UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2023
Commission File Number: 001-39989
PYROGENESIS CANADA INC.
(Translation of registrant's name into
English)
1744, William St. Suite 200
Montreal, QC, H3J1R4
Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover
of Form 20-F or Form 40-F.
Form 20-F [ ] Form 40-F [ X ]
EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PYROGENESIS CANADA INC. | ||
| (Registrant) | ||
| Date: August 10, 2023 | /s/ P. Peter Pascali | |
| P. Peter Pascali | ||
| Chief Executive Officer | ||
EXHIBIT 99.1
PyroGenesis Announces 2023 Second Quarter Results
- The Company continues to expand into new markets and reach full commercialization goals, while maintaining a healthy 37% gross margin.
MONTREAL, Aug. 10, 2023 (GLOBE NEWSWIRE) -- PyroGenesis Canada Inc. (http://pyrogenesis.com) (TSX: PYR) (NASDAQ: PYR)
(FRA: 8PY), a high-tech company (the “Company” or “PyroGenesis”) that designs, develops, manufactures and commercializes
advanced plasma processes and sustainable solutions which are geared to reduce greenhouse gases (GHG), is pleased to announce today its
financial and operational results for the second quarter ended June 30, 2023.
“Despite a relatively flat quarter and the continued fluctuations in our quarterly revenues that we had previously acknowledged as possible, we remain confident in our long-term strategy. The opportunities for the Company across the large-scale industrial technology and industrial decarbonization landscapes are significant,” said Mr. P. Peter Pascali, CEO and President of PyroGenesis. “The barriers to entry for gaining a foothold in these markets has always been high, from both a technology and resource perspective – particularly in the energy transition segments, where fundamental structural change to long-established underlying energy and fuel systems are conducted with measured and exacting processes, and where delays are common. We firmly believe that this is where our close to thirty years of R&D, and our long-standing industry relationships, provide a long-term advantage, as we persist in-step with these trends which have been exacerbated by the uncertain economic environment that continues to create volatility in the capital markets.”
“Against much larger competitors, and by using our globally recognized expertise in ultra-high temperature processes such as plasma, along with robust client relationship building, we continue to experience successes that have enabled us to push past the barriers to entry in several of our strategic business lines,” continued Mr. Pascali. “Commercialization results in titanium metal powders, and the opening of new markets for higher power plasma torches (such as the contract which we recently announced with a defense and aeronautics contractor for a next tier 4.5MW plasma torch), underscores that the strategy to maintain our focus on developing technologies and solutions that we believe are certain to take hold with leading global industrial companies during a period of major paradigm shift – namely in Energy Transition & Emissions Reduction, Commodity Security & Optimization, and Waste Remediation – is key to securing PyroGenesis’ future.”
“Despite the quarterly ups and downs, our commitment to supporting heavy industry with customer-ready, low carbon-footprint technology solutions, remains steadfast,” Mr. Pascali added. “Our backlog of signed and/or awarded contracts remains strong, at $33.9 million. Our 37% gross margin is fully in line with the industrial machinery and components industry1 and well ahead of the gross margins for the industries we serve, such as aluminum2, iron and steel3, and even aerospace and defense4. We look forward to the remainder of 2023 as our business strategy continues to gain traction.”
The information below represents important highlights from the past quarter, followed by an outline of the company’s strategy and outlook for the next quarter.
Q2 Production Highlights
In Q2 2023, PyroGenesis continued its focus on advancing its updated business strategy that was first outlined in the Company’s 2022 fourth quarter and year-end results.
As noted, as the variety of uses for the Company’s core technologies has expanded, and industry interest has increased, the Company is concentrating its solution ecosystem under three verticals that align with economic drivers that are key to global heavy industry:
1. Energy Transition & Emission Reduction:
· fuel switching, utilizing the Company’s electric-powered plasma torches and biogas upgrading technology to help heavy industry reduce fossil fuel use and greenhouse gas emissions,
2. Commodity Security & Optimization:
· recovery of viable metals, and optimization of production to increase output, to maximize raw materials and improve availability of critical minerals,
3. Waste Remediation:
· safe destruction of hazardous materials, and the recovery and valorization of underlying substances such as chemicals and minerals.
Within each vertical the Company offers several solutions at different stages to commercialization.
The information below represents highlights from the past quarter for each of the above verticals, followed by an outline of the Company’s strategy, and key developments that will impact the subsequent quarters.
1. Energy Transition & Emission Reduction
· In May, the Company announced that its subsidiary, Pyro Green-Gas, had successfully completed the integrated cold test (ICT) step under a previously announced $9.3 million project, with a key client – one of the world’s top diversified steel producers.
The ICT completion marks a significant milestone towards the completion of the overall project, where Pyro Green-Gas has been mandated to (i) supply coke oven gas purification solutions and (ii) hydrogen production processes that have combined the potential to allow for the extracting of hydrogen with a 99.999% purity level and improve the client’s environmental outcome. The ICT confirms that all systems, equipment and their components meet and exceed the required operation and safety standards.
With the implementation of Pyro Green-Gas’ hydrogen extraction technology, the client would be able to rely on a cleaner energy source for its annealing, galvanizing and acid recovery processes, furthering its efforts to reduce its carbon footprint.
2. Commodity Security & Optimization
· In May, the Company announced a major corporate breakthrough with its first commercial by-the-tonne order for titanium metal powder for use in industrial 3D printing, commonly known as additive manufacturing. The contracted order for 5 metric tonnes (or 5,000 kg) also had a provisional order for an additional 6 tonnes.
The order is to be completed using PyroGenesis’ NexGen™ plasma atomization system, from the Company’s metal powder production facility in Montreal, Quebec. The client is an advanced materials company in the United States, who has requested anonymity.
As noted at the time by Massimo Dattilo, VP PyroGenesis Additive, this order represents the Company’s “full entrance into the titanium metal powders marketplace”.
· In June, the Company announced an achievement regarding its GEN3 PUREVAP™ Quartz Reduction Reactor (QRR) pilot plant (the “GEN3 PUREVAP ™ Pilot Plant” or the “Pilot Plant”) project, with material produced by the pilot plant receiving successful laboratory validation of quartz to high-purity 3N+ silicon in one step. During test #5, the pilot plant achieved an average silicon purity (%) of 99.92% across two separate tests. This outcome validates the capability of the QRR process to surpass the minimum purity requirement of 3N needed for battery-grade silicon.
The PUREVAP™ process is an innovative patented process that will enable the one-step conversion of quartz (SiO2) into high-purity silicon (Si) at reduced costs, energy input and carbon footprint that will propagate its considerable renewable energy potential. As noted at the time in the client’s news release, silicon (Si), also known as silicon metal, is a key strategic material needed for the decarbonization of the economy and the Renewable Energy Revolution (“RER”). However, silicon does not exist in its pure state and must be extracted from quartz (SiO2) in what has historically been a capital and energy-intensive process.
The Client, HPQ Silicon Inc. (TSX-V: HPQ) is an advanced materials engineering provider that offers sustainable silica (SiO2) and silicon (Si) solutions. Based in Quebec, HPQ Silicon is developing a unique portfolio of value-added silicon products sought after by electric vehicle and battery manufacturers, among other industries. PyroGenesis is the engineering and development producer, but also, as part of the terms of the contract with HPQ, PyroGenesis benefits from a royalty payment representing 10% of the Client’s sales, with set minimums.
3. Waste Remediation
· In June, the Company signed two contracts with Aluminerie Alouette, for projects to valorize residue streams from primary aluminum smelters. Alouette, located in Quebec, is home to the largest aluminum smelter in the Americas.
The first contract is to further advance a spent pot lining (or SPL) valorization technology, originally announced in March of 2021 upon receipt of a research grant to study the concept. Pot linings are the insulating carbon material that helps enable electrical conductivity inside an aluminum smelter cell or pot, for the process of turning aluminum oxide into aluminum. This lining typically has an average lifespan of 5 years, after which it eventually fails from continuous use, causing the spent pot to be put out of service and the highly contaminated linings to be removed.
PyroGenesis’ SPL remediation technology has now advanced to the point where full participation of Alouette in partnership with PyroGenesis has commenced. An estimated 1.5 million tons of spent pot linings are produced annually worldwide. If PyroGenesis’ proposed process proves successful, it could address a major issue concerning the aluminum industry. The second contract is geared to develop a new valorization solution for excess electrolytic bath. In both instances, the materials, while dangerous, if processed correctly can be recovered and reused by the primary aluminum producer.
Both projects have a commercial end goal with a strategy to market the solutions industry-wide in conjunction with Aluminerie Alouette.
Q2 Financial Highlights
· In May, the Company announced the receipt of a $2 million payment (US$1.5 million) under its existing $25 million Drosrite™ contract with Drosrite International LLC, which was in turn contracted by Radian Oil and Gas Services Company for an order of 7 Drosrite™ aluminum dross recovery systems.
The first three Drosrite™ systems are in use at Ma’aden, the largest mining company in the Kingdom of Saudi Arabia, at their Ras Al-Khair location – the world’s largest integrated aluminum facility. The remaining four systems under the contract have already been manufactured and are ready for deployment subject to a renewed payment schedule.
· In June, the Company announced a “best-efforts” brokered private placement offering of up to 5,000 unsecured convertible debenture units of the Company (the “Convertible Debenture Units”) at a price of $1,000 per Debenture Unit, for proceeds of up to $5,000,000 (the “Offering”). In connection with the Offering, P. Peter Pascali, President, CEO, and Director subscribed to $2,000,000 of Convertible Debenture Units. The Company indicated it intends to use the net proceeds from the Private Placement for working capital and general corporate purposes.
· In July, the Company announced amended terms of the brokered private placement, and also in July subsequently announced final closing of the placement.
Q2 Operational Highlights
· In May, the Company announced receipt of a 180-day extension to meet the Nasdaq minimum US$1 bid requirement under NASDAQ Listing Rule 5550(a)(2).
OUTLOOK
Consistent with the Company’s past practice, and in view of the early stage of market adoption of our core lines of business, we are not providing specific revenue or net income (loss) guidance for 2023. However, various events have occurred that allow for a partial window into the remainder of 2023.
Overall Strategy
PyroGenesis provides technology solutions to heavy industry that leverage off of the Company’s proprietary position and expertise in ultra-high temperature processes. The Company has evolved from its early roots of being a specialty-engineering firm to being a provider of a robust technology eco-system for heavy industry that helps address key strategic goals.
The Company believes its strategy to be timely, as multiple heavy industries are committing to major carbon and waste reduction targets at the same time as many governments are increasingly funding environmental technologies and infrastructure projects – all while both are making efforts to ensure the availability of critical minerals during the coming decades of increased output demand.
While there can be no guarantee, the Company believes this evolution of its strategy beyond a greenhouse gas emission reduction emphasis, to an expanded focus that encapsulates the key verticals listed above, both improves the Company’s chances for success while also providing a clearer picture of how the Company’s wide array of offerings work in tandem to support heavy industry goals.
PyroGenesis’ market opportunity remains large, as major industries such as aluminum, steelmaking, manufacturing, defense, aeronautics, and government require factory-ready, technology-based solutions to help steer through the paradoxical landscape of increasing demand and tightening regulations and material availability.
As more of the Company’s offerings reach full commercialization, PyroGenesis will remain focused on attracting influential customers in broad markets, and ensuring that operating expenses are controlled to achieve profitable growth.
For the remainder of 2023, we will continue to sharpen our focus on our strategy that structures our solution ecosystem under the three verticals noted previously: energy transition & emission reduction; commodity security & optimization; and waste remediation.
Some key developments to that end, include:
Enhanced Sales and Marketing
Against the backdrop of this strategy, the Company has been increasing sales, marketing, and R&D efforts in-line – and in some cases ahead of – the growth curve for industrial change related to greenhouse gas reduction efforts.
In May, during the Company’s annual general meeting (AGM), the Company released a new corporate presentation that provides a significantly better representation of the Company, its technology offerings, and alignment to customer needs.
The Company intends to develop additional visual material throughout 2023.
Business Line Developments
Upcoming milestones which are expected to confirm the validity of our strategies, are as follows:
Business Line Developments: Near Term (0 – 3 months)
(i) Financial
Payments for Outstanding Major Receivables: The Company remains in continuous discussions with Radian Oil and Gas Services Company regarding the outstanding receivable of approximately US$8.0 million under the Company’s existing $25 million+ Drosrite™ contract. As previously announced, PyroGenesis agreed to a strategic extension of the payment plan, by the customer and its end-customer, geared to better align the pressures on the end-user’s operating cash flows created by increased business opportunities.
These discussions are very positive, both in regards to the ongoing payment plan, and in regards to a potential substantial new order of additional Drosrite™ systems, as the client’s cash flow pressures and their new business opportunities move closer to resolution.
Innovation Grants: as mentioned in the Q1 outlook on May 15 the Company has applied for grants tailored to technology innovation and/or carbon reduction, and expects to have results regarding these applications. This situation has progressed very positively, and the Company is awaiting formal government announcement of the grants before it is legally allowed to indicate specifics.
(ii) Commodity Security & Optimization
Negotiations for Multiple Metal Powder Orders: Negotiations with companies for commercial orders of the Company’s metal powders continues, as projected within the Company’s Q1 outlook for Q2. As noted above, in Q2 the Company announced a first by-the-tonne contract for titanium metal powder of 5 metric tonnes, with an option for 6 additional tonnes.
Product Qualification Process for Global Aerospace Firm: Based on information flow between the Company and the aerospace client previously announced, the Company believes that the 2-year long qualification process to approve the Company’s titanium metal powers for use by a global aerospace firm and their suppliers, will conclude in the near term. This project continues to move forward positively.
(iii) Energy Transition & Emission Reduction
Plasma Torch Order: As mentioned in the Q1 outlook for Q2, on May 15, the Company was in advanced discussions with an international entity, whereby a plasma torch contract, if signed, would be between $3-$4 million. Post quarter end, on August 1, 2023, the Company received a signed contract for this project, for $4.1 million, with a confidential US-based aeronautics and defense client.
Iron Ore Pelletization Torch Trials: As mentioned in the Q1 outlook on May 15, in April 2023, the commissioning of the plasma torch systems, for use in Client B’s pelletization furnaces, was underway, with the Company’s engineers onsite at the Client’s iron ore facility. The commissioning process includes installation, start-up, and site acceptance testing (SAT). “Client B” is the customer to whom the Company previously announced that it had shipped four 1 MW plasma torch systems for use in Client B’s iron ore pelletization furnaces, for trials toward potentially replacing fossil-fuel burners with plasma torches in the Client’s furnaces.
This project continues to move forward. The Client recently suffered a series of unfortunate technical events that caused delays of several weeks, as a result of damaging regional torrential rain storms and flooding that caused significant impairment to the facility’s electrical system and furnace components. Repairs have been ongoing. The Company’s plasma torches have been installed and activated, and the final commissioning and site acceptance testing has resumed, with expectation for final SAT completion within the next few weeks or sooner.
Pyro Green-Gas: The Company’s wholly-owned subsidiary is expected to sign a contract with an approximate value of between $10-$15 million in connection with a renewable natural gas project.
Aluminum Remelting Furnaces: The Company has been working on the development of aluminum remelting furnace solutions using plasma, for use by secondary aluminum producers or any manufacturer of aluminum components that uses recycled or scrap aluminum.
With gas-fired furnaces responsible for much of the scope 1 emissions of secondary aluminum production, aluminum companies have been searching for solutions that can help in the decarbonization efforts of aluminum remelting and cast houses.
The Company has two concepts: the retro-fitting of plasma torches in existing remelting and cast house furnaces that currently use other forms of heating, such as natural gas; and the manufacturing and sale of a PyroGenesis produced furnace based off the Company’s existing Drosrite metal recovery furnace design, which has been in use commercially for several years.
The Company has been working with a number of different companies over the past few years towards these goals. The results from the conclusion of recent major tests, conducted in conjunction with these companies, have been very positive, and negotiations are underway for next step deployments and sales, with announcements forthcoming.
Status as a Dual-Listed Publicly Traded Company
As part of the Company’s proactive risk management strategy, it is currently evaluating the costs and benefits of maintaining a dual listing on both Nasdaq and the TSX. This ongoing evaluation entails an analysis of several key factors, including (i) the financial costs associated with being on each exchange, such as insurance costs, regulatory compliance costs, legal fees, and accounting fees, (ii) the volume of trading on both exchanges, and (iii) the regulatory and compliance requirements of each exchange.
Costs to PyroGenesis associated to its dual listing in the US are considerable, with incremental US-specific fees related to directors & officer insurance, legal, listing and filings, and accounting, of more than $2.2 million.
The Company has until November 20, 2023 to regain the Nasdaq’s minimum US$1 bid compliance for ten consecutive trading days. Management will continue to monitor the situation and conduct its analysis, and will provide material updates as they occur.
Please note that projects or potential projects previously announced that do not appear in the above summary updates should not be considered as at risk. Noteworthy developments can occur at any time based on project stages, and the information presented above is a reflection of information on hand.
Financial Summary
Revenues
PyroGenesis recorded revenue of $3.0 million in the second quarter of 2023 (“Q2, 2023”), representing a decrease of $2.8 million compared with $5.8 million recorded in the second quarter of 2022 (“Q2, 2022”). Revenue for the six-month period ended June 30, 2023, was $5.6 million, a decrease of $4.4 million over revenue of $10.1 million compared to the same period in 2022.
Revenues recorded in the three and six-months ended June 30, 2023, were generated primarily from:
Revenues recorded in Q2 2023 were generated primarily from:
- PUREVAP™ related sales of $445,840 (2022 Q2 - $820,972)
- DROSRITE™ related sales of $115,325 (2022 Q2 - $436,538)
- Development and support services related to systems supplied to the US Navy $813,125 (2022 Q2 - $591,099)
- Torch related sales of $561,942 (2022 Q2 - $1,707,152)
- Refrigerant destruction (SPARC™) related sales of $187,444(2022 Q2 – $0)
- Biogas upgrading & pollution controls of $618,070 (2022 Q2 - $2,181,107)
- Other sales and services $297,733 (2022 Q2 - $110,312)
Q2, 2023 revenues decreased by $2.8 million, mainly as a result of:
- PUREVAP™ related sales decreased by $0.4 million due to the completion of the project and initial phase of testing, with additional three-month testing requested by the customer and currently ongoing,
- DROSRITE™ related sales decreased by $0.3 million due to continued customer delays in funding for the construction of the onsite facility. Based on the customers updated projected schedule and ongoing positive discussions, the new expectation aims to have the equipment installed, commissioned and fully operational by end of the year,
- Torch-related products and services decreased by $1.1 million, due to the final phase of the project being completed with the installation and commissioning at the customers facility. Three-month onsite support currently ongoing and scheduled to be completed by the end of the third quarter, with an option to extend to six and nine-month support at the discretion of the customer,
- Biogas upgrading and pollution controls related sales decreased by $1.6 million due to continuous testing to achieve desired results and due to the Company’s Italian subsidiary and a customer who both agreed on the completion of the project during the first quarter of 2023, with no additional revenues recorded by the Company’s Italian subsidiary for Q2, 2023 ($0.9 million – Q2, 2022),
During the six-month period ended June 30, 2023, revenues decreased by $4.4 million, mainly as a result of:
- PUREVAP™ related sales decreased by $0.2 million due to the completion of the project and initial phase of testing,
- DROSRITE™ related sales decreased by $1.1 million due to the impact of the continued customer delays in funding for the construction of the onsite facility,
- Development and support related to systems supplied to the U.S Navy decreased by $0.2 million due to remaining project milestones mainly related to inspection, packaging and shipment of the equipment to our customer in order to move forward with installation and commissioning,
- Torch-related products and services decreased by $0.9 million, due to the final phase of the project being completed with the installation and commissioning at the customers facility. Three-month onsite support currently ongoing and scheduled to be completed by the end of the third quarter, with an option to extend to six and nine-month support at the discretion of the customer,
- Biogas upgrading and pollution controls related sales decrease of $2.5 million is due
to continuous testing to achieve desired results and due to the Company’s Italian subsidiary and a customer who both agreed on the
completion of the project during the first quarter of 2023, with no additional revenues recorded by the Company’s Italian subsidiary
for the six-month period ended June 30, 2023 ($1.2 million – six-month period ended June 30, 2022),
As of August 10, 2023, revenue expected to be recognized in the future related to backlog of signed and/or awarded contracts is $33.9 million. Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over a maximum period of approximately 3 years.
Cost of Sales and Services and Gross Margins
Cost of sales and services were $1.9 million in Q2 2023, representing a decrease of $1.4 million compared to $3.3 million in Q2, 2022, primarily due to a decrease of $0.1 million in subcontracting (Q2, 2022 - $0.4 million), attributed to additional work being completed in-house, a decrease in direct materials and manufacturing overhead & other of $1.3 million and $0.4 million, respectively (Q2, 2022 - $1.6 million and $0.7 million), due to lower levels of material required based on the decrease in product and service-related revenues.
The gross margin for Q2, 2023 was $1.1 million or 37% of revenue compared to a gross margin of $2.5 million or 43% of revenue for Q2 2022, the decrease in gross margin was mainly attributable to the impact on foreign exchange charge on materials.
During the six-month period ended June 30, 2023, cost of sales and services were $4.0 million compared to $6.5 million for the same period in the prior year, the $2.5 million decrease is primarily due to a decrease of $0.8 million in subcontracting (six-month period ended June 30, 2022 - $1.0 million), attributed to additional work being completed in-house, a decrease in direct materials and manufacturing overhead & other of $1.8 million and $0.3 million respectively (six-month period ended June 30, 2022 - $2.7 million and $0.9 million respectively), due to lower levels of material required based on the decrease in product and service-related revenues and the negative impact of the foreign exchange charge on material of $0.2 million.
The amortization of intangible assets for Q2, 2023 was $0.2 million compared to $0.2 million for Q2, 2022, and during the six-month period ended June 30, 2023, was $0.4 million compared to $0.4 million for the same period in the prior year. This expense relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items, and the intangible assets will be amortized over the expected useful lives.
As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, as the mix between labour, materials and subcontracts may be significantly different. In addition, due to the nature of these long-term contracts, the Company has not necessarily passed on to the customer, the increased cost of sales which was attributable to inflation, if any. The costs of sales and services are in line with management’s expectations and with the nature of the revenue.
Selling, General and Administrative Expenses
Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.
SG&A expenses for Q2, 2023 were $6.4 million, representing a decrease of $0.7 million compared to $7.1 million for Q2, 2022. The decrease is mainly a result of share-based compensation expense decreased by $0.9 million (Q2, 2022 - $1.6 million), which is a non-cash item and relates mainly to a Q4 2021, and 2022 grants not repeated in 2023. Professional fees are $1.0 million which decreased by $0.8 million (Q2, 2022 - $1.7 million), due to reduction in accounting fees, legal and investor relation expenses. Other expenses were favourable by $0.5 million (Q2, 2022 - $1.3 million) due to a net reduction of insurance expenses, interest and bank charges. Government grants are $0.2 million which increased by $0.2 million ($Q2, 2022 – $0.06 million) due to higher levels of activities supported by such grants. The expected credit loss & bad debt increased to $0.7 million in Q2, 2023 and is due to an increase in the allowance for expected credit loss, whereby no such expense was recorded in the comparable period.
During the six-month period ended June 30, 2023, SG&A expenses were $14.0 million, representing an increase of $1.3 million compared to $12.7 million for the same period in the prior year. The increase is mainly a result of employee compensation increasing to $5.1 million (six-month period ended June 30, 2022 - $3.5 million) mainly caused by additional headcount. Expected credit loss & bad debt increased to $2.1 million and is due to an increase in the allowance for expected credit loss increase of $2.1 million and the increase of the impact on foreign exchange charge on materials of $0.3 million, offset by the decreases of $0.2 million in professional fees which are $2.2 million, compared to $2.4 million in the comparable period, and the decrease in other expenses to $1.6 million from $2.4 million, a variation of $0.7 million, compared to the six-month period ended June 30, 2022.
Share-based compensation expense for the three and six-month periods ended June 30, 2023, was $0.7 million and $1.7 million, respectively (six-month period ended June 30, 2022 - $1.6 million and $3.3 million, respectively), a decrease of $0.9 million and $1.6 million respectively, which is a non-cash item and relates mainly to a Q4 2021, and 2022 grants not repeated in 2023.
Share-based payments expenses as explained above, are non-cash expenses and are directly impacted by the vesting structure of the stock option plan whereby options vest between 10% and up to 100% on the grant date and may require an immediate recognition of that cost.
Depreciation on Property and Equipment
The depreciation on property and equipment for the three and six-month periods ended June 30, 2023, increased to $0.2 million and $0.3 million, respectively, compared with $0.1 million and $0.3 million for the same periods in the prior year. The expense is comparable to the same quarters last year and the increase is primarily due to nature and useful lives of the property and equipment being depreciated.
Research and Development (“R&D”) Expenses
During the three-months ended June 30, 2023, the Company incurred $0.7 million of R&D costs on internal projects, a decrease of $0.06 million as compared with $0.8 million in Q2, 2022. The decrease in Q2, 2023 is primarily related to a decrease in subcontracting and materials and equipment to $0.1 million (Q2, 2022 - $0.5 million), which is also attributable to the increase in employee compensation to $0.4 million (Q2, 2022 - $0.2 million) due to an increase in R&D activities which required additional labour resources and other expenses of $0.2 million related to equipment rentals compared to $0.1 million in Q2, 2022, an increase of $0.1 million.
During the six-months ended June 30, 2023, the Company incurred $1.1 million of R&D costs on internal projects, a decrease of $0.2 million as compared to $1.3 million for the same period in the prior year. The decrease is mainly due to lower levels of R&D activities requiring subcontracting and material and equipment, decreasing to $0.2 million as compared with $0.7 million, a decrease of $0.5 million, which is offset by the increase in other expenses to $0.4 million compared to $0.2 million for the same period in the prior year.
In addition to internally funded R&D projects, the Company also incurred R&D expenditures during the execution of client funded projects. These expenses are eligible for Scientific Research and Experimental Development (“SR&ED”) tax credits. SR&ED tax credits on client funded projects are applied against cost of sales and services (see “Cost of Sales” above).
Financial Expenses
Finance costs for Q2 2023 represent an income of $0.9 million as compared with an expense of $0.2 million for Q2, 2022, representing a favourable variation of $1.1 million year-over-year. The decrease in finance expenses in Q2 2023, is primarily due as the Company determined that a milestone related to the business combination would not be achieve and therefore, a reversal of the liability was recorded.
During the six-month period ended June 30, 2023, the finance costs represent an income of $1.8 million as compared with an expense of $0.3 million for the 2022 comparable period, representing a favourable variation of $2.2 million year-over-year. The decrease in finance expenses is primarily due to the revaluation of balance due on business combination due to the Company’s Italian subsidiary and a customer who both agreed on the final acceptance of a contract, prior to final completion and the Company determined that a milestone related to the business combination would not be achieved. As a result, the contract did not attain the pre-determined milestone in connection with the balance due on business combination, and reversals of the liabilities were recorded.
Strategic Investments
During the three-months ended June 30, 2023, the adjustment to fair market value of strategic investments for Q2, 2023 resulted in a loss of $1.2 million compared to a loss in the amount of $7.5 million in Q2, 2022, a favorable variation of $6.2 million.
During the six-months ended June 30, 2023, the adjustment to fair market value of strategic investments resulted in a loss of $0.9 million compared to a loss in the amount of $6.3 million for the same period in the prior year, a favorable variation of $5.4 million. The decrease in loss for the three and six-month periods ended June 30, 2023, is attributable to the variation of the market value of the common shares and warrants owned by the Company of HPQ Silicon Inc.
Comprehensive Loss
The comprehensive loss for Q2, 2023 of $6.3 million compared to a loss of $13.0 million, in Q2, 2022, represents a variation of $6.7 million, and is primarily attributable to the factors described above, which have been summarized as follows:
- a decrease in product and service-related revenue of $2.8 million arising in Q2, 2023,
- a decrease in cost of sales and services of $1.4 million, primarily due to a decrease in subcontracting, direct materials, and manufacturing overhead and other, offset by the increase in employee compensation, foreign exchange charge on materials, and amortization of intangible assets,
- a decrease in SG&A expenses of $0.7 million arising in Q2, 2023, was primarily due to a decrease in professional fees, office and general and other expenses, offset by increases in employee compensation, travel, depreciation of property and equipment, depreciation of ROU assets, foreign exchange charge on materials, and the allowance for credit loss of $0.7 million,
- a decrease in share-based expenses of $0.9 million
- a decrease in R&D expenses of $0.06 million primarily due to a decrease in subcontracting, materials and equipment, and an increase in employee compensation, investment tax credits and other expenses,
- a decrease in finance costs (income), net of $1.1 million in Q2, 2023 primarily due to the revaluation of balance due on business combination,
- a favourable variation in the fair market value of strategic investments of $6.2 million,
- a decrease in income taxes of $0.02 million in Q2, 2023.
The comprehensive loss for the six-month period ended June 30, 2023, of $12.5 million compared to a loss of $17.1 million, for the same period in the prior year, represents a variation of $4.6 million, and is primarily attributable to the factors described above, which have been summarized as follows:
- a decrease in product and service-related revenue of $4.4 million,
- a decrease in cost of sales and services of $2.5 million, primarily due to a decrease in subcontracting, direct materials, manufacturing overhead and other, and investment tax credits, offset by the increase in employee compensation foreign exchange charge on materials, and amortization of intangible assets,
- an increase in SG&A expenses of $1.3 million was primarily due to an increase in employee compensation, travel, depreciation in property and equipment, foreign exchange charge on materials, and the allowance for credit loss of $2.1 million which is offset by a decrease in professional fees, office and general, and other expenses,
- a decrease in share-based expenses of $1.6 million
- a decrease in R&D expenses of $0.2 million primarily due to a decrease in subcontracting and material and equipment and an increase in employee compensation, investment tax credits and other expenses,
- a decrease in net finance costs (income) of $2.2 million is primarily due to the revaluation of balance due on business combination,
- a favourable variation in the fair market value of strategic investments of $5.4 million,
- a decrease in income taxes of $0.08 million.
Liquidity and Capital Resources
As at June 30, 2023, the Company had cash of $0.8 million, included in the net working capital deficiency of $3.2 million. Certain working capital items such as billings in excess of costs and profits on uncompleted contracts do not represent a direct outflow of cash. The Company expects that with its cash, liquidity position, the proceeds available from the strategic investment and access to capital markets it will be able to finance its operations for the foreseeable future.
The Company’s term loan balance at June 30, 2023 was $391,564, and varied only slightly since December 31, 2022. The increase from January 1, 2022 to December 31, 2022, was mainly attributable to the additional proceeds received on the Economic Development Agency of Canada loan, which is interest free and will remain so, until the balance is paid over the 60-month period ending March 2029. The average interest expense on the other term loans was 7.2% in the period. The Company does not expect changes to the structure of term loans in the next twelve-month period. The Company maintained one credit facilities which bears interest at a variable rate of prime plus 1%, therefore 7.95% at June 30, 2023. The Company reimbursed a portion of the credit facilities during Q2 2023, and extended the due date of the remaining balance, while maintaining the similar conditions.
About PyroGenesis Canada Inc.
PyroGenesis Canada Inc., a high-tech company, is a proud leader in the design, development, manufacture and commercialization of advanced plasma processes and sustainable solutions which reduce greenhouse gases (GHG) and are economically attractive alternatives to conventional “dirty” processes. PyroGenesis has created proprietary, patented and advanced plasma technologies that are being vetted and adopted by industry leaders in four massive markets: iron ore pelletization, aluminum, waste management, and additive manufacturing. With a team of experienced engineers, scientists and technicians working out of its Montreal office, and its 3,800 m2 and 2,940 m2 manufacturing facilities, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. The operations of PyroGenesis are ISO 9001:2015 and AS9100D certified, having been ISO certified since 1997. For more information, please visit: www.pyrogenesis.com.
Cautionary and Forward-Looking Statements
This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws, including, without limitation, statements regarding anticipated use of the net proceeds of the Private Placement. In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management’s current beliefs, expectations, estimates and projections regarding future events and operating performance.
Forward-looking statements are necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this release, are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, but are not limited to, the risk factors identified under “Risk Factors” in the Company’s latest annual information form, and in other periodic filings that the Company has made and may make in the future with the securities commissions or similar regulatory authorities, all of which are available under the Company’s profile on SEDAR at www.sedar.com, or at www.sec.gov. These factors are not intended to represent a complete list of the factors that could affect the Company. However, such risk factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to publicly update or revise any forward-looking statement, except as required by applicable securities laws.
Neither the Toronto Stock Exchange, its Regulation Services Provider (as that term is defined in the policies of the Toronto Stock Exchange) nor the NASDAQ Stock Market, LLC accepts responsibility for the adequacy or accuracy of this press release.
FURTHER INFORMATION
Additional information relating to Company and its business, including the 2022 Financial Statements, the Annual Information Form and other filings that the Company has made and may make in the future with applicable securities authorities, may be found on or through SEDAR at www.sedar.com, EDGAR at www.sec.gov or the Company’s website at www.pyrogenesis.com.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans, is also contained in the Company’s most recent management information circular for the most recent annual meeting of shareholders of the Company.
For further information please contact:
Rodayna Kafal, Vice President, IR/Comms. and Strategic BD
Phone: (514) 937-0002, E-mail: ir@pyrogenesis.com
RELATED LINK: http://www.pyrogenesis.com/
1 https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=207
2 https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=104
3
https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=107
4 https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=201
A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/8558cbbd-e9ed-45db-8b9b-69bdffa486a6
Exhibit 99.2
PyroGenesis Canada Inc.
Condensed Consolidated Interim
Financial Statements
As at June 30, 2023 and for the three and six-month period ended June 30, 2023 and 2022
(Unaudited)
The accompanying unaudited condensed consolidated financial statements of PyroGenesis Canada Inc. have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these unaudited condensed consolidated interim financial statements for the period ended June 30, 2023.
June 30, 2023.
PyroGenesis Canada Inc.
Condensed Consolidated Interim Statements of Financial Position
(Unaudited)
(In Canadian dollars)
| Notes | June 30, | December 31, | ||||||||||
| 2023 | 2022 | |||||||||||
| $ | $ | |||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash | 829,583 | 3,445,649 | ||||||||||
| Accounts receivable | 6 | 11,623,765 | 18,624,631 | |||||||||
| Costs and profits in excess of billings on uncompleted contracts | 7 | 1,199,614 | 1,051,297 | |||||||||
| Inventory | 15 | 1,820,248 | 1,876,411 | |||||||||
| Investment tax credits receivable | 8 | 248,658 | 276,404 | |||||||||
| Income taxes receivable | 16,140 | 14,169 | ||||||||||
| Current portion of deposits | 540,621 | 432,550 | ||||||||||
| Current portion of royalties receivable | 588,970 | 455,556 | ||||||||||
| Contract assets | 472,134 | 499,912 | ||||||||||
| Prepaid expenses | 2,205,903 | 771,603 | ||||||||||
| Total current assets | 19,545,636 | 27,448,182 | ||||||||||
| Non-current assets | ||||||||||||
| Deposits | 46,107 | 46,053 | ||||||||||
| Strategic investments | 9 | 4,208,521 | 6,242,634 | |||||||||
| Property and equipment | 3,125,423 | 3,393,452 | ||||||||||
| Right-of-use assets | 4,565,136 | 4,818,744 | ||||||||||
| Royalties receivable | 903,490 | 952,230 | ||||||||||
| Intangible assets | 1,775,330 | 2,104,848 | ||||||||||
| Goodwill | 2,660,607 | 2,660,607 | ||||||||||
| Total assets | 36,830,250 | 47,666,750 | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Bank indebtedness | 332,189 | 991,902 | ||||||||||
| Accounts payable and accrued liabilities | 10 | 9,876,254 | 10,115,870 | |||||||||
| Billings in excess of costs and profits on uncompleted contracts | 11 | 7,740,905 | 9,670,993 | |||||||||
| Current portion of term loans | 12 | 77,226 | 69,917 | |||||||||
| Current portion of lease liabilities | 2,794,413 | 2,672,212 | ||||||||||
| Balance due on business combination | 1,708,161 | 2,088,977 | ||||||||||
| Income taxes payable | 184,854 | 187,602 | ||||||||||
| Total current liabilities | 22,714,002 | 25,797,473 | ||||||||||
| Non-current liabilities | ||||||||||||
| Lease liabilities | 2,581,723 | 2,861,482 | ||||||||||
| Term loans | 12 | 314,338 | 320,070 | |||||||||
| Balance due on business combination | – | 1,818,798 | ||||||||||
| Total liabilities | 25,610,063 | 30,797,823 | ||||||||||
| Shareholders’ equity | 13 | |||||||||||
| Common shares | 90,670,080 | 85,483,223 | ||||||||||
| Warrants | 223,200 | 223,200 | ||||||||||
| Contributed surplus | 26,202,688 | 24,546,960 | ||||||||||
| Accumulated other comprehensive income | (3,578 | ) | 402 | |||||||||
| Deficit | (105,872,203 | ) | (93,384,858 | ) | ||||||||
| Total shareholders’ equity | 11,220,187 | 16,868,927 | ||||||||||
| Total liabilities and shareholders’ equity | 36,830,250 | 47,666,750 | ||||||||||
The accompanying notes form an integral part of the condensed consolidated interim financial statements. Contingent liabilities, Note 20
| Q2 2023 | PyroGenesis Canada Inc. | 1 |
PyroGenesis Canada Inc.
Condensed Consolidated Interim Statements of Comprehensive Loss
(Unaudited)
(In Canadian dollars)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Notes | 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Revenues | 5 | 3,039,479 | 5,847,180 | 5,631,101 | 10,053,942 | |||||||||||||
| Cost of sales and services | 15 | 1,927,664 | 3,347,907 | 3,992,713 | 6,502,947 | |||||||||||||
| Gross profit | 1,111,815 | 2,499,273 | 1,638,388 | 3,550,995 | ||||||||||||||
| Expenses | ||||||||||||||||||
| Selling, general and administrative | 15 | 6,410,729 | 7,091,535 | 13,967,837 | 12,703,903 | |||||||||||||
| Research and development, net | 742,685 | 804,564 | 1,065,901 | 1,286,996 | ||||||||||||||
| 7,153,414 | 7,896,099 | 15,033,738 | 13,990,899 | |||||||||||||||
| Net loss from operations | (6,041,599 | ) | (5,396,826 | ) | (13,395,350 | ) | (10,439,904 | ) | ||||||||||
| Changes in fair value of strategic investments | 9 | (1,240,162 | ) | (7,477,865 | ) | (939,271 | ) | (6,301,110 | ) | |||||||||
| Finance income (costs), net | 16 | 933,022 | (156,113 | ) | 1,847,276 | (340,013 | ) | |||||||||||
| Net loss before income taxes | (6,348,739 | ) | (13,030,804 | ) | (12,487,345 | ) | (17,081,027 | ) | ||||||||||
| Income taxes | – | 19,542 | – | 76,095 | ||||||||||||||
| Net loss | (6,348,739 | ) | (13,050,346 | ) | (12,487,345 | ) | (17,157,122 | ) | ||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Items that will be reclassified subsequently to profit or loss | ||||||||||||||||||
| Foreign currency translation gain (loss) on investments in foreign operations | ||||||||||||||||||
| 15,031 | 10,815 | (3,980 | ) | 48,471 | ||||||||||||||
| Comprehensive loss | (6,333,708 | ) | (13,039,531 | ) | (12,491,325 | ) | (17,108,651 | ) | ||||||||||
| Loss per share | ||||||||||||||||||
| Basic | 17 | (0.04 | ) | (0.08 | ) | (0.07 | ) | (0.10 | ) | |||||||||
| Diluted | 17 | (0.04 | ) | (0.08 | ) | (0.07 | ) | (0.10 | ) | |||||||||
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
| Q2 2023 | PyroGenesis Canada Inc. | 2 |
PyroGenesis Canada Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
(Unaudited)
(In Canadian dollars)
| Accumulated | ||||||||||||||||||||||||||||||
| Number of | other | |||||||||||||||||||||||||||||
| common | Common | Contributed | comprehensive | |||||||||||||||||||||||||||
| Notes | shares | shares | Warrants | surplus | income | Deficit | Total | |||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Balance - December 31, 2022 | 173,580,395 | 85,483,223 | 223,200 | 24,546,960 | 402 | (93,384,858 | ) | 16,868,927 | ||||||||||||||||||||||
| Shares issued upon exercise of stock options | 13 | 300,000 | 153,000 | – | – | – | – | 153,000 | ||||||||||||||||||||||
| Private placement, net of issuance costs | 13 | 5,000,000 | 4,960,483 | – | – | – | – | 4,960,483 | ||||||||||||||||||||||
| Share-based payments | 13 | – | 73,374 | – | 1,655,728 | – | – | 1,729,102 | ||||||||||||||||||||||
| Other comprehensive loss | – | – | – | – | (3,980 | ) | – | (3,980 | ) | |||||||||||||||||||||
| Net loss | – | – | – | – | – | (12,487,345 | ) | (12,487,345 | ) | |||||||||||||||||||||
| Balance – June 30, 2023 | 178,880,395 | 90,670,080 | 223,200 | 26,202,688 | (3,578 | ) | (105,872,203 | ) | 11,220,187 | |||||||||||||||||||||
| Balance - December 31, 2021 | 170,125,795 | 82,104,086 | – | 19,879,055 | 3,444 | (61,217,831 | ) | 40,768,754 | ||||||||||||||||||||||
| Share-based payments | 13 | – | – | – | 3,290,670 | – | – | 3,290,670 | ||||||||||||||||||||||
| Other comprehensive income | – | – | – | – | 48,471 | – | 48,471 | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | (17,157,122 | ) | (17,157,122 | ) | |||||||||||||||||||||
| Balance – June 30, 2022 | 170,125,795 | 82,104,086 | – | 23,169,725 | 51,915 | (78,374,953 | ) | 26,950,773 | ||||||||||||||||||||||
The accompanying notes form an integral part of the condensed consolidated interim financial statements.
| Q2 2023 | PyroGenesis Canada Inc. | 3 |
PyroGenesis Canada Inc.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
(In Canadian dollars)
| Notes | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
| Cash flows provided by (used in) | ||||||||||||||||||
| Operating activities | ||||||||||||||||||
| Net loss | (6,348,739 | ) | (13,050,346 | ) | (12,487,345 | ) | (17,157,122 | ) | ||||||||||
| Adjustments for: | ||||||||||||||||||
| Share-based payments | 15 | 740,940 | 1,621,040 | 1,729,102 | 3,290,670 | |||||||||||||
| Depreciation of property and equipment | 15 | 158,007 | 148,412 | 318,370 | 291,402 | |||||||||||||
| Depreciation of right-of-use assets | 15 | 164,992 | 155,398 | 321,353 | 321,622 | |||||||||||||
| Amortization of intangible assets | 15 | 221,752 | 218,759 | 443,504 | 437,518 | |||||||||||||
| Amortization of contract assets | 2,180 | 54,221 | 27,778 | 95,350 | ||||||||||||||
| Finance costs (income) | 16 | (933,022 | ) | 156,113 | (1,847,276 | ) | 340,013 | |||||||||||
| Change in fair value of investments | 1,240,162 | 7,477,865 | 939,271 | 6,301,110 | ||||||||||||||
| Income taxes | – | 19,542 | – | 76,095 | ||||||||||||||
| Unrealized foreign exchange | 32,438 | 9,716 | 14,290 | 42,212 | ||||||||||||||
| (4,721,290 | ) | (3,189,280 | ) | (10,540,953 | ) | (5,961,130 | ) | |||||||||||
| Net change to working capital items | 14 | 3,800,405 | 437,164 | 3,089,102 | (4,528,614 | ) | ||||||||||||
| (920,885 | ) | (2,752,116 | ) | (7,451,851 | ) | (10,489,744 | ) | |||||||||||
| Investing activities | ||||||||||||||||||
| Additions to property and equipment | (5,042 | ) | (66,054 | ) | (50,341 | ) | (192,226 | ) | ||||||||||
| Additions to right-of-use assets | (67,745 | ) | – | (67,745 | ) | – | ||||||||||||
| Additions to intangible assets | (77,961 | ) | (38,280 | ) | (113,986 | ) | (62,968 | ) | ||||||||||
| Purchase of strategic investments | 9 | (559,460 | ) | (3,604,000 | ) | (559,460 | ) | (3,604,000 | ) | |||||||||
| Disposal of strategic investments | 1,322,282 | 1,555,846 | 1,654,302 | 2,952,847 | ||||||||||||||
| 612,074 | (2,152,488 | ) | 862,770 | (906,347 | ) | |||||||||||||
| Financing activities | ||||||||||||||||||
| Bank indebtedness | (755,064 | ) | (2,295 | ) | (659,713 | ) | 941,180 | |||||||||||
| Interest paid | (50,569 | ) | (141,946 | ) | (186,989 | ) | (239,456 | ) | ||||||||||
| Repayment of term loans | (15,191 | ) | (8,223 | ) | (15,191 | ) | (16,389 | ) | ||||||||||
| Repayment of lease liabilities | (59,619 | ) | (145,415 | ) | (157,558 | ) | (192,575 | ) | ||||||||||
| Repayment of balance due on business combination | – | (217,778 | ) | (100,000 | ) | (217,778 | ) | |||||||||||
| Proceeds from issuance of shares upon exercise of stock options | 153,000 | – | 153,000 | – | ||||||||||||||
| Proceeds from issuance of term loans | – | 96,157 | – | 203,857 | ||||||||||||||
| Proceeds from private placement, net of issuance costs | – | – | 4,960,483 | – | ||||||||||||||
| (727,443 | ) | (419,500 | ) | 3,994,032 | 478,839 | |||||||||||||
| Effect of exchange rate changes on cash denominated in foreign currencies | (21,184 | ) | 2,988 | (21,017 | ) | 6,247 | ||||||||||||
| Net decrease in cash and cash equivalents | (1,057,438 | ) | (5,321,116 | ) | (2,616,066 | ) | (10,911,005 | ) | ||||||||||
| Cash and cash equivalents - beginning of period | 1,887,021 | 6,612,624 | 3,445,649 | 12,202,513 | ||||||||||||||
| Cash and cash equivalents - end of period | 829,583 | 1,291,508 | 829,583 | 1,291,508 | ||||||||||||||
| Supplemental cash flow disclosure | ||||||||||||||||||
| Non-cash transactions: | ||||||||||||||||||
| Interest accretion on and revaluation of balance due on business combination | (1,062,196 | ) | 44,115 | (2,099,614 | ) | 127,088 | ||||||||||||
| Accretion interest on royalties receivable | 43,189 | 37,549 | 84,674 | 38,913 | ||||||||||||||
| Accretion on term loan | 8,502 | 7,601 | 16,768 | 12,382 | ||||||||||||||
The accompanying notes form an integral part of the condensed consolidated interim financial statements
| Q2 2023 | PyroGenesis Canada Inc. | 4 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 1. | Nature of operations |
PyroGenesis Canada Inc. and its subsidiaries (collectively, the “Company”), incorporated under the laws of the Canada Business Corporations Act, was formed on July 11, 2011. The Company owns patents of advanced waste treatment systems technology and designs, develops, manufactures and commercialises advanced plasma processes and sustainable solutions to reduce greenhouse gases. The Company is domiciled at 1744 William Street, Suite 200, Montreal, Quebec. The Company is publicly traded on the TSX Exchange under the Symbol “PYR”, on NASDAQ in the USA under the symbol "PYR" and on the Frankfurt Stock Exchange (FSX) under the symbol “8PY “.
| 2. | Going concern |
These condensed 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 future 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 $105,872,203 as at June 30, 2023, ($93,384,858 as at December 31, 2022). 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 June 30, 2023, the Company has working capital deficiency of $3,168,366 ($1,650,709 as at December 31, 2022) including cash of $829,583 ($3,445,649 as at December 31, 2022). The working capital is net of an allowance for credit losses amounting to $6,303,840 ($5,023,283 as at December 31, 2022) as further described in Notes 6 and 7. The Company’s business plan is dependent upon the successful completion of contracts and also the receipt of payments from certain contracts closed in a prior year and expects these payments to be made during fiscal 2023, as well as the achievement of profitable operations through the signing, completion and delivery of additional contracts or a reduction in certain operating expenses. In the absence of this, the Company is dependent upon raising additional funds to finance operations within and beyond the next twelve months. The Company has been successful in securing financing in the past and has relied upon external financing to fund its operations, primarily through the issuance of equity, debt and convertible debentures. The Company completed a private placement in October 2022 for an amount of $1,318,980 and also completed another private placement in March 2023 for net proceeds $4,960,483 (Note 13). In addition, in July 2023, the Company also completed a brokered private placement of convertible debenture units for gross proceeds of $3,030,000 (Note 23). While the Company has been successful in securing financing, raising additional funds is dependent on a number of factors, some of which are outside the Company’s control, and therefore there is no assurance that it will be able to do so in the future or that these sources will be available to the Company or that they will be available on terms which are acceptable to the Company. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue operating as a going concern.
The condensed 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 condensed consolidated statement of financial position.
| 3. | Basis of preparation |
| (a) | Statement of compliance |
These financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 Interim Financial Statements, as issued by the International Accounting Standards Board ("IASB"). These condensed consolidated interim financial statements do not include all of the necessary information required for full annual financial statements in accordance with International Financial Reporting Standards (“IFRS”) and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022.
| Q2 2023 | PyroGenesis Canada Inc. | 5 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
These financial statements were approved and authorized for issuance by the Board of Directors on August 10, 2023.
| (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) | stock-based payment arrangements, which are measured at fair value on the grant date pursuant to IFRS 2, Share-based Payment; and |
| (iii) | lease liabilities, which are initially measured at the present value of minimum lease payments |
| (d) | Basis of consolidation |
For financial reporting purposes, subsidiaries are defined as entities controlled by the Company. The Company controls an entity when it has power over the investee; it is exposed to, or has rights to, variable returns from its involvement with the entity; and it has the ability to affect those returns through its power over the entity.
In instances where the Company does not hold a majority of the voting rights, further analysis is performed to determine whether or not the Company has control of the entity. The Company is deemed to have control when, according to the terms of the shareholder’s and/or other agreements, it makes most of the decisions affecting relevant activities.
These consolidated financial statements include the accounts of 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. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
The accounting policies disclosed in the December 31, 2022 year-end consolidated financial statements have been applied consistently in the preparation of these condensed consolidated interim financial statements. Finance income (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 judgments, estimates and assumptions |
The significant judgments, estimates and assumptions applied by the Company in these condensed consolidated interim financial statements are the same as those applied by the Company in its audited annual financial statements as at and for the year ended December 31, 2022.
| Q2 2023 | PyroGenesis Canada Inc. | 6 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 5. | Revenues |
The following table is a summary of the Company’s revenues from contracts by product line:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| High purity metallurgical grade silicon & solar grade silicon from quartz (PUREVAP™) | 445,840 | 820,972 | 973,439 | 1,168,983 | ||||||||||||
| Aluminium and zinc dross recovery (DROSRITE™) | 115,325 | 436,538 | 205,552 | 1,336,617 | ||||||||||||
| Development and support related to systems supplied to the U.S. Navy | 813,125 | 591,099 | 1,165,228 | 1,336,359 | ||||||||||||
| Torch-related products and services | 561,942 | 1,707,152 | 1,732,690 | 2,591,909 | ||||||||||||
| Refrigerant destruction (SPARC™) | 187,444 | – | 255,292 | – | ||||||||||||
| Biogas upgrading and pollution controls | 618,070 | 2,181,107 | 650,965 | 3,171,152 | ||||||||||||
| Other sales and services | 297,733 | 110,312 | 647,935 | 448,922 | ||||||||||||
| 3,039,479 | 5,847,180 | 5,631,101 | 10,053,942 | |||||||||||||
The following table is a summary of the Company’s revenues by revenue recognition method:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenue from contracts with customers: | ||||||||||||||||
| Sales of goods under long-term contracts recognized over time | 2,319,871 | 5,735,493 | 4,869,091 | 9,408,591 | ||||||||||||
| Sales of goods at a point of time | 719,608 | 111,687 | 762,010 | 645,351 | ||||||||||||
| 3,039,479 | 5,847,180 | 5,631,101 | 10,053,942 | |||||||||||||
See Note 22 for sales by geographic area.
Transaction price allocated to remaining performance obligations
As at June 30, 2023, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the reporting date is $24,752,415 ($26,741,550 as at December 31, 2022). Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over the next 3 years.
| Q2 2023 | PyroGenesis Canada Inc. | 7 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 6. | Accounts receivable |
Details of accounts receivable based on past due terms were as follows:
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
| Current | 4,364,320 | 6,578,269 | ||||||
| 1 – 30 days | 206,156 | 15,959 | ||||||
| 31 – 60 days | 30 | 57,944 | ||||||
| 61 – 90 days | 16,781 | 718,239 | ||||||
| Greater than 90 days | 11,538,272 | 13,790,716 | ||||||
| Holdback receivable1 | 1,155,508 | 1,536,115 | ||||||
| Total trade accounts receivable | 17,281,067 | 22,697,242 | ||||||
| Allowance for expected credit loss | (5,967,840 | ) | (4,693,283 | ) | ||||
| Other receivables | 274,890 | 240,560 | ||||||
| Sales tax receivable | 35,648 | 380,112 | ||||||
| 11,623,765 | 18,624,631 | |||||||
1 Holdbacks are non-interest bearing, non-secured and represents an amount retained by the customers, based on milestones defined in the contract, and are not due until final acceptance of the contract. stage of the project or the final inspection of the delivered goods. These amounts are agreed in advance and the terms of payment may exceed the general terms of payment of the Company. The Company only recognizes an invoice when it can reasonably determine that these inspection and acceptance steps have been met.
As at June 30, 2023 the allowance for expected credit loss on trade accounts receivable is $5,967,840 ($4,693,283 as at December 31, 2022). The amount as at June 30, 2023, includes $5,061,000 attributable to one specific customer, whereby the carrying amount has been reduced from $10,536,701 to $5,475,701. The remaining credit allowance is $906,840 and attributable to all other trade accounts, whereby the carrying value was reduced from $6,744,367 to $5,837,527. 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.
The closing balance of the trade receivables credit loss allowance as at June 30, 2023 reconciles with the trade receivables credit loss allowance opening balance as follows:
| $ | ||||
| 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 | |||
| Loss recognized during the year1 | 1,273,000 | |||
| Foreign exchange | 1,557 | |||
| Loss allowance at June 30, 2023 | 5,967,840 | |||
1 For the three-month period ended June 30, 2023. the loss recognized was $517,000 and $756,000 for the six-month period ended June 30, 2023.
| 7. | Costs and profits in excess of billings on uncompleted contracts |
As at June 30, 2023, the Company had sixteen contracts with total billings of $15,770,481 which were less than total costs incurred and had recognized cumulative revenue of $17,306,095 since those projects began. This compares with eighteen contracts with total billings of $10,475,299 which were less than total costs incurred and had recognized cumulative revenue of $11,856,596 as at December 31, 2022.
The net amount of $1,199,614 as at June 30, 2023 includes an expected credit loss allowance of $336,000 ($330,000 as at December 31, 2022). 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%.
| Q2 2023 | PyroGenesis Canada Inc. | 8 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
Changes in costs and profits in excess of billings on uncompleted contracts during the six-month period ended June 30, 2023, are explained by $552,422 recognized at the beginning of the period being transferred to accounts receivable, $706,739 resulting from changes in the measure of progress and $6,000 due to the variation of the expected credit loss allowance.
| 8. | Investment tax credits |
Investment tax credits earned, for the three and six-month periods ended June 30, 2023, amount to $59,283, and $79,224, respectively ($60,935 and $71,433) for the three and six-month periods ended June 30, 2022, respectively.
In the six-month period ended June 30, 2023, of the $79,224 of investment tax credits earned $44,538 was recorded against cost of sales and services, $19,686 against research and development expenses and $15,000 against selling, general and administrative expenses. During the six-month period ended June 30, 2022, the Company earned $71,433 of investment tax credits, whereby $24,388 was recognized against cost of sales and services, $32,045 against research and development expenses and $15,000 against selling, general and administrative expenses.
| 9. | Strategic investments |
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
| Beauce Gold Fields (“BGF”) shares – level 1 | 46,160 | 56,419 | ||||||
| HPQ Silicon Inc. (“HPQ”) shares - level 1 | 4,162,361 | 5,415,749 | ||||||
| HPQ warrants – level 3 | – | 770,466 | ||||||
| 4,208,521 | 6,242,634 | |||||||
The change in the strategic investments is summarized as follows:
| (“BGF”) shares – level 1 | (“HPQ”) shares - level 1 | HPQ warrants – level 3 | Total | |||||||||||||||||||||||||
| Quantity | $ | Quantity | $ | Quantity | $ | $ | ||||||||||||||||||||||
| Balance, December 31, 2021 | 1,025,794 | 123,095 | 26,752,600 | 12,306,196 | 9,594,600 | 2,472,368 | 14,901,659 | |||||||||||||||||||||
| Additions | – | – | 6,800,000 | 3,196,000 | 6,800,000 | 408,000 | 3,604,000 | |||||||||||||||||||||
| Disposed | – | – | (11,447,500 | ) | (3,922,244 | ) | – | – | (3,922,244 | ) | ||||||||||||||||||
| Change in the fair value | – | (66,676 | ) | – | (6,164,203 | ) | – | (2,109,902 | ) | (8,340,781 | ) | |||||||||||||||||
| Balance, December 31, 2022 | 1,025,794 | 56,419 | 22,105,100 | 5,415,749 | 16,394,600 | 770,466 | 6,242,634 | |||||||||||||||||||||
| Additions | – | – | 5,594,600 | 651,406 | (5,594,600 | ) | (91,946 | ) | 559,460 | |||||||||||||||||||
| Disposed | – | – | (7,395,500 | ) | (1,654,302 | ) | – | – | (1,654,302 | ) | ||||||||||||||||||
| Change in the fair value | – | (10,258 | ) | – | (250,493 | ) | – | (678,520 | ) | (939,271 | ) | |||||||||||||||||
| Balance, June 30, 2023 | 1,025,794 | 46,161 | 20,304,200 | 4,162,360 | 10,800,000 | – | 4,208,521 | |||||||||||||||||||||
| Q2 2023 | PyroGenesis Canada Inc. | 9 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
At June 30, 2023 and December 31, 2022, the fair value of the HPQ warrants was measured using the Black-Scholes option pricing model using the following assumptions:
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Number of warrants | 4,000,000 | 6,800,000 | 1,200,000 | 4,394,600 | 4,000,000 | 6,800,000 | ||||||||||||||||||
| Date of issuance | 3-Sep-20 | 20-Apr-22 | 29-Apr-20 | 2-Jun-20 | 3-Sep-20 | 20-Apr-22 | ||||||||||||||||||
| Exercise price ($) | 0.61 | 0.60 | 0.10 | 0.10 | 0.61 | 0.60 | ||||||||||||||||||
| Assumptions under the Black-Scholes model: | ||||||||||||||||||||||||
| Fair value of the shares ($) | 0.21 | 0.21 | 0.25 | 0.25 | 0.25 | 0.25 | ||||||||||||||||||
| Risk free interest rate (%) | 3.79 | 3.79 | 4.03 | 4.03 | 4.03 | 4.03 | ||||||||||||||||||
| Expected volatility (%) | 75.55 | 79.28 | 80.55 | 73.74 | 76.85 | 74.58 | ||||||||||||||||||
| Expected dividend yield | – | – | – | – | – | – | ||||||||||||||||||
| Contractual remaining life (in months) | 2 | 10 | 4 | 5 | 8 | 16 | ||||||||||||||||||
Warrants are subject to a “Holder’s Exercise Limitation” clause, whereby the Company shall not affect any exercise of warrants, nor have the right to exercise any portion of the warrants to the extent that after giving effect to such issuance after exercise, the Company would beneficially own in excess of 9.99% of the HPQ common shares.
As at June 30, 2023, a loss from initial recognition of the warrants of $1,641,109 ($280,926 at December 31, 2022) has been deferred off balance sheet until realized.
| 10. | Accounts payable and accrued liabilities |
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
| Accounts payable | 6,202,482 | 6,065,996 | ||||||
| Accrued liabilities | 2,393,809 | 2,891,053 | ||||||
| Sale commissions payable1 | 817,050 | 904,724 | ||||||
| Accounts payable to the controlling shareholder and CEO | 462,913 | 254,097 | ||||||
| 9,876,254 | 10,115,870 | |||||||
1 Sale commissions payable relate to the costs to obtain long-term contracts with clients.
| 11. | 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 for the six months ending June 30, 2023, amounted to $30,895,545 ($37,374,909 as at December 31, 2022). Payments to date received for the six months ending June 30, 2023, were $38,636,450 on contracts in progress ($47,045,902 as at December 31, 2022).
Changes in billings in excess of costs and profits on uncompleted contracts during the six-month period ended June 30, 2023, is explained by $2,703,293 recognized at the beginning of the period being recognized as revenue, and a decrease of $773,206 resulting from cash received, excluding amounts recognized as revenue. The variation in billings in excess of costs and profits on uncompleted contracts during the six-month period ended June 30, 2022, is explained by $3,430,725 recognized at the beginning of the period being recognized as revenue, and an increase of $570,603 resulting from cash received, excluding amounts recognized as revenue.
| Q2 2023 | PyroGenesis Canada Inc. | 10 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 12. | Term loans |
| Economic | Canada | |||||||||||||||||||
| Development Agency | Other Term | Other Term | Emergency Business | |||||||||||||||||
| of Canada Loan1 | Loans2 | Loans3 | Account Loan4 | Total | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Balance, December 31, 2022 | 320,070 | 11,617 | 8,300 | 50,000 | 389,987 | |||||||||||||||
| Accretion | 16,768 | – | – | – | 16,768 | |||||||||||||||
| Payments | – | (6,891 | ) | (8,300 | ) | – | (15,191 | ) | ||||||||||||
| Balance, June 30, 2023 | 336,838 | 4,726 | – | 50,000 | 391,564 | |||||||||||||||
| Less current portion | (22,500 | ) | (4,726 | ) | – | (50,000 | ) | (77,226 | ) | |||||||||||
| Balance, June 30, 2023 | 314,338 | – | – | – | 314,338 | |||||||||||||||
1 Maturing in 2029, non-interest bearing, payable in equal instalments from April 2024 to March 2029.
2 Maturing October 23, 2023, bearing interest at a rate of 6.95% per annum, payable in monthly instalments of $1,200 (including interest in capital) secured by an automobile with a carrying amount of $4,318 at June 30, 2023.
3 Matured in May 2023, payable in monthly instalments of $1,660, bore interest at 7.45%.
4 Loan bearing no interest and no minimum repayment, if repaid by December 2023.
| 13. | 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 March 8, 2023, the Company completed a non-brokered private placement consisting of the issuance and sale of 5,000,000 units of the Company at a price of $1.00 per unit, for net proceeds of $4,960,483 (gross proceeds of $5,000,000). Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder thereof to purchase one common share at a price of $1.25 until March 7, 2025. The entire amount is allocated to the common shares as the fair value of the common shares on March 8, 2023 was $1.38.
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.
| Q2 2023 | PyroGenesis Canada Inc. | 11 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
The following table sets out the activity in stock options:
| Weighted | ||||||||
| Number of | average | |||||||
| options | exercise price | |||||||
| $ | ||||||||
| Balance – December 31, 2021 | 8,403,000 | 3.10 | ||||||
| Granted | 2,475,000 | 3.55 | ||||||
| Exercised | (2,440,000 | ) | 0.58 | |||||
| Forfeited | (242,500 | ) | 4.07 | |||||
| Balance, December 31, 2022 | 8,195,500 | 3.96 | ||||||
| Granted | 1,625,000 | 1.03 | ||||||
| Exercised1 | (300,000 | ) | 0.51 | |||||
| Forfeited | (10,000 | ) | 4.41 | |||||
| Balance, June 30, 2023 | 9,510,500 | 3.57 | ||||||
1 The weighted fair market value of the share price for options exercised in 2023 was $1.01.
Grants in 2023
The Company granted 150,000 stock options to the President and Chief Executive Officer of the Company, and 500,000 stock options to members of its Board of Directors. The stock options have an exercise price of $1.03 per common share, vest immediately and are exercisable over a period of five (5) years. The Company recorded an expense amounting to $453,204 related to these options in fiscal 2022 as the stock options granted related to the services rendered in 2022, for which there was a shared understanding of the terms and conditions related to such grant prior to the grant date.
The Company also granted 975,000 stock options to employees of the Company. The stock options have an exercise price of $1.03 per common share. The 975,000 options will vest as follows: 10 percent as of the day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent on the second anniversary of the date of the grant and 40 percent on the third anniversary of the date of the grant. All options mentioned above are exercisable over a period of five (5) years.
Grants in 2022
On January 3, 2022, the Company granted 150,000 stock options to the President and Chief Executive Officer of the Company, and 300,000 stock options to members of its Board of Directors. The stock options have an exercise price of $3.36 per common share, vest immediately and are exercisable over a period of five (5) years.
On April 5, 2022, the Company granted 400,000 stock options to employees of the Company. The stock options have an exercise price of $2.96 per common share. The 400,000 options will vest as follows: 10 percent as of the day of the grant, 20 percent at the first anniversary of the date of the grant, 30 percent on the second anniversary of the date of the grant and 40 percent on the third anniversary of the date of the grant. All options mentioned above are exercisable over a period of five (5) years.
On June 2, 2022, the Company granted 600,000 stock options to the President and Chief Executive Officer of the Company, and 900,000 stock options to members of its Board of Directors. The 1,500,000 options will vest as follows: 25 percent as of the day of the grant, 25 percent at the first anniversary of the date of the grant, 25 percent on the second anniversary of the date of the grant and 25 percent at the third anniversary of the date of the grant. The stock options have an exercise price of $3.88 per common share and are exercisable over a period of five (5) years.
The weighted average fair value of stock options granted for the six-month period ended June 30, 2023, was $0.70 ($2.42 for the six-month period ended June 30, 2022). The weighted average fair value of each option granted was estimated at the grant date for purposes of determining share-based payment expense using the Black-Scholes option pricing model based on the following weighted-average assumptions:
| Q2 2023 | PyroGenesis Canada Inc. | 12 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 2023 | 2022 | |||||||||||
| Number of options granted | 650,000 | 975,000 | 450,000 | |||||||||
| Exercise price ($) | 1.03 | 1.03 | 3.36 | |||||||||
| Fair value of each option under the Black-Scholes pricing model ($) | 0.70 | 0.70 | 2.17 | |||||||||
| Assumptions under the Black-Scholes model: | ||||||||||||
| Fair value of the shares ($) | 1.03 | 1.03 | 3.36 | |||||||||
| Risk-free interest rate (%) | 3.38 | 3.38 | 1.25 | |||||||||
| Expected volatility (%) | 83.15 | 83.15 | 82.45 | |||||||||
| 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.
As at June 30, 2023, the outstanding options, as issued under the stock option plan to directors, officers, employees and consultants for the purchases of one common share per option, are as follows:
| Number of | Number of | Number of | |||||||||||||
| stock | stock | stock | Exercise | ||||||||||||
| options | options | options | price | ||||||||||||
| Issuance date | 31-Dec-22 | Granted | Exercised | Forfeitures | 30-Jun-23 | vested 1 | per option | Expiry date | |||||||
| $ | |||||||||||||||
| July 3, 2018 | 300,000 | – | (300,000) | – | – | – | 0.51 | July 3, 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 | 2,200,500 | – | – | (10,000) | 2,190,500 | 1,765,500 | 4.41 | July 16, 2025 | |||||||
| October 26, 2020 | 50,000 | – | – | – | 50,000 | 37,500 | 4.00 | October 26, 2025 | |||||||
| April 6, 2021 | 550,000 | – | – | – | 550,000 | 510,000 | 8.47 | April 6, 2026 | |||||||
| June 1, 2021 | 200,000 | – | – | – | 200,000 | 150,000 | 6.59 | June 1, 2026 | |||||||
| June 14, 2021 | 100,000 | – | – | – | 100,000 | 75,000 | 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 31, 2021 | 100,000 | – | – | – | 100,000 | 30,000 | 3.61 | December 31, 2026 | |||||||
| January 3, 2022 | 450,000 | – | – | – | 450,000 | 450,000 | 3.36 | January 3, 2027 | |||||||
| April 5, 2022 | 400,000 | – | – | – | 400,000 | 120,000 | 2.96 | April 5, 2027 | |||||||
| June 2, 2022 | 1,500,000 | – | – | – | 1,500,000 | 750,000 | 3.88 | June 2, 2027 | |||||||
| July 13, 2022 | 125,000 | – | – | – | 125,000 | 12,500 | 2.14 | July 13, 2027 | |||||||
| January 2, 2023 | – | 1,625,000 | – | – | 1,625,000 | 747,500 | 1.03 | January 2, 2028 | |||||||
| 8,195,500 | 1,625,000 | (300,000) | (10,000) | 9,510,500 | 6,798,000 | 3.57 |
1 At June 30, 2023, the weighted average exercise price for options outstanding which are exercisable was $3.78.
For the three-month and six-month periods ended June 30, 2023, a stock-based compensation expense of $988,162 and $1,729,102, respectively, was recorded in Selling, general and administrative expenses in the condensed consolidated statements of comprehensive loss, ($1,621,040 and $3,290,670 for the three-month and six-month periods ended June 30, 2022).
At June 30, 2023, an amount of $2,135,300 ($3,184,866 at December 31, 2022) remains to be amortized until January 2026 related to the grant of stock options.
| Q2 2023 | PyroGenesis Canada Inc. | 13 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
Share purchase warrants
The following table reflects the activity in warrants during the period ended June 30, 2023, and the number of issued and outstanding share purchase warrants at June 30, 2023:
| Number of | Number of | Exercise | ||||||||||||||||
| warrants | warrants | price per | ||||||||||||||||
| Dec 31, | Jun 30, | warrant | ||||||||||||||||
| 2022 | Issued | 2023 | $ | Expiry date | ||||||||||||||
| Issuance of warrants – October 19, 2022 | 1,014,600 | — | 1,014,600 | 1.75 | October 19, 2024 | |||||||||||||
| Issuance of warrants – March 8, 2023 | — | 5,000,000 | 5,000,000 | 1.25 | March 7, 2025 | |||||||||||||
| 1,014,600 | 5,000,000 | 6,014,600 | ||||||||||||||||
| 14. | Supplemental disclosure of cash flow information |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Accounts receivable | 3,157,064 | (2,028,735 | ) | 6,867,610 | (1,566,146 | ) | ||||||||||
| Costs and profits in excess of billings on uncompleted contracts | (5,646 | ) | 1,668,461 | (148,317 | ) | 727,236 | ||||||||||
| Inventory | 2,886 | (275,877 | ) | 56,163 | (661,448 | ) | ||||||||||
| Investment tax credits receivable | (59,282 | ) | (60,936 | ) | 27,746 | (15,051 | ) | |||||||||
| Income taxes receivable | – | 117,195 | – | 117,195 | ||||||||||||
| Deposits | (42,142 | ) | 2,838,936 | (108,125 | ) | 1,777,516 | ||||||||||
| Prepaid expenses | (1,540,208 | ) | 796,997 | (1,434,300 | ) | (1,383,159 | ) | |||||||||
| Accounts payable and accrued liabilities | 2,421,317 | (82,365 | ) | (241,587 | ) | (664,635 | ) | |||||||||
| Billings in excess of costs and profits on uncompleted contracts | (133,584 | ) | (2,536,512 | ) | (1,930,088 | ) | (2,860,122 | ) | ||||||||
| 3,800,405 | 437,164 | 3,089,102 | (4,528,614 | ) | ||||||||||||
| 15. | Supplemental disclosure on statements of comprehensive loss |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Inventories recognized in cost of sales | 72,903 | 201,547 | 214,091 | 414,142 | ||||||||||||
| Amortization of intangible assets | 221,752 | 218,759 | 443,504 | 437,518 | ||||||||||||
| Depreciation of property and equipment | 158,007 | 148,412 | 318,370 | 291,402 | ||||||||||||
| Depreciation of ROU assets | 164,992 | 155,398 | 321,353 | 321,622 | ||||||||||||
| Employee benefits | 3,895,915 | 2,991,223 | 7,354,439 | 5,702,092 | ||||||||||||
| Share-based payments | 740,940 | 1,621,040 | 1,729,102 | 3,290,670 | ||||||||||||
| Awarded grants | 221,454 | 55,077 | 274,965 | 94,511 | ||||||||||||
| Q2 2023 | PyroGenesis Canada Inc. | 14 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 16. | Net finance costs (income) |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Financial expenses | ||||||||||||||||
| Interest on term loans | 168 | 752 | 529 | 1,603 | ||||||||||||
| Interest on lease liabilities | 93,868 | 111,993 | 186,989 | 189,458 | ||||||||||||
| Interest accretion on and revaluation of balance due on business combination1 | (1,062,196 | ) | 44,115 | (2,099,614 | ) | 127,088 | ||||||||||
| Interest accretion on long term loans | 8,502 | – | 16,768 | – | ||||||||||||
| Penalties and other interest expenses | 69,825 | 36,802 | 132,726 | 60,777 | ||||||||||||
| (889,833 | ) | 193,662 | (1,762,602 | ) | 378,926 | |||||||||||
| Financial income | ||||||||||||||||
| Accretion interest on royalty receivable | (43,189 | ) | (37,549 | ) | (84,674 | ) | (38,913 | ) | ||||||||
| Net finance costs (income) | (933,022 | ) | 156,113 | (1,847,276 | ) | 340,013 | ||||||||||
1 During the three-month period ended June 30, 2023, the Company determined that a milestone related to the business combination would not achieve and therefore, a reversal of the liability was recorded. For the three-month period ended March 31, 2023, the Company’s Italian subsidiary and a customer agreed on the final acceptance of a contract, prior to final completion. As a result, the contract did not attain the agreed milestone in connection with the balance due on business combination, and a reversal of the liability was recorded.
| 17. | Loss per share |
The following table provides a reconciliation between the number of basic and fully diluted shares outstanding for the three and six-month period ended June 30:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Weighted average number of common shares outstanding | 178,623,252 | 170,125,795 | 176,778,738 | 170,125,795 | ||||||||||||
| Weighted average number of diluted shares outstanding | 178,623,252 | 170,125,795 | 176,778,738 | 170,125,795 | ||||||||||||
| Number of anti-dilutive stock options and warrants excluded from fully diluted earnings per share calculation | 12,812,600 | 10,533,000 | 12,812,600 | 10,533,000 | ||||||||||||
| 18. | Related party transactions |
During the three and six-month period ended June 30, 2023, the Company concluded the following transactions with related parties:
Rent and property taxes charged by a trust whose beneficiary is the controlling shareholder and CEO of the Company, for the three and six-month periods ended June 30, 2023 amount to $68,891 and $150,233, respectively ($70,226 and $139,280 for the three and six-month periods ended June 30, 2022, respectively.
These expenses are recorded in the captions Cost of sales and services and in Selling, general and administrative in the consolidated statements of comprehensive loss. As at June 30, 2023 the right-of-use asset and the lease liabilities amount to $758,320 and $821,932 respectively, ($799,090 and $881,635 respectively at December 31, 2022).
| Q2 2023 | PyroGenesis Canada Inc. | 15 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
In June 2023, the terms and conditions of the lease agreement between the Company and the trust were modified, to adjust the base rent and duration. As a result, the ROU asset increased by $67,745, the lease liability increased by $48,023, and a reduction of expense of $19,722 was recorded in the statement of comprehensive loss.
A balance due to the controlling shareholder and CEO of the Company amounted to $462,913 at June 30, 2023 ($254,097 at December 31, 2022) and is included in accounts payable and accrued liabilities.
The Key Management Personnel of the Company, in accordance with IAS 24, are the members of the Board of Directors and certain officers. Total compensation to key management consisted of the following:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Salaries – key management | 360,577 | 257,871 | 666,034 | 573,842 | ||||||||||||
| Pension contributions | 6,663 | 4,787 | 12,320 | 10,680 | ||||||||||||
| Fees – Board of Directors | 51,680 | 69,000 | 99,852 | 89,000 | ||||||||||||
| Share-based compensation – officers | 486,982 | 486,841 | 516,603 | 812,914 | ||||||||||||
| Share-based compensation – Board of Directors | 1,106,066 | 1,106,066 | 1,106,066 | 1,758,213 | ||||||||||||
| Other benefits – key management | 1,878 | 7,599 | 157,135 | 14,038 | ||||||||||||
| Total compensation | 2,013,846 | 1,932,164 | 2,558,010 | 3,258,687 | ||||||||||||
| 19. | 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 June 30, 2023 and December 31, 2022 the Company's exposure to foreign exchange risk for amounts denominated in US dollars is as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| $ | $ | |||||||
| Cash | 196,424 | 2,871,062 | ||||||
| Accounts receivable | 10,740,117 | 13,537,912 | ||||||
| Accounts payable and accrued liabilities | (2,233,953 | ) | (1,713,717 | ) | ||||
| Total | 8,702,588 | 14,695,257 | ||||||
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
Sensitivity analysis
At June 30, 2023, if the US dollar had changed by 10% against the Canadian dollar with all other variables held constant, the impact on pre-tax gain or loss and equity for the three-month period ended June 30, 2023 would have been $870,300.
| Q2 2023 | PyroGenesis Canada Inc. | 16 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
Credit concentration
During the three-month period ended June 30, 2023, three customers accounted for 54%, (Q2, 2022 – five customers for 72%) of revenues from operations.
During the six-month period ended June 30, 2023, three customers accounted for 60%, (Six-month period ended June 30, 2022 – five customers for 68%) of revenues from operations.
| Three months ended June 30, 2023 | Six months ended June 30, 2023 | |||||||||||||||
| % of total | % of total | |||||||||||||||
| Revenues | revenues | Revenues | revenues | |||||||||||||
| $ | % | $ | % | |||||||||||||
| Customer 1 | 856,220 | 28 | 1,546,176 | 27 | ||||||||||||
| Customer 2 | 471,289 | 16 | 1,240,340 | 22 | ||||||||||||
| Customer 3 | 312,491 | 10 | 628,341 | 11 | ||||||||||||
| Total | 1,640,000 | 54 | 3,414,857 | 60 | ||||||||||||
Two customers accounted for 61% and 20%, respectively (December 31, 2022 – three customers for 56%, 16% and 11%, respectively) of the total trade accounts receivable with amounts owing to the Company of $13,966,701 (2022 - $18,894,727), 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 June 30, 2023 represents the carrying amount of cash, accounts receivable (except sales tax receivable), costs and profits in excess of billings on uncompleted contracts, deposits and royalties receivable.
Cash is 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 June 30, 2023 and December 31, 2022, no loss allowance has been recognized in connection with these deposits and the maximum exposure is the carrying amount of these deposits.
| Q2 2023 | PyroGenesis Canada Inc. | 17 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
During the six-month period ended June 30, 2023, and the year-end December 31, 2022, provisions for expected credit losses were recorded, however, 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 June 30, 2023, with all other variables held constant, the Company’s investments would have increased or decreased respectively, by approximately $1,102,000 (December 31, 2022 - $1,841,484).
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivery of cash or another financial asset. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities.
The following table summarizes the contractual amounts payable and maturities of financial liabilities and other liabilities at June 30, 2023:
| Total | ||||||||||||||||||||||||
| Carrying | contractual | Less than | ||||||||||||||||||||||
| value | amount | one year | 2-3 years | 4-5 years | Over 5 years | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Bank indebtedness | 332,189 | 332,189 | 332,189 | – | – | – | ||||||||||||||||||
| Accounts payable and accrued liabilities1 | 8,526,239 | 8,526,239 | 8,526,239 | – | – | – | ||||||||||||||||||
| Term loans | 391,564 | 454,794 | 77,226 | 180,000 | 90,000 | 107,568 | ||||||||||||||||||
| Balance due on business combination | 1,708,161 | 1,860,020 | 1,708,161 | – | – | – | ||||||||||||||||||
| Lease liabilities | 5,376,136 | 6,543,087 | 2,940,114 | 1,125,789 | 642,528 | 1,834,656 | ||||||||||||||||||
| 16,334,289 | 17,716,329 | 13,583,929 | 1,305,789 | 732,528 | 1,942,224 | |||||||||||||||||||
1 Accounts payable and accrued liabilities exclude amounts which are not financial liabilities.
At June 30, 2023, the Company's Canadian subsidiary benefits from a line of credit of $500,000, of which $332,189 was drawn on this faculty. The Italian subsidiary previously benefited from a 400,000 Euros line of credit which was paid in full and extinguished in June 2023. The Canadian facility bears interest at a variable rate which is the bank’s prime rate plus 1%, therefore, 7.95%. 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.
| Q2 2023 | PyroGenesis Canada Inc. | 18 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
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, 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 9).
The fair value of the term loans and the balance due on business combination as at June 30, 2023 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.
The following table presents the variation of the balance due on business combination:
| $ | ||||
| Balance due on business combination at December 31, 2021 - Current and Non-Current | 3,952,203 | |||
| Disbursement | (217,778 | ) | ||
| Interest accretion | 173,350 | |||
| Balance due on business combination at December 31, 2022 - Current and Non-Current | 3,907,775 | |||
| Disbursement | (100,000 | ) | ||
| Interest accretion on and revaluation of balance due on business combination | (2,099,614 | ) | ||
| Balance due on business combination at June 30, 2023 - Current and Non-Current | 1,708,161 | |||
| 20. | Contingent liabilities |
The Company is currently a party to various legal proceedings. If management believes that a loss arising from these proceedings is probable and can reasonably be estimated, that amount of the loss is recorded. As additional information becomes available, any potential liability related to these proceedings is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these proceedings, individually and in aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations.
The Company had received a government grant in prior years of approximately $800,000 to assist with the development of a new system of advanced waste treatment systems technology. The grant is potentially repayable at the rate of 3% of any consideration received as a result of the project, for which funding has been received, to a maximum of the actual grant received. This repayment provision will remain in effect until May 30, 2024. The Company abandoned the project in 2011 and accordingly, no amount is expected to be repaid.
| Q2 2023 | PyroGenesis Canada Inc. | 19 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
| 21. | Capital management |
The Company’s objectives in managing capital are:
| a) | To ensure sufficient liquidity to support its current operations and execute its business plan; and |
| b) | To provide adequate return to the shareholders |
The Company’s primary objectives when managing capital is to ensure the Company continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders.
The Company currently funds these requirements from cash flows from operations and with financing arrangements with third parties and shareholders. The Company is not subject to any externally imposed capital requirements.
The Company monitors its working capital in order to meet its financial obligations. On June 30, 2023, the Company’s working capital deficiency was $3,168,366 (working capital of $1,650,709 at December 31, 2022).
The management of capital includes shareholders’ equity for a total amount of $11,220,187 and term loans of $391,564 ($16,868,927 and $389,987 respectively at December 31, 2022), as well as cash amounting to $829,583 ($3,445,649 at December 31, 2022).
There were no significant changes in the Company’s approach during the current six-month period and preceding fiscal year, however, in order to maintain or adjust the capital structure, the Company may issue new shares, sell portions of its strategic investment and periodically purchase its own shares on the open market.
| 22. | Segment information |
The Company operates in one segment, based on financial information that is available and evaluated by the Company’s Board of Directors. The Company’s head office is located in Montreal, Quebec. The operations of the Company are located in three geographic areas: Canada, Italy and India.
The following is a summary of the Company’s revenue from external customers, by geography:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Brazil | 7,473 | 40,235 | 14,661 | 162,706 | ||||||||||||
| Canada | 1,370,893 | 2,601,841 | 3,423,564 | 3,969,633 | ||||||||||||
| France | 52,839 | – | 52,839 | – | ||||||||||||
| India | 82,960 | 35,466 | 276,499 | 58,029 | ||||||||||||
| Israel | (1,505 | ) | 13,853 | (1,505 | ) | 20,661 | ||||||||||
| Italy1 | 20,823 | 855,009 | (374,867 | ) | 1,211,032 | |||||||||||
| Mexico | 28,682 | 82,884 | 58,866 | 259,392 | ||||||||||||
| Netherlands | 8,867 | 16,388 | 31,235 | 30,242 | ||||||||||||
| New Zealand | 187,444 | – | 255,292 | – | ||||||||||||
| Poland | 6,108 | 22,395 | 25,621 | 30,512 | ||||||||||||
| Saudi Arabia | 86,643 | 353,654 | 146,685 | 1,077,225 | ||||||||||||
| United States of America | 1,185,712 | 1,566,808 | 1,714,694 | 2,662,546 | ||||||||||||
| Vietnam | 2,540 | 255,584 | 7,517 | 564,607 | ||||||||||||
| Other | – | 3,063 | – | 7,357 | ||||||||||||
| 3,039,479 | 5,847,180 | 5,631,101 | 10,053,942 | |||||||||||||
1 The Q1 2023 revenue attributable to Italy was reduced following the agreement between the Company’s Italian subsidiary and their customer to deliver a project prior to final completion, which resulted in an adjustment to revenue and to costs and profits in excess of billings on uncompleted contracts.
Revenue by product line and revenues recognized by revenue recognition method are presented in Note 5.
| Q2 2023 | PyroGenesis Canada Inc. | 20 |
PyroGenesis Canada Inc.
Notes to the Condensed Consolidated Interim Financial Statements
As at June 30, 2023 and for the periods ended June 30, 2023 and 2022
(Unaudited)
(In Canadian dollars)
23. Subsequent Events
On July 21, 2023, the Company announced that it had completed a brokered private placement offering of 3,030 unsecured convertible debenture units of the Company at a price of $1,000 per debenture unit, for aggregate gross proceeds of $3,030,000. In connection with the offering, P. Peter Pascali, President, CEO, and Director subscribed for $2,000,000 of convertible debenture units.
Each convertible debenture unit consists of one 10.0% unsecured convertible debenture of the Company with a maturity of 36 months from the date of issuance and 1,000 common share purchase warrants of the Company. Each Warrant shall entitle the holder thereof to acquire one common share at an exercise price of $1.25 for a period of 24 months following the closing date.
The principal amount of each convertible debenture shall be convertible, for no additional consideration, into Common Shares at the option of the holder based on certain conditions. The convertible debentures shall bear interest at a rate of 10.0% per annum, payable in cash or shares at the discretion of the Company and subject to certain criteria.
| Q2 2023 | PyroGenesis Canada Inc. | 21 |
Exhibit 99.3
PyroGenesis Canada Inc.
Management’s Discussion and Analysis
As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022
(Unaudited)
This management’s discussion and analysis (“MD&A”) is intended to assist readers in understanding the business environment, strategies, performance and risk factors of PyroGenesis Canada Inc. (“PyroGenesis”, or the “Company”). The MD&A provides the reader with a view and analysis, from the perspective of management, of the Company’s financial results for the three and six-month periods ended June 30, 2023. The MD&A has been prepared in accordance with National Instrument 51-102, Continuous Disclosure Requirements, and should be read in conjunction with the audited consolidated financial statements and related notes thereto of the Company for the year ended December 31, 2022.
The condensed consolidated interim financial statements and MD&A have been reviewed by PyroGenesis’ Audit Committee and were approved by its Board of Directors on August 10, 2023. The Board of Directors is responsible for ensuring that the Company fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The Board of Directors carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board of Directors and is comprised of independent directors. The Audit Committee reports its findings to the Board of Directors for its consideration when it approves the MD&A and financial statements for issuance to shareholders.
The following information takes into account all material events that took place up until August 10, 2023, the date on which the Company’s Board of Directors approved this MD&A. Unless otherwise indicated, all amounts are presented in Canadian dollars. The Company’s functional and reporting currency is the Canadian dollar.
Additional information regarding PyroGenesis is available on the System for Electronic Document Analysis and Retrieval (“SEDAR) at www.sedar.com, the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) at www.sec.gov, and on the Company’s website at www.pyrogenesis.com.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements and forward-looking information (collectively, “forward-looking statements”) within the meaning of applicable securities legislation. All statements other than statements of historical fact contained in this MD&A are forward-looking statements, including, without limitation, the Company’s statements regarding its products and services; relations with suppliers and clients; future financial position; business strategies; potential acquisitions; potential business partnering; litigation; and plans and objectives. In certain cases, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” and similar words or the negative thereof. Although management of the Company believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.
In particular, this MD&A contains forward-looking statements that relate, but are not limited, to:
| · | the Company’s business strategies, strategic objectives and growth strategy; |
| · | the Company’s current and future capital resources and the need for additional financing; |
| · | the Company’s ability to increase sales, including the results of the successful completion of the Company’s current projects; |
| · | management’s expectation that the Company will achieve sustained annual growth and profitability, and that gross margins will increase resulting in a decrease in cost of sales as a percentage of revenue; and |
| · | the Company’s overall financial performance. |
By their nature, forward-looking statements require assumptions and are subject to inherent risks and uncertainties including those discussed herein. In particular, forward-looking statements relating to future sales, growth and profitability are based on the assumption that current projects will be completed, and the Company will be awarded certain anticipated contracts pursuant to recent negotiations with, and statements made by, third parties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned to not place undue reliance on forward-looking statements made herein because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
Many factors could cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by forward-looking statements, including, without limitation, risks and uncertainties relating to: the strength of the Canadian, US, European and Asian economies; operational, funding, and liquidity risks; unforeseen engineering and environmental problems; delays or inability to obtain required financing and/or anticipated contracts; risks associated with licenses, permits and regulatory approvals; supply interruptions or labour disputes; the impact of the Coronavirus (COVID-19) outbreak on our business and our operations; foreign exchange fluctuations and collection risk; competition from other suppliers, or alternative, less capital intensive, energy solutions; and risk factors described elsewhere under the heading “Risk Factors” in this MD&A and the Annual Information Form, and elsewhere in this MD&A and other filings that the Company has made and may make in the future with applicable securities regulatory authorities. We caution that the foregoing list of factors is not exhaustive, and that, when relying on forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements.
Although the Company has attempted to identify significant factors that could cause actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Forward-looking statements are provided as of the date of this MD&A, and the Company assumes no obligation to update or revise such forward-looking statements to reflect new events or circumstances except as required under applicable securities laws.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A or such other date specified herein.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 1 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
BASIS OF PRESENTATION
For reporting purposes, we prepared the 2022 consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The financial information contained in this MD&A was derived from the 2022 consolidated financial statements. Unless otherwise indicated, all references to “$” are to Canadian dollars. Unless otherwise indicated, all references to a specific “note” refer to the notes to the 2022 consolidated financial statements. Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to rounding.
NON-IFRS MEASURES
This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.
We use non-IFRS measures, including EBITDA and Modified EBITDA, both of which are not considered an alternative to income or loss from operations, or to net earnings or loss, in the context of measuring a company’s performance. EBITDA is used by management in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. Management believes that EBITDA is used by investors as it provides supplemental measures of operating performance and thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS measures, and to compare the results of our operations with other entities with similar structures. Modified EBITDA is used by management as it brings additional clarity to operating performance, and it eliminates variations in the fair value of strategic investments, among others, which may be beyond the control of the Company. Management believes that investors use Modified EBITDA for similar purposes as management and to evaluate performance while adjusting for non-cash discretionary expenses. Modified EBITDA allows a more appropriate comparison to other companies whose earnings or loss is not adjusted by fair value adjustments from strategic investments. The Company also uses “Backlog” or “Backlog of signed and/or awarded contracts” interchangeably, as a non-IFRS measure. Backlog figures allow management of the Company to foresee and predict their future needs and resource planning. Management believes that “Backlog” is used by investors to evaluate the Company, their future performance and better understand the production capacity.
EBITDA: We define EBITDA as net earnings before net financing costs, income taxes, depreciation and amortization. See “Results of Operations - Reconciliation of Non-IFRS measures (EBITDA and Modified EBITDA)”.
Modified EBITDA: We define Modified EBITDA as EBITDA and adjust for non-cash items namely share-based payments expenses and changes in fair value of strategic investments. See “Results of Operations - Reconciliation of Non-IFRS measures (EBITDA and Modified EBITDA)”.
Backlog or Backlog of signed and/or awarded contracts: This measure is defined as contracts with customers, firm purchase order and contracts agreed between us and the customer, whereby we can determine the proceeds and the obligations to perform.
OVERVIEW
PyroGenesis Canada Inc. is a leader in the design, development, manufacture and commercialization of advanced plasma processes. We provide engineering and manufacturing expertise, cutting-edge contract research, as well as turnkey process equipment packages to the defense, metallurgical, mining, additive manufacturing (including 3D printing), oil & gas, and environmental industries. With a team of experienced engineers, scientists and technicians working out of our Montreal office and our 40,902 sq. ft. (3,800 m²) and 31,632 sq. ft. (2,940 m²) manufacturing facilities, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. Our core competencies allow PyroGenesis to lead the way in providing innovative plasma torches, plasma waste processes, high-temperature metallurgical processes, and engineering services to the global marketplace. Our operations are ISO 9001:2015 and AS9100D certified, having been ISO certified since 1997. Since our acquisition of Pyro Green-Gas (formerly AirScience Technologies Inc), we now offer technologies, equipment, and expertise in the area of biogas upgrading, and air pollution control. As a result, we have extended our presence to Italy and India, and this acquisition provides potential synergies with our current land-based waste destruction offerings. Our common shares are listed on the Toronto Stock Exchange (TSX) (Ticker Symbol: PYR), NASDAQ (Ticker Symbol: PYR) and the Frankfurt Stock Exchange (FSX) (Ticker symbol: 8PY).
This MD&A includes the accounts of the Company, Pyro Green-Gas Inc (including the subsidiaries in Italy and India) as well as Drosrite International LLC (“Drosrite International). Drosrite International is owned by a member of the Company’s key management personnel and close family member of the Chief Executive Officer (“CEO”) and controlling shareholder and is deemed for the purposes of the consolidated financial statements to be controlled by the Company. Unless otherwise stated, reference to subsidiaries in the consolidated financial statements and this MD&A shall include Drosrite International and/or Pyro Green-Gas Inc. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 2 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
INFORMATION FROM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE QUARTERS ENDED JUNE 30:
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Revenues | $ | 3,039,479 | $ | 5,847,180 | $ | (2,807,701 | ) | $ | 5,631,101 | $ | 10,053,942 | $ | (4,422,841 | ) | ||||||||||
| Cost of sales and services | 1,927,664 | 3,347,907 | (1,420,243 | ) | 3,992,713 | 6,502,947 | (2,510,234 | ) | ||||||||||||||||
| Gross profit | 1,111,815 | 2,499,273 | (1,387,458 | ) | 1,638,388 | 3,550,995 | (1,912,607 | ) | ||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| Selling, general and administrative (excluding share-based expenses) | 5,669,789 | 5,470,495 | 199,294 | 12,238,735 | 9,413,233 | 2,825,502 | ||||||||||||||||||
| Research and development, net | 742,685 | 804,564 | (61,879 | ) | 1,065,901 | 1,286,996 | (221,095 | ) | ||||||||||||||||
| Total expenses (excluding share-based expenses) | 6,412,474 | 6,275,059 | 137,415 | 13,304,636 | 10,700,229 | 2,604,407 | ||||||||||||||||||
| Net loss from operations (excluding share-based expenses) | (5,300,659 | ) | (3,775,786 | ) | (1,524,873 | ) | (11,666,248 | ) | (7,149,234 | ) | (4,517,014 | ) | ||||||||||||
| Share-based expenses | (740,940 | ) | (1,621,040 | ) | 880,100 | (1,729,102 | ) | (3,290,670 | ) | 1,561,568 | ||||||||||||||
| Net loss from operations | (6,041,599 | ) | (5,396,826 | ) | (644,773 | ) | (13,395,350 | ) | (10,439,904 | ) | (2,955,446 | ) | ||||||||||||
| Changes in fair market value of strategic investments and net finance income (costs) | (307,140 | ) | (7,633,978 | ) | 7,326,838 | 908,005 | (6,641,123 | ) | 7,549,128 | |||||||||||||||
| Income taxes | — | 19,542 | (19,542 | ) | — | 76,095 | (76,095 | ) | ||||||||||||||||
| Net loss | $ | (6,348,739 | ) | $ | (13,050,346 | ) | $ | 6,701,607 | $ | (12,487,345 | ) | $ | (17,157,122 | ) | $ | 4,669,777 | ||||||||
| Foreign currency translation gain (loss) on investments in foreign operations | 15,031 | 10,815 | 4,216 | (3,980 | ) | 48,471 | (52,451 | ) | ||||||||||||||||
| Comprehensive loss | $ | (6,333,708 | ) | $ | (13,039,531 | ) | $ | 6,705,823 | $ | (12,491,325 | ) | $ | (17,108,651 | ) | $ | 4,617,326 | ||||||||
| Loss per share | ||||||||||||||||||||||||
| Basic | $ | (0.04 | ) | $ | (0.08 | ) | $ | 0.04 | $ | (0.07 | ) | $ | (0.10 | ) | $ | 0.03 | ||||||||
| Diluted | $ | (0.04 | ) | $ | (0.08 | ) | $ | 0.04 | $ | (0.07 | ) | $ | (0.10 | ) | $ | 0.03 | ||||||||
| Modified EBITDA(1) | $ | (4,740,877 | ) | $ | (3,242,402 | ) | $ | (1,498,475 | ) | $ | (10,587,001 | ) | $ | (6,050,221 | ) | $ | (4,536,780 | ) | ||||||
1See “Non-IFRS Measures”
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 3 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
INFORMATION FROM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE PERIODS ENDED JUNE 30:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||
| Revenues | $ | 3,039,479 | $ | 5,847,180 | $ | 8,280,572 | $ | 5,631,101 | $ | 10,053,942 | $ | 14,545,075 | ||||||||||||
| Cost of sales and services | 1,927,664 | 3,347,907 | 3,347,091 | 3,992,713 | 6,502,947 | 7,468,584 | ||||||||||||||||||
| Gross profit | 1,111,815 | 2,499,273 | 4,933,481 | 1,638,388 | 3,550,995 | 7,076,491 | ||||||||||||||||||
| Expenses | ||||||||||||||||||||||||
| Selling, general and administrative (excluding share-based expenses) | 5,669,789 | 5,470,495 | 3,371,888 | 12,238,735 | 9,413,233 | 6,174,984 | ||||||||||||||||||
| Research and development, net | 742,685 | 804,564 | 710,734 | 1,065,901 | 1,286,996 | 997,041 | ||||||||||||||||||
| Total expenses (excluding share-based expenses) | 6,412,474 | 6,275,059 | 4,082,622 | 13,304,636 | 10,700,229 | 7,172,025 | ||||||||||||||||||
| Net loss from operations (excluding share-based expenses) | (5,300,659 | ) | (3,775,786 | ) | 850,859 | (11,666,248 | ) | (7,149,234 | ) | (95,534 | ) | |||||||||||||
| Share-based expenses | (740,940 | ) | (1,621,040 | ) | (3,288,685 | ) | (1,729,102 | ) | (3,290,670 | ) | (4,211,025 | ) | ||||||||||||
| Net loss from operations | (6,041,599 | ) | (5,396,826 | ) | (2,437,826 | ) | (13,395,350 | ) | (10,439,904 | ) | (4,306,559 | ) | ||||||||||||
| Changes in fair market value of strategic investments and net finance income (costs) | (307,140 | ) | (7,633,978 | ) | (17,924,379 | ) | 908,005 | (6,641,123 | ) | (12,342,743 | ) | |||||||||||||
| Income taxes | — | 19,542 | — | — | 76,095 | — | ||||||||||||||||||
| Net loss and comprehensive loss | $ | (6,348,739 | ) | $ | (13,050,346 | ) | $ | (20,362,205 | ) | $ | (12,487,345 | ) | $ | (17,157,122 | ) | $ | (16,649,302 | ) | ||||||
| Foreign currency translation gain (loss) on investments in foreign operations | 15,031 | 10,815 | — | (3,980 | ) | 48,471 | — | |||||||||||||||||
| Comprehensive loss | $ | (6,333,708 | ) | $ | (13,039,531 | ) | $ | (20,362,205 | ) | $ | (12,491,325 | ) | $ | (17,108,651 | ) | $ | (16,649,302 | ) | ||||||
| Loss per share | ||||||||||||||||||||||||
| Basic | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.12 | ) | $ | (0.07 | ) | $ | (0.10 | ) | $ | (0.10 | ) | ||||||
| Diluted | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.11 | ) | $ | (0.07 | ) | $ | (0.10 | ) | $ | (0.09 | ) | ||||||
| Modified EBITDA | $ | (4,740,877 | ) | $ | (3,242,402 | ) | $ | 1,090,915 | $ | (10,587,001 | ) | $ | (6,050,221 | ) | $ | 329,416 | ||||||||
SELECTED FINANCIAL INFORMATION
| June 30, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Current assets | 19,545,636 | 27,448,182 | 38,758,984 | |||||||||
| Non-current assets | 17,284,614 | 20,218,568 | 31,011,693 | |||||||||
| Total assets | $ | 36,830,250 | $ | 47,666,750 | $ | 69,770,677 | ||||||
| Current liabilities | 22,714,002 | 25,797,473 | 24,752,199 | |||||||||
| Non-current liabilities | 2,896,061 | 5,000,350 | 4,249,724 | |||||||||
| Total liabilities | $ | 25,610,063 | $ | 30,797,823 | $ | 29,001,923 | ||||||
| Shareholders' equity | $ | 11,220,187 | $ | 16,868,927 | $ | 40,768,754 | ||||||
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 4 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
FINANCIAL CONDITION
| Variation | ||||||||||||
| June 30, 2023 | December 31, 2022 | 2023 vs 2022 | ||||||||||
| Current Assets | ||||||||||||
| Cash | $ | 829,583 | $ | 3,445,649 | $ | (2,616,066 | ) | |||||
| Accounts receivable | 11,623,765 | 18,624,631 | (7,000,866 | ) | ||||||||
| Costs and profits in excess of billings on uncompleted contracts | 1,199,614 | 1,051,297 | 148,317 | |||||||||
| Inventory | 1,820,248 | 1,876,411 | (56,163 | ) | ||||||||
| Investment tax credits receivable | 248,658 | 276,404 | (27,746 | ) | ||||||||
| Income tax receivable | 16,140 | 14,169 | 1,971 | |||||||||
| Current portion of deposits | 540,621 | 432,550 | 108,071 | |||||||||
| Current portion of royalties receivable | 588,970 | 455,556 | 133,414 | |||||||||
| Contract assets | 472,134 | 499,912 | (27,778 | ) | ||||||||
| Prepaid expenses | 2,205,903 | 771,603 | 1,434,300 | |||||||||
| Total Current Assets | $ | 19,545,636 | $ | 27,448,182 | $ | (7,902,546 | ) | |||||
| Non-Current assets | ||||||||||||
| Deposits | 46,107 | 46,053 | 54 | |||||||||
| Strategic investments | 4,208,521 | 6,242,634 | (2,034,113 | ) | ||||||||
| Property and equipment | 3,125,423 | 3,393,452 | (268,029 | ) | ||||||||
| Right-of-use-assets | 4,565,136 | 4,818,744 | (253,608 | ) | ||||||||
| Royalties receivable | 903,490 | 952,230 | (48,740 | ) | ||||||||
| Intangible assets | 1,775,330 | 2,104,848 | (329,518 | ) | ||||||||
| Goodwill | 2,660,607 | 2,660,607 | — | |||||||||
| Total Non-Current Assets | $ | 17,284,614 | $ | 20,218,568 | $ | (2,933,954 | ) | |||||
| Current Liabilities | ||||||||||||
| Bank indebtedness | 332,189 | 991,902 | (659,713 | ) | ||||||||
| Accounts payable and accrued liabilities | 9,876,254 | 10,115,870 | (239,616 | ) | ||||||||
| Billings in excess of costs and profits on uncompleted contracts | 7,740,905 | 9,670,993 | (1,930,088 | ) | ||||||||
| Current portion of term loans | 77,226 | 69,917 | 7,309 | |||||||||
| Current portion of lease liabilities | 2,794,413 | 2,672,212 | 122,201 | |||||||||
| Balance due on business combination | 1,708,161 | 2,088,977 | (380,816 | ) | ||||||||
| Income tax payable | 184,854 | 187,602 | (2,748 | ) | ||||||||
| Total Current Liabilities | $ | 22,714,002 | $ | 25,797,473 | $ | (3,083,471 | ) | |||||
| Non-current Liabilities | ||||||||||||
| Lease liabilities | 2,581,723 | 2,861,482 | (279,759 | ) | ||||||||
| Term loans | 314,338 | 320,070 | (5,732 | ) | ||||||||
| Balance due on business combination | — | 1,818,798 | (1,818,798 | ) | ||||||||
| Total Non-Current Liabilities | $ | 2,896,061 | $ | 5,000,350 | $ | (2,104,289 | ) | |||||
Working capital, (expressed as current assets less current liabilities) varied since December 31, 2022 by $4.8 million, mainly a result of:
| · | a decrease of cash of $2.6 million, explained in the section Summary of Cash Flows, |
| · | a decrease of $7.0 million of accounts receivable, as the Company has collected the invoicing milestones on contracts in progress, as a result trade receivables decreased by $5.4 million, and a decrease in sales tax receivable of $0.3 million, offset by an increase of $1.3 million as a result of the increased allowance for expected credit loss, |
| · | an increase of $0.1 million in costs and profits in excess of billings on uncompleted contracts related to the advancement on paying projects, offset by the decrease of $0.03 million as a result of the allowance for credit loss on costs and profits in excess of billings on uncompleted contracts, |
| · | an increase of $0.1 million in current portion of deposits due to timing of deposits with suppliers, |
| · | an increase of $0.1 million in current portion of royalties receivable due to accretion and amount carried forward from 2022, |
| · | an increase of $1.4 million in prepaid expenses due to the prepayment of D&O insurance and software licenses, |
| · | a decrease in bank indebtedness of $0.7 million due to the repayment of the credit facility by Pyro Green-Gas’s Italian subsidiary, |
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 5 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
| · | a decrease of $0.2 million in accounts payable and accrued liabilities due to the increase in payments to suppliers, |
| · | a decrease of $1.9 million in billings in excess of costs and profits on uncompleted contracts due to the increase in workforce working on progressing customer projects by achieving contract milestones in shorter amounts of time, and |
| · | a decrease in balance due on business combination caused by a $0.1 million disbursement of an achieved milestone as well as recurring quarterly accretion and measurement of expected disbursements. During the current period the Company determined that an additional milestone liability from the business combination could be reversed as it would not be achieved, thus favourably impacting the income statement and financial position. |
Non-current assets varied since December 31, 2022, by $2.9 million, mainly a result of:
| · | a decrease in strategic investments is mainly attributable to the $2.0 million decrease in fair value of the common shares and warrants owned of HPQ Silicon Inc. and the net result of purchases and disposition of common share of HPQ Silicon Inc. during the first half of 2023, |
| · | a decrease of property and equipment of $0.3 million due to depreciation including the assets under construction placed in service, |
| · | a decrease of $0.3 million in right-of-use-assets due to depreciation and leases approaching their maturity dates, and conditions of the lease agreement between the Company and the trust were modified, to adjust the base rent and duration and, |
| · | a decrease of $0.3 million in intangible assets due to the amortization of the intangible asset from the 2021 business combination as well as the HP Torch and SPARC patents, |
Non-current liabilities varied since December 31, 2022, by $2.1 million, mainly a result of:
| · | a repayment of lease liabilities and the decrease to the revaluation of the balance due on business combination as of June 30, 2023, as all milestones are schedule to be achieved within the next twelve months. |
RESULTS OF OPERATIONS
Revenues
PyroGenesis recorded revenue of $3.0 million in the second quarter of 2023 (“Q2, 2023”), representing a decrease of $2.8 million compared with $5.8 million recorded in the second quarter of 2022 (“Q2, 2022”). Revenue for the six-month period ended June 30, 2023, was $5.6 million, a decrease of $4.4 million over revenue of $10.1 million compared to the same period in 2022.
Revenues recorded in the three and six-months ended June 30, 2023, were generated primarily from:
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| High purity metallurgical grade silicon & solar grade silicon from quartz (PUREVAP™) | $ | 445,840 | $ | 820,972 | $ | (375,132 | ) | $ | 973,439 | $ | 1,168,983 | $ | (195,544 | ) | ||||||||||
| Aluminium and zinc dross recovery (DROSRITE™) | 115,325 | 436,538 | (321,213 | ) | 205,552 | 1,336,617 | (1,131,065 | ) | ||||||||||||||||
| Development and support related to systems supplied to the U.S. Navy | 813,125 | 591,099 | 222,026 | 1,165,228 | 1,336,359 | (171,131 | ) | |||||||||||||||||
| Torch-related products and services | 561,942 | 1,707,152 | (1,145,210 | ) | 1,732,690 | 2,591,909 | (859,219 | ) | ||||||||||||||||
| Refrigerant destruction (SPARC™) | 187,444 | — | 187,444 | 255,292 | — | 255,292 | ||||||||||||||||||
| Biogas upgrading and pollution controls | 618,070 | 2,181,107 | (1,563,037 | ) | 650,965 | 3,171,152 | (2,520,187 | ) | ||||||||||||||||
| Other sales and services | 297,733 | 110,312 | 187,421 | 647,935 | 448,922 | 199,013 | ||||||||||||||||||
| Revenue | $ | 3,039,479 | $ | 5,847,180 | $ | (2,807,701 | ) | $ | 5,631,101 | $ | 10,053,942 | $ | (4,422,841 | ) | ||||||||||
Q2, 2023 revenues decreased by $2.8 million, mainly as a result of:
| · | PUREVAP™ related sales decreased by $0.4 million due to the completion of the project and initial phase of testing, with additional three-month testing requested by the customer and currently ongoing, |
| · | DROSRITE™ related sales decreased by $0.3 million due to continued customer delays in funding for the construction of the onsite facility. Based on the customers updated projected schedule and ongoing positive discussions, the new expectation aims to have the equipment installed, commissioned and fully operational by end of the year, |
| · | Torch-related products and services decreased by $1.1 million, due to the final phase of the project being completed with the installation and commissioning at the customers facility. Three-month onsite support currently ongoing and scheduled to be completed by the end of the third quarter, with an option to extend to six and nine-month support at the discretion of the customer, |
| · | Biogas upgrading and pollution controls related sales decreased by $1.6 million due to continuous testing to achieve desired results and due to the Company’s Italian subsidiary and a customer who both agreed on the completion of the project during the first quarter of 2023, with no additional revenues recorded by the Company’s Italian subsidiary for Q2, 2023 ($0.9 million – Q2, 2022), |
During the six-month period ended June 30, 2023, revenues decreased by $4.4 million, mainly as a result of:
| · | PUREVAP™ related sales decreased by $0.2 million due to the completion of the project and initial phase of testing, |
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 6 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
| · | DROSRITE™ related sales decreased by $1.1 million due to the impact of the continued customer delays in funding for the construction of the onsite facility, |
| · | Development and support related to systems supplied to the U.S Navy decreased by $0.2 million due to remaining project milestones mainly related to inspection, packaging and shipment of the equipment to our customer in order to move forward with installation and commissioning, |
| · | Torch-related products and services decreased by $0.9 million, due to the final phase of the project being completed with the installation and commissioning at the customers facility. Three-month onsite support currently ongoing and scheduled to be completed by the end of the third quarter, with an option to extend to six and nine-month support at the discretion of the customer, |
| · | Biogas upgrading and pollution controls related sales decrease of $2.5 million is due to continuous testing to achieve desired results and due to the Company’s Italian subsidiary and a customer who both agreed on the completion of the project during the first quarter of 2023, with no additional revenues recorded by the Company’s Italian subsidiary for the six-month period ended June 30, 2023 ($1.2 million – six-month period ended June 30, 2022), |
As of August 10, 2023, revenue expected to be recognized in the future related to backlog of signed and/or awarded contracts is $33.9 million. Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over a maximum period of approximately 3 years.
Cost of Sales and Services
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Employee compensation | $ | 923,465 | $ | 901,826 | $ | 21,639 | $ | 1,811,900 | $ | 1,704,455 | $ | 107,445 | ||||||||||||
| Subcontracting | 230,728 | 360,140 | (129,412 | ) | 279,301 | 1,031,416 | (752,115 | ) | ||||||||||||||||
| Direct materials | 296,421 | 1,612,969 | (1,316,548 | ) | 911,419 | 2,695,752 | (1,784,333 | ) | ||||||||||||||||
| Manufacturing overhead & other | 297,490 | 725,145 | (427,655 | ) | 591,127 | 884,764 | (293,637 | ) | ||||||||||||||||
| Foreign exchange charge on materials | — | (447,968 | ) | 447,968 | — | (226,165 | ) | 226,165 | ||||||||||||||||
| Investment tax credits | (42,192 | ) | (22,964 | ) | (19,228 | ) | (44,538 | ) | (24,793 | ) | (19,745 | ) | ||||||||||||
| Amortization of intangible assets | 221,752 | 218,759 | 2,993 | 443,504 | 437,518 | 5,986 | ||||||||||||||||||
| Total Cost of Sales and Services | $ | 1,927,664 | $ | 3,347,907 | $ | (1,420,243 | ) | $ | 3,992,713 | $ | 6,502,947 | $ | (2,510,234 | ) | ||||||||||
Gross Profit
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | 3,039,479 | $ | 5,847,180 | $ | 5,631,101 | $ | 10,053,942 | ||||||||
| Cost of Sales and Services | 1,927,664 | 3,347,907 | 3,992,713 | 6,502,947 | ||||||||||||
| Gross Profit | $ | 1,111,815 | $ | 2,499,273 | $ | 1,638,388 | 3,550,995 | |||||||||
| Gross Margin % | % | 37 | % | 43 | % | 29 | % | 35 | ||||||||
Cost of sales and services were $1.9 million in Q2 2023, representing a decrease of $1.4 million compared to $3.3 million in Q2, 2022, primarily due to a decrease of $0.1 million in subcontracting (Q2, 2022 - $0.4 million), attributed to additional work being completed in-house, a decrease in direct materials and manufacturing overhead & other of $1.3 million and $0.4 million, respectively (Q2, 2022 - $1.6 million and $0.7 million), due to lower levels of material required based on the decrease in product and service-related revenues.
The gross margin for Q2, 2023 was $1.1 million or 37% of revenue compared to a gross margin of $2.5 million or 43% of revenue for Q2 2022, the decrease in gross margin was mainly attributable to the impact on foreign exchange charge on materials.
During the six-month period ended June 30, 2023, cost of sales and services were $4.0 million compared to $6.5 million for the same period in the prior year, the $2.5 million decrease is primarily due to a decrease of $0.8 million in subcontracting (six-month period ended June 30, 2022 - $1.0 million), attributed to additional work being completed in-house, a decrease in direct materials and manufacturing overhead & other of $1.8 million and $0.3 million respectively (six-month period ended June 30, 2022 - $2.7 million and $0.9 million respectively), due to lower levels of material required based on the decrease in product and service-related revenues and the negative impact of the foreign exchange charge on material of $0.2 million.
The amortization of intangible assets for Q2, 2023 was $0.2 million compared to $0.2 million for Q2, 2022, and during the six-month period ended June 30, 2023, was $0.4 million compared to $0.4 million for the same period in the prior year. This expense relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items, and the intangible assets will be amortized over the expected useful lives.
As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, as the mix between labour, materials and subcontracts may be significantly different. In addition, due to the nature of these long-term contracts, the Company has not necessarily passed on to the customer, the increased cost of sales which was attributable to inflation, if any. The costs of sales and services are in line with management’s expectations and with the nature of the revenue.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 7 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
Selling, General and Administrative Expenses
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Employee compensation | $ | 2,532,157 | $ | 1,870,165 | $ | 661,992 | $ | 5,086,114 | $ | 3,541,954 | $ | 1,544,160 | ||||||||||||
| Share-based expenses | 740,940 | 1,621,040 | (880,100 | ) | 1,729,102 | 3,290,670 | (1,561,568 | ) | ||||||||||||||||
| Professional fees | 987,285 | 1,740,978 | (753,693 | ) | 2,231,564 | 2,402,957 | (171,393 | ) | ||||||||||||||||
| Office and general | 197,281 | 223,629 | (26,348 | ) | 369,544 | 457,089 | (87,545 | ) | ||||||||||||||||
| Travel | 110,888 | 80,453 | 30,435 | 170,681 | 107,662 | 63,019 | ||||||||||||||||||
| Depreciation of property and equipment | 158,007 | 148,412 | 9,595 | 318,370 | 291,402 | 26,968 | ||||||||||||||||||
| Depreciation of ROU assets | 164,991 | 155,398 | 9,593 | 321,353 | 321,622 | (269 | ) | |||||||||||||||||
| Investment tax credits | (7,500 | ) | (7,500 | ) | –— | (15,000 | ) | (15,000 | ) | –— | ||||||||||||||
| Government grants | (221,454 | ) | (55,077 | ) | (166,377 | ) | (274,965 | ) | (94,511 | ) | (180,454 | ) | ||||||||||||
| Other expenses | 783,868 | 1,314,037 | (530,169 | ) | 1,669,317 | 2,400,058 | (730,741 | ) | ||||||||||||||||
| Foreign exchange charge on materials | 282,023 | –— | 282,023 | 303,918 | –— | 303,918 | ||||||||||||||||||
| Expected credit loss & bad debt | 682,243 | –— | 682,243 | 2,057,839 | –— | 2,057,839 | ||||||||||||||||||
| Total selling, general and administrative | $ | 6,410,729 | $ | 7,091,535 | $ | (680,806 | ) | $ | 13,967,837 | $ | 12,703,903 | $ | 1,263,934 | |||||||||||
Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.
SG&A expenses for Q2, 2023 were $6.4 million, representing a decrease of $0.7 million compared to $7.1 million for Q2, 2022. The decrease is mainly a result of share-based compensation expense decreased by $0.9 million (Q2, 2022 - $1.6 million), which is a non-cash item and relates mainly to a Q4 2021, and 2022 grants not repeated in 2023. Professional fees are $1.0 million which decreased by $0.8 million (Q2, 2022 - $1.7 million), due to reduction in accounting fees, legal and investor relation expenses. Other expenses were favourable by $0.5 million (Q2, 2022 - $1.3 million) due to a net reduction of insurance expenses, interest and bank charges. Government grants are $0.2 million which increased by $0.2 million ($Q2, 2022 – $0.06 million) due to higher levels of activities supported by such grants. The expected credit loss & bad debt increased to $0.7 million in Q2, 2023 and is due to an increase in the allowance for expected credit loss, whereby no such expense was recorded in the comparable period.
During the six-month period ended June 30, 2023, SG&A expenses were $14.0 million, representing an increase of $1.3 million compared to $12.7 million for the same period in the prior year. The increase is mainly a result of employee compensation increasing to $5.1 million (six-month period ended June 30, 2022 - $3.5 million) mainly caused by additional headcount. Expected credit loss & bad debt increased to $2.1 million and is due to an increase in the allowance for expected credit loss increase of $2.1 million and the increase of the impact on foreign exchange charge on materials of $0.3 million, offset by the decreases of $0.2 million in professional fees which are $2.2 million, compared to $2.4 million in the comparable period, and the decrease in other expenses to $1.6 million from $2.4 million, a variation of $0.7 million, compared to the six-month period ended June 30, 2022.
Share-based compensation expense for the three and six-month periods ended June 30, 2023, was $0.7 million and $1.7 million, respectively (six-month period ended June 30, 2022 - $1.6 million and $3.3 million, respectively), a decrease of $0.9 million and $1.6 million respectively, which is a non-cash item and relates mainly to a Q4 2021, and 2022 grants not repeated in 2023.
Share-based payments expenses as explained above, are non-cash expenses and are directly impacted by the vesting structure of the stock option plan whereby options vest between 10% and up to 100% on the grant date and may require an immediate recognition of that cost.
Depreciation on Property and Equipment
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Depreciation of property and equipment | $ | 158,007 | $ | 148,412 | $ | 9,595 | $ | 318,370 | $ | 291,402 | $ | 26,968 | ||||||||||||
The depreciation on property and equipment for the three and six-month periods ended June 30, 2023, increased to $0.2 million and $0.3 million, respectively, compared with $0.1 million and $0.3 million for the same periods in the prior year. The expense is comparable to the same quarters last year and the increase is primarily due to nature and useful lives of the property and equipment being depreciated.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 8 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
Research and Development (“R&D”) Costs, net
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Employee compensation | $ | 440,293 | $ | 219,232 | $ | 221,061 | $ | 456,425 | $ | 455,683 | $ | 742 | ||||||||||||
| Investment tax credits | (9,589 | ) | (30,473 | ) | 20,884 | (19,686 | ) | (31,641 | ) | 11,955 | ||||||||||||||
| Subcontracting | 6,252 | 51,973 | (45,721 | ) | 37,543 | 84,027 | (46,484 | ) | ||||||||||||||||
| Materials and equipment | 91,375 | 470,574 | (379,199 | ) | 175,699 | 614,994 | (439,295 | ) | ||||||||||||||||
| Other expenses | 214,354 | 93,258 | 121,096 | 415,920 | 163,933 | 251,987 | ||||||||||||||||||
| Total net R&D expenses, net | $ | 742,685 | $ | 804,564 | $ | (61,879 | ) | $ | 1,065,901 | $ | 1,286,996 | $ | (221,095 | ) | ||||||||||
During the three-months ended June 30, 2023, the Company incurred $0.7 million of R&D costs on internal projects, a decrease of $0.06 million as compared with $0.8 million in Q2, 2022. The decrease in Q2, 2023 is primarily related to a decrease in subcontracting and materials and equipment to $0.1 million (Q2, 2022 - $0.5 million), which is also attributable to the increase in employee compensation to $0.4 million (Q2, 2022 - $0.2 million) due to an increase in R&D activities which required additional labour resources and other expenses of $0.2 million related to equipment rentals compared to $0.1 million in Q2, 2022, an increase of $0.1 million.
During the six-months ended June 30, 2023, the Company incurred $1.1 million of R&D costs on internal projects, a decrease of $0.2 million as compared to $1.3 million for the same period in the prior year. The decrease is mainly due to lower levels of R&D activities requiring subcontracting and material and equipment, decreasing to $0.2 million as compared with $0.7 million, a decrease of $0.5 million, which is offset by the increase in other expenses to $0.4 million compared to $0.2 million for the same period in the prior year.
In addition to internally funded R&D projects, the Company also incurred R&D expenditures during the execution of client funded projects. These expenses are eligible for Scientific Research and Experimental Development (“SR&ED”) tax credits. SR&ED tax credits on client funded projects are applied against cost of sales and services (see “Cost of Sales” above).
Finance costs (income), net
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Interest on term loans | 168 | 752 | (584 | ) | 529 | 1,603 | (1,074 | ) | ||||||||||||||||
| Interest on lease liabilities | 93,868 | 111,993 | (18,125 | ) | 186,989 | 189,458 | (2,469 | ) | ||||||||||||||||
| Interest accretion on and revaluation of balance due on business combination | (1,062,196 | ) | 44,115 | (1,106,311 | ) | (2,099,614 | ) | 127,088 | (2,226,702 | ) | ||||||||||||||
| Interest accretion of royalty receivable | (43,189 | ) | (37,549 | ) | (5,640 | ) | (84,674 | ) | (38,913 | ) | (45,761 | ) | ||||||||||||
| Interest accretion on long term loan | 8,502 | — | 8,502 | 16,768 | — | 16,768 | ||||||||||||||||||
| Penalties and other interest | 69,825 | 36,802 | 33,023 | 132,726 | 60,777 | 71,949 | ||||||||||||||||||
| Finance costs (income), net | $ | (933,022 | ) | $ | 156,113 | $ | (1,089,135 | ) | $ | (1,847,276 | ) | $ | 340,013 | $ | (2,187,289 | ) | ||||||||
Finance costs for Q2 2023 represent an income of $0.9 million as compared with an expense of $0.2 million for Q2, 2022, representing a favourable variation of $1.1 million year-over-year. The decrease in finance expenses in Q2 2023, is primarily due as the Company determined that a milestone related to the business combination would not be achieve and therefore, a reversal of the liability was recorded.
During the six-month period ended June 30, 2023, the finance costs represent an income of $1.8 million as compared with an expense of $0.3 million for the 2022 comparable period, representing a favourable variation of $2.2 million year-over-year. The decrease in finance expenses is primarily due to the revaluation of balance due on business combination due to the Company’s Italian subsidiary and a customer who both agreed on the final acceptance of a contract, prior to final completion and the Company determined that a milestone related to the business combination would not be achieved. As a result, the contract did not attain the pre-determined milestone in connection with the balance due on business combination, and reversals of the liabilities were recorded.
Strategic Investments
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Changes to fair value of strategic investments | $ | (1,240,162 | ) | $ | (7,477,865 | ) | $ | 6,237,703 | $ | (939,271 | ) | $ | (6,301,110 | ) | $ | 5,361,839 | ||||||||
During the three-months ended June 30, 2023, the adjustment to fair market value of strategic investments for Q2, 2023 resulted in a loss of $1.2 million compared to a loss in the amount of $7.5 million in Q2, 2022, a favorable variation of $6.2 million.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 9 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
During the six-months ended June 30, 2023, the adjustment to fair market value of strategic investments resulted in a loss of $0.9 million compared to a loss in the amount of $6.3 million for the same period in the prior year, a favorable variation of $5.4 million. The decrease in loss for the three and six-month periods ended June 30, 2023, is attributable to the variation of the market value of the common shares and warrants owned by the Company of HPQ Silicon Inc.
Comprehensive loss
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Comprehensive loss | $ | (6,333,708 | ) | $ | (13,039,531 | ) | $ | 6,705,823 | $ | (12,491,325 | ) | $ | (17,108,651 | ) | $ | 4,617,326 | ||||||||
The comprehensive loss for Q2, 2023 of $6.3 million compared to a loss of $13.0 million, in Q2, 2022, represents a variation of $6.7 million, and is primarily attributable to the factors described above, which have been summarized as follows:
| · | a decrease in product and service-related revenue of $2.8 million arising in Q2, 2023, |
| · | a decrease in cost of sales and services of $1.4 million, primarily due to a decrease in subcontracting, direct materials, and manufacturing overhead and other, offset by the increase in employee compensation, foreign exchange charge on materials, and amortization of intangible assets, |
| · | a decrease in SG&A expenses of $0.7 million arising in Q2, 2023, was primarily due to a decrease in professional fees, office and general and other expenses, offset by increases in employee compensation, travel, depreciation of property and equipment, depreciation of ROU assets, foreign exchange charge on materials, and the allowance for credit loss of $0.7 million, |
| · | a decrease in share-based expenses of $0.9 million |
| · | a decrease in R&D expenses of $0.06 million primarily due to a decrease in subcontracting, materials and equipment, and an increase in employee compensation, investment tax credits and other expenses, |
| · | a decrease in finance costs (income), net of $1.1 million in Q2, 2023 primarily due to the revaluation of balance due on business combination, |
| · | a favourable variation in the fair market value of strategic investments of $6.2 million, |
| · | a decrease in income taxes of $0.02 million in Q2, 2023. |
The comprehensive loss for the six-month period ended June 30, 2023, of $12.5 million compared to a loss of $17.1 million, for the same period in the prior year, represents a variation of $4.6 million, and is primarily attributable to the factors described above, which have been summarized as follows:
| · | a decrease in product and service-related revenue of $4.4 million, |
| · | a decrease in cost of sales and services of $2.5 million, primarily due to a decrease in subcontracting, direct materials, manufacturing overhead and other, and investment tax credits, offset by the increase in employee compensation foreign exchange charge on materials, and amortization of intangible assets, |
| · | an increase in SG&A expenses of $1.3 million was primarily due to an increase in employee compensation, travel, depreciation in property and equipment, foreign exchange charge on materials, and the allowance for credit loss of $2.1 million which is offset by a decrease in professional fees, office and general, and other expenses, |
| · | a decrease in share-based expenses of $1.6 million |
| · | a decrease in R&D expenses of $0.2 million primarily due to a decrease in subcontracting and material and equipment and an increase in employee compensation, investment tax credits and other expenses, |
| · | a decrease in net finance costs (income) of $2.2 million is primarily due to the revaluation of balance due on business combination, |
| · | a favourable variation in the fair market value of strategic investments of $5.4 million, |
| · | a decrease in income taxes of $0.08 million. |
Reconciliation of Non-IFRS measures (EBITDA, and Modified EBITDA)
| Three months ended June 30 | Variation | Six months ended June 30 | Variation | |||||||||||||||||||||
| 2023 | 2022 | 2023 vs 2022 | 2023 | 2022 | 2023 vs 2022 | |||||||||||||||||||
| Comprehensive loss | $ | (6,333,708 | ) | $ | (13,039,531 | ) | $ | 6,705,823 | $ | (12,491,325 | ) | $ | (17,108,651 | ) | $ | 4,617,326 | ||||||||
| Depreciation of property and equipment | 158,007 | 148,412 | 9,595 | 318,370 | 291,402 | 26,968 | ||||||||||||||||||
| Depreciation of ROU assets | 164,992 | 155,398 | 9,594 | 321,353 | 321,622 | (269 | ) | |||||||||||||||||
| Amortization of intangible assets | 221,752 | 218,759 | 2,993 | 443,504 | 437,518 | 5,986 | ||||||||||||||||||
| Finance costs (income), net | (933,022 | ) | 156,113 | (1,089,135 | ) | (1,847,276 | ) | 340,013 | (2,187,289 | ) | ||||||||||||||
| Income taxes | — | 19,542 | (19,542 | ) | — | 76,095 | (76,095 | ) | ||||||||||||||||
| EBITDA(1) | $ | (6,721,979 | ) | $ | (12,341,307 | ) | $ | 5,619,328 | $ | (13,255,374 | ) | $ | (15,642,001 | ) | $ | 2,386,627 | ||||||||
| Other non-cash items: | ||||||||||||||||||||||||
| Share-based expenses | 740,940 | 1,621,040 | (880,100 | ) | 1,729,102 | 3,290,670 | (1,561,568 | ) | ||||||||||||||||
| Change in fair value of investments | 1,240,162 | 7,477,865 | (6,237,703 | ) | 939,271 | 6,301,110 | (5,361,839 | ) | ||||||||||||||||
| Modified EBITDA (1) | $ | (4,740,877 | ) | $ | (3,242,402 | ) | $ | (1,498,475 | ) | $ | (10,587,001 | ) | $ | (6,050,221 | ) | $ | (4,536,780 | ) | ||||||
¹ See “Non-IFRS Measures”
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 10 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
The EBITDA in Q2, 2023 was a $6.7 million loss compared to an EBITDA loss of $12.3 million for Q2, 2022, representing a variation of $5.6 million year-over-year. The variation in the EBITDA in the three-months ended June 30, 2023, compared to June 30, 2022, is due to the decrease in comprehensive loss of $6.7 million, an increase in depreciation of property and equipment, depreciation on right-of-use assets and, amortization of intangible assets, a decrease in net finance costs (income) of $1.1 million and a decrease in income taxes of $0.02 million.
The Modified EBITDA in Q2, 2023 was a $4.7 million loss compared to a Modified EBITDA loss of $3.2 million for Q2, 2022, representing an increased loss of $1.5 million. The increase in the Modified EBITDA loss in Q2, 2023 is attributable to the decrease as mentioned above in the EBITDA of $5.6 million, a decrease in share-based expenses of $0.9 million from an expense not recurring in Q2, 2023 and a decrease in the change of fair value of investments of $6.2 million, based on the fair value of such investment.
The EBITDA during the six-month period ended June 30, 2023, was a $13.3 million loss compared to an EBITDA loss of $15.6 million, representing a variation of $2.4 million year-over-year. The variation in the EBITDA in the six-months ended June 30, 2023, compared to June 30, 2022, is due to the decrease in comprehensive loss of $4.6 million, an increase in depreciation of property and equipment, an increase in amortization of intangible assets, a decrease in depreciation of right-of-use assets, a decrease in net finance costs (income) of $2.2 million and a decrease in income taxes of $0.08 million.
The Modified EBITDA during the six-month period ended June 30, 2023, was a $10.6 million loss compared to a Modified EBITDA loss of $6.1 million, representing an increased loss of $4.5 million. The increase in the Modified EBITDA loss is attributable to the decrease as mentioned above in the EBITDA of $2.4 million and a decrease in share-based expenses of $1.6 million from an expense not recurring in the six-month period ended June 30, 2023 and a decrease in the change of fair value of investments of $5.4 million, based on the fair value of such investment.
SUMMARY OF QUARTERLY RESULTS
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |||||||||||||||||||||||||
| Revenues | $ | 3,039,479 | $ | 2,591,622 | $ | 3,301,777 | $ | 5,657,783 | $ | 5,847,180 | $ | 4,206,762 | $ | 7,205,349 | $ | 9,317,926 | ||||||||||||||||
| Gross profit | 1,111,815 | 526,573 | 479,715 | 4,113,176 | 2,499,273 | 1,051,723 | 1,302,789 | 4,052,531 | ||||||||||||||||||||||||
| Gross margin | % | 37.0 | % | 20.3 | % | 14.5 | % | 72.7 | % | 42.7 | % | 25.0 | % | 18.1 | % | 43.5 | ||||||||||||||||
| Comprehensive income (loss) | (6,333,708 | ) | (6,157,620 | ) | (10,818,755 | ) | (4,053,706 | ) | (13,039,531 | ) | (4,069,119 | ) | (22,402,857 | ) | 623,664 | |||||||||||||||||
| Earnings (loss) per share | ||||||||||||||||||||||||||||||||
| Basic | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.02 | ) | (0.08 | ) | (0.02 | ) | (0.13 | ) | — | |||||||||||||||||
| Diluted | (0.04 | ) | (0.03 | ) | (0.06 | ) | (0.02 | ) | (0.08 | ) | (0.02 | ) | (0.13 | ) | — | |||||||||||||||||
The majority of PyroGenesis’ revenue is recognised over the time of the contract and is dependent on the timing of project initiation and execution, including project engineering, manufacturing, and testing.
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2023, the Company had cash of $0.8 million, included in the net working capital deficiency of $3.2 million. Certain working capital items such as billings in excess of costs and profits on uncompleted contracts do not represent a direct outflow of cash. The Company expects that with its cash, liquidity position, the proceeds available from the strategic investment and access to capital markets it will be able to finance its operations for the foreseeable future.
The Company’s term loan balance at June 30, 2023 was $391,564, and varied only slightly since December 31, 2022. The increase from January 1, 2022 to December 31, 2022, was mainly attributable to the additional proceeds received on the Economic Development Agency of Canada loan, which is interest free and will remain so, until the balance is paid over the 60-month period ending March 2029. The average interest expense on the other term loans was 7.2% in the period. The Company does not expect changes to the structure of term loans in the next twelve-month period. The Company maintained one credit facilities which bears interest at a variable rate of prime plus 1%, therefore 7.95% at June 30, 2023. The Company reimbursed a portion of the credit facilities during Q2 2023, and extended the due date of the remaining balance, while maintaining the similar conditions.
| Total | Less | |||||||||||||||||||||||
| Carrying | contractual | than one | Over 5 | |||||||||||||||||||||
| Value | amount | year | 2-3 years | 4-5 years | years | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Bank indebtedness | 332,189 | 332,189 | 332,189 | — | — | — | ||||||||||||||||||
| Accounts payable and accrued liabilities1 | 8,526,239 | 8,526,239 | 8,526,239 | — | — | — | ||||||||||||||||||
| Term loans | 391,564 | 454,794 | 77,226 | 180,000 | 90,000 | 107,568 | ||||||||||||||||||
| Balance due on business combination | 1,708,161 | 1,860,020 | 1,708,161 | — | — | — | ||||||||||||||||||
| Lease liabilities | 5,376,136 | 6,543,087 | 2,940,114 | 1,125,789 | 642,528 | 1,834,656 | ||||||||||||||||||
| 16,334,289 | 17,716,329 | 13,583,929 | 1,305,789 | 732,528 | 1,942,224 | |||||||||||||||||||
1 Accounts payable and accrued liabilities exclude amounts which are not financial liabilities.
| Q2 2023 MD&A | PyroGenesis Canada Inc. | 11 |
PyroGenesis Canada Inc. |
| Management’s Discussion and Analysis |
| As at June 30, 2023 and for the three and six month periods ended June 30, 2023 and 2022 |
| (Unaudited) |
SUMMARY OF CASH FLOWS
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cash provided / (used) in operating activities | $ | (920,885 | ) | $ | (2,752,116 | ) | ||||||||||