Selling, General and Administrative Expenses

Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.

SG&A expenses for Q2 2019 excluding the costs associated with share-based compensation (a non-cash item in which options vest principally over a four-year period), were $1,583,779, representing an increase of 34% compared with $1,177,552 reported for Q2 2018. 

The increase in SG&A expenses in Q2 2019 over the same period in 2018 is mainly attributable to the net effect of:

• an increase of 16% in employee compensation due primarily to additional headcount,
• an increase of 84% for professional fees, primarily due to an increase in legal fees and employee recruitment expenses,
• a decrease of 18% in office and general expenses, is primarily due to the reclassification of rent expense to depreciation right of use assets,
• travel costs increased by 104%, due to an increase in travel abroad,
• depreciation on property and equipment increased by 21% due to higher amounts of property and equipment being depreciated,
• depreciation on right of use assets increased by 100% due to reclassification of rent expense to depreciation right of use assets,
• investment tax credits increased by 100% due to the investment tax credits being recorded against the respective expenses in cost of goods sold, selling and general expenses and research and development expenses versus all of the investment tax credits of Q2 2018 being recorded against cost of goods sold only,
• government grants increased by 16% due to a government grant contribution for a maximum amount of $350,000 for the period 2018-2020,
• other expenses decreased by 8%, primarily due to a decrease in advertising expenses and in the reclassification of lease property taxes to depreciation right of use assets.

Separately, share based payments decreased by 91% in Q2 2019 over the same period in 2018 as a result of the vesting structure of the stock option plan including the stock options granted in 2018.

Research and Development (“R&D”) Costs

The Company incurred $212,645 of R&D costs, net of government grants, on internal projects in Q2 2019, a decrease of 47% as compared with $404,017 in Q2 2018. The decrease in Q2 2019 is related to a reduction in eligible R&D costs.

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 Comprehensive Loss

The net comprehensive loss for Q2 2019 of $2,253,390 compared to a loss of $1,534,890, in Q2 2018, represents an increase of 47% year-over-year. The increase of $718,500 in the comprehensive loss in Q2 2019 is primarily attributable to the factors described above, which have been summarized as follows:

EBITDA

The EBITDA loss in Q2 2019 was $1,814,832 compared with an EBITDA loss of $1,274,183 for Q2 2018, representing an increase of 42% year-over-year. The $540,649 increase in the EBITDA loss in Q2 2019 compared with Q2 2018 is due to the increase in comprehensive loss of $718,500, an increase in depreciation on property and equipment of $8,455, an increase in depreciation of right of use assets of $109,673, an increase in amortization of intangible assets of $4,779 and an increase in finance charges of $55,241.

Adjusted EBITDA loss in Q2 2019 was $1,787,248 compared with an Adjusted EBITDA loss of $978,642 for Q2 2018. The increase of $808,606 in the Adjusted EBITDA loss in Q2 2019 is attributable to an increase in EBITDA loss of $540,649, offset by a decrease of $267,957 in share-based payments.

The Modified EBITDA loss in Q2 2019 was $1,447,935 compared with a Modified EBITDA loss of $1,044,642 for Q2 2018, representing an increase of 39%. The increase in the Modified EBITDA loss in Q2 2019 is attributable to the increase as mentioned above in the Adjusted EBITDA loss of $808,606 and a decrease in the change of fair value of investments of $405,313.

Liquidity

The Company has incurred, in the last several years, operating losses and negative cash flows from operations, resulting in an accumulated deficit of $54,198,854 and a negative working capital of $7,297,972 as at Q2 2019, (December 31, 2018 - $51,066,540 and $4,101,428 respectively). Furthermore, as at Q2 2019, the Company’s current liabilities and expected level of expenses for the next twelve months exceed cash on hand of $1,293,173 (December 31, 2018 - $644,981). The Company has relied upon external financings to fund its operations in the past, primarily through the issuance of equity, debt, and convertible debentures, as well as from investment tax credits.

About PyroGenesis Canada Inc.

PyroGenesis Canada Inc., a high-tech company, is the world leader in the design, development, manufacture and commercialization of advanced plasma processes and products. We provide engineering and manufacturing expertise, cutting-edge contract research, as well as turnkey process equipment packages to the defense, metallurgical, mining, advanced materials (including 3D printing), oil & gas, and environmental industries. With a team of experienced engineers, scientists and technicians working out of our Montreal office and our 3,800 m² manufacturing facility, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. Our core competencies allow PyroGenesis to lead the way in providing innovative plasma torches, plasma waste processes, high-temperature metallurgical processes, and engineering services to the global marketplace. Our operations are ISO 9001:2015 and AS9100D certified, having been since 1997. PyroGenesis is a publicly-traded Canadian Corporation on the TSX Venture Exchange (Ticker Symbol: PYR) and on the OTCQB Marketplace. For more information, please visit www.pyrogenesis.com.

This press release contains certain forward-looking statements, including, without limitation, statements containing the words "may", "plan", "will", "estimate", "continue", "anticipate", "intend", "expect", "in the process" and other similar expressions which constitute "forward- looking information" within the meaning of applicable securities laws. Forward-looking statements reflect the Corporation's current expectation and assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These forward-looking statements involve risks and uncertainties including, but not limited to, our expectations regarding the acceptance of our products by the market, our strategy to develop new products and enhance the capabilities of existing products, our strategy with respect to research and development, the impact of competitive products and pricing, new product development, and uncertainties related to the regulatory approval process. Such statements reflect the current views of the Corporation with respect to future events and are subject to certain risks and uncertainties and other risks detailed from time-to-time in the Corporation's ongoing filings with the securities regulatory authorities, which filings can be found at www.sedar.com , or at www.otcmarkets.com . Actual results, events, and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements. The Corporation undertakes no obligation to publicly update or revise any forward- looking statements either as a result of new information, future events or otherwise, except as required by applicable securities laws .