During the three months ended December 31, 2022, the Company incurred $0.7 million of R&D expenses, net of government grants, on internal projects in Q4 2022, a decrease of 36% compared to $1.1 million for the same period in the prior year.
The Company incurred $2.3 million of R&D expenses, net of government grants, on internal projects in 2022, a decrease of 9% compared to $2.5 million in 2021. The decrease in 2022 is due to a decrease in R&D activities, the type of contracts being executed, the nature of the project activity, and the decrease in government grants of $Nil compared to ($0.1 million) reported in 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
During the three months ended December 31, 2022, financial expenses decreased to $0.03 million compared to $0.3 million for the same period in the prior year. The decrease is due to the various decreases in interest on term loans, penalties, and other interest expenses, not repeated in 2022.
Financial expenses for 2022 totaled $0.6 million as compared with $0.4 million for 2021, representing an increase of $0.1 million year-over-year. The increase in finance costs, is primarily attributable to the increase in accretion on the balance due on business combination and interest on the increased lease liability balance.
Strategic Investments
During the three months ended December 31, 2022, the adjustment to the fair market value of strategic investments resulted in a loss of $0.2 million compared to $11.0 million for the same period in the prior year. The 98% increase is primarily due to the closing share price of the HPQ common shares, used in determining the fair value.
The adjustment to the fair market value of strategic investments in 2022 resulted in a loss of $8.3 million compared to a loss in the amount of $21.4 million in 2021, representing a variation of $13.1 million. The variation is primarily attributable to closing share price of the HPQ common shares, used in determining the fair value of common shares and warrants owned by the Company of HPQ Silicon Inc.
Comprehensive (Loss) Income
The comprehensive loss for 2022 of $32.2 million compared to a loss of $38.4 million, in 2021, represents a decrease of 16% year-over-year. The variation of $6.3 million in the comprehensive loss in 2022 is primarily attributable to the factors described above, which have been summarized as follows, and includes the profit and loss items of Pyro Green-Gas since the acquisition date:
| (i) | a decrease in product and service-related revenue of $12.1 million arising in 2022,
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| (ii) | a decrease in cost of sales and services of $7.8 million, primarily due to a decrease in direct materials, and investment tax credits,
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| (iii) | an increase in SG&A expenses of $1.8 million arising in 2022 primarily due to an increase in professional fees, office & general, travel, depreciation of property and equipment, depreciation of ROU assets, government grants, other expenses, and the allowance for credit loss of $4.5 million,
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| (iv) | a decrease in R&D expenses of $0.2 million primarily related to the decrease in government grants and an increase in investment tax credits,
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| (v) | a decrease in share-based expenses of $4.2 million,
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| (vi) | a decrease in changes in fair market value of strategic investments and net finance costs of $12.9 million,
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| (vii) | a decrease in income taxes of $815,944.
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In Q4 2022, the comprehensive loss is $11.6 million favorable, compared to Q4 2021, due to the reasons detailed above and summarized mainly as the reduction is revenue of $3.9 million, favorable impact of SG&A salaries and share-based expenses, offset by the allowance for credit loss of $4.48 million and an adjustment for change in fair value of strategic investment which is $10.8 million favorable versus Q4 2021.
Liquidity and Capital Resources
As at December 31, 2022, the Company had cash of $3.4 million, included in the net working capital of $1.7 million. Certain working capital items such asBillings in excess of costs and profits on uncompleted contractsdo 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 December 31, 2022 was $389,987, and the increase since January 1, 2022, was mainly attributable to the additional proceeds received on the Economic Development Agency of Canada loan. This loan is interest free and will remain so, until the balance is paid over the 60 month period ending March 2029. The average interest expense on the other term loans was 7.2% in 2022 and in 2021. The Company does not expect changes to the structure of term loans in the next fiscal year. The Company maintained two credit facilities which bear interest at variable rates of 7.45% and 8% at December 31, 2022. The Company expects to reimburse a portion of the credit facilities during 2023, and extending the due date of the remaining balance, while maintaining the similar conditions.
About PyroGenesis Canada Inc.
PyroGenesis Canada Inc., a high-tech company, is a proud leader in the design, development, manufacture and commercialization of advanced plasma processes and sustainable solutions which reduce greenhouse gases (GHG) and are economically attractive alternatives to conventional “dirty” processes. PyroGenesis has created proprietary, patented and advanced plasma technologies that are being vetted and adopted by industry leaders in four massive markets: iron ore pelletization, aluminum, waste management, and additive manufacturing. With a team of experienced engineers, scientists and technicians working out of its Montreal office, and its 3,800 m2 and 2,940 m2 manufacturing facilities, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. The operations of PyroGenesis are ISO 9001:2015 and AS9100D certified, having been ISO certified since 1997. For more information, please visit: www.pyrogenesis.com.
Cautionary and Forward-Looking Statements
This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws, including, without limitation, statements regarding anticipated use of the net proceeds of the Private Placement. In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management’s current beliefs, expectations, estimates and projections regarding future events and operating performance.
