The increase in SG&A expenses in 2020 over the same period in 2019 is mainly attributable to the net effect of:
| (i) | an increase of 79% in employee compensation primarily due to additional head count, an increase in commissions, bonuses, offset by an amount of $504,339 received from Revenue Canada under the CEWS program. | |
| (ii) | an increase of 14% for professional fees, primarily due to an increase in legal fees, public listing fees and patent expenses, | |
| (iii) | an increase of 12% in office and general expenses, is primarily due to computer, internet, and security expenses, | |
| (iv) | travel costs decreased by 71%, due to a decrease in travel abroad, | |
| (v) | depreciation on property and equipment decreased by 63% due to lower amounts of property and equipment being depreciated, | |
| (vi) | depreciation on right of use assets increased by 13% due to higher amounts of right of use assets being depreciated, | |
| (vii) | investment tax credits were almost the same year to year, and include the recognition of investment tax credits in the amount of $30,000, | |
| (viii) | government grants decreased by 4%, due to lower levels of activities supported by such grants, | |
| (ix) | other expenses decreased by 8%, primarily due to an increase in advertising, interest and bank expenses, | |
| (x) | the tax assessment in 2019, represents the amount due from a taxation audit for the period of 2008 to 2011. The Company paid royalties for the use of intangible property prior to the purchase of the asset. The royalties were subject to a 25% withholding tax that was not deducted or withheld by the Company at that time. |
Separately, share based payments increased by $4,072,801 in 2020 over the same period in 2019 as a result of the stock options granted on July 16, 2020. This was directly impacted by the vesting structure of the stock option plan with options vesting between 25% and 50% on the grant date requiring an immediate recognition of that cost.
Research and Development (“R&D”) Costs
The Company incurred $775,824 of R&D costs less $1,033,412 of investment tax credits which reduce income taxes payable in current year less $24,605 of investment tax credit refund from previous year, less $83,451 of 2020 eligible investment tax credits, less government grants of $365,433 totaling a net R&D cost of ($731,077), on internal projects in 2020, a decrease of 186% compared to $851,512 in 2019. The decrease in 2020 is primarily related to an increase of labor resources allocated to non research and development contracts.
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).
Net Finance Costs
Finance costs for 2020 totaled $524,074 as compared with $1,237,504 for 2019, representing a decrease of 58% year-over-year. The decrease in finance costs, is primarily attributable to the extinguishment of all term loans, other loans, and convertible debentures in 2020.
Strategic Investments
The adjustment to the fair market value of strategic investments in 2020 resulted in a gain of $44,626,698 compared to a gain in the amount of $176,237 in 2019, representing an increase of $44,450,461. The increase is primarily attributable to the increased market share value of common shares and warrants owned by the Company of HPQ Silicon Resources Inc.
Net Earnings and Comprehensive Income (Loss)
| (i) | an increase in product and service-related revenue of $12,961,051 arising in 2020, | |
| (ii) | an increase in cost of sales and services totaling $3,956,475, primarily due to higher subcontract costs, and direct materials as a result of an increase in contracts in 2020, | |
| (iii) | an increase in SG&A expenses not including share-based expenses of $2,072,854 arising in 2020 primarily due an increase in employee commissions and bonuses, | |
| (iv) | a decrease in R&D expenses of $1,582,589 primarily related the recognition of investment tax credits in 2020 and prior years in the amount of $1,141,468 which include amounts that reduce Canadian income taxes payable in 2020 and an amount of $365,433 in government grants, | |
| (v) | a decrease of $1,981,410 in 2020 due to impairment of a Plasma Atomization 2019. The Company commenced construction on a new and improved Plasma Powder Production equipment, | |
| (vi) | a decrease of $386,121 in 2020 due to the write off, of powders and raw materials inventory in 2019, | |
| (vii) | an increase in share-based expense of $4,072,801, | |
| (viii) | an increase in changes in fair market value of strategic investments and net finance costs of $45,163,891, | |
| (ix) | an increase in income taxes of $1,033,412 |
EBITDA
The EBITDA in 2020 was $43,824,533 compared to an EBITDA loss of $7,384,862 for 2019, representing an increase of 693% year-over-year. The increase in the EBITDA in 2020 compared to 2019 is due to the increase in net earnings and comprehensive income of $50,939,520, offset by a decrease in depreciation on property and equipment of $105,717, an increase in depreciation on right-of-use assets of $48,552, an increase in amortization of intangible assets of $7,057, a decrease in finance charges of $713,431 and an increase in income taxes of $1,033,412.
