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.
Depreciation on Property and Equipment
The depreciation on property and equipment for the three and twelve-month periods ended December 31, 2023, remained stable at $0.1 million and $0.6 million, respectively, compared with $0.2 million and $0.6 million for the same periods in the prior year. The expense is determined by the nature and useful lives of the property and equipment being depreciated.
Research and Development (“R&D”) Expenses
During the three-months ended December 31, 2023, the Company incurred $0.5 million of R&D costs on internal projects, a decrease of $0.3 million as compared with $0.7 million in Q4, 2022. The decrease in Q4, 2023 is primarily related to a decrease of $0.1 million in materials and equipment (Q4, 2022 - $0.3 million), and a decrease of $0.2 million in other expenses, to $0.04 million (Q4, 2022 - $0.2 million).
During the twelve-months ended December 31, 2023, the Company incurred $2.2 million of R&D costs on internal projects, compared to $2.3 million for the same period in the prior year. The decrease is mainly due to lower levels of R&D activities requiring less materials, equipment and subcontracting, decreasing to $0.6 million as compared with $1.2 million, offset by the increase in employee compensation to $1.1 million compared to $0.8 million for the same period in the prior year and the increase in other expenses to $0.5 million compared to $0.4 million for the same period in the prior year.
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
Finance costs for Q4 2023 represent an expense of $0.3 million, representing an increase year-over-year of approximately $0.3 million. The increase in finance expenses in Q4 2023 is primarily due to the interest and accretion related to the convertible debenture, convertible loan, and the increase in penalties and other interest.
During the twelve-month period ended December 31, 2023, the finance costs represent an income of $1.3 million compared to an expense of $0.6 million for the 2022 comparable period, representing a favourable variation of $1.9 million year-over-year. The decrease in finance expenses is primarily due to the revaluation of the 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 offset by the increase in interest and accretion related to the convertible debenture and convertible loan. Finance expenses for fiscal 2023 also increased due to the convertible debenture, convertible loan, and the increase in penalties and other interest.
Strategic Investments
During the three-months ended December 31, 2023, the adjustment to fair market value of strategic investments for Q4, 2023 resulted in a loss of $0.5 million compared to a loss in the amount of $0.2 million in Q4, 2022, a variation of $0.3 million.
During the twelve-months ended December 31, 2023, the adjustment to fair market value of strategic investments resulted in a loss of $0.3 million compared to a loss in the amount of $8.3 million for the same period in the prior year, a favorable variation of $8.0 million. The decrease in loss for the twelve-month periods ended December 31, 2023, is attributable to the variation of the market value of the common shares owned by the Company of HPQ Silicon Inc.
Comprehensive (Loss) Income
The comprehensive loss for Q4, 2023 of $9.8 million compared to a loss of $10.8 million, in Q4, 2022, represents a variation of $1.0 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 $0.3 million arising in Q4, 2023, but with a higher gross margin of 23%, and thus a gross profit of $0.7 million, as opposed to $0.5 million in Q4 of 2022,
- a decrease in SG&A expenses of $1.0 million arising in Q4, 2023 primarily due to a decrease in the allowance for credit loss of $4.2 million, decrease in professional fees, office and general, offset by increases in travel, other expenses, foreign exchange charge on materials, impairments and changes in assumptions in cashflows of royalty receivables,
- a decrease in share-based expenses of $0.6 million,
- a decrease in R&D expenses of $0.3 million primarily due to a decrease in subcontracting, materials and equipment, and other expenses, offset by an increase in employee compensation,
- an increase in finance costs of $0.3 million in Q4, 2023 primarily due to the interest and accretion on the convertible debenture, convertible loan, balance due on business combination and royalty receivable,
- a variation in the fair market value of strategic investments of $0.3 million.
The comprehensive loss for the twelve-month period ended December 31, 2023, of $28.5 million compared to a loss of $32.2 million, for the same period in the prior year, represents a variation of $3.7 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 $6.7 million, and annual gross margin of 28%, thus generating a gross profit of $3.4 million, as opposed to 43% margins in 2022 which generated $8.1 million in gross profit,
- an increase in SG&A expenses of $1.9 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 combination of credit loss, impairments and changes in cashflows of royalty receivables of $3.8 million which is offset by a decrease in professional fees, office and general, government grants and, other expenses,
- a decrease in share-based expenses of $2.4 million
- a decrease in R&D expenses of $0.1 million primarily due to a decrease in subcontracting, materials and equipment, and an increase in employee compensation, investment tax credits and other expenses,
- a decrease in net finance costs (income) of $1.9 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 $8.0 million
