Financial

Payments for Outstanding Major Receivables: The Company remains in continuous discussions with Radian Oil and Gas Services Company regarding the outstanding receivable of approximately US$8.0 million under the Company’s existing $25 million+ Drosrite™ contract. As previously announced, PyroGenesis agreed to a strategic extension of the payment plan, by the customer and its end-customer, geared to better align the pressures on the end-user’s operating cash flows created by increased business opportunities.

These discussions are positive, both in regard to the ongoing payment plan, and in regards to a potential new order of additional Drosrite™ systems, as the client’s cash flow situation and their new business opportunities move closer to resolution.

Innovation Grants: as mentioned in the Q1 outlook on May 15 and Q2 outlook on August 10, the Company has applied for grants tailored to technology innovation and/or carbon reduction and expects to have results regarding these applications. While the results are ultimately positive for the Company, the Company is still awaiting formal government announcement of the grants before it is legally allowed to indicate specifics. These grants are in the order of $1-2 million.

Business Line Developments: Mid Term (3 – 6 months)

1. Aluminum Remelting Furnaces:

As mentioned in the Q2 Outlook for Q3, the Company has been working on the development of aluminum remelting furnace solutions using plasma, for use by secondary aluminum producers or any manufacturer of aluminum components that uses recycled or scrap aluminum.

With gas-fired furnaces responsible for much of the scope 1 emissions of secondary aluminum production, aluminum companies have been searching for solutions that can help in the decarbonization efforts of aluminum remelting and cast houses.

The Company has two concepts: the retro-fitting of plasma torches in existing remelting and cast house furnaces that currently use other forms of heating, such as natural gas; and the manufacturing and sale of a PyroGenesis produced furnace based off the Company’s existing Drosrite metal recovery furnace design, which has been in use commercially for several years.

Also as mentioned in the Q2 Outlook, the Company has been working with a number of different companies over the past few years towards these goals. The results from the conclusion of recent major tests, conducted in conjunction with these companies, have been very positive, and negotiations are underway for next step deployments and sales, with announcements forthcoming. These negotiations continue, though we now anticipate this being a Q1 2024 initiative, if announced.

2. Fumed Silica Reactor (“FSR”) Project:

Fumed Silica (also known as Pyrogenic Silica) is a particle-size food-safe additive with a large surface area, used worldwide as a thickening agent in thousands of products such as milkshakes, adhesives, powdered foods, paints, inks, cosmetics, and beverages, to increase strength, viscosity, and flow control.

PyroGenesis, on behalf of its client HPQ Silicon Inc., developed the Fumed Silica Reactor, a plasma-based process that creates fumed silica from quartz in a single and eco-friendly step. By eliminating the use of harmful chemicals generated by conventional fumed silica production methods, the groundbreaking FSR approach, if successful, will help contribute to the repatriation of silica production to North America while lowering the CO2 emissions and carbon footprint of the process.

In a major step towards commercial-scale production, PyroGenesis has successfully deployed (news release dated Oct 3, 2023) the FSR on a laboratory scale to produce fumed silica. A subsequent independent analysis (news release dated Nov 9, 2023) of the material conducted by McGill University confirmed the commercial-quality and thickening efficiency of the fumed silica produced by the FSR.

Next step is to build and launch a pilot plant in Q2 2024 for pre-commercial sample batch production.

In addition to being the engineering services provider and developer of the forthcoming pilot plant, PyroGenesis owns a 10% royalty of client HPQ’s eventual fumed silica sales, with set minimums. This royalty stream, can, at any time, be converted by PyroGenesis into a 50% ownership in HPQ Silica Polvere Inc., the wholly owned subsidiary of HPQ Silicon that controls the fumed silica initiative and rights.

Please note that projects or potential projects previously announced that do not appear in the above summary updates should not be considered as at risk. Noteworthy developments can occur at any time based on project stages, and the information presented above is a reflection of information on hand. Projects not mentioned have simply not concluded or not passed milestones worthy of discussion.

Status as a Dual-Listed Publicly Traded Company

As part of the Company’s proactive risk management strategy, the Company announced in its Q2 news release (Press Release dated August 10, 2023) that it was evaluating the costs and benefits of maintaining a dual listing on both Nasdaq and the TSX. That ongoing evaluation entailed an analysis of several key factors, including (i) the financial costs associated with being on each exchange, such as insurance costs, regulatory compliance costs, legal fees, and accounting fees, (ii) the volume of trading on both exchanges, and (iii) the regulatory and compliance requirements of each exchange.

As stated at the time, costs to PyroGenesis associated to its dual listing in the US are considerable, with incremental US-specific fees related to directors & officer insurance, legal, listing and filings, and accounting, of more than $2.2 million, which would require approximately $6-8 million in revenues.

Post quarter end, on October 27, 2023, after careful consideration, the Board of Director’s decided and the Company announced it would be voluntarily delisting from the Nasdaq exchange. This decision would not affect its listing in Canada, and the Company would remain listed on the Toronto Stock exchange. In addition, the Company has taken steps to have its Shares quoted on the OTCQX Best Market.

The Company has initiated the Nasdaq delisting process and has filed a Form 25 with the SEC for the removal of its Shares from Nasdaq’s listing. This Form is anticipated to become effective 10 days following its filling, resulting in the delisting of the Company’s Shares from Nasdaq on or about November 16, 2023.

Administrative Proceedings

As previously announced by the Company (see Press Release dated August 31, 2023), in August 2023, the Autorité des marchés financiers (the “AMF”) initiated administrative proceedings against Mr. P. Peter Pascali, President and CEO, Mr. Alan Curleigh, Chair of the Board of Directors, and the Company with the Tribunal administratif des marchés financiers. The allegations largely relate to a series of connected transactions that occurred in 2018. The administrative penalty sought by the AMF and attributable to the Company is $550,000. The Company remains of the view that the AMF’s allegations are without merit and, like Mr. Pascali and Mr. Curleigh, the Company looks forward to having the opportunity to defend itself, and be vindicated, before the tribunal.

Financial Summary

1. Revenues

PyroGenesis recorded revenue of $3.7 million in the third quarter of 2023 (“Q3, 2023”), representing a decrease of $2.0 million compared with $5.7 million recorded in the third quarter of 2022 (“Q3, 2022”). Revenue for the nine-month period ended September 30, 2023, was $9.3 million, a decrease of $6.4 million over revenue of $15.7 million compared to the same period in 2022.

Revenues recorded in Q3 2023 were generated primarily from:

• PUREVAP™ related sales of $415,415 (2022 Q3 - $4,243,138)
• DROSRITE™ related sales of $118,745 (2022 Q3 - $71,431)
• Development and support services related to systems supplied to the US Navy $1,003,592 (2022 Q3 - $420,809)
• Torch related sales of $950,290 (2022 Q3 - $684,997)
• Refrigerant destruction (SPARC™) related sales of $104,784 (2022 Q3 – $0)
• Biogas upgrading & pollution controls of $768,396 (2022 Q3 - $89,698)
• Other sales and services $324,503 (2022 Q3 - $147,710)
  

Q3, 2023 revenues decreased by $2.0 million in comparison to Q3, 2022, mainly as a result of:

• PUREVAP™ related sales decreased by $3.9 million due to the completion of the project, with the Company announcing the successful silicon “pour” validating all critical milestones and with this achievement, the stage is set for discussions in transitioning to commercial production and due to the one-time $3.6 million sale of IP, in 2022, which was not repeated in the current quarter,
• Development and support related to systems supplied to the U.S. Navy related sales increased by $0.6 million due to the completion of several milestones and shipment of equipment,
• Torch-related products and services increased by $0.3 million, due to the three-month onsite support being extended by an additional three months and increased need of consumables and spare parts during operation,
• Biogas upgrading and pollution controls related sales increased by $0.7 million, specifically due to the project advancement of our regenerative thermal oxidizer system,

During the nine-month period ended September 30, 2023, revenues decreased by $6.4 million, mainly as a result of: