All in all, 2020 can now be described as the year that we have been expecting for some time.

Financial Summary

Revenues

PyroGenesis recorded revenue of $718,908 in the first quarter of 2020 (“Q1, 2020”), representing a decrease of 2% compared with $736,443 recorded in the first quarter of 2019 (“Q1, 2019”).

Revenues recorded in the first quarter of 2020 were generated primarily from:

1. DROSRITE™ related sales of $474,432 (2019 Q1 - $58,559)
    
2. PUREVAP™ related sales of $17,965 (2019 Q1 - $94,077)
    
3. torch related sales of $87,944 (2019 Q1 - $139,813)
    
4. support services related to PAWDS-Marine systems supplied to the US Navy $23,896 (2019 Q1 - $210,667)

Cost of Sales and Services and Gross Margins

Cost of sales and services before amortization of intangible assets was $444,681 in Q1 2020, representing a decrease of 30% compared with $639,506 in Q1 2019, primarily due to lower employee compensation and direct materials in Q1 2020.

In Q1 2020, employee compensation, subcontracting, direct materials and manufacturing overhead decreased to $391,305 (Q1 2019 - $662,379). The gross margin for Q1 2020 was $267,414 or 37.2% of revenue compared to a gross margin of $92,158 or 12.5% of revenue for Q1 2019. As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, as the mix between labor, materials and subcontracts may be significantly different. Of note, the Company received an amount of $127,842 from Revenue Canada under the CWES program. From this amount, $26,388 was applied to employee compensation under cost of sales and services. 

Investment tax credits recorded against cost of sales are related to projects that qualify for tax credits from the provincial government of Quebec. Qualifying tax credits decreased to $20,630 in Q1 2020, compared with $36,071 in Q1 2019. This represents a decrease of 43% year-over-year. In total, the Company earned refundable investment tax credits of $70,313 in Q1 2020. The Company continues to make investments in research and development projects involving strategic partners and government bodies.

The amortization of intangible assets of $6,813 in Q1 2020 and $4,779 for Q1 2019 relates to patents and deferred development costs. Of note, these expenses are non-cash items and will be amortized over the duration of the patent lives.

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 Q1 2020 excluding the costs associated with share-based compensation (a non-cash item in which options vest principally over a four-year period), were $1,205,726 representing a decrease of 7% compared with $1,295,521 reported for Q1 2019. 

The increase in SG&A expenses in Q1 2020 over the same period in 2019 is mainly attributable to the net effect of:

• an increase of 11% in employee compensation due primarily to additional head count, off set by the government aid received from Revenue Canada under the CEWS program,
• a decrease of 67% for professional fees, primarily due to a decrease in accounting fees,
• an increase of 23% in office and general expenses, is due to an increase in insurance and computer software expenses,
• travel costs decreased by 45%, due to a decrease in travel abroad,
• depreciation on property and equipment decreased by 79% due to lower amounts of property and equipment being depreciated,
• depreciation on right of use assets decreased by 19% due to lower amounts of right of use assets being depreciated,
• Investment tax credits increased by 1% due to an increase in qualifying projects,
• government grants decreased by 43% due to lower levels of activities supported by such grants,
• other expenses decreased by 7%, primarily due to a decrease in cost of freight and shipping.

Separately, share based payments increased by 106% in Q1 2020 over the same period in 2019 as a result of the vesting structure of the stock option plan including the stock options granted on January 2^nd, 2020.

Research and Development (“R&D”) Costs

The Company incurred $23,088 of R&D costs, net of government grants, on internal projects in Q1 2020, a decrease of 76% as compared with $95,774 in Q1 2019. The decrease in Q1 2020 is primarily related to an increase in government grants recognized.

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 Q1 2020 totaled $232,736 as compared with $251,498 for Q1 2019, representing a decrease of 7% year-over-year. The decrease in finance costs in Q1 2020, is primarily attributable to interest on lower amounts of debt.

Strategic Investments

The adjustment to the fair market value of strategic investments for Q1 2020 resulted in a loss of $492,024 compared to a gain in the amount of $706,196 in Q1 2019.

Net Comprehensive Loss

The net comprehensive loss for Q1 2020 of $1,757,027 compared to a loss of $878,923, in Q1 2019, represents an increase of 100% year-over-year. The increased loss of $878,104 in the comprehensive loss in Q1 2020 is primarily attributable to the factors described above, which have been summarized as follows:

1. a decrease in product and service-related revenue of $17,535 arising in Q1 2020,
2. a decrease in cost of sales and services totaling $192,791, primarily due to a decrease in employee compensation, subcontracting, direct materials, manufacturing overhead & other, and an increase in foreign exchange, investment tax credits, and amortization of intangible assets,
3. a decrease in SG&A expenses of $53,412 arising in Q1 2020 primarily due to a decrease in professional fees, in travel, in depreciation on property and equipment, in depreciation ROU assets, and in other expenses and an increase in employee compensation, in office and general, in government grants and in share based payments,
4. a decrease in R&D expenses of $72,685 primarily due to an increase in government grants,
5. a decrease in net finance costs of $18,762 in Q1 2020 primarily due to interest on lower amounts of debt,
6. a decrease in fair value adjustment of strategic investments of $1,198,220 in Q1 2020.

EBITDA