Share-based compensation expense for the three and nine-month periods ended September 30, 2024, was $0.2 million and $1.0 million, respectively (three and nine-month periods ended September 30, 2023 - $0.7 million and $2.4 million, respectively), a decrease of $0.5 million and $1.4 million respectively, which is a non-cash item and relates mainly to 2022, and 2023 grants not repeated in 2024.
Share-based payments expenses as explained above, are non-cash expenses and are directly impacted by the vesting structure of the stock option plan whereby options vest between 10% and up to 100% on the grant date and may require an immediate recognition of that cost.
4. Depreciation on Property and Equipment
The depreciation on property and equipment for the three and nine-month periods ended September 30, 2024, decreased to $0.09 million and $0.3 million, respectively, compared with $0.2 million and $0.5 million for the same periods in the prior year. The expense is comparable to the same quarters last year and the decrease is primarily due to the nature and useful lives of the property and equipment being depreciated.
5. Research and Development (“R&D”) Costs, net
During the three-months ended September 30, 2024, the Company incurred $0.2 million of R&D costs on internal projects, a decrease of $0.5 million when compared to Q3, 2023. The decrease in Q3, 2024 is primarily related to a decrease in employee compensation and in materials and equipment due to a reduction in R&D activities.
During the nine-months ended September 30, 2024, the Company incurred $0.7 million of R&D costs on internal projects, a decrease of $1.0 million when compared to the same period in the prior year. The decrease is mainly due to lower levels of R&D activities in the 2024 period.
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).
6. Finance Expenses (income), net
Finance expenses for Q3, 2024 totaled $0.3 million as compared with to $0.2 million for Q3, 2023, representing a variation of $0.1 million year-over-year. The increase in finance expenses in Q3, 2024 is mainly due to the increase in interest accretion on the balance due on the business combination of $0.1 million and the increase in interest and accretion related to the convertible loan, whereby this loan was only issued in December 2023.
During the nine-month period ended September 30, 2024, the finance expenses totaled $0.9 million as compared with an income of $1.6 million for the 2023 comparable period, representing a variation of $2.5 million year-over-year. This is caused by the 2023 favourable revaluation of the balance due on business combination due to two milestones that would not be achieved, thus a reversal of the liabilities was recorded. In addition, greater financial expenses were due to the interest and accretion for the convertible debenture and convertible loan, which were only outstanding for portion of 2023.
7. Strategic Investments
During the three-months ended September 30, 2024, the adjustment to fair market value of strategic investments for Q3, 2024 resulted in a gain of $0.04 million compared to a gain in the amount of $1.2 million in Q3, 2023, a favorable variation of $1.2 million. During the nine-months ended September 30, 2024, the adjustment to fair market value of strategic investments resulted in a loss of $0.2 million compared to a gain in the amount of $0.2 million for the same period in the prior year, a variation of $0.4 million. The decrease in variations for the three and nine-month periods ended September 30, 2024, is attributable to the variation of the market value of the common shares owned by the Company of HPQ Silicon Inc.
8. Other Income
During the nine-months ended September 30, 2024, Other Income includes a gain on settlement of legal proceedings with a third party which was also a customer of the Company’s subsidiary, Pyro Green-Gas. As a result, the Company received a settlement of $1.5 million and recognized a gain of $1,180,335, included in Other Income, and the remainder as a reduction of accounts receivable.
9. Comprehensive loss
The comprehensive loss for Q3, 2024 of $3.9 million compared to a loss of $6.3 million, in Q3, 2023, represents a favourable variation of $2.3 million, and is primarily attributable to the factors described above, which have been summarized as follows:
- an increase in product and service-related revenue of $0.3 million arising in Q3, 2024, which generated a 42% gross margin, compared to 30% in Q3, 2023. As a result, gross profit is $1.7 million compared to $1.1 million for the same three-month period ended September 30, 2024,
- a decrease in SG&A expenses of $2.6 million arising in Q3, 2024, was primarily due to the expected credit loss and bad debt decrease, and also to lower professional fees, other expenses and increase in government grants. This was offset by increases in employee compensation, depreciation of right-of-use assets, and an unfavourable impact due to changes in the foreign exchange charge on materials,
- a decrease in share-based expenses of $0.5 million,
- a decrease in R&D expenses of $0.5 million due to a reduction of R&D activities,
- an increase in net finance expenses primarily due the interest and accretion on the convertible debentures, convertible loan and balance due on the business combination,
- a variation in the fair market value of strategic investments of $1.2 million.
The comprehensive loss for the nine-month period ended September 30, 2024, of $6.9 million compared to a loss of $18.7 million, for the same period in the prior year, represents a significant reduction of $11.9 million, and is primarily attributable to the factors described above, which have been summarized as follows:
- an increase in product and service-related revenue of $2.1 million, which generated a 31% gross margin, compared to 29% in 2023. As a result, gross profit is $3.6 million compared to $2.7 million for the same nine-month period of 2023,
- a decrease in SG&A expenses of $11.8 million was primarily due to the favourable impact of the expected credit loss and bad debt decrease and also to the decrease in professional fees, travel, depreciation of property, other expenses and foreign exchange,
- a decrease in share-based expenses of $1.4 million
- a decrease in R&D expenses of $1.0 million primarily due to decreased R&D activities,
- an increase in net finance expenses primarily due to the revaluation of balance due on business combination of $2.1 million in 2023 not repeated in 2024 and in the increase of accretion and interest on the convertible debentures and convertible loan,
- a variation in the fair market value of strategic investments of $0.4 million.
10. Liquidity and Capital Resources
As at September 30, 2024, the Company had cash of $0.04 million, included in the net working capital deficiency of $10.4 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 liquidity position and its 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, 2024 was $303,127 and decreased by $100,952 since December 31, 2023, due mainly to the complete reimbursement of a loan. The decrease from January 1, 2023, to December 31, 2023 was mainly attributable to the accretion 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. In July 2023, the Company closed a brokered private placement for $3,030,000, bearing interest at 10%. On December 20, 2023, the Company closed a non-brokered private placement of a convertible loan for gross proceeds of $1,250,000 and bears interest at 3%. 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 and convertible debentures and loans in the next twelve-month period. The Company maintained one credit facility which bears interest at a variable rate of prime plus 2%, therefore 8.45% at September 30, 2024. The Company will continue to reimburse the existing credit facility in 2024.