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 November 2021

 

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 ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):        

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):        

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

Exhibits

 

99.1	Condensed Interim Financial Statements for the three and nine months ended September 30, 2021
99.2	Management’s Discussion and Analysis
99.3	Form 52-109F2 CEO Certification of Interim Filings
99.4	Form 52-109F2 CFO Certification of Interim Filings

 

 

 

 

 

 

 

 

 

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: November 15, 2021		/s/ P. Peter Pascali
		P. Peter Pascali
		Chief Executive Officer

 

 

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

 

PyroGenesis Canada Inc.

 

 

Condensed Consolidated

Interim Financial Statements

Three and nine months ended September 30, 2021

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying unaudited 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 September 30, 2021.

 

 

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited)

 

			September 30, 2021				December 31, 2020
			$				$
Assets
Current assets
Cash and cash equivalents [note 6]			15,781,528				18,104,899
Accounts receivable [note 7]			18,229,407				3,329,653
Costs and profits in excess of billings on uncompleted contracts and projects [note 8]			3,293,718				1,073,633
Inventory			552,877				-
Investment tax credits and government wage subsidy receivable [note 9]			311,007				567,059
Current portion of deposits [note 11]			1,727,115				1,421,246
Current portion of royalties receivable			242,687				-
Contract assets			439,753				694,301
Other assets			1,541,787				145,996
Total current assets			42,119,879				25,336,787
Non-current assets
Deposits [note 11]			300,676				301,341
Strategic investments [note 10]			27,638,516				39,991,750
Property and equipment			3,613,090				2,529,570
ROU assets			5,932,217				3,701,000
Royalties receivable			915,521				1,060,000
Investment tax credits receivable			-				705,316
Intangible assets			3,885,125				905,614
Goodwill			2,311,956				-
Total assets			86,716,980				74,531,378
Liabilities
Current liabilities
Accounts payable and accrued liabilities [note 12]			8,230,604				4,708,051
Billings in excess of costs and profits on uncompleted contracts and projects [note 13]			6,574,359				6,592,972
Current portion of term loans [note 14]			624,819				12,208
Balance due on business combination			435,560				-
Current portion of lease liabilities			2,987,113				225,977
Total current liabilities			18,852,455				11,539,208
Non-current liabilities
Lease liabilities			2,438,682				2,762,565
Term loans [note 14]			163,018				100,499
Balance due on business combination			3,258,218				-
Deferred income taxes			760,412				706,000
Total liabilities			25,472,785				15,108,272
Shareholders’ equity [note 15]
Common shares and warrants			82,125,269				67,950,069
Contributed surplus			15,015,275				10,480,310
Deficit			(35,896,349	)			(19,007,273	)
Total shareholders’ equity			61,244,195				59,423,106
Total liabilities and shareholders’ equity			86,716,980				74,531,378

 

Contingent liabilities [notes 22]

 

 

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Unaudited)

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Revenues [note 5]			9,317,926				8,149,427				23,863,001				10,996,789
Cost of sales and services [note 17]			5,265,395				2,616,901				12,733,979				3,930,257
Gross Profit			4,052,531				5,532,526				11,129,022				7,066,532
Expenses (income)
Selling, general and administrative [note 17]			4,901,131				5,311,802				15,287,141				8,253,369
Research and development			389,806				131,955				1,386,847				151,176
			5,290,937				5,443,757				16,673,988				8,404,545
Net income (loss) from operations			(1,238,406	)			88,769				(5,544,964	)			(1,338,013	)
Changes in fair market value of strategic investments [note 9]			1,868,862				15,220,857				(10,380,709	)			20,628,298
Financial expenses [note 18]			6,792				(16,370	)			99,965				493,295
Net income (loss) before income taxes			623,664				15,325,996				(16,025,638	)			18,796,990
Income taxes – current			-				-				706,000				-
Income taxes – deferred			-				-				(706,000	)			-
Net income (loss) and comprehensive income (loss)			623,664				15,325,996				(16,025,638	)			18,796,990
Earnings (loss) per share [note 19]
Basic			0.00				0.10				(0.10	)			0.13
Diluted			0.00				0.09				(0.10	)			0.12

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

 

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

(Unaudited)

 

			Number of Common Shares				Common shares and warrants				Contributed Surplus				Equity portion of convertible debentures				Deficit				Total
							$				$				$				$				$
Balance - December 31, 2020			159,145,993				67,950,069				10,480,310				-				(19,007,273	)			59,423,106
Share issued on exercise of stock options			3,477,000				1,437,022				(349,254	)			-				-				1,087,768
Share issued on exercise of warrants and compensation options			8,337,897				13,085,197				-				-				-				13,085,197
Shares purchased for cancellation			(166,684	)			(347,019	)			-				-				(863,440	)			(1,210,459	)
Share-based payments			-				-				4,884,219				-				-				4,884,219
Net income (loss) and comprehensive income (loss)			-				-				-				-				(16,025,636	)			(16,025,636	)
Balance – September 30, 2021			170,794,206				82,125,269				15,015,275				-				(35,896,349	)			61,244,195
Balance - December 31, 2019			141,303,451				47,073,243				6,679,730				401,760				(60,237,656	)			(6,082,923	)
Share issued on exercise of stock options			1,858,000				1,018,658				(396,059	)			-				-				622,599
Shares issued upon exercise of share purchase warrants			5,596,467				4,383,858				-				-				-				4,383,858
Conversion of debentures into shares			3,369,375				3,073,356				-				(360,981	)			-				2,712,375
Conversion of loan into shares			3,225,000				925,982								(98,422	)							827,560
Shares purchased for cancellation			(1,285,000	)			(426,370	)			-				-				(538,021	)			(964,391	)
Equity component of convertible debentures			-				-				40,779				(40,779	)			-				-
Share-based payments			-				-				3,111,913				-				-				3,111,913
Equity component of convertible debentures issued			-				-				-				98,422				-				98,422
Net income (loss) and comprehensive income (loss)			-				-				-				-				18,796,990				18,796,990
Balance – September 30, 2020			154,067,293				56,048,727				9,436,363				-				(41,978,687	)			23,506,403

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

 

 

 

 

 

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Cash flows provided by (used in)
Operating activities
Net (loss) income			623,664				15,325,998				(16,025,636	)			18,796,990
Adjustments for:
Share-based expenses			673,194				3,017,409				4,884,219				3,111,913
Depreciation of property and equipment			93,701				19,125				254,079				39,238
Depreciation of ROU assets			153,177				128,971				404,188				306,541
Amortization of intangibles assets			91,333				6,782				104,892				20,408
Amortization of contract assets			118,696				-				424,765
Financial expenses			6,793				121,408				99,965				631,073
Change in fair value of investments			(1,868,862	)			(15,220,857	)			10,380,709				(20,628,298	)
			(108,302	)			3,398,836				527,181				2,277,865
Net change in non-cash operating working capital items [note 16]			(2,324,191	)			(1,008,940	)			(16,877,125	)			(640,447	)
			(2,432,493	)			2,389,896				(16,349,944	)			1,637,418
Investing activities
Purchase of property and equipment			(223,412	)			(437,057	)			(1,408,300	)			(541,512	)
Addition to ROU assets			-				-				(36,903	)			-
Purchase of intangible assets			(100,964	)			(48,282	)			(208,116	)			(63,893	)
Purchase of strategic investments			(1,205,011	)			(2,949,672	)			(10,401,522	)			(3,009,672	)
Disposal of strategic investments			-				2,103,024				12,374,047				2,103,024
Variation of deposits			-				(108,489	)			-				(112,254	)
Business acquisition, net of cash acquired			1,104,393				-				1,104,393				-
			(424,994	)			(1,440,476	)			1,423,599				(1,624,307	)
Financing activities
Repayment of R&D loans			-				(247,500	)			-				(461,500	)
Repayment of term loan [note 14]			(3,078	)			(115,200	)			(9,076	)			(115,200	)
Repayment of convertible debenture			-				-				-				(358,500	)
Repayment of lease liabilities			(80,198	)			(1,232,520	)			(161,249	)			(1,300,792	)
Repayment of promissory notes payables to the controlling shareholder and CEO			-				-				-				(295,000	)
Proceeds from convertible loans			-				-				-				903,000
Proceeds from issuance of shares upon exercise of stock options			683,323				15,599				1,087,768				603,599
Proceeds from issuance of shares upon exercise of warrants and compensation options			-				1,242,189				13,085,197				4,402,858
Share purchase for cancellation			-				-				(1,210,459	)			(964,391	)
Interest paid			(37,571	)			(84,246	)			(189,207	)			(366,097	)
			562,476				(421,678	)			12,602,974				2,047,977
Net (decrease) increase in cash			(2,295,011	)			527,742				(2,323,371	)			2,061,088
Cash - beginning of period			18,076,539				1,567,777				18,104,899				34,431
Cash - end of period			15,781,528				2,095,519				15,781,528				2,095,519
Supplemental cash flow disclosure Non-cash transactions:
Purchase of property and equipment included in accounts payables			72,565				(181,863	)			113,657				7,170
Purchase of intangibles assets included in accounts payables			74,911				(120,468	)			19,372				129,650
Addition of right-of-use assets and lease liabilities			-				366,566				2,120,894				366,566
Interest included in accounts payable			-				19,408				-				-
Investments received in payment of trade accounts receivables			-				395,514				-				395,514

 

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

 

 

1. Nature of operations

 

(a) Nature of operations

 

PyroGenesis Canada Inc. (the “Company”), incorporated under the laws of the Canada Business Corporations Act, was formed on July 11, 2011. The Company owns patents for advanced waste treatment systems technology and designs, develops, manufactures and commercialises advanced plasma processes and sustainable solution to reduce greenhouse gases. The Company is domiciled at 1744 William Street, Suite 200, Montreal, Quebec. The Company is publicly traded on the Toronto Stock Exchange (TSX) under the Symbol “PYR” and on the Frankfurt Stock Exchange (FSX) under the symbol “8PY “, and since March 11, 2021, on NASDAQ in the USA under the symbol “PYR”.

 

2. Basis of preparation

 

(a) Statement of compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) 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 IFRS and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020.

 

These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on November 15, 2021.

 

(b) Functional and presentation currency

 

These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Company’s functional currency.

 

(c) Basis of measurement

 

These financial statements have been prepared on the historical cost basis except for:

 

(i)

strategic investments which are accounted for at fair value,

(ii)

stock-based payment arrangements, which are measured at fair value on 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.

 

 

 

2. Basis of preparation (continued)

 

In instances where the Company does not hold a majority of the voting rights, further analysis is performed to determine whether or not the Company has control of the entity. The Company is deemed to have control when, according to the terms of the shareholder’s and/or other agreements, it makes most of the decisions affecting relevant activities.

 

These consolidated financial statements include the accounts of the Company, and its subsidiaries, Drosrite International LLC and Pyro Green-Gas Inc. Drosrite International LLC is owned by a member of the Company’s key management personnel and close member of the CEO and controlling shareholder’s family and is deemed to be controlled by the Company. Pyro Green-Gas (formerly AirScience Technologies Inc. until the renaming on September 14, 2021) was acquired by the Company on August 11, 2021 (see note 4). All significant transactions and balances between the Company and its subsidiary have been eliminated upon consolidation.

 

3. Significant accounting judgments, estimates and assumptions

 

The significant judgments, estimates and assumptions applied by the Company’s in these condensed consolidated interim financial statements are the same as those applied by the Company in its audited annual financial statements as at and for the year ended December 31, 2020.

 

The COVID-19 pandemic continues to evolve as vaccination campaigns are currently underway in Canada and other countries in which the Company operates while more contagious variants of the virus have evolved. The financial effect of the pandemic is still uncertain at this time as is the Company’s business continuity plans and other mitigating measures. Estimates of the length and seriousness of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods are also subject to significant uncertainty.

 

Therefore, uncertainty about judgments, estimates and assumptions made by management during the preparation of the Company’s interim consolidated financial statements related to potential impacts of the COVID-19 pandemic on revenue, expenses, assets, liabilities, and note disclosures could result in a material adjustment to the carrying value of the asset or liability affected.

 

4. Business combination

 

On August 11, 2021, the Company completed the acquisition of AirScience Technologies Inc. and its subsidiaries (collectively “AST”), a Montreal-based company which offers technologies, equipment, and expertise in the area of biogas upgrading, as well as air pollution controls, for a maximum purchase price consideration of $4.4 million in cash, subject to customary post-closing adjustments. In addition, the Company settled a pre-existing loan receivable from AST of approximately $1.7 million. The transaction was executed essentially through a purchase of the entirety of the common class “A” shares of AST. This acquisition enables the Company to springboard into the renewable natural gas market and provides an advantage compared to building its own operations. In addition, the Company will now have a presence in Italy and India, and the acquisition will provide potential synergies with the Company’s land-based waste destruction offerings. The purchase price will be paid upon the achievement of various contract and

 

 

 

4. Business combination (continued)

 

business-related milestones by AST. The Company’s preliminary assessment is that these milestones will be realized at various moments during the next 28 months.

 

The Company is currently assessing the fair value of the assets acquired and the liabilities assumed at the date of acquisition, for which the valuation process of certain assets remains to be finalized. The preliminary allocation of the purchase price was based on the estimated fair value of the assets acquired and the liabilities assumed at the date of acquisition, which is subject to material adjustments until the fair value assessment is completed. The items that are mainly subject to change are Intangible assets and Goodwill. The Corporation will finalize the purchase price allocation over the coming quarters. Final adjustment to the purchase price allocation could also impact depreciation, amortization and income tax expenses recognized since the initial accounting of the AST business acquisition.

 

The preliminary allocation of the total consideration based on the estimated fair value of assets acquired and the liabilities assumed at the date of acquisition is as follows:

 

			September 30, 2021 Preliminary $
Total consideration
Consideration paid at closing			1
Contingent consideration			3,693,777
Consideration paid at closing and continent consideration Settlement of pre-existing loan receivable from AST			3,693,778 1,744,400
			5,438,178
Net assets acquired
Current assets 1 ROU asset			5,263,325 477,608
Property and equipment			42,956
Intangible assets and Goodwill 2			5,168,871
Current liabilities			(4,198,570	)
Non-current liabilities			(555,600	)
Deferred income taxes			(760,412	)
			5,438,178

 

¹ Includes an amount of trade receivables with a net fair value of $3.3 million, including an allowance for doubtful accounts of $0.5 million.

 

² The preliminary goodwill of $2.3 million recorded on the transaction is mainly attributable to the expected growth in biogas upgrading market and the expertise of the workforce, and it is not expected to be deductible for tax purposes.

 

During the three and nine month periods ended September 30, 2021, the Company recognized revenue of $3.7 million and net income of $1.2 million related to the operations generated by the acquisition of AST.

 

 

 

5. Revenues

 

The Company’s revenues are generated from DROSRITE™ related sales of $1,983,524 (2020 - $4,590,227), PUREVAP™ related sales of $999,874 (2020 - $2,840,760), the development and support related to systems supplied to the U.S. Navy of $1,957,981 (2020 - $419,251), torch related sales of $645,894 (2020 – $192,800), biogas upgrading & pollution controls related sales of $3,712,000 (2020 - $Nil) and other sales and services of $18,653 (2020 - $106,389).

 

The following is a summary of the Company’s revenues for the nine months ended September 30, by revenue recognition method:

 

			2021				2020
			$				$
Revenue from contracts with customers by product line:
DROSRITE™			6,373,130				6,384,563
PUREVAP™			5,524,642				2,883,819
Development and support related to systems supplied to the U.S. Navy			6,677,188				480,290
Torch related sales			1,398,729				897,822
Biogas upgrading & pollution controls			3,712,000				-
Other sales and services			177,312				350,295
			23,863,001				10,996,789

 

See note 24 for sales by geographic area.

 

At September 30, 2021, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the reporting date is $26,178,806. 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 2 years.

 

6. Cash and cash equivalents

 

At September 30, 2021, there are no restrictions on cash and cash equivalents. Cash and cash equivalents include the following components:

 

			September 30, 2021				December 31, 2020
			$				$
Cash			7,781,528				10,104,899
Guaranteed investment certificates			8,000,000				8,000,000
Cash and cash equivalents			15,781,528				18,104,899

 

 

 

6. Cash and cash equivalents (continued)

 

Guaranteed investment certificates are instruments issued by Canadian financial institutions and include $3,000,000 bearing interest at a rate of 0.43% and $5,000,000 bearing interest at a rate of 0.53%. These instruments are redeemable without penalty 60 days and 30 days, respectively, from the date of acquisition and mature in November 2021 and December 2021.

 

7. Accounts receivable

 

Details of accounts receivable were as follows:

 

			September 30, 2021				December 31, 2020
			$				$
1 – 30 days			8,526,841				309,362
31 – 60 days			37,576				226,713
61 – 90 days			224,047				253,141
Greater than 90 days			5,324,691				218,008
Total trade accounts receivable			14,113,155				1,007,224
Unbilled trade receivables			3,509,893				1,132,911
Other receivables			220,223				931,041
Sales tax receivable			386,136				258,477
			18,229,407				3,329,653

 

There is a $520,000 allowance for credit losses recorded as at, September 30, 2021 and $Nil for December 31, 2020.

 

8. Costs and profits in excess of billings on uncompleted contracts and projects

 

At September 30, 2021, the Company had twelve uncompleted contracts and projects with total billings of $6,985,722 which were less than total costs incurred and had recognized cumulative revenue of $10,279,440 since those contracts and projects began. This compares with seven contracts with total billings of $8,378,093 which were less than total costs incurred and had recognized cumulative revenue of $9,451,726 as at, December 31, 2020.

 

9. Investment tax credits and government wage subsidy

 

At September 30, 2021 investment tax credits related to qualifying projects from the provincial government were $204,036 (2020 - $131,871) and $Nil (2020 - $1,058,017) of investment tax credits earned in prior years that met the criteria for recognition. The Company also recorded for the nine months ended September 30, 2021 $86,976 (2020 - $18,420) of the investment tax credits against cost of sales and services, $94,560 (2020 - $1,141,468) against research and development expenses and $22,500 (2020 - $30,000) against selling general and administrative expenses. An additional amount of $106,971 of 2020 investment tax credits is a receivable for the Company.

 

 

 

10. Strategic investments

 

			September 30, 2021				December 31, 2020
			$				$
Beauce Gold Fields (“BGF”) shares – level 1			133,353				123,095
HPQ Silicon Resources Inc. (“HPQ”) shares - level 1			22,420,076				16,489,220
HPQ warrants – level 3			5,085,087				23,379,435
			27,638,516				39,991,750

 

Investments in HPQ (TSXV: HPQ) comprise 29,500,100 common shares (2020 - 14,990,200) and 9,594,600 warrants (2020 - 25,844,600).

 

Investment in BGF (TSXV: BGF) consists of 1,025,794 of common shares. The 1,025,794 common shares of BGF were received in December 2018 as dividend in kind from a spinoff of HPQ.

 

The change in strategic investments is summarized as follows:

 

			(“BGF”) shares – level 1								HPQ shares – level 1								(“HPQ”) Warrants - level 3
			Quantity				$				Quantity				$				Quantity				$
Balance, December 31, 2019			1,025,794				133,354				18,450,000				1,476,000				17,750,000				-
Additions			-				-				7,887,000				3,395,742				5,200,000				560,000
Received in lieu of payment of services rendered			-				-				4,394,600				395,514				4,394,600				-
Exercised			-				-				1,500,000				540,000				(1,500,000	)			(337,500	)
Disposed			-				-				(17,241,400	)			(10,798,056	)			-				-
Change in the fair value			-				(10,259	)			-				21,480,020				-				23,156,935
Balance, December 31, 2020			1,025,794				123,095				14,990,200				16,489,220				25,844,600				23,379,435
Additions			-				-				8,018,000				7,882,774				-				-
Exercised			-				-				16,250,000				2,518,750				(16,250,000	)			(893,750	)
Disposed			-				-				(9,758,100	)			(3,391,118	)			-				-
Change in the fair value			-				10,258				-				(1,079,550	)			-				(17,400,598	)
Balance, September 30, 2021			1,025,794				133,353				29,500,100				22,420,076				9,594,600				5,085,087

 

At September 30, 2021, the fair value of the HPQ warrants was measured using the Black-Scholes option pricing model using the following assumptions:

 

Number of Warrants			1,200,000				4,394,600				4,000,000
Date of Issuance			April 29, 2020				June 2, 2020				September 3, 2020
Exercise Price			0.10				0.10				0.61
Assumption under the Black Sholes model:
Fair Value of the shares ($)			0.76				0.76				0.76
Risk free interest rate (%)			0.44				0.44				0.44
Expected Volatility (%)			115.90				114.74				110.39
Expected dividend yield			0				0				0
Contractual remaining life (number of months)			22				23				26

 

 

 

10. Strategic investments (continued)

 

At September 30, 2021, a gain from initial recognition of warrants of $592,778 has been deferred off balance sheet until realized.

 

11. Deposits

 

			September 30, 2021				December 31, 2020
			$				$
Current portion:
Suppliers			1,086,874				1,421,246
Rent			40,241				-
Security Deposit			600,000				-
Non-current portion:
Suppliers			1,872				1,099
Rent			298,804				300,242
Total non-current			300,676				301,341
Total Deposits			2,027,791				1,722,587

 

			September 30, 2021				December 31, 2020
			$				$
Accounts payable			5,175,995				2,206,249
Accrued liabilities			2,237,628				1,701,554
Sale commissions payable ¹			733,399				731,671
Accounts payable to the controlling shareholder and CEO			83,582				68,577
			8,230,604				4,708,051

 

12. Accounts payable and accrued liabilities

 

¹Sale commissions payable relate to the costs to obtain long-term contracts with clients.

 

13. Billings in excess of costs and profits on uncompleted contracts

 

The amount to date of costs incurred and recognized profits less recognized losses for construction projects in progress amounted to $23,187,356 (2020 - $6,831,326).

 

Payments to date received were $27,811,715 and $1,950,000 of deposits on contract in progress (2020 - $11,474,298 in cash and $1,950,000 of other assets).

 

 

 

14. Term loans

 

			EDC Loan¹				Other Term Loans²				Other Term Loans3				Other Term Loans4				Other Term Loans5				Total
			$				$				$				$				$				$
Balance, December 31, 2020			75,800				36,907				-				-				-				112,707
Acquired by business combination			-				-				50,000				33,200				592,040				675,240
Accretion expense			8,966				-				-				-				-				8,966
Payments			-				(9,076	)			-				-				-				(9,076	)
Balance, September 30, 2021			84,766				27,831				50,000				33,200				592,040				787,837
Less current portion			-				(12,859	)			-				(19,920	)			(592,040	)			(624,819	)
Balance, September 30, 2021			84,766				14,972				50,000				13,280				-				163,018

 

¹ maturing in 2027, non-interest bearing, payable in equal instalments from July 2023 to June 2027.

² maturing October 23, 2023, bearing interest at a rate of 6.95% per annum payable in monthly instalments of $1,200 secured by

automobile (carrying amount of $36,702 as at December 31, 2020).

3 repayment term to begin in January 2023, non-interest-bearing loan.

4 maturing in May 2023, bearing interest at a rate of 7.45%.

5 400,000 Euro loan, bearing interest at a rate of 4.5%.

 

15. Shareholders’ equity

 

Common shares and warrants

 

Authorized:

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

Issuance of shares

 

The following table sets out the activity in stock options during the nine months ended September 30, 2021:

 

			Number of options				Weighted average exercise price
							$
Balance – December 31, 2020			9,403,000				2.16
Exercised			(3,032,500	)			0.23
Cancelled/Forfeited			(82,500	)			4.41
Balance, September 30, 2021			6,288,000				3.06

 

 

 

15. Shareholders’ equity (continued)

 

At September 30, 2021, the outstanding options, as issued under the stock options plan to directors, officers, employees and consultants for the purchases of one common share per option, are as follows:

 

			Number of stock Options				Exercise price per option				Expiry date
							$
November 3, 2017			2,400,000				0.58				November 3, 2022
July 3, 2018			300,000				0.51				July 3, 2023
October 29, 2018			40,000				0.52				October 29, 2023
September 29, 2019			100,000				0.51				September 29, 2024
January 2, 2020			100,000				0.45				January 02, 2025
July 16, 2020			2,248,000				4.41				July 16, 2025
October 26, 2020			250,000				4.00				October 26, 2025
April 6, 2021			550,000				8.47				April 6, 2026
June 1, 2021			200,000				6.57				June 1, 2026
June 14, 2021			100,000				6.70				June 14, 2026
			6,288,000				3.06

 

Share purchase warrants

 

The following table reflects the activity in warrants for the nine months ended September 30, 2021 and the number of issued and outstanding share purchase warrants at September 30, 2021:

 

			Number of warrants December 31, 2020				Granted				Exercised				Number of warrants September 30, 2021				Price per warrant				Expiry date
																			$
Issuance of units – Sept 28, 2018			3,448,276				-				3,448,276				-				0.58				Jan 28, 2021
Issuance of units – Oct 19, 2018			100,000				-				100,000				-				0.58				Feb 13, 2021
Issuance of units – May 15, 2019			1,355,500				-				1,355,500				-				0.85				May 15, 2021
Issuance of units – May 24, 2019			750,000				-				750,000				-				0.85				May 24, 2021
Issuance of units – June 19, 2019			500,000				-				500,000				-				0.85				June 19, 2021
Issuance of units – Oct 25, 2019			225,000				-				225,000				-				0.75				Oct 25, 2021
Issuance of units – Nov 10, 2020			1,677,275				-				1,677,275				-				4.50				Nov 10, 2022
Issuance of warrants – Nov 10, 2020			95,707				-				95,707				-				4.50				Nov 10, 2022
			8,151,758				-				8,151,758				-				1.52

 

 

 

16. Supplemental disclosure of cash flow information

 

Net changes in non-cash components of operating working capital

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Decrease (increase) in:
Accounts receivable			(3,827,068	)			(424,342	)			(13,292,138	)			(552,142	)
Inventory			(192,192	)			(9,245	)			(548,647	)			(9,245	)
Costs and profits in excess of billings on uncompleted contracts			(2,010,805	)			(38,080	)			(2,220,085	)			(83,005	)
Investment tax credits receivable			(102,727	)			(96,049	)			255,368				(166,362	)
Deposits			511,182				(4,701	)			(305,204	)			(305,795	)
Other assets			1,452,235				24,950				(593,106	)			51,331
Increase (decrease) in:
Accounts payable and accrued liabilities			1,673,971				(1,200,907	)			1,177,390				(1,052,244	)
Billings in excess of costs and profits on uncompleted contracts			171,213				994,633				(1,350,703	)			2,485,955
			(2,324,191	)			(753,741	)			(16,877,125	)			368,493

 

17. Other information

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Other Information
Amortization of intangible assets			91,333				6,782				104,892				20,408
Depreciation of property and equipment			93,701				19,125				254,079				39,238
Depreciation of ROU assets			153,177				128,971				404,188				306,541
Employee benefits			2,467,185				2,003,355				6,488,260				4,646,858
Share-based expenses			673,194				3,017,408				4,884,219				3,111,913
Awarded grants			30,949				91,459				177,693				412,982

 

 

 

18. Financial expenses:

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Financial expenses
Interest and fees on convertible debentures			-				27,090				-				171,042
Interest accretion of convertible debentures			-				15,066				-				182,700
Interest on term loans			-				11,165				-				62,073
Interest on lease liabilities			84,586				39,161				221,514				165,085
Interest accretion on promissory notes			-				(922	)			-				17,937
Accretion of Royalty Receivable & balance due on business combination			(84,762	)			-				(149,091	)			-
Other interest expenses			6,969				29,848				27,542				32,236
Capitalized finance costs on borrowing costs on Equipment under construction			-				(137,778	)			-				(137,778	)
			6,793				(16,370	)			99,965				493,295

 

19. Earnings (loss) per share

 

The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Weighted daily average of Common shares			168,517,657				150,343,350				165,369,555				145,610,701
Dilutive effect of stock options			-				6,073,573				-				5,394,874
Dilutive effect of warrants			-				6,671,219				-				5,160,588
Dilutive effect of convertible debentures			-				-				-				-
Weighted average number of diluted shares			174,385,624				163,088,142				165,369,555				156,166,164
Number of anti-diluted stock options, warrants, convertible debentures and convertible loans excluded from fully diluted earnings per share calculation			3,545,000				2,460,000				6,288,000				2,460,000

 

 

 

20. Related party transactions

 

During the three and nine months ended September 30, 2021, the Company concluded the following transactions with related parties:

 

The Company entered into a lease agreement for the rental of a property with a trust whose beneficiary is the controlling shareholder and CEO of the Company. At September 30, 2021 the carrying amount of the ROU asset and lease liabilities are $1,162,487, and $55,328, respectively (2020 - $3,701,000 and $2,988,542).

 

An amount of $68,825 and $206,310 was charged by a trust whose beneficiary is the controlling shareholder and CEO for rent and property taxes (2020 - $68,687 and $205,420 of rent and property taxes).

 

A balance due to the controlling shareholder and CEO of the Company amounted to $67,817 (December 31, 2020 - $72,188) for expense report, salary and vacation payables and is included in accounts payable and accrued liabilities as at, September 30, 2021.

 

An amount of $Nil (December 31, 2020 - $4,413), of interest payable and $Nil (2020 - $17,937) of accretion expense were accrued on a convertible loan of $295,000 from the controlling shareholder and CEO of the Company. A balance due of $Nil is included in accounts payable and accrued liabilities.

 

The key management personnel of the Company are the members of the Board of Directors and certain officers. Total compensation to key management consisted of the following:

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Salaries – officers			253,805				323,796				714,019				704,114
Pension contributions			4,634				8,195				13,042				14,061
Fees – Board of Directors			72,400				40,000				147,400				84,000
Share – based compensation – officers			264,736				1,098,610				2,057,061				1,163,909
Share – based compensation – Board of Directors			251,467				362,215				1,963,317				381,008
Other benefits – officers			122,867				250,724				176,219				488,577
Total compensation			969,909				2,083,540				5,071,058				2,835,669

 

A balance of $124,745 of key management compensation, of the amounts noted above, is included in accounts payable and accrued liabilities as at, September 30, 2021 (2020 - $102,625).

 

21. Financial instruments

 

As part of its operations, the Company carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed. The Company's overall risk management program focuses on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Company's financial performance. The Company does not use derivative financial instruments to hedge these risks.

 

 

 

21. Financial instruments (continued)

 

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.

 

			September 30, 2021 CDN				December 31, 2020 CDN
			$				$
Cash			652,362				1,366,627
Accounts receivable			8,153,494				621,817
Accounts payable and accrued liabilities			(1,412,355	)			(252,463	)
Total			7,393,501				1,735,981

 

At September 30, 2021 the following items are denominated in US dollars:

 

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

 

Sensitivity analysis

 

At September 30, 2021, if the US Dollar changes by 10% against the Canadian dollar with all other variables held constant, the impact on pre-tax gain or loss for the year ended September 30, 2021 would have been $739,350 (2020 – $174,000).

 

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 September 30, 2021 represents the carrying amount of cash, accounts receivable and deposits.

 

Credit concentration

 

During the three and nine months ended September 30, 2021, four customers accounted for 28%, 21%, 20%,11% and 27%, 26%, 23%,11% respectively of revenues from operations.

 

			Three months ended September 30, 2021								Nine months ended September 30, 2021
			Revenues				% of total revenues				Revenues				% of total revenues
			$				%				$				%
Customer 1			2,642,853				28				6,462,570				27
Customer 2			1,957,981				21				6,100,610				26
Customer 3			1,901,155				20				5,517,581				23
Customer 4			992,813				11				2,642,853				11
Total			7,494,802				80				20,723,614				87

 

 

 

21. Financial instruments (continued)

 

Four customers accounted for 87% (December 31, 2020 – two customers for 69%) of trade accounts receivable and unbilled trade receivables with amounts owing to the Company of $15,266,266 (2020 - $1,211,177), 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. The Company believes that there is no unusual exposure associated with the collection of these receivables. The Company manages its credit risk by performing credit assessments of its customers and provides allowances for potentially uncollectible accounts receivable. The Company does not generally require collateral or other security from customers on accounts receivable.

 

Fair value of financial instruments

 

Financial instruments are comprised of cash, accounts receivable, investments, deposits, accounts payable and accrued liabilities, term loans, long-term debt and convertible debentures. 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.

 

Investments in BGF shares are valued as at September 30, 2021 at quoted market prices and are classified as Level 1. Investments in BGF shares were valued as at December 31, 2018 based on a valuation technique that estimates a business' value based on a recent round of financing and were classified as Level 3.

 

Investments in HPQ shares are valued at quoted market prices and are classified as Level 1.

 

Investments in HPQ warrants are valued using the Black-Scholes pricing model and are classified as Level 3.

 

The fair values of cash, accounts receivable, accounts payable and accrued liabilities, and term loans approximate their carrying amounts due to their short-term maturities.

 

The fair value of the long-term debt approximates their carrying amounts due to their recent issuance.

 

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 the term loans and convertible debentures as those financial instruments bear interest at fixed rates.

 

 

 

21. Financial instruments (continued)

 

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 of public companies quoted on the TSXV Exchange. If equity prices had increased or decreased by 25% as at September 30, 2021, with all other variables held constant, the Company’s investments would have increased or decreased respectively, by approximately $7,290,000 (2020 - $11,874,375).

 

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's ability to continue as a going concern is dependent on management's ability to raise required funding through future

equity and / or debt issuances and to generate positive cash flows from operations. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.

 

			Carrying Value				Total contractual amount				Less than 1 year				2-3 years				4-5 years				Over 5 years
			$				$				$				$				$				$
Accounts payable and accrued liabilities			8,230,604				8,230,604				8,230,604				-				-				-
Term loans			787,837				862,272				14,389				730,090				62,823				54,970
Balance due on business combination			3,693,778				4,355,600				435,560				2,831,140				1,088,900				-
Lease liabilities			5,425,795				6,802,200				3,320,485				708,210				594,851				2,178,654
			18,138,014				20,250,676				12,001,038				4,269,440				1,746,574				2,233,624

 

The following table summarizes the contractual maturities of financial liabilities as at September 30, 2021:

 

22. Contingent liabilities

 

The Company is currently a party to various legal proceedings and a tax authorities’ review. If management believes that a loss arising from these matters 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 matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in aggregate, will not have a material adverse effect on the Company’s financial position or overall trends in results of operations.

 

 

 

22. Contingent liabilities (continued)

 

The Company had received a government grant in prior years of approximately $800,000 to assist with the development of a new system of advanced waste treatment systems technology. The grant is potentially

 

repayable at the rate of 3% of any consideration received as a result of the project, for which funding has been received, to a maximum of the actual grant received. This repayment provision will remain in effect until May 30, 2024. The Company abandoned the project in 2011 and accordingly, no amount is expected to be repaid.

 

23. Capital management

 

The Company’s objectives in managing capital are:

 

a)

To ensure sufficient liquidity to support its current operations and execute its business plan; and

 

b)

To provide adequate return to the shareholders

 

The Company’s primary objectives when managing capital is to ensure the entity 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. For the three and nine months ended September 30, 2021, the Company’s working capital was $23,267,424 (2020 – $13,797,579).

 

The management of capital includes shareholders’ equity for a total amount of $61,244,195 (2020 – $59,423,106) and debt of $4,481,615 (2020 - $112,707).

 

Although there were no significant changes in the Company’s approach during fiscal 2020, the Company was able to retire its term loans and convert its convertible debentures to common shares. In order to maintain or adjust capital structure, the Company may issue new shares, sell portions of its strategic investment and periodically purchase its own shares on the open market.

 

 

 

 

24. Segment information

 

The Company operates in one segment, based on financial information that is available and evaluated by the Company’s Board of Directors.

 

The Company’s head office is located in Montreal, Quebec. The operation of the Company is located in one geographic area: Canada. The following is a summary of the Company’s geographic information:

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Revenue from external customers
Canada			1,352,895				3,101,905				6,089,789				3,910,884
United States			1,957,777				442,706				6,683,583				513,588
Europe			558,430				5,161				620,673				6,500
Asia			128,961				-				128,961				4,007
India			2,813,089				-				2,813,581				-
Saudi Arabia			1,901,155				4,367,795				6,100,610				6,162,131
China			86,048				112,526				134,664				134,585
Africa			(3,683	)			38,229				-				38,229
Mexico			-				71,677				137,856				105,352
South America			523,254				9,428				1,153,284				121,513
			9,317,926				8,149,427				23,863,001				10,996,789

 

The following is a summary of the Company’s revenue by revenue recognition method:

 

			Three months ended September 30,								Nine months ended September 30,
			2021				2020				2021				2020
			$				$				$				$
Sales of goods under long-term contracts			8,405,565				5,960,844				19,122,840				8,135,671
Sales of goods in point of time			912,361				2,164,000				1,440,161				2,794,297
Sale of intellectual properties			-				-				3,300,000				-
Other revenues			-				24,583				-				66,821
			9,317,926				8,149,427				23,863,001				10,996,789

 

The Company has entered into long-term leases for premises, computer software, photocopier equipment and automobile.

 

 

 

22

 

Exhibit 99.2

 

PyroGenesis Canada Inc.

Management’s Discussion and Analysis

For the three and nine month periods ended September 30, 2021 and 2020

 

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 nine months ended September 30, 2021. The MD&A has been prepared in accordance with National Instrument 51-102, Continuous Disclosur e Requirements, and should be read in conjunction with the audited financial statements and related notes thereto of the Company for the year ended December 31, 2020.

 

The financial statements and MD&A have been reviewed by PyroGenesis’ Audit Committee and were approved by its Board of Directors on November 15, 2021. 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 November 15, 2021, 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 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.

 

BASIS OF PRESENTATION

 

For reporting purposes, we prepared the 2021 Q3 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 2020 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 2021 Q3 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, Adjusted EBITDA and Modified EBITDA. EBITDA, Adjusted EBITDA and Modified EBITDA 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. These non-IFRS measures are used to provide investors with supplemental measures of operating performance and thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures 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, Adjusted EBITDA and Modified EBITDA are important measures of operating performance because it allows management, investors and others to evaluate and compare the Company’s operating results, including its return on capital and operating efficiencies, from period-to-period by removing the impact of the Company’s capital structure consequences, and other non-operating items not requiring cash outlays including the adjustment to the fair value of investments and share-based compensation.

 

EBITDA

 

We define EBITDA as Net Earnings before Financial Expenses, Taxes, Depreciation and Amortization. See “Results of Operations - Reconciliation of Non-IFRS measures (EBITDA, Adjusted EBITDA and Modified EBITDA)”.

 

Adjusted EBITDA

 

We define Adjusted EBITDA as Net Earnings before Financial Expenses, Taxes, Depreciation, Amortization and other non-cash items including share-based expenses, inventory and equipment write-offs, and the tax assessment. See “Results of Operations - Reconciliation of Non-IFRS measures (EBITDA, Adjusted EBITDA and Modified EBITDA)”.

 

Modified EBITDA

 

We defined Modified EBITDA as Adjusted EBITDA before the change in fair value of investments. See “Results of Operations - Reconciliation of Non-IFRS measures (EBITDA, Adjusted EBITDA and Modified EBITDA)”.

 

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 (Ticker Symbol: PYR), NASDAQ (Ticker Symbol: PYR) and the Frankfurt Stock Exchange (FSX) (Ticker symbol: 8PY).

 

SELECTED FINANCIAL INFORMATION

 

¹ See “Non-IFRS Measures”

 

Extract from Statement of Financial Position at:

 

 

RESULTS OF OPERATIONS

 

Revenues

 

PyroGenesis recorded revenue of $9,317,926 in the third quarter of 2021 (“Q3, 2021”), representing an increase of 14% compared to $8,149,427 recorded in the third quarter of 2020 (“Q3, 2020”), Revenue for the nine months of fiscal 2021 was $23,863,001 an increase of 117% over revenue of

$10,996,789 during the same period in 2020.

 

Revenues recorded in the three and nine months ended September 30, 2021, were generated from:

 

(i)

DROSRITE™ related sales of $1,983,524, $6,373,130 (Q3, 2020 - $4,590,227, $6,384,563)

 

(ii)

PUREVAP™ related sales of $999,874, $5,524,642 (Q3, 2020 - $2,840,760, $2,883,819)

(iii)

support services related to PAWDS-Marine systems supplied to the US Navy $1,957,981, $6,677,188 (Q3, 2020 - $419,251, $480,290)

(iv)

torch related sales of $645,894, $1,398,729 (Q3, 2020 - $192,800, $897,822)

(v)

biogas upgrading & pollution controls of $3,712,000, $3,712,000 (Q3, 2020 - $Nil, $Nil) (vi) other sales and services of $18,653, $177,312 (Q3, 2020 - $106,389, $350,297)

 

As of November 15, 2021, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) is $36,378,806. 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 2 years.

 

Cost of Sales and Services

 

 

Cost of sales and services before amortization of intangible assets is not a performance measure defined under IFRS and it is not considered an alternative to gross margin in the context of measuring the Company’s performance. Management believes that providing certain non- GAAP performance measures, in addition to IFRS measures, provides users of the Company’s financial statements with an enhanced understanding of its results and related trends, and increases transparency and clarity. Gross margin before amortization of intangible assets is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results, including its return on capital and operating efficiencies, from period to period, by removing the impact of non-operating items not requiring cash outlays. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation or a substitute for financial measures prepared in accordance with IFRS.

 

Gross Margin

 

 

The increase in cost of sales and services in Q3 2021 over the same period in Q3 2020 is mainly attributable to the operating activities of Pyro Green-Gas.

 

Cost of sales and services before amortization of intangible assets was $5,174,062 in Q3 2021, representing an increase of 98% compared to $2,610,119 in Q3 2020, primarily due to an increase in employee compensation $749,549 (Q3, 2020 - $530,860), direct materials $4,387,047 (Q3, 2020 - $1,423,762), manufacturing overhead and other $221,990 (Q3, 2020 - $195,681) offset with a decrease in subcontracting $61,587 (Q3, 2020 - $480,602), foreign exchange charge on materials ($200,240) (Q3, 2020 - $2,670), and investment tax credits ($45,871) (Q3, 2020 - $(23,456).

 

The gross margin for Q3 2021 was $4,052,531 or 43.5% of revenue compared to a gross margin of $5,532,526 or 67.9% of revenue for Q3 2020. 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.

 

Investment tax credits related to qualifying projects from the provincial government against cost of sales were $45,871 (Q3, 2020 - $23,456). The Company also recorded for the nine months ended September 30, 2021, $83,369 (Q3, 2020 - $62,844) of the investment tax credits against cost of sales and services, $73,237 (Q3, 2020 - $47,212) against research and development expenses and $23,479 (Q3, 2020 - $47,105) against selling general and administrative expenses.

 

The amortization of intangible assets of $91,333 in Q3 2021 compared to $6,782 for Q3 2020 relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items and will be amortized over the duration of their expected lives.

 

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 Q3 2021 excluding the costs associated with share-based expenses (a non- cash item in which options vest principally over a four-year period), were $4,227,937 representing an increase of 84% compared to $2,294,394 reported for Q3 2020. On a year-to-date basis, SG&A expenses before share-based expenses were $10,402,922 compared to $5,141,456 in the same period in 2020.

 

The increase in SG&A expenses in Q3 2021 over the same period in Q3 2020 is mainly attributable to the operating activities of Pyro Green-Gas and the net effect of:

 

i)

an increase of 13% in employee compensation due primarily to additional head count,

ii)

an increase of 57% for professional fees, primarily due to an increase in accounting fees, legal fees, and listing fees,

iii)

an increase of 134% in office and general expenses, is due to an increase in office and computer related expenses,

 

iv)

travel costs increased by 783%, due to an increase in travel abroad,

v)

depreciation of property and equipment increased by 390% due to higher amounts of property and equipment being depreciated,

vi)

depreciation of right of use assets increased by 19% due to higher amounts of right of use assets being depreciated,

vii)

Investment tax credits remained the same,

viii)

government grants increased by 100% due to higher levels of activities supported by such grants,

ix)

other expenses increased by 1,162%, primarily due to an increase in D&O insurance expenses.

 

Separately, share-based expenses decreased by 78% in Q3 2021 over the same period in 2020 as a result of the stock options granted in 2020 and 2021. This was directly impacted by the vesting structure of the stock option plan with options vesting between 25% and 100% on the grant date requiring an immediate recognition of that cost.

 

Depreciation of Property and Equipment

 

 

The depreciation of property and equipment increased to $93,701 in Q3 2021, compared to $19,125 in Q3 2020. The 390% increase is primarily due to higher amounts of property and equipment acquired in 2021 being depreciated.

 

Research and Development (“R&D”) Expenses

 

 

The Company incurred $389,806 of R&D expenses, net of government grants, on internal projects in Q3 2021, an increase of 195% compared to $131,955 in Q3 2020. The increase in Q3 2021 is primarily related to an increase in employee compensation, subcontracting, materials and equipment and other expenses of $443,113 compared to $237,490 reported in Q3 2020. During the first nine months of fiscal 2021, net spending on internal R&D was $1,386,847 compared to $151,176 in 2020, primarily due to an increase in R&D activities performed in the nine months ended September 30, 2021.

 

In addition to internally funded R&D projects, the Company also incurred R&D expenditures during the execution of client funded projects. These expenses are eligible for Scientific Research and experimental Development (“SR&ED”) tax credits. SR&ED tax credits on client funded projects are applied against cost of sales and services (see “Cost of Sales” above).

 

Financial Expenses

 

 

Financial expenses for Q3 2021 totaled $6,792 compared to ($16,370) for Q3 2020, representing an increase of 141% year-over-year. The increase in financial expenses in Q3 2021, is primarily attributable to higher interest and accretion on amounts of debt.

 

Strategic Investments

 

 

The adjustment to fair market value of strategic investments for Q3 2021 resulted in a gain of $1,868,862 compared to a gain in the amount of $15,220,857 in Q3 2020. The decrease is primarily attributable to the decreased market share value of common shares and warrants owned by the Company of HPQ Silicon Resources Inc.

 

Net income (loss) and Comprehensive Income (loss)

 

 

The comprehensive income for Q3 2021 of $623,664 compared to $15,325,996, in Q3 2020, represents a decrease of 96% year-over-year. The decrease of $14,702,332 in comprehensive income in Q3 2021 is primarily attributable to the factors described above, which have been summarized as follows:

 

(i)

an increase in product and service-related revenue of $1,168,499 arising in Q3 2021,

(ii)

an increase in cost of sales and services of $2,648,494, primarily due to an increase in employee compensation, direct materials, manufacturing overhead & other, foreign exchange charge on materials, investment tax credits, amortization of intangible assets and a decrease in subcontracting,

(iii)

an increase in SG&A expenses not including share-based expenses of $1,933,543 arising in Q3 2021 primarily due to an increase in employee compensation, professional fees, office and general, travel, depreciation of property and equipment, depreciation of ROU assets, government grants and other expenses,

(iv)

an increase in R&D expenses of $257,851 primarily due to an increase in employee compensation, investment tax credits, subcontracting, material and equipment, and other expenses and a decrease in government grants.

(v)

a decrease in share-based expense of $2,344,214

(vi)

a decrease in changes in fair market value adjustment of strategic investments and financial expenses of $13,375,157 in Q3 2021.

 

Reconciliation of Non-IFRS measures (EBITDA, Adjusted and Modified)

 

¹ See “Non-IFRS Measures”

 

The EBITDA in Q3 2021 was $968,667 compared to $15,464,504 for Q3 2020, representing a decrease of 94% year-over-year. The $14,495,837 decrease in the EBITDA in Q3 2021 compared to Q3 2020 is due to the decrease in comprehensive income of $14,702,333, an increase in depreciation of property and equipment of $74,576, an increase in depreciation of the ROU assets of $24,206, an increase in amortization of intangible assets of $84,551 and an increase in financial expenses of $23,162.

 

The adjusted EBITDA in Q3 2021 was $1,641,861 compared to $18,481,912 for Q3 2020. The decrease of $16,840,051 in Q3 2021 is attributable to a decrease in EBITDA of $14,495,837, and a reduction of $2,344,214 in share-based expenses.

 

The Modified EBITDA loss in Q3 2021 was $227,001 compared to a Modified EBITDA gain of $3,261,055 for Q3 2020, representing a decrease of 107%. The decrease of $3,448,056 in the Modified EBITDA loss in Q3 2021 is attributable to the decrease as mentioned above in the Adjusted EBITDA of $16,840,051 and a decrease in the change in fair value of strategic investments of $13,351,995.

 

SUMMARY OF QUARTERLY RESULTS

 

 

The majority of PyroGenesis’ revenue is recognised from long-term contracts over time and is dependent on the timing of project initiation and execution, including project engineering, manufacturing, and testing. In 2018 the Company adopted IFRS 15 Revenue from Contracts with Customers.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2021, the Company has cash and cash equivalents of $15,781,528. In addition, the accounts payable and accrued liabilities of $8,230,604 are payable within 12 months. The Company expects that its cash position will be able to finance its operations for the foreseeable future.

 

 

SUMMARY OF CASH FLOWS

 

 

During the nine months ended September 30, 2021, cash flows used by operating activities was $16,349,944 compared to $1,637,418 for the same period in the prior year.

 

The use of cash in Q3 2021, consists of the comprehensive loss of $16,025,636 (Q3, 2020 – comprehensive income of $18,796,990) less adjustments for operating activities of $16,349,944 (Q3, 2020 – $1,637,418), plus a net negative change in non-cash operating working capital items of $16,877,125 (2020 – negative change of $640,447).

 

Investing activities resulted in a cash generated of $1,423,599 in 2021, compared to a use of cash of $1,624,307 in 2020 mainly resulting from the disposal of strategic investments offset by the purchase of investment, property and equipment and intangible assets totaling $3,615,077.

 

Financing activities in 2021 generated funds of $12,602,974, compared to $2,047,977 in 2020. In Q3, 2021, the Company issued shares upon the exercise of stock options and warrants for net proceeds of $14,172,965 ($5,006,457 – 2020), repurchase shares for cancellation for an amount of $1,210,459 (compare to $964,391 in 2020) and made payment of leases liabilities of $161,249 ($1,300,792 – 2020). During the same period in the prior year, the Company repaid a portion of the convertible debenture of $358,500, made payment of lease liabilities of $1,300,792 and received proceeds from the issuance of shares for a total amount of $5,006,457. Interest paid was $189,207 in Q3 2021 compared to $366,097 in Q3 2020.

 

The net cash position of the Company decreased by $2,323,371 for Q3, 2021 compared to a net increase of $2,061,088 for Q3, 2020.

 

CAPITAL STOCK INFORMATION

 

The authorized share capital of the Company consists of an unlimited number of Common shares (the “Common Shares”). As at November 15, 2021 PyroGenesis had 170,796,705 on shares, 6,285,500 outstanding stock options issued, and 4,805,500 exercisable options issued.

 

GOING CONCERN

 

The Company presumes it will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company’s management has reviewed the Company’s projected cash flow and backlog and is of the opinion that the Company has sufficient cash and cash equivalents and will generate sufficient positive cash flows and profits from operations and strategic investments to meet current and future cash requirements. Management expects that the investments currently being made in accelerating projects under development for various clients, together with executing on its $30,710,256 backlog of signed contracts ($44,910,256 backlog of signed & awarded contracts) at November 15, 2021 (205% of 2020 revenues) which is primarily related to the Company’s successful progression/acceptance in all of it’s primary offerings, will continue to improve the Company’s cash position.

 

The 2020 Financial Statements have been prepared using IFRS as issued by the IASB applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due. If the going concern assumption were not appropriate for these financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the statements of financial position classifications used. The impact on the financial statements could be material.

 

RELATED PARTY TRANSACTIONS

 

During the three and nine months ended September 30, 2021, the Company concluded the following transactions with related parties:

 

The Company entered into a lease agreement for the rental of a property with a trust whose beneficiary is the controlling shareholder and CEO of the Company. At September 30, 2021 the carrying amount of the ROU asset and lease liabilities are $1,162,487, and $55,328, respectively (2020 - $3,701,000 and $2,988,542).

 

An amount of $68,825 and $206,310 was charged by a trust whose beneficiary is the controlling shareholder and CEO for rent and property taxes (2020 - $68,687 and $205,420 of rent and property taxes).

 

A balance due to the controlling shareholder and CEO of the Company amounted to $67,817 (December 31, 2020 - $72,188) for expense report, salary and vacation payables and is included in accounts payable and accrued liabilities at September 30, 2021.

 

An amount of $Nil (December 31, 2020 - $4,413), of interest payable and $Nil (2020 - $17,937) of accretion expense were accrued on a convertible loan of $295,000 from the controlling shareholder and CEO of the Company. A balance due of $Nil is included in accounts payable and accrued liabilities.

 

The key management personnel of the Company are the members of the Board of Directors and certain officers. Total compensation to key management consisted of the following:

 

 

A balance of $124,745 of key management compensation, of the amounts noted above, is included in accounts payable and accrued liabilities at September 30, 2021 (2020 - $102,625).

 

CORPORATE HIGHLIGHTS

 

On July 6, 2021, the Company announced that, further to its press release dated May 27, 2021, wherein it had announced a $700,000 grant from Sustainable Development Technology Canada to develop a novel production process to transform quartz into fumed silica, PyroGenesis had signed a contract for approx. $4MM with HPQ Silica Polvere Inc., a wholly owned subsidiary of HPQ Silicon Resources Inc. This Contract is part of a project, valued for a total of approx. $5.3 MM. The difference is expected to be funded by an additional government agency for $630,000 as well as a contribution by PyroGenesis of $175,000. It is expected that all these amounts will be paid directly to PyroGenesis.

 

On August 5, 2021, the Company announced that further to HPQ Silicon Resources Inc’s press release on August 5, 2021, the Company had successfully produced Nano Silicon materials with its PUREVAP™ Nano Silicon Reactor for HPQ Nano Silicon Powders Inc, a wholly owned subsidiary of HPQ Silicon Resources Inc.

 

On August 12, 2021, the Company announced that, further to its press release dated April 27, 2021, it had finalized its strategic acquisition of AirScience Technologies Inc. and its subsidiaries for an amended total cash consideration of approx. $4.4MM.

 

1.

Approximately 20% upon receipt of payment of US$4MM (approx. Can$5MM) under an existing letter of credit from AST’s client 1,

2.

Approximately 20% upon final acceptance test/bank guarantee from client 1,

3.

Approximately 25% upon receipt of final acceptance report for client 2,

4.

Approximately 5% upon final acceptance test, or equivalent from each of client 3 and 4 (total 10%), and

5.

Approximately 25% upon conversion of $4MM in pipeline to signed contracts.

 

On August 17, 2021, the Company announced that it had signed a $1.2MM contract for two Air Plasma Torch systems with an existing Asian client. These torches are to be incorporated into the client’s medical waste destruction systems.

 

On September 8, 2021, the Company announced that further to its press releases dated May 27 and July 6, 2021, it had received $630,000 in additional funding from a second government agency for a total project value of approximately $5.3MM (including sale of IP of $3.3MM), all to be received by the Company.

 

On September 14, 2021, the Company announced that following its acquisition of AirScience Technologies Inc., the Company proceeded to renaming its subsidiary to “Pyro Green-Gas”. Pyro Green-Gas will continue to be a wholly owned subsidiary of the Company.

 

Also on September 14, 2021, the Company announced further to its Q2 2021 press release dated August 16, 2021 (Outlook section), that it had received an order to supply four (4) high powered plasma torches together with ancillary equipment to a client for approximately $6MM. This does not include continued after-sale services, which would be part of a separate services agreement. The client is a multi-billion-dollar international producer of iron ore, whose name will remain confidential for competitive reasons. The client’s objective is to reduce greenhouse gases by replacing their fossil fuel burners with PyroGenesis’ proprietary plasma torches. The client advised PyroGenesis that, upon the successful implementation of the torches, the subsequent orders are expected to be for approximately 130 plasma torches. Notwithstanding this, there is no guarantee that such orders will be placed. The schedule to implement these future orders remains to be determined.

 

SUBSEQUENT EVENTS

 

On October 18, 2021, the Company was pleased to announce that its subsidiary, Pyro Green-Gas (formerly known as AirScience Technologies Inc.), had received a milestone payment of approximately $2.5MM under an existing $9.3MM contract with Tata Steel, one of the world’s top diversified steel producers with commercial operations worldwide. The balance under this contract, of approximately $3MM, is expected to be fully received within the next nine months.

 

On October 19, 2021, the Company was pleased to announce that it had been awarded an Innovative Solutions Canada (ISC) Phase 2 (Prototype Development) contract of approximately $1.15MM to develop a unique hybrid ceramic powder (HCP) processing system for the National Research Council Canada, Canada’s largest federal research and development organization.

 

On October 20, 2021, the Company was pleased to announce that further to its press release dated September 27, 2021, it had created a new division, PyroGenesis Aluminum (PyroGenesis-Al) dedicated exclusively to PyroGenesis’ environmental offerings to the aluminum industry.

 

On October 28, 2021, the Company was pleased to announce that it had been selected to provide a $9.2MM land-based system to destroy Perfluoroalkyl and Polyfluoroalkyl Substances (“PFAS”). The client is a large operator of public water systems.

 

OUTLOOK

 

PyroGenesis continues to be well positioned, with a clean balance sheet and positive net earnings for the three month period ended September 30, 2021. We plan to execute on all the organic growth strategies, benefit from the recent acquisition of Pyro Green-Gas (formerly AirScience Technologies), as well as to continue actively pursuing growth through synergistic mergers & acquisitions.

 

The Company has recently focused its offerings to highlight their greenhouse gases (“GHG”) emissions reduction benefits, which has been enhanced by Pyro Green-Gas offerings. Most of PyroGenesis’ product lines do not depend on environmental incentives (tax credits GHG certificates, environmental subsidies, etc.) to be economically viable.

 

We consider this strategy to be timely as many governments are stimulating their respective economies by promoting and funding both environmental technologies and infrastructure projects. As such, although management expects that this will be a tailwind into an already strong pipeline (which would further increase revenues and add directly to shareholder value), there may be some delays before the full effect is recognized as companies will likely take additional time to submit the necessary government paperwork to qualify for such incentives.

 

The Company is not immune to the negative impact that COVID-19 brought on businesses, specifically related to the work force and, more importantly, the supply chain. Management believes that the Company is better situated than most and is doing everything to mitigate these challenges. It does not expect any improvements from the impact of COVID-19 before Q2 2022.

 

A.

ORGANIC GROWTH

 

Organic growth will be stimulated by (i) the natural growth of our existing offerings which can now be accelerated given our strong balance sheet and (ii) leveraging off our “Golden Ticket” advantage.

 

We have described in the past our Golden Ticket advantage as one which occurs when one sells directly, or is engaged directly, with the end user and, as a result, is “inside the fence”. A Golden Ticket presents the opportunity to either, (i) cross sell other products or (ii) identify new areas of concern that can be addressed uniquely by PyroGenesis. We call the latter our Coffee and Donuts strategy (if you are selling coffee, you could generate additional revenues with little additional effort, by adding on donuts).

 

Over the past several years, PyroGenesis has successfully positioned each of its business lines for rapid growth by strategically partnering with multi-billion-dollar entities. These entities have identified PyroGenesis’ offerings to be unique, in demand, and of such a commercial nature as to warrant such unique relationships. We expect that these relationships are now positioned to transition into significant revenue streams particularly in iron ore pelletization & DROSRITE™ (short term), 3D printing (mid to long term) and biogas upgrading (mid to long term).

 

1.

DROSRITE™

 

Within the DROSRITE™ offering, the Company continues to aggressively explore horizontal growth opportunities. The Company is currently bidding on an up-stream opportunity, valued at approximately $40MM. This process is plasma based, and not only reduces GHG, it also appears to be cheaper than alternate technologies. This project is located in the Middle East and is currently experiencing delays to allow the processing of government documentation to catch up with the bidding process. Management notes that it has been very successful in the selection process to date and continues to believe that it has a better than average probability of success. Building on this development the Company is also in discussions with a second opportunity to provide a similar upstream process for approximately the same consideration. Both opportunities are examples of the success the Company is having with this strategy.

 

PyroGenesis concluded a joint venture and a license agreement with an existing and proven technology provider. The technology is geared to uniquely handle the residues resulting from the processing of dross in the aluminum industry. We had previously announced our intention to secure this technology and would not only make our traditional DROSRITE™ offering more appealing but could also be offered as a stand-alone product. We believe that valorizing the residues and producing high end products will further define us as the go-to company for all dross related processing. This is a prime example of our Coffee & Donuts strategy in play. The joint venture will only relate to the new technology and, as such, PyroGenesis will not have to vet in any assets or IP (specifically not the DROSRITE™ technology).

 

2.

Additive Manufacturing

 

With respect to additive manufacturing, we continue to expect to see significant year over year improvements in our 3D metal powders offering as our NexGen™ facility, which incorporates all the previously disclosed benefits (increased production rates and lower capital & operating expenditures), is now on-line.

 

There are major top tier aerospace companies and OEMs, in both Europe and North America, eagerly awaiting powders from this new state-of-the-art production line, and we are currently in the process of supplying sample powders to them for analysis. Of note, a major tier one global aerospace company entered into an agreement with the Company to qualify its powder, at considerable expense to the global aerospace company, with a view towards having the Company become a supplier. The Company expects that such developments will continue and will translate into significant improvements in contributions to revenue by this segment in the mid-long term.

 

3.

Plasma Torches

 

In connection with the Company’s plasma torch offerings, we expect the demand to be significantly impacted by continued developments in the iron ore pelletization industry, where serious consideration is being given to replacing the fossil fuel burners, currently being used throughout the industry, with PyroGenesis’ proprietary plasma torches, in an effort to reduce their carbon footprint.

 

To date, everything is proceeding as expected. Initial discussions with potential customers have evolved into confirmation stages which typically consist of a computer simulation followed by a small torch order. These confirmation stages are expected, if successful, to result with a roll-out program to replace fossil fuel burners with PyroGenesis’ plasma torches in the iron ore pelletization industry, in which PyroGenesis is patent protected.

 

PyroGenesis expects that the previously mentioned government initiatives, geared to stimulating their respective economies by promoting and funding environmental technologies and infrastructure projects, will only serve to increase interest in PyroGenesis’ plasma torch offerings. However, this could delay the onset of contracts as potential clients seek government support for large initiatives.

 

To date, all computer simulations have been successful, and Client A ordered 1 torch and has requested a cost estimate for 36 more. We expect that in the near future a long overdue torch order for between 1-5 torches from Client B will be forthcoming with strong visibility on the next series of torch orders from them. All indications to date are that the iron ore pelletization industry will be a large user of PyroGenesis plasma torches.

 

PyroGenesis is proactively targeting other industries which are experiencing significant pressure to reduce GHGs, and which utilize fossil fuel burners as well.

 

Separately, the Company also offers plasma torches to niche markets where there is a high probability of on-going sales from successful implementation. One such example is the previously announced contract with a very small company to produce a plasma torch ideal for tunneling. PyroGenesis has reason to believe that the real plasma-based tunneling opportunity may lie outside of the scope of the current agreement. PyroGenesis is in discussion with the client to determine the best way to terminate this arrangement. For all intents and purposes, from the readers perspective, this project with the client has ended. PyroGenesis is evaluating, and intends to pursue, plasma based tunneling opportunities, specifically those identified to be outside of the scope of the current agreement.

 

Another niche market where the Company is offering its plasma torch, and where there is a high probability of on-going sales is in land-based waste destruction applications, and more specifically medical waste. The Company signed a contract in August 2021 to supply two Air Plasma Torch systems to an existing client to be used in the destruction of such medical waste.

 

As sales of PyroGenesis’ plasma torches increase, the Company will also benefit from providing proprietary spare parts from which the Company expects to generate significant recurring revenue, thus complementing the Company’s long-term strategy to build upon a recuring revenue model.

 

4.

HPQ/PUREVAP™

 

With respect to HPQ, the goal is to continue to expand our role as HPQ’s technology provider for the game changing family of silicon processes which we are developing exclusively for HPQ and its wholly owned subsidiaries HPQ Nano Silicon Powders Inc. and HPQ Silica Polvere Inc., namely:

 

·

The PUREVAP™ “Quartz Reduction Reactors” (QRR), an innovative process (patent pending), which should permit the one step transformation of lower purity quartz (SiO2) than any traditional processes can handle into a silicon (Si) of a higher purity level (2N-4N) that can be produced by any traditional smelter, at reduced costs, energy input, and carbon footprint. The unique capabilities of this process could position HPQ as a leading provider of the specialized silicon material needed to propagate its considerable renewable energy potential; and

 

·

The PUREVAP™ Nano Silicon Reactor (NSiR), which, if successful, could position itself as a new proprietary low-cost process that can transform the silicon (Si) made by the PUREVAP™ QRR into the nano-silicon materials (silicon powders and silicon nanowires) sought after by energy storage, batteries, electric vehicle manufactures and clean hydrogen sectors participants. The aim of the ongoing work is to position HPQ NANO as the first to market with a commercial scale low-cost nanoparticle production system.

 

·

A new plasma-based process that could convert Silica (Quartz, SiO2) into fumed silica (Pyrogenic Silica) in one step. This new process could be a low-cost and environmentally friendly option that combines HPQ Silicon High Purity Quartz initiatives with PyroGenesis’ industry leading know-how in the development of commercial plasma processes. It is envisioned that the process will eliminate harmful chemicals presently generated by traditional methods. This new process could revolutionize the manufacturing of fumed silica, while repatriating production back to North America.

 

Government participation in a $5.3MM funding of the fumed silica project confirms our expectation that 2021 should be a year in which significant developments occur on all these fronts.

 

5.

Land Based Units/Environmental

 

Plasma land-based/environmental solutions were not aggressively targeted by the Company in favor of lower-hanging fruit represented by the Company’s other offerings, such as iron ore pelletization & DROSRITE™.

 

The Company took an opportunistic approach to these opportunities and there now seems to be significant early interest in the Company’s capabilities in this arena. Besides the interest in niche torch applications mentioned above (ex. medical waste) PyroGenesis’ plasma-based solutions have generated interest in processing a waste stream that has recently been classified as hazardous. Management believes that, in a current bidding process, its solution is the technology of choice. If successful, this will represent a significant positioning of PyroGenesis plasma-based solutions not only for this specific product line but, when taken in conjunction with the historic success with its offering on US Aircraft carriers, the land based/environmental segment in general.

 

B.

GROWTH THROUGH SYNERGESTIC MERGERS & ACQUISITIONS:

 

As previously disclosed, the Company is conservatively considering synergistic M&A strategies to augment its growth, and the Company has been very actively involved in pursuing several opportunities to support this strategy. In so doing, the focus has been on private companies exclusively which (i) primarily leverage the Company’s Golden Ticket advantage/Coffee & Donut strategy or (ii) could uniquely benefit from the Company’s engineering advantage and/or international relationships.

 

PyroGenesis recently announced the acquisition of AirScience Technologies Inc. (“AST”), a company with experience in biogas upgrading. PyroGenesis believes that AST’s experience in biogas upgrading, combined with PyroGenesis’ engineering and multidisciplinary skills, as well as its proven record of meeting the exacting demands of multibillion-dollar companies and the US military, positions the combination well to address the opportunities arising from this growing need to generate renewable natural gas.

 

The acquisition of AST also provides potential synergies with PyroGenesis’ land-based waste destruction offerings which, if successful, will significantly increase their value to the market. AST’s technology complements PyroGenesis’ existing offerings and further strengthens PyroGenesis’ position as an emerging leader in GHG solutions for sustainable long-term growth.

 

Our objective is, over the course of the next 12-18 months, to strengthen AST’s operations and quality control systems, while at the same time increasing the backlog of signed contracts and successfully delivering on existing contracts thus positioning AST as a significant and credible player in the marketplace. Once established, we will evaluate our options to accelerate the rollout of these solutions.

 

Separately, the Company has been evaluating the following opportunity:

 

1.

Plasma Torches

 

PyroGenesis often considers opportunities to leverage its plasma expertise and they continue to review torch technologies which could complement existing offerings and leverage off their unique relationships. There is nothing currently being discussed that, at this time, has a material probability of being concluded.

 

CONCLUSION

 

In conclusion, PyroGenesis is well positioned for the remaining of 2021 to take advantage of its unique position in its main business offerings to accelerate growth, with a particular emphasis on offerings geared to aggressively reducing GHG emissions. Furthermore, we do not expect at this point in time, given our strong balance sheet, a need to raise capital to execute on our growth strategy over the foreseeable future.

 

CRITICAL ACCOUNTING ESTIMATES, NEW AND FUTURE ACCOUNTING POLICIES AND FINANCIAL INSTRUMENTS

 

For a discussion of significant accounting policies, judgements, estimates assumptions and financial instruments, please refer to notes 3, 4 and 26 of the 2020 Financial Statements.

 

DISCLOSURE CONTROLS AND PROCEDURES

 

In the years prior to, and most of, 2020, the Company’s shares traded on the TSX Venture Exchange. External audits were conducted in accordance with the criteria for Canadian public companies The Company met all the requirements of the TSX Venture Exchange.

 

It was recognized by the Company that its listing on the TSX, and subsequently NASDAQ would require more stringent disclosure controls, and started implementing such before the NASDAQ listing. NASDAQ itself recognizes that new listings may require time to upgrade their existing processes and provides a time frame within which such is required to be completed.

 

The Company is currently in the process of upgrading its disclosure procedures and is on schedule to meet, or better, NASDAQ’s time to complete. Additional details are provided below:

 

When listed on the TSX Venture, management was not required to assess disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”). When the Company graduated to the Toronto Stock Exchange in the last quarter of 2020 and subsequently listed on NASDAQ in the first quarter of 2021, management was required to evaluate both DC&P and IFCR and in the context of the requirements of these more senior exchanges. As an emerging growth company, under NASDAQ rules and the Sarbanes Oxley Act of 2002, compliance with ICFR and DC&P certifications are required to be met by the end of 2021. Management is taking the necessary steps to ensure that those requirements will be met. Canadian certification requirements of IFCR and DC&P are discussed below.

 

In accordance with National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), the Company has filed an interim certificate Form 52- 109F2. Paragraph 5.2 “material weakness relating to design” of the certificate requires management to identify and disclose in the MD&A any material weakness in design of ICFR and DC&P. The following material weaknesses existed as at December 31, 2020 and still existed as at September 30, 2021 and are being addressed:

 

·

Control environment: The Company did not maintain an effective control environment and has identified deficiencies relating to: (i) appropriate organizational structure, reporting lines, and authority and responsibilities, including our Board of Directors’ and Audit Committee’s oversight and governance of external financial reporting and related party transactions, (ii) lack of senior financial reporting resources to deal with complex accounting matters and perform management review controls over period-end financial statements. The Company did not have a sufficient number of trained resources with the appropriate skills and knowledge with assigned responsibilities and accountability for the design and operation of internal controls over financial reporting; and (iii) holding individuals accountable for their internal control related responsibilities.

 

 

·

Control activities: The Company did not fully design and implement effective control activities and has identified deficiencies relating to: (i) selecting and developing control activities that contribute to the mitigation of risks to acceptable levels, and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action. For example, control activities related to documentation and consistency in accounting for intangible assets internally generated and revenue recognition were deficient.

 

·

Journal Entries: The Company did not effectively design and maintain appropriate segregation of duties and controls over the effective preparation, review and approval, and associated documentation of journal entries, across its ERP platform. The Company did not have adequate review procedures for the recording of manual entries

 

·

Complex Spreadsheet Controls: The Company did not implement and maintain effective controls surrounding certain complex spreadsheets, including addressing all identified risks associated with manual data entry, completeness of data entry, and the accuracy of mathematical formulas, impacting complex spreadsheets used in fixed asset continuity schedules, production and revenue forecasting, and the calculation of the fair value of investments

 

·

User Assess Controls: The Company did not maintain effective user access controls to adequately restrict user access to financial applications and related data commensurate with job responsibilities. Management did not perform appropriate user access reviews, including superuser access.

 

As a consequence, the Company did not have effective control activities related to the design, implementation and operation of process-level and management review control activities related to order-to-cash (including revenue trade receivables, and billings in excess of cost/cost in excess of billings), procure-to-pay (including operating expenses, prepaid expenses, accounts payable, and accrued liabilities), hire-to-pay (including compensation expense and accrued liabilities), long-lived assets, significant unusual transactions, related party transactions and other financial reporting processes.

 

These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis. Therefore, the Company’s principal executive officer and chief financial officer concluded that the design and operation of the Company’s ICFR and DC&P are not effective as of September 30, 2021.

 

Management’s Remediation Plan

 

Since December 31, 2020, management has taken action toward implementing the remediation plan noted below. Management has performed an initial risk assessment using a top-down, risk- based approach with respect to the risks of material misstatement of the consolidated financial statements. In addition, compensating controls have been applied to the areas where the risks of material misstatement are considered moderate to high. The Company is using and plans to continue to use outside resources to strengthen the business process documentation and help with management’s self-assessment and testing of internal controls.

 

Management, with oversight of the Audit Committee, intends to implement remediation plans for the aforementioned material weaknesses in ICFR and DC&P as follows:

 

·

Establish an appropriate organizational structure and policies that the Board of Directors and Audit Committee will enforce to ensure proper oversight and governance of the external financial reporting process and related party transactions.

 

·

Hire, train, and retain individuals with appropriate skills and experience, assign responsibilities and hold individuals accountable for their roles related to internal control over financial reporting.

 

·

Design and implement a risk assessment process to identify and assess risks of material misstatement and ensure that the impacted financial reporting processes and related internal controls are properly designed and in place to respond to those risks in our financial reporting; and

 

·

Enhance the design of existing control activities and implement additional process-level control activities (including controls over the order-to-cash, procure-to-pay, hire-to-pay, long-lived assets, inventory, significant unusual transactions, related party transactions and other financial reporting processes) and ensure they are properly evidenced and operating effectively.

 

Although management cannot give absolute assurance that these actions will remediate these material weaknesses in internal controls or that additional material weaknesses in our ICFR will not be identified in the future, management believes the foregoing efforts will, when implemented, strengthen our ICFR and DC&P and effectively remediate the identified material weakness. Management will take additional remedial actions as necessary as they continue to evaluate and work to improve the Company’s ICFR environment.

 

RISK FACTORS

 

The Company has identified below certain significant risks relating to the business of the Company and the industry in which it operates. The following information is only a summary of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this MD&A. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company, or that the Company currently considers immaterial, may also impair the operations of the Company. If any such risks materialize into actual events or circumstances, the Company’s assets, liabilities, financial condition, results of operations (including future results of operations), business and business prospects, are likely to be materially and adversely affected. There is no assurance that risk management steps taken will avoid future loss due to the uncertainties described below or other unforeseen risks. An investment in the Common Shares or other securities of the Company is highly speculative and involves a high degree of risk. Before making any investment decision, prospective investors should carefully consider all the information contained in this document including, in particular, the risk factors described below.

 

Certain factors may have a material adverse effect on the Company’s business, financial condition and results of operations. Current and prospective investors should carefully consider the risks and uncertainties and other information contained in this MD&A, the 2020 Financial Statements and the Annual Information Form, particularly under the heading “Risk Factors” in the Annual Information Form, and in other filings that the Company has made and may make in the future with applicable securities authorities, Company’s website at www.pyrogenesis.com. The risks and uncertainties described herein and therein are not the only ones the Company may face. Additional risks and uncertainties that the Company is unaware of, or that the Company currently believes are not material, may also become important factors that could adversely affect the Company’s business. If any of such risks actually occur, the Company’s business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of the Common Shares (or the value of any other securities of the Company) could decline, and the Company’s securityholders could lose part or all of their investment.

 

Risks Related to the Company’s Business and Industry

 

Operating Income (Loss) and Negative Operating Cash Flow

 

Prior to December 31, 2020, the Company had a history of losses and negative cash flows. For the year ended December 31, 2020, the Company has net earnings of $41,768,404, cash flows used in operations of $814,987, and an accumulated deficit of $19,007,273 at December 31, 2020. To the extent that the Company has net losses and negative operating cash flow in future periods, it may need to allocate a portion of its cash reserves to fund such negative cash flow. The Company may also be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance that the Company will be able to generate a positive cash flow from its operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms favourable to the Company.

 

The Company’s ability to continue as a going concern is dependent upon its ability in the future to grow its revenue, achieve profitable operations, successfully developing and introducing new products and, in the meantime, to obtain the necessary financing to meet its obligations and repay its liabilities when they become due. While the Company has been successful in securing financing in the past, raising additional funds is dependent on a number of factors outside the Company’s control, and as such there is no assurance that it will be able to do so in the future. External financing, predominantly by the issuance of equity and debt, might be, sought to finance the operations of the Company; however, there can be no certainty that such funds will be available at terms acceptable to the Company, or at all. If the Company is unable to obtain sufficient additional financing, it may have to curtail operations and development activities, any of which could harm the business, financial condition and results of operations.

 

 

Actual Financial Position and Results of Operations May Differ Materially from the Expectations of the Company’s Management

 

The Company’s actual financial position and results of operations may differ materially from management’s expectations. The Company has experienced some changes in its operating plans and certain delays in the timing of its plans. As a result, the Company’s revenue, net income and cash flow may differ materially from the Company’s projected revenue, net income and cash flow. The process for estimating the Company’s revenue, net income and cash flow requires the use of judgment in determining the appropriate assumptions and estimates. These estimates and assumptions may be revised as additional information becomes available and as additional analyses are performed. In addition, the assumptions used in planning may not prove to be accurate, and other factors may affect the Company’s financial condition or results of operations.

 

Revenue Risks

 

PyroGenesis may experience delays in achieving revenues, particularly with plasma gasification projects which have a long sales cycle. Revenues may be delayed or negatively impacted by issues encountered by the Company or its clients including:

 

(i)

unforeseen engineering and/or environmental problems;

 

(ii)

delays or inability to obtain required financing, licenses, permits and/or regulatory approvals;

 

(iii)

supply interruptions and/or labour disputes;

 

(iv)

foreign exchange fluctuations and/or collection risk; and

 

(v)

competition from other suppliers and/or alternative energy solutions that are less capital intensive.

 

There is no assurance that the business will perform as expected or that returns from the business will support the expenditures needed to develop it.

  

Concentration Risk

 

To date, a small number of customers have accounted for a majority of PyroGenesis’ revenues. As its business expands, the Company expects that revenue distribution will be over a larger number of different customers. For the three months ended September 30, 2021, sales of PyroGenesis to its four principal customers accounted for approximately 80% of its total revenue. For the nine months ended September 30, 2020, sales to four principal customers accounted for approximately 87% of PyroGenesis’ total revenue. The loss of, or a reduction in, purchase orders or anticipated purchase orders from PyroGenesis’ principal customers could have a material adverse effect on its business, financial condition and results of operations. Additionally, if one of PyroGenesis’ customers is unable to meet its commitments to PyroGenesis, the Company’s business, financial condition and results of operations could be adversely affected.

 

As a result of the Drosrite International Exclusive Agreement and the Dross Processing Service Agreement, the Company generates significant revenues from payments made to Drosrite International under the Dross Processsing Service Agreement. The Company will no longer receive payments under such arrangement if the Dross Processing Service Agreement, which involves a third party in a foreign jurisdiction, is terminated, which could have a material adverse effect on the business, financial condition and results of operations of the Company.

 

Technology Development and Manufacturing Capability Risks

 

PyroGenesis recently expanded into new areas of business and, as a result, many of the Company’s products are at various stages of the development cycle. The Company may be unable to commercialise such products, or it may be unable to manufacture such products in a commercially viable manner. Whilst management is confident in both its technology and in its team of experienced engineers, scientists and technicians, it cannot know with certainty, which of its products will be commercialised, when such products will be commercialised, or whether such products will be able to be manufactured and distributed profitably.

 

Product Revenues / History of Losses

 

PyroGenesis has incurred losses in the majority of years since its inception. In the past the Company’s operations have not generated sufficient earnings and cash flows to date to result in consistent profitability or positive cash flow. For the nine months ended September 30, 2021 the Company has net losses of $16,025,638, which includes a loss from the change in value of strategic investment of $10,380,709 and cash flows used in operations of $16,349,944. There can be no assurance that the Company will be able to continue to generate significant gains from the value of its strategic investments in the future.

 

Additional financing and dilution

 

PyroGenesis may require additional financing. There can be no assurance that additional financing will be available to the Company when needed, or on terms acceptable to the Company. PyroGenesis’ inability to raise financing to support ongoing operations or to fund capital expenditures could limit the Company’s growth and may have a material adverse effect upon the Company.

 

The Company does not exclude raising additional funds by equity financing. In addition, as at September 30, 2021, 6,288,000 stock options are currently issued and outstanding. The exercise of stock options and/or warrants, as well as any new equity financings, represents dilution factors for present and future shareholders.

 

Reliance on Third Party Suppliers, Service Providers, Distributors and Manufacturers

 

The Company’s direct and indirect suppliers, service providers, distributors and manufacturers may elect, at any time, to breach or otherwise cease to participate in supply, service, distribution or manufacturing agreements, or other relationships, on which the Company’s operations rely. Loss of its suppliers, service providers, distributors and manufacturers could have a material adverse effect on the Company’s business and operational results. Further, any disruption in the manufacturing process done by third party manufacturers could have a material adverse effect on the business, financial condition and results of operations of the Company. The Company cannot ensure that alternative production capacity would be available in the event of a disruption, or if it would be available, it could be obtained on favorable terms.

 

Manufacturing Facility

 

The vast majority of the Company’s products are manufactured in its manufacturing facility located in Montreal, Quebec, and its additional locations in Italy and India related to the Pyro Green-Gas acquisition. Accordingly, the Company is highly dependent on the uninterrupted and efficient operation of its manufacturing facility. If for any reason the Company is required to discontinue production at its facility, it could result in significant delays in production of the Company’s products and interruption of the Company’s sales as it seeks to resume production. The Company may be unable to resume production on a timely basis. If operations at the facility were to be disrupted as a result of equipment failures, natural disasters, fires, accidents, work stoppages, power outages or other reasons, the Company’s business, financial condition and/or results of operations could be materially adversely affected.

 

Sales Cycle and Fixed Price Contracts

 

PyroGenesis sales cycle is long and the signing of new contracts is subject to delay, over which the Company has little control. The Company also enters into sales contracts with fixed pricing, which may be impacted by changes over the period of implementation. There is no assurance that delays or problems in fulfilling contracts with clients will not adversely affect the Company’s activities, operating results or financial position.

 

Reliance on Technology

 

PyroGenesis will depend upon continuous improvements in technology to meet client demands in respect of performance and cost, and to explore additional business opportunities. There can be no assurance that the Company will be successful in its efforts in this regard or that it will have the resources available to meet this demand. Whilst management anticipates that the research and development will allow the Company to explore additional business opportunities, there is no guarantee that such business opportunities will be presented or realized. The commercial advantage of the Company will depend to a significant extent on the intellectual property and proprietary technology of PyroGenesis and the ability of the Company to prevent others from copying such proprietary technologies. PyroGenesis currently relies on intellectual property rights and other contractual or proprietary rights, including (without limitation) copyright, trade secrets, confidential procedures, contractual provisions, licenses and patents, to protect its proprietary technology. PyroGenesis may have to engage in litigation in order to protect its patents or other intellectual property rights, or to determine the validity or scope of the proprietary rights of others. This type of litigation can be expensive and time consuming, regardless of whether or not the Company is successful. PyroGenesis may seek patents or other similar protections in respect of particular technology; however, there can be no assurance that any future patent applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to the Company. Moreover, the process of seeking patent protection can itself be long and expensive. In the meantime, competitors may develop technologies that are similar or superior to PyroGenesis’ technology or design around the patents owned by the Company, thereby adversely affecting the Company’s competitive advantage in one or more of its areas of business. Despite the efforts of the Company, its intellectual property rights may be invalidated, circumvented, challenged, infringed or required to be licensed to others. It cannot be assured that any steps the Company may take to protect its intellectual property rights and other rights to such proprietary technologies that are central to the Company’s operations will prevent misappropriation or infringement of its technology.

 

Changes to Contracts

 

PyroGenesis is dependent upon its ability to establish and develop new relationships and to build on existing relationships with current clients. The Company cannot provide assurance that it will be successful in maintaining or advancing its relationships with current clients or procure additional clients. In addition, PyroGenesis cannot provide assurance that its customers and the end users of its products will continue to provide the Company with business, or that existing customers and end users will not seek to renegotiate or terminate existing contracts providing for the sale of the Company’s products and technology based on circumstances on which the Company is not currently aware. Any termination or amendment of a contract under which the Company derives an important portion of its revenues, including the Drosrite International Exclusive Agreement and the Dross Processing Service Agreement, and any adverse change in the relationship of the Company with its customers and end users, will have an adverse effect on the Company’s business, financial condition and results of operations.

 

Sales to governments and governmental entities are subject to specific additional risks, such as delays in funding, termination of contracts or sub-contracts at the convenience of the government, termination, reduction or modification of contracts or sub-contracts in the event of changes in the government’s policies or as a result of budgetary constraints and increased or unexpected costs resulting in losses or reduced profits under fixed price contracts.

 

Foreign Exchange Exposure

 

PyroGenesis’ products and services are increasingly being sold in markets outside of Canada, whilst most of its operating expenses and capital expenditures are denominated in Canadian dollars. As a result, the Company is exposed to fluctuations in the foreign exchange rates between Canadian dollar and the currency in which a particular sale is transacted, which may result in foreign exchange losses that could affect earnings. Foreign sales are predominantly denominated in U.S. dollars. The Company has not to date sought to hedge the risks associated with fluctuations in foreign exchange rates.

 

 

 

 

 

Competition

 

The industry is competitive and PyroGenesis competes with a substantial number of companies which have greater technical and financial resources. There can be no assurance that such competitors will not substantially increase the resources devoted to the development and marketing of products and services that compete with those of the Company or that new or existing competitors will not enter the various markets in which PyroGenesis is active. There can be no assurance that competitors will not develop new and unknown technologies with which the Company may have difficulty competing. Furthermore, failure to remain cost competitive may result in PyroGenesis losing business to its competitors.

 

The plasma technology of PyroGenesis competes against other plasma and conventional technologies. Without limitation, the demand for the plasma technology of PyroGenesis, particularly in waste destruction and waste-to-energy systems, can be impacted by the commodity prices of the energy source used for the process and the price at which waste is accepted by landfills and traditional waste processing plants. While the Company believes that demand for sustainable waste management practices that have lower environmental impacts than traditional solutions such as landfill or incineration is increasing, the high flows of electricity necessary to operate the waste destruction and waste-to-energy systems of PyroGenesis have an impact on the operational costs of the Company’s systems, and traditional solutions may constitute lower-cost solutions, particularly if commodity prices (including of oil and natural gas) remain low or experience a decline.

 

Management and Key Personnel

 

PyroGenesis depends on the skills and experience of its management team and other key employees. The Company relies heavily on its ability to attract and retain highly skilled personnel in a competitive environment. PyroGenesis may be unable to recruit, retain, and motivate highly skilled employees in order to assist the Company’s business, especially activities that are essential to the success of the Company. Failure to recruit and retain highly-skilled employees may adversely affect PyroGenesis’ business, financial condition and results of operations.

 

Implementation of a strategic plan

 

PyroGenesis’ commercial strategy aims to leverage its products, consumables, and services whilst focusing on the resolution of problems within niche markets within the industries served by the Company. There can be no assurances as to the success of the Company’s strategic plan, which should be considered under the risks perspective and difficulties frequently encountered by a developing business.

 

Adverse Decisions of Sovereign Governments

 

PyroGenesis conducts an increasing portion of its business internationally. There is no assurance that any sovereign government, including Canada’s, will not establish laws or regulations that will not be detrimental to the Company’s interests or that, as a foreign corporation, it will continue to have access to the regulatory agencies in other countries. Governments have, from time to time, established foreign exchange controls, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Risks Related to International Operations

 

A substantial portion of the Company’s sales are made to customers and end users outside Canada. The Company conducts its international operations directly or through distributors or other agents or intermediaries, including Drosrite International. The Company plans to continue to expand its international sales and marketing efforts. International operations are subject to a number of inherent risks, and the Company’s future results could be adversely affected by a number of factors, including:

 

·

unfavorable political or economic environments; requirements or preferences for domestic products or solutions, which could reduce demand for the Company’s products;

·

differing existing or future regulatory and certification requirements;

·

unexpected legal or regulatory changes;

·

greater difficulty in collecting accounts receivable and longer collection periods;

·

difficulties in enforcing contracts; an inability to effectively protect intellectual property;

·

tariffs and trade barriers, export regulations and other regulatory and contractual limitations on the Company’s ability to sell its products; and

·

potentially adverse tax consequences, including multiple and possibly overlapping tax structures.

 

Fluctuations in currency exchange rates could materially adversely affect sales denominated in currencies other than the Canadian dollar and cause a reduction in revenues derived from sales in a particular country. Financial instability in foreign markets could also affect the sale of the Company’s products in international jurisdictions. In addition, the Company may be denied access to its end customers as a result of a closing of the borders of the countries in which it its products are sold due to economic, legislative, political and military conditions in such countries.

 

There can be no assurance that such factors will not materially adversely affect the operations, growth prospects and sales of the Company and, consequently, its results of operations. In addition, revenues the Company earns in other jurisdictions may be subject to taxation by more than one jurisdiction, which could materially adversely affect the Company’s earnings. Each of these factors could have an adverse effect on the Company’s business, financial condition and results of operations.

 

Governmental Regulation

 

PyroGenesis is subject to a variety of federal, provincial, state, local and international laws and regulations relating namely to the environment, health and safety, export controls, currency exchange, labour and employment and taxation. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. The Company may be subject to compliance audits by regulatory authorities in the various countries in which it operates.

 

Government-funded Defense and Security Programs

 

Like most companies that supply products and services to governments, government agencies routinely audit and investigate government contractors. These agencies may review the Company’s performance under its contracts, business processes, cost structure, and compliance with applicable laws, regulations and standards. The Company’s incurred costs for each year are subject to audit by government agencies, which can result in payment demands related to costs they believe should be disallowed. The Company works with governments to assess the merits of claims and where appropriate reserve for amounts disputed. The Company could be required to provide repayments to governments and may have a negative effect on its results of operations. Contrary to cost-reimbursable contracts, some costs may not be reimbursed or allowed under fixed- price contracts, which may have a negative effect on the Company’s results of operations if it experiences costs overruns.

 

Environmental Liability

 

PyroGenesis is subject to various environmental laws and regulations enacted in the jurisdictions in which it operates, which govern the manufacturing, processing, importation, transportation, handling and disposal of certain materials used in the Company’s operations. Management believes that it has adequate procedures in place to address compliance with current environmental laws and regulations. Furthermore, management monitors the Company’s practices concerning the handling of environmentally hazardous materials. However, there can be no assurance that the Company’s procedures will prevent environmental damage occurring from spills of materials handled by the Company or that such damage has not already occurred. On occasion, substantial liabilities to third parties may be incurred. The Company may have the benefit of insurance maintained by it or the operator, however, the Company may become liable for damages against which it cannot adequately insure or against which it may elect not to insure because of high costs or other reasons. The Company’s clients are subject to similar environmental laws and regulations, as well as limits on emissions to the air and discharges into surface and sub-surface waters. While regulatory developments that may follow in subsequent years could have the effect of reducing industry activity, the Company cannot predict the nature of the restrictions that may be imposed. The Company may be required to increase operating expenses or capital expenditures in order to comply with any new restrictions or regulations.

 

Product Liability and Other Lawsuits

 

PyroGenesis is subject to a variety of potential product liabilities claims and other lawsuits related with its operations, including liabilities and expenses associated with product defects. The Company maintains product liability and other insurance coverage that management believes is generally in accordance with the market practice in its industry, but there can be no assurance that the Company will always be adequately insured against all such potential liabilities.

 

A malfunction or the inadequate design of the Company’s products could result in product liability or other tort claims. Accidents involving the Company’s products could lead to personal injury or physical damage. Any liability for damages resulting from malfunctions could be substantial and could materially adversely affect the Company’s business and results of operations. In addition, a well-publicized actual or perceived problem could adversely affect the market’s perception of the Company’s products. This could result in a decline in demand for the Company’s products, which would materially adversely affect the Company’s financial condition and results of operations.

 

The sale and use of products and processes developed by the Company may entail potential liability and possible warranty claims. The Company may be subject to personal injury claims for injuries resulting from use of its products. Although the Company maintains product liability insurance, there can be no assurance that such insurance will continue to be available on commercially reasonable terms or that the risks covered, or coverage amounts will be sufficient to cover all claims.

 

Information systems disruptions

 

The Company relies on various information technology systems to manage its operations. Over the last several years, the Company has implemented, and it continues to implement, modifications and upgrades to such systems, including changes to legacy systems, replacing legacy systems with successor systems with new functionality, and acquiring new systems with new functionality. These types of activities subject the Company to inherent costs and risks associated with replacing and changing these systems, including impairment of the Company’s ability to fulfill customer orders, potential disruption of its internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time and other risks and costs of delays or difficulties in transitioning to or integrating new systems into the Company’s current systems. These implementations, modifications, and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new technology systems may cause disruptions in the Company’s business operations and have a material adverse effect on its business, financial condition, or results of operations.

 

Security Breaches

 

As part of its day-to-day business, the Company stores its data and certain data about its customers in its global information technology system. Unauthorized access to the Company’s data, including any regarding its customers, could expose the Company to a risk of loss of this information, loss of business, litigation and possible liability. These security measures may be breached by intentional misconduct by computer hackers, as a result of third-party action, employee error, malfeasance or otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords or other information in order to gain access to the data of the Company’s customers or the Company’s data, including the Company’s intellectual property and other confidential business information, or the Company’s information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence by the Company’s customers, damage its reputation, disrupt its business, lead to legal liability and negatively impact its future sales.

 

Public Health Crisis

 

Public health crises, including local, regional, national or international outbreak of a contagious disease, could have an adverse effect on local economies, the global economy, and the markets in which the Company operates and markets its products, and may adversely impact the price and demand for the Company’s products and the ability of the Company to operate and market its products. Any such alterations or modifications could cause substantial interruption to the Company’s business, any of which could have a material adverse effect on the Company’s operations or financial results, and could include temporary closures of one or more of the Company’s or its partner’s offices or facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company’s facilities.

 

Subsequent to December 31, 2019, the global emergence of coronavirus (COVID-19) occurred. The global outbreak of COVID-19 has resulted in governments worldwide enacting emergency measures to protect against the spread of the virus. These measures, which include, among other things, limitations on travel, self-imposed quarantine periods and social distancing measures, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of any government and/or central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.

 

As of the date of this MD&A, the Company has successfully continued operations under COVID- 19 protocols. COVID-19 has not resulted in any significant/material delays in the development or testing of the Company’s products or any other material development projects. However, the

 

Company is currently experiencing minor delays and/or interruptions within the supply chain, and labour pool, which may affect the percentage of completion accounting basis of reporting financial results. The Company believes any disruptions will be manageable and does not believe such disruptions will affect the overall contracts with customers but may reflect delays in reporting results. At this stage the Company does not see a return to complete normalcy before Q2 2022. In conclusion, as a result of the COVID-19 pandemic and other factors, the Company and its suppliers have experienced increased, but not material, delays in delivery of their goods. As the pandemic continues, delays in contract procurement, project completion and other operating activities may occur.

 

The majority of PyroGenesis’ revenue is accounted for on a percentage of completion basis and is dependent on the timing of project initiation and execution, including project engineering, manufacturing, and testing. Any disruptions caused by the pandemic may delay the Company’s ability to complete its projects within the originally anticipated timeframe.

 

The Company’s production schedule has continued throughout COVID-19 on a modified employee schedule, with certain non-production employees working remotely. The Company has been able to operate largely unaffected by the COVID-19 pandemic. Notwithstanding the foregoing, if the Company or its vendors and suppliers are unable to continue operations or keep up with increasing demands as a result of COVID-19, customers may experience delays or interruptions in service or the delivery of products, which may be detrimental to the Company’s reputation, business, results of operations and financial position. The Company cautions that it is impossible to fully anticipate or quantify the effect and ultimate impact of the COVID-19 pandemic as the situation is rapidly evolving. The extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken by governments to contain it or treat its impact, including shelter in place directives, which, if extended, may impact the economies in which the Company now operates, or may in the future operate, key markets into which the Company sells products and delivers services, and markets through which the Company’s key suppliers source their products.

 

Litigation

 

The Company may from time to time become party to litigation in the ordinary course of business which could adversely affect its business. Should any litigation in which the Company becomes involved be determined against the Company, such a decision could adversely affect the Company’s ability to continue operating and the market price for the Common Shares and could use significant resources. Even if the Company is involved in litigation and wins, litigation can redirect significant Company resources. Litigation may also create a negative perception of the Company’s brand.

 

Trade Secrets May Be Difficult to Protect

 

The Company’s success depends upon the skills, knowledge and experience of its scientific and technical personnel, consultants and advisors, as well as contractors. Because the Company operates in a highly competitive industry, it relies in part on trade secrets to protect its proprietary products and processes. However, trade secrets are difficult to protect. The Company generally enters into confidentiality or non-disclosure agreements with its corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors. These agreements generally require that the receiving party keep confidential, and not disclose to third parties, confidential information developed by the receiving party or made known to the receiving party by the Company during the course of the receiving party’s relationship with the Company. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to the Company will be its exclusive property, and the Company enters into assignment agreements to perfect its rights.

 

These confidentiality, inventions, and assignment agreements, where in place, may be breached and may not effectively assign intellectual property rights to the Company. The Company’s trade secrets also could be independently discovered by competitors, in which case the Company would not be able to prevent the use of such trade secrets by its competitors. The enforcement of a claim alleging that a party illegally obtained and was using the Company’s trade secrets could be difficult, expensive and time consuming and the outcome could be unpredictable. The failure to obtain or maintain meaningful trade secret protection could adversely affect the Company’s competitive position.

 

Risks Related to Acquiring Companies

 

The Company may acquire other companies in the future and there are risks inherent in any such acquisition. Specifically, there could be unknown or undisclosed risks or liabilities of such companies for which the Company is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely affect the Company’s financial performance and results of operations. The Company could encounter additional transaction and integration related costs or other factors such as the failure to realize all of the benefits from such acquisitions. All of these factors could cause dilution to the Company’s earnings per share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of the Company’s securities. The Company may not be able to successfully integrate and combine the operations, personnel and technology infrastructure of any such acquired company with its existing operations. If integration is not managed successfully by the Company’s management, the Company may experience interruptions in its business activities, deterioration in its employee and customer relationships, increased costs of integration and harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company may experience difficulties in combining corporate cultures, maintaining employee morale and retaining key employees. The integration of any such acquired companies may also impose substantial demands on the management. There is no assurance that these acquisitions will be successfully integrated in a timely manner.

 

Global Economic Uncertainty

 

Demand for the Company’s products and services are influenced by general economic and consumer trends beyond the Company’s control. There can be no assurance that the Company’s business and corresponding financial performance will not be adversely affected by general economic or consumer trends. In particular, global economic conditions are still tight, and if such conditions continue, recur or worsen, there can be no assurance that they will not have a material adverse effect on the Company’s business, financial condition and results of operations.

 

Furthermore, such economic conditions have produced downward pressure on stock prices and on the availability of credit for financial institutions and corporations. If these levels of market disruption and volatility continue, the Company might experience reductions in business activity, increased funding costs and funding pressures, as applicable, a decrease in the market price of the Common Shares, a decrease in asset values, additional write-downs and impairment charges and lower profitability.

 

Inability to Renew Leases

 

The Company may be unable to renew or maintain its leases (commercial or real property) on commercially acceptable terms or at all. An inability to renew its leases, or a renewal of its leases with a rental rate higher than the prevailing rate under the applicable lease prior to expiration, may

 

have an adverse impact on the Company’s operations, including disruption of its operations or an increase in its cost of operations. In addition, in the event of non-renewal of any of the Company’s leases, the Company may be unable to locate suitable replacement properties for its facilities or it may experience delays in relocation that could lead to a disruption in its operations. Any disruption in the Company’s operations could have an adverse effect on its financial condition and results of operations.

 

Financial Reporting and Other Public Issuer Requirements

 

As a public company, the Company is subject to the reporting requirements of the Canadian Securities Administrators, or the CSA, and the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations of the listing standards of the TSX and NASDAQ and the U.S. Sarbanes-Oxley Act. The requirements of these laws, rules and regulations have increased and will continue to increase the Company’s legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on the Company’s personnel, systems, and resources. The Company is continuing to develop and refine its disclosure controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it will file with the CSA is recorded, processed, summarized, and reported within the time periods specified in CSA rules and forms and that information required to be disclosed in reports under applicable securities laws is accumulated and communicated to the Company’s principal executive and financial officers. The Company is also continuing to improve its internal control over financial reporting. In order to improve the effectiveness of its disclosure controls and procedures and internal control over financial reporting, the Company has expended, and anticipate that it will continue to expend, significant resources, including accounting-related costs and significant management oversight.

 

The Company has identified certain material weaknesses in its internal controls, as more fully explained in its management’s discussion and analysis for the year ended December 31, 2020 under “Disclosure Controls and Procedures”. Additional weaknesses in the Company’s disclosure controls and internal control over financial reporting may also be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm the Company’s results of operations or cause the Company to fail to meet its reporting obligations and may result in a restatement of the Company’s financial statements for prior periods. Any failure to improve and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of the Company’s internal control over financial reporting that the Company will eventually be required to include in its periodic reports that will be filed with the CSA. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in the Company’s reported financial and other information, which could have a negative effect on the trading price of the Common Shares. In addition, if the Company is unable to continue to meet these requirements, it may not be able to remain listed on the TSX and/or NASDAQ.

 

Influence of the Significant Shareholders

 

To the Company’s knowledge, no shareholder beneficially owns, or controls or directs, directly or indirectly, more than 10% of the voting rights attached to the Company’s outstanding voting securities, except for Mr. P. Peter Pascali, President and Chief Executive Officer of the Company, who holds or controls, directly or indirectly, 82,244,498 Common Shares, representing in aggregate 48.15% of the total voting rights attached to the outstanding Common Shares, and options to acquire an additional 3,850,000 Common Shares (increasing the total number of Common Shares held or controlled, directly or indirectly, by him to 86,094,498 Common Shares, or 49.30% or the Common Shares, on a fully diluted basis). In addition, from time to time, the Company may have other shareholders who have the ability to exercise significant influence over matters submitted to the shareholders of the Company for approval, whether subject to approval by a majority of the shareholders of the Company or subject to a class vote or special resolution.

 

Limited Control Over the Company’s Operations

 

Holders of the Common Shares have limited control over changes in the Company’s policies and operations, which increases the uncertainty and risks of an investment in the Company. The Board determines major policies, including policies regarding financing, growth, debt capitalization and any future dividends to shareholders of the Company. Generally, the Board may amend or revise these and other policies without a vote of the holders of the Common Shares. The Board’s broad discretion in setting policies and the limited ability of holders of the Common Shares to exert control over those policies increases the uncertainty and risks of an investment in the Company.

 

Change in Tax Laws

 

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to the Company. These enactments and events could require the Company to pay additional tax amounts on a prospective or retroactive basis, thereby substantially increasing the amount of taxes the Company is liable to pay in the relevant tax jurisdictions. Accordingly, these events could decrease the capital that the Company has available to operate its business. Any or all of these events could harm the business and financial performance of the Company.

 

Forward-Looking Information

 

The forward-looking information included in this MD&A relating to, among other things, the Company’s future results, performance, achievements, prospects, targets, intentions or opportunities or the markets in which it operates and the other statements listed is based on opinions, assumptions and estimates made by the Company’s management in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. The Company’s actual results in the future may vary significantly from the historical and estimated results and those variations may be material. The Company makes no representation that its actual results in the future will be the same, in whole or in part, as those included in this MD&A.

 

Credit Facilities

 

The Company’s credit facilities and financing agreements mature on various dates. There can be no assurance that such credit facilities or financing agreements will be renewed or refinanced, or if renewed or refinanced, that the renewal or refinancing will occur on equally favourable terms to the Company. The Company’s ability to continue operating may be adversely affected if the Company is not able to renew its credit facilities or arrange refinancing, or if such renewal or refinancing, as the case may be, occurs on terms materially less favorable to the Company than at present. The Company’s current credit facilities and financing agreements impose covenants and obligations on the Company. There is a risk that such loans may go into default if there is a breach in complying with such covenants and obligations, which could result in the lenders realizing on their security and causing our shareholders to lose some or all of their investment.

 

Risks Related to the Company’s Securities Potential Volatility of Common Share Price

 

The market price of the Common Shares could be subject to significant fluctuations. Some of the factors that may cause the market price of the Common Shares to fluctuate include:

 

(i)

the public’s reaction to the Company’s press releases, announcements and filings with regulatory authorities and those of its competitors;

 

(ii)

fluctuations in broader stock market prices and volumes;

 

(iii)

changes in market valuations of similar companies;

 

(iv)

investor perception of the Company, its prospects or the industry in general;

 

(v)

additions or departures of key personnel;

 

(vi)

commencement of or involvement in litigation;

 

(vii)

announcements by the Company or its competitors of strategic alliances, significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;

 

(viii)

variations in the Company’s quarterly results of operations or cash flows or those of other comparable companies;

 

(ix)

revenues and operating results failing to meet the expectations of securities analysts or investors in particular quarter;

 

(x)

changes in the Company’s pricing policies or the pricing policies of its competitors;

 

(xi)

future issuances and sales of Common Shares;

 

(xii)

sales of Common Shares by insiders of the Company;

 

(xiii)

third party disclosure of significant short positions;

 

(xiv)

demand for and trading volume of Common Shares;

 

(xv)

changes in securities analysts’ recommendations and their estimates of the Company’s financial performance;

 

(xvi)

short-term fluctuation in stock price caused by changes in general conditions in the domestic and worldwide economies or financial markets; and

 

(xvii)

the other risk factors described under this heading of the MD&A.

 

The realization of any of these risks and other factors beyond the Company’s control could cause the market price of the Common Shares to decline significantly.

 

In addition, broad market and industry factors may harm the market price of the Common Shares. Hence, the price of the Common Shares could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations could materially reduce the price of the Common Shares regardless of the Company’s operating performance. In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted against that company. If the Company were involved in any similar litigation, it could incur substantial costs, management’s attention and resources could be diverted and it could harm the Company’s business, operating results and financial condition.

 

Market Liquidity

 

The market price for the Common Shares could be subject to wide fluctuations. Factors such as the announcement of significant contracts, technological innovations, new commercial products, patents, a change in regulations, quarterly financial results, future sales of Common Shares by the Company or current shareholders, and many other factors could have considerable repercussions on the price of the Common Shares. In addition, the financial markets may experience significant price and value fluctuations that affect the market prices of equity securities of companies that sometimes are unrelated to the operating performance of these companies. Broad market fluctuations, as well as economic conditions generally may adversely affect the market price of the Common Shares.

 

Dividends to Shareholders

 

The Company does not anticipate paying cash dividends on the Common Shares in the foreseeable future. The Company currently intends to retain all future earnings to fund the development and growth of its business. Any payment of future dividends will be at the discretion of the directors and will depend on, among other things, the Company’s earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends, and other considerations that the directors deem relevant.

 

Impact of Future Sales by Existing Shareholders

 

If the Company’s shareholders sell substantial amounts of the Common Shares in the public market, the market price of the Common Shares could decrease. The perception among investors that these sales will occur could also produce this effect. All currently outstanding Common Shares other than those subject to lock-up agreements executed by certain existing shareholders will, subject to applicable securities laws, generally be immediately available for resale in the public markets.

 

Subject to compliance with applicable securities laws, the Company’s officers, directors and their affiliates may sell some or all of their Common Shares in the future. No prediction can be made as to the effect, if any, such future sales of Common Shares will have on the market price of the Common Shares prevailing from time to time. However, the future sale of a substantial number of Common Shares by the Company’s officers, directors and their affiliates, or the perception that such sales could occur, could materially adversely affect prevailing market prices for the Common Shares.

 

Additional Common Shares issuable upon the exercise of stock options may also be available for sale in the public market, which may also cause the market price of the Common Shares to fall. Accordingly, if substantial amounts of Common Shares are sold in the public market, the market price could fall.

 

Working Capital and Future Issuances

 

The Company may issue additional Common Shares in the future which may dilute a shareholder’s holdings in the Company. The Articles permit the issuance of an unlimited number of Common Shares, and shareholders of the Company will have no pre-emptive rights in connection with any further issuances The directors of the Company have the discretion to determine the provisions attaching to the Common Shares and the price and the terms of issue of further Common Shares.

 

Additional equity financing may be dilutive to holders of Common Shares. Debt financing may involve restrictions on the Company’s financing and operating activities. Debt financing may be convertible into other securities of the Company which may result in immediate or resulting dilution. In either case, additional financing may not be available to the Company on acceptable terms or at all. If the Company is unable to raise additional funds as needed, the scope of its operations or growth may be reduced and, as a result, the Company may be unable to fulfil its long-term goals. In this case, investors may lose all or part of their investment. Any default under such debt instruments could have a material adverse effect on the Company, its business or the results of operations.

 

Securities or Industry Analysts

 

The trading market for Common Shares could be influenced by the research and reports that industry and/or securities analysts may publish about the Company, its business, the market or competitors. If any of the analysts who may cover the Company’s business change their recommendation regarding the Common Shares adversely, or provide more favourable relative recommendations about its competitors, the share price would likely decline. If any analyst who may cover the Company’s business were to cease coverage or fail to regularly publish reports on the Company, it could lose visibility in the financial markets, which in turn could cause the share price or trading volume to decline.

 

 

Risks Related to the Company’s Status as a Foreign Private Issuer

 

Information Publicly Available to the Company’s U.S. shareholders

 

The Company is a foreign private issuer under applicable U.S. federal securities laws. As a result, the Company does not file the same reports that a U.S. domestic issuer would file with the U.S. Securities and Exchange Commission (the “SEC”), although the Company is required to file with or furnish to the SEC the continuous disclosure documents that the Company is required to file in Canada under Canadian Securities Laws, in certain respects the reporting obligations are less detailed and less frequent than those of U.S. domestic reporting companies. In addition, the Company’s officers, directors and principal shareholders are exempt from the reporting and short- swing profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, the Company’s shareholders may not know on as timely a basis when the Company’s officers, directors and principal shareholders purchase or sell Common Shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer.

 

As a foreign private issuer, the Company is exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. The Company is also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While the Company complies with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, the Company may not be required under the Exchange Act to file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act.

 

In addition, as a foreign private issuer, the Company has the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that the Company discloses the requirements it is not following and describe the Canadian practices it follows instead. The Company plans to rely on this exemption. As a result, the Company’s shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all U.S. corporate governance requirements.

 

Loss of Foreign Private Issuer Status in the Future

 

In order to maintain its status as a foreign private issuer, a majority of the Company's Common Shares must be either directly or indirectly owned by non-residents of the U.S. unless the Company also satisfies one of the additional requirements necessary to preserve this status. The Company may in the future lose its foreign private issuer status if a majority of the Common Shares are held in the United States and the Company fails to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to the Company under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs the Company incurs as a Canadian foreign private issuer eligible to use the multi-jurisdictional disclosure system ("MJDS"). If the Company is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, the Company may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers.

 

Inability for U.S. Investors to Enforce Certain Judgments

 

The Company is a corporation existing under the Canada Business Corporations Act. A number of the Company’s directors and officers are residents of Canada, and substantially all of the Company’s assets are located outside the United States. As a result, it may be difficult to effect service within the United States upon the Company or upon its directors and officers. Execution by United States courts of any judgment obtained against the Company or any of the Company’s directors or officers in United States courts may be limited to the assets of such companies or such persons, as the case may be, located in the United States. It may also be difficult for holders of securities who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon civil liability and the civil liability of the Company’s directors and executive officers under the United States federal securities laws. The Company has been advised that a judgment of a U.S. court predicated solely upon civil liability under U.S. federal securities laws or the securities or “blue sky” laws of any state within the United States, would likely be enforceable in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that would be recognized by a Canadian court for the same purposes. However, there may be doubt as to the enforceability in Canada against these non-U.S. entities or their controlling persons, directors and officers who are not residents of the United States, in original actions or in actions for enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal or state securities laws.

 

Risks Relating to the Company's Status as an "Emerging Growth Company" Under U.S. Securities Laws

 

The Company is an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and the Company will continue to qualify as an emerging growth company until the earliest to occur of: (a) the last day of the fiscal year during which the Company has total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the United States Securities Act of 1933, as amended; (c) the date on which the Company has, during the previous three year period, issued more than US$1,000,000,000 in non-convertible debt; and (d) the date on which the Company is deemed to be a "large accelerated filer", as defined in Rule 12b-2 under the Exchange Act. The Company will qualify as a large accelerated filer (and would cease to be an emerging growth company) at such time when on the last business day of its second fiscal quarter of such year the aggregate worldwide market value of its common equity held by non-affiliates will be US$700,000,000 or more.

 

For so long as the Company remains an emerging growth company, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the JOBS Act. The Company takes advantage of some, but not all, of the available exemptions available to emerging growth companies. The Company cannot predict whether investors will find the Common Shares less attractive because the Company relies upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the Common Share price may be more volatile. On the other hand, if the Company no longer qualifies as an emerging growth company, the Company would be required to divert additional management time and attention from the Company's development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact the Company's business, financial condition and results of operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

Exhibit 99.3

 

Form 52-109F2

Certification of Interim Filings Full Certificate

 

I, P. Peter Pascali, Chief Executive Officer of PyroGenesis Canada Inc., certify the following:

 

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of PyroGenesis Canada Inc. (the “issuer”) for the interim period ended September 30, 2021.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1

Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2

ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

 

(a)

a description of the material weakness;

 

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

 

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

 

 

 

5.3

Limitation on scope of design: N/A

 

6.

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

 

Date: November 15, 2021

 

P. Peter Pascali

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

2

Exhibit 99.4

 

Form 52-109F2

Certification of Interim Filings Full Certificate

 

I, Andre Mainella, Chief Financial Officer of PyroGenesis Canada Inc., certify the following:

 

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of PyroGenesis Canada Inc. (the “issuer”) for the interim period ended September 30, 2021.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other

certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

 

5.1

Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (2013 COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2

ICFR – material weakness relating to design: The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end of the interim period

 

(a)

a description of the material weakness;

 

(b)

the impact of the material weakness on the issuer’s financial reporting and its ICFR; and

 

(c)

the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness.

 

 

 

5.3

Limitation on scope of design: N/A

 

6.

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2021 and ended on September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

 

 

Date: November 15, 2021

 

Andre Mainella

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

2