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” section 2).

6.  Finance Costs (income), net

Finance costs for Q3 2023 represent an expense of $0.03 million, representing an increase year-over-year of approximately $0.2 million. The increase in finance expenses in Q3 2023, is primarily due to the interest and accretion related to the convertible debenture offset by the Interest accretion on and revaluation of balance due on business combination.

During the nine-month period ended September 30, 2023, the finance costs represent an income of $1.6 million as compared with an expense of $0.5 million for the 2022 comparable period, representing a favourable variation of $2.2 million year-over-year. The decrease in finance expenses is primarily due to the revaluation of balance due on business combination due to negotiations between the Company’s Italian subsidiary and a customer who both agreed on the final acceptance of a contract, prior to final completion and the Company determined that a milestone related to the business combination would not be achieved. As a result, the contract did not attain the pre-determined milestone in connection with the balance due on business combination, and reversals of the liabilities were recorded.

7.  Strategic Investments

During the three-months ended September 30, 2023, the adjustment to fair market value of strategic investments for Q3, 2023 resulted in a gain of $1.2 million compared to a loss in the amount of $1.8 million in Q3, 2022, a favorable variation of $3.0 million.

During the nine-months ended September 30, 2023, the adjustment to fair market value of strategic investments resulted in a gain of $0.2 million compared to a loss in the amount of $8.1 million for the same period in the prior year, a favorable variation of $8.3 million. The increase in gain for the three and nine-month periods ended September 30, 2023, is attributable to the variation of the market value of the common shares owned by the Company of HPQ Silicon Inc.

8. Comprehensive Loss

The comprehensive loss for Q3, 2023 of $6.3 million compared to a loss of $4.1 million, in Q3, 2022, represents a variation of $2.2 million, and is primarily attributable to the factors described above, which have been summarized as follows:

• a decrease in product and service-related revenue of $2.0 million arising in Q3, 2023,
• an increase in cost of sales and services of $1.0 million, primarily due to a decrease in employee compensation, subcontracting, and manufacturing overhead and other, offset by the increase in direct materials, foreign exchange charge on materials, and amortization of intangible assets,
• an increase in SG&A expenses of $1.7 million arising in Q3, 2023 primarily due to an increase in the allowance for credit loss of $2.8 million, offset by decreases in professional fees, other expenses, and foreign exchange charge on materials,
• a decrease in share-based expenses of $0.3 million,
• an increase in R&D expenses of $0.4 million primarily due to an increase in employee compensation, materials and equipment, and other expenses,
• an increase in finance costs of $0.03 million in Q3, 2023 primarily due to the interest and accretion on the convertible debenture and royalty receivable,
• a favourable variation in the fair market value of strategic investments of $3.0 million.
  

The comprehensive loss for the nine-month period ended September 30, 2023, of $18.7 million compared to a loss of $21.2 million, for the same period in the prior year, represents a variation of $2.4 million, and is primarily attributable to the factors described above, which have been summarized as follows:

• a decrease in product and service-related revenue of $6.4 million,
• a decrease in cost of sales and services of $1.5 million, primarily due to a decrease in employee compensation, subcontracting, direct materials, manufacturing overhead and other, and foreign exchange charge on materials, offset by the increase in investment tax credits, and amortization of intangible assets,
• an increase in SG&A expenses of $3.0 million was primarily due to an increase in employee compensation, travel, depreciation in property and equipment, depreciation of right-of-use assets, foreign exchange charge on materials, and the allowance for credit loss of $4.8 million which is offset by a decrease in professional fees, government grants, office and general, and other expenses,
• a decrease in share-based expenses of $1.8 million
• an increase in R&D expenses of $0.2 million primarily due to an increase in employee compensation, and other expenses and a decrease in subcontracting, materials, and equipment,
• a decrease in net finance costs (income) of $1.7 million is primarily due to the revaluation of balance due on business combination,
• a favourable variation in the fair market value of strategic investments of $8.3 million,
  

9. Liquidity and Capital Resources

As at September 30, 2023, the Company had cash of $0.9 million, included in the net working capital deficiency of $6.4 million. Certain working capital items such as billings in excess of costs and profits on uncompleted contracts do not represent a direct outflow of cash. The Company expects that with its cash, liquidity position, the proceeds available from the strategic investment and access to capital markets it will be able to finance its operations for the foreseeable future.

The Company’s term loan balance at September 30, 2023 was $396,675, and varied only slightly since December 31, 2022. The increase from January 1, 2022, to December 31, 2022, was mainly attributable to the additional proceeds received on the Economic Development Agency of Canada loan, which is interest free and will remain so, until the balance is paid over the 60-month period ending March 2029. During the three-month period ended September 30, 2023, the Company issued convertible debenture units for gross proceeds of $3,030,000, and bear interest at 10%. The average interest expense on the other term loans and convertible debenture is approximately 10%. The Company does not expect changes to the structure of term loans in the next twelve-month period. The Company maintained one credit facilities which bears interest at a variable rate of prime plus 1%, therefore 8.20% at September 30, 2023. The Company continued to reimburse a portion of the existing credit facility during Q3 2023.

About PyroGenesis Canada Inc.

PyroGenesis Canada Inc., a high-tech company, is a proud leader in the design, development, manufacture and commercialization of advanced plasma processes and sustainable solutions which reduce greenhouse gases (GHG) and are economically attractive alternatives to conventional “dirty” processes. PyroGenesis has created proprietary, patented and advanced plasma technologies that are being vetted and adopted by industry leaders in four massive markets: iron ore pelletization, aluminum, waste management, and additive manufacturing. With a team of experienced engineers, scientists and technicians working out of its Montreal office, and its 3,800 m2 and 2,940 m2 manufacturing facilities, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. The operations of PyroGenesis are ISO 9001:2015 and AS9100D certified, having been ISO certified since 1997. For more information, please visit: www.pyrogenesis.com.

Cautionary and Forward-Looking Statements

This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws, including, without limitation, statements regarding anticipated use of the net proceeds of the Private Placement. In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management’s current beliefs, expectations, estimates and projections regarding future events and operating performance.