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
3
1232
)
4
Financial Statements
5
6
7
8 - 9
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
61,217,831
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
including cash and cash equivalents of $
3,445,649
12,202,513
an allowance for credit losses amounting to $
5,023,283
520,000
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
also completed another private placement in March 2023 for $
5,000,000
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:
-
-
-
-
-
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
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
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
Nil
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
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
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
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
3,255,000
, including an allowance for expected credit losses
of $
512,592
.
2
The goodwill of $
2,660,607
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
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
3,841,999
, at August 11, 2021 and an
accretion expense of $
173,350
for the year ended December 31, 2022, compared to a recognized accretion expense of $
110,204
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
100,000
150,000
2025, and $
200,000
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
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
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
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
$
520,000
), $
543,283
$
4,150,000
3,765,000
customer, whereby the carrying amount has been reduced from $
12,810,231
9,045,231
. The carrying value of all other
trade receivables was reduced from $
9,887,011
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
10,475,299
costs incurred and had recognized cumulative revenue of $
11,856,596
fourteen
16,676,700
revenue of $
21,599,410
The net amount of $
1,051,297
330,000
Nil
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
$
4,832,968
) resulting from changes in the measure of progress and the expected credit loss allowance of $
330,000
Nil
2021).
11. Investment tax credits
An amount recognized in 2022 included $
169,434
202,472
) of investment tax credits earned in the year, as well
as $
Nil
706,000
) of investment tax credits earned in prior years that no longer met the criteria for recognition in
2021. $
70,258
148,695
) of the investment tax credits recognized in the year was recorded against cost of sales
and services, $
69,176
684,709
)) against research and development expenses and $
30,000
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
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
6,800,000
3,604,000
2022.
11,447,500
3,922,244
$
225,527
.
2021 Transactions
12,755,600
14,252,732
$
9,893,900
.
16,250,000
2,518,750
. An amount of
$
9,181,250
8,268,000
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
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
2,400,000
3,300,000
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
250,000
thereafter. Payment is due no later than 30 days after the year end of HPQ Silicon Inc. An amount of $
250,000
received under this agreement in 2022 ($
200,000
HPQ Nano contract:
Royalties are
10
% of net sales, with minimum payments of $
50,000
100,000
150,000
$
200,000
Powders Inc. An amount of $
Nil
50,000
HPQ Polvere contract:
Royalties are
10
% of net sales with minimum payments of $
50,000
100,000
150,000
$
200,000
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
200,000
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
200,000
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
Nil
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
15. 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.
16. 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
1,178,530
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
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
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
17. 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.
18. 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
%).
19. 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.
20. 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
21,834,137
).
Payments to date received were $
47,045,902
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
21. 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
2
maturing October 23, 2023 bearing interest at a rate of
6.95
% per annum, payable in monthly instalments of $
1,200
amount of $
10,795
3
1,660
, bearing interest at
7.45
%
4
no
no
Economic Development Agency of Canada Loan
On March 5, 2020, the Company entered into a repayable contribution agreement up to $
450,000
Economic Growth through Innovation program from the Economic Development Agency of Canada (“EDC”). The
contribution is repayable in
60
24 months
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
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
no
by December 31, 2023. 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.
22. 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
of $
1.30
1,318,980
. Each unit is comprised of
one
of the Company and
one
one additional common share at an exercise price of $
1.75
24 months
. The Company allocated an amount
of $
1,095,780
1.08
residual amount of $
223,200
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
8,146,483
purchase warrants were exercised for net proceeds of $
1,412,799
Nil
1,109,818
12,396,107
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
191,414
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
to January 13, 2022. In February 2022, the Company announced it had been authorized to repurchase
7,500,000
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
$
4.96
4,183,617
16,678
. The excess of the total
consideration over the carrying amount of the shares, in the amount of $
3,778,619
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)
1.44
5.48
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
Company, and
300,000
$
3.36
5
) years.
On April 5, 2022, the Company granted
400,000
exercise price of $
2.96
400,000
10
20
30
and
40
of five (
5
) years.
On June 2, 2022, the Company granted
600,000
and
900,000
1,500,000
25
of the day of the grant,
25
25
the date of the grant and
25
price of $
3.88
5
) years.
On July 3, 2022, the Company granted
125,000
exercise price of $
2.14
125,000
10
20
30
and
40
of five (
5
) years.
Subsequent to year end, the Company granted
150,000
Company, and
500,000
$
1.03
5
) years. The Company accounted
for an expense amounting to $
453,204
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
of $
1.03
975,000
10
20
the first anniversary of the date of the grant,
30
40
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
options have an exercise price of $
3.61
5
)
years.
On December 17, 2021, the Company granted
1,920,000
Company. The stock options have an exercise price of $
3.13
a period of five (
5
) years.
On October 14, 2021, the Company granted
100,000
options have an exercise price of $
5.04
100,000
10
day of the grant,
20
30
of the grant, and
40
5
)
years.
On June 14, 2021, the Company granted
100,000
exercise price of $
6.70
100,000
25
25
percent at the first anniversary of the date of grant,
25
25
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
have an exercise price of $
6.59
200,000
25
grant,
25
25
25
5
) years.
On April 6, 2021, the Company granted
150,000
100,000
200,000
100,000
the Company. The stock options have an exercise price of $
8.47
250,000
immediately,
200,000
30
35
of the date of the grant and
35
100,000
will vest as follows:
10
20
30
percent at the second anniversary of the date of the grant, and
40
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
and $
2.02
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)
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
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
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)
—
23. 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
24. Supplemental disclosure on comprehensive income statement
The amount of inventories recognized in cost of sales is $
844,304
326,279
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
635,828
December 31, 2022, as compared to (2021 - $
356,103
570,411
administrative.
Employee benefits totaled $
18,115,284
21,855,957
) and include share-
based compensation of $
5,538,463
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
226,420
). An amount of
$
Nil
149,575
) was recorded as a reduction to the related expenses in research and development, an amount of
$
204,791
76,845
) was recorded as a reduction to the related expenses in selling, general and administrative.
25. 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
26. 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
27. 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
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
of the original prepayment amount of $
1,178,530
remeasured using a discount rate of
4
%. As a result, the lease liability was increased by an amount of $
1,070,264
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
$
799,090
1,107,131
Nil
).
A balance due to the controlling shareholder and CEO of the Company amounted to $
254,097
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
28. 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
52
% (December 31, 2021 –
four
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
56
%,
16
% and
11
%, respectively (December 31, 2021 –
one
73
%) of trade
accounts receivable with amounts owing to the Company of $
18,894,727
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
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
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
576,000
) line of credit. At December 31, 2022, $
498,200
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
a new system of advanced waste treatment systems technology. The grant is potentially repayable at the rate of
3
% of any
consideration received as a result of the project, for which funding has been received, to a maximum of the actual grant
received. This repayment provision will remain in effect until May 30, 2024. The Company abandoned the project in 2011
and accordingly,
no
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
$
14,006,785
).
The management of capital includes shareholders’ equity for a total amount of $
16,868,927
40,768,754
) and term
loans of $
389,987
190,905
), as well as cash and cash equivalents amounting to $
3,445,649
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
1, 2022
loss
$
$
$
$
$
$
$
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
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
1.00
5,000,000
. Each unit consists
of
one
one
to purchase
one
1.25
shares as the fair value of the common shares on March 8, 2023 was $
1.38
.