PyroGenesis Canada : Q1-2024 Condensed Interim Financial Statements

PyroGenesis Canada Inc.

Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the three-month period ended March 31, 2024 and 2023

(Unaudited)

The accompanying unaudited condensed consolidated financial statements of PyroGenesis Canada Inc. have been prepared by and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these unaudited condensed consolidated interim financial statements for the period ended March 31, 2024.

March 31, 2024.

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited)

(In Canadian dollars)

	Notes	March 31, 2024		December 31, 2023
		$	$
Assets
Current assets
Cash		169,928	1,802,616
Accounts receivable	6	9,514,930	9,265,665
Costs and profits in excess of billings on uncompleted contracts	7	647,589	648,813
Inventory	15	2,104,113	1,905,313
Investment tax credits receivable	8	366,662	352,530
Income taxes receivable		16,250	15,900
Current portion of deposits		625,562	638,739
Current portion of royalties receivable		691,271	684,651
Contract assets		599,186	615,527
Prepaid expenses		1,724,323		873,671
Total current assets		16,459,814	16,803,425
Non-current assets
Deposits		99,238	46,045
Strategic investments	9	735,146	2,551,427
Property and equipment		2,707,066	2,855,226
Right-of-use assets		4,019,442	4,200,635
Royalties receivable		544,782	529,017
Intangible assets		1,443,809		1,449,576
Total assets		26,009,297	28,435,351
Liabilities
Current liabilities
Bank indebtedness		179,365	181,267
Accounts payable and accrued liabilities	10	11,334,639	9,345,134
Billings in excess of costs and profits on uncompleted contracts	11	10,786,440	10,992,126
Current portion of term loans	12	90,000	117,500
Current portion of lease liabilities		2,769,046	524,802
Current portion of balance due on business combination		1,704,676	1,726,510
Current portion of convertible debentures		960,168		923,805
Total current liabilities		27,824,334	23,811,144
Non-current liabilities
Lease liabilities		2,172,813	4,582,090
Term loans	12	260,822	286,579
Convertible debentures		1,510,999	1,636,416
Convertible loan		995,193		947,699
Total liabilities		32,764,161	31,263,928
Shareholders' equity	13
Common shares		90,670,080	90,670,080
Warrants		421,016	421,016
Contributed surplus		28,066,224	27,586,626
Equity portion of the convertible debentures		217,663	217,663
Equity portion of the convertible loan		176,349	176,349
Accumulated other comprehensive income (loss)		(18,321)	(11,279)
Deficit		(126,287,875)		(121,889,032)
Total shareholders' equity (deficiency)		(6,754,864)		(2,828,577)
Total liabilities and shareholders' equity (deficiency)		26,009,297		28,435,351

The accompanying notes form an integral part of the condensed consolidated interim financial statements. Contingent liabilities, Note 20

Q1 2024

PyroGenesis Canada Inc.

1

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Unaudited)

(In Canadian dollars)

		Three months ended March 31,
	Notes	2024		2023
		$		$
Revenues	5	3,486,397	2,591,622
Cost of sales and services	15	2,730,052		2,065,049
Gross profit		756,345	526,573
Expenses
Selling, general and administrative	15	4,538,478	7,557,108
Research and development, net		233,088		323,216
		4,771,566		7,880,324
Net loss from operations		(4,015,221)	(7,353,751)
Changes in fair value of strategic investments	9	(188,318)	300,891
Finance income (costs), net	16	(195,304)		914,253
Loss before income taxes		(4,398,843)		(6,138,607)
Net loss		(4,398,843)	(6,138,607)
Other comprehensive loss
Items that will be reclassified subsequently to profit or loss
Foreign currency translation gain (loss) on investments in foreign
operations
		(7,042)		(19,013)
Comprehensive loss		(4,405,885)	(6,157,620)
Loss per share
Basic	17	(0.02)	(0.03)
Diluted	17	(0.02)	(0.03)

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

Q1 2024

PyroGenesis Canada Inc.

2

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (Deficiency)

(Unaudited)

(In Canadian dollars)

							Accumulated
		Number of				Equity portion	other
		common	Common		Contributed	of convertible	comprehensive
	Notes	shares	shares	Warrants	surplus	debentures and loan	loss	Deficit	Total
			$	$	$	$	$	$	$
December 31, 2023		178,880,395	90,670,080	421,016	27,586,626	394,012	(11,279)	(121,889,032)	(2,828,577)
Share-based
payments	13	-	-	-	479,598	-	-	-	479,598
Other
comprehensive
loss for the period		-	-	-	-	-	(7,042)	-	(7,042)
Net loss		-	-	-	-	-	-	(4,398,843)	(4,398,843)
March 31, 2024		178,880,395	90,670,080	421,016	28,066,224	394,012	(18,321)	(126,287,875)	(6,754,864)
December 31, 2022		173,580,395	85,483,223	223,200	24,546,960	-	402	(93,384,858)	16,868,927
Private placement	13	5,000,000	4,960,483	-	-	-	-	-	4,960,483
Share-based
payments	13	-	-	-	988,162	-	-	-	988,162
Other comprehensive
loss for the period		-	-	-	-	-	(19,013)	-	(19,013)
Net loss		-	-	-	-	-	-	(6,138,607)	(6,138,607)
March 31, 2023		178,580,395	90,443,706	223,200	25,535,122	-	(18,611)	(99,523,465)	16,659,952

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

Q1 2024

PyroGenesis Canada Inc.

3

PyroGenesis Canada Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

(In Canadian dollars)

	Notes	Three months ended March 31,
		2024	2023
		$	$
Cash flows provided by (used in)
Operating activities
Net loss		(4,398,843)	(6,138,607)
Adjustments for:
Share-based payments	15	479,598	988,162
Depreciation of property and equipment	15	105,941	160,363
Depreciation of right-of-use assets	15	181,193	156,362
Amortization and write-off of intangible assets	15	86,990	221,752
Amortization of contract assets		16,341	25,598
Net finance costs (income)	16	195,304	(914,253)
Change in fair value of investments		188,318	(300,891)
Unrealized foreign exchange		(24,811)	(17,814)
		(3,169,969)	(5,819,328)
Net change to working capital items	14	406,697	(711,303)
		(2,763,272)	(6,530,631)
Investing activities

Additions to property and equipment

Additions to intangible assets

Disposal of property and equipment

Disposal of strategic investments

Financing activities

Increase (decrease) in bank indebtedness

Interest paid

Repayment of term loans

Repayment of lease liabilities

Repayment of balance due on business combination

Repayment of convertible debentures

Proceeds from private placement

Effect of exchange rate changes on cash denominated in foreign currencies

Net decrease in cash

Cash - beginning of period

Cash - end of period

Supplemental cash flow disclosure

Non-cash transactions:

• (45,299)
  (81,223)(36,025)
  42,219-

1,627,963332,020

1,588,959250,696

(1,902)95,351

(56,859)(127,972)

(50,000)(8,448)

(165,033)(97,939)

• (100,000)

(202,000)-

• 4,960,483
  (475,794) 4,721,475

17,419(168)

(1,632,688) (1,558,628)

1,802,6163,445,649

169,9281,887,021

Interest accretion on, and revaluation of balance due on business combination	(21,833)	(1,037,417)
Accretion interest on royalties receivable	(22,385)	(41,485)
Accretion on term loan	(3,257)	8,266
Accretion interest on convertible debenture	38,037	-
Accretion interest on convertible loan	39,160	-
The accompanying notes form an integral part of the condensed consolidated interim financial statements

Q1 2024

PyroGenesis Canada Inc.

4

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the periods ended March 31, 2024 and 2023

(Unaudited)

(In Canadian dollars)

1. Nature of operations

PyroGenesis Canada Inc. and its subsidiaries (collectively, the "Company"), incorporated under the laws of the Canada Business Corporations Act, was formed on July 11, 2011. The Company owns patents of advanced waste treatment systems technology and designs, develops, manufactures, and commercialises advanced plasma processes and sustainable solutions to reduce greenhouse gases. The Company is domiciled at 1744 William Street, Suite 200, Montreal, Quebec. The Company is publicly traded on the TSX Exchange under the Symbol "PYR", on the OTCQX Best Market under the symbol "PYRGF" and on the Frankfurt Stock Exchange (FSX) under the symbol "8PY ". Prior to November 2023, the Company's common shares were traded on NASDAQ, before being voluntarily delisted.

2. Going concern

These condensed consolidated interim financial statements have been prepared on the going concern basis, which presumes that the Company will be able to continue its operations for the foreseeable and will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

The Company is subject to certain risks and uncertainty associated with the achievement of profitable operations such as the successful signing and delivery of contracts and access to adequate financing.

The Company has incurred, in the last years, operating losses and negative cash flows from operations, and as a result, the Company has an accumulated deficit of $126,288,466 as at March 31, 2024 ($121,889,032 as at December 31, 2023). Furthermore, there have been unexpected delays in the collection of certain accounts receivable from contracts closed in a prior year. This has resulted in a shortfall in cash flows from operating activities that would be used in funding the Company's operations.

As at March 31, 2024, the Company has working capital deficiency of $11,364,520 ($7,007,719 as at December 31, 2023) including cash of $169,928 ($1,802,616 as at December 31, 2023). The working capital is net of an allowance for credit losses amounting to $9,660,250 ($9,278,135 as at December 31, 2023) as further described in Notes 6 and 7. The Company's business plan is dependent upon the successful completion of contracts and also the receipt of payments from certain contracts closed in a prior year and expects these payments to be made during fiscal 2024, as well as the achievement of profitable operations through the signing, completion and delivery of additional contracts or a reduction in certain operating expenses. In the absence of this, the Company is dependent upon raising additional funds to finance operations within and beyond the next twelve months. The Company has been successful in securing financing in the past and has relied upon external financing to fund its operations, primarily through the issuance of equity, debt and convertible debentures. The Company completed a private placement in October 2022 for an amount of $1,318,980 and also completed another private placement in March 2023 for net proceeds $4,960,483. In addition, in July 2023, the Company also completed a brokered private placement of convertible debenture units for gross proceeds of $3,030,000 and in December 2023, the Company also completed a brokered private placement of convertible debenture units for gross proceeds of $1,250,000. While the Company has been successful in securing financing, raising additional funds is dependent on a number of factors, some of which are outside the Company's control, and therefore there is no assurance that it will be able to do so in the future or that these sources will be available to the Company or that they will be available on terms which are acceptable to the Company. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue operating as a going concern.

The condensed consolidated interim financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and to classifications of the assets and liabilities that might be necessary should the Company be unable to achieve its plan and continue in business. If the going concern assumption were not appropriate, adjustments, which could be material, would be necessary to the carrying value of assets and liabilities, the reported expenses, and the classification of items on the condensed consolidated interim statement of financial position.

Q1 2024

PyroGenesis Canada Inc.

5

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the periods ended March 31, 2024 and 2023

(Unaudited)

(In Canadian dollars)

3. Basis of preparation

(a) Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards ("IAS") 34 Interim Financial Statements, as issued by the International Accounting Standards Board ("IASB"). These condensed consolidated interim financial statements do not include all of the necessary information required for full annual financial statements in accordance with International Financial Reporting Standards ("IFRS") and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2023.

These financial statements were approved and authorized for issuance by the Board of Directors on May 14, 2024.

(b) Functional and presentation currency

These condensed consolidated interim financial statements are presented in Canadian dollars, which is the functional currency of PyroGenesis, and Pyro Green-Gas Inc. The functional currency of Airscience Italia SRL is the euro whereas the functional currency of Airscience Technologies Private Limited is the Indian rupee, and Drosrite International LLC's functional currency is the US dollar.

(c) Basis of measurement

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

1. strategic investments which are accounted for at fair value,
2. stock-basedpayment arrangements, which are measured at fair value on the grant date pursuant to IFRS 2, Share- based Payment; and
3. lease liabilities, which are initially measured at the present value of minimum lease payments

(d) Basis of consolidation

For financial reporting purposes, subsidiaries are defined as entities controlled by the Company. The Company controls an entity when it has power over the investee; it is exposed to, or has rights to, variable returns from its involvement with the entity; and it has the ability to affect those returns through its power over the entity.

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

These condensed consolidated interim financial statements include the accounts of PyroGenesis and its subsidiaries, Drosrite International LLC and Pyro Green-Gas Inc. and its subsidiaries. Drosrite International LLC is owned by a member of the Company's key management personnel and close member of the Chief Executive Officer ("CEO") and controlling shareholder's family and is deemed to be controlled by the Company. All transactions and balances between the Company and its subsidiaries have been eliminated upon consolidation.

The accounting policies disclosed in the December 31, 2023, year-end consolidated financial statements have been applied consistently in the preparation of these condensed consolidated interim financial statements. Finance income (costs) and changes in fair value of strategic investments are excluded from the loss from operations in the consolidated statements of comprehensive loss.

4. Significant accounting judgments, estimates and assumptions

The significant judgments, estimates and assumptions applied by the Company in these condensed consolidated interim financial statements are the same as those applied by the Company in its audited annual consolidated financial statements as at and for the year ended December 31, 2023.

Q1 2024

PyroGenesis Canada Inc.

6

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the periods ended March 31, 2024 and 2023

(Unaudited)

(In Canadian dollars)

5. Revenues

The following is a summary of the Company's revenues from contracts by product line:

	March 31, 2024	March 31, 2023
	$	$
Revenue from contracts with customers by product line:
High purity metallurgical grade silicon & solar grade silicon from quartz
(PUREVAP™)	394,444	527,600
Aluminium and zinc dross recovery (DROSRITE™)	663,185	90,226
Development and support related to systems supplied to the U.S. Navy	1,044,434	352,103
Torch-related sales	877,048	1,170,748
Refrigerant destruction (SPARC™)	102,718	67,847
Biogas upgrading and pollution controls	32,049	32,895
Other sales and services	372,519	350,203
	3,486,397	2,591,622

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

	March 31, 2024	March 31, 2023
	$	$
Revenue from contracts with customers:
Sales of goods under long-term contracts recognized over time	2,384,357	2,549,220
Sales of goods at a point of time	1,102,040	42,402
	3,486,397	2,591,622

See Note 22 for sales by geographic area.

Transaction price allocated to remaining performance obligations

As at March 31, 2024, revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the reporting date is $27,552,261 ($27,527,124 as at December 31, 2023). Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over the next 3 years.

6. Accounts receivable

Details of accounts receivable based on past due terms were as follows:

March 31, 2024 December 31, 2023

	$	$
Current	763,130	444,300
1 - 30 days	475,474	745,187
31 - 60 days	120,081	28,246
61 - 90 days	810,278	142,339
Greater than 90 days	15,007,019	14,738,199
Holdback receivable	567,071	706,667
Total trade accounts receivable	17,743,053	16,804,938
Allowance for expected credit loss	(9,018,000)	(8,597,635)
Other receivables	275,940	842,715
Sales tax receivable	513,937	215,647
	9,514,930	9,265,665
Q1 2024	PyroGenesis Canada Inc.	7

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the periods ended March 31, 2024 and 2023

(Unaudited)

(In Canadian dollars)

As at March 31, 2024 the allowance for expected credit loss on trade accounts receivable is $9,018,000 ($8,597,635 as at December 31, 2023), whereby $420,365 was recognized during the period ($3,904,000 during fiscal 2023). The portion recognized at March 31, 2024, includes $8,081,000 attributable to one specific customer, whereby the carrying amount has been reduced from $11,531,000 to $3,450,000. The carrying value of all other trade receivables was reduced from $6,212,053 to $5,275,053. On the basis of the Company's expected credit loss policy, the allowance was determined generally by applying a loss rate of 1% on balances 1-30 days past the invoice date, 2% for 31-60 days, 3% for 61-90 days and a minimum of 10% for those beyond 90 days. Specific consideration was applied for situations where the receivable is a holdback on a contract, and also for customers that have exceeded normal payment terms.

The closing balance of the trade receivables credit loss allowance as at March 31, 2024, reconciles with the trade receivables credit loss allowance opening balance as follows:

	$
Loss allowance at December 31, 2022	4,693,283
Loss recognized during the year	3,904,000
Foreign exchange	352
Loss allowance at December 31, 2023	8,597,635
Loss recognized during the period	420,365
Loss allowance at March 31, 2024	9,018,000

7. Costs and profits in excess of billings on uncompleted contracts

As at March 31, 2024, the Company had eleven contracts with total billings of $19,444,473 which were less than total costs incurred and had recognized cumulative revenue of $20,734,312 since those projects began. This compares with thirteen contracts with total billings of $18,850,084 which were less than total costs incurred and had recognized cumulative revenue of $20,179,397 as at December 31, 2023.

The net amount of $647,589 as at March 31, 2024 includes an expected credit loss allowance of $642,250 ($680,500 as at December 31, 2023). On the basis of the Company's expected credit loss policy, the allowance was determined generally by applying a loss rate of 2% on all balances, and adjusting for specific situations, such as past due customers, whereby the loss rate varied from 25% to 50%, or greater, if needed.

Changes in costs and profits in excess of billings on uncompleted contracts during the period are explained by $285,315 ($1,041,422 as at December 31, 2023) recognized at the beginning of the year being transferred to accounts receivable, $322,341 ($989,438 as at December 31, 2023) resulting from changes in the measure of progress and the variation in expected credit loss allowance of $38,250 ($350,500 as at December 31, 2023).

8. Investment tax credits

An amount recognized in the three-month period ended March 31, 2024, included $14,132 ($183,097 as at December 31, 2023) of investment tax credits earned during the period, $4,395 ($102,880 as at December 31, 2023) of the investment tax credits recognized during the period was recorded against cost of sales and services, $9,737 ($50,217 as at December 31, 2023) against research and development expenses and $Nil ($30,000 as at December 31, 2023) against selling general and administrative expenses.

Eligible scientific research and experimental development ("SR&ED") expenses during the period amounted to $959,496 ($3,700,664 as at December 31, 2023) less investment tax credits of $14,132 ($183,097 as at December 31, 2023), less government grants of $72,684 ($415,934 as at December 31, 2023) totalling $872,679 ($3,101,633 as at December 31, 2023).

Q1 2024

PyroGenesis Canada Inc.

8

PyroGenesis Canada Inc.

Notes to the Condensed Consolidated Interim Financial Statements

As at March 31, 2024 and for the periods ended March 31, 2024 and 2023

(Unaudited)

(In Canadian dollars)

9. Strategic investments
					March 31, 2024	December 31,
					$		$
Beauce Gold Fields ("BGF") shares - level 1			35,903		35,903
HPQ Silicon Inc. ("HPQ") shares - level 1				699,243		2,515,524
HPQ warrants - level 3					-		-
					735,146		2,551,427
The change in the strategic investments is summarized as follows:
	("BGF") shares - level 1	("HPQ") shares - level 1	HPQ warrants - level 3	Total
	Quantity	$	Quantity	$	Quantity	$	$
Balance, December 31, 2022	1,025,794	56,419	22,105,100	5,415,749	16,394,600	770,466	6,242,634
Exercise of warrants	-	-	5,594,600	651,406	(5,594,600)	(91,946)	559,460
Disposed	-	-	(16,265,500)	(3,938,452)	-	-	(3,938,452)
Expired(1)	-	-	-	-	(4,000,000)	-	-
Change in the fair value	-	(20,516)	-	386,821	-	(678,520)	(312,215)
Balance, December 31, 2023	1,025,794	35,903	11,434,200	2,515,524	6,800,000	-	2,551,427
Disposed	-	-	(7,654,500)	(1,627,963)	-	-	(1,627,963)
Change in the fair value	-	-	-	(188,318)	-	-	(188,318)
Balance, March 31, 2024	1,025,794	35,903	3,779,700	699,243	6,800,000	-	735,146

Subsequent to March 31, 2024, the Company sold 3,779,700 shares of HPQ to the Company's president and CEO for proceeds of $661,448, representing a share price of $0.175.

At March 31, 2024 and December 31, 2023, the fair value of the HPQ warrants was measured using the Black-Scholes option pricing model using the following assumptions:

		March 31, 2024	December 31, 2023
Number of warrants	6,800,000	6,800,000
Date of issuance		April 20, 2022	April 20, 2022
Exercise price ($)	0.60	0.60
Assumptions under the Back-Scholes model:
Fair value of the shares ($)	0.19	0.22
Risk free interest rate (%)	4.16	3.94
Expected volatility (%)	89.94	58.02
Expected dividend yield		-	-
Contractual remaining life (in months)	1	4

As at March 31, 2024, no gain from initial recognition of the warrants (No gain at December 31, 2023) has been deferred off balance sheet until realized.

Q1 2024

PyroGenesis Canada Inc.

9