significant management oversight.
The
Company
has
identified
certain
material
weaknesses
in
its
internal
controls,
as
more
fully
explained
in
its
management’s
discussion
and
analysis
for
the
year
ended
December
31,
2022,
under
“Disclosure
Controls
and
Procedures”. Additional weaknesses in the Company’s disclosure
controls and internal control over financial reporting may
also be discovered in the future. Any failure
to develop or maintain effective controls
or any difficulties encountered in their
implementation or improvement
could harm
the Company’s
results of operations
or cause the
Company to fail
to meet its
reporting obligations and may result in a restatement of the Company’s financial statements for prior periods. Any failure to
improve and
maintain
effective
internal
control over
financial
reporting
also could
adversely
affect
the results
of periodic
management
evaluations
and
annual
independent
registered
public
accounting
firm
attestation
reports
regarding
the
effectiveness
of
the
Company’s
internal
control
over
financial
reporting
that
the
Company
will
eventually
be
required
to
include
in
its periodic
reports
that will
be
filed
with
the
CSA.
Ineffective
disclosure
controls
and
procedures
and
internal
control over financial reporting could also cause investors to lose confidence in the Company’s reported financial and other
information, which could have
a negative effect
on the trading price
of the Common Shares.
In addition, if the
Company is
unable to continue to meet these requirements, it may not be able
to remain listed on the TSX and/or NASDAQ.
Influence of the Significant Shareholders
To
the Company’s
knowledge, no
shareholder beneficially
owns, or controls
or directs,
directly or indirectly,
more
than
10%
of
the
voting
rights
attached
to
the
Company’s
outstanding
voting
securities,
except
for
Mr.
P.
Peter
Pascali,
President and
Chief Executive
Officer of
the Company,
who holds
or controls,
directly or
indirectly,
80,925,698 Common
Shares,
representing
in
aggregate
45.32%
of
the
total
voting
rights
attached
to
the
outstanding
Common
Shares,
and
2,500,000 share
purchase warrants
and options
to acquire
an additional
4,270,000 Common
Shares (increasing
the total
number of Common
Shares held or
controlled, directly
or indirectly,
by him to
87,695,698 Common
Shares, or 47.31%
or
the Common
Shares, on
a fully
diluted basis).
In addition,
from time
to time,
the Company
may have
other shareholders
who
have
the
ability
to
exercise
significant
influence
over
matters
submitted
to
the
shareholders
of
the
Company
for
approval, whether subject to approval by a
majority of the shareholders of the
Company or subject to a class
vote or special
resolution. See “Directors and Executive Officers
- Conflicts of Interest”.
Joint Venture/Partnership Arrangements
The Company
may participate
in joint
ventures and
partnerships
with third
parties. A
joint venture
or partnership
arrangement involves
certain additional
risks including:
(i) the possibility
that a partner
may at any
time have economic
or
business interests
or goals
that are
inconsistent with
those of
the Company
or take
actions contrary
to the instructions
or
requests of
the Company
or contrary
to the
Company’s objectives;
(ii) the
risk that
the partner
could experience
financial
difficulties or seek the protection of bankruptcy, insolvency or other laws, which could result in additional financial demands
on the Company;
and (iii) the
need to obtain
the partner’s consent
with respect to
certain major decisions.
In addition, the
sale or transfer of an interest in joint ventures and partnerships will generally
be subject to rights of first refusal or first offer
and certain other joint
venture or partnership agreements may provide
for buy-sell or similar
arrangements. Such rights may
be triggered at a time
when the Company may not desire the
sale but may be forced to
do so because it does not
then have
the financial
resources
with
which
to purchase
the other
parties’
interests. The
terms
of any
joint venture
or partnership
arrangement
may
not
allow
the
Company
to
realize
anticipated
benefits
and
may
adversely
affect
the
Company
and
its
business.
Limited Control Over the Company’s Operations
Holders of the Common Shares have limited
control over changes in the Company’s policies and operations, which
increases
the
uncertainty
and
risks
of
an
investment
in
the
Company.
The
Board
determines
major
policies,
including
policies regarding
financing, growth,
debt capitalization and
any future
dividends to
shareholders of
the Company. Generally,
the Board may amend or revise these and other policies without a vote of the holders
of the Common Shares. The Board’s
broad
discretion
in
setting
policies
and
the
limited
ability
of
holders
of
the
Common
Shares
to
exert
control
over
those
policies increases the uncertainty and risks of an investment
in the Company.
Table
of Contents
43
Change in Tax Laws
New income, sales, use
or other tax laws,
statutes, rules, regulations or
ordinances could be enacted
at any time.
Further,
existing
tax
laws,
statutes,
rules,
regulations
or
ordinances
could
be
interpreted,
changed,
modified
or
applied
adversely to the
Company.
These enactments and
events could require
the Company to
pay additional tax
amounts on a
prospective or
retroactive basis,
thereby substantially
increasing the
amount of
taxes the
Company is
liable to
pay in
the
relevant tax jurisdictions.
Accordingly,
these events could
decrease the capital
that the Company
has available to
operate
its business. Any or all of these events could harm the
business and financial performance of the Company.
Forward-Looking Information
The forward-looking information
included in this AIF relating
to, among other things,
the Company’s future
results,
performance, achievements, prospects, targets, intentions or opportunities or the markets in which it operates (including, in
particular, the information contained under “Business of the Company”, and
the other statements listed in
“Forward-Looking
Statements”)
is
based
on
opinions,
assumptions
and
estimates
made
by
the
Company’s
management
in
light
of
its
experience and
perception of
historical trends,
current conditions and
expected future developments,
as well
as other
factors
that the Company believes are appropriate and reasonable in the circumstances. However, there can be no assurance that
such estimates and assumptions will
prove to be correct. The Company’s
actual results in the future may
vary significantly
from the historical and estimated results and those variations may
be material. The Company makes no representation that
its actual
results
in the
future
will be
the same,
in whole
or in
part, as
those
included in
this AIF.
See “Forward
-Looking
Statements”.
Credit Facilities
The Company’s credit facilities and
financing agreements mature on
various dates. There can
be no assurance that
such credit facilities or financing agreements will be renewed or refinanced, or if renewed or refinanced, that the renewal or
refinancing will
occur on
equally favourable
terms to
the Company.
The Company’s
ability to
continue operating
may be
adversely
affected
if
the
Company
is
not
able
to
renew
its
credit
facilities
or
arrange
refinancing,
or
if
such
renewal
or
refinancing, as the case may
be, occurs on terms
materially less favorable to the
Company than at present. The
Company’s
current credit
facilities and
financing agreements
impose covenants
and obligations
on the
Company.
There is
a risk
that
such loans may go into
default if there is a
breach in complying with such
covenants and obligations, which
could result in
the lenders realizing on their security and causing the
Company’s shareholders to lose some or all of
their investment.
12.2.
Risks Related to the Company’s
Securities
Potential Volatility of Common Share
Price
The market price of the
Common Shares could be
subject to significant fluctuations.
Some of the factors
that may
cause the market price of the Common Shares to fluctuate
include:
•
the
public’s
reaction
to
the
Company’s
press
releases,
announcements
and
filings
with
regulatory
authorities and those of its competitors;
•
fluctuations in broader stock market prices and volumes;
•
changes in market valuations of similar companies;
•
investor perception of the Company,
its prospects or the industry in general;
•
additions or departures of key personnel;
•
commencement of or involvement in litigation;
•
announcements
by
the
Company
or
its
competitors
of
strategic
alliances,
significant
contracts,
new
technologies, acquisitions, commercial relationships, joint
ventures or capital commitments;
•
variations
in
the
Company’s
quarterly
results
of
operations
or
cash
flows
or
those
of
other
comparable
companies;
•
revenues
and
operating
results
failing
to
meet
the
expectations
of
securities
analysts
or
investors
in
particular quarter;
Table
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44
•
changes in the Company’s pricing policies or the pricing
policies of its competitors;
•
future issuances and sales of Common Shares;
•
sales of Common Shares by insiders of the Company;
•
third party disclosure of significant short positions;
•
demand for and trading volume of Common Shares;
•
changes
in
securities
analysts’
recommendations
and
their
estimates
of
the
Company’s
financial
performance;
•
short-term fluctuation in
stock price caused
by changes in
general conditions in
the domestic and
worldwide
economies or financial markets; and
•
the other risk factors described under this heading of the AIF.
The realization of any of these risks and other factors
beyond the Company’s control could cause
the market price
of the Common Shares to decline significantly.
In addition, broad market and industry factors may harm the market price of the Common Shares. Hence, the price
of the
Common Shares
could fluctuate
based upon
factors that
have little
or nothing
to do
with the
Company,
and these
fluctuations could materially reduce the
price of the Common Shares regardless
of the Company’s operating performance.
In
the
past,
following
a
significant
decline
in
the
market
price
of
a
company’s
securities,
there
have
been
instances
of
securities class action
litigation having
been instituted
against that company.
If the Company
were involved
in any similar
litigation, it
could incur
substantial costs,
management’s
attention and
resources could
be diverted
and it
could harm
the
Company’s business, operating results and financial
condition.
In addition, the Company
may face the risk
of being delisted from
the TSX and/or NASDAQ
if decreases in the
price
of the Common Shares do not allow the Company to
meet certain conditions of the listing exchange(s).
Market Liquidity
The market price for the Common
Shares could be subject to wide
fluctuations. Factors such as the announcement
of significant
contracts,
technological
innovations,
new
commercial
products,
patents,
a change
in
regulations,
quarterly
financial results,
future sales
of Common
Shares by
the Company
or current
shareholders, and
many other
factors could
have considerable
repercussions on
the price
of the
Common Shares.
In addition,
the financial
markets may
experience
significant price
and value
fluctuations that
affect the
market prices
of equity
securities of
companies that
sometimes are
unrelated
to
the
operating
performance
of
these
companies.
Broad
market
fluctuations,
as
well
as
economic
conditions
generally may adversely affect the market price of
the Common Shares.
Dividends to Shareholders
The Company
does not
anticipate paying
cash dividends
on the
Common Shares
in the
foreseeable future.
The
Company currently intends to retain all future earnings to fund the development and growth
of its business. Any payment of
future dividends will be at
the discretion of the
directors and will depend
on, among other things, the
Company’s earnings,
financial
condition,
capital
requirements,
level
of
indebtedness,
statutory
and
contractual
restrictions
applying
to
the
payment of dividends, and other considerations that the directors
deem relevant.
Impact of Future Sales by Existing Shareholders
If the
Company’s
shareholders sell
substantial amounts
of the
Common Shares
in the
public market,
the market
price of the
Common Shares could
decrease. The perception
among investors that
these sales will
occur could also
produce
this effect.
All currently
outstanding Common
Shares other
than those subject
to lock-up
agreements, if
any,
executed by
certain
existing
shareholders
are, subject
to
applicable
securities
laws,
generally
immediately
available
for
resale
in
the
public markets.
Table
of Contents
45
Subject to compliance with applicable securities laws, the Company’s officers, directors and their affiliates may sell
some or all
of their Common
Shares in the
future. No
prediction can be
made as
to the effect,
if any,
such future sales
of
Common Shares will have on
the market price of
the Common Shares prevailing from
time to time. However, the future sale
of a substantial number
of Common Shares
by the Company’s
officers, directors
and their affiliates,
or the perception
that
such sales could occur, could
materially adversely affect prevailing market prices
for the Common Shares.
Additional Common Shares issuable upon
the exercise of stock options
or warrants may also be available
for sale
in
the
public
market,
which
may
also
cause
the
market
price
of
the
Common
Shares
to
fall.
Accordingly,
if
substantial
amounts of Common Shares are sold in the public market,
the market price could fall.
Working Capital and Future Issuances
The Company may issue additional Common Shares in the future which may dilute
a shareholder’s holdings in the
Company. The Articles
permit the issuance of an unlimited number of Common Shares,
and shareholders of the Company
will have no pre-emptive rights in connection
with any further issuances. The directors
of the Company have the discretion
to
determine
the
provisions
attaching
to
the
Common
Shares
and
the
price
and
the
terms
of
issue
of
further
Common
Shares.
Additional equity
financing may
be dilutive to
holders of
Common Shares.
Debt financing
may involve
restrictions
on the Company’s financing
and operating activities. Debt
financing may be
convertible into other securities
of the Company
which may result in immediate or
resulting dilution. In either case, additional financing may
not be available to the Company
on acceptable terms
or at all.
If the Company
is unable to
raise additional funds
as needed, the
scope of its
operations or
growth may
be reduced
and, as
a result,
the Company
may be
unable to
fulfil its
long-term goals.
In this
case, investors
may lose
all or part
of their
investment. Any
default under
such debt
instruments could
have a
material adverse
effect on
the Company,
its business or the results of operations.
Securities or Industry Analysts
The
trading
market
for
Common
Shares
could
be
influenced
by
the
research
and
reports
that
industry
and/or
securities analysts, or
others, may publish
about the Company, its business,
the market or
competitors. If any
of the analysts
who may
cover the
Company’s business change their
recommendation regarding the
Common Shares adversely, or
provide
more favourable
relative recommendations
about its
competitors, the
share price
would likely
decline. If
any analyst
who
may cover
the Company’s
business were
to cease
coverage or
fail to
regularly publish
reports on
the Company,
it could
lose visibility in the financial markets, which in turn could
cause the share price or trading volume to decline.
12
.3.
Risks Related to the Company’s
Status as a Foreign Private Issuer
Information Publicly Available to the Company’s U.S.
Shareholders
The Company
is a
foreign private
issuer under
applicable U.S.
federal securities
laws. As
a result,
the Company
does not
file the
same reports
that a
U.S. domestic
issuer would
file with
the U.S.
Securities and
Exchange Commission
(the “
SEC
”), although the Company
is required to file
with or furnish to
the SEC the continuous
disclosure documents that
the Company is required to file in
Canada under Canadian Securities Laws, in certain respects the reporting obligations are
less
detailed
and
less
frequent
than
those
of
U.S.
domestic
reporting
companies.
In
addition,
the
Company’s
officers,
directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16
of the U.S. Exchange Act. Therefore, the
Company’s shareholders may not know on as timely a
basis when the Company’s
officers,
directors
and
principal
shareholders
purchase
or
sell
Common
Shares
as
the
reporting
periods
under
the
corresponding Canadian insider reporting requirements
are longer.
As a foreign private issuer, the Company
is exempt from the rules and regulations under the Exchange
Act related
to the furnishing and
content of proxy statements.
The Company is also
exempt from Regulation FD,
which prohibits issuers
from making selective disclosures of
material non-public information. While
the Company complies with the
corresponding
requirements
relating
to
proxy
statements
and
disclosure
of
material
non-public
information
under
Canadian
Securities
Laws, these requirements differ from
those under the Exchange Act
and Regulation FD and
shareholders should not expect
to receive the same information at the same time as such information is provided
by U.S. domestic companies. In addition,
the Company may not be required under the Exchange Act to file
annual and quarterly reports with the SEC as promptly as
U.S. domestic companies whose securities are registered
under the Exchange Act.
In addition,
as a
foreign private
issuer, the Company has
the option
to follow
certain Canadian corporate
governance
practices, except
to the
extent that
such laws
would be
contrary to
U.S. securities
laws, and
provided that
the Company
Table
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46
discloses the requirements it is not following and describe the Canadian practices it follows instead. The Company plans to
rely
on
this
exemption.
As
a
result,
the
Company’s
shareholders
may
not
have
the
same
protections
afforded
to
shareholders of U.S. domestic companies that are subject
to all U.S. corporate governance requirements.
Loss of Foreign Private Issuer Status in the Future
In order
to maintain
its status
as a
foreign private
issuer,
a majority
of the
Company's
Common Shares
must be
either
directly
or
indirectly
owned
by
non-residents
of
the
U.S.
unless
the
Company
also
satisfies
one
of
the
additional
requirements necessary
to preserve
this status.
The Company
may in
the future
lose its
foreign private
issuer status
if a
majority of the
Common Shares
are held
in the United
States and
the Company
fails to
meet the
additional requirements
necessary to avoid
loss of foreign
private issuer
status. The
regulatory and compliance
costs to the
Company under
U.S.
federal
securities
laws
as
a
U.S.
domestic
issuer
may
be
significantly
more
than
the
costs
the
Company
incurs
as
a
Canadian foreign private
issuer eligible to use
the multi-jurisdictional disclosure
system ("
MJDS
"). If the Company
is not a
foreign private
issuer,
it would
not be eligible
to use
the MJDS
or other
foreign issuer
forms and
would be
required to
file
periodic
and
current
reports
and
registration
statements
on
U.S.
domestic
issuer
forms
with
the
SEC,
which
are
more
detailed and extensive than the forms available
to a foreign private issuer.
In addition, the Company may lose the
ability to
rely upon exemptions from Nasdaq corporate governance
requirements that are available to foreign private issuers.
Inability for U.S. Investors to Enforce Certain Judgments
The Company is a corporation existing under the Canada
Business Corporations Act. A number of the Company’s
directors and officers are residents of Canada, and substantially all of the Company’s assets are located outside the United
States. As a result, it may be difficult
to effect service within the United
States upon the Company or upon its
directors and
officers.
Execution
by
United
States
courts
of
any
judgment
obtained
against
the
Company
or
any
of
the
Company’s
directors or officers
in United
States courts may
be limited to
the assets
of such companies
or such persons,
as the case
may be,
located in
the United
States. It
may also
be
difficult
for holders
of securities
who reside
in the
United
States to
realize in the United States upon judgments of courts of the United
States predicated upon civil liability and the civil liability
of the Company’s directors and executive officers
under the United States federal securities laws. The
Company has been
advised that
a judgment
of a
U.S. court
predicated solely upon
civil liability
under U.S.
federal securities
laws or
the securities
or “blue sky” laws of any
state within the United States,
would likely be enforceable
in Canada if the United
States court in
which the judgment was obtained has a basis
for jurisdiction in the matter that would be recognized
by a Canadian court for
the same purposes. However, there may be doubt
as to the enforceability in Canada
against these non-U.S. entities or their
controlling persons,
directors
and officers
who are
not residents
of the
United States,
in original
actions or
in actions
for
enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal or state securities
laws.
Risks Relating to the Company’s Status as
an "Emerging Growth Company" Under U.S. Securities
Laws
The Company
is an
“emerging growth
company” as
defined in
section 3(a)
of the
Exchange Act
(as amended
by
the JOBS
Act, enacted
on April
5, 2012),
and the Company
will continue
to qualify
as an emerging
growth company
until
the earliest
to occur
of: (a)
the last
day of
the fiscal
year during
which the
Company
has total
annual gross
revenues of
US$1,070,000,000 (as
such amount
is indexed
for inflation
every five
years by
the SEC)
or more;
(b) the
last day
of the
fiscal year
of the
Company
following the
fifth anniversary
of the
date of
the first
sale of
common
equity securities
of the
Company pursuant to
an effective
registration statement
under the United
States Securities
Act of 1933,
as amended; (c)
the date
on which
the Company
has, during
the previous
three year
period, issued
more than
US$1,000,000,000 in
non-
convertible debt; and (d) the
date on which the
Company is deemed to be
a "large accelerated filer", as
defined in Rule 12b-
2 under the
Exchange Act. The
Company will qualify as
a large accelerated filer
(and would cease to
be an emerging growth
company) at
such time
when on
the last
business
day of
its second
fiscal quarter
of such
year the
aggregate worldwide
market value of its common equity held by non-affiliates
will be US$700,000,000 or more.
For
so
long
as
the
Company
remains
an
emerging
growth
company,
it
is
permitted
to
and
intends
to
rely
upon
exemptions from certain
disclosure requirements that are
applicable to other
public companies that are
not emerging growth
companies. These exemptions include
not being required to
comply with the auditor attestation
requirements of Section 404
of the
JOBS Act.
The Company
takes advantage
of some,
but not
all, of
the available
exemptions available
to emerging
growth companies.
The Company
cannot predict
whether investors
will find
the Common
Shares less
attractive because
the Company relies upon certain
of these exemptions. If some
investors find the Common Shares less
attractive as a result,
there may be a less active trading market
for the Common Shares and the Common
Share price may be more volatile. On
the other
hand, if
the Company
no longer
qualifies as
an emerging
growth company,
the Company
would be
required to
divert additional management time
and attention from the
Company's development and
other business activities and
incur
Table
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47
increased legal and financial costs to comply with the additional associated
reporting requirements, which could negatively
impact the Company's business, financial condition and
results of operations.
13.
Legal Proceedings
The Company may,
from time to
time be involved
in legal proceedings.
The Company
is not involved
in any legal
proceedings which, individually or in the aggregate, would be material to the Company’s consolidated financial condition or
results of operations, except as follows:
The Company filed
an originating
application on
August 11,
2022, petitioning
the Quebec
Superior Court to
order
P. Riopel (1993) Inc. to convey title
of the property
bearing civic address
5655 Philippe-Turcot, Montreal, Quebec, H4C
3K8.
The
property
is
the
location
of
one
of
the
Company’s
two
manufacturing
facilities.
The
petition
followed
the
Company’s
exercise of
its contractual
option to
purchase the
property for
$2,750,000. On
December 23,
2022, P.
Riopel (1993)
Inc.
filed a counterclaim in which it
sought damages in the
amount of $415,425, alleging that
the Company breached the lease
agreement between the parties.
On July 28, 2021,
an application for a
safeguard order and permanent
injunction was filed by
AirScience Systems
Inc. (“
ASSI
”) before the
Quebec Superior
Court against
Gas RNG Systems
Inc. (“
RNG Canada
”), RNG Investments
Inc.,
Glauber Equipment
Corporation, Mr.
Peter Glauber
and Mr.
Shivaji Ramalingam
(collectively,
the “Defendants”).
ASSI is
seeking
an
oppression
remedy,
alleging
the
wrongful
expulsion
of
ASSI
as
a
shareholder
and
Mr.
Gérard
Magnin
as
a
director from RNG Canada. On April 29,
2022, the Defendants filed a defence and a
counterclaim against ASSI, AirScience
Technologies
Inc.
(“
AST
”)
(now
Pyro
Green-Gas
Inc.,
a
wholly-owned
subsidiary
of
the
Company)
and
Mr.
Magnin
for
allegedly breaching their
obligations with respect
to a unanimous
shareholder agreement
governing RNG Canada
as well
as an operating agreement governing another entity, Gas RNG Systems LLC (“
RNG US
”). The Defendants, by way of their
counterclaim, seek damages in the amount of $4.9 million. PyroGenesis has maintained that AST was never a shareholder
of either RNG Canada or RNG US nor was it a party to
the disputed shareholders and operating agreements.
On October
6, 2021,
AST filed
an action
for damages
and unpaid
invoices against
RNG Canada,
RNG
US, Mr.
Shivaji Ramalingam, Mr. Peter Glauber, Mr. Paul-Louis Crouzat and Mr. Tarlok Nandhra before the Quebec Superior Court.
On February 13, 2022, a defence and
counterclaim was filed against AST and two former shareholders of
AST (Mr. Magnin
and Mr. Paul
D. Singh), seeking approximately
$712,000 in alleged compensatory
damages. The counterclaim also
seeks
a condemnation for legal fees, moral damages and punitive
damages for approximately $771,333.
On February 17,
2023, the
Company received
a motion from
the securities regulatory
authority in the
Province of
Québec,
filed
with
the
Superior
Court
of
Québec,
pursuant
to
which
the
AMF
is
asking
the
Court
to
determine
whether
certain documents previously requested
by the AMF from the
Company are subject to
solicitor-client privilege. The
motion
was filed by the
AMF in connection
with an investigation
being conducted in
the context of
applicable securities laws.
The
Company understands
the AMF
is investigating
certain actions
taken by
the President
and Chief
Executive Officer
of the
Company,
Mr.
P.
Peter
Pascali, in
connection
with
a
settlement
agreement
entered
into on
April
30, 2018,
between the
Company and Phoenix Haute Technology
Inc. (“
Phoenix
”), a company controlled by the father of Mr. P.
Peter Pascali, and
ancillary transactions.
Pursuant
to the
terms
of a
board-approved
settlement
agreement,
and
as further
disclosed
in the
annual information form of the Company for the year
ended December 31, 2020, available under the Company’s
profile on
SEDAR at www.sedar.com, under “Interest of Management and Others in Material Transactions – Settlement of Claim”,
the
Company issued $3.7 million of units
comprised of common shares and warrants to Phoenix in
2018, to settle a $5.5 million
claim
of
Phoenix
with
respect
to
the
unpaid
portion
of
the
consideration
payable
by
the
Company
to
Phoenix
for
an
acquisition of
intellectual
property
rights completed
in
2011.
To
the
Company’s
knowledge, the
investigation
of the
AMF
does not
involve any
allegations of
wrongdoing by
the Company.
The AMF
has neither
announced any
proceedings
nor
filed
any
charges.
The
Company
believes
that
no
corporate
or
securities
laws
have
been
breached
but
cannot
predict
whether any enforcement action will result from the investigation.
14.
Interest of Management and Others in Material Transactions
Other than
as described
elsewhere in
this AIF
and as
described below, there is
no material interest,
direct or indirect,
of: (i)
any director
or executive
officer
of the
Company;
(ii) any
person or
company
that beneficially
owns, or
controls or
directs,
directly
or indirectly,
more than
10% of
the
Company’s
outstanding
voting
securities;
or (iii)
an associate
or any
affiliate of any persons or companies referred to above in (i) or (ii), in any transaction within the three years before the date
of
this
AIF
that
has
materially
affected
or
is
reasonably
expected
to
materially
affect
the
Company.
See
“Directors
and
Executive Officers - Conflicts of Interest”.
Table
of Contents
48
15.
Transfer Agent and Registrar
The transfer
agent and
registrar
of the
Company’s
Common Shares
is TSX
Trust
Company (Canada)
having an
office at
2001, Robert-Bourassa
Boulevard, Suite
1600, Montréal,
Québec, H3A
2A6. The
transfer agent
and registrar
of
the Company’s Common Shares
in the United States
is American Stock Transfer
& Trust Company,
LLC, having an office
at
6201 15th Ave, Brooklyn, NY 11219,
United States.
16.
Auditors
The auditors
of the
Company
are RCGT
at its
office
located at
600
de
la Gauchetiere
Street
West,
Suite
2000,
Montréal, Québec. RCGT has informed
the Company that it
is independent with respect to
the Company within the
meaning
of the relevant rules and related interpretations prescribed
by the relevant professional bodies in Canada.
17.
Material Contracts
This
AIF
includes
a
summary
description
of
certain
material
contracts.
Each
summary
description
discloses
all
material attributes
of the
applicable contract
but is
not complete
and is
qualified by
reference to
the terms
of the
material
contracts, which
are available
under the
Company’s SEDAR
profile at
www.sedar.com.
The following
are the
Company’s
only material contracts, other than
those contracts entered into in
the ordinary course of business,
which have been entered
into since the beginning of its last financial year, or entered into prior to such date, but which
are still in effect and which are
required to be filed with Canadian securities regulatory
authorities:
•
contract
between
PyroGenesis
and
HPQ
Silica
Polvere
Inc.,
a
wholly
owned
subsidiary
of
HPQ
Silicon
Resources
Inc.,
dated
June
30,
2021
whereby
HPQ
Silica
Polvere
Inc.
purchased
certain
intellectual
property and the Company contracted to advance the development of a green reactor and process used to
produce fumed silica directly from quartz in consideration for
$3,300,000, as described under “Business of
the Company - Development of a Process to Produce Fuming
Silica from Quartz”; and
•
contract between PyroGenesis and HPQ Silicon
Resources dated July 29, 2016 whereby HPQ
purchased
certain intellectual
property
and the
Company
contracted
to build
a PUREVAP
system
for C$7,070,000,
which
contract
refers
to
certain
terms
in
a
development
contract
between
HPQ
(f/k/a
Uragold
Bay
Resources Inc.) dated February 26,
2015, as amended from
time to time, as
described under the “Business
of
the
Company
-
Development
of
Processes
for
the
Production
of
High
Purity
Silicon
Metals,
Nano
Powders and Nanowires”;
18.
Additional Information
Additional information,
including with respect
to directors’ and
executive officers’
remuneration and
indebtedness,
principal holders
of the Company’s
securities, and
securities authorized
for issuance
under equity
compensation plans,
is
contained
in
the
Company’s
management
information
circular
for
its
most
recent
annual
meeting
of
shareholders
that
involved
the
election
of
directors
which
is
available
under
the
Company’s
SEDAR
profile
at
www.sedar.com.
Additional
financial information
is contained
in the
Company’s consolidated
financial statements
and management’s
discussion and
analysis for
the year
ended December
31,
- Further
information
about the
Company,
filed with
Canadian
securities
regulators,
is
available
online
under
the
Company’s
SEDAR
profile
at
www.sedar.com
or
filed
with
the
Securities
and
Exchange Commission at www.sec.gov.
19.
Glossary of Terms
“
2020 Convertible Loan
” has the meaning given to such term under “General Development of the Business – Year
Ended
December 31, 2022 – Corporate Developments and Financings”.
“
2020 Public
Offering
” has
the meaning
given to
such term
under “General
Development of
the Business
– Year
Ended
December 31, 2022 – Corporate Developments and Financings”.
“
2020 Public Offering Warrant
” has the meaning given to such term under “General Development
of the Business – Year
Ended December 31, 2022 – Corporate Developments
and Financings”.
“
2020 Units
” has the
meaning given to
such term
under “General Development
of the Business
– Year
Ended December
31, 2022 – Corporate Developments and Financings”.
Table
of Contents
49
“
AIF
” means this annual information form.
“
AMF
” means Autorité des marchés financiers.
“
Articles
” has the meaning given to such term under
“Description of Capital Structure”.
“
ASSI
” means AirScience Systems Inc.
“
AST
” means AirScience Technologies
Inc., now Pyro Green-Gas Inc., a wholly-owned subsidiary
of the Company.
“
Audit Committee
” means the Company’s audit committee.
“
Board
” or “
Board of Directors
” means the board of directors of the Company.
“
business day
” means
a day
other than
a Saturday,
Sunday or
a day
on which
the principal
chartered banks
located at
Toronto
are not open for business.
“
Canadian Securities Laws
” means the securities legislation or ordinance and
regulations thereunder of each province of
Canada and the rules, instruments, policies and orders
of each Canadian securities regulator made thereunder.
“
CBCA
” means the Canada Business Corporations Act.
“
CFC
” means chlorofluorocarbons.
“
Common
Share
”
means
a
common
share
in
the
capital
of
the
Company,
as
described
under
“Description
of
Capital
Structure - Share Capital and Issued and Outstanding
Shares”.
“
Company
” has the meaning given to such term under “Explanatory
Notes”.
“
diluted basis
” means the
number of Common
Shares outstanding
assuming the exercise
of all outstanding
Options and
other rights to acquire Common Shares.
“
Drosrite International
” means Drosrite International LLC, a US-based
private company.
“
Drosrite International
Exclusive Agreement
” has
the meaning
given to
such term
under “Directors and
Executive Officers
- Conflicts of Interest”.
“
Dross Processing
Service Agreement
” has
the meaning
given to
such term
under “Directors
and
Executive Officers
-
Conflicts of Interest”.
“
forward-looking statements
” has the meaning given to such term under “Forward
-Looking Statements”.
“
GHG
” means greenhouse gas.
“
HCFC
” means hydrochlorofluorocarbons.
“
HFC
” means hydrofluorocarbons.
“
HPQ
” means HPQ Silicon Resources Inc., a corporation listed
for trading on the TSX-
V.
“
HPQ Nano
” means HPQ Nano Silicon Powders Inc., a wholly
owned subsidiary of HPQ.
“
ISO
” means International Organization for Standardization.
“
MI 61-101
” means Multilateral Instrument 61-101 – Protection of
Minority Security Holders in Special Transactions.
“
NASDAQ
” means the NASDAQ Capital Market.
“
NI 52-110
” means National Instrument 52-110
— Audit Committees.
Table
of Contents
50
“
ODS
” means ozone depleting substances.
“
Option
” means an option to acquire a Common Share granted pursuant
to the Company’s option plan.
“
PACWADS
” means the Company’s Plasma Arc Chemical
Warfare Agent Destruction System.
“
PAGV
” means plasma arc gasification and vitrification.
“
Pascali Trust
” means Fiducie de
Crédit Mellon Trust, a trust
of which Company’s Chief
Executive Officer, P.
Peter Pascali,
is a trustee, officer and beneficiary.
“
PAWDS
” means the Company’s Plasma Arc Waste
Destruction System.
“
Phoenix
” has the meaning given to such term under “Legal
Proceedings”.
“
RCGT
” means Raymond Chabot Grant Thornton LLP,
the Company’s external auditors.
“
RGN
” means renewable natural gas.
“
RNG Canada
” means Gas RNG Systems Inc.
“
RNG US
” means Gas RNG Systems LLC.
“
PRRS
” means the Company’s Plasma Resource Recovery
System.
“
R&D
” means research and development.
“
SEC
” means the U.S. Securities Exchange Commission.
“
SEDAR
” means the System for Electronic Document
Analysis and Retrieval.
“
SPARC
” means Steam Plasma Arc Refrigerant Cracking.
“
TSX
” means the Toronto
Stock Exchange.
“
TSX-V
” means the TSX Venture
Exchange.
“
Turcot Facility
” means the facility located at 5655 Philippe-Turcot,
Montréal, Québec, Canada, H4C 3K8, as described in
“Business of the Company - Facilities”.
“
Wanklyn Facility
” means the
facility located at
9371 Wanklyn
Street, LaSalle, Québec,
Canada, H8R 1Z2,
as described
in “Business of the Company - Facilities”.
Table
of Contents
51
SCHEDULE “A” CHARTER OF THE AUDIT COMMITTEE
PYROGENESIS CANADA INC.
AUDIT COMMITTEE CHARTER
Approved by the Board of Directors
and effective as of October 25th, 2011
PREAMBLE
The
Audit
Committee’s
(the
“Committee”)
Charter
clarifies
its
responsibilities
delegated
by
the
Board
of
Directors
(the
“Board”). The
Charter is
used by
the Committee
to guide
the planning
and the
performance of
its work.
The Charter
also
clarifies the understanding the Committee has with the Company’s auditors and with management about the nature of their
involvement with the Committee and its work.
OVERALL MANDATE
Generally,
the
Committee
promotes
and
ensures
a
high
standard
of
financial
reporting,
risk
management
and
ethical
behavior for the Company and in doing so shall carry out the duties
and responsibilities as set out in this Charter.
COMPOSITION
The Committee shall consist
of at least three Directors
appointed by the Board who will
serve at the pleasure of
the Board
and, in any event, only so
long as he/she shall be a Board
member. The Committee will have an appropriate representation
of independent directors as required by law.
The composition of the Committee shall comply
with the rules and regulations
of the
stock exchange
on which
the shares
of the
Company are
listed as
well as
the Canadian
Securities Administrators
“Instruments”.
The
Board
may
fill
vacancies
in
the
Committee
by
election
from
their
number.
The
Board
shall
elect
the
Chairperson of the Committee.
In the absence
of the Chairperson, the
members of the Committee
shall appoint an
Acting
Chairperson. The
President of
the Company
shall not
be an
ex-officio
member of
the Committee,
but the
Chairperson of
the Board may,
at his/her discretion,
attend meetings
as an ex-officio
member.
An ex-officio
member shall be
vested with
all the rights and powers of appointed members.
To
ensure
the
Committee’s
effectiveness,
each
member
will
be
financially
literate
and
be
prepared
to
spend
the
time
necessary to address complex issues and to challenge
both management and the auditors, where necessary.
A quorum of
the Committee shall
consist of at
least two members
of the Committee
(for this purpose
the Committee shall
be deemed to consist of at
least three members, two being appointed by
the Board as aforesaid and one
being an ex-officio
member
as
aforesaid).
Notwithstanding
any
vacancy
on
the
Committee,
a
quorum
may
exercise
all
the
powers
of
the
Committee.
The Secretary
shall be
selected from
its members
or shall
be the
Corporate
Secretary.
The Secretary
of the
Committee
shall ensure that minutes of meetings are prepared for
distribution to Committee members.
DUTIES AND RESPONSIBILITIES
The Committee shall have the following duties and responsibilities:
OVERSEEING STANDARDS
OF INTEGRITY AND BEHAVIOUR
Management
is
responsible
for
the
Company’s
standards
of
behavior.
The
Committee
assists
the
Board
in
obtaining
assurances that management is
operating the Company in
an ethical manner and
encourages management to demonstrate
a strong commitment to integrity.
The
Committee
requests
that
management
report
periodically
on
how
the
Company’s
systems,
practices
and
controls
encourage, monitor and provide assurance of compliance with
laws, regulations and standards of ethical conduct, including
the control of expenses such as perquisites, expense
accounts and out-of-pocket expenses for officers
and directors.
Table
of Contents
52
The Committee seeks the views
of the auditors about the
Company’s standards of
behavior. It discusses
with the auditors
the adequacy of the
systems and controls, and
the details of any
practices or transactions identified by
the auditors as being
in
potential
violation
of
the
legal
authorities,
as
well
as
the
details
of
any
“other
matters”
they
consider
bringing
to
the
attention
of
the
Board.
The
committee
seeks
the
views
of
auditors
on
remedies
to
curtail
inappropriate
practices
and
behaviors, as well as alternative remedies to rectify those
matters that are not in the Company’s best interest.
The Committee values financial integrity
and credibility.
It actively promotes an overall corporate
“tone” for quality financial
reporting, sound business risk practices, and ethical behavior.
OVERSEEING FINANCIAL REPORTING
Management is responsible for the Company’s financial
reporting. This includes preparation of accurate,
fair and complete
financial
reports,
the
selection
of
the
most
appropriate
accounting
principles
and
practices,
formulation
of
accounting
judgments and estimates,
and preparation of
the annual report
including its management’s
discussion and analysis
(MD&A),
budgets and other such reports.
The Committee
shall
provide
assistance
to
the
Board
in fulfilling
its financial
reporting
and control
responsibilities
to the
shareholders of the Company and to the
investment community. The Committee’s primary duties and responsibilities in this
regard are to:
(a)
oversee the accounting and financial
reporting processes of the Company
and the audit of its financial
statements
including:
i.
the integrity of the Company’s financial statements;
ii.
the compliance with legal and regulatory requirements;
and,
iii.
the independent auditor’s qualifications and independence;
(b)
serve
as
an
independent
and
objective
party
to
monitor
the
Company’s
financial
reporting
process
and
internal
control systems;
(c)
review and appraise the audit activities of the Company’s
independent auditors;
(d)
provide open
lines of
communication among
the independent
auditors, financial
and senior
management and
the
Board for financial reporting and control matters and meet periodically with management
and with the independent
auditors.
The Committee assesses the relevance and the reliability of the financial reports to ensure that they portray, in the clearest
light possible, the underlying economic circumstances and financial
performance of the Company.
The Committee promotes accuracy,
truthfulness, integrity and credibility in financial reporting.
The Committee
discusses
with management
and auditors
the inherent
fairness,
accuracy
and completeness
of financial
disclosures as
well as
the Company’s
compliance with
legal and
regulatory requirements
and may
request attestation
to
this effect from them.
The Committee reviews
the key accounting
principles and the
significant judgments
and estimates with
management and
auditors. It seeks
their views with
respect to the
appropriateness and consistency of
the accounting principles and
practices,
not just their acceptability,
and the degree of aggressiveness or conservatism in
determining estimates.
As integral
components
of its
financial
review
processes,
the Committee
reviews
the operating
and
capital
budgets,
the
borrowing plan, summaries of the corporate
plan and budgets, the annual and
quarterly financial statements, including
the
MD&A
sections,
and
any
other
financial
information
which
will
be
distributed
to
the
public
and
requiring
approval
of
the
Board.
The Committee
assesses
how
well
the
Company’s
financial
information
reporting
package
meets
the
Board’s
needs
by
reviewing its form, content and level of details.
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53
OVERSEEING MANAGEMENT CONTROL PRACTICES
Management is responsible for
maintaining records and financial
management and control systems
that provide reasonable
assurance that assets
are safeguarded and maintained,
that Intellectual Property
(IP) is identified, protected
and secured,
that transactions
are in accordance
with regulations
and any
government directives
issued and
that financial,
human and
physical resources are managed economically and efficiently
and that operations are carried out effectively.
Management is responsible for identifying the principal
business risks facing the Company and formulating
the Company’s
risk tolerance levels and risk management policies for consideration and approval by
the Board. The Committee assists the
Board in this function, focusing on the financial risks.
The Committee holds management
accountable for the design
and functioning of the
Company’s control framework in order
to
monitor,
assess
and
mitigate
the
Company’s
business
risks
and
uncertainty,
as
well
as
legal,
environmental,
social
responsibility
and
ethical
compliance.
Periodically,
the
Committee
requests
that
management
provides
it
with
an
assessment of the effectiveness of the internal control structure and procedures, and, if warranted, with plans for improving
its effectiveness.
The Committee reviews
with the auditors
(internal, external and
special examiners
when applicable) their
assessments of
the
design
and
functioning
of
the
control
framework
and
the
systems
in
place
for
ensuring
that
the
business
risks
are
identified, monitored,
controlled and
within the
Company’s
limit of
tolerance, and
their views
on management’s
plans for
improvements.
OVERSEEING WORK OF AUDITORS
The Committee
recognizes
that the
Company’s
auditors
possess
substantial expertise
and
have significant
professional
responsibilities. It holds the auditors accountable for fulfilling
their respective responsibilities.
The Internal auditor (when established) will be accountable
to the Committee, in its capacity as a committee
of the Board.
The Committee demands independent and objective assessments of the Company’s standards of behavior,
its compliance
with authorities, its financial reporting, and its business risks
systems, practices and controls from the auditors.
The Committee oversees audit activities with respect to the
following two (2) types of audits:
(a)
the
annual
audit
deals
with
the
fairness
of
the
statements,
compliance
of
transactions
with
specified
legal
authorities, and any other matter identified by the external
auditor as important,
(b)
the internal audit
(when established), which is
a part of
management’s system of internal
control, deals with
matters
similar to those of the annual audit.
The Committee reviews and follows the five (5) generic
phases of each of the two (2) types of audits:
1.
establishing the purpose and terms of reference for the audit;
2.
selection and organization of a team of experienced professionals
to plan and conduct the audit;
3.
conduct of the audit; and
4.
reviews all the audit results and findings, and reports to the
Board.
The Committee
shall review
management’s
plans to
correct any
significant
problems raised
by the
internal
and external
auditors. It shall monitor and review management’s
progress in implementing its response plan.
The Committee ensures that management has not placed any inappropriate restrictions on the audits and confirms that the
external auditor is independent and able to maintain
its objectivity.
The Committee approves the mandate of the internal audit function, monitors the long term internal
audit plan and ensures
that the internal auditor has adequate resources to perform its responsibilities and has direct and open communication with
the Committee. It
reviews the reporting
relationship of the
internal auditor to
ensure that an
appropriate segregation of
duties
is maintained and
that the internal
auditor has an
obligation to report
directly to the
Committee on matters
affecting its duties,
irrespective of his or her reporting relationships.
The Committee
evaluates the
work of
each of
the auditors
with a
view to
determining the
level of
assurance that
can be
derived from their work.
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54
Periodically, the Committee
evaluates the performance of each auditor.
The Committee shall establish effective communication processes with management and the Company’s auditors, to
assist
it in monitoring objectively the quality and
effectiveness of the relationship among
the auditors, management and the Audit
Committee. It shall be responsible for the resolution of
disagreements between management and auditors.
OPERATIONAL RESPONSIBILITIES
Each
new
member
will
receive
an
orientation
about
the
Committee’s
work
and
responsibilities
and
all
members
are
encouraged to keep current about
accounting, auditing and financial reporting standards
and practices. In recognition of
the
importance of the
financial literacy skills
of its members,
the Committee relies
on the full support
of the Board
in acquiring
and in developing an approach to improve the necessary
skills, when required.
Annually,
the Committee
reviews the
Charter setting
out the
scope of
its responsibilities,
and, where
in the
opinion of
the
Committee, amendments
to the Charter
are required,
may propose such
amendments to
the Board for
consideration and
approval.
Annually, the Committee
will consider the appropriateness of preparing a report
to the Board describing its work.
OTHER RESPONSIBILITIES
Periodically,
in consultation
with the Chief
Financial Officer
and the auditors,
the Committee seeks
reasonable assurance
of the quality and sufficiency of the Company’s
accounting and financial personnel and other resources.
The Committee shall discuss or review in advance the
appointment of the Chief Financial Officer.
The Committee shall review procedures established by management for dealing with complaints from employees related to
financial reporting, controls and corporate conduct.
The Committee may investigate any matters that, at the
Committee’s discretion, fall within its duties.
The Committee shall perform such other functions as are
assigned to it by law or by the Board.
The Committee shall review with the general
counsel, legal and regulatory matters that, in the
opinion of management, may
have
a
material
impact
on
the
financial
statements,
related
organization
compliance
policies,
and
program
and
reports
received from regulators.
OPERATING PROCEDURES
The Committee shall meet quarterly, or more frequently as appropriate, in advance of regularly scheduled Board meetings.
Committee meetings shall be
called by the Committee
Chair or requested
by any Committee member
or by the Board
Chair.
Notice of each meeting of the
Committee shall be given to each member of
the Committee (including the Chair of the Board
as an ex-officio member of the Committee), and except in the case of an in-camera meeting, also to the Auditors, the Chief
Executive Officer
and the
Chief Financial
Officer of
the Company.
Notice of
the meeting
shall be
given either
orally or
by
electronic mail, not less than 48 hours before the time fixed for
the meeting. Members may waive notice of a meeting.
Meeting discussions may take place face to face, by teleconference
or through a reciprocal interchange of emails.
The agenda for each meeting will be established by the Chair
of the Committee.
Any decision made by
the Committee shall be
determined by a majority
vote of the members
of the Committee present.
A
member will be deemed to have consented
to any resolution passed or action
taken at a meeting of the Committee
unless
the member dissents.
The Chief Executive Officer and the Chief Financial Officer of the Company shall attend all Audit Committee meetings, with
the exception of in-camera meetings.
A matter put to vote
at a meeting of the
Committee shall be decided
by a majority of
the votes cast, and in
the event of an
equality of votes, the Chair has a deciding vote.
Table
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55
The Secretary of the Committee
shall ensure that minutes of meetings
are prepared for distribution to Committee members,
and,
except
for
in-camera
meetings,
to
the
Auditors,
the
Chief
Executive
Officer
and
the
Chief
Financial
Officer
of
the
Company.
The Chair of the
Committee will report
to the Board
on proceedings and
deliberations of the
Committee, either orally
or in
writing, at the first subsequent meeting of the Board
or at such earlier time as the Committee in its discretion
may consider
advisable.
The Committee may retain at the
Company’s expense, with prior
Board approval, independent consultants
and such other
persons as the Committee shall determine necessary
to fulfill its duties and responsibilities.
LIMITATION
ON THE COMMITTEE’S DUTIES
In contributing
to
the
Committee’s
discharging
of
its
duties
under
this
Charter,
each
member
of
the
Committee
shall
be
obliged
only
to
exercise
the
care,
diligence
and
skill
that
a
reasonably
prudent
person
would
exercise
in
comparable
circumstances. Nothing
in this
mandate is
intended, or
may be
construed, to
impose on
any member
of the
Committee a
standard of care
or diligence that
is in any
way more onerous
or extensive than
the standard to
which all Board
members
are subject. The essence of the
Committee’s purpose is
to monitor, review
and when appropriate, recommend
changes to
financial
and
corporate
operating
standards
as
they
are
practiced
by
the
Company’s
management
to
gain
reasonable
assurance (but not to ensure) about fundamental activities
of the Company.
pyrex99d2
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
1
| Page
Exhibit 99.2
This
management’s
discussion
and
analysis
(“MD&A”)
is
intended
to
assist
readers
in
understanding
the
business
environment, strategies, performance and
risk factors of PyroGenesis
Canada Inc. (“PyroGenesis”, the “Company” or
“we”).
The MD&A provides the reader with a view
and analysis, from the perspective of
management, of the Company’s financial
results for the fourth quarter and for the year ended
December 31, 2022. The MD&A has been prepared in accordance with
National
Instrument
51-102,
Continuous
Disclosure
Requirements,
and
should
be
read
in
conjunction
with
the
audited
consolidated financial
statements and
related notes
thereto of
the Company
for the year
ended December 31,
- (the
“2022 consolidated
financial
statements”)
and
the Company’s
annual
information
form for
the year
ended December
31,
2022 (the “Annual Information Form”).
The 2022
consolidated financial
statements and
MD&A have
been reviewed
by PyroGenesis’
Audit Committee
and were
approved by its Board of Directors on
March 30, 2023. The Board of Directors is responsible
for ensuring that the Company
fulfills its
responsibilities
for financial
reporting
and is
ultimately responsible
for reviewing
and approving
the MD&A.
The
Board of Directors carries out this responsibility
principally through its Audit Committee.
The Audit Committee is appointed
by the Board of Directors and is comprised of independent
directors. The Audit Committee reports its findings
to the Board
of
Directors
for
its
consideration
when
it
approves
the
MD&A
and
consolidated
financial
statements
for
issuance
to
shareholders.
The following information takes
into account all material events
that took place up
until March 30, 2023, the
date on which
the Company’s Board of
Directors approved this MD&A.
Unless otherwise indicated, all
amounts are presented in
Canadian
dollars. The Company’s functional and reporting currency
is the Canadian dollar.
Additional information
regarding PyroGene
sis is
available on
the System
for Electronic
Document Analysis
and Retrieval
(“SEDAR) at www.sedar.com,
the Electronic Data
Gathering, Analysis,
and Retrieval system
(“EDGAR”) at
www.sec.gov,
and on the Company’s website at www.pyrogenesis.com
.
FORWARD-LOOKING
STATEMENTS
This MD&A
contains forward-looking statements
and forward-looking information
(collectively, “forward-looking statements”)
within the
meaning of
applicable securities
legislation. All
statements other
than statements
of historical
fact contained
in
this MD&A are
forward-looking statements,
including, without
limitation, the
Company’s statements
regarding its products
and
services;
relations
with
suppliers
and
clients;
future
financial
position;
business
strategies;
potential
acquisitions;
potential
business
partnering;
litigation;
and
plans
and
objectives.
In
certain
cases,
forward-looking
statements
can
be
identified
by
the
use
of
words
such
as
“plans”,
“expects”
or
“does
not
expect”,
“is
expected”,
“budget”,
“scheduled”,
“estimates”,
“forecasts”,
“intends”,
“anticipates”
or
“does
not
anticipate”,
or
“believes”,
or
variations
of
such
words
and
phrases
or
state
that
certain
actions,
events
or
results
“may”,
“could”,
“would”,
“might”
or
“will
be
taken”,
“occur”
or
“be
achieved” and similar words or the negative thereof. Although management of the Company
believes that the expectations
represented
in
such
forward-looking
statements
are
reasonable,
there
can
be
no
assurance
that
such
expectations
will
prove to be correct.
In particular, this MD&A contains
forward-looking statements that relate, but are not limited,
to:
●
the Company’s business strategies, strategic objectives
and growth strategy;
●
the Company’s current and future capital resources
and the need for additional financing;
●
the Company’s
ability to
increase sales,
including the
results of
the successful
completion
of the
Company’s
current projects;
●
management’s
expectation
that the
Company will
achieve sustained
annual growth
and profitability,
and that
gross margins will increase resulting in a decrease in cost
of sales as a percentage of revenue; and
●
the Company’s overall financial performance.
By their
nature, forward-looking statements
require assumptions and
are subject
to inherent
risks and uncertainties
including
those discussed herein. In particular,
forward-looking statements relating to future sales,
growth and profitability are based
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
2
| Page
on the assumption that
current projects will
be completed, and
the Company will
be awarded certain
anticipated contracts
pursuant to
recent negotiations
with, and
statements
made by,
third parties.
There is
significant risk
that predictions
and
other
forward-looking
statements
will
not
prove
to
be
accurate.
Readers
are
cautioned
to
not
place
undue
reliance
on
forward-looking statements made herein because a number of factors could cause actual future results, conditions, actions
or
events
to
differ
materially
from
the
targets,
expectations,
estimates
or
intentions
expressed
in
the
forward-looking
statements.
Many factors could
cause the Company
’s actual
results, performance
or achievements
to be materially
different from
any
future results,
performance or
achievements that
may be
expressed or
implied by
forward-looking statements,
including,
without limitation,
risks
and uncertainties
relating to:
the strength
of the
Canadian,
US, European
and Asian
economies;
operational, funding,
and liquidity
risks; unforeseen
engineering and
environmental problems;
delays or
inability to
obtain
required
financing
and/or
anticipated
contracts;
risks
associated
with
licenses,
permits
and
regulatory
approvals;
supply
interruptions or labour disputes;
the impact of the Coronavir
us (COVID-19) pandemic on
our business and our operations;
foreign
exchange
fluctuations
and
collection
risk;
competition
from
other
suppliers,
or
alternative,
less
capital
intensive,
energy
solutions;
and
risk
factors
described
elsewhere
under
the
heading
“Risk
Factors”
in
this
MD&A
and
the
Annual
Information Form, and
elsewhere in this
MD&A and other
filings that the
Company has
made and may
make in the
future
with
applicable
securities
regulatory
authorities.
We
caution
that
the
foregoing
list
of factors
is not
exhaustive,
and
that,
when relying
on forward-looking
statements to
make decisions
with respect
to the Company,
investors and
others should
carefully consider these factors, as well
as other uncertainties and potential events, and
the inherent uncertainty of forward-
looking statements.
Although
the
Company
has
attempted
to
identify
significant
factors
that
could
cause
actions,
events
or
results
to
differ
materially
from
those
described
in
forward-looking
statements,
there
may be
other
factors
that
cause
actions,
events
or
results
not
to
be
as anticipated,
estimated
or
intended.
There
can be
no
assurance
that
forward-looking
statements
will
prove to be accurate,
as actual results
and future events
could differ materially
from those anticipated in
such statements.
Accordingly,
readers
should
not
place
undue
reliance
on
forward-looking
statements.
Forward-looking
statements
are
provided as
of the
date of
this MD&A,
and the
Company assumes
no obligation
to update
or revise
such forward-looking
statements to reflect new events or circumstances except as
required under applicable securities laws.
The forward-looking statements
contained herein are expressly
qualified in their entirety
by this cautionary statement.
The
forward-looking statements included in
this MD&A are made
as of the
date of this
MD&A or such
other date specified
herein.
BASIS OF PRESENTATION
For reporting purposes, we prepared the 2022 consolidated financial
statements in accordance with International Financial
Reporting
Standards
(“IFRS”)
as
issued
by
the
International
Accounting
Standards
Board.
The
financial
information
contained
in
this
MD&A
was
derived
from
the
2022
consolidated
financial
statements.
Unless
otherwise
indicated,
all
references to “$” are to Canadian dollars. Unless otherwise indicated, all references to a
specific “note” refer to the notes to
the
2022
consolidated
financial
statements.
Certain
totals,
subtotals
and percentages
throughout
this
MD&A
may
not
reconcile due to rounding.
NON-IFRS MEASURES
This MD&A
makes reference
to certain
non-IFRS measures.
These measures
are not
recognized measures
under IFRS
and
do
not
have
a
standardized
meaning
prescribed
by
IFRS
and
are
therefore
unlikely
to
be
comparable
to
similar
measures presented
by other
companies. Rather,
these measures
are provided
as additional
information to
complement
those
IFRS
measures
by
providing
further
understanding
of
our
results
of
operations
from
management’s
perspective.
Accordingly, these measures should
not be
considered in isolation
nor as
a substitute for
analysis of our
financial information
reported under IFRS.
We use
non-IFRS measures,
including EBITDA
and Modified
EBITDA, both
of which are
not considered
an alternative
to
income or loss from operations, or to net earnings or loss,
in the context of measuring a company’s performance.
EBITDA
is used by
management in order
to facilitate operating
performance comparisons from
period to period,
to prepare annual
operating budgets and forecasts and to determine components of management compensation.
Management believes that
EBITDA is used
by investors
as it provides
supplemental measures
of operating performance
and thus highlight
trends in
our business that may not otherwise be apparent when relying solely on IFRS measures, and to compare the results of our
operations with other entities with
similar structures. Modified EBITDA is used
my management as it
brings additional clarity
to operating performance, as it eliminates variations in the fair value of strategic investments,
among others, which may be
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
3
| Page
beyond
the
control
of
the
Company.
Management
believes
that
investors
use
Modified
EBITDA
for
similar
purposes
as
management and to evaluate performance while adjusting for non-cash discretionary expenses. Modified EBITDA allows a
more appropriate
comparison to
other companies
whose earnings
or loss
is not
adjusted by
fair value
adjustments from
strategic investments.
The Company also uses
“
Backlog
” or “
Backlog of signed
and/or awarded contracts
” interchangeably,
as a non-IFRS measure. Backlog figures allow management
of the Company to foresee and predict their future
needs and
resource
planning.
Management
believes
that
“Backlog”
is
used
by
investors
to
evaluate
the
Company,
their
future
performance and better understand the production capacity.
EBITDA:
We define EBITDA as net earnings before net
financing costs, income taxes, depreciation and
amortization. See
“Results of Operations - Reconciliation of Non-IFRS measures
(EBITDA and Modified EBITDA)”.
Modified EBITDA:
We defined Modified EBITDA as EBITDA and adjust for non-cash items namely share-based payments
expenses
and
Changes
in
fair
value
of
strategic
investments.
See
“Results
of
Operations
-
Reconciliation
of
Non-IFRS
measures (EBITDA and Modified EBITDA)”.
Backlog
or
Backlog
of
signed
and/or awarded
contracts:
This
measure
is
defined
as
contracts
with
customers,
firm
purchase
order
and
contracts
agreed
between
us
and
the
customer,
whereby
we
can
determine
the
proceeds
and
the
obligations to perform.
OVERVIEW
PyroGenesis Canada Inc. is a leader in the design, development, manufacture and commercialization
of advanced plasma
processes. We provide
engineering and
manufacturing expertise, cutting-edge
contract research, as
well as
turnkey process
equipment
packages
to the
defense,
metallurgical,
mining,
additive
manufacturing
(including
3D printing),
oil &
gas, and
environmental
industries.
With a
team
of
experienced
engineers,
scientists
and
technicians
working
out
of
our
Montreal
office
and
our 40,902
sq.
ft.
(3,800
m²)
and
31,632
sq.
ft. (2,940
m²) manufacturing
facilities,
PyroGenesis
maintains
its
competitive
advantage
by
remaining
at
the
forefront
of
technology
development
and
commercialization.
Our
core
competencies allow
PyroGenesis to
lead the
way in
providing innovative
plasma torches,
plasma waste
processes, high-
temperature
metallurgical
processes,
and
engineering
services
to
the
global
marketplace.
Our
operations
are
ISO
9001:2015 and AS9100D certified, having
been ISO certified since 1997.
Since our acquisition of
Pyro Green-Gas (formerly
AirScience Technologies
Inc), we
now offer
technologies, equipment,
and expertise
in the
area of
biogas upgrading,
and
air pollution control
.
As a result,
we have extended
our presence
to Italy and
India, and this
acquisition provides
potential
synergies
with
our
current
land-based
waste
destruction
offerings.
Our
common
shares
are
listed
on
the
Toronto
Stock
Exchange (TSX)
(Ticker Symbol:
PYR), NASDAQ (Ticker
Symbol: PYR) and
the Frankfurt
Stock Exchange (FSX)
(Ticker
symbol: 8PY).
This MD&A
includes the
accounts of
the Company,
Pyro Green-Gas
Inc (including
the subsidiaries
in Italy
and India)
as
well as Drosrite
International LLC (“Drosrite
International). Drosrite International
is owned by
a member of
the Company’s
key management
personnel and
close family
member of
the Chief
Executive Officer
(“CEO”) and
controlling shareholder
and is
deemed for
the purposes
of the
2022 consoli
dated financial
statements to
be controlled
by the
Company.
Unless
otherwise
stated,
reference
to
subsidiaries
in
the
2022
consolidated
financial
statements
and
this
MD&A
shall
include
Drosrite International and/or Pyro Green-Gas Inc. All transactions and balances between the Company and its subsidiaries
have been eliminated upon consolidation.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
4
| Page
INFORMATION
FROM
CONSOLIDATED
STATEMENT
S
OF
COMPREHENSIVE
LOSS
FOR
THE
QUARTERS
AND YEARS ENDED DECEMBER 31:
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Revenues
$
3,301,777
$
7,205,349
(54)
%
$
19,013,503
$
31,068,350
(39)
%
Cost of sales and services
2,822,062
5,902,560
(52)
%
10,869,616
18,636,539
(42)
%
Gross margin
479,715
1,302,789
(63)
%
8,143,887
12,431,811
(34)
%
Expenses
Selling, general and administrative (not
including share-based expenses)
9,093,820
7,071,471
29
%
23,486,971
17,474,390
34
%
Research and development
740,603
1,149,140
(36)
%
2,317,973
2,535,987
(9)
%
Total expenses (not including share-based
expenses)
9,834,423
8,220,611
20
%
25,804,944
20,010,377
29
%
Net (loss) income from operations (not
including share-based expenses)
(9,354,708)
(6,917,822)
35
%
(17,661,057)
(7,578,566)
133
%
Share-based expenses
(1,316,221)
(4,878,526)
(73)
%
(5,538,463)
(9,762,745)
(43)
%
Net loss from operations
(10,670,929)
(11,796,348)
(10)
%
(23,199,520)
(17,341,311)
34
%
Changes in fair market value of strategic
investments and financial expenses
(264,231)
(11,349,913)
(98)
%
(8,891,523)
(21,830,588)
(59)
%
Income taxes
(189,069)
(739,960)
(74)
%
75,984
(739,960)
(110)
%
Net loss
$
(10,746,091)
$
(22,406,301)
(52)
%
$
(32,167,027)
$
(38,431,939)
16
%
Foreign currency translation gain (loss) on
investments in foreign operations
(72,664)
3,444
2,210
%
(3,042)
3,444
188
%
Comprehensive loss
$
(10,818,755)
$
(22,402,857)
(52)
%
$
(32,170,069)
$
(38,428,495)
(16)
%
Loss per share
Basic
$
(0.06)
$
(0.13)
$
(0.19)
$
(0.23)
Diluted
$
(0.06)
$
(0.13)
$
(0.19)
$
(0.02)
Modified EBITDA
(1)
$
(8,549,513)
$
(6,522,877)
31
%
$
(15,546,347)
$
(6,182,695)
151
%
1
See “Non-IFRS Measures”
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
5
| Page
INFORMATION
FROM
CONSOLIDATED
STATEMENT
S
OF
COMPREHENSIVE
LOSS
FOR
THE YEARS
ENDED
DECEMBER 31:
Dec 31, 2022
Dec 31, 2021
Dec 31, 2020
Revenues
$
19,013,503
$
31,068,350
$
17,775,029
Cost of sales and services
10,869,616
18,636,539
7,472,361
Gross margin
8,143,887
12,431,811
10,302,668
Expenses
Selling, general and administrative (not including share-
based expenses)
23,486,971
17,474,390
8,089,945
Research and development
2,317,973
2,535,987
(731,077)
Total
expenses (not including share-based expenses)
25,804,944
20,010,377
7,358,868
Net (loss) income from operations (not including
share-based expenses)
(17,661,057)
(7,578,566)
2,943,800
Share-based expenses
(5,538,463)
(9,762,745)
(4,244,608)
Net loss from operations
(23,199,520)
(17,341,311)
(1,300,808)
Changes in fair market value of strategic investments and
financial expenses
(8,891,523)
(21,830,588)
44,102,624
Income taxes
75,984
(739,960)
1,033,412
Net income (loss) and comprehensive income (loss)
$
(32,167,027)
$
(38,431,939)
$
41,768,404
Foreign currency translation gain (loss) on investments
in
foreign operations
(3,042)
3,444
—
Comprehensive income (loss)
$
(32,170,069)
$
(38,428,495)
$
41,768,404
Earnings (loss) per share
Basic
$
(0.19)
$
(0.23)
$
0.28
Diluted
$
(0.19)
$
(0.23)
$
0.27
Modified EBITDA
(1)
$
(15,546,347)
$
(6,182,695)
$
3,442,443
1
See “Non-IFRS Measures”
SELECTED FINANCIAL INFORMATION
Dec 31, 2022
Dec 31, 2021
Dec 31, 2020
Current assets
27,448,182
38,758,984
25,336,787
Non-current assets
20,218,568
31,011,693
49,194,591
Total assets
$
47,666,750
$
69,770,677
$
74,531,378
Current liabilities
25,797,473
24,752,199
11,539,208
Non-current liabilities
5,000,350
4,249,724
3,569,064
Total liabilities
$
30,797,823
$
29,001,923
$
15,108,272
Shareholders' equity
$
16,868,927
$
40,768,754
$
59,423,106
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
6
| Page
FINANCIAL CONDITION
December 31,
$ Change
2022
2021
2022vs2021
Current Assets
Cash and cash equivalents
$
3,445,649
$
12,202,513
(8,756,864)
Accounts receivable
18,624,631
17,639,616
985,015
Costs and profits in excess of billings on uncompleted contracts
1,051,297
4,922,710
(3,871,413)
Inventory
1,876,411
887,590
988,821
Investment tax credits receivable
276,404
256,513
19,891
Income tax receivable
14,169
117,029
(102,860)
Current portion of deposits
432,550
1,328,452
(895,902)
Current portion of royalties receivable
455,556
311,111
144,445
Contract assets
499,912
375,789
124,123
Prepaid expenses
771,603
717,661
53,942
Total Current Assets
$
27,448,182
$
38,758,984
(11,310,802)
Non-Current assets
Deposits
46,053
248,756
(202,703)
Strategic investments
6,242,634
14,901,659
(8,659,025)
Property and equipment
3,393,452
3,712,937
(319,485)
Right-of-use-assets
4,818,744
5,765,993
(947,249)
Royalties receivable
952,230
947,543
4,687
Intangible assets
2,104,848
2,774,198
(669,350)
Goodwill
2,660,607
2,660,607
—
Total Non-Current Assets
$
20,218,568
31,011,693
(10,793,125)
Current Liabilities
Bank indebtedness
991,902
—
991,902
Accounts payable and accrued liabilities
10,115,870
10,069,177
46,693
Billings in excess of costs and profits on uncompleted contracts
9,670,993
9,400,231
270,762
Current portion of term loans
69,917
83,004
(13,087)
Current portion of lease liabilities
2,672,212
2,934,236
(262,024)
Balance due on business combination
2,088,977
2,242,503
(153,526)
Income tax payable
187,602
23,048
164,554
Total Current Liabilities
$
25,797,473
24,752,199
1,045,274
Non-current Liabilities
Lease liabilities
2,861,482
2,389,729
471,753
Term
loans
320,070
107,901
212,169
Balance due on business combination
1,818,798
1,709,700
109,098
Deferred income taxes
—
42,394
(42,394)
Total Non-Current Liabilities
$
5,000,350
$
4,249,724
750,626
Working capital, (expressed as current assets less current liabilities)
varied year-over-year by $12.4 million, mainly a result
of:
●
a decrease of cash and cash equivalents of $8.8 million, explained
in the section Summary of Cash Flows,
●
an
increase
of
$1.0
million
of
accounts
receivable
as
the
Company
has
reached
the
invoicing
milestones
on
contracts in progress and offset by $4.15 million as
a result of the increased allowance for credit loss,
●
a decrease of $3.6 million in costs and profits
in excess of billings on uncompleted contracts related
to invoicing to
customers upon successfully reaching contract milestones
and such amounts are converted
to accounts receivable
and $0.3 million as a result of
the allowance for credit loss on costs and profits
in excess of billings on uncompleted
contracts,
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
7
| Page
●
an increase
in $1 million
of inventory
as the
Company continues
to source
materials for
production and
minimize
the risks of transport delays and reduce lead time to its
customers,
●
a decrease of $0.9 million in current portion of deposits due to
the timing of deposits with suppliers,
●
an increase of $1
million in bank indebtedness,
due to the usage
of the credit facilities
by Pyro Green-Gas and
its
Italian subsidiary,
and
●
an
increase
of
$0.3
million
in
billings
in
excess
of
costs
and
profits
in
uncompleted
contracts
due
to
proceeds
received on a contract signed close to the December 31, 2022,
year-end.
Non-current assets varied year-over-year by $10.8 million
,
mainly a result of:
●
a decrease of $8.7
million in strategic investments is
mainly attributable to the $8.3
million decrease in the
fair value
of the common shares
and warrants owned
of HPQ Silicon Inc.
and the net result
of purchases and disposition
of
common share of HPQ Silicon Inc. during the year 2022,
●
a
decrease
of
property
and
equipment
of
$0.3
million
due
to
annual
depreciation
including
the
assets
under
construction placed in service,
●
a decrease of $0.9 million in right-of-use-assets due to timing
of lease maturity dates, and
●
a decrease of
$0.7 million in
intangible assets due
to the amortization
of the intangible
asset from the
2021 business
combination as well as the HP Torch
and SPARC
patents,
Non-current liabilities varied year-over-year by $0.8 million
,
mainly a result of:
Reimbursement of lease
payments made in
advance, an increase
in the Economic
Development Agency loan,
and timing
of the expected payments related to the balance due on
business combination.
RESULTS OF OPERATIONS
Revenues
PyroGenesis recorded
revenue of
$3.3 million
in the fourth
quarter of
2022 (“Q4,
2022”), representing
a decrease
of $3.9
million compared with
$7.2 million recorded
in the fourth
quarter of 2021
(“Q4, 2021”). Revenue
for fiscal 2022
was $19.0
million a decrease of $12.1 million over revenue of $31
.1 million compared to fiscal 2021.
Revenues recorded in fiscal 2022 were generated primarily
from:
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
High purity metallurgical grade
silicon & solar grade silicon from
quartz (PUREVAP™)
$
824,894
$
938,211
(113,317)
$
6,272,697
$
6,138,111
134,586
Aluminium and zinc dross
recovery (DROSRITE™)
504,760
1,567,641
(1,062,881)
1,912,807
7,940,771
(6,027,964)
Development and support
related to systems supplied to
the U.S. Navy
(468,812)
845,621
(1,314,433)
1,288,356
7,522,809
(6,234,453)
Torch-related sales
2,110,497
651,661
1,458,836
5,558,210
2,084,511
3,473,699
Biogas upgrading and pollution
controls
86,593
3,152,524
(3,065,931)
3,347,443
6,800,090
(3,452,647)
Other sales and services
243,845
49,691
194,154
633,990
582,058
51,932
Revenue
$
3,301,777
$
7,205,349
(3,903,572)
$
19,013,503
31,068,350
(12,054,847)
Q4, 2022 revenues decreased by $3.9 million, mainly
as a result of:
●
PUREVAP™
related sales
decreased by
$0.1 million
due to
the project
nearing its
completion, with
the phase
of
the project being mainly testing,
●
DROSRITE™
related sales
decreased by
$1 million
due to customer
delays in
funding for
the construction
of the
onsite facility,
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
8
| Page
●
Support services
related to
systems supplied
for the
US Navy
decreased by
$1.3 million
due to
a revision
in the
cost
budget
which
effects
the
revenue
recognized
by
percentage
completion.
As
of
December
31,
2022
the
customer has not provided
a firm purchase order
for the change in
project scope, however,
the Company expects
to do so in 2023
and
●
Biogas upgrading and pollution controls related sales decreased by $3.1
million due to clients requesting additional
modifications prior to installation and commissioning, as
well as continuous testing to achieve desired results.
Fiscal 2022 revenues decreased by $12.1 million, mainly as a result
of:
●
DROSRITE™
related
sales
decreased
by $6.0
million
due
to
client
delays
in
funding
for
the
construction
of the
onsite facility,
●
Support services related to systems supplied for the US Navy
decreased by $6.2 million due to the project nearing
its completion with remaining
milestones based largely
on inspections and shipment
of the equipment,
as well as,
additional out of scope work costs incurred and not yet reflected
in receipt of purchase order modifications,
and
●
Biogas upgrading and pollution controls
decreased by $3.4 million due to
the continuous effort in reaching
desired
results in order to advance to final steps, such as, commissioning.
PUREVAP™
related
sales
includes
revenue
from
the
sale
of
technologies
in
the
amount
of
$3.6
million
($3.3
million
in
2021). See note 7 to the 2022 consolidated financial statements.
As of
March 30, 2023,
revenue expected to
be recognized
in the
future related
to backlog
of signed
and/or awarded
contracts
is $32.4
million.
Revenue will
be recognized
as the
Company satisfies its
performance obligations under
long-term contracts,
which is expected to occur over a maximum period of
approximately 3 years.
Cost of Sales and Services
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Employee compensation
$
1,014,363
$
769,322
32
%
$
3,668,261
$
2,650,739
38
%
Subcontracting
113,610
210,848
(46)
%
1,323,092
872,933
52
%
Direct materials
1,005,318
4,498,835
(78)
%
4,698,982
14,252,205
(67)
%
Manufacturing overhead & other
265,579
434,778
(39)
%
1,371,462
1,111,975
23
%
Foreign exchange charge on
materials
224,880
(306,918)
(173)
%
(999,548)
(568,531)
76
%
Investment tax credits
(23,440)
(65,326)
(64)
%
(70,663)
(148,695)
(52)
%
Amortization of intangible assets
221,752
361,021
(39)
%
878,030
465,913
88
%
Total Cost of Sales and
Services
$
2,822,062
$
5,902,560
(52)
%
$
10,869,616
$
18,636,539
(42)
%
Gross Margin
Three months ended Dec 31
Twelve months
ended Dec 31
2022
2021
2022
2021
Revenues
$
3,301,777
$
7,205,349
$
19,013,503
$
31,068,350
Cost of Sales and Services
2,822,062
5,902,560
10,869,616
18,636,539
Gross Margin
$
479,715
$
1,302,789
$
8,143,887
$
12,431,811
Gross Margin %
14.5
%
18.1
%
42.8
%
40.0
%
Cost of sales
and services was
$2.8 million in
Q4, 2022, representing
a decrease of
52% compared to
$5.9 million in
Q4,
2021, primarily due to
decreases in subcontracting
$0.1 million (Q4, 2021
- $0.2 million),
direct materials $1.0
million (Q4,
2021 -
$4.5 million
), manufacturing
overhead &
other $0.3
million (Q4,
2021 - $0.4
million), foreign
exchange
charge on
materials
$0.2
million,
(Q4,
2021
–
($0.3
million),
which
is
largely
due
to
the
decrease
in
product
and
service-related
revenues, as well as being negatively
impacted by the foreign exchange charge
on materials, and a decrease in
investment
tax credits ($0.02 million)
due to a lower levels of qualifying projects.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
9
| Page
Fiscal 2022,
cost of
sales and
services
was $10.9
million,
representing
a decrease
of 42%
compared to
$18.6 million
in
2021, primarily due
to the
decrease of product
and service-related revenues
in the Company
and its
subsidiaries.
Decreases
in direct materials $4.7 million (2021 - $14.3 million)
and investment tax credits ($0.07 million)
(2021 – ($0.1 million)), were
offset by the increases
in employee compensation $3.7
million (2021
- $2.6 million), subcontracting $1.3
million (2021 - $0.9
million),
manufacturing
overhead &
other
$1.4
million
(2021 -
$1.1
million),
foreign
exchange
charge
on
materials
($1.0
million) (2021
– ($0.6
million), totaling
an increase
of $5.4
million compared
to $4.1 million
in 2021.
The increase in
employee
compensation,
subcontracting,
and
manufacturing
overhead
& other
is primarily
related to
an
increase
in labour
intense
projects,
which require additional engineering hours,
as well as specific subcontracting work
related to equipment capacity
improvements, mainly for
torch-related sales, and
the increase to
manufacturing and
other was due
to higher utility
costs,
and
equipment
rentals,
such
as
cranes
and
power
generators.
These
increases
were
offset
by
the
decrease
in
direct
materials and by the foreign exchange charge on materials.
The gross margin for Q4,
2022 was $0.5 million or
14.5%
of revenue compared to a gross
margin of $1.3 million or
18.1%
of revenue for Q4,
2021, the decrease
in gross margin
was mainly attributable
to the negative
impact in foreign exchange
charge on materials of $0.5
million.
Fiscal 2022,
gross margin
was $8.1
million or
42.8% of
revenue compared
to a
gross margin
of $12.4
million or
40% for
fiscal 2021. As a result of the type of contracts being executed, the nature of the project activity, as well as the composition
of the
cost of
sales and
services, the
mix between
labour,
materials and
subcontracts
may be
significantly different.
The
cost of sales and services for 2022 and 2021 are
in line with management’s expectations and with the nature
of revenue.
Investment tax
credits recorded
against cost
of sales
are related
to projects
that qualify
for tax
credits from
the provincial
government of Quebec.
Qualifying tax credits
decreased in Q4,
2022 to $0.02
million compared to
$0.07 million for
Q4,2021.
In 2022,
$0.07 million
compared to
$0.1 million
in 2021.
The decrease
in fiscal
2022 is
primarily related
to less
contracts
being eligible for qualifying tax credits.
The amortization
of intangible
assets
for Q4,
2022 was
$0.2 million
compared
to $0.4
million for
Q4, 2021.
In 2022,
the
amortization of intangible
assets was
$0.9 million compared
to $0.5 million
for 2021. The
increase in 2022,
relates mainly
to the intangible assets in connection with
the Pyro Green-Gas acquisition, patents and deferred development costs. These
expenses are non-cash items
and will be amortized over the duration of the patent lives.
Selling, General and Administrative Expenses
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Employee compensation
$
2,458,487
$
4,648,952
(47)
%
$
8,094,226
$
8,664,603
(7)
%
Share-based expenses
1,316,221
4,878,526
(73)
%
5,538,463
9,762,745
(43)
%
Professional fees
1,473,164
998,098
48
%
5,129,384
3,884,734
32
%
Office and general
454,881
125,224
263
%
1,154,327
609,353
89
%
Travel
79,875
37,193
115
%
283,142
114,206
148
%
Depreciation of property
and equipment
157,011
102,024
54
%
603,894
356,103
70
%
Depreciation of ROU
assets
156,362
166,223
(6)
%
635,828
570,411
11
%
Investment tax credits
(7,500)
(9,007)
(17)
%
(30,000)
(32,486)
(8)
%
Government grants
(67,268)
(32,612)
106
%
(204,791)
(76,845)
166
%
Other expenses
(91,191)
1,035,375
(109)
%
3,340,961
3,384,311
(1)
%
Bad debt provision
4,480,000
–—
100
%
4,480,000
–—
100
%
Total selling, general and
administrative
$
10,410,042
$
11,949,996
(13)
%
$
29,025,434
$
27,237,135
7
%
Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration,
business development, project proposals, operations
administration, investor relations and employee training.
SG&A expenses for Q4, 2022 were $10.4 million, representing a decrease
of 13%
compared to $11.9 million
for Q4, 2021.
The decrease is mainly a result of employee compensation decreasing to $2.5 million (Q4, 2021
– 4.6 million), due to lower
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
10
| Page
levels of eligible commissions and bonuses, a decrease in share-based compensation of $3.6 million
(a non- cash expense
related
to
a
Q4
2021
grant
not
repeated
in
2022),
and
a
decrease
in
other
expenses,
which
in
Q4
2021
comprised
of
insurances, taxes, interest, and bank charges.
Professional fees for Q4 2022 were greater due
to an increase in legal fees,
accounting fees,
investor relation
fees and
patent expenses. In
addition, in
Q4 2022
a credit
loss of
$4.5 million
was recorded
related to collection of accounts receivable, also a non-cash
expense.
SG&A expenses
for fiscal
2022 were
$29.0
million,
representing
an
increase
of
7% compared
to
$27.2
million for
fiscal
- The SG&A expense now includes
those of Pyro Green-Gas for the full year, versus approximately 5 months for fiscal
2021, increased due to the following:
i)
a
decrease
of
$0.6
million
in
employee
compensation
primarily
due
to
a
decrease
in
commissions
and
bonuses,
ii)
an increase of $1.3 million
for professional fees, primarily due
to an increase in consulting fees,
accounting
and audit fees, legal fees, investor relation fees and public
listing fees,
iii)
an
increase
of
$0.5
million
in
office
and
general
expenses,
is
primarily
due
to
information
technology
expenses including those related to the new ERP system
,
iv)
depreciation on property
and equipment increased
by $0.2 million
due to higher
amounts
of property and
equipment being depreciated,
v)
Bad debt
provision increased
by $4.5
million, of
which $4.2
million is
attributable to
accounts receivable
and $0.3 million related to costs and profits in excess
of billings on uncompleted contracts.
Separately,
share-based
payments
decreased
to
$1.3
million
for
Q4,
2022
(Q4,
2021
-
$4.9
million)
and
decreased
to
$5,538,463
in
2022,
compared
to
$9,762,745
over
the
same
period
in
2021.
This
was
directly
impacted
by
the
vesting
structure of
the stock
option plan
with options
vesting between
10% and
100% on
the grant
date requiring
an immediate
recognition of that cost.
Depreciation on Property and Equipment
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Depreciation of property
and equipment
$
157,011
$
102,024
54
%
$
603,894
$
356,103
70
%
During
the
three
months
ended
December
31,
2022,
deprecation
on
property
and
equipment
increased
to
$0.2
million
compared to $0.1 million
for the same period in
the prior year. The 54% increase
is due to the
equipment under construction
placed in service.
The depreciation on property and equipment
increased to $0.6 million in 2022, compared
to $0.4 million in 2021. The 70%
increase is due to higher amounts of property and equipment
being depreciated.
Research and Development (“R&D”) Expenses
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Employee compensation
$
201,756
$
186,677
8
%
$
814,334
$
777,870
5
%
Investment tax credits
(22,637)
757,946
103
%
(68,771)
684,709
110
%
Subcontracting
50,590
14,356
252
%
142,027
135,066
5
%
Materials and equipment
288,315
136,982
110
%
1,033,235
912,456
13
%
Other expenses
222,579
68,956
223
%
397,148
175,461
126
%
Sub-total before
government grants
$
740,603
$
1,164,917
(36)
%
$
2,317,973
$
2,685,562
(14)
%
Government grants
—
(16,115)
(100)
%
—
(149,575)
(100)
%
Total net R&D expenses
$
740,603
$
1,148,802
(36)
%
$
2,317,973
$
2,535,987
(9)
%
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
11
| Page
During
the
three
months
ended
December
31,
2022,
the
Company
incurred
$0.7
million
of
R&D
expenses,
net
of
government grants, on internal projects in Q4 2022, a decrease of 36% compared to $1.1 million for the same period in the
prior year.
The Company
incurred $2.3 million
of R&D expenses,
net of government
grants, on
internal projects in
2022, a
decrease
of 9% compared to $2.5 million in 2021. The
decrease in 2022 is due to a decrease
in R&D activities, the type of contracts
being executed, the nature of the project activity,
and the decrease in government grants of $Nil compared to ($0.1 million)
reported in 2021.
In addition to internally funded
R&D projects, the Company also
incurred R&D expenditures during
the execution of client-
funded projects. These expenses are
eligible for Scientific Research and
Experimental Development (“SR&ED”) tax credits.
SR&ED tax credits on client-funded projects are applied against
cost of sales and services (see “Cost of Sales”
above).
Financial Expenses
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Interest on term loans
160
84,203
(100)
%
3,198
87,775
(97)
%
Interest on lease liabilities
94,421
86,177
10
%
378,611
307,691
23
%
Interest on balance due
on business combination
3,040
110,203
(97)
%
173,350
110,203
57
%
Interest accretion of
royalty receivable
(40,278)
16,283
(347)
%
(118,290)
(132,808)
(11)
%
Interest accretion of term
loan
8,032
3,219
250
%
28,229
12,185
232
%
Penalties and other
interest
(38,340)
4,320
(802)
%
85,644
19,324
489
%
Financial expenses
$
27,035
$
304,405
(91)
%
$
550,742
$
404,370
36
%
During the three
months ended December 31,
2022, financial expenses decreased
to $0.03 million
compared to $0.3 million
for the same period in the prior year. The decrease is due to the various decreases
in interest on term loans, penalties, and
other interest expenses,
not repeated in 2022.
Financial expenses for
2022 totaled $0.6
million as compared
with $0.4 million
for 2021, representing
an increase of
$0.1
million year-over-year.
The increase
in finance
costs, is
primarily attributable
to the
increase
in accretion
on the
balance
due on business combination and interest on the increased
lease liability balance.
Strategic Investments
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Changes to fair value
of strategic
investments
$
(237,194)
$
(11,045,508)
98
%
$
(8,340,781)
$
(21,426,218)
61
%
During the
three months ended
December 31, 2022,
the adjustment to
the fair market
value of
strategic investments resulted
in a loss of $0.2
million compared to $11
.0 million for the same
period in the prior
year. The
98% increase is primarily
due
to the closing share price of the HPQ common shares,
used in determining the fair value.
The adjustment to the fair market
value of strategic investments in 2022 resulted
in a loss of $8.3
million compared to a loss
in the
amount of
$21.4
million in
2021,
representing
a variation
of $13
.1 million
.
The variation
is primarily
attributable to
closing share price of the HPQ common shares, used in determining
the fair value of common shares and warrants owned
by the Company of HPQ Silicon Inc.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
12
| Page
Comprehensive loss
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Comprehensive
loss
$
(10,818,755)
$
(22,402,857)
(52)
%
$
(32,170,069)
$
(38,428,495)
(16)
%
The comprehensive
loss for
2022 of
$32.2 million
compared to
a loss
of $38.4
million,
in 2021,
represents a
decrease of
16% year-over-year.
The variation
of $6.3 million
in the comprehensive
loss in 20
22 is primarily
attributable to
the factors
described above, which have been summarized as follows, and includes
the profit and loss items of Pyro Green-Gas since
the acquisition date:
(i)
a decrease in product and service-related revenue of
$12.1 million arising in 2022,
(ii)
a
decrease
in
cost
of
sales
and
services
of
$7.8
million,
primarily
due
to
a
decrease
in
direct
materials,
and
investment tax credits,
(iii)
an increase in
SG&A expenses
of $1.8 million
arising in 2022
primarily due to
an increase in
professional fees,
office & general, travel, depreciation of property and
equipment, depreciation of ROU assets, government grants,
other expenses, and the allowance for credit loss of $4.5 million
,
(iv)
a
decrease
in
R&D
expenses
of
$0.2
million
primarily
related
to
the
decrease
in
government
grants
and
an
increase in investment tax credits,
(v)
a decrease in share-based expenses of $4.2 million,
(vi)
a decrease in changes in fair market value of strategic investments
and net finance costs of $12.9 million,
(vii)
a decrease in income taxes of $815,944.
In Q4 2022,
the comprehensive
loss is
$11.6
million favorable,
compared to
Q4 2021,
due to the
reasons detailed
above
and summarized
mainly as
the reduction
is revenue
of $3.9
million,
favorable impact
of SG&A
salaries and
share-based
expenses, offset
by the
allowance
for credit
loss
of $4.48
million and
an adjustment
for change
in fair
value of
strategic
investment which is $10.8 million favorable versus Q4 2021.
Reconciliation of Non-IFRS measures (EBITDA,
Adjusted and Modified)
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Comprehensive loss
$
(10,818,755)
$
(22,402,857)
(52)
%
$
(32,170,069)
$
(38,428,495)
(16)
%
Depreciation of property and
equipment
157,011
102,024
54
%
603,894
356,103
70
%
Depreciation of ROU assets
156,362
166,223
(6)
%
635,828
570,411
11
%
Amortization of intangible
assets
218,760
353,333
(38)
%
878,030
465,913
88
%
Financial expenses
183,694
74,326
147
%
550,742
404,370
36
%
Income taxes
—
(739,960)
(100)
%
75,984
(739,960)
110
%
EBITDA
(1)
$
(10,102,928)
$
(22,446,911)
(55)
%
$
(29,425,591)
$
(37,371,658)
(21)
%
Other non-cash items:
Share-based expenses
1,316,221
4,878,526
(73)
%
5,538,463
9,762,745
(43)
%
Change in fair value of
investments
237,194
11,045,508
(98)
%
8,340,781
21,426,218
(61)
%
Modified EBITDA
(1)
$
(8,549,513)
$
(6,522,877)
31
%
$
(15,546,347)
$
(6,182,695)
151
%
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
13
| Page
1
See “Non-IFRS Measures”
The
EBITDA
in
2022
was
a
$29.4
million
loss
compared
to
an
EBITDA
loss
of
$37.4
million
for
2021,
representing
n
decrease
of
21% year-over-year.
The
variation
in
the
EBITDA
in
2022
compared
to
2021
is
due
to
the
decrease
in
comprehensive
loss
of
$6.2
million,
offset
by
an
increase
in
depreciation
on
property
and
equipment
of
$0.2
million,
an
increase
in
depreciation
on
right-of-use
assets
of
$0.07
million,
an
increase
in
amortization
of
intangible
assets
of
$0.4
million, an increase in
finance charges of $0.1
million and an increase in
income taxes of $0.8
million.
The 2022 Q4 EBITDA
varied by $12.3 million mainly
due to the reduced
comprehensive loss in the
quarter, and
to the income tax reversal
in Q4
2021, which was not repeated in 2022.
The
Modified
EBITDA
in
2022
was
a
$15.5
million
loss
compared
to
a
Modified
EBITDA
loss
of
$6.2
million
for
2021,
representing
an
increased
loss
of
$9.3
million.
The
increase
in
the
Modified
EBITDA
loss
in
2022
is
attributable
to
the
decrease as mentioned above in the
EBITDA of $7.9 million and
a decrease in share-based expenses
of $4.2 million from
an expense not recurring
in 2022 and a decrease
in the change of
fair value of investments
of $13.1 million, based
on the
fair value of such
investment. The 2022
Q4 Modified EBITDA
is a loss of
$8.55 million which
is $2 million greater
than Q4
2021, due to the quarterly EBITDA variation explained above, a
decreased share-based expense in the current quarter and
a fair value of the strategic investment which remained stable,
based on the share price of the investment.
SUMMARY OF QUARTERLY
RESULTS
2022
2021
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Revenues
$
3,301,777
$
5,657,783
$
5,847,180
$
4,206,762
$
7,205,349
$
9,317,926
$
8,280,572
$
6,264,503
Gross margin
479,715
4,113,176
2,499,273
1,051,723
1,302,789
4,052,531
4,933,481
2,143,010
Gross margin %
14.5
%
72.7
%
42.7
%
25.0
%
18.1
%
43.5
%
59.6
%
34.2
%
Comprehensive
income (loss)
(10,818,755)
(4,053,706)
(13,039,531)
(4,069,119)
(22,402,857)
623,664
(20,362,205)
3,712,903
Earnings (loss) per
share
Basic
(0.06)
(0.02)
(0.08)
(0.02)
(0.13)
—
(0.12)
0.02
Diluted
(0.06)
(0.02)
(0.08)
(0.02)
(0.13)
—
(0.12)
0.02
The majority of PyroGenesis’
revenue is recognised over the time of
the contract and is dependent on the
timing of project
initiation and execution, including project
engineering, manufacturing, and testing. Revenues in
2022 include revenues from
the sale
of intellectual
property
and
royalties
of $3.6
million ($3.3
million
in 2021)
and
$280,842.14
($315,846
in
2021),
respectively.
LIQUIDITY AND CAPITAL
RESOURCES
As at December 31, 2022, the Company had cash of $3.4
million, included in the net working capital of $1.7 million.
Certain
working capital
items such
as
Billings in
excess
of costs
and profits
on uncompleted
contracts
do not
represent
a direct
outflow
of
cash.
The
Company
expects
that
with
its
cash,
liquidity
position,
the
proceeds
available
from
the
strategic
investment and access to capital markets it will be able
to finance its operations for the foreseeable future.
The Company’s
term
loan
balance
at December
31,
2022 was
$389,987,
and
the
increase
since
January
1, 2022,
was
mainly attributable to the additional proceeds received on the Economic Development
Agency of Canada loan. This loan is
interest free and will remain so, until
the balance is paid over the 60
month period ending March 2029. The average interest
expense on the other term loans was 7.2% in 2022 and in 2021. The Company does not expect changes to the structure of
term loans in
the next fiscal
year. The Company maintained two
credit facilities which
bear interest at
variable rates of
7.45%
and
8%
at
December
31,
2022.
The
Company
expects
to
reimburse
a
portion
of
the
credit
facilities
during
2023,
and
extending the due date of the remaining balance, while
maintaining the similar conditions.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
14
| Page
Total
Less
Carrying
contractual
than 1
Over 5
Value
amount
year
2-3 years
4-5 years
years
$
$
$
$
$
$
Bank indebtedness
991,902
991,902
991,902
—
—
—
Accounts payable and accrued
liabilities
1
9,620,591
9,620,591
9,620,591
—
—
—
Term
loans
389,987
520,444
59,917
190,587
180,000
89,940
Balance due on business combination
3,907,775
4,137,820
2,177,800
1,960,020
—
—
Lease liabilities
5,533,694
6,745,329
2,984,243
1,165,281
703,816
1,891,989
20,443,949
22,016,086
15,834,453
3,315,888
883,816
1,981,929
1
Accounts payable and accrued liabilities exclude amounts
which are not financial liabilities.
SUMMARY OF CASH FLOWS
Three months ended Dec 31
Twelve months
ended Dec 31
2022
2021
2022
2021
Cash used in operating activities
$
(1,226,224)
$
(1,763,488)
$
(11,128,885)
$
(18,113,432)
Cash provided by (used in)
investing activities
(111,458)
1,299,358
(368,180)
2,722,957
Cash provided by (used in)
financing activities
2,346,316
(3,128,952)
2,641,007
9,474,022
Effect of exchange rate changes on
cash denominated in foreign
currency
72,154
14,067
99,194
14,067
Increase (decrease) in cash
1,080,788
(3,579,015)
(8,756,864)
(5,902,386)
Cash - end of period
3,445,649
12,202,513
3,445,649
12,202,513
On a year-to-date
basis, cash
flow used
by operating
activities was
$11.1
million compared
to $18.1
million for
the same
period in the
prior year. During the three months ended December
31, 2022, cash flow
used by operating activities
was $1.2
million compared to $1.8 million
for the same period in
the prior year.
The use of cash during
2022 consists of the net loss
of $32.2
million (2021
– net
loss of
$38.4
million) plus
adjustments
for operating
activities of
$16.6
million (2021
- $32.9
million), including
a net
change
in
non-cash
operating
working capital
items
of $4.2
million (20
21 –
net change
of $12.6
million). During the three
months ended December
31, 2022, the use
of cash consisted of
net losses of $10.7
million (Q4,
2021 – net loss of $22.4 million) plus adjustments
for operating activities of $1.9 million (Q4, 2021 - $15.9 million), including
a net change in non-cash operating working capital items
of $7.8 million (Q4, 2021 – net change of $4.3 million).
Investing activities
resulted in
a use
of funds
of $0.4
million in
2022, compared
to a
net source
of funds
of $2.7
million in
2021
resulting
from
the
additions
to
property
and
equipment,
intangible
assets,
purchased
and
disposals
of
strategic
investments and
cash
acquired
through
the business
combination.
During
the
three
months ended
December
31, 2022,
investing activities resulted in
a use of cash of
$0.1 million, compared to
a net source of funds
of $1.3 million for the
same
period
in
the
prior
year.
For
Q4
2022
and
fiscal
2022,
the
variation
was
mainly
due
to
less
purchases
of
property
and
equipment as
equipment under construction
was complete, and
also from
the variation of
purchases and disposals
of shares
of the strategic investment.
Financing activities
in 2022
resulted in
a net
source of
funds of
$2.6 million,
compared with
a net
source of
funds of
$9.5
million for the same period in 2021.
In 2022, the Company issued common shares for net
cash proceeds of $2.7 million and
repaid an
amount of
$0.7 million
in loans
and lease
liabilities. In
2021, the
Company issued
common shares
for net cash
proceeds of $14.2
million, repaid an
amount of $0.3
million in loans
and lease liabilities
and repurchased 0.8
million common
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
15
| Page
shares for an amount of $4.2 million.
Financing activities also include interest paid of $0.5 million in 2022 compared
to $0.3
million in 2021. In
fiscal 2022, the proceeds
from the credit facilities
represent a cash inflow
of $1 million. During
the three
months ended
December
31, 2022,
financing activities
resulted in
a net
source of
funds of
$2.3 million
due partly
to the
private placement, compared with a use of funds of $3.1 million
for the same period in the prior year.
The net cash position of the Company decreased by $8.8 million for 2022
compared to an increase of $5.9 million for 2021.
USE OF PROCEEDS FROM FINANCINGS
Description of intended use of funds from financings
in the past 12 months
Proposed use of proceeds from financings
completed in the past 12 months
Use of funds
to Date
October 19, 2022: Private Placement for total gross
proceeds of $1,318,980
Proceeds were intended and used for working capital
and general corporate purposes
$
1,318,980
CAPITAL STOCK
INFORMATION
The authorized
share capital
of the
Company consists
of an
unlimited number
of common
shares. As
at March 30,
2023
PyroGenesis had 178,580,395 Common Shares, 6,014,600 share purchase warrants, 9,815,000 outstanding stock options
issued, and 6,473,000 exercisable options issued.
GOING CONCERN
These
consolidated
financial
statements
have
been
prepared
on
the
going
concern
basis,
which
presumes
that
the
Company will be
able to continue
its operations for
the foreseeable and
will be able
to realize its
assets and
discharge its
liabilities in the normal course of business for the foreseeable
future.
The Company is
subject to certain
risks and uncertainty
associated with the
achievement of profitable
operations such
as
the successful signing and delivery of contracts and access
to adequate financing.
The Company
has incurred,
in the
last years,
operating losses
and negative
cash flows
from operations,
and as
a result,
the Company has
an accumulated deficit of
$93,384,858 as at
December 31, 2022 ($61,217,831
as at December
31, 2021).
Furthermore, there have been unexpected delays in the collection of certain accounts receivable from contracts closed in a
prior year. This has
resulted in a
shortfall in cash
flows from operating
activities that would
be used in
funding the Company’s
operations.
As
at
December
31,
2022,
the
Company
has
working
capital
of
$1,650,709
($14,006,785
as
at
December
31,
2021)
including cash and
cash equivalents
of $3,445,649 ($12,202,513
as at December
31, 2021). The
working capital
is net of
an allowance for credit losses amounting to $5,023,283
($520,000 as at December 31, 2021) as further
described in notes
9 and 10. The Company’s
business plan is dependent
upon the successful completion
of contracts and also
the receipt of
payments from certain contracts
closed in a prior year and expects
these payments to be made
during fiscal 2023, as well
as
the
achievement
of
profitable
operations
through
the
signing,
completion
and
delivery
of
additional
contracts
or
a
reduction in certain operating expenses. In the absence of this, the Company is dependent upon raising additional funds to
finance operations within
and beyond the next
twelve months. The Company
has been successful
in securing financing in
the past
and has
relied upon
external financing
to fund
its operations,
primarily
through the
issuance of
equity,
debt and
convertible debentures.
The Company
completed a
private placement
in October
2022 for
an amount
of $1,318,980
and
also
completed
another
private
placement
in
March
2023
for
$5,000,000
(see
note
33).
While
the
Company
has
been
successful in securing
financing, raising
additional funds
is dependent
on a number
of factors, some
of which
are outside
the Company’s
control, and therefore
there is no
assurance that
it will be
able to do
so in the
future or that
these sources
will
be
available
to
the
Company
or
that
they
will
be
available
on
terms
which
are
acceptable
to
the
Company.
These
conditions indicate
the existence
of a
material uncertainty
that may
cast significant
doubt about
the Company’s
ability to
continue operating as a going concern.
The consolidated financial
statements have been
prepared on a
going concern
basis and do
not include
any adjustments
to the amounts and to classifications of the assets and liabilities that might be necessary should the Company be unable to
achieve its plan and continue in business. If the going concern assumption were not appropriate, adjustments,
which could
be material, would be necessary to the carrying value of assets and liabilities, the reported expenses, and the classification
of items on the consolidated statement of financial position.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
16
| Page
RELATED PARTY
TRANSACTIONS
During
the year
ended
December 31,
2022
and
2021,
the
Company
concluded
the
following
transactions
with
related
parties:
In 2022, rent
and property taxes
were charged by
a trust whose beneficiary
is the controlling
shareholder and CEO
of the
Company
in the
amount
of
$277,389 (2021
- $274,934).
On January
1, 2022,
a
lease for
rent of
a property
with a
trust
whose beneficiary
is the
controlling
shareholder
and
CEO of
the
Company,
was
modified to
extend
the
lease
term until
December 2026. The lessor also reimbursed an amount of $1,070,264 representing the balance at the date of modification
of
the
original
prepayment
amount
of
$1,178,530
made
in
2020.
At
the
date
of
modification,
the
lease
liability
was
remeasured using a discount rate of 4%.
As a result, the lease liability was
increased by an amount of $1,070,264
and the
right-of-use assets was decreased by an amount of $108,267.
These
expenses
are
recorded
in
captions
cost
of
sales
and
selling
and
general
in
the
consolidated
statements
of
comprehensive
loss.
As
at
December
31,
2022
the
right-of-use
asset
and
the
lease
liabilities
amount
to
$680,980
and
$799,090 respectively (2021 - $1,107,131 and $Nil).
A balance due
to the controlling shareholder
and CEO of
the Company amounted to
$254,097 (2021 - $144,506)
is included
in accounts payable and accrued liabilities.
The key management personnel
of the Company,
in accordance with IAS
24 Related Party Disclosures,
are the members
of the Board of Directors and certain officers. Total
compensation
to key management consisted of the following:
Three months ended Dec 31
% Change
Twelve months ended Dec 31
% Change
2022
2021
2022vs2021
2022
2021
2022vs2021
Salaries - key
management
$
359,932
$
2,335,482
(85)
%
$
1,204,306
$
3,049,501
(61)
%
Pension contributions
6,838
46,335
(85)
%
22,479
59,377
(62)
%
Fees - Board of Directors
23,200
40,200
(42)
%
157,900
187,600
(16)
%
Share-based
compensation - officers
245,915
4,125,512
(94)
%
2,017,348
6,182,573
(67)
%
Share-based
compensation - Board of
Directors
313,757
375,333
(16)
%
2,293,167
2,338,650
(2)
%
Other benefits - key
management
222,686
61,684
261
%
244,621
237,903
3
%
Total compensation
$
1,172,328
$
6,984,546
(83)
%
$
5,939,821
$
12,055,604
(51)
%
CORPORATE HIGHLIGHTS
On February 2, 2022, PyroGenesis announced the receipt of a US$3,000,000 purchase order for the first of three 10-tonne
DROSRITE systems from an existing client.
On February
7, 2022,
PyroGenesis announced
that it
had signed
an agreement
with a
European research
center for
the
sale of a plasma torch system
which will be used to develop
a process to convert hydrocarbons,
including GHG producing
gases such as methane, into non-hazardous chemicals.
On
April
25,
2022,
Pyrogenesis
confirmed
that
the
Company’s
DROSRITE
dross
recovery
technology
(a
total
of
seven
DROSRITE systems) has been successfully commissioned
for Ma’aden Aluminum.
On
May
19,
2022,
PyroGenesis
announced
that
it
had
completed
a
commercial
order
for
titanium
powders.
The
order
derived from the Company’s partnership agreement with Aubert & Duval, a multinational specializing in upscale
metallurgy,
and the powder in question was produced at PyroGenesis’
production facility using its NexGen plasma atomization system.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
17
| Page
On
September
7,
2022,
the
Company
announced
that
it
has
been
selected
by
an
international
producer
of
magnesium
metal,
to
test
PyroGenesis’
zero-emission
plasma
torches
as
part
of
their
process
for
transforming
mining
waste
and
recycled minerals into high-value metal.
On October 6, 2022, PyroGenesis confirmed that its Gen3
PUREVAP Quartz
Reduction Reactor pilot plant had completed
the month-long power-up process and was initiating the testing phase of its transformation
of quartz into high purity silicon.
The plant
is designed
to
produce
multiple
systems
that can
operate
under
harsh conditions,
including at
extremely
high
temperatures and under vacuum.
On October
19, 2022,
PyroGenesis announced
that it
has completed
a non-brokered
private placement
consisting of
the
issuance and sale of 1,014,600 units of the Corporation at a
price of $1.30 per unit, for gross proceeds of
$1,318,980 to the
Company. Each unit consisted of
one Common Share
and one warrant
entitling the holder
thereof to purchase
one Common
Share at a price of $1.75 until October 19, 2024.
On
November
2,
2022,
PyroGenesis
announced
that
it
has
passed
its
annual
quality
audit
for
two
key
international
standards: ISO 9001:2015, and AS9100D.
The audits encompassed all of
PyroGenesis’ facilities for the purpose
of meeting
compliance with the existing quality management designations.
On November
10, 2022,
PyroGenesis
announced that
it has
successfully
produced
hydrogen from
methane
using zero-
carbon emission hydrogen production technology.
SUBSEQUENT EVENTS
On March 8, 2023, the Company announced it had completed a non-brokered private placement consisting of the issuance
and sale of
5,000,000 units of
the Company at
a price of
$1.00 per unit,
for gross proceeds
of $5,000,000. Each
unit consists
of one common share of the
Company and one common share
purchase warrant. Each warrant entitles
the holder thereof
to purchase
one
common
share at
a price
of
$1.25
until
March
7,
2025.
The
entire amount
is allocated
to
the common
shares as the fair value of the common shares on March
8, 2023, was $1.38.
CRITICAL
ACCOUNTING
ESTIMATES,
NEW
AND
FUTURE
ACCOUNTING
POLICIES
AND
FINANCIAL
INSTRUMENTS
For a
discussion of
significant accounting
policies, judgements,
estimates assumptions
and financial
instruments, please
refer to notes 4, 5 and 28 of the 2022 consolidated financial
statements.
CONTROLS AND PROCEDURES
The Company’s
shares
are traded
on the
Toronto
Stock
Exchange (“TSX”)
since
November
2020 and
on the
NASDAQ
since March 2021. Prior to November 2020, the Company’s shares traded on the TSX Venture Exchange (“TSXV”), and all
requirements of the TSXV were attainted by the
Company. The
Company acknowledged that being listed
on the TSX, and
NASDAQ would require more stringent disclosure controls, and
started implementing such before the NASDAQ listing.
As a
result of
the
graduation
to the
TSX and
NASDAQ,
the Company
became
subject
to additional
requirements
under
applicable securities
laws relating
to the
establishment and
maintenance of
disclosure controls
and procedures
(“DC&P”)
and internal control over financial reporting (“ICFR”),
as defined in NI 52-109 and the applicable rules of the U.S. Securities
and Exchange Commission.
Such requirements also
include the assessment
and evaluation of
both DC&P and
ICFR, which
was not required
while the Company was
listed on the
TSXV. Consequently,
the Company continues to
take several actions
to improve
its DC&P
and ICFR,
in accordance
with the
thresholds provided
by the
regulators. The
Company
is currently
implementing measures
designed to
improve its
ICFR environment
and remediate
the control
deficiencies that
led to
the
material weaknesses identified below.
In accordance with the provisions of National Instrument 52-109
– Issuers’
annual and interim filings (“NI 52-109”) adopted
by Canadian securities regulators and in Rule 13a-15(e) and 15d-15(e) under the U.S.
Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company has filed certificates signed by the Chief Executive Officer (“CEO”) and Chief
Financial Officer
(“CFO”) that
report on,
among other
items, i)
their responsibility
for establishing
and maintaining
DC&P
and ICFR for the Company,
ii) the design of DC&P and the design of ICFR, and the effecti
veness of DC&P and ICFR.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
18
| Page
Disclosure controls and procedures
The
Company
under
the
supervision
of
the
CEO
and
CFO,
have
designed
DC&P
(as
defined
in
NI-52-109
and
Rule 13a-15(e) and 15d-15(e) under the Exchange Act),
in order to provide reasonable assurance that:
●
material information relating to the Company is made
known to the CEO and CFO by others; and
●
information required to
be disclosed by
the Company in
its filings, under
applicable securities legislation is
recorded,
processed, summarized and reported within the time periods
specified in securities legislation.
As of
December 31, 2022,
an evaluation
was carried
out under
the supervision
of the
CEO and
CFO, of
the design
and
operating effectiveness
of the
Company’s DC&P.
Based on
this evaluation,
the CEO
and CFO
concluded that
due to
the
material weaknesses in our
ICFR as described below
in Management’s
Annual Report on Internal
Controls over Financial
Reporting, the Company’s DC&P were not effective
as of December 31, 2022.
Management’s Annual Report on Internal Controls
over Financial Reporting
The Company
under the
supervision of
the CEO
and CFO,
are responsible
to design
ICFR (as
defined in
NI-52-109 and
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in order to provide
reasonable assurance regarding the reliability of
financial reporting and the
preparation of consolidated financial
statements for external purposes
in accordance with IFRS
as issued by the IASB.
As
of
December 31,
2022,
an
evaluation
was
carried
out,
under
the
supervision
of
the
CEO
and
the
CFO,
of
the
effectiveness of the Company’s ICFR.
Based on this
evaluation, the CEO and
the CFO concluded that
material weaknesses
exist, as described below, and due to these material weaknesses, the Company’s ICFR is not effective as of December 31,
- The
control framework
used to
design and
evaluate effectiveness
of the
Company’s ICFR
is established
under the
criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) on Internal Control –
Integrated Framework (2013 framework). A
material weakness is a
deficiency, or combination of deficiencies, in ICFR, such
that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim consolidated financial
statements will not be prevented or detected on a timely
basis.
In connection with the Company’s
evaluation of ICFR, the following
are the control deficiencies that
were considered to be
material weaknesses in the current year,
and in 2021 and any remediation that occurred during fiscal
2022:
●
Control
environment:
The
Company
did
not
maintain
an
effective
control
environment
and
has
identified
deficiencies relating
to appropriate
organizational structure
and authority
and responsibilities
.
The Company
did
not
have
a
sufficient
number
of
trained
resources
with
the
appropriate
skills
and
knowledge
with
assigned
responsibilities and accountability for the design and operation of ICFR and for holding
individuals accountable for
their internal control-related responsibilities.
Nonetheless, during
a portion
of 2022,
the deficiencies
related to
the control
environment over
reporting lines
as
well as authority
and responsibilities were
improved with the
implementation of additional
controls. Oversight
and
governance
of
financial
reporting
and
related
party
transactions,
including
the
oversight
executed
by
Board
of
Directors
and
the
Audit
Committee
was
not
indicative
of
a
control
environment
deficiency.
The
Company
has
financial
reporting
resources
internally,
or
at
their
disposal
to
ensure
they
can
deal
with
complex
accounting
matters, as well as period-end controls to mitigate the risk
of misstatement in the financial information.
●
Control activities:
The Company
did not fully
design and implement
effective control
activities and has
identified
deficiencies
relating
to:
(i) selecting
and
developing
control
activities
that
contribute
to
the
mitigation
of
risks
to
acceptable
levels,
and
(ii) deploying
control
activities
through
policies
that
establish
what
is
expected
and
procedures that put policies into action.
During 2022, the Company continued to implement numerous internal controls, including compensating
controls to
mitigate these risks
as well as adding
sufficient levels
of review and approval
in order to reduce
the risk related to
control activities thereby improving the quality of financial
information.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
19
| Page
●
Journal
Entries:
The
Company
did
not
effectively
design
and
maintain
appropriate
segregation
of
duties
and
controls
over
the
effective
preparation,
review
and
approval,
and
associated
documentation
of
journal
entries,
across
its
ERP
platform.
The
Company
did
not
have
adequate
review
procedures
for
the
recording
of
manual
entries.
Throughout
2022
however,
the
Company
continues
to
modify
their
processes
to
ensure
that
journal
entries
are
sufficiently reviewed
and approved,
and compensating
controls exist
to ensure
the financial
information is
free of
misstatement.
●
Complex
Spreadsheet
Controls:
The Company
did
not implement
and
maintain
effective
controls
surrounding
certain
complex
spreadsheets,
including
addressing
all
identified
risks
associated
with
manual
data
entry,
completeness of data entry,
and the accuracy of mathematical
formulas, impacting complex spreadsheets
used in
fixed
asset
continuity
schedules,
production
and
revenue
forecasting,
and
the
calculation
of
the
fair
value
of
investments.
During the course of 2022, the
Company continued to improve the safeguarding of spreadsheets and data,
through
various
controls,
password
protections
and
improved
segregation
of
duties
with
the
objective
of
reducing
the
possibility of error.
●
User Access
Controls:
The Company
did not maintain
effective user
access controls
to adequately
restrict user
access to financial applications and related data in accordance
with job responsibilities,
for the entirety of 2022.
In
response
to
this,
the
Company
has
continued
to
implement
controls
to
limit
the
access
to
financial
and
non-
financial
applications,
based
on
employee
profile.
The
Company
continues
to
implement
IT
environment
best
practices
for
access
controls,
including
prompt
changes,
access
limitation
to
appropriate
users
and
systematic
periodic reviews of account privileges. Automated access
controls are being integrated into the new ERP system.
As a
consequence, the Company
did not have
effective control activities
related to the
design, implementation and operation
of process-level
and management
review control
activities related
to order-to-cash
(including revenue
trade
receivables,
and billings
in excess
of cost/cost
in excess
of billings), procure-to-pay
(including operating
expenses, prepaid
expenses,
accounts payable, and
accrued liabilities), hire-to-pay
(including compensation
expense and accrued
liabilities), long-lived
assets,
significant
unusual
transactions,
related
party
transactions
and
other
financial
reporting
processes
for
the
entire
year.
Aside from these material weaknesses, management has concluded that the Company’s consolidated financial statements
as at and for
the year ended December
31, 2022, present
fairly,
in all material
respects, the Company’s
financial position,
results of operations,
changes in shareholders’
equity and cash
flows in accordance
with IFRS as
issued by the
IASB. There
were no material adjustments to
the Company’s consolidated financial
statements for the year ended
December 31, 2022,
and
there
were
no
changes
to
previously
released
financial
results.
However,
because
the
deficiencies
and
material
weaknesses create a reasonable possibility that
a material misstatement to our
consolidated financial statements would not
be prevented
or detected
on a
timely basis,
the CEO
and CFO concluded
that as
of December 31,
2022, the
Company’s
design and operation of ICFR and DC&P were not effective.
Management’s Ongoing Remediation
Measures
During the year
ended December
31, 2022,
and beyond,
management
initiated
and continues
to implement
remediation
measures
as
outlined
above,
in
the
2021
annual
MD&A
as
well
as
the
quarterly
MD&A’s
of
2022.
Management
has
performed
an
initial
risk
assessment
using
a
top-down,
risk-based
approach
with
respect
to
the
risks
of
material
misstatement of the
consolidated financial
statements. In
addition, compensating
controls have been
applied to the
areas
where the
risks of
material misstatement
are considered
moderate to
high, as
throughout the
various accounting
cycles.
The Company is
using and plans
to continue to
use outside resources
to strengthen the
business process documentation
and help with
management’s self-assessment
and testing
of internal controls.
In 2023, the
Company’s management,
with
oversight of the Audit Committee expects to
advance the documenting, testing, and refining the internal
controls, in addition
with the upgrade to the ERP system, which inherently will add additional automated controls.
As a result, the Company will
improve
the
design
of
control
activities
and
strengthen
process
controls
surrounding
sales,
purchases,
payroll,
among
others, and will be call for fewer compensating controls.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
20
| Page
Although
the
Company
can
give
no
assurance
that
these
actions
will
remediate
these
material
weaknesses
in
internal
controls or
that additional
material weaknesses
in our
ICFR will
not be
identified in
the future,
management believes
the
foregoing efforts will,
when implemented, strengthen
our ICFR and DC&P
and effectively remediate
the identified material
weaknesses.
Management
will
take
additional
remedial
actions
as
necessary
as
they
continue
to
evaluate
and
work
to
improve
the
Company’s ICFR environment.
Changes in internal controls over financial reporting
Other
than
the
material
weaknesses
described
above,
and
the
remediation
process
described
above,
there
were
no
changes to the
Company’s ICFR during the year ended December 31,
2022 that have materially
affected, or are reasonably
likely to materially affect, the Company’s ICFR.
Limitations on Effectiveness of Disclosure Controls and Procedures
and Internal Control over Financial Reporting
The Company’s management recognizes
that any DC&P
and ICFR, no
matter how well
designed and operated, can
provide
only reasonable
assurance
of achieving
their objectives.
Because of
their
inherent limitations,
DC&P
and ICFR
may not
prevent or detect all errors or misstatements on a timely
basis.
RISK FACTORS
The Company has
identified below certain
significant risks relating to
the business of
the Company and the
industry in which
it operates. The following information is only a summary of certain risk factors and is qualified in its entirety by reference to,
and
must
be
read
in
conjunction
with,
the
detailed
information
appearing
elsewhere
in
this
MD&A.
These
risks
and
uncertainties
are
not
the
only
ones
facing
the
Company.
Additional
risks
and
uncertainties
not
currently
known
to
the
Company, or that the Company currently considers immaterial, may also impair the operations of the Company. If any such
risks
materialize
into
actual
events
or
circumstances,
the
Company’s
assets,
liabilities,
financial
condition,
results
of
operations (including future
results of
operations), business and
business prospects, are
likely to
be materially
and adversely
affected. There is no assurance
that risk management steps
taken will avoid future loss due
to the uncertainties described
below
or
other
unforeseen
risks.
An
investment
in
the
Common
Shares
or
other
securities
of
the
Company
is
highly
speculative
and
involves
a
high
degree
of
risk.
Before
making
any
investment
decision,
prospective
investors
should
carefully consider all the information contained in this document
including, in particular, the
risk factors described below.
Certain factors may
have a material
adverse effect on
the Company’s business, financial
condition and results
of operations.
Current and prospective
investors should carefully
consider the risks
and uncertainties and
other information contained
in
this MD&A,
the 2022
consolidated Financial
Statements and
the Annual
Information Form,
particularly under
the heading
“Risk Factors” in the Annual Information Form, and in other filings that the Company has made and may make in the future
with applicable securities
authorities, Company’s
website at www.pyrogenesis.com.
The risks and
uncertainties described
herein and
therein are
not the
only ones
the Company
may face.
Additional risks
and uncertainties
that the
Company is
unaware of,
or that
the Company currently
believes are not
material, may also
become important
factors that
could adversely
affect the Company
’s business.
If any of
such risks actually
occur,
the Company’s
business, financial condition,
results of
operations, and future prospects could be materially and adversely affected. In that event, the trading price of the Common
Shares (or the value of any
other securities of the Company)
could decline, and the Company
’s securityholders could lose
part or all of their investment.
Risks Related to the Company’s Business and
Industry
Operating Income (Loss) and Negative Operating Cash
Flow
Prior
to
December 31,
2022,
the
Company
had
a
history
of
losses
and
negative
cash
flows.
For
the year
ended
December 31, 2022,
the Company
has net
losses of
$32.2 million,
cash flows
used in operations
of $11.1
million, and an
accumulated deficit
of $93.4
million at
December 31, 2022.
To
the extent
that the
Company has
net losses
and negative
operating cash flow in future periods, it may need to allocate a portion of its cash reserves to fund such negative cash flow.
The Company may
also be required
to raise additional
funds through the
issuance of equity
or debt securities.
There can
be no assurance that
the Company will be
able to generate a
positive cash flow
from its operations,
that additional capital
or
other
types
of
financing
will
be
available
when
needed
or
that
these
financings
will
be
on
terms
favourable
to
the
Company.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
21
| Page
The Company’s ability to continue as
a going concern is dependent
upon its ability in the
future to grow its revenue,
achieve
profitable operations, successfully developing and introducing
new products and, in the meantime, to obtain
the necessary
financing to meet its obligations and repay its liabilities when they become due. While the
Company has been successful in
securing financing in the past, raising additional funds is dependent
on a number of factors outside the Company’s
control,
and as such
there is no
assurance that it
will be able
to do so
in the future.
External financing, predominantly by
the issuance
of equity and debt,
might be, sought to finance
the operations of the Company;
however, there can be no certainty that such
funds will be available at terms acceptable to the
Company, or at all. If the Company is unable to obtain sufficient additional
financing,
it
may
have
to
curtail
operations
and
development
activities,
any
of
which
could
harm
the
business,
financial
condition and results of operations.
Actual Financial Position and Results of Operations May Differ
Materially from the Expectations of the Company’s
Management
The Company’s
actual financial
position and
results of
operations may
differ materially
from management’s
expectations.
The Company has experienced
some changes in its
operating plans and certain
delays in the timing
of its plans. As
a result,
the Company’s revenue, net income and
cash flow may differ materially from
the Company’s projected revenue, net income
and cash flow. The process for estimating the Company
’s revenue, net income and cash flow requires the use of judgment
in determining the appropriate assumptions and estimates. These estimates and assumptions
may be revised as additional
information
becomes
available and
as additional
analyses
are performed.
In addition,
the assumptions
used in
planning
may not prove to be accurate, and other factors may affect
the Company’s financial condition or results
of operations.
Revenue Risks
PyroGenesis may experience delays in achieving
revenues, particularly with plasma gasification projects which
have a long
sales
cycle.
Revenues
may
be
delayed
or
negatively
impacted
by
issues
encountered
by
the
Company
or
its
clients
including:
(i)
unforeseen engineering and/or environmental problems;
(ii)
delays or inability to obtain required financing, licenses, permits
and/or regulatory approvals;
(iii)
supply interruptions and/or labour disputes;
(iv)
foreign exchange fluctuations and/or collection risk; and
(v)
competition from other suppliers and/or alternative energy
solutions that are less capital intensive.
There
is
no
assurance
that
the
business
will
perform
as
expected
or
that
returns
from
the
business
will
support
the
expenditures needed to develop it.
Concentration Risk and Credit Risk
To
date, a small
number of customers
have accounted for
a majority of
PyroGenesis’
revenues. As its
business expands,
the
Company
expects
that
revenue
distribution
will
be
over
a
larger
number
of
different
customers.
For
the year
ended
December 31,
2022,
sales
of
PyroGenesis
to
its
two
principal
customers
accounted
for
approximately
52%
of
its
total
revenue. For
the year
ended
December 31,
2021, sales
to two
principal
customers
accounted for
approximately
79% of
PyroGenesis’
total
revenue.
The
loss
of,
or
a
reduction
in,
purchase
orders
or
anticipated
purchase
orders
from
PyroGenesis’ principal
customers could
have a
material adverse
effect
on its
business, financial
condition and
results of
operations.
Additionally,
if
one
of
PyroGenesis’
customers
is
unable
to
meet
its
commitments
to
PyroGenesis,
the
Company’s business, financial condition and results
of operations could be adversely affected.
As a result of the Drosrite
International Exclusive Agreement
and the Dross Processing
Service Agreement, the Company
generates
significant
revenues
from
payments
made
to
Drosrite
International
under
the
Dross
Processing
Service
Agreement.
The
Company
will
no
longer
receive
payments
under
such
arrangement
if
the
Dross
Processing
Service
Agreement, which involves
a third party
in a foreign
jurisdiction, is
terminated, which
could have a
material adverse
effect
on the business, financial condition and results of operations
of the Company.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
22
| Page
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
December 31, 2022
represents
the carrying amount
of cash
and cash equivalents,
accounts receivable
(except sales
tax receivable),
costs and
profits in
excess of billings on uncompleted contracts, 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.
Management has established
a credit policy
under which each
new customer is
analysed individually
for creditworthiness
before
the
Company’s
payment
and
delivery
terms
and
conditions
are
offered.
The
Company’s
review
could
include
reviewing external ratings, if they are available,
financial statements, credit agency information,
industry information and in
some cases bank
references. The Company’s
exposure to credit
risk is mainly
influenced by the
individual characteristics
of each customer. In monitoring customer
credit risk, customers are
identified according to their
characteristics such as their
geographic location, industry,
trading history with the Company and existence of previous
financial difficulties.
The Company does not generally
require collateral or other security
from customers on accounts
receivable, however,
the
contract terms may include the
possibility of recourse in the
event of late payment. The
Company believes that there
is no
unusual exposure associated with the collection of these
receivables.
The credit risk associated with costs and profits in excess of billings on uncompleted contracts is similar to that of accounts
receivable, as these amounts are accumulated and converted to
accounts receivable as invoicing milestones are reached.
The royalties receivable
are due from
a company in
which the Company
has a strategic
investments. The Company
does
not have
collateral or
other security
associated with
the collection
of this
receivable. The
carrying amount
of the
royalties
receivable have been discounted to reflect the time value
of money and credit risk of the counterparty.
The deposits are
payments made
to suppliers
and entities from
which the Company
leases property.
The Company
does
not have collateral
or other security
associated with
the collection
of these deposits.
As at December
31, 2022 and
2021,
no loss
allowance has been
recognized in
connection with these
deposits and
the maximum exposure
is the
carrying amount
of these deposits.
During the
years 2022
and 2021,
provisions for
expected credit
losses were
recorded, however,
no amounts
of financial
assets have been written off. The accounts provisioned by
the loss are still subject to
enforcement activity in order to collect
the balances due.
Technology Development and Manufacturing
Capability Risks
PyroGenesis recently expanded into
new areas of
business and, as
a result, many
of the Company’s
products are at
various
stages of
the
development
cycle. The
Company
may be
unable to
commercialise
such products,
or it
may be
unable to
manufacture such products in a commercially viable manner.
Whilst management is confident in both its technology and in
its team
of experienced
engineers,
scientists and
technicians,
it cannot
know with
certainty,
which of
its products
will be
commercialised, when such products will be
commercialised, or whether such products will be
able to be manufactured and
distributed profitably.
Product Revenues/History of Losses
PyroGenesis has incurred losses in the majority of years since its inception. In
the past the Company’s operations have not
generated sufficient
earnings and
cash flows
to date
to result
in consistent
profitability or
positive cash
flow.
For the year
ended December 31, 2022, the Company
has a net loss of $32.2 million
which includes a loss from
the change in value of
strategic investment of $8.3 million and cash flows used
in operations of $11.1
million. There can be no assurance that the
Company will be able to continue to generate significant gains
from the value of its strategic investments in the
future.
Additional financing and dilution
PyroGenesis may require additional
financing. There can be
no assurance that additional
financing will be available
to the
Company when needed, or on terms acceptable to the
Company.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
23
| Page
PyroGenesis’
inability
to
raise
financing
to
support
ongoing
operations
or
to
fund
capital
expenditures
could
limit
the
Company’s growth and may have a material adverse
effect upon the Company.
The Company does not
exclude raising additional funds by equity
financing. In addition, at March 30,
2023, 9,815,500 stock
options
are
currently
issued
and
outstanding,
together
with
6,014,600
share
purchase
warrants.
The
exercise
of
stock
options
and/or
warrants,
as
well
as
any
new
equity
financings,
represents
dilution
factors
for
present
and
future
shareholders.
Reliance on Third Party Suppliers, Service Providers, Distributors
and Manufacturers
The Company’s
direct and
indirect suppliers,
service providers,
distributors and
manufacturers may
elect, at
any time,
to
breach or otherwise cease
to participate in supply, service, distribution or
manufacturing agreements, or other relationships,
on which the Company’s operations rely. Loss of its suppliers, service providers, distributors and manufacturers could have
a material adverse effect
on the Company’s business
and operational results. Further,
any disruption in the manufacturing
process done
by third-party
manufacturers could
have a
material adverse
effect
on the
business, financial
condition and
results of operations of the Company.
The Company cannot ensure that alternative production
capacity would be available
in the event of a disruption, or if it would be available,
it could be obtained on favorable terms.
Manufacturing Facilities
The vast majority of the
Company’s products are
manufactured in its manufacturing
facilities located in Montreal,
Quebec,
as well as in
Italy and India.
Accordingly,
the Company is
highly dependent on the
uninterrupted and efficient
operation of
its manufacturing facilities. If for any reason
the Company is required to discontinue production at its
facilities, it could result
in significant delays in production of
the Company’s products and interruption of the Company’s sales as it
seeks to resume
production. The Company
may be unable
to resume production
on a timely
basis. If operations
at the facilities
were to be
disrupted
as
a
result
of
equipment
failures,
natural
disasters,
fires,
accidents,
work
stoppages,
power
outages
or
other
reasons, the Company’s business, financial condition
and/or results of operations could be materially adversely
affected.
Sales Cycle and Fixed Price Contracts
PyroGenesis sales
cycle is
long and
the signing
of new
contracts is
subject to
delay,
over which
the Company
has little
control. The Company
also enters into
sales contracts with fixed
pricing, which may be
impacted by changes
over the period
of implementation. There is no
assurance that delays or problems
in fulfilling contracts with clients will
not adversely affect
the Company’s activities, operating results or financial
position.
Reliance on Technology
PyroGenesis will depend
upon continuous improvements
in technology to
meet client demands
in respect of
performance
and cost, and to explore additional business opportunities. There can be no
assurance that the Company will be successful
in its efforts
in this regard or
that it will have
the resources available
to meet this demand.
Whilst management anticipates
that
the
research
and
development
will
allow
the
Company
to
explore
additional
business
opportunities,
there
is
no
guarantee that such
business opportunities
will be presented
or realized. The
commercial advantage
of the Company
will
depend to a
significant extent on
the intellectual property
and proprietary technology
of PyroGenesis and
the ability of
the
Company to
prevent others from
copying such proprietary
technologies. PyroGenesis currently
relies on intellectual
property
rights
and
other
contractual
or
proprietary
rights,
including
(without
limitation)
copyright,
trade
secrets,
confidential
procedures, contractual
provisions, licenses
and patents,
to protect
its proprietary
technology.
PyroGenesis may
have to
engage in litigation in order to protect its patents or other intellectual property rights, or to determine the validity or scope of
the proprietary rights
of others. This
type of litigation
can be expensive
and time consuming,
regardless of
whether or not
the Company is successful. PyroGenesis
may seek patents or other
similar protections in respect of particular
technology;
however, there can be no assurance that any future patent applications will actually result in issued patents, or that, even if
patents are issued,
they will be
of sufficient scope
or strength to
provide meaningful protection or
any commercial advantage
to the Company.
Moreover,
the process
of seeking
patent protection
can itself
be long
and expensive.
In the
meantime, competitors
may
develop technologies
that are
similar or
superior to
PyroGenesis’
technology or
design around
the patents
owned by
the
Company,
thereby
adversely
affecting
the
Company’s
competitive
advantage
in
one
or
more
of
its
areas
of
business.
Despite the efforts
of the Company,
its intellectual property
rights may be
invalidated, circumvented, challenged,
infringed
or required
to be
licensed to
others. It
cannot be
assured that
any steps
the Company
may take
to protect
its intellectual
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
24
| Page
property rights
and other rights
to such
proprietary technologies
that are central
to the Company
’s operations
will prevent
misappropriation or infringement of its technology.
Changes to Contracts
PyroGenesis is dependent upon its
ability to establish and develop
new relationships and to build
on existing relationships
with
current
clients.
The
Company
cannot
provide
assurance
that
it
will
be
successful
in
maintaining
or
advancing
its
relationships with
current clients
or procure
additional clients.
In addition,
PyroGenesis cannot
provide assurance
that its
customers and the end users of its products will continue to provide the Company with business, or that existing customers
and end users will not seek
to renegotiate or terminate existing
contracts providing for the sale
of the Company’s products
and technology based on circumstances on which the Company is not currently aware. Any termination or amendment of a
contract
under
which
the
Company
derives
an
important
portion
of
its
revenues,
including
the
Drosrite
International
Exclusive
Agreement
and
the
Dross
Processing
Service
Agreement,
and
any
adverse
change
in
the
relationship
of
the
Company with its customers and end users,
will have an adverse effect on the
Company’s business, financial condition and
results of operations.
Sales
to
governments
and
governmental
entities
are
subject
to
specific
additional
risks,
such
as
delays
in
funding,
termination of
contracts or
sub-contracts at
the convenience
of the
government,
termination, reduction
or modification
of
contracts or sub-contracts in
the event of changes
in the government’s
policies or as a result
of budgetary constraints and
increased or unexpected costs resulting in losses or reduced
profits under fixed price contracts.
Foreign Exchange Exposure
PyroGenesis’ products and
services are increasingly being
sold in markets outside
of Canada, whilst most
of its operating
expenses
and
capital
expenditures
are
denominated
in
Canadian
dollars.
As
a
result,
the
Company
is
exposed
to
fluctuations in the foreign
exchange rates between Canadian
dollar and the currency
in which a
particular sale is transacted,
which may
result in
foreign exchange
losses that
could affect
earnings. Foreign
sales are
predominantly denominated
in
U.S. dollars,
as well as the Euro
and Indian Rupee. The Company has
not to date sought to
hedge the risks associated with
fluctuations in foreign exchange rates.
Competition
The
industry
is
competitive
and
PyroGenesis
competes
with
a
substantial
number
of
companies
which
have
greater
technical
and
financial
resources.
There
can
be
no
assurance
that
such
competitors
will
not
substantially
increase
the
resources devoted to the development and marketing of products and services that compete
with those of the Company or
that
new
or
existing
competitors
will
not
enter
the
various
markets
in
which
PyroGenesis
is
active.
There
can
be
no
assurance that
competitors will
not develop
new and
unknown technologies
with which
the Company
may have
difficulty
competing. Furthermore, failure to remain cost competitive
may result in PyroGenesis losing business to its competitors.
The plasma technology of
PyroGenesis competes against other
plasma and conventional technologies.
Without limitation,
the demand for the plasma technology of PyroGenesis, particularly in waste destruction and waste-to-energy systems, can
be impacted by the
commodity prices of
the energy source
used for the process
and the price at
which waste is
accepted
by
landfills
and
traditional
waste
processing
plants.
While
the
Company
believes
that
demand
for
sustainable
waste
management practices
that have
lower environmental
impacts than
traditional solutions
such as
landfill or
incineration
is
increasing,
the
high
flows
of
electricity
necessary
to
operate
the
waste
destruction
and
waste-to-energy
systems
of
PyroGenesis have an
impact on the
operational costs
of the Company’s
systems, and traditional
solutions may
constitute
lower-cost solutions, particularly if commodity prices (including
of oil and natural gas) remain low or experience a decline.
Management and Key Personnel
PyroGenesis depends on the skills and experience of
its management team and other key employees. The
Company relies
heavily on its ability to attract and retain highly skilled personnel in a competitive environment. PyroGenesis may be unable
to recruit, retain, and motivate highly skilled employees in order to assist the Company’s
business, especially activities that
are essential
to the
success of
the Company.
Failure
to recruit
and retain
highly skilled
employees may
adversely affect
PyroGenesis’ business, financial condition and results of operations.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
25
| Page
Implementation of a strategic plan
PyroGenesis’
commercial
strategy
aims
to
leverage
its
products,
consumables,
and
services
whilst
focusing
on
the
resolution of problems
within niche markets within
the industries served by
the Company.
There can be no
assurances as
to the
success
of the
Company’s
strategic
plan,
which
should
be considered
under
the risks
perspective
and
difficulties
frequently encountered by a developing business.
Adverse Decisions of Sovereign Governments
PyroGenesis
conducts
an
increasing
portion
of
its
business
internationally.
There
is
no
assurance
that
any
sovereign
government, including Canada’s, will
not establish laws or
regulations that will not
be detrimental to
the Company’s interests
or that, as a foreign corporation, it will continue
to have access to the regulatory agencies
in other countries. Governments
have,
from
time
to
time,
established
foreign
exchange
controls,
which
could
have
a
material
adverse
effect
on
the
Company’s business, financial condition and results
of operations.
Risks Related to International Operations
A
substantial
portion
of
the
Company’s
sales
are
made
to
customers
and
end
users
outside
Canada.
The
Company
conducts
its
international
operations
directly
or
through
distributors
or
other
agents
or
intermediaries,
including
Drosrite
International.
The
Company
plans
to
continue
to
expand
its
international
sales
and
marketing
efforts.
International
operations are
subject to
a number
of inherent
risks, and
the Company’s
future results
could be
adversely
affected by
a
number of factors, including:
●
unfavorable political
or economic
environments;
requirements
or preferences
for domestic
products or
solutions,
which could reduce demand for the Company’s products;
●
differing existing or future regulatory and certification
requirements;
●
unexpected legal or regulatory changes;
●
greater difficulty in collecting accounts receivable
and longer collection periods;
●
difficulties in enforcing contracts; an inability to
effectively protect intellectual property;
●
tariffs and trade
barriers, export regulations
and other
regulatory and
contractual limitations on
the Company’s ability
to sell its products; and
●
potentially adverse tax consequences, including multiple and
possibly overlapping tax structures.
Fluctuations in
currency exchange
rates could
materially adversely
affect sales
denominated in
currencies other
than the
Canadian dollar and cause a reduction in revenues derived from sales in a particular country. Financial instability in foreign
markets could
also affect
the sale
of the
Company’s
products in
international jurisdictions.
In addition,
the Company
may
be denied access to its
end customers as a result
of a closing of the
borders of the countries in which
it its products are sold
due to economic, legislative, political and military conditions
in such countries.
There can be no assurance that such factors will not materially adversely affect the operations, growth prospects and sales
of the Company and, consequently, its results of operations. In addition, revenues the Company earns in other jurisdictions
may be subject to
taxation by more than
one jurisdiction, which
could materially adversely
affect the Company’s
earnings.
Each of
these factors could
have an
adverse effect on
the Company’s business,
financial condition and
results of
operations.
Governmental Regulation
PyroGenesis is subject to a variety of federal, provincial, state, local
and international laws and regulations relating namely
to the
environment,
health
and safety,
export
controls,
currency
exchange, labour
and employment
and
taxation.
These
laws
and
regulations
are
complex,
change
frequently
and
have
tended
to
become
more
stringent
over
time.
Failure
to
comply with these laws
and regulations may
result in a variety
of administrative, civil
and criminal enforcement
measures,
including assessment
of monetary
penalties, imposition
of remedial
requirements and
issuance of
injunctions as
to future
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
26
| Page
compliance. The Company
may be subject to
compliance audits by regulatory
authorities in the various countries
in which
it operates.
Government-funded Defense and Security Programs
Like
most
companies
that
supply
products
and
services
to
governments,
government
agencies
routinely
audit
and
investigate government contractors. These agencies may review the Company’s performance under its contracts, business
processes, cost structure, and compliance
with applicable laws, regulations and
standards. The Company’s incurred
costs
for each year
are subject
to
audit
by government
agencies,
which
can
result
in
payment
demands
related
to costs
they
believe should be disallowed. The Company works with governments to assess the merits of claims and where appropriate
reserve for
amounts
disputed. The
Company
could
be required
to provide
repayments
to governments
and
may have
a
negative effect on its results of operations.
Contrary to cost-reimbursable
contracts, some costs
may not be reimbursed
or allowed under fixed
-price contracts, which
may have a negative effect on the Company’s
results of operations if it experiences costs
overruns.
Environmental Liability
PyroGenesis is subject to
various environmental laws and
regulations enacted in the
jurisdictions in which it
operates, which
govern the
manufacturing,
processing, importation,
transportation,
handling and
disposal of
certain materials
used in
the
Company’s operations. Management believes that it has adequate procedures
in place to address compliance with current
environmental laws and regulations. Furthermore, management monitors the
Company’s practices concerning the handling
of environmentally hazardous materials. However,
there can be no assurance that the
Company’s procedures
will prevent
environmental damage
occurring from
spills of
materials handled
by the
Company or
that
such
damage
has
not
already
occurred.
On
occasion,
substantial
liabilities
to
third
parties
may
be
incurred.
The
Company may
have the
benefit of
insurance maintained
by it
or the
operator,
however,
the Company
may become
liable
for damages against which it cannot
adequately insure or against which it may
elect not to insure because of
high costs or
other
reasons.
The
Company’s
clients
are
subject
to
similar
environmental
laws
and
regulations,
as
well
as
limits
on
emissions to the air and discharges into surface and sub-surface waters. While regulatory
developments that may follow in
subsequent years
could
have
the
effect
of
reducing
industry
activity,
the
Company
cannot
predict
the
nature
of
the
restrictions that may be imposed. The Company may be required to increase operating expenses or capital
expenditures in
order to comply with any new restrictions or regulations.
Product Liability and Other Lawsuits
PyroGenesis
is
subject
to
a
variety
of
potential
product
liabilities
claims
and
other
lawsuits
related
with
its
operations,
including
liabilities
and
expenses
associated
with
product
defects.
The
Company
maintains
product
liability
and
other
insurance coverage that management believes is generally
in accordance with the market practice in its industry,
but there
can be no assurance that the Company will always be adequately
insured against all such potential liabilities.
A
malfunction
or
the
inadequate
design
of
the
Company’s
products
could
result
in
product
liability
or
other
tort
claims.
Accidents involving
the Company
’s
products
could lead
to personal
injury or
physical damage.
Any liability
for damages
resulting from malfunctions could be substantial
and could materially adversely
affect the Company’s business
and results
of operations.
In addition,
a well-publicized
actual or
perceived problem
could adversely
affect the
market’s
perception of
the
Company’s
products.
This
could
result
in
a
decline
in
demand
for
the
Company’s
products,
which
would
materially
adversely affect the Company’s financial condition
and results of operations.
The sale and use of products and processes developed by the Company may entail potential liability and
possible warranty
claims. The Company
may be subject
to personal injury
claims for injuries
resulting from use
of its products.
Although the
Company maintains product liability insurance, there can be no assurance that such insurance will continue to be available
on commercially reasonable terms or that the risks covered,
or coverage amounts will be sufficient to cover
all claims.
Information systems disruptions
The Company relies on various
information technology systems to
manage its operations. Over
the last several years, the
Company has implemented, and it
continues to implement, modifications and
upgrades to such systems, including
changes
to legacy
systems,
replacing legacy
systems
with successor
systems with
new functionality,
and acquiring
new systems
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
27
| Page
with new functionality.
These types of activities
subject the Company to
inherent costs and
risks associated with replacing
and changing these systems, including impairment of the Company’s ability to fulfill customer orders, potential disruption of
its internal control structure, substantial capital expenditures, additional administration and
operating expenses, retention of
sufficiently skilled
personnel to
implement and
operate the
new systems,
demands on
management time
and other
risks
and costs of delays or difficulties
in transitioning to or integrating new systems
into the Company’s current systems. These
implementations,
modifications,
and
upgrades
may not
result
in
productivity
improvements
at
a
level
that
outweighs
the
costs
of
implementation,
or
at
all.
In
addition,
the
difficulties
with
implementing
new
technology
systems
may
cause
disruptions in
the Company’s
business operations
and have
a material
adverse effect
on its business,
financial condition,
or results of operations.
Security Breaches
As part of its
day-to-day business, the Company stores its
data and certain data
about its customers in its
global information
technology system. Unauthorized
access to the
Company’s data, including
any regarding its customers,
could expose the
Company to a risk of loss of this
information, loss of business, litigation and possible liability. These security measures may
be breached by intentional misconduct by computer hackers, as a result of third-party action, employee error,
malfeasance
or otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive
information
such
as
usernames,
passwords
or
other
information
in
order
to
gain
access
to
the
data
of
the
Company’s
customers or
the Company’s data,
including the
Company’s intellectual property
and other
confidential business information,
or
the
Company’s
information
technology
systems.
Because
the
techniques
used
to
obtain
unauthorized
access,
or
to
sabotage systems, change
frequently and generally are
not recognized until launched
against a target, the
Company may
be unable to
anticipate these techniques or to
implement adequate preventative measures. Any
security breach could result
in a loss of
confidence by the
Company’s customers,
damage its reputation,
disrupt its business,
lead to legal
liability and
negatively impact its future sales.
Public Health Crises
Public
health
crises,
including
local,
regional,
national
or
international
outbreak
of
a
contagious
disease,
could
have
an
adverse effect on
local economies, the
global economy,
and the markets
in which the
Company operates
and markets its
products, and may
adversely impact the
price and demand
for the Company’s
products and the
ability of the
Company to
operate and market
its products. Any
such alterations or
modifications could cause
substantial interruption to
the Company’s
business, any
of which
could have
a material
adverse effect
on the
Company’s operations
or financial
results, and
could
include temporary closures of
one or more
of the Company’s or
its partner’s offices or
facilities; temporary or long-term
labor
shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; the potential
of increased network vulnerability and
risk of data loss resulting
from increased use of remote
access and removal of data
from the Company’s facilities.
Subsequent
to
December 31,
2019,
the
global
emergence
of
coronavirus
(COVID-19)
occurred.
The
global
outbreak
of
COVID-19 has resulted in governments
worldwide enacting emergency measures to protect
against the spread of the
virus.
These
measures,
which
include,
among
other
things,
limitations
on
travel,
self-imposed
quarantine
periods
and
social
distancing measures,
have caused
material disruption
to businesses
globally resulting
in an
economic slowdown.
Global
equity markets
have
experienced
significant
volatility
and weakness.
Governments
and central
banks
have reacted
with
significant
monetary
and
fiscal
interventions
designed
to
stabilize
economic
conditions.
The
duration
and
impact
of
the
COVID-19 outbreak is unknown at this time, as is the efficacy of any government and/or central bank interventions. It is not
possible
to
reliably
estimate
the
length
and
severity
of
these
developments
and
the
impact
on
the
financial
results
and
condition of the Company in future periods.
As of
the date
of this
MD&A, the
Company has
successfully continued
operations under
COVID-19 protocols.
COVID-19
has
not
resulted
in
any
material
delays
in
the
development
or
testing
of
the
Company’s
products
or
any
other
material
development projects. The Company is not currently experiencing any delays or
interruptions in service or product delivery.
At the
outset of
the COVID-19
pandemic, certain
of the
Company’s operations
were negatively
impacted, but
have since
normalized.
The
Company
has
not
experienced
any
material
disruption
in
its
supply
chain,
and
the
pandemic
has
not
materially impacted the Company’s business
or delivery of services or products.
The Company’s
production schedule
has continued throughout
COVID-19 on
a modified
employee schedule,
with certain
non-production employees working remotely.
The Company has been able to
operate largely unaffected
by the COVID-19
pandemic. Notwithstanding the foregoing, if the Company or its vendors and suppliers are unable to continue operations or
keep up with increasing demands as a result of COVID-19, customers
may experience delays or interruptions in service or
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
28
| Page
the delivery
of products, which
may be detrimental
to the
Company’s reputation, business, results
of operations and
financial
position.
The
Company
cautions
that
it
is
impossible
to
fully
anticipate
or
quantify
the
effect
and
ultimate
impact
of
the
COVID-19 pandemic as the situation is rapidly evolving. The extent to which COVID
-19 impacts the Company’s results will
depend on
future developments,
which are
highly uncertain
and cannot
be predicted,
including new
information that
may
emerge concerning the
severity of COVID-19
and the actions
taken by governments
to contain it
or treat its
impact, including
shelter in place
directives, which,
if extended, may
impact the economies
in which the
Company now
operates, or may
in
the future operate,
key markets
into which the
Company sells
products and delivers
services, and markets
through which
the Company’s key suppliers source their products.
Litigation
The Company
may from
time to
time become
party to
litigation in
the ordinary
course of
business which
could adversely
affect
its business.
Should
any litigation
in
which
the
Company
becomes
involved
be determined
against the
Company,
such a
decision could
adversely affect
the Company’s
ability to
continue operating
and the
market price
for the
Common
Shares and
could use
significant resources.
Even if
the Company
is involved
in litigation
and wins,
litigation can
redirect
significant Company resources. Litigation may also create a
negative perception of the Company’s brand.
Trade Secrets May Be Difficult to Protect
The
Company’s
success
depends
upon
the
skills,
knowledge
and
experience
of
its
scientific
and
technical
personnel,
consultants and advisors,
as well as contractors.
Because the Company operates
in a highly competitive
industry,
it relies
in part on trade
secrets to protect its proprietary
products and processes. However, trade secrets are difficult to protect. The
Company
generally
enters
into
confidentiality
or
non-disclosure
agreements
with
its
corporate
partners,
employees,
consultants, outside
scientific collaborators,
developers and
other advisors.
These agreements
generally,
require that
the
receiving party keep confidential, and not disclose to third parties, confidential information developed by the receiving party
or
made
known
to
the
receiving
party
by
the
Company
during
the
course
of
the
receiving
party’s
relationship
with
the
Company.
These
agreements
also
generally
provide
that
inventions
conceived
by
the
receiving
party
in
the
course
of
rendering services to the
Company will be
its exclusive property,
and the Company
enters into assignment
agreements to
perfect its rights.
These confidentiality,
inventions, and
assignment agreements,
where in
place, may
be breached
and may
not effectively
assign intellectual
property rights
to the Company.
The Company’s
trade secrets
could also be
independently discovered
by competitors, in which
case the Company would
not be able to
prevent the use of
such trade secrets by
its competitors.
The enforcement
of a
claim alleging
that a
party illegally
obtained
and was
using the
Company’s
trade secrets
could be
difficult,
expensive
and
time
consuming
and
the
outcome
could
be
unpredictable.
The
failure
to
obtain
or
maintain
meaningful trade secret protection could adversely affect
the Company’s competitive position.
Risks Related to Acquiring Companies
The Company may acquire other companies
in the future and there are risks
inherent in any such acquisition.
Specifically,
there
could
be
unknown
or
undisclosed
risks
or
liabilities
of
such
companies
for
which
the
Company
is
not
sufficiently
indemnified.
Any
such
unknown
or
undisclosed
risks
or
liabilities
could
materially
and
adversely
affect
the
Company’s
financial
performance
and
results
of
operations.
The
Company
could
encounter
additional
transaction
and
integration-
related costs or other
factors such as the
failure to realize all
of the benefits from
such acquisitions. All of
these factors could
cause dilution to the Company’s
earnings per share or decrease
or delay the anticipated accretive
effect of the acquisition
and
cause
a
decrease
in
the
market
price
of
the
Company’s
securities.
The
Company
may
not
be
able
to
successfully
integrate
and
combine
the
operations,
personnel
and
technology
infrastructure
of
any
such
acquired
company
with
its
existing
operations.
If
integration
is
not
managed
successfully
by
the
Company’s
management,
the
Company
may
experience interruptions in its business activities, deterioration of its employee and customer relationships, increased costs
of
integration
and
harm
to
its reputation,
all
of which
could
have
a
material
adverse
effect
on
the
Company’s
business,
financial
condition
and
results
of
operations.
The
Company
may
experience
difficulties
in
combining
corporate
cultures,
maintaining
employee
morale
and
retaining
key
employees.
The
integration
of
any
such
acquired
companies
may
also
impose
substantial
demands
on
the
management.
There
is
no
assurance
that
these
acquisitions
will
be
successfully
integrated in a timely manner.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
29
| Page
Global Economic Uncertainty
Demand for
the Company’s
products and
services are
influenced by
general economic
and consumer
trends beyond
the
Company’s control. There can be no assurance that the Company’s business and corresponding financial performance will
not be adversely affected
by general economic or consumer
trends. In particular,
global economic conditions are still
tight,
and if such conditions continue,
recur or worsen, there can
be no assurance that they
will not have a
material adverse effect
on the Company’s business, financial condition and results
of operations.
Furthermore, such economic conditions have produced downward pressure on stock
prices and on the availability of credit
for financial
institutions
and corporations.
If these
levels of
market disruption
and
volatility continue,
the Company
might
experience reductions in business activity, increased funding costs and funding pressures, as applicable, a decrease in the
market price of the
Common Shares, a decrease in asset
values, additional write-downs and impairment charges and lower
profitability.
Inability to Renew Leases
The Company
may be
unable to
renew or
maintain its
leases (commercial
or real
property)
on commercially
acceptable
terms or
at all.
An inability
to renew
its leases,
or a
renewal of
its leases
with a
rental rate
higher than
the prevailing
rate
under
the
applicable
lease
prior
to
expiration,
may
have
an
adverse
impact
on
the
Company’s
operations,
including
disruption of
its operations
or an
increase in
its cost
of operations.
In addition,
in the
event of
non-renewal
of any
of the
Company’s
leases,
the
Company
may
be
unable
to
locate
suitable
replacement
properties
for
its
facilities
or
it
may
experience delays in relocation that could lead to a disruption in its operations. Any disruption in the Company’s operations
could have an adverse effect on its financial condition
and results of operations.
Financial Reporting and Other Public Issuer Requirements
As a public
company,
the Company is
subject to the
reporting requirements
of the Canadian
Securities Administrators,
or
the CSA, and the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations of the listing standards
of the
TSX and
NASDAQ and
the U.S.
Sarbanes-Oxley Act.
The requirements
of these
laws, rules and
regulations have
increased
and
will
continue
to
increase
the
Company’s
legal,
accounting,
and
financial
compliance
costs,
make
some
activities more difficult, time-consuming, and costly, and place significant strain on the Company’s personnel, systems, and
resources. The Company is continuing to develop and refine its disclosure controls and other procedures that
are designed
to ensure that
information required to
be disclosed by
the Company in
the reports that
it will file with
the CSA is recorded,
processed, summarized, and
reported within the
time periods specified
in CSA rules and
forms and that
information required
to be
disclosed in
reports under
applicable securities
laws is
accumulated and
communicated to
the Company’s
principal
executive and
financial officers.
The Company
is also
continuing to improve
its internal
control over
financial reporting.
In
order to improve the effectiveness of its disclosure controls and procedures and internal
control over financial reporting, the
Company has
expended, and
anticipate that
it will continue
to expend,
significant resources,
including accounting-related
costs and significant management oversight.
The Company
has identified certain
material weaknesses in
its internal
controls, as more
fully explained in
its management’s
discussion and
analysis for
the year ended
December 31,
2022, under
“Disclosure
Controls and
Procedures”.
Additional
weaknesses in
the Company’s
disclosure controls
and internal
control over
financial reporting
may also
be discovered
in
the future.
Any failure
to
develop
or maintain
effective
controls
or any
difficulties
encountered
in their
implementation
or
improvement could harm the Company’s results of operations or cause
the Company to fail to meet its reporting
obligations
and may result in
a restatement of the Company’s consolidated financial
statements for prior periods. Any
failure to improve
and maintain effective
internal control over
financial reporting also
could adversely affect
the results of
periodic management
evaluations and annual independent registered public accounting firm attestation reports regarding
the effectiveness of the
Company’s
internal control
over financial
reporting that
the Company
will eventually
be required
to include
in its
periodic
reports
that
will
be
filed
with
the
CSA.
Ineffective
disclosure
controls
and
procedures
and
internal
control
over
financial
reporting could
also cause
investors to
lose confidence
in the
Company’s reported
financial and
other information,
which
could have a negative effect
on the trading price of the
Common Shares. In addition, if
the Company is unable to
continue
to meet these requirements, it may not be able to remain
listed on the TSX and/or NASDAQ.
Influence of the Significant Shareholders
To the Company’s
knowledge, no shareholder beneficially owns, or controls or directs, directly or indirectly, more than 10%
of the voting rights attached to the Company’s
outstanding voting securities, except for
Mr. Photis Peter
Pascali, President
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
30
| Page
and
Chief
Executive
Officer
of
the
Company,
who
holds
or
controls,
directly
or
indirectly,
80,925,698
Common
Shares,
representing in
aggregate 45.32
%
of the
total voting
rights attached
to the
outstanding Common
Shares, and
2,500,000
share purchase warrants
and options
to acquire an
additional 6,770,000
Common Shares
(increasing the
total number
of
Common Shares held or controlled, directly or
indirectly, by him to 87,695,698 Common Shares, or 47.31%
or the Common
Shares, on
a fully
diluted basis).
In addition,
from time
to time,
the Company
may have
other shareholders
who have
the
ability to
exercise significant
influence over
matters submitted
to the
shareholders of
the Company
for approval,
whether
subject to approval by a majority of the shareholders of
the Company or subject to a class vote or special resolution.
Limited Control Over the Company’s Operations
Holders
of
the
Common
Shares
have
limited
control
over
changes
in
the
Company’s
policies
and
operations,
which
increases
the
uncertainty
and
risks
of
an
investment
in
the
Company.
The
Board
determines
major
policies,
including
policies regarding
financing, growth,
debt capitalization and
any future
dividends to
shareholders of
the Company. Generally,
the Board may amend or revise these and other policies without a vote of the holders
of the Common Shares. The Board’s
broad
discretion
in
setting
policies
and
the
limited
ability
of
holders
of
the
Common
Shares
to
exert
control
over
those
policies increases the uncertainty and risks of an investment
in the Company.
Change in Tax Laws
New income, sales, use or other
tax laws, statutes, rules, regulations
or ordinances could be enacted at
any time. Further,
existing tax laws, statutes, rules, regulations or ordinances could be
interpreted, changed, modified or applied adversely to
the Company. These enactments and events could require the Company to pay additional tax amounts on a prospective or
retroactive
basis,
thereby
substantially
increasing
the
amount
of
taxes
the
Company
is
liable
to
pay
in
the
relevant
tax
jurisdictions. Accordingly,
these events could decrease the capital
that the Company has available to operate
its business.
Any or all of these events could harm the business and
financial performance of the Company.
Forward-Looking Information
The
forward-looking
information
included
in
this
MD&A
relating
to,
among
other
things,
the
Company’s
future
results,
performance, achievements, prospects, targets, intentions or opportunities
or the markets in which
it operates and the
other
statements listed
are based
on opinions,
assumptions and
estimates made
by the
Company’s management
in light
of its
experience and
perception of
historical trends,
current conditions and
expected future developments,
as well
as other
factors
that the Company believes are appropriate and reasonable in the circumstances. However, there can be no assurance that
such estimates and assumptions will
prove to be correct. The Company’s
actual results in the future may
vary significantly
from the historical and estimated results and those variations may
be material. The Company makes no representation that
its actual results in the future will be the same, in whole or
in part, as those included in this MD&A.
Credit Facilities
The Company’s
credit facilities and
financing agreements
mature on various
dates. There
can be no
assurance that such
credit
facilities
or
financing
agreements
will
be
renewed
or
refinanced,
or
if
renewed
or
refinanced,
that
the
renewal
or
refinancing will
occur on
equally favourable
terms to
the Company.
The Company
’s ability
to continue
operating may
be
adversely
affected
if
the
Company
is
not
able
to
renew
its
credit
facilities
or
arrange
refinancing,
or
if
such
renewal
or
refinancing, as the case may
be, occurs on terms
materially less favorable to the
Company than at present. The
Company’s
current credit facilities and financing agreements have no imposed financial covenants and obligations on the Company.
In
the event
of the
contrary,
there is
a risk
that such
loans
may go
into default
if there
is a
breach in
complying
with
such
covenants and obligations, which could result in the lenders realizing on
their security and causing our shareholders to lose
some or all of their investment.
Risks Related to the Company’s Securities
Potential Volatility of Common Share
Price
The market
price of
the Common
Shares could
be subject
to significant
fluctuations. Some
of the
factors that
may cause
the market price of the Common Shares to fluctuate include:
(i)
the
public’s
reaction
to
the
Company’s
press
releases,
announcements
and
filings
with
regulatory
authorities and those of its competitors;
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
31
| Page
(ii)
fluctuations in broader stock market prices and volumes;
(iii)
changes in market valuations of similar companies;
(iv)
investor perception of the Company,
its prospects or the industry in general;
(v)
additions or departures of key personnel;
(vi)
commencement of or involvement in litigation;
(vii)
announcements
by
the
Company
or
its
competitors
of
strategic
alliances,
significant
contracts,
new
technologies, acquisitions, commercial relationships, joint
ventures or capital commitments;
(viii)
variations in the Company’s quarterly results of operations
or cash flows or those of other comparable
companies;
(ix)
revenues and
operating results
failing to
meet the
expectations of
securities analysts
or investors
in
particular quarter;
(x)
changes in the Company’s pricing policies or the pricing
policies of its competitors;
(xi)
future issuances and sales of Common Shares;
(xii)
sales of Common Shares by insiders of the Company;
(xiii)
third party disclosure of significant short positions;
(xiv)
demand for and trading volume of Common Shares;
(xv)
changes
in
securities
analysts’
recommendations
and
their
estimates
of
the
Company’s
financial
performance;
(xvi)
short-term
fluctuation
in
stock
price
caused
by
changes
in
general
conditions
in
the
domestic
and
worldwide economies or financial markets; and
(xvii)
the other risk factors described under this heading of the MD&A.
The realization
of any
of these
risks and
other factors
beyond the Company
’s control
could cause
the market
price of the
Common Shares to decline significantly.
In addition, broad
market and industry
factors may harm
the market price
of the Common
Shares. Hence, the
price of the
Common Shares
could fluctuate based
upon factors
that have
little or
nothing to
do with
the Company, and these
fluctuations
could materially reduce the price
of the Common Shares
regardless of the Company’s
operating performance. In the past,
following a significant
decline in the
market price of
a company’s
securities, there
have been instances
of securities class
action litigation having been instituted against that
company. If
the Company were involved in any similar
litigation, it could
incur substantial
costs, management’s attention
and resources could
be diverted
and it
could harm the
Company’s business,
operating results and financial condition.
Market Liquidity
The
market
price
for
the
Common
Shares
could
be
subject
to
wide
fluctuations.
Factors
such
as
the
announcement
of
significant
contracts,
technological
innovations,
new
commercial
products,
patents,
a
change
in
regulations,
quarterly
financial results,
future sales
of Common
Shares by
the Company
or current
shareholders, and
many other
factors could
have considerable
repercussions on
the price
of the
Common Shares.
In addition,
the financial
markets may
experience
significant price
and value
fluctuations that
affect the
market prices
of equity
securities of
companies that
sometimes are
unrelated
to
the
operating
performance
of
these
companies.
Broad
market
fluctuations,
as
well
as
economic
conditions
generally may adversely affect the market price of
the Common Shares.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
32
| Page
Dividends to Shareholders
The Company does not anticipate
paying cash dividends on the
Common Shares in the foreseeable
future. The Company
currently intends
to retain
all future
earnings to
fund the
development and
growth of
its business.
Any payment
of future
dividends will be at
the discretion of the
directors and will depend
on, among other
things, the Company’s earnings, financial
condition,
capital
requirements,
level
of
indebtedness,
statutory
and
contractual
restrictions
applying
to
the
payment
of
dividends, and other considerations that the directors
deems relevant.
Impact of Future Sales by Existing Shareholders
If the Company’s shareholders sell substantial amounts of
the Common Shares in the public market,
the market price of the
Common Shares could decrease. The
perception among investors that these
sales will occur could also
produce this effect.
All
currently
outstanding
Common
Shares
other
than
those
subject
to
lock-up
agreements
executed
by
certain
existing
shareholders will, subject to applicable securities laws,
generally be immediately available for resale in the public
markets.
Subject to compliance
with applicable
securities laws,
the Company’s
officers, directors
and their affiliates
may sell some
or all of their Common
Shares in the future. No prediction can
be made as to the
effect, if any, such future sales of Common
Shares will
have on
the market
price of
the Common
Shares prevailing
from time
to time.
However,
the future
sale of
a
substantial number of Common Shares by the Company’s
officers, directors and their affiliates, or the
perception that such
sales could occur, could materially
adversely affect prevailing market prices for the
Common Shares.
Additional Common Shares issuable upon the exercise of stock options may also be available for sale in the public market,
which
may
also
cause
the
market
price
of
the
Common
Shares
to
fall.
Accordingly,
if
substantial
amounts
of
Common
Shares are sold in the public market, the market price could
fall.
Working Capital and Future Issuances
The
Company
may
issue
additional
Common
Shares
in
the
future
which
may
dilute
a
shareholder’s
holdings
in
the
Company. The Articles
permit the issuance of an unlimited number of Common Shares,
and shareholders of the Company
will have no pre-emptive
rights in connection with
any further issuances The
directors of the Company
have the discretion
to
determine
the
provisions
attaching
to
the
Common
Shares
and
the
price
and
the
terms
of
issue
of
further
Common
Shares.
Additional equity
financing may
be dilutive
to holders
of Common
Shares. Debt
financing may
involve restrictions
on the
Company’s financing and operating activities. Debt financing
may be convertible into other
securities of the Company which
may result
in immediate
or resulting
dilution. In
either case,
additional financing
may not
be available
to the
Company on
acceptable
terms
or at
all.
If the
Company
is unable
to
raise
additional
funds
as needed,
the
scope
of its
operations
or
growth may
be reduced
and, as
a result,
the Company
may be
unable to
fulfill
its long-term
goals. In
this case,
investors
may lose
all or part
of their
investment. Any
default under
such debt
instruments could
have a
material adverse
effect on
the Company,
its business or the results of operations.
Securities or Industry Analysts
The trading
market
for Common
Shares
could
be
influenced
by the
research
and
reports
that
industry
and/or
securities
analysts may publish about the Company, its business, the market or competitors. If any of the analysts who may cover the
Company’s business change
their recommendation regarding
the Common Shares
adversely,
or provide more favourable
relative
recommendations
about
its
competitors,
the
share
price
would
likely
decline.
If
any
analyst
who
may
cover
the
Company’s business
were to
cease coverage
or fail to
regularly publish
reports on
the Company,
it could
lose visibility
in
the financial markets, which in turn could cause the share price
or trading volume to decline.
Risks Related to the Company’s Status as a Foreign
Private Issuer
Information Publicly Available to the Company’s U.S.
shareholders
The Company is
a foreign private
issuer under applicable
U.S. federal securities
laws. As a result,
the Company does
not
file the same reports that a U.S. domestic
issuer would file with the U.S. Securities and Exchange Commission (the
“SEC”),
although the Company is required to file with or furnish to the SEC the continuous disclosure documents that the Company
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
33
| Page
is required to file in Canada under Canadian Securities Laws, in certain
respects the reporting obligations are less detailed
and
less
frequent
than
those
of
U.S.
domestic
reporting
companies.
In
addition,
the
Company’s
officers,
directors
and
principal shareholders
are exempt
from the
reporting and
short-swing profit
recovery provisions
of Section 16
of the
U.S.
Exchange Act.
Therefore, the
Company’s shareholders
may not know
on as
timely a
basis when
the Company’s
officers,
directors and
principal shareholders
purchase or
sell
Common Shares
as the
reporting
periods under
the corresponding
Canadian insider reporting requirements are longer.
As a foreign
private issuer,
the Company is
exempt from
the rules and
regulations under
the Exchange
Act related to
the
furnishing and content of proxy statements. The Company is also exempt from Regulation FD, which prohibits issuers from
making
selective
disclosures
of
material
non-public
information.
While
the
Company
complies
with
the
corresponding
requirements relating to proxy
statements and disclosure of
material non-public information under
Canadian securities laws,
these requirements
differ from
those under
the Exchange
Act and
Regulation FD
and shareholders
should not
expect to
receive the
same information
at the
same time
as such
information is
provided by
U.S. domestic
companies. In
addition,
the Company may not be required under the Exchange Act to file annual
and quarterly reports with the SEC as promptly as
U.S. domestic companies whose securities are registered
under the Exchange Act.
In
addition,
as
a
foreign
private
issuer,
the
Company
has
the
option
to
follow
certain
Canadian
corporate
governance
practices, except
to the
extent that
such laws
would be
contrary to
U.S. securities
laws, and
provided that
the Company
discloses the requirements it is not following and describe the Canadian practices it follows instead. The Company plans to
rely
on
this
exemption.
As
a
result,
the
Company’s
shareholders
may
not
have
the
same
protections
afforded
to
shareholders of U.S. domestic companies that are subject
to all U.S. corporate governance requirements.
Loss of Foreign Private Issuer Status in the Future
In
order
to
maintain
its
status
as
a
foreign
private
issuer,
a
majority
of
the
Company’s
Common
Shares
must
be
either
directly
or
indirectly
owned
by
non-residents
of
the
U.S.
unless
the
Company
also
satisfies
one
of
the
additional
requirements necessary
to preserve
this status.
The Company
may in
the future
lose its
foreign private
issuer status
if a
majority of the
Common Shares
are held
in the United
States and
the Company
fails to meet
the additional
requirements
necessary to avoid
loss of foreign
private issuer
status. The
regulatory and compliance
costs to the
Company under
U.S.
federal
securities
laws
as
a
U.S.
domestic
issuer
may
be
significantly
more
than
the
costs
the
Company
incurs
as
a
Canadian foreign private
issuer eligible to
use the multi-jurisdictional
disclosure system ("MJDS").
If the Company
is not a
foreign private
issuer,
it would
not be eligible
to use
the MJDS
or other
foreign issuer
forms and
would be
required to
file
periodic
and
current
reports
and
registration
statements
on
U.S.
domestic
issuer
forms
with
the
SEC,
which
are
more
detailed and extensive than the forms available
to a foreign private issuer.
In addition, the Company may lose the
ability to
rely upon exemptions from NASDAQ corporate governance
requirements that are available to foreign private
issuers.
Inability for U.S. Investors to Enforce Certain Judgments
The Company is a corporation existing
under the Canada Business Corporations Act. A number of
the Company’s directors
and officers are
residents of Canada,
and substantially all
of the Company’s
assets are located
outside the United
States.
As a result, it may be difficult to effect service within the United States upon the Company or upon its directors and officers.
Execution by
United States
courts of
any judgment
obtained
against the
Company
or any
of the
Company’s
directors or
officers
in
United
States
courts
may
be
limited
to
the
assets
of
such
companies
or
such
persons,
as
the
case
may
be,
located in the United States. It may also be difficult for holders of securities who reside in the United States to realize in the
United
States
upon
judgments
of
courts
of
the
United
States
predicated
upon
civil
liability
and
the
civil
liability
of
the
Company’s directors and
executive officers under
the United States
federal securities laws.
The Company has
been advised
that a
judgment of
a U.S.
court predicated
solely upon
civil liability
under U.S.
federal securities
laws or
the securities
or
“blue sky”
laws of
any state
within the
United States,
would likely
be enforceable
in Canada
if the
United States
court in
which the judgment was obtained has a basis
for jurisdiction in the matter that would be recognized
by a Canadian court for
the same purposes. However, there may be doubt
as to the enforceability in Canada
against these non-U.S. entities or their
controlling persons,
directors
and officers
who are
not residents
of the
United States,
in original
actions or
in actions
for
enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal or state securities
laws.
Risks Relating to the Company’s Status as
an "Emerging Growth Company" Under U.S. Securities
Laws
The Company is an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS
Act, enacted on April 5, 2012),
and the Company will
continue to qualify as an
emerging growth company until
the earliest
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
34
| Page
to
occur
of:
(a) the
last
day
of
the
fiscal year
during
which
the
Company
has
total
annual
gross
revenues
of
US$1,070,000,000 (as
such amount
is indexed
for inflation
every five
years by
the SEC)
or more;
(b) the last
day of
the
fiscal year
of the
Company
following the
fifth anniversary
of the
date of
the
first sale
of common
equity securities
of the
Company
pursuant
to
an
effective
registration
statement
under
the
United
States
Securities
Act
of
1933,
as
amended;
(c) the date on which the
Company has, during the previous three year period, issued
more than US$1,000,000,000 in non-
convertible debt;
and (d) the date
on which
the Company is
deemed to
be a
"large accelerated filer",
as defined
in Rule 12b-2
under the Exchange Act. The Company will qualify as a large, accelerated filer (and would
cease to be an emerging growth
company) at
such time
when on
the last
business day
of its
second fiscal
quarter of
such year
the aggregate
worldwide
market value of its common equity held by non-affiliates
will be US$700,000,000 or more.
For so long as the Company
remains an emerging growth company,
it is permitted to and intends
to rely upon exemptions
from certain disclosure
requirements that are applicable
to other public
companies that are not
emerging growth companies.
These exemptions include
not being
required to comply
with the auditor
attestation requirements of
Section 404 of the
JOBS
Act.
The
Company
takes
advantage
of
some,
but
not
all,
of
the
available
exemptions
available
to
emerging
growth
companies.
The
Company
cannot
predict
whether
investors
will
find
the
Common
Shares
less
attractive
because
the
Company relies
upon certain
of these
exemptions. If
some investors
find the
Common Shares
less attractive
as a
result,
there may be a less active trading market
for the Common Shares and the Common
Share price may be more volatile. On
the other
hand, if
the Company
no longer
qualifies as
an emerging
growth company,
the Company
would be
required to
divert additional management time
and attention from the Company
’s development and other
business activities and incur
increased legal and financial costs to comply with the additional associated
reporting requirements, which could negatively
impact the Company’s business, financial condition
and results of operations.
OUTLOOK
In 2022, PyroGenesis
remained focused
on driving
its major
lines of business
toward widespread
acceptance, moving
its
newer innovations closer to commercialization, finding efficiencies,
and maintaining margin – all while providing the type of
superior service and solutions that have endeared the
Company to large global public, private, and government
partners.
The information below represents important highlights
from the past year, followed
by an outline of the company’s strategy
and outlook for 2023.
Key Strategic Actions
Major Deliverables
•
Titanium Powder Commercial Orders:
During 2022, the Company announced
it had received and completed its
first two commercial orders for
Titanium powders using its NexGen™ plasma atomization process.
The first, for 100
kg, was
under
its mutually
exclusive
partnership
agreement
with
Aubert
& Duval,
a major
supplier of
metal
powders
for additive
manufacturing serving the
Aerospace, Energy,
Transport, Medical,
Defense, and Automotive
sectors; the second, also
for
100 kg, was to a confidential customer.
•
Iron
Ore
Pelletization
Torches:
During
2022,
the
Company
continued
to
progress
its
major
initiative to
supply
electric
plasma
torch
systems
to
large
iron
ore
companies
for
first-ever
trials
in
this
important
upstream
part
of
the
steelmaking process.
In July
2022, the
first plasma
system plus
required components
was completed
and delivered
to a
client. Subsequent to year
-end 2022, in January
2023, four electric plasma
torch systems plus
required components were
delivered to
a second
client. These
clients are
two of
the largest
iron ore
companies
in the
world and
each has
made a
significant
financial
and
logistical
commitment
over
the
past two
years
to test
plasma
as a
possible
replacement
for the
diesel and/or natural gas furnace
burners needed for iron
ore pellet baking. Live
onsite trials and testing
will be conducted
per client-defined scheduling,
based on the Client’s
own resourcing and
logistical decisions of which
the Company has no
input.
•
Metal Powder
Aerospace Client
Qualification:
In September
2022, the
Company announced
it had
completed
the
in-house
quality
audit
of
its
NexGen™
metal
powder
production
facility
and
process,
which
it
also
later
passed
subsequent to year-end
2022, by a
large global aerospace
client. The in-house
audit was part
of an almost
two year long
process of qualification
by the client,
towards an end-goal
of being a
certified supplier of
titanium metal powders to
the client,
its suppliers, and service centers. With the audit completed,
the last step is a testing of the Company’s
powders, which will
be conducted per client-defined scheduling.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
35
| Page
Innovations
•
Aluminum Scrap
Remelting:
in May
2022, the
Company announced
it had
undertaken a
joint evaluation
with a
major manufacturer to
test PyroGenesis’ zero-emission
plasma torches in
the Client’s aluminum
scrap remelting and
holding
furnaces. This was one
of several secondary or
tertiary aluminum producers
who are investigating the
Company’s electric
plasma torches to replace fossil fuels in recycled aluminum
production, holding tank heating, or cast houses.
•
Carbon-anode baking:
The Company
announced in
June 2022 it
had undertaken
a joint initiative
with a premier
applied engineering and process optimization
firm in the global aluminum industry,
focused on utilizing PyroGenesis’ zero-
emission
plasma
torches
in
carbon
anode
baking
–
a
vital
upstream
step
in
the
aluminum
production
process.
Carbon
anodes, which
are used
as an
electrical conductor
during the
aluminum smelting
process but
constantly
consumed,
are
traditionally produced
using natural
gas baking;
reducing fossil
fuel use
while optimizing
the anode
baking process
is an
objective in the industry for manufacturers of high-grade
anodes.
•
Spent-pot linings:
The Company continues
to progress
the previously announced
initiative to develop
a solution
to recover residues of aluminum pot linings, in conjunction
with project partner Aluminerie Alouette (co-owned
by Rio Tinto
and Norsk
Hydro), the
largest primary
aluminum smelter
in the
Americas. The
solution under
development is
intended to
safely
recover
valuable
metals
and
various
compounds
from
the
heavily
contaminated
carbon-lined
cells
or
“pots”
from
inside a smelter, which degrade over time
and must be removed
and safely disposed. The project
evolved throughout 2022,
with
additional
technology
benchmarks
being
met,
and
with
the
Company
and
Aluminerie
Alouette
deepening
their
relationship with a further commitment.
•
Magnesium
Recovery and
Valourization:
in September
2022, the
Company
announced it
was
selected
by an
international
producer
of magnesium
metal to
develop
two processes:
a method
to clean
and decontaminate
particulate
matter produced
during primary
magnesium production,
and to
process the
metal waste
stream known
as dross,
for the
purpose of recovering valuable
metal. Dross recovery is
not widespread in the
magnesium industry,
due to the complexity
of the process and the
inherent challenges of working with magnesium – a
very combustible and volatile metal that is highly
reactive
to
oxygen.
With
PyroGenesis’
expertise
in
recovering
high-value
metal
from
dross
in
other
industries
(such
as
aluminum), the Company believes it has the solution to the specific challenges posed by magnesium, potentially opening a
large opportunity for growth, while decreasing the Client’s
environmental impact.
•
Turquoise
Hydrogen
Production:
The
Company
continues
to
progress
the
previously
announced
initiative
to
produce
an
environmentally
friendly
hydrogen.
In
November
2022,
the
Company
successfully
produced
hydrogen
from
methane using
this ZCE
hydrogen production
technology
which, because
it uses
electricity in
the form
of plasma,
rather
than combustion
of fossil
fuels, is
typically referred
to as
“Turquoise
Hydrogen”. A
solid carbon
byproduct that
has many
industrial applications (including the production of
car tires, coatings, plastics, and
batteries), and is considered an
essential
raw material, is also produced through the process.
Operational
•
European
Metal
Powders
Production:
Throughout
2022,
the
Company
continued
to
evolve
its
strategy,
first
announced in
July 2022,
for European
market expansion
for its
titanium metal
powder
line of
business. With
the goal
to
eventually build
and operate
a metal
powder production
facility in
Europe. Subsequent
to year-end
2022, in
Q1 2023
the
Company announced
expansion
of its
strategy
team,
with the
hiring of
a key
Europe-based
executive with
a long
track-
record across sales,
marketing, and business
process in the
metals industry, particularly the aerospace,
space, and defense
markets.
•
Quality Management Process Certification:
In November 2022, the Company passed its annual quality audit for
two key international standards: ISO 9001:2015, and AS9100D, the latter being a quality management designation specific
to the
aerospace
industry.
The audits
encompassed
all of
PyroGenesis’
facilities
for the
purpose of
meeting
compliance
with
the
existing
quality
management
designations.
Additionally,
as
a
result
of
this
audit,
the
Company’s
newest
facility
located at
9371 Wanklyn
St. in
LaSalle, Quebec,
was officially
added to
the ISO
9001:2015 certification.
Separately,
the
Company continues
its path to
become ISO 13485:2016
certified, a Quality
Management System
designation required by
most manufacturers within the medical devices and related services
industry.
Financial
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
36
| Page
•
Private Placement:
In October
2022, the
Company announced the
completion of a
non-brokered private placement
consisting of the issuance and sale of 1,014,600 units of the Corporation
at a price of $1.30 per Unit, for gross proceeds of
$1,318,980 to the Company. The closing price of the common shares of the
Company on October 18, 2022, the last
trading
day prior to the closing of the Private Placement, was $1.17. 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,
- 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 closing, in accordance with applicable securities
legislation.
Outlook
Consistent with the Company’s past
practice, and in view of
the early stage of
market adoption of our
core lines of business,
we are not providing specific revenue or net income (loss)
guidance for 2023.
In 2023,
we continue
our plan
to increase
sales, marketing,
and R&D
efforts in-line
– and
in some
cases ahead
of –
the
growth curve for industrial change related to greenhouse gas reduction efforts. This includes expanded technology offering
and capabilities across the industrial value chain, using
an updated strategy that sees the Company bundle
its solution-set
into verticals that represent key economic drivers for
heavy industry.
Overall Strategy
PyroGenesis’
provides
technology
solutions
to
heavy
industry
that
leverage
off
the
Company’s
proprietary
position
and
expertise
in
ultra-high
temperature
processes.
The
Company
has
evolved
from
its
early
roots
of
being
a
speciality-
engineering firm to being a
provider of a robust technology
eco-system for heavy industry
that helps address key
strategic
goals.
Aligning Business Lines to Economic Drivers
As interest in
the Company’s
products has increased,
and the variety
of uses for
its core technologies
has expanded,
the
Company
has
evolved
its
strategy
to
concentrate
its
solution
set
under
three
categories.
These
categories
represent
economic drivers that are key to global heavy industry:
1.
Energy Transition & Emission
Reduction:
•
fuel switching,
utilizing the
Company’s electric-powered
plasma torches
and biogas
upgrading technology
to help
heavy industry reduce fossil fuel use and greenhouse gas
emissions.
2.
Commodity Security & Optimization:
•
recovery of viable
metals, and optimization of
production to increase output,
to maximize raw materials
and improve
availability of critical minerals.
3.
Waste Remediation:
•
safe
destruction
of
hazardous
materials,
and
the
recovery
and
valorization
of
underlying
substances
such
as
chemicals and minerals.
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
For the years ended December 31, 2022, and
2021
37
| Page
Within each
category the
Company offers
several solutions
at different
stages leading
up to
commercialization,
including
the partial list in the diagram below:
The Company’s
believes its
strategy to
be timely,
as multiple
heavy industries
are committing
to major
carbon and
waste
reduction
targets
at
the
same
time
as
many
governments
are
increasingly
funding
environmental
technologies
and
infrastructure
projects
– all
while both
are making
efforts
to ensure
the
availability
of critical
minerals
during
the coming
decades of increased output demand.
While there can
be no guarantee,
the Company believes
this evolution of
its strategy beyond
a greenhouse
gas emission
reduction emphasis, to an
expanded focus that encapsulates
the key verticals listed above,
both improves the Company’s
chances for success while also providing a clearer
picture of how the Company’s wide array
of offerings work in tandem to
support heavy industry goals.
PyroGenesis’ market
opportunity remains
large, as
major industries
such as
aluminum, steelmaking,
manufacturing, and
government require factory-ready, technology-based solutions
to help steer
through the paradoxical
landscape of
increasing
demand and tightening regulations and material availability.
As more of the Company’s
offerings reach full commercialization,
PyroGenesis will remain focused on
attracting influential
customers in broad markets and ensuring that operating
expenses are controlled to achieve profitable growth.
FURTHER INFORMATION
Additional
information
relating
to
Company
and
its
business,
including
the
2022
consolidated
financial
statements,
the
Annual Information Form and
other filings that
the Company has
made and may
make in the
future with applicable
securities
authorities, may be found on or through SEDAR
at www.sedar.com,
EDGAR at www.sec.gov
or the Company’s website at
www.pyrogenesis.com.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders
of the Company’s
securities and securities authorized
for issuance under equity
compensation plans, is also
contained in the Company’s
most
recent management information circular for the most recent
annual meeting of shareholders of the Company.
pyrex99d3
1
Exhibit 99.3
PyroGenesis Canada Inc.
Consolidated Financial Statements
December 31, 2022 and 2021
2
PyroGenesis Canada Inc.
Consolidated Financial Statements
December 31, 2022 and 2021
Management’s responsibility
3
Report of Independent Registered Public Accounting Firm – Current Firm
(PCAOB ID Number
1232
)
4
Financial Statements
Consolidated Statements of Financial Position
5
Consolidated Statements of Comprehensive Loss
6
Consolidated Statements of Changes in Shareholders’ Equity
7
Consolidated Statements of Cash Flows
8 - 9
Notes to Consolidated Financial Statements
10 - 51
3
Management’s Responsibility
Management is
responsible for
the preparation
and presentation
of the
accompanying consolidated
financial statements,
including
responsibility
for
significant
accounting
judgments
and
estimates
in
accordance
with
International
Financial
Reporting
Standards
as
issued
by
the
International
Accounting
Standards
Board.
This
responsibility
includes
selecting
appropriate accounting principles
and methods, and
making decisions affecting
the measurement of transactions
in which
objective judgment is required.
The
Board
of
Directors
and
Audit
Committee
are
composed
primarily
of
Directors
who
are
neither
management
nor
employees of
the Company.
The Board
of Directors
is responsible
for overseeing
management in
the performance
of its
financial reporting responsibilities, and
for approving the
financial information included in
the annual report.
The Board fulfills
these responsibilities by reviewing the financial information prepared by management and
discussing relevant matters with
management and
the external
auditor.
The Audit
Committee has
the responsibility
of meeting
with management
and the
external auditors to
discuss the internal
controls over the
financial reporting process, auditing
matters and financial
reporting
issues. The Audit Committee is also responsible for recommending
the appointment of the Company's external auditor.
Raymond Chabot
Grant Thornton
LLP, an Independent Registered Public
Accounting Firm,
is appointed
by the
shareholders
to audit the
consolidated financial statements
and report directly
to them; their
report follows. The
external auditor has
full
and free access to, and meets periodically and
separately with, both the Audit Committee and management to discuss their
audit findings.
March 30, 2023
[Signed by P.
Peter Pascali]
[Signed by Andre Mainella]
P.
Peter Pascali, Chief Executive Officer
Andre Mainella, Chief Financial Officer
4
Raymond Chabot
Grant Thornton LLP
Suite 2000
National Bank Tower
600 De La Gauchetière Street West
Montréal, Quebec
H3B 4L8
T
514-878-2691
Report of Independent Registered Public Accounting Firm
To
the Shareholders and Directors of PyroGenesis Canada Inc.
Opinion on the consolidated financial statements
We have
audited the
accompanying consolidated
statements of
financial position
of PyroGenesis
Canada Inc.
(the "Company")
as of
December 31,
2022 and
2021, the
related consolidated
statements of
comprehensive loss,
changes in
shareholders’ equity
and cash
flows for the years then ended,
and the related notes (collectively referred
to as the "consolidated financial statements"). In
our opinion,
the consolidated
financial statements present
fairly,
in all
material respects,
the financial position
of the
Company as
of December
31,
2022 and
2021, and
the results
of its
operations and
its cash
flows for
the years
then ended
in conformity
with International
Financial
Reporting Standards as issued by the International Accounting Standards Board.
Going concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as
a going concern.
As discussed
in Note
2 to
the consolidated
financial statements,
the Company
has incurred
operating losses
and negative
cash flows
from operations and, as a result, has an accumulated deficit as of
December 31, 2022. These conditions, along with other matters as set
forth in
Note 2,
indicate the existence
of a material
uncertainty that
may cast significant
doubt about
the Company’s
ability to continue
operating as a
going concern. Management's
plans in regard
to these matters
are also described
in Note 2.
The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These consolidated financial statements are
the responsibility of the Company’s
management. Our responsibility is to
express an opinion
on the
Company's consolidated
financial statements
based on
our audits.
We
are a
public accounting
firm registered
with the
Public
Company Accounting
Oversight Board (United
States) ("PCAOB") and
are required to
be independent with
respect to the
Company in
accordance with the
U.S. federal securities
laws and the
applicable rules and
regulations of the
Securities and Exchange
Commission
and the PCAOB.
We conducted our
audits in accordance with
the standards of the
PCAOB. Those standards require
that we plan and
perform the audit
to obtain reasonable
assurance about whether
the consolidated financial
statements are free
of material 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 audits,
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.
Our audits included performing
procedures to assess the
risks of material misstatement
of the consolidated financial
statements, whether
due
to
error
or
fraud,
and performing
procedures
that
respond to
those
risks. Such
procedures included
examining,
on
a
test basis,
evidence
regarding
the
amounts
and
disclosures
in
the
consolidated
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2021.
Montréal, Canada
March 30, 2023
5
PyroGenesis Canada Inc.
Consolidated Statements of Financial Position
December 31, 2022 and 2021
(In Canadian dollars)
December 31,
December 31,
2022
2021
$
$
Assets
Current assets
Cash and cash equivalents [note 8]
3,445,649
12,202,513
Accounts receivable [note 9]
18,624,631
17,639,616
Costs and profits in excess of billings on uncompleted contracts [note 10]
1,051,297
4,922,710
Inventory [note 24]
1,876,411
887,590
Investment tax credits receivable [note 11]
276,404
256,513
Income taxes receivable
14,169
117,029
Current portion of deposits [note 14]
432,550
1,328,452
Current portion of royalties receivable [note 13]
455,556
311,111
Contract assets
499,912
375,789
Prepaid expenses
771,603
717,661
Total current assets
27,448,182
38,758,984
Non-current assets
Deposits [note 14]
46,053
248,756
Strategic investments [note 12]
6,242,634
14,901,659
Property and equipment [note 15]
3,393,452
3,712,937
Right-of-use assets [note 16]
4,818,744
5,765,993
Royalties receivable [note 13]
952,230
947,543
Intangible assets [note 17]
2,104,848
2,774,198
Goodwill [note 18]
2,660,607
2,660,607
Total assets
47,666,750
69,770,677
Liabilities
Current liabilities
Bank indebtedness [note 28]
991,902
—
Accounts payable and accrued liabilities [note 19]
10,115,870
10,069,177
Billings in excess of costs and profits on uncompleted contracts [note 20]
9,670,993
9,400,231
Current portion of term loans [note 21]
69,917
83,004
Current portion of lease liabilities [note 16]
2,672,212
2,934,236
Balance due on business combination [note 6]
2,088,977
2,242,503
Income taxes payable
187,602
23,048
Total current liabilities
25,797,473
24,752,199
Non-current liabilities
Lease liabilities [note 16]
2,861,482
2,389,729
Term
loans [note 21]
320,070
107,901
Balance due on business combination [note 6]
1,818,798
1,709,700
Deferred income taxes [note 31]
—
42,394
Total liabilities
30,797,823
29,001,923
Shareholders’ equity
[note 22]
Common shares
85,483,223
82,104,086
Warrants
223,200
—
Contributed surplus
24,546,960
19,879,055
Accumulated other comprehensive income
402
3,444
Deficit
(93,384,858)
(61,217,831)
Total shareholders’ equity
16,868,927
40,768,754
Total liabilities and shareholders’ equity
47,666,750
69,770,677
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 Loss
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
2022
2021
$
$
Revenues
[note 7]
19,013,503
31,068,350
Cost of sales and services [note 24]
10,869,616
18,636,539
Gross profit
8,143,887
12,431,811
Expenses
Selling, general and administrative [note 24]
29,025,434
27,237,135
Research and development, net [note 11]
2,317,973
2,535,987
31,343,407
29,773,122
Net loss from operations
(23,199,520)
(17,341,311)
Changes in fair value of strategic investments [note 12]
(8,340,781)
(21,426,218)
Finance costs, net [note 25]
(550,742)
(404,370)
Loss before income taxes
(32,091,043)
(39,171,899)
Income taxes [note 31]
75,984
(739,960)
Net loss
(32,167,027)
(38,431,939)
Other comprehensive income (loss)
Items that will be reclassified subsequently to profit or loss
Foreign currency translation gain (loss) on investments
in foreign
operations
(3,042)
3,444
Comprehensive loss
(32,170,069)
(38,428,495)
Loss per share
[note 26]
Basic
(0.19)
(0.23)
Diluted
(0.19)
(0.23)
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, 2022 and 2021
(In Canadian dollars)
Accumulated
Number of
other
common
Common
Contributed
comprehensive
shares
shares
Warrants
Surplus
income
Deficit
Total
$
$
$
$
$
$
Balance - December 31, 2021
170,125,795
82,104,086
—
19,879,055
3,444
(61,217,831)
40,768,754
Shares issued upon exercise of stock
options [note 22]
2,440,000
2,283,357
—
(870,558)
—
—
1,412,799
Private placement [note 22]
1,014,600
1,095,780
223,200
—
—
—
1,318,980
Share-based payments
—
—
—
5,538,463
—
—
5,538,463
Other comprehensive loss for the year
—
—
—
—
(3,042)
—
(3,042)
Net loss
—
—
—
—
—
(32,167,027)
(32,167,027)
Balance – December 31, 2022
173,580,395
85,483,223
223,200
24,546,960
402
(93,384,858)
16,868,927
Balance - December 31, 2020
159,145,992
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 purchase
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
170,125,795
82,104,086
—
19,879,055
3,444
(61,217,831)
40,768,754
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, 2022 and 2021
(In Canadian dollars)
2022
2021
$
$
Cash flows provided by (used in)
Operating activities
Net loss
(32,167,027)
(38,431,939)
Adjustments for:
Share-based payments
5,538,463
9,762,745
Depreciation of property and equipment
603,894
356,103
Depreciation of right-of-use assets
635,828
570,411
Amortization and write-off of intangible assets
878,030
465,913
Amortization of contract assets
243,626
513,572
Net finance costs
550,742
404,370
Change in fair value of investments
8,340,781
21,426,218
Deferred income taxes
(42,394)
(584,246)
Unrealized foreign exchange
(102,236)
(10,623)
(15,520,293)
(5,527,476)
Net change to working capital items [note 23]
4,391,408
(12,585,956)
(11,128,885)
(18,113,432)
Investing activities
Additions to property and equipment
(396,051)
(1,502,231)
Additions to intangible assets
(290,373)
(246,630)
Purchase of strategic investments
(3,604,000)
(10,588,857)
Disposal of strategic investments
3,922,244
14,252,730
Business combination, net of cash acquired
—
807,945
(368,180)
2,722,957
Financing activities
Increase in bank indebtedness
991,902
—
Interest paid
(467,453)
(253,791)
Repayment of term loans
(33,003)
(20,507)
Repayment of lease liabilities
(657,381)
(263,078)
Repayment of balance due on business combination
(217,778)
—
Proceeds from issuance of term loans
292,941
—
Proceeds from issuance of shares upon exercise
of warrants
—
13,085,197
Proceeds from issuance of shares upon exercise
of stock options
1,412,799
1,109,818
Proceeds from private placement [note 22]
1,318,980
—
Shares repurchased for cancellation
—
(4,183,617)
2,641,007
9,474,022
Effect of exchange rate changes on cash denominated in
foreign currencies
99,194
14,067
Net decrease in cash and cash equivalents
(8,756,864)
(5,902,386)
Cash and cash equivalents - beginning of year
12,202,513
18,104,899
Cash and cash equivalents - end of year
3,445,649
12,202,513
9
2022
2021
$
$
Supplemental cash flow disclosure
Non-cash transactions:
Purchase of intangible assets included in accounts payable
—
81,693
Purchase of property and equipment included in
accounts payable
—
22,557
Addition to contract assets included in accounts
payable
—
195,060
Settlement of accounts receivable on business acquisition
—
1,744,400
Accretion interest on balance due on business
combination
173,350
110,204
Accretion interest on royalties receivable
118,290
132,809
Accretion on term loan
28,236
12,185
Fair value of HPQ warrants exercised
—
9,181,250
Initial recognition or modification of lease liabilities
and right-of-use assets [note 16]:
Right-of-use assets
(311,421)
2,157,796
Prepaid rent expense
—
(36,903)
Lease liabilities
867,110
2,120,893
The accompanying notes form an integral part of the consolidated
financial statements.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
10
1.
Nature of operations
PyroGenesis Canada Inc.
(“PyroGenesis”) 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.
Going concern
These
consolidated
financial
statements
have
been
prepared
on
the
going
concern
basis,
which
presumes
that
the
Company will be
able to continue
its operations
for the foreseeable
and will be
able to realize
its assets and
discharge its
liabilities in the normal course of business for the foreseeable
future.
The Company is
subject to certain
risks and uncertainty
associated with the
achievement of profitable
operations such
as
the successful signing and delivery of contracts and access
to adequate financing.
The Company
has incurred,
in the
last years,
operating losses
and negative
cash flows
from operations,
and as
a result,
the Company has
an accumulated deficit of
$
93,384,858
as at December
31, 2022 ($
61,217,831
as at December
31, 2021).
Furthermore, there have been unexpected delays in the collection of certain accounts receivable from contracts closed in a
prior year. This has
resulted in a
shortfall in cash
flows from operating
activities that would
be used in
funding the Company’s
operations.
As
at
December
31,
2022,
the
Company
has
working
capital
of
$
1,650,709
($
14,006,785
as
at
December
31,
2021)
including cash and
cash equivalents
of $
3,445,649
($
12,202,513
as at December
31, 2021). The
working capital
is net of
an allowance for credit losses amounting to $
5,023,283
($
520,000
as at December 31, 2021) as further described
in notes
9 and 10. The Company’s
business plan is dependent
upon the successful completion
of contracts and also
the receipt of
payments from certain contracts
closed in a prior year and expects
these payments to be made
during fiscal 2023, as well
as
the
achievement
of
profitable
operations
through
the
signing,
completion
and
delivery
of
additional
contracts
or
a
reduction in certain operating expenses. In the absence of this, the Company is dependent upon raising additional funds to
finance operations within
and beyond the next
twelve months. The Company
has been successful
in securing financing in
the past
and has
relied upon
external financing
to fund
its operations,
primarily
through the
issuance of
equity,
debt and
convertible debentures.
The Company
completed a
private placement
in October
2022 for
an amount
of $
1,318,980
and
also
completed
another
private
placement
in
March
2023
for
$
5,000,000
(see
note
33).
While
the
Company
has
been
successful in securing
financing, raising
additional funds
is dependent
on a number
of factors, some
of which
are outside
the Company’s
control, and therefore
there is no
assurance that
it will be
able to do
so in the
future or that
these sources
will
be
available
to
the
Company
or
that
they
will
be
available
on
terms
which
are
acceptable
to
the
Company.
These
conditions indicate
the existence
of a
material uncertainty
that may
cast significant
doubt about
the Company’s
ability to
continue operating as a going concern.
The consolidated financial
statements have
been prepared on
a going concern
basis and do
not include
any adjustments
to the amounts and to classifications of the assets and liabilities that might be necessary should the Company be unable to
achieve its plan and continue in business. If the going concern assumption were not appropriate, adjustments,
which could
be material, would be necessary to the carrying value of assets and liabilities, the reported expenses, and the classification
of items on the consolidated statement of financial position.
3.
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
were approved and
authorized
for issuance by the Board of Directors on March 30, 2023.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
11
(b)
Functional and presentation currency
These consolidated financial
statements are presented
in Canadian dollars,
which is the
functional currency of
PyroGenesis,
Drosrite International
LLC and
Pyro Green-Gas
Inc. The
functional currency
of Airscience
Italia SRL
is the
Euro whereas
the functional currency of Airscience Technologies
Private Limited is the Indian
rupee.
(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)
share-based payment arrangements, which are measured at
fair value on the grant date pursuant to IFRS
2, Share-based Payment; and
(iii)
lease liabilities, which are initially measured at the present
value of minimum lease payments
(d)
Basis of consolidation
For financial reporting purposes, subsidiaries are defined as entities controlled by the Company.
The Company controls an
entity when it
has power over
the investee; it
is exposed to,
or has rights to,
variable returns from
its involvement with
the
entity; and it has the ability to affect those returns through
its power over the entity.
In instances
where the
Company does
not hold
a majority
of the
voting rights,
further analysis
is performed
to determine
whether or not
the Company has
control of the
entity. The Company is deemed to
have control when, according
to the terms
of the shareholder’s and/or other agreements, it makes most of
the decisions affecting relevant activities.
These consolidated
financial
statements
include the
accounts
of PyroGenesis
and
its subsidiaries,
Drosrite
International
LLC and Pyro Green-Gas Inc. and its subsidiaries. Drosrite International LLC is owned by a member of the Company’s 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. and its subsidiaries Airscience Italia SRL and Airscience
Technologies Private Limited were acquired
by the
Company on August
11, 2021 (see note
6). All
transactions and balances
between the Company and its subsidiaries have been eliminated
upon consolidation.
The
accounting
policies
set
out
below
have
been
applied
consistently
in
the
preparation
of
the
consolidated
financial
statements of all years
presented. Finance costs
and changes in fair
value of strategic
investments are excluded
from the
loss from operations in the consolidated statements of
comprehensive loss.
4.
Significant accounting policies
(a)
Business combinations
Business combinations are accounted
for using the
acquisition method. Goodwill is
measured as the
excess of the
fair value
of the consideration transferred over the
net recognized amount of the identifiable
assets acquired and liabilities 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
from
a
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
instrument or as a
provision. Changes in fair values that qualify as measurement period adjustments of preliminary purchase 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
or loss
as
incurred, except for costs associated with the issuance
of debt or equity securities.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
12
(b)
Revenue recognition
Revenue from
contracts
is recognized
for each
performance obligation
either over
a period
of time
or at
a point
in time,
depending on which method reflects the transfer of control of the goods and services underlying the particular performance
obligation.
i)
Long-term contracts
Long-term contracts
involve made-to-order
customized equipment
and machines
and are
generally priced
on a
fixed fee
basis.
Under
these
contracts,
the
equipment
or
machines
are
made
to
a
customer’s
specifications
and
if
a
contract
is
terminated by the customer, the Company
is entitled to the greater of the amounts invoiced at the termination
date and the
reimbursement of the costs
incurred to date of
termination, including a reasonable margin.
Agreements that contain multiple
deliverables require the Company to determine whether they contain separately identifiable performance obligations and to
allocate the consideration received to each performance
obligation.
Revenue
relating
to
long-term
contracts
is
recognized
over
time
based
on
the
measure
of
progress
determined
by
the
Company’s efforts or inputs
towards satisfying the performance obligation
relative to the total expected inputs.
The degree
of completion
is assessed
based on
the
proportion
of
total costs
and/or
hours
incurred
to date,
compared
to
total costs
and/or hours anticipated
to provide the
service under the
entire contract,
excluding the effects
of inputs that
do not depict
performance,
e.g.
uninstalled
materials.
For
long-term
contracts
with
uninstalled
materials,
the
Company
adjusts
the
transaction price and
recognizes revenue on
uninstalled materials to the
extent of those
costs incurred, i.e.
at a zero percent
profit margin, when certain conditions are met.
Estimates are required
to determine anticipated
costs and/or hours
on long-term contracts. A
provision is made
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.
The
Company
accounts
for
modifications as a separate
contract if the modifications
add distinct goods or
services that are priced
commensurate with
stand-alone
selling
prices
or
if
the
remaining
goods
or
services
are
distinct
from
those
already
transferred,
otherwise
modifications are accounted for as part of the original contract.
Costs and
profits in
excess of
billings on
uncompleted contracts
and trade
receivables are
both rights
to consideration
in
exchange for
goods or
services that
the Company
has transferred
to a
customer,
however the
classification
depends on
whether such right is only
conditional on the passage of time
(trade receivables) or if it is
also conditional on something else
(costs and profits
in excess of
billings on uncompleted contracts),
such as the
satisfaction of further performance
obligations
under the contract. Billings in excess of costs and
profits on uncompleted contracts is the cumulative
amount received and
contractually receivable by the Company that 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 and
recognized 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 the consideration
specified in contracts
with customers. The
Company recognizes
revenue at a
point in time
when it transfers
control of the
goods to
the buyer.
This is
generally at
the time
the customer
obtains legal
title to
the product
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. Variable consideration related
to the sale of intellectual property is recognized to the extent that it
is highly probable that a reversal will not occur when the
uncertainty associated with the variable consideration
is subsequently resolved.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
13
(c)
Foreign currency translation
i)
Foreign currency transactions
Revenue and expense transactions in foreign
currencies are translated into the functional
currency of the respective entity
using the
average exchange
rates prevailing
at the
time of
the transaction.
Foreign currency
balances are
translated into
the functional
currency of
the respect
ive entity
at year
end exchange
rates for
monetary items
and at
historical
rates for
non-monetary items. Translation gains
or losses are included in the determination of net loss.
ii)
Foreign operations
The assets and
liabilities of foreign
operations are translated
into Canadian dollars
using exchange rates
prevailing at the
end
of
the
reporting
period.
Revenue
and
expense
items
are
translated
at
the
average
exchange
rates
for
the
period.
Exchange
differences
arising
from
the
translation
process
of
foreign
operations
are
recognized
as
foreign
currency
translation adjustments in other comprehensive income and
accumulated in equity.
(d)
Cash and cash equivalents
Cash and
cash equivalents
are financial
instruments readily
convertible to
a known
amount of
cash and
not subject
to a
significant risk of
changes in fair
value. Cash equivalents
include instruments with
a maturity of
three months or
less from
the date of
acquisition and
instruments with
an original
term longer than
three months if
there is
no significant
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. The
cost
of
inventory
is
based
on
the
first-in,
first-out
principle
and
comprises
all
costs
of
purchases.
Net
realizable
value
is
the
estimated selling price in the ordinary course of business,
less estimated costs of completion and selling costs.
(f)
Income taxes
i)
Current tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from
or paid
to the
taxation authorities.
The tax
rates and
tax laws
used to
compute the
amount are
those that
are enacted
or
substantively enacted by the date of the consolidated statements
of financial position.
iii)
Deferred tax
Deferred tax is provided using the liability method, providing for temporary differences between the tax
bases of assets and
liabilities and their carrying
amounts in the consolidated
financial statements. The
temporary difference
is not provided for
if it arises from the initial recognition
of goodwill or the initial recognition
of an asset or liability in
a transaction other than
a
business combination that at the time of the transaction affects neither accounting
nor taxable profit or loss. The amount of
deferred tax
provided is
based on
the expected
manner of
realization or
settlement of
the carrying
amount of
assets and
liabilities, using tax
rates enacted or
substantively enacted at
the financial position
reporting date and
whose implementation
is expected over the period in which the deferred tax is
realized or recovered. A deferred tax asset is recognized only to the
extent that it is probable that 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 the
entity has a
legally
enforceable right
to offset current
tax assets and
liabilities or
deferred tax assets
and liabilities,
and the respective
assets
and liabilities
relate to
income taxes
levied by
the same
taxation authority
on the
same taxable
entity or
different
taxable
entities which intend to settle the liabilities and assets on a net
basis.
(g)
Earnings (loss) per share
The Company
presents basic
earnings (loss)
per share data
for its common
shares. Basic
loss per share
is computed
by
dividing net earnings
(loss) by the
weighted average
number of common
shares outstanding
during the year.
Diluted loss
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
14
per share is
computed similarly to
basic earnings per
share, except that
the weighted average
number of shares
outstanding
is increased
to include
shares from
the assumed
exercise of
stock options
and share
purchase warrants,
if dilutive.
The
number of additional shares
is calculated by assuming
that outstanding share options and
warrants were exercised and that
the
proceeds
from
such
exercises
were
used
to
acquire
common
shares
at
the
average
market
price
during
the year.
Potential shares from
all outstanding stock
options and share
purchase warrants are excluded
from the calculation of
diluted
loss per share as their inclusion is considered 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
losses
if
applicable. Cost includes expenditures that
are directly attributable to the
acquisition of the asset
and bringing the asset into
operation. Borrowing
costs capitalized
to asset
under development
represents the
interest expense
calculated under
the
effective interest
method and
does not include
any fair value
adjustments of
investments designated
at fair
value through
profit and loss. Government assistance
and investment tax credits related to
the purchase or development of
property and
equipment
are recorded
in reduction
of the
cost.
When major
parts
of an
item of
property
and
equipment
have different
useful lives, they are accounted for separately. Property and equipment are depreciated from the acquisition date
over their
respective useful life.
Depreciation of
an asset under
construction begins
when it is
available for
use, i.e. when
it is in
the
location and condition necessary for it to be capable 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
)
Impairment losses recognized in prior
periods are assessed at each reporting
date as to whether there are
any indications
that the previously recognized losses may no longer exist or may be decreased. An impairment loss is reversed only to the
extent
that
the
asset’s
carrying
amount
does
not
exceed
the
carrying
amount
that
would
have
been
determined,
net
of
depreciation, had no impairment loss been recognized for the
asset in prior years.
Property and equipment are assessed for impairment
whenever there is an indication of impairment.
Depreciation methods, useful lives and residual
values are reviewed at each financial
year end and adjusted prospectively
if appropriate.
(i)
Leases
Under IFRS 16 Leases, at
inception, the Company assesses
whether a contract is, or contains,
a lease based on whether
the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and
a lease liability at the
commencement date of the lease, i.e., the date
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
impairment
losses,
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;
-
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.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
15
Right-of-use assets are
depreciated over the
shorter period of
the lease term
and the useful
life of the underlying
asset. If
a lease transfers ownership
of the underlying asset
or the cost of the
right-of-use asset reflects
that the Company expects
to exercise a purchase option,
the related right-of-use asset is
depreciated over the useful life
of the underlying asset based
on
periods
detailed
above.
The
depreciation
starts
at
the
commencement
date
of
the
lease.
Right-of-use
assets
are
assessed for impairment whenever there is an indication that
the right-of-use assets may be impaired.
Lease liabilities
Lease liabilities are
initially measured at
the present value
of the lease
payments that
are not paid
at the commencement
date over the lease term. The present value of the lease payments is determined
using the lessee’s incremental borrowing
rate at
the commencement date
if the
interest rate implicit
in the
lease is
not readily determinable.
The incremental borrowing
rate is
a function
of the
lessee’s incremental
borrowing rate,
the nature
of the
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 commencement
date, lease
payments generally
include fixed
payments, less
any
lease
incentives
receivable,
variable
lease
payments
that
depend
on
an
index
(e.g.,
based
on
inflation
index)
or
a
specified rate, and payments of
penalties for terminating the lease,
if the lease term
reflects the lessee exercising the
option
to terminate the lease. Lease payments also include amounts expected to be
paid under residual value guarantees and the
exercise price of a purchase option if the Company is reasonably
certain to exercise that option.
Variable
lease payments that
do not depend on
an index or a
specified rate are not
included in the measurement
of lease
liabilities but
instead are
recognized
as expenses
in the
period in
which the
event or
condition that
triggers the
payment
occurs.
After the
commencement date,
the carrying
amount of
lease liabilities
is increased
to reflect
the accretion
of interest
and
reduced to reflect lease payments made.
In addition, the carrying amount of
lease liabilities is remeasured when
there is a
change in future
lease payments arising
from a change
in an index
or specified rate,
if there is a
modification to the
lease
terms and conditions, a change in the estimate of
the amount expected to be payable under 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 to the right-of-use
asset, or in the
profit and
loss statement when the carrying amount of the right-
of-use asset is reduced 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 the measurement
of lease
liabilities and
loss (gain)
related to
lease modifications
are allocated
in the
Company’s
profit and
loss statement
based on their function within the Company,
while interest expense on lease liabilities is presented within
finance costs.
Cash flow classification
Lease payments related
to the principal
portion of the
lease liabilities are
classified as
cash flows from
financing activities
while lease
payments related
to the
interest portion
of the
lease liabilities
are classified
as interest
paid within
cash flows
from
financing
activities.
Lease
incentives
received
are
classified
as
cash
flows
from
investing
activities.
Variable
lease
payments not included in the measurement of lease
liabilities are classified as cash flows from operating activities.
(j)
Government assistance and investment tax credits
Investment
tax
credits
are
comprised
of
scientific
research
and
experimental
development
tax
credits.
Government
assistance and investment
tax credits are
recognized when there
is reasonable assurance
of their recovery
and recorded
as a reduction of the related expense or cost
of the asset acquired, as applicable. Investment
tax credits are subject to the
customary
approvals
by
the
pertinent
tax
authorities.
Adjustments
required,
if
any,
are
reflected
in
the 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.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
16
Identifiable intangible assets
acquired in a
business combination
are recognized separately
from goodwill if
they meet the
definition of an intangible
asset and if their fair
value can be measured
reliably.
The cost of these
intangible assets equals
their acquisition-date fair value.
Subsequent to initial recognition, identifiable intangible assets acquired in a business combination are
recorded at cost less
accumulated
amortization
and
impairment
losses,
if
they
are
amortizable,
otherwise
only
at
cost
net
of
accumulated
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
impairment whenever there
is
an
indication
of
impairment.
Amortization
expense
on
the
intangible
assets
with
finite
lives
is
recognized
in
the
consolidated statements of comprehensive loss.
Research
costs
are
charged
to
comprehensive
loss
in
the year
they
are
incurred,
net
of
related
investment
tax
credits.
Development costs
are charged
to comprehensive
loss in
the year they
are incurred
net of
related investment
tax credits
unless they meet specific criteria related to technical, market and financial feasibility in order to 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
charged
to
comprehensive loss in the year they are
incurred unless they meet specific criteria related to
technical, market and financial
feasibility. Patent costs
include legal and other advisor fees to obtain patents,
and patent application fees.
Amortization
of
the
development
costs
is calculated
on
a straight
-line
basis
over
the
remaining
useful
life
of
the
related
patent
and
begins
when
development
is
complete.
During
the
period
of
development,
the
asset
is
tested
annually
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 individually identified and
separately
recognized.
Goodwill
is carried
at cost
less
accumulated
impairment
losses.
Goodwill
is not
amortized
but
is
tested for impairment
annually or if
there is an indication
of impairment. Impairment
losses recognized for
goodwill cannot
be reversed.
(l)
Impairment testing of goodwill, other intangible assets,
property and equipment and right-of-use assets
The carrying
amounts of
the Company’s
non-financial
assets are
assessed at
each reporting
date to
determine
whether
there is an indication of impairment. If any such indication
exists, then the asset’s recoverable amount
is estimated.
For impairment assessment purposes, assets are
grouped at the lowest levels
for which there are largely independent
cash
inflows (cash
-generating
units).
As
a result,
some
assets
are tested
individually
for impairment
,
and some
are tested
at
cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from
synergies
of
a
related
business
combination
and
represents
the
lowest
level
within
the
Company
at
which
management
monitors
goodwill.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
17
Cash-generating units to which goodwill
has been allocated are tested for
impairment at least annually.
All other individual
assets
or
cash-generating
units
are
tested
for
impairment
whenever
events
or
changes
in
circumstances
indicate
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 fair value
less
costs to sell.
In assessing
value in use,
the estimated
future cash flows
are discounted to
their present value
using a pre-
tax discount
rate that
reflects current
market assessments
of the
time value
of money
and the
risks specific
to the
asset.
For the purposes of testing non-financial assets for
impairment, management has identified
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 consolidated
statements
of comprehensive
loss. Impairment
losses recognized
in respect
of
the CGU are allocated first to reduce the carrying amount of goodwill allocated to the units, and then to reduce the carrying
amounts on a pro-rata basis of the other assets in the
unit.
(m)
Provisions and contingent liabilities
Provisions for legal
disputes, onerous contracts
or other claims
are recognized when
the Company has
a present legal
or
constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from
the Company and amounts can be estimated reliably.
The timing or amount of the outflow may still be uncertain.
Provisions are measured at the estimated
expenditure required to settle the
present obligation, based on the
most reliable
evidence available at the reporting date, including the risks and uncertainties associated with the
present obligation. Where
there
are
a
number
of
similar
obligations,
the
likelihood
that
an
outflow
will
be
required
in
settlement
is
determined
by
considering the class
of obligations as a
whole. Provisions are discounted
to their present values,
where the time value
of
money is material.
No
liability
is
recognized
if
an
outflow
of
economic
resources
as
a
result
of
present
obligations
is
not
probable.
Such
situations are disclosed as contingent liabilities unless
the outflow of resources is remote.
(n)
Employee benefits
Share-based payments
The Company applies a fair
value-based method of accounting to
all share-based payments. Employee
and director stock
options are measured
at their fair
value of each
tranche on the
grant date and
recognized in its
respective vesting period.
Non-employee stock options
are measured when
the services are
rendered by the
consultant at the
fair value of
the services
received if the
fair value can
be measured reliably.
In the case
the fair value
of the services
cannot be measured
reliably,
the services are measured
indirectly using the fair
value of the equity
instruments granted at
grant date. The
cost of stock
options is presented
as share-based
payment expense.
On the
exercise of stock
options, share
capital is
credited for
the
consideration received
and for
the fair
value amounts
previously credited
to contributed
surplus. The
Company 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 have
materially
and
significantly
contributed
to
the
prosperity
and
profits
of
the
Company.
The
significance
of
any
contribution
of
any
employee to the prosperity and profits of the Company for purposes of eligibility in the DPSP is determined by the Board of
Directors of the Company
upon such relevant information
as the Board, in its
sole discretion, 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, is
warranted by the profits
and overall financial
position of the
Company.
During the year,
the Company contributed
$
Nil
to the DPSP
($
Nil
in 2021).
Obligations for contributions
to the DPSP
are recognized as
an employee benefit
expense in the
consolidated statements
of comprehensive loss in the periods during which services
are rendered by employees.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
18
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 a
present
legal or constructive obligation
to pay this amount as
a result of past service
provided by the employee,
and the obligation
can be estimated reliably.
(o)
Equity instruments
Issuance of equity instruments
Incremental
costs
directly
attributable
to
the
issue
of
equity-classified
shares
are
recognized
as
a
deduction
from
the
common
shares
and
warrants,
net
of
any
tax
effects.
Upon
issuance
of
units,
the
Company
uses
the
residual
value
to
allocate the net proceeds between common shares and
warrants.
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,
the
Company
measures
them
at
the
fair
value
of
the
equity
instruments
issued,
unless
that
fair
value
cannot
be
reliably
measured. If the fair
value of the equity
instruments issued cannot
be reliably measured,
then the equity instruments
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
instruments
are
exercised or settled, in which case the amounts are transferred
to common shares or reversed upon forfeiture if not vested.
It also includes the unexercised conversion option at the
maturity of the convertible debentures.
(p)
Financial Instruments
Recognition:
The Company
recognizes a
financial asset
or a
financial liability
when it
becomes a
party to
the contractual
provisions of
the instrument.
Purchases
or
sales
of
financial
assets
that
require
delivery
of
assets
within
the
time
frame
generally
established
by
regulation or
convention in
the marketplace
(regular way
trades) are
recognized on
the trade
date, i.e.,
the date
that the
Company commits to purchase or sell the asset.
Classification
Financial
assets
are
classified
at
amortized
cost,
fair
value
through
profit
or
loss
(“FVTPL”)
or
fair
value
through
other
comprehensive
income
(“FVOCI”)
based
on
the
Company’s
business
model
for
managing
the
financial
assets
and
the
contractual cash flow characteristics of these assets.
Assessment and decision on the business model
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
hold financial
assets in order to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding. The Company
includes in this category cash
and cash equivalents, trade accounts receivable, other receivables,
royalties receivable 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
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
19
(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
or
significantly
reduces a measurement or
recognition inconsistency that would
otherwise arise from
measuring assets or
liabilities or
recognizing the gains and losses on them on different
bases.
The Company includes in this category strategic investments
in equity instruments.
All financial liabilities,
other than
those measured
at fair
value through
profit or
loss, are
included in the
financial liabilities
measured at
amortized cost.
The Company
includes in
this category
bank indebtedness,
accounts payable
and accrued
liabilities and term loans. The balance due on business
combination is measured at FVTPL.
Initial measurement
Financial assets and
liabilities (other than
financial assets at
FVTPL) are measured
initially at
their fair value
plus any directly
attributable incremental costs of acquisition or issue.
Financial assets
and financial
liabilities at
FVTPL are
recorded in
the consolidated
statements
of financial
position at
fair
value. All transaction 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 interest method
less
any
allowance
for
impairment.
Gains
and
losses
are
recognized
in
profit
or
loss
when
the
debt
instruments
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 and financial
liabilities designated at
FVTPL. Gains and
losses are recognized
in profit or
loss when the
liabilities are derecognized,
as
well as through
the amortization
process. Changes
in fair value
of financial liabilities
attributable to changes
in the entity’s
own credit risk are to be presented in other comprehensive
income unless they affect amounts recorded
in income.
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
transaction between
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
an active
market at the reporting date,
the fair value is based
on this price. A financial
instrument is regarded as
quoted in an active
market if
quoted prices
are readily
and regularly
available from
a stock
exchange and
those prices
represent 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
relevant valuation day.
Derecognition
A financial asset is derecognized
where the rights to receive
cash flows from the asset
have expired, or the Company
has
transferred its
rights to receive
cash flows
from the asset.
The Company derecognizes
a financial liability
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
consolidated statements
of financial
position if, and only if, there is a currently enforceable
legal right to offset the recognized amounts
and there is an intention
to settle on a net basis, or to realize the assets and settle
the liabilities simultaneously.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
20
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,
costs and profits in excess of billings on uncompleted
contracts, royalties receivable and deposits.
The trade accounts receivable have no financing component
and have maturities of less than 12 months
at amortized cost
and,
as
such,
the
Company
applies
the
simplified
approach
for
expected
credit
losses
(ECLs)
to
all
its
trade
accounts
receivable. Therefore, the Company recognizes a loss
allowance based on lifetime ECLs at each reporting date.
The Company’s
approach to
ECLs reflects
a probability-weighted
outcome, the
time value
of money
and reasonable
and
supportable
information
that
is
available
without
undue
cost
or
effort
at
the
reporting
date
about
past
events,
current
conditions, and forecasts of future economic conditions.
The Company
uses
the
provision
matrix
as a
practical
expedient
to
measure
ECLs
on
trade
receivables
and
costs
and
profits in excess of billings on uncompleted contracts, based on days past due for
groupings of receivables with similar loss
patterns. Contracts with particular
recovery history are analysed
separately from other accounts.
The loss rates are based
on historical observed loss rates over the expected life of the receivables and are adjusted for forward-looking estimates to
reflect differences between economic conditions
during the period over which the historical data has been collected.
Impairment
losses
are
recognized
in
profit
or
loss
and
reflected
in
an
allowance
account
presented
in
reduction
of
receivables and cost in excess of billings on uncompleted
contracts.
Write-off
The
gross
carrying
amount
of
a
financial
asset
is
written
off
when
the
Company
has
no
reasonable
expectations
of
recovering a financial asset in its entirety or a portion thereof.
Failure to engage and communicate with
the Company on alternative payment arrangements and
failure to make payments
within 90
days, amongst
others, are
considered possible
indicators of
no reasonable
expectation of
recovery of
accounts
receivable.
Effective Interest Method
The
effective
interest
method
is
a
method
of
calculating
the
amortized
cost
of
a
financial
asset/financial
liability
and
of
allocating
interest
income/expense
over
the relevant
period. The
effective
interest
rate is
the
rate
that
exactly
discounts
estimated
future
cash
receipts/payments
(including
all
fees
and
points
paid
or
received
that
form
an
integral
part
of
the
effective
interest
rate,
transaction
costs
and
other
premiums
or
discounts)
through
the
expected
life
of
the
financial
instrument, or (when appropriate) a shorter period, to the net
carrying amount on initial recognition.
(q)
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
material
accounting policy information rather than their significant accounting policies. Additional amendments to IAS 1 are made to
explain how an entity can identify
a material accounting policy.
The amendments are effective
for annual reporting periods
beginning on or after January 1, 2023, with earlier application
permitted.
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
the
guidance in IAS 1 Presentation
of Financial Statements on whether
a liability should be classified
as either current or non-
current
relating
to
the
right
to
defer
settlement
of
the
liability
for
at
least
twelve
months
after
the
reporting
date.
The
amendment is effective
for annual reporting
periods beginning on
or after January 1,
2023, with earlier
application permitted.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
21
iii)
IAS 12
Income Taxes
The IASB released
Deferred Tax
Related to Assets
and Liabilities Arising
from a Single
Transaction (Amendments
to IAS
12). The amendment relates
to the recognition of deferred
tax when an entity
accounts for transactions, such
as leases or
decommissioning obligations, by recognizing both an asset and a liability. The objective of this amendment is to narrow the
initial recognition exemption
in paragraphs 15
and 24 of
IAS 12, so
that it would
not apply to
transactions that give
rise to
both taxable and deductible temporary differences,
to the extent the amounts recognized for the temporary
differences are
the
same.
The
amendment
is
effective
for
annual
reporting
periods
beginning
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
amendments specify
which costs an
entity includes in
determining the cost
of fulfilling a
contract for the
purpose of assessing
whether the contract
is onerous.
Costs
to be
included
comprise
the costs
that
relate directly
to the
contract,
which
includes
both
incremental
costs of fulfilling the contract and an allocation
of other costs that relate directly to
fulfilling the contract. The amendment
is
effective for annual reporting periods beginning
on or after January 1, 2023, with earlier application permitted.
The Company has determined that the adoption of these standards or amendments will not have a significant impact on its
consolidated financial statements as of the date of adoption.
5.
Significant accounting judgments, estimates and assumptions
The preparation of
consolidated financial statements requires management
to make judgments, estimates
and assumptions
based on
currently
available information
that affect
the
reported amounts
of assets,
liabilities and
contingent
assets and
liabilities at the
date of the
consolidated financial
statements and
reported amounts
of revenues and
expenses during the
reporting period.
Estimates and
judgments are
continuously evaluated
and are
based on
management’s
experience and
other factors, including expectations of future events
that are believed to be
reasonable under the circumstances. However,
actual
results
could
differ
from
those
estimated.
By
their
very
nature,
these
estimates
are
subject
to
measurement
uncertainty and the effect of any changes in estimates
on the financial statements of future periods 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
consolidated financial statements.
Critical judgments in applying accounting policies
(a)
Assessment of
whether there
is any
indication that
property and
equipment, right-of-use
assets and
intangible assets
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
assessing whether
there
is any indication that an asset may be impaired.
(b)
Intangible assets
The recognition of development costs as intangible
assets requires judgments to determine whether the
required criteria for
recognition are met including management estimates of future
economic benefits.
(c)
Sale of intellectual property and related royalties
The recognition
of variable
consideration related
to the
sale of
intellectual property
requires management’s
judgments to
determine
whether
it
is
highly
probable
that
a
reversal
will
not
occur
when
the
uncertainty
associated
with
the
variable
consideration is subsequently resolved.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
22
(d)
Investment tax credits receivable
The investment tax credits are estimated
by management based on quantitative
and qualitative analysis and interpretation
of various government programs,
related restrictions, limitations,
definitions, and eligibility
conditions. Uncertainty over
the
eligibility and final assessment by taxation authorities of investment
tax credits requires judgment. Management involves its
technical staff
and external
specialists in
determining if
the expenditures
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 recorded amount of
revenues, costs in excess of billings and billings in excess
of costs and profits on uncompleted contracts.
The determination of anticipated
costs for completing
a contract is based on
estimates that can
be affected by a
variety of
factors,
including
the
cost
of
materials,
labour
and
sub-contractors,
as
well
as
potential
claims
from
customers
and
subcontractors.
As risks and
uncertainties are different for
each project, the
sources of variations between
anticipated costs and actual
costs
incurred will also vary by project. The determination
of estimates is based on the Company’s
business practices as well as
its historical experience. Estimates are reviewed on an ongoing basis. Revisions to accounting estimates 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
the
recognized amount of revenues
and costs and
profits in excess of
billings on uncompleted contracts
and accrued expenses.
Agreements that
contain multiple
deliverables require
the use
of judgment
to determine
whether they
contain separately
identifiable performance obligations and to allocate the consideration
received to each performance obligation.
(f)
Share-based payments
The Company uses the
fair value method
of valuing compensation
cost associated with
the Company’s
stock option plan.
Estimating fair value
requires determining the
most appropriate valuation
model for a grant
of equity instruments,
which is
dependent
on
the
terms
and
conditions
of
the
grant.
This
also
requires
determining
the
most
appropriate
inputs
to
the
valuation model including the
expected life of the option
and volatility.
The assumptions and models
are discussed in note
22.
(g)
Useful lives of property and equipment and intangible
assets
The Company estimates
the useful lives
of property and
equipment and intangible
assets based on
the period over
which
the assets are expected to be available
for use. The estimated useful lives of property and equipment and intangible
assets
are reviewed periodically and are updated
if expectations differ from previous
estimates due to physical wear and tear
and
legal or other
limits on the
use of the
relevant assets. In addition,
the estimation of
the useful lives
of property and
equipment
and intangible assets are based
on management’s experience with similar assets. It
is possible, however, that future results
of
operations
could
be
materially
affected
by
changes
in
the
estimates
brought
about
by
changes
in
factors
mentioned
above. The
amounts and
timing of
recorded expenses
for any
period would
be affected
by changes
in these
factors and
circumstances. Useful lives, depreciation and amortization
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 unit
based on
expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about
future operating results and the determination of a suitable
discount rate (see note 4 (l)).
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
23
(i)
Fair value of strategic investments
Where the fair
values of investments
recorded in the
consolidated statements
of financial position
cannot be derived
from
active markets,
they
are
determined
using
valuation
techniques
including
the
Black-Scholes
model.
The
inputs
to
these
models are taken from observable markets where possible, but where
this is not feasible, a degree of judgment is required
in establishing the fair values. The judgments
include considerations of inputs such as the expected volatility
and the initial
allocation of the consideration paid between the fair value of the common shares and warrants
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
assets and
corresponding lease
liabilities, assumptions
include the
non-cancellable term of the lease
plus periods covered by an
option to renew or purchase
the assets, estimated useful lives
of the related assets, and incremental borrowing
rate. Renewal and purchase options are only
included in the lease term if
management is reasonably certain to renew.
Management considers factors such as market conditions, comparable
rental
rates and similar property values. The
Company is also required to estimate the incremental borrowing
rate specific to each
portfolio of leased assets with similar characteristics
if the interest rate in the lease is not readily
determined. Management
determines the incremental borrowing rate using the base
rate for similar loans plus a risk premium.
(k)
Income taxes
The Company has unused available tax
losses, deductible temporary differences and investment tax
credits. The Company
recognizes deferred income tax assets for these unused tax losses and deductible temporary differences only to the extent
that, in
management’s
opinion, it
is probable
that future
taxable profit
will be
available against
which these
available tax
losses and temporary differences
can be utilized. The Company recognizes
investment tax credits when it
has reasonable
assurance
that
it
has
complied
with
the
conditions
of
the
program
and
that
the
amounts
will
be
realized
(i.e.
that
it
will
generate future federal income taxes
payable against which the tax
credits can be applied). The
Company’s projections of
future taxable profit
involve the use
of significant assumptions
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
income will
prove to
be accurate
predictions
of the
future,
and in
the event
that
our assessment
of the
recoverability of these deferred tax
assets and investment tax credits
changes in the future, a
material increase or reduction
in the carrying value of
these deferred tax assets and
investment tax credits could be required, with
a corresponding charge
to net loss.
(l)
Business combinations
Fair value of assets acquired and liabilities assumed in a
business combination is estimated based on information available
at
the
date
of
acquisition
and
involves
considerable
judgment
in
determining
the
fair
values
assigned
to
the
identifiable
assets acquired and liabilities
assumed on acquisition. Among
other things, the determination
of these fair values involves
the
use
of
discounted
cash
flow
analyses
and
estimated
profit
margins
on
contracts
in
progress.
In
addition,
the
determination of the
contingent consideration due on
the business combination
is based on
the estimations of
the probability
and timing of completing the predetermined milestones
(see note 6);
(m) COVID-19 pandemic
The COVID-19
pandemic continues
to cause
significant financial
market and
social dislocation.
The situation
is dynamic
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, it
had continued
to operate
during the
current
pandemic.
In the
event of
a prolonged
continuation
of the
pandemic,
it is
not clear
what
the potential
impact may be on the Company’s business,
financial position and financial performance.
6.
Business combination
On August 11, 2021, the Company completed the
acquisition of Pyro Green-Gas
Inc. and its
subsidiaries, 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 $
4,355,600
in cash,
subject to customary
post-closing adjustments.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
24
In addition, the Company settled
a pre-existing loan receivable from Pyro
Green-Gas Inc. of approximately $
1,744,000
. The
transaction was executed
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
following
the date of the acquisition. 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 consideration
Consideration 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
1,744,400
5,586,400
Net assets acquired
Current 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 $
3,255,000
, including an allowance for expected credit losses
of $
512,592
.
2
The goodwill of $
2,660,607
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 $
6,800,090
and net
earnings of
$807,395
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 $
101,157
, recognized within
Selling,
General and Administrative expenses in the 2021 consolidated
statements
of comprehensive loss.
The
maximum
purchase
price
consideration
of
$
4,355,600
was
discounted
to
$
3,841,999
,
at
August
11,
2021
and
an
accretion expense of $
173,350
was recognized in Net finance costs in
the consolidated statements of comprehensive
loss
for the year
ended December
31, 2022,
compared to
a recognized
accretion expense
of $
110,204
during the year
ended
December 31, 2021.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
25
7.
Revenues
Revenues by product line:
The company’s revenues are generated primarily
from the following:
2022
2021
$
$
Revenue from contracts with customers by product
line:
High purity metallurgical grade silicon & solar grade silicon from
quartz
(PUREVAP™)
6,272,697
6,138,111
Aluminium and zinc dross recovery (DROSRITE™)
1,912,807
7,940,771
Development and support related to systems supplied to the
U.S. Navy
1,288,356
7,522,809
Torch
-related sales
5,558,210
2,084,511
Biogas upgrading and pollution controls
3,347,443
6,800,090
Other sales and services
633,990
582,058
19,013,503
31,068,350
The following is a summary of the Company’s
revenues by revenue recognition method:
2022
2021
$
$
Revenue from contracts with customers:
Sales of goods under long-term contracts recognized over
time
13,997,163
25,918,594
Sales of goods at a point of time
1,135,498
1,533,910
Other revenue:
Sale of intellectual properties (i)
3,600,000
3,300,000
Royalties
280,842
315,846
19,013,503
31,068,350
See note 32 for sales by geographic area.
(i)
Sale of intellectual properties
During the year, the Company sold
intellectual property to a subsidiary
of a company in
which it holds a
strategic investment
for
a
non-refundable
fee
of
$
3,600,000
.
Under
the
terms
of
the
sale
agreement,
control
of
the
intellectual
property
was
transferred
to
the
purchaser
and
the
Company
has
no
obligation
to
undertake
activities
that
will
significantly
affect
the
intellectual property.
In June 2021, the Company
sold intellectual property to
a subsidiary of a company
in which it holds a strategic
investment
for
a
non-refundable
fee
of
$
3,300,000
.
Under
the
terms
of
the
sale
agreement,
control
of
the
intellectual
property
was
transferred
to
the
purchaser
and
the
Company
has
no
obligation
to
undertake
activities
that
will
significantly
affect
the
intellectual property.
The terms of the agreement also include additional
variable consideration that can be received based
on the
greater of
10
% of
sales made
by the
purchaser,
and royalties
of $
50,000
in 2023,
$
100,000
in 2024,
$
150,000
in
2025, and $
200,000
in 2026 and every year thereafter.
Transaction price
allocated to remaining performance obligations
As
at
December 31,
2022,
revenue
expected
to
be
recognized
in
the
future
related
to
performance
obligations
that
are
unsatisfied (or partially satisfied) at the reporting
date is $
26,741,550
(2021 - $
34,258,148
, excluding a contract which was
terminated in the fall
of 2022). Revenue will
be recognized as the
Company satisfies its performance obligations
under long-
term contracts, which is expected to occur over the
next
3
years.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
26
8.
Cash and cash equivalents
As at
December 31, 2022
and 2021,
there are
no
restrictions on
cash and
cash equivalents.
Cash and
cash equivalents
include the following components:
2022
2021
$
$
Cash
3,445,649
3,568,561
Guaranteed investment certificates
—
8,633,952
Cash and cash equivalents
3,445,649
12,202,513
Guaranteed investment certificates were
instruments issued by Canadian
financial institutions, bore interest at
rates varying
from
0.08
% to
0.86
%, and held to maturity or were redeemed during the
year 2022.
9.
Accounts receivable
Details of accounts receivable based on past due terms
were as follows:
December 31,
December 31,
2022
2021
$
$
Current
6,578,269
1,919,786
1 – 30 days
15,959
32,028
31 – 60 days
57,944
7,006,652
61 – 90 days
718,239
788,330
Greater than 90 days
13,790,716
6,317,239
Holdback receivable
1,536,115
974,878
Total
trade accounts receivable
22,697,242
17,038,913
Allowance for expected credit loss
(4,693,283)
(520,000)
Other receivables
240,560
270,536
Sales tax receivable
380,112
850,167
18,624,631
17,639,616
As
at
December 31,
2022
the
allowance
for
expected
credit
loss
on
trade
accounts
receivable
is
$
4,693,283
(2021
-
$
520,000
), $
543,283
which was included
through the business
combination and only varied
due to foreign
exchange, and
$
4,150,000
recognized during 2022. The
portion recognized during the
year includes $
3,765,000
attributable to one specific
customer, whereby the carrying amount has been
reduced from $
12,810,231
to $
9,045,231
. The carrying value of all other
trade receivables was reduced from $
9,887,011
to $
8,958,728
. On the basis of the Company’s expected
credit loss policy,
the allowance was determined generally by applying a loss rate of
1
% on balances 1-30 days past the invoice date,
2
% for
31-60 days,
3
% for
61-90 days
and a
minimum of
10
% for
those beyond
90 days.
Specific consideration
was applied
for
situations where
the receivable
is a
holdback on
a contract,
and also
for customers
that have
exceeded normal
payment
terms.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
27
The closing balance of the trade
receivables credit loss allowance as at December 31,
reconciles with the trade receivables
credit loss allowance opening balance as follows:
Opening allowance January 1, 2021
—
Business combination
512,592
Foreign exchange
7,408
Loss allowance at December 31, 2021
520,000
Loss recognized during the year
4,150,000
Foreign exchange
23,283
Loss allowance at December 31, 2022
4,693,283
10.
Costs and profits in excess of billings on uncompleted
contracts
As at December 31, 2022, the Company had
eighteen
contracts with total billings of $
10,475,299
which were less than total
costs
incurred
and
had
recognized
cumulative
revenue
of
$
11,856,596
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.
The net amount
of $
1,051,297
as at December
31, 2022 includes
an expected credit
loss allowance of
$
330,000
($
Nil
as
at December 31,
2021). On the basis
of the Company’s expected
credit loss policy, the allowance was
determined generally
by applying a
loss rate of
2
% on all
balances, and
adjusting for
specific situations,
such as
past due customers,
whereby
the loss rate varied from
25
% to
50
%.
Changes in
costs and
profits in
excess of
billings on
uncompleted contracts
during the
year are
explained by
$
4,164,109
(2021 -
$
983,891
)
recognized
at
the
beginning
of
the
year
being
transferred
to
accounts
receivable,
$
622,696
(2021 -
$
4,832,968
) resulting from changes in the measure of progress and the expected credit loss allowance of
$
330,000
($
Nil
in
2021).
11.
Investment tax credits
An amount recognized
in 2022 included
$
169,434
(2021 - $
202,472
) of investment
tax credits
earned in
the year,
as well
as $
Nil
(2021 -
$
706,000
) of
investment tax
credits earned
in prior years
that no
longer met
the criteria
for recognition
in
- $
70,258
(2021 -
$
148,695
) of
the investment
tax credits
recognized in
the year was
recorded against
cost of
sales
and
services,
$
69,176
(2021
-
($
684,709
))
against
research
and
development
expenses
and
$
30,000
(2021 -
$
32,486
)
against selling general and administrative expenses.
Eligible
scientific
research
and
experimental
development
(“SR&ED”)
expenses
for
the
year
amounted
to
$
2,783,450
(2021 – $
2,000,853
) less
investment
tax credits
of ($
169,434
) (2021
– ($
684,709
)), less
government grants
of $
296,043
(2021 – $
149,575
) totalling $
2,317,973
(2021 – $
2,535,987
).
12.
Strategic investments
December 31,
December 31,
2022
2021
$
$
Beauce Gold Fields (“BGF”) shares – level 1
56,419
123,095
HPQ Silicon Inc. (“HPQ”) shares - level 1
5,415,749
12,306,196
HPQ warrants – level 3
770,466
2,472,368
6,242,634
14,901,659
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
28
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
Additions
—
—
6,800,000
3,196,000
6,800,000
408,000
Disposed
—
—
(11,447,500)
(3,922,244)
—
—
Change in the fair value
—
(66,676)
—
(6,164,203)
—
(2,109,902)
Balance, December 31, 2022
1,025,794
56,419
22,105,100
5,415,749
16,394,600
770,466
The Company owns
9.82
% on a
fully diluted basis
of HPQ as
at December 31, 2022 (2021 –
9.64
%) and has
other business
transactions with this entity– see notes 7(i) and 13.
The following table sets out the details and activity of the HPQ
warrants:
Number of
Number of
warrants
warrants
Exercise
Expiry date
Dec 31, 2021
Additions
Exercised
Dec 31, 2022
price ($)
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
April 20, 2024
—
6,800,000
—
6,800,000
0.60
9,594,600
6,800,000
—
16,394,600
2022 Transactions
6,800,000
common shares
and
6,800,000
warrants of
HPQ were purchased
in cash
for an amount
of $
3,604,000
in April
2022.
11,447,500
HPQ
common
shares
were
disposed
for
cash
amounts
totalling
$
3,922,244
resulting
in
a
realized
loss
of
$
225,527
.
2021 Transactions
12,755,600
HPQ
common
shares
were
disposed
for
cash
amounts
totalling
$
14,252,732
resulting
in
a
realized
gain
of
$
9,893,900
.
16,250,000
shares purchase warrants were
exercised in cash for a
total amount of $
2,518,750
. An amount 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
.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
29
At inception, the
fair value of
the HPQ warrants
purchased in
2022 was measured
using the Black-Scholes
option pricing
model using the following assumptions:
Number of warrants
6,800,000
Date of issuance
April 20, 2022
Exercise price ($)
0.60
Assumptions under the Black-Scholes model:
Fair value of the shares ($)
0.47
Risk-free interest rate (%)
2.47
Expected volatility (%)
107.60
Expected dividend yield
–
Contractual remaining life (number of months)
24
As
at
December 31,
2022
and
2021,
the
fair
value
of
the
HPQ
warrants
was
measured
using
the
Black-Scholes
option
pricing model using the following assumptions:
2022
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
April 29, 2020
June 2, 2020
Sept. 3, 2020
April 20, 2022
April 29, 2020
June 2, 2020
Sept. 3, 2020
Exercise price ($)
0.1
0.1
0.61
0.60
0.1
0.1
0.61
Assumptions under the Black-
Scholes model:
Fair value of the shares ($)
0.25
0.25
0.25
0.25
0.46
0.46
0.46
Risk-free interest rate (%)
4.03
4.03
4.03
4.03
1.22
1.22
1.22
Expected volatility (%)
80.55
73.74
76.85
74.58
89.88
94.01
110.47
Expected dividend yield
–
–
–
–
–
–
–
Contractual remaining life (in
months)
4
5
8
16
16
17
20
As at December 31, 2022, a gain from
initial recognition of the warrants of $
280,926
($
510,573
– 2021) has been deferred
off balance sheet until realized.
13.
Royalties receivable
December 31
December 31
2022
2021
$
$
Opening balance
1,258,654
1,060,000
Accretion interest
118,290
132,809
Royalties recognized during the year
450,000
450,000
Discounting
(169,158)
(134,155)
Amounts received during the year
(250,000)
(250,000)
Balance at end of the year
1,407,786
1,258,654
Current portion
455,556
311,111
Non-current portion
952,230
947,543
1,407,786
1,258,654
The Company
sold intellectual
property to
HPQ Silicon
Inc. (“HPQ”)
in 2016
(“HPQ 2016
contract”) and
its wholly
owned
subsidiary,
HPQ Nano
Silicon Powders
Inc. in
2020 (“HPQ
Nano contract”),
and HPQ
Silica Polvere
Inc. (“HPQ
Polvere
contract”) in 2021. 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 variable consideration in
the form of royalty payments:
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
30
HPQ 2016 contract:
Royalties
are
10
%
of
net
sales,
with
minimum
payments
of
$
200,000
in
2021
and
$
250,000
in
2022
and
every year
thereafter.
Payment is
due no later
than 30 days
after the year
end of HPQ
Silicon Inc. An
amount of
$
250,000
has been
received under this agreement in 2022 ($
200,000
was received in 2021).
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
HPQ Nano Silicon
Powders Inc. An amount of $
Nil
has been received under this agreement in 2022
($
50,000
was received 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, 2022,
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.
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.
The Company
only recognizes
variable consideration,
including minimum
royalties, arising
from these
agreements in
the
period(s)
when
it
is
highly
probable
that
a
reversal
will
not
occur
when
the
uncertainty
associated
with
the
variable
consideration
is
subsequently
resolved.
Minimum
royalties
are
recognized
for
the
period
the
Company
evaluates
the
collectability of the minimum royalties is probable, which
the Company has estimated over four years.
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.
14.
Deposits
December 31
December 31
2022
2021
$
$
Current portion:
Suppliers
392,309
1,236,211
Security deposit on leased premises
40,241
92,241
Total
current
432,550
1,328,452
Non-current portion:
Suppliers
7,250
1,952
Security deposit on leased premises
38,803
246,804
Total
non-current
46,053
248,756
Total
deposits
478,603
1,577,208
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
31
- Property and equipment
Machinery
Equipment
Computer
and
Leasehold
under
equipment
equipment
Automobiles
improvements
construction
Total
$
$
$
$
$
$
Cost
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
Additions
(1)
164,059
(89,085)
—
209,435
—
284,409
Assets under construction put
in service
—
1,065,672
—
958,705
(2,024,377)
—
Balance at December 31, 2022
973,287
3,011,545
336,659
2,101,245
—
6,422,736
Accumulated depreciation
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
Depreciation
146,550
297,021
57,543
102,780
—
603,894
Balance at December 31, 2022
744,072
1,921,402
139,250
224,560
—
3,029,284
Carrying amounts
Balance at December 31, 2021
211,706
410,577
254,952
811,325
2,024,377
3,712,937
Balance at December 31, 2022
229,215
1,090,143
197,409
1,876,685
—
3,393,452
(1)
The adjustment to
additions to Machinery
and Equipment of
$
89,085
, relates to
the discounting of
the non-interest-bearing
loan from the Economic Development Agency of Canada,
representing government assistance (see note 21).
Equipment under
construction included
the leasehold
improvements of
a clean room
and the costs
related to
building the
new Plasma Powder Production equipment which have been
put in service during the year ended December
31, 2022.
- Leases
The Company has entered into lease contracts mainly for buildings
and computer equipment, which expire at various dates
through
the
year
2036.
Some
leases
have extension
or purchase
options
for various
terms.
The
lease
contracts
do not
impose any financial covenants.
On January 1, 2022, a lease for rent
of a property with a trust whose
beneficiary is the controlling shareholder
and CEO of
the
Company,
was
modified
to
extend
the
lease
term
until
December
2026.
The
lessor
also
reimbursed
an
amount
of
$
1,070,264
representing the balance at
the date of modification
of the original prepayment
amount of $
1,178,530
made in
- At
the date
of modification,
the
lease
liability was
remeasured
using
a discount
rate
of
4
%. As
a result,
the
lease
liability was increased by an amount of $
1,070,264
and the right-of-use assets was decreased by an amount
of $
108,267
.
On September
1, 2022,
a lease
of a
property was
modified to
extend the
term, to
postpone the
exercise of
the purchase
option of the property,
and to factor a
deposit of $
275,000
required to exercise
the purchase option.
As a result, the
lease
liability was remeasured using a discount rate of
8.6
% and the lease liability and the right-of-use assets were decreased by
$
203,154
.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
32
a) Right-of-use assets
Land and
Computer
building
equipment
Total
$
$
$
Balance at January 1, 2021
3,688,315
12,685
3,701,000
Additions - business combination
477,608
—
477,608
Additions
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
Modification of lease agreements
(311,421)
—
(311,421)
Depreciation
(631,600)
(4,228)
(635,828)
Balance at December 31, 2022
4,814,516
4,229
4,818,744
b) The table below summarizes changes to the lease liabilities:
$
Balance at January 1, 2021
2,988,542
Addition - business acquisition
477,608
Additions - other
2,120,893
Payments
(263,078)
Balance at December 31, 2021
5,323,965
Modification of lease agreements
867,110
Payments
(657,381)
Balance at December 31, 2022
5,533,694
Current portion
2,934,236
Non-current portion
2,389,729
Balance at December 31, 2021
5,323,965
Current portion
2,672,212
Non-current portion
2,861,482
Balance at December 31, 2022
5,533,694
c) Amount recognized in the consolidated statements of comprehensive
loss:
2022
2021
$
$
Depreciation of right-of-use assets
635,828
570,411
Interest on lease liabilities
378,611
307,691
Expense related to lease payments excluded in the measurement
of lease
liabilities
243,209
178,707
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
33
d) Maturity analysis – contractual undiscounted cash flows
of lease liabilities as at December 31, 2022
$
2023
2,984,243
2024
592,719
2025
572,562
2026
474,484
2027
229,332
Thereafter
1,891,989
6,745,329
- Intangible assets
Production
Development
backlog
Patents
costs
Total
$
$
$
$
Cost
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
Additions
—
208,680
—
208,680
Balance at December 31, 2022
2,120,000
1,106,025
244,871
3,470,896
Accumulated amortization
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
Amortization
848,000
13,522
16,508
878,030
Balance at December 31, 2022
1,201,333
82,175
82,540
1,366,048
Carrying amounts
Balance at December 31, 2021
1,766,667
828,692
178,839
2,774,198
Balance at December 31, 2022
918,667
1,023,850
162,331
2,104,848
The Company’s development costs have been incurred to develop plasma-related technologies and the patents protect the
design and specification of these technologies.
- Goodwill
The
Company
tests
goodwill
for
impairment
annually,
or
more
frequently
when
an
indicator
of
impairment
is
identified.
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 a
detailed
five-year forecast, followed
by an
extrapolation of expected
cash flows for
the remaining useful
lives using a
declining growth
rate determined by management. The present value of the expected
cash flows of the operating segment is determined by
applying a suitable discount rate reflecting current market assessments of the time value of money and risks specific to the
segment.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
34
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,
2022
and
2021,
it
was
determined
that
the
recoverable
amounts
exceed
the
carrying
amount,
and
no
impairment was required.
The recoverable
amount in the
most recent
impairment test
performed was
determined using
a
pre-tax discount rate of
12.5
% and terminal growth rate of
2
% (2021 - pre-tax discount rate of
8
% and terminal growth rate
of
2
%).
- Accounts payable and accrued liabilities
December 31
December 31
2022
2021
$
$
Accounts payable
6,065,996
5,457,259
Accrued liabilities
2,891,053
3,730,048
Sale commissions payable
1
904,724
737,364
Accounts payable to the controlling shareholder and CEO
254,097
144,506
10,115,870
10,069,177
1
Sale commissions payable relate to the costs to obtain long-term
contracts with clients.
- 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 $
37,374,909
(2021 - $
21,834,137
).
Payments to date received were $
47,045,902
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 $
2,416,229
(2021 - $
6,268,910
) recognized at
the beginning of
the year being recognized
as revenue, and
an increase of
$
2,686,991
(2021 - $
9,076,169
) resulting from cash received excluding amounts
recognized as revenue.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
35
- Term
loans
Economic
Development Agency
Other Term
Other Term
Canada
Emergency Business
of Canada Loan
1
Loans
2
Loans
3
Account Loan
4
Total
$
$
$
$
$
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
Additions
292,941
292,941
Discounting
(89,085)
—
—
—
(89,085)
Accretion
28,229
—
—
—
28,229
Payments
—
(13,083)
(19,920)
—
(33,003)
Balance, December 31, 2022
320,070
11,617
8,300
50,000
389,987
Less current portion
—
(11,617)
(8,300)
(50,000)
(69,917)
Balance, December 31, 2022
320,070
—
—
—
320,070
1
maturing in 2029, non-interest bearing, payable
in equal instalments from April 2024 to March 2029.
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 $
10,795
as at December 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
Economic Development Agency of Canada Loan
On
March 5,
2020,
the
Company
entered
into
a
repayable
contribution
agreement
up
to
$
450,000
under
the
Regional
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 the
completion of
the project.
During
the year
ended
December 31,
2022,
the
Company
received
contributions
totalling
$
292,941
.
The
loan
was
discounted using the effective
interest method using a
rate of
8
% as it is non-interest
bearing. The difference
between the
discounted
amount
and
the
proceeds
received
of $
89,085
represents
government
assistance
and
is accounted
for as
a
reduction of the property and equipment.
Canada Emergency Business Account ("CEBA") Loan
The Company's
subsidiary participated
in the
CEBA program
whereby it
obtained an
interest free
and partially
forgivable
loan. The loan
bears
no
interest and
no
minimum repayment
terms, and
one third of
the loan
amount is forgiven
if repaid
by December 31,
- The
unpaid balance,
if any,
at December 31,
2023 would
be converted
to a
24
-month term
loan
bearing interest at
5
% and be reimbursed entirely by December 31, 2025.
- Shareholders’ equity
Common shares and warrants
Authorized:
The Company is authorized to issue an unlimited number
of common shares without par value.
Issuance of units
On October 19,
2022, the
Company completed
a non-brokered
private placement
consisting of
1,014,600
units at
a price
of $
1.30
per unit for
aggregate gross proceeds to
the Company of $
1,318,980
. Each unit
is comprised of
one
common share
of the Company
and
one
common share
purchase warrant
of the
company.
Each warrant
entitles the
holder to
purchase
one additional common
share at an
exercise price of
$
1.75
for a period
of
24 months
. The Company
allocated an amount
of $
1,095,780
to share
capital representing
the fair
value of
the shares
on October
19, 2022,
of $
1.08
per share
and the
residual amount of $
223,200
to warrants.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
36
Shares issued upon exercise of stock options, share
purchase warrants and compensation options
During the year
ended December 31,
2022,
2,440,000
(
3,482,000
- 2021)
stock options
and Nil
(
8,146,483
- 2021)
share
purchase
warrants
were
exercised
for
net
proceeds
of
$
1,412,799
and
$
Nil
($
1,109,818
and
$
12,396,107
–
2021)
respectively.
The
amounts
credited
to
share
capital
from
the
exercise
of
stock
options
include
an
ascribed
value
from
contributed surplus of $
870,558
($
364,000
– 2021). In addition, in
2021,
191,414
compensation options relating to a bought
deal in 2020, were exercised for net proceeds of $
689,090
.
Share redemptions for cancellation
In January
2021, the
Company announced
it had
been authorized
to repurchase
for cancellation,
on the
open market,
or
subject to the
approval of any
securities authority by
private agreements,
5,000,000
common shares from
January 14, 2021,
to January
13,
- In
February
2022, the
Company
announced
it had
been authorized
to repurchase
7,500,000
of its
common shares from February 15, 2022, to February 14, 2023.
During the year 2022, the
Company did
no
t repurchase any common shares for
purpose of cancellation. The Company was
under no obligation to repurchase its common shares as
at December 31, 2022.
During the year
2021, the
Company repurchased
and cancelled
840,094
Common shares
at a weighted
average price
of
$
4.96
per share,
for a
total cash
consideration of
$
4,183,617
including commissions
of $
16,678
. The
excess of
the total
consideration over the carrying 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
no obligation 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
and consultants to acquire common shares of the Company at a price computed by reference
to the closing market price of
the shares of the
Company on the business day
before the Company notifies the
stock exchanges of the grant
of the option.
The number
of shares
which may
be granted
to any
one person
shall not
exceed
5
% (
2
% for
consultants) of
total share
capital over a twelve-month period.
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
(1)
(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
Exercised
(1)
(2,440,000)
0.58
Forfeited
(242,500)
4.07
Balance, December 31, 2022
8,195,500
3.96
(1)
The weighted fair market value of the share price for
options exercised in 2022 was $
1.44
($
5.48
in 2021).
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
37
Grants in 2022
On
January 3,
2022,
the
Company
granted
150,000
stock
options
to
the
President
and
Chief
Executive
Officer
of
the
Company,
and
300,000
stock options
to members
of its
Board of
Directors. The
stock options
have an
exercise price
of
$
3.36
per common share, vest immediately and are exercisable
over a period of five (
5
) years.
On April 5,
2022, the
Company granted
400,000
stock options
to employees
of the Company.
The stock
options have
an
exercise price of $
2.96
per common share. The
400,000
options will vest as follows:
10
percent as of the day
of the grant,
20
percent at
the first
anniversary of
the date
of the
grant,
30
percent on
the second
anniversary of
the date
of the
grant
and
40
percent on the third anniversary of the date of the grant. All
options mentioned above are exercisable over a period
of five (
5
) years.
On June 2, 2022,
the Company granted
600,000
stock options to
the President and
Chief Executive Officer of
the Company,
and
900,000
stock options to members
of its Board of
Directors. The
1,500,000
options will vest
as follows:
25
percent as
of the day of the grant,
25
percent at the first anniversary of the
date of the grant,
25
percent on the second anniversary of
the date
of the grant
and
25
percent at
the third
anniversary of
the date
of the grant.
The stock
options have
an exercise
price of $
3.88
per common share and are exercisable over a period of five (
5
) years.
On July 3,
2022, the
Company granted
125,000
stock options
to employees
of the
Company.
The stock
options have
an
exercise price of $
2.14
per common share. The
125,000
options will vest as follows:
10
percent as of the day
of the grant,
20
percent at
the first
anniversary of
the date
of the
grant,
30
percent on
the second
anniversary of
the date
of the
grant
and
40
percent on the third anniversary of the date of the grant. All
options mentioned above are exercisable over a period
of five (
5
) years.
Subsequent to
year end, the
Company granted
150,000
stock options
to the President
and Chief
Executive Officer
of the
Company,
and
500,000
stock options
to members
of its
Board of
Directors. The
stock options
have an
exercise price
of
$
1.03
per common
share, vest
immediately and
are exercisable
over a period
of five
(
5
) years.
The Company
accounted
for an expense amounting to $
453,204
related to these options as the stock options granted related to the services in 2022
and there was a shared understanding of the terms and
conditions related to such grant prior to the grant
date.
The Company also granted
975,000
stock options to employees of the Company. The stock options have an exercise price
of $
1.03
per common share.
The
975,000
options will vest
as follows:
10
percent as of
the day of
the grant,
20
percent at
the first anniversary of the
date of the grant,
30
percent on the second
anniversary of the date
of the grant and
40
percent
on the third anniversary of the date
of the grant. All options mentioned above
are exercisable over a period of five (
5
) years.
There was no expense accounted for in 2022 relating to
these stock options.
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 have an 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 the
Company. The stock options have an exercise
price of $
3.13
per common share, vest
immediately and are exercisable over
a period 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
options have 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
40
percent 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
exercise price 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
first anniversary of
the date of
grant,
25
percent at the
second anniversary of the
date of grant,
and
25
percent
at the third anniversary of the date of grant and are exercisable
over a period of five (
5
) years.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
38
On June 1,
2021, the
Company granted
200,000
stock options
to a
member of
its Board
of Directors.
The stock
options
have an exercise price of
$
6.59
per common share. The
200,000
options will vest as follows:
25
percent at the date of
the
grant,
25
percent at the first anniversary of the date of grant,
25
percent at the second anniversary of the date of grant, and
25
percent at the third anniversary 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,
100,000
and
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,
200,000
options 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
35
percent on the
second anniversary of the
date of the
grant and the
remaining
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
40
percent at the third anniversary
of the date of the grant.
All options mentioned above are exercisable over a period of
five (
5
) years.
The weighted average fair value of stock options granted
for the year ended December 31, 2022 was $
2.37
($
2.99
in 2021)
and $
2.02
per option for stock options granted subsequent to the year end. The weighted average fair value of each option
granted was
estimated at
the grant
date for
purposes of determining
share-based payment expense
using the Black-Scholes
option pricing model based on the following weighted-average
assumptions:
Years ended December 31,
2022
2021
Number of options granted or recognized
2,475,000
650,000
2,970,000
Exercise price ($)
3.55
3.02
4.55
Fair value of each option under the Black-Scholes pricing
model
($)
2.37
2.02
2.99
Assumptions under the Black-Scholes model:
Fair value of the shares ($)
3.54
3.02
4.52
Risk-free interest rate (%)
2.43
3.38
1.11
Expected volatility (%)
83.17
83.15
83.00
Expected dividend yield
—
—
—
Expected life (number of months)
60
60
60
The underlying expected volatility was determined by reference to historical
data of the Company’s share price. No special
features inherent to the stock options granted were incorporated
into the measurement of fair value.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
39
As at December 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 as follows:
Number of
Number of
Number of
stock
stock
stock
Exercise
options
options
options
price
Dec 31, 2021
Granted
Exercised
Forfeitures
Dec 31, 2022
vested (1)
per option
Expiry date
$
November 3, 2017
2,400,000
—
(2,400,000)
—
—
—
0.58
November 3, 2022
July 3, 2018
300,000
—
—
—
300,000
300,000
0.51
July 3, 2023
October 29, 2018
40,000
—
(40,000)
—
—
—
0.52
October 29, 2023
September 29, 2019
100,000
—
—
—
100,000
100,000
0.51
September 29, 2024
January 2, 2020
100,000
—
—
—
100,000
100,000
0.45
January 2, 2025
July 16, 2020
2,243,000
—
—
(42,500)
2,200,500
1,775,500
4.41
July 16, 2025
October 26, 2020
250,000
—
—
(200,000)
50,000
37,500
4.00
October 26, 2025
April 6, 2021
550,000
—
—
—
550,000
410,000
8.47
April 6, 2026
June 1, 2021
200,000
—
—
—
200,000
100,000
6.59
June 1, 2026
June 14, 2021
100,000
—
—
—
100,000
50,000
6.70
June 14, 2026
October 14, 2021
100,000
—
—
—
100,000
30,000
5.04
October 14, 2026
December 17, 2021
1,920,000
—
—
—
1,920,000
1,920,000
3.13
December 17, 2026
December 30, 2021
100,000
—
—
—
100,000
30,000
3.61
December 30, 2026
January 3, 2022
—
450,000
—
—
450,000
450,000
3.36
January 3, 2027
April 5, 2022
—
400,000
—
—
400,000
40,000
2.96
April 5, 2027
June 2, 2022
—
1,500,000
—
—
1,500,000
375,000
3.88
June 2, 2027
July 13, 2022
—
125,000
—
—
125,000
12,500
2.14
July 13, 2027
8,403,000
2,475,000
(2,440,000)
(242,500)
8,195,500
5,730,500
3.96
(1)
At December 31, 2022, the weighted average exercise
price for options outstanding which are exercisable was
$
3.96
.
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 as follows:
Number of
Number of
Number of
stock
stock
stock
Exercise
options
options
options
price
Dec 31, 2020
Granted
Exercised
Forfeitures
Dec 31, 2021
vested
per option
Expiry date
$
November 3, 2017
2,420,000
—
(20,000)
—
2,400,000
2,400,000
0.58
November 3, 2022
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
October 29, 2023
September 29, 2019
200,000
—
(100,000)
—
100,000
100,000
0.51
September 29, 2024
January 2, 2020
100,000
—
—
—
100,000
100,000
0.45
January 2, 2025
July 16, 2020
2,450,000
—
(82,000)
(125,000)
2,243,000
1,775,500
4.41
July 16, 2025
October 26, 2020
250,000
—
—
—
250,000
125,000
4.00
October 26, 2025
April 6, 2021
—
550,000
—
—
550,000
320,000
8.47
April 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
October 14, 2026
December 17, 2021
—
1,920,000
—
—
1,920,000
1,920,000
3.13
December 17, 2026
December 30, 2021
—
100,000
—
—
100,000
100,000
3.61
December 30, 2026
9,040,000
2,970,000
(3,482,000)
(125,000)
8,403,000
7,265,500
3.10
For
the year
ended
December 31,
2022,
a
share-based
compensation
expense
of
$
5,538,463
(2021
-
$
9,762,745
)
was
recorded in Selling, general and administrative expenses
to the consolidated statements of comprehensive
loss.
As at December 31,
2022, an amount
of $
3,184,866
(2021 - $
2,719,354
) remains to
be amortized until
October 2025 related
to the grant of stock options.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
40
Share purchase warrants
The following
table reflects
the activity
in warrants
during the year
ended December 31,
2022, and
the number
of issued
and outstanding share purchase warrants at December
31, 2022:
Number of
Number of
warrants
warrants
Exercise
Dec 31,
Dec 31,
price per
2021
Issued
Exercised
Expired
2022
warrant
Expiry date
Issuance of units – October 19, 2022
—
1,014,600
—
—
1,014,600
1.75
Oct 19, 2024
—
1,014,600
—
—
1,014,600
1.75
The following
table reflects
the activity
in warrants
during the year
ended December 31,
2021, and
the number
of issued
and outstanding share purchase warrants at December
31, 2021:
Number of
Number of
warrants
warrants
Exercise
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
January 28, 2021
Issuance of units – October 19, 2018
100,000
—
(100,000)
—
—
0.58
February 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
June 19, 2021
Issuance of units – October 25, 2019
225,000
—
(225,000)
—
—
0.75
October 25, 2021
Issuance of units – November 10, 2020
1,677,275
—
(1,672,000)
(5,275)
—
4.5
November 10, 2022
Issuance of warrants – November 10, 2020
—
—
(95,707)
—
—
4.5
November 10, 2022
8,056,051
—
(8,146,483)
(5,275)
—
- Supplemental disclosure of
cash flow information
2022
2021
$
$
Accounts receivable
(985,015)
(12,372,139)
Costs and profits in excess of billings on uncompleted
contracts
3,871,413
(3,849,077)
Inventory
(988,821)
(839,352)
Investment tax credits receivable
(19,891)
1,015,862
Royalties receivable
(30,842)
(65,845)
Deposits
2,277,136
145,379
Contract assets
(562,809)
—
Prepaid expenses
(53,942)
39,111
Accounts payable and accrued liabilities
346,003
1,953,208
Billings in excess of costs and profits on uncompleted contracts
270,762
1,485,969
Income taxes
267,414
(99,072)
4,391,408
(12,585,956)
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
41
- Supplemental disclosure on
comprehensive income statement
The amount
of
inventories
recognized
in cost
of sales
is $
844,304
for the
year
ended December
31,
2022 ($
326,279
in
2021).
The aggregate amortization
and write-off of
intangible assets expense
for the
year ended December 31, 2022
was $
878,030
(2021 - $
465,913
) and was recorded in cost of sales and services.
Depreciation
on
property
and
equipment
amounted
to
$
603,894
and
ROU
assets
was
$
635,828
for
the year
ended
December 31, 2022, as
compared to (2021 -
$
356,103
and $
570,411
respectively) and is
recorded in selling,
general and
administrative.
Employee
benefits
totaled
$
18,115,284
in
the year
ended
December 31,
2022
(2021 -
$
21,855,957
)
and
include
share-
based compensation of $
5,538,463
(2021 - $
9,762,745
).
The Company
has been
awarded various
government grants
during the year,
which were
recognized when
they became
receivable. The
grants, received
in 2022,
are unconditional
and amounted
to $
204,791
(2021 - $
226,420
). An
amount of
$
Nil
(2021 - $
149,575
) was
recorded as
a reduction
to the
related expenses
in research
and development,
an amount
of
$
204,791
(2021 - $
76,845
) was recorded as a reduction to the related expenses
in selling, general and administrative.
- Net finance costs
2022
2021
$
$
Financial expenses
Interest on term loans
3,198
87,775
Interest on lease liabilities
378,611
307,691
Interest accretion on balance due on business combination
173,350
110,204
Interest accretion on long term loans
28,229
12,185
Penalties and other interest expenses
85,644
19,324
669,032
537,179
Financial income
Interest accretion on royalty receivable
(118,290)
(132,809)
Net finance costs
550,742
404,370
- Loss per share
The
following
table
provides
a
reconciliation
between
the
number
of
basic
and
fully
diluted
shares
outstanding
as
at
December 31, 2022 and 2021:
2022
2021
$
$
Weighted daily average of Common shares
170,953,374
166,645,546
Dilutive effect of stock options
—
—
Dilutive effect of warrants
—
—
Weighted average number of diluted shares
170,953,374
166,645,546
Number of anti-dilutive stock options and warrants excluded
from fully diluted loss
per share calculation
6,745,100
8,403,000
- Related party transactions
During
the years
ended
December 31,
2022
and
2021,
the
Company
concluded
the
following
transactions
with
related
parties:
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
42
In 2022, rent
and property taxes
were charged by
a trust whose beneficiary
is the controlling
shareholder and CEO
of the
Company
in the
amount
of
$
277,389
(2021
- $
274,934
). On
January
1, 2022,
a
lease for
rent of
a property
with a
trust
whose beneficiary
is the
controlling
shareholder
and
CEO of
the
Company,
was
modified to
extend
the
lease
term until
December 2026. The lessor also reimbursed an amount of $
1,070,264
representing the balance at the date of modification
of
the
original
prepayment
amount
of
$
1,178,530
made
in
2020.
At
the
date
of
modification,
the
lease
liability
was
remeasured using a discount rate of
4
%. As a result, the lease liability
was increased by an amount of $
1,070,264
and the
right-of-use assets was decreased by an amount of $
108,267
.
These
expenses
are
recorded
in
captions
cost
of
sales
and
selling
and
general
in
the
consolidated
statements
of
comprehensive
loss.
As
at
December 31,
2022
the
right-of-use
asset
and
the
lease
liabilities
amount
to
$
680,980
and
$
799,090
respectively (2021 - $
1,107,131
and $
Nil
).
A balance due
to the controlling
shareholder and CEO of
the Company amounted to
$
254,097
(2021 - $
144,506
) is included
in accounts payable and accrued liabilities.
The key management personnel
of the Company,
in accordance with IAS
24 Related Party Disclosures,
are the members
of the Board of Directors and certain officers. Total
compensation to key management consisted of the following:
2022
2021
$
$
Salaries – key management
1,204,306
3,049,501
Pension contributions
22,479
59,377
Fees – Board of Directors
157,900
187,600
Share-based compensation – officers
2,017,348
6,182,573
Share-based compensation – Board of Directors
2,293,167
2,338,650
Other benefits – key management
244,621
237,903
Total
compensation
5,939,821
12,055,604
- 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 December 31, the Company's exposure
to foreign exchange risk for
amounts denominated in US dollars is
as follows:
2022
2021
$
$
Cash
2,871,062
1,714,670
Accounts receivable
13,537,912
14,465,011
Accounts payable and accrued liabilities
(1,713,717)
(1,023,999)
Total
14,695,257
15,155,682
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.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
43
Sensitivity analysis
At December 31, 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
year
ended
December 31,
2022
would
have
been
$
1,470,000
(December 31, 2021 - $
1,516,000
).
Credit concentration
During the year
ended December 31,
2022,
two
customers accounted
for
52
% (December 31,
2021 –
four
customers for
79
%) of revenues from operations.
2022
2021
% of total
% of total
Revenues
revenues
Revenues
revenues
$
%
$
%
Customer 1
5,598,653
29
7,308,191
24
Customer 2
4,314,225
23
7,019,953
23
Customer 3
—
—
6,417,373
21
Customer 4
—
—
3,551,900
11
Total
9,912,878
52
24,297,417
79
Three
customers accounted
for
56
%,
16
% and
11
%, respectively
(December 31, 2021
–
one
customer for
73
%) of
trade
accounts receivable with
amounts owing to
the Company of
$
18,894,727
(2021 - $
12,063,636
), representing the
Company's
major
credit
risk
exposure.
Credit
concentration
is
determined
based
on
customers
representing
10
%
or
more
of
total
revenues and/or total accounts receivable.
Credit risk
Credit
risk
is
the
risk
that
one
party
to
a
financial
instrument
will
cause
a
financial
loss
for
the
other
party
by
failing
to
discharge an obligation.
The maximum credit
risk to which
the Company is
exposed as at
December 31, 2022
represents
the carrying amount
of cash
and cash equivalents,
accounts receivable
(except sales
tax receivable),
costs and
profits in
excess of billings on uncompleted contracts, 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.
Management has established
a credit policy
under which each
new customer
is analysed individually
for creditworthiness
before
the
Company’s
payment
and
delivery
terms
and
conditions
are
offered.
The
Company’s
review
could
include
reviewing external ratings, if they are available,
financial statements, credit agency information,
industry information and in
some cases bank
references. The Company’s
exposure to credit
risk is mainly
influenced by the
individual characteristics
of each customer. In monitoring customer
credit risk, customers are
identified according to their
characteristics such as their
geographic location, industry,
trading history with the Company and existence of previous
financial difficulties.
The Company does not generally
require collateral or other security
from customers on accounts
receivable,
however, the
contract terms may include the
possibility of recourse in the
event of late payment.
The Company believes that
there is
no
unusual exposure associated with the collection of these
receivables.
The credit risk associated with costs and profits in excess of billings on uncompleted contracts is similar to that of accounts
receivable, as these amounts are accumulated and converted to
accounts receivable as invoicing milestones are reached.
The royalties receivable
are due from
a company in
which the Company
has a strategic
investments. The Company
does
not have
collateral or
other security
associated with
the collection
of this
receivable. The
carrying amount
of the
royalties
receivable have been discounted to reflect the time value
of money and credit risk of the counterparty.
The deposits are
payments made
to suppliers
and entities from
which the Company
leases property.
The Company
does
not have collateral
or other security
associated with
the collection
of these deposits.
As at December
31, 2022 and
2021,
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
44
no loss
allowance has been
recognized in
connection with these
deposits and
the maximum exposure
is the
carrying amount
of these deposits.
During the
years 2022
and 2021,
provisions for
expected credit
losses were
recorded, however,
no
amounts
of financial
assets have been written off. The accounts provisioned by
the loss are still subject to
enforcement activity in order to collect
the balances due.
Interest rate risk
Interest rate risk is the risk that the
value of a financial instrument might be adversely affected by a change in interest rates.
Changes in market interest rates may have an effect on
the cash flows associated with some financial assets and liabilities,
known as cash flow
risk, and on the
fair value of other
financial assets or liabilities, known as
price risk, and on the
fair value
of investments
or liabilities,
known as
price risks.
The Company
is exposed
to a
risk of
fair value
on term
loans as
those
financial instruments bear
interest at
fixed rates
and to
cash flow
risk from
the variable
interest rate
of the
bank indebtedness.
Price risk
Price risk
is the
risk that
the fair
value or
future cash
flows of
a financial
instrument will
fluctuate because
of changes
in
market price (other
than those arising
from foreign
currency risk
and interest risk),
whether those
changes are
caused by
factors specific to the individual financial instrument or its issuers or factors affecting
all similar financial instruments traded
in the
market. The
most significant
exposure to
the price
risk for
the Company
arises from
its investments
in shares
and
warrants of public
companies quoted
on the TSX
Venture Exchange.
If equity prices
had increased or
decreased by
25
%
as
at
December 31,
2022,
with
all
other
variables
held
constant,
the
Company’s
investments
would
have
increased
or
decreased respectively,
by approximately $
1,841,484
(December 31, 2021 - $
4,042,000
).
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 as
at December 31, 2022:
Total
Carrying
contractual
Less than
value
amount
one year
2-3 years
4-5 years
Over 5 years
$
$
$
$
$
$
Bank indebtedness
991,902
991,902
991,902
—
—
—
Accounts payable and accrued
liabilities
1
9,620,591
9,620,591
9,620,591
—
—
—
Term
loans
389,987
520,444
59,917
190,587
180,000
89,940
Balance due on business
combination
3,907,775
4,137,820
2,177,800
1,960,020
—
—
Lease liabilities
5,533,694
6,745,329
2,984,243
1,165,281
703,816
1,891,989
20,443,949
22,016,086
15,834,453
3,315,888
883,816
1,981,929
1
Accounts payable and accrued liabilities exclude amounts
which are not financial liabilities.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
45
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
1
9,586,423
9,586,423
9,586,423
—
—
—
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
19,053,496
20,819,447
15,288,484
2,738,074
624,451
2,168,438
1
Accounts payable and accrued liabilities exclude amounts
which are not financial liabilities.
The Company's
Canadian subsidiary
benefits from
a line
of credit
of $
500,000
, and
the Italian
subsidiary benefits
from a
400,000
Euros ($
576,000
) line of credit. At December 31, 2022, $
498,200
was drawn on the Canadian facility and
341,473
Euros ($
493,702
) was drawn on
the Italian facility. The credit facilities
both bear interest at
variable rates which is
the bank’s
prime rate plus 1%
, therefore,
7.45
% for the Canadian facility and
8
% for the Italian facility. There
are no imposed financial
covenants on the credit facilities.
Fair value of financial instruments
The fair value represents
the amount that
would be received
for the sale of
an asset or paid
for the transfer of
a liability in
an orderly transaction
between market
participants at the
measurement date.
The fair value
estimates are calculated
at a
specific date
taking into
consideration assumptions
regarding the
amounts, the
timing of
estimated future
cash flows
and
discount rates.
Accordingly,
due to
its approximate
and subjective
nature, the
fair value
must not
be interpreted
as being
realizable in an immediate settlement of the financial instruments.
There
are
three
levels
of
fair
value
that
reflect
the
significance
of
inputs
used
in
determining
fair
values
of
financial
instruments:
Level 1 — quoted prices (unadjusted) in active markets
for identical assets or liabilities.
Level 2 — inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 — inputs for the asset or liability that are not based
on observable market data.
The fair values
of cash
and cash
equivalents, trade
accounts receivable,
other receivables,
deposits, bank
indebtedness,
accounts payable and accrued liabilities approximate their carrying
amounts
due to their short-term maturities.
Investments in BGF and HPQ shares are valued at quoted
market prices and are classified as Level 1.
Royalties receivable are discounted according to their corresponding
agreements and are classified as Level 2.
Investments in HPQ warrants are valued using the Black
-Scholes pricing model and are classified as Level 3 (note
11).
The fair value
of the term
loans and the
balance due on business
combination as at December 31,
2022 is determined using
the
discounted
future
cash
flows
method
and
management's
estimates
for
market
interest
rates
for
similar
issuances.
Accordingly, as a result
,
their fair market values correspond to their carrying amount. The term loans are classified
as level
2 and the balance due on business combination as Level 3.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
46
29.
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,
- The Company
abandoned the
project in 2011
and accordingly,
no
amount is expected to be repaid.
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 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.
As at
December 31, 2022,
the Company’s
working capital
was $
1,650,709
(2021 -
$
14,006,785
).
The management of capital includes shareholders’ equity for a total amount of $
16,868,927
(2021 - $
40,768,754
) and term
loans of $
389,987
(2021 - $
190,905
), as well as cash and cash
equivalents amounting to $
3,445,649
(2021 - $
12,202,513
).
There were
no significant
changes in
the Company’s
approach during
the current
and preceding
fiscal year,
however,
In
order to
maintain or
adjust capital
structure, the
Company may
issue new
shares, sell
portions of
its strategic
investment
and periodically purchase its own shares on the open
market.
31.
Income taxes
a) Income tax expenses is comprised of the following:
2022
2021
$
$
Current tax
Current year
118,378
(155,714)
Deferred tax
Origination and reversal of temporary differences
(6,219,309)
(5,095,595)
Change in unrecognized deductible temporary differences
6,176,915
4,511,349
(42,394)
(584,246)
Income tax expense (recovery)
75,984
(739,960)
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
47
b) Reconciliation of effective tax rate
2022
2021
$
$
Loss before income taxes
(32,091,043)
(39,171,899)
Income tax rates
26.5
%
26.5
%
Income tax recovery at the combined basic Federal and
Provincial tax rates
(8,504,126)
(10,380,553)
Permanent differences
2,165,385
5,079,805
Tax
rate changes
(826)
8,334
Prior year adjustment
115,118
60,533
Change in unrecognized deductible temporary differences
6,176,915
4,511,349
Other
123,518
(19,428)
Income tax expense (recovery)
75,984
(739,960)
The applicable statutory tax
rates are
26.5
% in 2022
and
26.5
% in 2021.
The Company's applicable tax
rate is the
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, 2022 and 2021, recognized deferred
tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2022
2021
2022
2021
2022
2021
$
$
$
$
$
$
Non-capital losses
carried forward
772,343
1,705,073
—
—
772,343
1,705,073
Strategic investments
—
—
—
(656,507)
—
(656,507)
Royalties receivable
—
—
(373,063)
(333,543)
(373,063)
(333,543)
Property and equipment
—
—
(155,833)
(147,127)
(155,833)
(147,127)
Intangibles
—
—
(243,447)
(468,167)
(243,447)
(468,167)
Deferred income
—
—
—
(21,000)
—
(21,000)
Right-of-use assets net of liabilities
—
—
—
(121,123)
—
(121,123)
Tax
assets (liabilities)
772,343
1,705,073
(772,343)
(1,747,467)
—
(42,394)
Set off of tax
(772,343)
(1,705,073)
772,343
1,705,073
—
—
Net tax assets (liabilities)
—
—
—
(42,394)
—
(42,394)
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
48
Deferred taxes from temporary differences and unused
tax losses and tax credits are summarized as follows:
Recognized
Recognized
Recognized
January 1,
on business
in profit or
December
January
in profit or
December
2021
combination
loss
31, 2021
1, 2022
loss
31, 2022
$
$
$
$
$
$
$
Non-capital
losses carried
forward
4,982,328
642,149
(3,919,404)
1,705,073
1,705,073
(932,730)
772,343
Strategic
investments
(4,919,499)
—
4,262,992
(656,507)
(656,507)
656,507
—
Investment tax
credits
(273,854)
—
273,854
—
—
—
—
Royalties
receivable
(280,900)
—
(52,643)
(333,543)
(333,543)
(39,520)
(373,063)
Property and
equipment
(25,273)
(2,840)
(119,014)
(147,127)
(147,127)
(8,706)
(155,833)
Intangibles
—
(559,949)
91,782
(468,167)
(468,167)
224,720
(243,447)
Deferred income
—
—
(21,000)
(21,000)
(21,000)
21,000
—
Right-of-use
assets net of
liabilities
(188,802)
—
67,679
(121,123)
(121,123)
121,123
—
(706,000)
79,360
584,246
(42,394)
(42,394)
42,394
—
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
49
As at December 31, 2022 and 2021, the amounts and expiry dates of tax attributes and temporary differences for which no
deferred tax assets were recognized are as follows:
December 31, 2022
December 31, 2021
Federal
Provincial
Federal
Provincial
$
$
$
$
Research and development expenses,
without time limitation:
11,917,963
12,150,617
11,399,104
11,023,013
Federal research and development
investment tax credits:
2029
299,881
—
299,881
—
2030
89,879
—
89,879
—
2031
223,759
—
223,759
—
2032
186,031
—
186,031
—
2033
105,216
—
105,216
—
2034
212,609
—
212,609
—
2035
488,555
—
488,555
—
2036
359,594
—
359,594
—
2037
253,885
—
253,885
—
2038
186,015
—
186,015
—
2039
340,728
—
465,535
—
2040
101,562
—
101,562
—
2041
167,461
—
359,115
—
2042
256,417
—
—
—
3,271,592
—
3,331,636
—
December 31, 2022
December 31, 2021
Federal
Provincial
Italy
Federal
Provincial
Italy
$
$
$
$
$
$
Tax
losses carried
forward:
2032
2,866,759
2,866,759
—
628,948
—
—
2033
2,047,643
2,047,643
—
2,047,643
1,490,639
—
2034
589,007
589,007
—
589,007
589,007
—
2035
703,664
416,827
—
703,664
416,827
—
2036
3,579,827
3,440,527
—
3,579,827
3,440,527
—
2037
1,577,876
1,568,739
—
1,577,876
1,568,739
—
2038
5,716,536
5,650,620
—
5,716,536
5,650,620
—
2039
4,772,060
4,079,919
—
4,163,315
4,079,919
—
2040
533,485
533,485
—
—
—
—
2041
3,818,898
3,773,941
—
2,710,255
2,659,255
—
2042
16,135,868
16,140,505
—
—
—
—
Indefinite
—
—
908,073
—
—
815,620
42,341,623
41,107,972
908,073
21,717,071
19,895,533
815,620
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
50
December 31, 2022
December 31, 2021
Federal
Provincial
Federal
Provincial
$
$
$
$
Other deductible temporary differences,
Without time limitation:
Right-of-use assets net of liabilities
687,896
687,896
—
—
Strategic investments
3,068,378
3,068,378
—
—
Financing costs
677,789
677,789
1,100,504
1,100,504
Intangible assets
3,460,822
3,194,890
3,712,181
3,431,133
Capital losses
—
—
464,768
464,768
7,894,885
7,628,953
5,277,453
4,996,405
Deferred tax assets and
investment tax credits have
not been recognized in respect
to these items because
it is uncertain
that future taxable
profit will be
available against which
the Company can
utilise the benefits
therefrom. The generation
of
future taxable profit depends on the successful commercialisation
of the Company’s products and technologies.
32.
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.
The following is a summary of the Company’s
total revenues by geography:
2022
2021
$
$
Brazil
162,797
1,475,608
Canada
11,933,904
7,383,884
England
—
634
Germany
11,606
3,867
India
91,699
698,837
Israel
27,360
126,246
Italy
1,309,478
2,514,665
Mexico
371,668
920,818
Netherlands
112,634
—
Poland
47,591
60,406
Saudi Arabia
1,511,142
7,019,953
South Africa
29,997
—
Spain
22,049
1,178
United States of America
2,661,071
10,567,741
Vietnam
720,507
294,513
19,013,503
31,068,350
Revenue by product line and revenues recognized by
revenue recognition method are presented in note 7.
PyroGenesis Canada Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(In Canadian dollars)
51
The following is a summary of selected asset categories
by geographic market, at December 31:
2022
2021
$
$
$
$
$
$
Canada
India
Total
Canada
India
Total
Property and equipment
3,372,356
21,096
3,393,452
3,685,974
26,963
3,712,937
Right-of-use assets
4,818,744
—
4,818,744
5,765,993
—
5,765,993
Intangible assets
2,104,848
—
2,104,848
2,774,198
—
2,774,198
Goodwill
2,660,607
—
2,660,607
2,660,607
—
2,660,607
12,956,555
21,096
12,977,651
14,886,772
26,963
14,913,735
In 2022 and 2021, none of the selected asset categories
above were located in Italy.
33.
Subsequent event
On March 8, 2023, the Company announced it had completed a non-brokered private placement consisting of the issuance
and sale of
5,000,000
units of the
Company at a
price of $
1.00
per unit, for
gross proceeds of
$
5,000,000
. Each unit
consists
of
one
common share of the Company
and
one
common share purchase warrant.
Each warrant entitles the holder
thereof
to purchase
one
common
share at
a price
of
$
1.25
until
March
7,
- The
entire amount
is allocated
to
the common
shares as the fair value of the common shares on March
8, 2023 was $
1.38
.
pyrex99d4
Exhibit 99.4
CERTIFICATION OF
PRINCIPAL
EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, P.
Peter Pascali,
certify that:
1.
I have reviewed this annual report on Form 40-F of PyroGenesis
Canada Inc.;
2.
Based
on my
knowledge,
this
report does
not contain
any untrue
statement
of
a
material fact
or omit
to state
a
material fact necessary
to make the
statements made,
in light of
the circumstances
under which such
statements
were made, not misleading with respect to the period covered
by this report;
3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present in all
material respects
the financial condition,
results of operations
and cash flows
of the registrant
as of,
and for, the periods presented
in this report;
4.
The registrant's other certifying officer(s)
and I are responsible for establishing and maintaining
disclosure controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15e))
and
internal
control
over
financial
reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
a.
Designed such
disclosure controls
and procedures,
or caused
such disclosure
controls and
procedures to
be designed under our supervision, to ensure
that material information relating to the
registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b.
Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting to be designed under our supervision,
to provide reasonable assurance regarding the
reliability of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally accepted accounting principles;
c.
Evaluated
the
effectiveness
of
the
registrant's
disclosure
controls
and
procedures
and
presented
in
this
report our
conclusions about
the effectiveness
of the
disclosure controls
and procedures,
as of
the end
of
the period covered by this report based on such evaluation;
and
d.
Disclosed in this
report any change
in the registrant's
internal control over
financial reporting that
occurred
during the registrant's most
recent fiscal year that
has materially affected, or is
reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5.
The
registrant's
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant's
auditors
and
the
audit
committee
of
the
registrant's
board
of
directors (or persons performing the equivalent functions):
a.
All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial reporting
which are reasonably
likely to adversely
affect the
registrant's ability
to record, process,
summarize and report financial information; and
b.
Any fraud,
whether or
not material,
that involves
management or
other employees
who have
a significant
role in the registrant's internal control over financial reporting.
Date: March 31
st
, 2023
By:
/s/ P.
Peter Pascali
P.
Peter Pascali
Chief Executive Officer
(Principal Executive Officer)
pyrex99d5
Exhibit 99.5
CERTIFICATION OF
PRINCIPAL FINANCIAL
OFFICER
I, Andre Mainella,
certify that:
1.
I have reviewed this annual report on Form 40-F of PyroGenesis
Canada Inc.;
2.
Based on
my knowledge,
this
report does
not contain
any untrue
statement
of a
material fact
or omit
to state
a
material fact necessary
to make the
statements made,
in light of
the circumstances
under which such
statements
were made, not misleading with respect to the period covered
by this report;
3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present in all
material respects the
financial condition, results
of operations and
cash flows of
the registrant as
of,
and for, the periods presented
in this report;
4.
The registrant's other certifying officer(s) and
I are responsible for establishing and maintaining disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15e))
and
internal
control
over
financial
reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
a.
Designed such
disclosure controls
and procedures,
or caused
such disclosure
controls and
procedures to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant,
including
its
consolidated subsidiaries, is made known
to us by others within those
entities, particularly during the period
in
which this report is being prepared;
b.
Designed such internal control
over financial reporting, or
caused such internal control
over financial reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted accounting principles;
c.
Evaluated the effectiveness
of the registrant's disclosure
controls and procedures
and presented in this report
our conclusions about the
effectiveness of the
disclosure controls and procedures,
as of the end of
the period
covered by this report based on such evaluation; and
d.
Disclosed
in
this
report
any
change
in
the
registrant's
internal
control
over
financial
reporting
that
occurred
during the
registrant's most
recent fiscal year
that has
materially affected,
or is
reasonably likely
to materially
affect, the registrant's internal control over financial
reporting; and
5.
The
registrant's
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant's
auditors
and
the
audit
committee
of
the
registrant's
board
of
directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are
reasonably likely
to adversely
affect the
registrant's ability
to record,
process, summarize
and report financial information; and
b.
Any fraud, whether or
not material, that involves
management or other
employees who have a significant
role
in the registrant's internal control over financial reporting.
Date: March 31
st
, 2023
By:
/s/ Andre Mainella
Andre Mainella
Chief Financial Officer
(Principal Financial Officer)
pyrex99d6
Exhibit 99.6
CERTIFICATION OF
PRINCIPAL
EXECUTIVE OFFICER TO
18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with
the Annual Report
of PyroGenesis
Canada Inc.
(the “Registrant”)
on Form 40
-F for the
annual
period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, P.
Peter Pascali,
Chief Executive
Officer,
certify,
pursuant to
18 U.S.C.
Sec. 1350,
as adopted
pursuant to
Sec. 906
of
the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully
complies with
the requirements
of Section 13(a)
or Section 15(d)
of the Securities
Exchange Act
of 1934, as amended; and
(2)
The information contained
in the Report
fairly presents,
in all material
respects, the financial
condition and results
of operations of the Registrant.
Date: March 31
st
, 2023
By:
/s/ P.
Peter Pascali
P.
Peter Pascali
Chief Executive Officer
(Principal Executive Officer)
pyrex99d7
Exhibit 99.7
CERTIFICATION OF
PRINCIPAL
EXECUTIVE OFFICER TO
18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with
the Annual Report
of PyroGenesis
Canada Inc.
(the “Registrant”)
on Form 40
-F for the
annual
period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Andre Mainella,
Chief Financial Officer,
certify, pursuant
to 18 U.S.C. Sec. 1350, as adopted
pursuant to Sec. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully
complies with
the requirements
of Section 13(a)
or Section 15(d)
of the Securities
Exchange Act
of 1934, as amended; and
(2)
The information contained
in the Report
fairly presents, in
all material respects,
the financial condition
and results
of operations of the Registrant.
Date: March 31
st
, 2023
By:
/s/ Andre Mainella
Andre Mainella
Chief Financial Officer
(Principal Financial Officer)
pyrex99d8
Exhibit 99.8
Raymond Chabot
Grant Thornton LLP
Consent of Independent
Suite 2000
Registered Public Accounting Firm
National Bank Tower
600 De La Gauchetière Street West
Montréal, Quebec
H3B 4L8
T 514-878-2691
We
have
issued
our
report
dated
March 30,
2023,
with
respect
to
the
consolidated
financial
statements
included
in
the
Annual Report of PyroGenesis Canada Inc. on Form 40-F for the
year ended December 31, 2022.
We hereby consent to
the inclusion of said
report in the Annual
Report of PyroGenesis Canada Inc.
for the fiscal year
ended
December 31, 2022.
Montreal, Canada
March 31, 2023
pyrex99d9
Table
of Contents
Exhibit 99.9
CODE OF BUSINESS CONDUCT AND ETHICS
Adopted by Resolution of the Board of Directors on:
March 30, 2021
Table
of Contents
-i-
TABLE OF CONTENTS
Page
INTRODUCTION
1
NO RETALIATION
1
CONFLICT OF INTEREST AND DISCLOSURE ISSUES
2
IntellectualProperty_514076
Conflicts of Interest
2
Outside Employment and Business Activities
2
Community Activities
2
Board Appointments
2
Personal Gain
3
CompanyConfidentialInformation_812506
3
Intellectual Property
3
Use of Company Assets
3
Use of Technology
4
WORK ENVIRONMENT
4
Discrimination-
and Harassment-Free Work Environment
4
Equal Opportunity
4
Employee Privacy and Personal Information
4
Substance and Alcohol Abuse
5
HEALTH, SAFETY
& THE ENVIRONMENT
5
ETHICAL BUSINESS PRACTICES
5
Compliance with Laws
5
Gifts, Benefits and Entertainment
5
Recording of Transactions and Reporting
of Financial Information
6
Use of Written Agreements; No Side Deals or Side
Letters
6
Records Retention and Destruction
6
Cybersecurity
7
Ethical Competitive Practices and Third-Party Intellectual
Property
7
Crime and Money-Laundering Prevention
7
DEALINGS WITH PERSONS OUTSIDE THE COMPANY
7
Dealing with Public Officials
7
Dealing with the Media and Communications Generally
8
Dealings with Suppliers, Agents and Representatives
8
Political and Charitable Contributions
8
Investigations
9
COMPLIANCE
9
WAIVER, AMENDMENTS AND INTERPRETATION
OF THIS CODE
9
- 1 -
CODE OF BUSINESS CONDUCT AND ETHICS
INTRODUCTION
Every employee, officer and director of PyroGenesis Canada Inc. (the “
Company
”) and its subsidiaries occupies a position
of trust. In varying measures, individuals, as
well as certain contractors and agents,
represent the Company in its relations
with
others
whether
with
customers,
suppliers,
employees,
competitors,
governments,
investors
or
the
general
public.
Whatever the area
of activity and
whatever the degree
of responsibility, such persons are
expected to act
honestly, ethically,
with integrity and in compliance with applicable laws and regulations.
This
Code
of
Business
Conduct
and
Ethics
(this
“
Code
”)
was
adopted
by
the
board
of
directors
of
the
Company
(the
“
Board
”) as a guide that is intended, among other things, to sensitize such individuals to significant legal
and ethical issues
that
arise
frequently
and
to
the
mechanisms
available
to report
illegal
or
unethical
conduct,
and
provide
assurance
that
reporting of questionable behavior
is protected and encouraged.
It does not purport to
address every legal or
ethical issue
that may be encountered.
Moreover, the
specific requirements of
applicable law in certain
jurisdictions where we
currently
operate or may operate in the future may impose a higher standard than is specifically
set forth in this Code. Ultimately,
no
code of conduct can replace the thoughtful behavior of
a person acting honestly,
ethically and with integrity.
Compliance
with
this
Code
is
mandatory
for
all
employees,
officers
and
directors
of
the
Company.
Certain
contractors,
agents and
other representatives
of the
Company may
also be
required to
comply with
this Code.
Failure to
comply with
this Code, including
a failure to
report a violation
of this Code,
can have severe
consequences.
Conduct that
violates this
Code may violate
applicable laws and
subject both
the Company and
its employees,
officers and
directors to
prosecution
and legal sanctions. The Company may discipline those who violate this Code, up to and including discharge from office or
termination of employment or engagement with the Company.
The Company
has set
forth
in
writing
numerous
policies,
procedures,
codes,
rules and
standards
of performance
(all
of
which
continue
in
force)
and
may
create
new
policies,
procedures,
codes,
rules and
standards
in
the
future.
This
Code
supplements, but does
not replace such
other policies, procedures, codes,
rules and standards of performance.
In the event
of a
conflict or
inconsistency
between this
Code and
any other
written policies,
procedures, codes,
rules or standards
of
performance of
the Company
this Code shall
prevail unless
the conflicting
or inconsistent
policy,
procedure, code,
rule or
standard
of
performance
imposes
an
additional
and/or
higher
obligation
or
standard,
in
which
case
the
conflicting
or
inconsistent policy,
procedure, code, rule or standard of performance shall control.
Employees, officers or directors with questions about this
Code or any policies, rules and employee performance standards
should consult
a senior
officer.
Any employee,
officer
or director
who is
concerned
about conduct
that they
believe may
violate
this
Code,
such
policies,
rules and
employee
performance
standards
or
applicable
law,
should
consult
a
senior
officer.
Procedures for reporting suspected violations of this Code
are set out under “Compliance” below.
NO RETALIATION
The Company will not permit any
form of retaliation (including discharge, demotion, suspension, threats,
harassment or any
other form of discrimination) against an employee who
has truthfully and in good faith:
(a)
reported violations of this Code;
(b)
lawfully
sought
advice
about
providing
information,
expressed
an
intention
to
provide
information
or
provided
information
or assistance
regarding
any conduct
which
the
employee
reasonably
believes
constitutes
a criminal
offense or other violation of law;
(c)
cooperated, filed, caused to be
filed, testified, participated in
or otherwise assisted in, or
expressed an intention to
do any of the foregoing, in an investigation or proceeding related
to a criminal offense or other violation of
law; or
(d)
provided a law enforcement officer
with truthful information regarding
the commission or possible commission
of a
criminal offence or other violation of law,
unless the individual reporting is one of the violators.
Any retaliation against an
employee who has truthfully
and in good faith
done any of the
foregoing in accordance
with this
Code will result in discipline, up to and including dismissal.
- 2 -
CONFLICT OF INTEREST AND DISCLOSURE ISSUES
Conflicts of Interest
Employees, officers and directors owe a duty to the Company to advance its legitimate
interests when the opportunity to do
so arises
and
to
refrain
from
activities
which
could
hinder
their
ability
to
act in
the
Company’s
best
interest
or have
the
potential or could be perceived
as doing so, including to
avoid all situations in which
their personal interests conflict,
might
conflict or
could be
perceived to
conflict with
their duties
to the
Company.
In particular,
employees, officers
and directors
should seek to avoid acquiring any interests or participating
in any activities that would tend to:
(a)
deprive the Company of the time or attention required to perform
their duties properly; or
(b)
create an obligation or
distraction which would affect their judgement or
ability to act solely
in the Company’s best
interest.
Employees
charged
with
executive,
managerial
or
supervisory
responsibility
are
required
to
see
that
actions
taken
and
decisions made
within their
jurisdiction are
free from
the influence
of any
interests that
might reasonably
be regarded
as
conflicting with those of the Company.
Employees, officers and directors owe a duty to the Company to advance its legitimate interests when
the opportunity to do
so arises
and
to
refrain
from
activities
which
could
hinder
their
ability
to
act in
the
Company’s
best
interest
or have
the
potential or
could
be perceived
as doing
so. Employees
are required
to disclose
in writing
to the
Company
all business,
commercial
or
financial
interests
or
activities
that
might
reasonably
be
regarded
or
perceived
as
creating
an
actual
or
potential conflict with
such duties. In addition,
directors and officers are
required under corporate law
to disclose any
interest
in and
refrain from
voting on
any material
contracts or
transactions relating
to the
Company in
which they
are a
party or
have a material
interest.
A
senior officer must
be contacted in
advance to co-ordinate
the approval of
such material contracts
or transactions.
Outside Employment and Business Activities
Employees may take on employment
and engage in or otherwise
invest in business ventures,
partnerships or enterprises,
but
only
outside
their
working
hours
and
with
the
approval
of
a
senior
officer.
However,
employees
must
avoid
outside
employment, businesses and
other activities
which would impair
their effective performance
as a
Company employee, which
could have an
adverse impact
on the business
or reputation
of the Company
or which might
create or
appear to create
a
conflict with the best interests of the Company.
For
these
reasons,
it
is
important
for
there
to
be
current
and
complete
disclosure
of
any
such
outside
employment
or
business ventures, partnerships or enterprises
that any employee, officer or
director may have. Such disclosure
should be
made promptly
to a
senior officer and
should also
be listed
in any
acknowledgement of this
Code requested
by the
Company.
See also “Personal Gain”, “Company
Confidential Information”, “Intellectual
Property”, “Use of Company
Assets” and “Use
of Technology”
below.
Community Activities
Employees,
officers
and
directors
may,
and
are
encouraged
to,
engage
in
community
and
volunteer
work
and
activities
outside
their
working
hours,
and
to
uphold
a
commitment
to
community
in
all
their
activities.
Requests
for
donation
or
sponsorship by
the Company
or from
Company assets,
including employee
work time,
must be
made only in
accordance
with
the
Company’s
applicable
established
policies,
procedures,
codes,
rules and
standards
and
within
any
established
budget therefor or, alternatively,
may be submitted to a senior officer and, in such case, may only be approved by the Chief
Executive
Officer,
Chief
Financial
Officer
or
another
senior
officer
designated
by
the
Chief
Executive
Officer
or
Chief
Financial Officer for such purpose. See also “Lobbying
Activities and Political and Charitable Contributions” below.
Board Appointments
An employee may
not sit
on the board
of a
publicly-traded company or
other entity (other
than the Company
and its
affiliates)
without
the
permission
of
a senior
officer
or
in
the
case
of
a
senior
officer,
the
Chief
Executive
Officer.
Membership
on
charitable or community
boards does not
require pre-approval but such
activity must not interfere
with duties and
obligations
to the Company and must not reflect negatively on the Company.
An employee
who sits
on the board
of a company
or other
entity (other
than the
Company and
its affiliates)
must abstain
from voting on any matter that directly or indirectly concerns the Company or would be contrary to the Company’s interests
or would give the appearance or perception of a conflict of interest.
- 3 -
Personal Gain
Employees,
officers
and
directors
must
not
directly
or
indirectly
use
their
status
or
position
with
the
Company
to
obtain
personal
gain
in
any
manner,
including
from
those
doing
or
seeking
to
do
business
with
the
Company.
Applicable
law
provides that
if personal
financial benefit
is improperly
gained by
an employee,
officer or
director directly
or indirectly, through
a spouse or child or a relative sharing the same residence as the
individual, as a result of his employment or position or by
the
use or
misuse
of
the
Company’s
property
or
of
information
that
is confidential
to
the
Company’s
business,
then the
employee, officer or director must account to
the Company for any benefit received.
Company Confidential Information
Employees,
officers
and
directors
must
safeguard
the
Company’s
Confidential
Information.
“
Confidential
Information
”
includes, but is not limited
to, trade secrets, know
how, records,
data, plans, strategies, processes,
business opportunities
and ideas relating to present
and contemplated products and services
and financial affairs of the
Company,
its customers,
its suppliers and/or employees, as well as information relating
to cybersecurity risks and incidents, which information is not
generally known to the public.
Employees, officers
and directors
are prohibited
from disclosing Confidential
Information or
other information
which might
impair the Company’s competitive position or which might
violate the private rights of individuals, enterprises or
institutions
without
appropriate
authorization
in
accordance
with
the
Company’s
Disclosure,
Confidentiality
and
Trading
Policy,
and
must
take
the
appropriate
steps
to
protect
such
information.
The
above
rules also
apply
to
confidential
information
of
a
Company customer or
supplier (or prospective customer
or supplier). These confidentiality
obligations continue even
after
an individual’s service as an employee, officer
or director of the Company has ceased.
If
the
decision
is
made
to
disclose
Confidential
Information
to
any
person
or
entity
outside
of
the
Company
(such
as
a
potential
vendor
or
business
partner),
it
should
be
done
only
after
appropriate
confidentiality
agreements
are
executed.
These agreements must document the need to maintain confidentiality of the Confidential
Information that is disclosed and
copies of all
confidentiality agreements must be
forwarded to a
senior officer. The amount of
Confidential Information shared
with any
person or
entity outside
of the
Company should,
in any
case, be
kept to
the minimum
necessary to
address the
applicable business need.
All employees, officers and directors
must also adhere to the Company’s
policies, procedures, and rules on confidentiality,
disclosure and
insider trading
as set
out in
the Company’s
Disclosure, Confidentiality
and Trading
Policy.
A copy
of such
policy is
available on
the Company’s
intranet, but
it may
also be
obtained from
a senior
officer.
Nothing in
such policy
or
this
Code
restricts
an
employee
from
reporting
potential
violations
of
law
to
securities
regulators
or
other
governmental
agencies
or self-regulatory
authorities
without
notice
or permission
from
the
Company,
or providing
disclosures
that are
protected or required under
applicable whistleblower laws and
cooperating voluntarily with or responding
to any inquiry from
securities regulators or other governmental agencies or self-regulatory
organizations.
Intellectual Property
Intellectual property refers to any creations
of the mind, such as inventions, literary
or artistic works, programs, databases,
designs,
symbols,
names
and
images.
Intellectual
property
is
protected
in
law
by
rights
such
as
patents,
copyright
and
trademarks,
which
enable
the
creations
to
be
protection
from
unauthorized
use
by
third
parties.
All
intellectual
property
developed by an employee
in his or her role
during the course
of his or her
employment with the Company
belongs to the
Company
and
all
employees
assign
to
the
Company
all rights
the
employee
may
have
in
such
intellectual
property.
All
materials
documenting
intellectual
property
must
remain
with
the
Company
following
termination
of
employment
and
employees must
delete copies
from personal
devices.
Employees must
take such
reasonable steps
as requested
by the
Company to confirm ownership of any intellectual property
in the Company and assist the
Company to perfect and maintain
its title to such
intellectual property and
bring or defend
cases involving such
intellectual property.
All employees waive
all
authors’ and moral rights which they may have in such
intellectual property.
Use of Company Assets
Each employee,
officer
and director
has a
responsibility
to prevent
misuse, loss,
unauthorized destruction
or damage
or
theft of the Company’s assets. Reasonable precautions
should be taken to secure the Company premises and assets.
Company
assets
should
be
used
solely
for
the
benefit
of
the
Company.
Use
of
the
Company’s
funds
or
assets
for
any
unlawful or
improper purpose
is prohibited.
Claims for
business expenses
must be
made consistent
with the
Company’s
expense polices. Excessive, fictitious or unnecessary claims
are prohibited.
- 4 -
Use of Technology
Improper use
of the
Company’s
IT resources
can create
legal liability
and these
resources
should generally
be used
for
Company purposes only.
Information
transmitted
through
Company
resources
implies
affiliation
with
the
Company
and
should
therefore
reflect
positively upon
the Company.
Sending, receiving,
displaying, printing,
or otherwise
engaging in
any communications
that
are in violation
of applicable law
or this Code,
or any other
the Company policy, including, but not
limited to, communications
that are
unlawful, libellous,
invasive of
another’s privacy,
threatening, fraudulent,
harassing, sexually
explicit, defamatory,
or
otherwise
objectionable,
or
that
infringe
or
may
infringe
the
intellectual
property
or
other
rights
of
another
person
or
company, are prohibited.
Employees are expected to discourage others from transmitting
such information.
Subject
to
applicable
laws,
all
information
of
any
kind
(including
without
limitation
voice
communications
and
electronic
messages) stored or
transmitted on
Company systems
is the property
of the Company
and the Company
has the right
to
monitor,
inspect
and/or
audit
any
communication
or
material
stored,
downloaded,
accessed,
posted,
transmitted
or
distributed on
an employee’s computer, phone
or voicemail
at any
time for
any purpose, without
prior notice
to the
employee.
Communications of any nature on these systems should not
be considered private communications.
WORK ENVIRONMENT
The Company is
committed to respecting
human rights both
within the Company
and with those
with whom the
Company
does business and the Board oversees this commitment and
the Company policies in which it is reflected.
The Company
respects
human rights
by seeking
to avoid
infringing on
the rights
of others
and seeks
to address
adverse
human
rights
impacts
with
which
the
Company
may
become
involved.
The
Company
prohibit
the
use
of
any
forced,
compulsory or child labor.
The Company respects the rights
of Company employees and
seeks to provide fair and
safe working conditions, including
a work environment
that is free from
discrimination and harassment
and affords equal
opportunity to all.
This commitment
is supported by a
broad range of programs
for employees and their
family members, including
employee benefits focused
on health, personal wellness, parental leave, diversity
and inclusion, and education.
Discrimination-
and Harassment-Free Work Environment
The Company strives to maintain
a work environment free of
violence, discrimination against and harassment of employees
or non-employees with whom the Company has a business service
or professional relationship and in which individuals are
accorded
equality
of
employment
opportunity
based
upon
merit
and
ability.
Discriminatory
practices
based
on
race,
ancestry,
place of origin, color,
national or ethnic origin,
citizenship, creed, sex, sexual
orientation, gender identity,
gender
expression, religion,
marital status,
family status,
same-sex partnership
status, age,
record of
offenses, disability
or other
prohibited grounds of discrimination under applicable law will
not be tolerated.
It
is
the
responsibility
of
each
employee,
officer
and
director
of
the
Company
to
help
the
Company
provide
a
work
atmosphere free
of harassing
(sexual or
otherwise), abusive,
disrespectful, disorderly,
violent, hostile,
disruptive or
other
non-professional conduct. Harassment in
any form, verbal
or physical, by
any employee, will
not be tolerated.
The Company
requires every person to show sound judgment and respect
for the feelings and sensibilities of all other employees
.
If
an
employee
feels
that
another
employee’s
conduct
is
discriminatory,
harassing,
improper
or
offensive,
the
offended
employee should promptly
and firmly tell the
offender that his
or her behavior is
unwelcome.
Doing so places
the offender
on notice
that
his or
her conduct
is inappropriate
.
However,
any employee
who
believes
he
or she
has been
subject
to
harassment or offensive conduct, or who believes he or she has been a witness to such conduct, may report the offense to
the Human Resources Department or pursuant to the mechanisms for reporting suspected violations of
this Code set out in
“Compliance”.
Equal Opportunity
The
Company
is
committed
to
fair
employment
practices,
including
equal
treatment
in
hiring,
promotion,
training
and
compensation, termination, and disciplinary action.
Employee Privacy and Personal Information
The Company
believes in
taking steps
to protect
the privacy
of its
employees, officers,
directors, contractors,
agents and
other representatives.
The Company will not
interfere in the personal
lives of such individuals unless
their conduct impairs
their work performance or adversely affects the work environment or business or reputation of the
Company or is otherwise
a violation of this Code.
- 5 -
The
Company
limits
the
collection
of
personal
information
to
that
which
is
necessary
for
business,
legal,
security
or
contractual purposes and collection of personal information is to be conducted by fair
and lawful means with the knowledge
and consent
of the
individual from
whom the
information
is being
collected.
Access
to employee
personnel
and medical
records and
the information contained
therein must
be limited
to those
with a
need to
know for
a legitimate
business purpose.
All employees
have the
right to
see their
own personnel
record.
Personal
information
must not
be used
or disclosed
for
purposes other than those for
which it was collected, except
with the knowledge and consent of
the individual or as required
by law.
Personal information must
be retained only
as long as
necessary for the fulfilment
of those purposes
and must be
kept sufficiently
accurate, complete
and up-to-date
to minimize
the possibility
that inappropriate
information may
be used
or disclosed.
The Company
and its
employees must
observe obligations
of confidentiality
and non-disclosure
of personal
information, including
information of
its employees
and customers,
with the
same degree
of diligence
that employees
are
expected to use in protecting
Confidential Information. All
employees must adhere to
the Company’s policies,
procedures,
codes, rules and
standards in
place to
protect personal
information against
loss or
theft, as
well as
unauthorized access,
disclosure, copying,
use or
modification of
personal information
of others,
as the
Company is
responsible for
all personal
information
in
its
possession
or
custody.
The
Company
and
all
employees
shall
also
comply
with
all
applicable
laws
regulating the disclosure of personal information.
Substance and Alcohol Abuse
The
use,
possession,
sale,
purchase
and
the
negotiation
for
sale
or
purchase
of
illegal
substances
or
alcohol
in
the
workplace or
on
or through
Company
property
is prohibited
unless
otherwise
authorized. The
abuse
or improper
use of
prescription
or
over-the-counter
drugs
while
in
the
workplace
or
on
or
through
Company
property
is
also
prohibited.
Employees are
prohibited
against using
drugs or
alcohol in
a manner,
whether before,
during or
after work
hours, which
adversely affects job performance or customer
or supplier relations or compromises the safety of other persons.
HEALTH, SAFETY &
THE ENVIRONMENT
The health and safety of employees
is a vital concern for the
Company and all Company employees
share a responsibility
to promote a workplace free of preventable safety
and health hazards that complies with all applicable laws
and regulations
governing workplace health and
safety. This commitment encompasses all of the
Company’s facilities and operations. Each
employee must be proactive
and follow all of
the Company’s safety
and health rules and report
possible safety and
health
issues and concerns to appropriate management personnel.
The Company
is committed
to conducting
operations and
activities in
a manner
that protects
the environment.
Company
policy
is
that
no
employee
shall
engage
in
conduct
that
violates
environmental
laws
or
regulations
or
is
otherwise
inconsistent
with
the
health
and
safety
needs
of
our
employees
and
the
environmental
needs
of
our
communities.
The
Company’s
employees are
expected to
take steps
to conserve
energy resources
to the
fullest extent
possible consistent
with sound business operations and
the Company encourages its
offices, employees, suppliers
and vendors to participate
in energy and water conservation and recycling programs
.
The
Company
is
also
committed
to
the
continuous
improvement
of
its
environmental
management
systems,
its
environmental, health and safety programs, and to the
prevention of pollution.
ETHICAL BUSINESS PRACTICES
Compliance with Laws
The Company conducts
business in jurisdictions
where laws, customs
and social requirements
vary considerably.
It is the
Company’s policy to operate in material compliance with all applicable domestic and foreign laws, including applicable anti-
corruption
and
anti-bribery
laws.
Any
employee,
officer
or
director
becoming
aware
of
a
conflict
between
foreign
laws,
customs or social requirements and applicable domestic
or other laws should consult a senior officer
promptly.
If there is a
conflict between laws, customs or social requirements, employees, officers and directors should in all cases always comply
with all legal
requirements. If there
are no directly
applicable legal requirements,
employees, officers
and directors should
always comply with applicable Company policies, guidance and
expectations.
Gifts, Benefits and Entertainment
Except
as
set
forth
herein
and
in
accordance
herewith,
employees,
officers
and
directors
are
strictly
prohibited
from
furnishing
or
providing,
directly
or
indirectly
on
behalf
of
the
Company,
gifts,
entertainment
or
benefits
to
other
persons
including public
officials (as
defined below).
Similarly,
employees, officers
and directors
must not
accept or
give anything
that will
compromise,
or
be
seen to
compromise
their
judgement
or inappropriately
influence
themselves
or
others. Any
- 6 -
gifts, entertainment
or other
benefits offered
or received
that do not
comply with
these restrictions
must be
disclosed to
a
senior officer and should be declined or returned
,
if possible.
Those individuals whose duties permit
them to do so may
furnish or accept certain gifts,
favors and entertainment to or
from
persons, other than public officials (as defined below),
if all the following tests are met:
(a)
the gift or other benefit is not cash,
a gift certificate or other negotiable instrument;
(b)
the gift, other benefit or entertainment cannot
reasonably be interpreted as an improper payment or inducement
and is of nominal value;
(c)
the gift, other benefit or entertainment does
not contravene any law and, in addition,
is made in accordance with
generally-accepted local ethical practices;
(d)
the gift, other
benefit or entertainment
does not influence
Company business decisions
or impact independent
judgement;
(e)
the gift, other benefit or entertainment occurs or is given
or accepted infrequently;
(f)
the gift, other benefit or entertainment arises out of the
ordinary course of business;
(g)
the gift, other benefit, or entertainment involves reasonable
expenditures; and
(h)
if
subsequently
disclosed
to
the
public,
the
provision
or
acceptance
of
the
relevant
gift,
other
benefit
or
entertainment would not
in any
way embarrass the
Company, its employees, officers or
directors or the
recipient.
For the
avoidance
of doubt,
this section
is not
intended
to apply
to planned
promotional or
other similar
activities
of the
Company, including the offering of incentives to customers of the Company,
which have been approved in accordance with
the
Company’s
applicable
policies
and
procedures.
Any
questions
regarding
the
interpretation
of
this
section
and
its
requirements
should
be
directed
to
a
senior
officer
prior
to
accepting
or
giving
the
gift
or
other
benefit
to
the
extent
reasonably practicable.
Recording of Transactions and
Reporting of Financial Information
The integrity of the Company’s record keeping
and reporting systems shall be maintained at
all times, as these systems are
required for the Company to meet its financial, legal and other
business obligations.
Employees must document
and record all transactions
in accordance with
the Company’s
internal control procedures
and
in compliance
with all
applicable accounting
principles, laws,
rules and regulations,
and employees
with responsibility
for
reporting
financial
information
must provide
information
that is
accurate,
complete,
objective, timely
and
understandable
and that complies
with all applicable
laws relating to
the recording and
disclosure of financial
information. Employees
and
managers are
forbidden to
use, authorize,
or condone
the use
of "off-the-books"
record-keeping or
any other
device that
could be utilized
to distort records
or reports
of the Company’s
true operating results
and financial conditions.
Employees
must not fraudulently
influence, coerce,
manipulate or
mislead any
independent public
or certified
accountant engaged
in
the performance of an audit,
review, compilation or other service
with respect to the financial statements for the purpose of
rendering such financial statements misleading.
Use of Written Agreements; No Side Deals or Side
Letters
The
Company
documents
business
transactions
with
full
and
complete
written
agreements
that
set
out
the
terms
and
conditions of
the agreement
and understandings
between the
parties. No
new agreement
can be
created, or
an existing
agreement
modified,
without
approval
of
a
senior
officer.
All
new
agreements
should
also
be
reviewed
by
the
relevant
functional areas, including finance, as the terms and
conditions of the agreement may affect how the
Company records and
reports
the
transaction
for
accounting
or
other
purposes.
No
oral
contracts,
informal
letters
of
understanding
or
intent,
“handshake deals” or side
letters are permitted. Where
the Company has developed
standard written agreements and
other
provisions, schedules,
riders
and appendices,
Company employees
must use
these standard
forms except
to the
extent
that changes are authorized by a senior officer.
Records Retention and Destruction
Legal and regulatory practice requires
the retention of certain records, such
as certain tax, personnel health
and safety, and
financial records,
for various
periods of
time and
employees, officers
and directors
are required
to comply
with Company
- 7 -
controls for
the retention
and timely
destruction of
records. In
addition, when
litigation or
a governmental
investigation or
audit
is
pending
or
imminent,
relevant
records
must
not
be
altered
or
destroyed
until
the
matter
is
closed.
Alteration
or
destruction of records in a legal or governmental proceeding
may constitute a criminal offense.
A senior
officer
will notify
employees when
records have
been placed
on a
“legal hold”.
Such records
cannot be
altered,
destroyed,
deleted
or modified
in any
manner
for the
duration of
the “legal
hold”.
Questions regarding
records
retention
should be addressed
to a senior
officer,
particularly if any
litigation, investigation, inquiry
or administrative action
involving
the Company or any of its employees, suppliers or customers
is pending or threatened.
Cybersecurity
Cyber-attacks may be
carried out by
third parties or
insiders using
techniques that
range from highly
sophisticated efforts
to electronically
circumvent
network security
or overwhelm
websites
to
more traditional
intelligence
gathering
and social
engineering aimed at obtaining
information necessary to
gain access. In addition,
third parties may attempt
to fraudulently
induce employees
or customers
to, or
the
Company’s
employees
or customers
themselves
may,
disclose information
in
order
to
gain
access
to
the
Company’s
data
or
its
customers’
information
and
potentially
use
such
data
or
information
improperly.
Employees
must
not
engage
in
or
otherwise
aid,
assist
or
ignore
any
potential
or
actual
cyber-attacks
or
other
cyber
incidents
or
otherwise
exploit
any
cybersecurity
vulnerabilities
of
the
Company,
and
employees
must
report
any
such
threatened or actual cyber-attacks or cybersecurity vulnerabilities.
Ethical Competitive Practices and Third-Party Intellectual
Property
The Company competes vigorously and creatively in its business activities, but does so in a fair, lawful and ethical manner.
Employees must
not use
improper or
illegal means
of gathering
information about
competitors or
other third
parties, and
must not exchange information
or agree with competitors
in connection with pricing
or other matters that
are prohibited by
applicable law.
Theft
or illegal
entry
and electronic
eavesdropping
are unacceptable
means of
searching
for competitive
intelligence. Employees
must neither offer
a bribe or
a gift in
exchange for a
competitor’s information
nor otherwise solicit
information from current or former employees of a competitor. Employees, officers and directors of the Company must also
not knowingly use or bring onto
the Company’s computer systems intellectual property belonging to third parties
without the
applicable third party’s consent, a license or
other legal right.
Crime and Money-Laundering Prevention
The
Company
is
committed
to
comply
fully
with
all
applicable
anti-money
laundering
laws,
both
domestically
and
internationally.
The Company will conduct
business only with reputable customers
who are involved in legitimate
business
activities and whose funds
are derived from legitimate
sources. All employees
are to take reasonable
steps to ensure that
the Company does not aid
or take part in any
illegal activities or accept
payments that have been
identified as a means
of
laundering money.
DEALINGS WITH PERSONS OUTSIDE THE COMPANY
The
honesty
and
integrity
of
those
who
represent
the
Company
must
underlie
all
of
the
Company’s
relationships
with
persons outside the Company.
Dealing with Public Officials
As a general
matter, all
dealings between
employees, officers
and directors of
the Company and
public officials
are to be
conducted
in
a
manner
that
will
not
compromise
the
integrity
or
impugn
the
reputation
of
the
Company,
its
employees,
officers
or
directors
or
any
public
official.
The
Company
specifically
prohibits
bribery
of
public
officials
and
third
parties
anywhere
in
the
world
and
requires
compliance
with
all
applicable
laws
in
the
countries
in
which
the
Company
does
business, including, without limitation, Canada’s Corruption
of Foreign Public Officials Act (“
CFPOA
”) and the U.S. Foreign
Corrupt Practices
Act (“
FCPA
”), which prohibit
bribery and corruption.
This legislation
also requires
the Company to
keep
accurate books and records and maintain effective internal controls.
The CFPOA and the FCPA
each have a broad scope,
and apply to
the activities of
the Company and
activities carried out
through its subsidiaries
and affiliates
anywhere in the
world.
Even the appearance of impropriety in
dealing with public officials is improper and unacceptable. Any participation,
whether
directly or indirectly, in any bribes, kickbacks, improper profit-sharing arrangements, illegal gratuities, indirect contributions,
improper
inducements,
“facilitation
payments”
or
similar
payments
to
any
public
official
is
expressly
forbidden,
notwithstanding that they might further the business interests of the Company and notwithstanding that such practices may
- 8 -
be considered to be a way of “doing business” or necessary
in a particular country in question,
including where the making
small “facilitation
payments”
to foreign
public officials
to secure
a routine
business
service or
have routine
administrative
actions performed by public officials is local custom. Furthermore, certain
laws, such as the CFPOA, apply to dealings with
foreign public officials in Canada and in the official
’s own state.
It is the
Company’s policy that no payments
or offers to make payments
whatsoever, regardless of amount or purpose, shall
be
made
either
directly
or
through
third
parties
to
officials
or
employees
of
government
agencies
or
instrumentalities
(including government
monopolies) without
an express
authorization
from a
senior
officer
following consultation
with
the
appropriate
compliance
personnel.
Any
approved
arrangements
must
be
documented
in
accordance
with
the
Company
legal and accounting requirements and ethical business
practices.
The Company
may hire
former public
officials
from time
to time,
but because
of the
restrictions that
applicable laws
can
place on
such
arrangements
in certain
circumstances,
employees,
officers
and
directors
must first
consult
with a
senior
officer
prior to
hiring
a current
or former
public official,
or their
family
members
and the
Company
will
not
hire any
such
official if he or she is participating in a matter reasonably
regarded as involving the Company’s
interests.
For
purposes
of
this
Code,
a
“public
official”
should
be
interpreted
broadly
and
includes
any
official
or
employee
of
a
government
or
of
a
department,
organization
or
agency
of
a
government
(or
any
department,
organization
or
agency
thereof); any employee of any company owned or controlled by a
government; any official who holds a legislative or judicial
position; any official of a public
international organization; any political
party or official of a political
party; any candidate for
political office;
and any
person or
firm acting
in an
official
capacity,
including for,
or on
behalf of,
any of
the
following:
a
government, a
department
or agency
of a
government,
a company
owned or
controlled by
a government,
a legislator,
a
judicial officer, a public
international organization, or any political party.
The Company and
its representatives
will not engage
in or undertake
lobbying activities
as defined under
applicable laws
unless all requirements
under such
applicable laws
have been
satisfied and
the prior
express approval
of a
senior officer
has been obtained following consultation with appropriate
compliance personnel.
Dealing with the Media and Communications Generally
The Company is committed
to providing, as appropriate,
full and prompt disclosure
to the public of
material developments
and events. However,
all media, public and investor relations and
communications are to be co-ordinated
through a senior
officer and the Investor Relations, as applicable, in accordance with the Company’s Disclosure, Confidentiality and Trading
Policy and applicable
laws. Employees
should not comment
on any inquiry
from the media,
no matter
how innocuous the
inquiry may appear. Any employee who is asked by the media or otherwise for a statement or to give a
presentation should
explain that he or she is subject
to this Code and the Disclosure,
Confidentiality and Trading
Policy and refer the matter
to
a senior officer.
Dealings with Suppliers, Agents and Representatives
Selection of suppliers to the Company will be based on merit
after due consideration of alternatives. The Company will only
deal
with
suppliers
who
comply
with
applicable
legal
requirements
(including
any
applicable
regulations
requiring,
for
example, the conduct of background checks) and
the Company’s standards relating to, among other things,
labor, including
not
using
child
or
forced
labor,
environment,
health
and
safety,
intellectual
property
rights
and
refraining
from
improper
payments.
Confidential
information
received
from
a
supplier
shall
be
treated
as
if
it
were
the
Company’s
Confidential
Information (see “Conflicts of Interest and Disclosure Issues
– Company Confidential Information”).
The Company will
enter into representation
agreements only with
companies or persons
believed to have
a record of
and
commitment
to
integrity.
Efforts
will
be
taken
by
the
Company
and
its
employees
to
ensure
that
agents,
consultants,
independent contractors,
representatives and
suppliers are
aware of this
Code. A senior
officer should
be contacted
prior
to
retaining
any
individual
who
is
to
act
as
an
agent,
consultant,
independent
contractor
or
representative,
and
such
individual should be retained only pursuant to a written
contract that has been approved by a senior officer
.
In
cases
where
an
agent,
consultant,
independent
contractor,
or
a
representative
is
engaged
to
provide
services
to
the
Company and that individual deals on behalf of the Company with public officials,
has access to Confidential Information or
where the
Company
otherwise
determines
it is
necessary
or advisable,
such person
will be
provided with
a copy
of this
Code and be required to acknowledge the same and be
bound by its terms.
Political and Charitable Contributions
The use of the Company’s funds, goods or services as
contributions to political parties, candidates, campaigns or charities
is forbidden,
unless authorized by
a senior
officer, and the
contribution is in
accordance with any
approved political donations
- 9 -
or
charitable
donations
budget.
Contributions
include
money
or
anything
having
value,
such
as
loans,
services,
entertainment, trips, employee work time and the use
of the Company’s facilities or assets.
No
corporate
action,
direct
or
indirect,
will
be
allowed
that
infringes
on
the
right
of
any
employee
individually
to
decide
whether, to whom,
and in what amount, he
or she will make personal
political or charitable contributions.
The same is true
of volunteer political or charitable donations of personal service time, so
long as it does not interfere with the
working status
of
employees
and
is
not
during
employee
work
time.
Employees,
officers
and
directors
who
participate
in
political
or
charitable activities on
their own behalf
and on their
own time must
not purport to
speak or act
for the Company
or in any
way use Company property or assets. It
is illegal for the Company to
reimburse an employee for a contribution in the
nature
of those listed above.
Investigations
The Company
will fully
cooperate with
any appropriate
governmental or
regulatory
investigation. Any
time an
employee,
officer or director receives information about a new government, regulatory or other investigation or inquiry, this information
should be communicated immediately to a senior officer
.
Employees, officers and directors should never,
under any circumstances:
(a)
destroy or alter any
the Company documents
or records in anticipation
of a request
for those documents
from
any government agency or a court;
(b)
lie or
make any
misleading statements to
any governmental investigator
(including routine as
well as
non-routine
investigations); or
(c)
attempt
to
cause
the
Company,
any
employee
or
any
other
person,
to
fail
to
provide
information
to
any
government investigator or to provide any false or misleading
information.
(d)
Should any governmental, regulatory or other inquiry be made through the issuance of a written or oral request
for information, such request
should immediately,
and before any
action is taken
or promised, be submitted
to
a senior officer.
COMPLIANCE
This Code
will be
posted to
the Company’s
website and
filed under
the Company’s
profile at
www.sedar.com.
A
copy of
this Code will also be made available to each Company employee and made available to each director as part of his or her
orientation materials.
From time to time as
may be requested by the
Company, each employee, officer and director, as applicable, must complete
an
acknowledgement
and
disclosure
statement
attesting
to
that
individual’s
compliance
with
this
Code.
All
such
acknowledgements will be
retained by the Human
Resources Department for
purposes of confirming that
each employee,
officer and director has acknowledged this Code.
The Company reserves the right to audit
compliance with this Code. Accordingly, all employees, officers and directors must
afford any
external or
internal auditors
full, free
and unrestricted
access to
all the
Company operations,
records, facilities
and personnel and will take appropriate measures to safeguard
information obtained through the audit process.
An employee, officer or director or other representative who becomes aware of a violation or possible violation of this Code
or any of the Company’s statements and policies must report that information immediately to a senior officer or a director of
the
Company.
Senior
officers
and
directors
may
be
subject
to
disciplinary
action
if
they
condone
misconduct
or
do
not
demonstrate the appropriate leadership to ensure compliance
with this Code.
An employee may report questionable
accounting or auditing matters, on
an anonymous basis, by sending
a letter to “The
Board
of
Directors
of
PyroGenesis
Canada Inc.
c/o
Chair,
Audit
Committee,
1744
William
Street,
Suite
200,
Montréal,
Québec H3J 1R4, Canada”. Employees, officers and directors must cooperate fully in any
Company investigation and must
take all reasonably steps necessary to safeguard the
integrity of the investigation.
WAIVER, AMENDMENTS
AND INTERPRETATION
OF THIS CODE
The Company retains sole discretion in interpreting
and applying this Code. The Company will
periodically review this Code
and make
appropriate additions
or changes.
This Code
may be
updated, modified
or withdrawn
by the
Company
at any
time in
its sole discretion.
Any waiver
of this
Code for
executive officers
or directors
may be made
only by
the Board
and
will be publicly
disclosed, together
with the
reasons for
such waiver,
in accordance
with all applicable
securities laws
and
- 10 -
stock exchange rules. Any waivers of this Code will only
be granted where such waiver is both necessary
and appropriate,
and
it
will
be
qualified
in
scope
so
as
to
protect
the
Company
to
the
greatest
extent
practicable.
Amendments
or
other
modifications
of
this
Code
will
also
be
publicly
disclosed
in
accordance
with
all
applicable
securities
laws
and
stock
exchange rules.
- 11 -