United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended May 31, 2019

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to __________

Commission File No. 000-54768

Loop Industries, Inc.

(Exact name of Registrant as specified in its charter)

Nevada	27-2094706
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

480 Fernand-Poitras Terrebonne, Québec, Canada J6Y 1Y4

(Address of principal executive offices zip code)

Registrant’s telephone number, including area code (450) 951-8555

Securities registered pursuant to Section12(b) of the Act: None

Securities registered pursuant to Section12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LOOP	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

As at July 8, 2019, there were 39,012,531 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.

LOOP INDUSTRIES, INC.

TABLE OF CONTENTS

PART I . Financial Information
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	14
PART II. Other Information
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	17
	Signatures	18

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Loop Industries, Inc.

Three months ended May 31, 2019

Index to the Unaudited Interim Condensed Consolidated Financial Statements

Contents	Page(s)
Condensed consolidated balance sheets as at May 31, 2019 and February 28, 2019 (Unaudited)	F‑2
Condensed consolidated statements of operations and comprehensive loss for the three months ended	F‑3
May 31, 2019 and 2018 (Unaudited)
Condensed consolidated statement of changes in stockholders’ equity for the three months ended	F‑4
May 31, 2019 and 2018 (Unaudited)
Condensed consolidated statement of cash flows for the three months ended May 31, 2019 and 2018 (Unaudited)	F‑6
Notes to the condensed consolidated financial statements (Unaudited)	F‑7

  4

Loop Industries, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	May 31, 2019	February 28, 2019
Assets
Current assets
Cash (Note 17)	$6,971,613	$5,833,390
Sales tax, tax credits and other receivables (Note 3)	741,993	599,000
Prepaid expenses	176,309	226,521
Total current assets	7,889,915	6,658,911
Investment in joint venture (Note 8)	500,000	-
Property, plant and equipment, net (Note 4)	6,005,335	5,371,263
Intangible assets, net (Note 5)	146,112	127,672
Total assets	$14,541,362	$12,157,846
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities (Notes 7)	$3,103,159	$2,670,233
Convertible notes (Note 10)	3,653,549	5,636,172
Warrants (Note 10)	-	219,531
Current portion of long-term debt (Note 9)	51,748	53,155
Total current liabilities	6,808,456	8,579,091
Long-term debt (Note 9)	914,221	952,363
Total liabilities	7,722,677	9,531,454
Stockholders' Equity
Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding (Note 11)	-	-
Common stock par value $0.0001: 250,000,000 shares authorized; 34,875, 032 shares issued and outstanding (February 28, 2019 – 33, 805,706) (Note 11)	3,488	3,381
Additional paid-in capital	46,536,157	38,966,208
Additional paid-in capital – Warrants (Note 10)	1,074,633	757,704
Additional paid-in capital – Beneficial conversion feature (Note 10)	1,200,915	1,200,915
Common stock issuable, 1,000,000 shares (Note 11)	800,000	800,000
Accumulated deficit	(42,366,142)	(38,811,592)
Accumulated other comprehensive loss	(430,366)	(290,224)
Total stockholders' equity	6,818,685	2,626,392
Total liabilities and stockholders' equity	$14,541,362	$12,157,846

See accompanying notes to the condensed consolidated financial statements.

F-2

Loop Industries, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	Three Months Ended May 31,
	2019	2018
Revenue	$-	$-
Operating Expenses -
Research and development, net (Note 12)	997,861	1,066,079
General and administrative (Note 12)	1,902,630	2,355,550
Depreciation and amortization (Notes 4 and 5)	164,336	101,069
Interest and other finance costs (Note 15)	501,849	12,913
Foreign exchange (gain)	(12,126)	(6,081)
Total operating expenses	3,554,550	3,529,530)
Net loss	(3,554,550)	(3,529,530)
Other comprehensive loss -
Foreign currency translation adjustment	(140,142)	(52,268)
Comprehensive loss	$(3,694,692)	$(3,581,798)
Loss per share
Basic and diluted	$(0.11)	$(0.11)
Weighted average common shares outstanding
Basic and diluted	34,714,510	33,140,148

See accompanying notes to the condensed consolidated financial statements.

F-3

Loop Industries, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

		Three Months Ended May 31, 2018
	Common stock		Preferred stock
	par value $0.0001		par value $0.0001
	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Additional Paid-in Capital - Warrants	Additional Paid-in Capital – Beneficial Conversion Feature	Common Stock Issuable	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Total Stockholders' Equity
Balance, February 28, 2018	33,751,088	$3,376	1	$-	$30,964,970	$-	$-	$800,000	$(21,275,181)	$(169,100)	$10,324,065
Issuance of shares upon cashless exercise of warrants	18,821	2	-	-	(2)	-	-	-	-	-	-
Issuance of shares upon vesting of restricted stock units	35,797	3	-	-	(3)	-	-	-	-	-	-
Warrants issued for services	-	-	-	-	978,025	-	-	-	-	-	978,025
Restricted stock units issued for services	-	-	-	-	207,644	-	-	-	-	-	207,644
Foreign currency translation	-	-	-	-	-	-	-	-	-	(52,268)	(52,268)
Net loss	-	-	-	-	-	-	-	-	(3,529,530)	-	(3,529,530)
Balance, May 31, 2018	33,805,706	$3,381	1	$-	$32,150,634	$-	$-	$800,000	$(24,804,711)	$(221,368)	$7,927,936

F-4

		Three Months Ended May 31, 2019
	Common stock		Preferred stock
	par value $0.0001		par value $0.0001
	Number of Shares	Amount	Number of Shares	Amount	Additional Paid-in Capital	Additional Paid-in Capital - Warrants	Additional Paid-in Capital – Beneficial Conversion Feature	Common Stock Issuable	Accumulated Deficit	Accumulated Other Comprehensive (Loss)	Total Stockholders' Equity
Balance, February 28, 2019	33,805,706	$3,381	1	$-	$38,966,208	$757,704	$1,200,915	$800,000	$(38,811,592)	$(290,224)	$2,626,392
Issuance of common shares for cash, net of share issuance costs (Note 11)	600,000	60	-	-	4,266,725	-	-	-	-	-	4,266,785
Issuance of shares for legal settlement (Note 15)	150,000	15	-	-	(15)	-	-	-	-	-	-
Issuance of shares upon conversion of Convertible notes (Note 10)	319,326	32	-	-	2,372,549	316,929	-	-	-	-	2,689,510
Stock options issued for services (Note 12)	-	-	-	-	575,513	-	-	-	-	-	575,513
Restricted stock units issued for services (Note 12)	-	-	-	-	355,177	-	-	-	-	-	355,177
Foreign currency translation	-	-	-	-	-	-	-	-	-	(140,142)	(140,142)
Net loss	-	-	-	-	-	-	-	-	(3,554,550)	-	(3,554,550)
Balance, May 31, 2019	34,875,032	$3,488	1	$-	$46,536,157	$1,074,633	$1,200,915	$800,000	$(42,366,142)	$(430,366)	$6,818,685

See accompanying notes to the condensed consolidated financial statements.

F-5

Loop Industries, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended May 31,
	2019	2018
Cash Flows from Operating Activities
Net loss	$(3,554,550)	$(3,529,530)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	164,336	101,069
Stock-based compensation expense	930,690	1,185,669
Accrued interest	117,433	-
Loss on revaluation of warrants	8,483	-
Debt accretion	583,727	-
Deferred financing costs	46,442	-
Gain on conversion of convertible notes	(268,730)	-
Changes in operating assets and liabilities:
Sales tax and tax credits receivable	(158,954)	53,699
Prepaid expenses	49,136	239,669
Accounts payable and accrued liabilities	(5,366)	(221,637)
Net cash used in operating activities	(2,087,353)	(2,171,061)
Cash Flows from Investing Activities
Investment in joint venture	(500,000)	-
Additions to property, plant and equipment	(470,545)	(585,958)
Additions to intangible assets	(24,811)	(6,358)
Net cash used in investing activities	(995,356)	(592,316)
Cash Flows from Financing Activities
Proceeds from sale of common shares	5,130,000	-
Share issuance costs	(863,216)	-
Repayment of long-term debt	(13,057)	(13,514)
Net cash (used) provided by financing activities	4,253,727	(13,514)
Effect of exchange rate changes	(32,796)	(17,807)
Net change in cash	1,138,222	(2,794,698)
Cash, beginning of period	5,833,390	8,149,713
Cash, end of period	$6,971,612	$5,355,015
Supplemental Disclosure of Cash Flow Information:
Income tax paid	$-	$-
Interest paid	$14,488	$13,037

See accompanying notes to the condensed consolidated financial statements.

F-6

Loop Industries, Inc.

Three Months Ended May 31, 2019 and 2018

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. The Company, Basis of Presentation and Going Concern

The Company

Loop Industries, Inc. is a technology and licensing company who owns patented and proprietary technology that depolymerizes no and low value waste PET plastic and polyester fiber to its base building blocks (monomers).  The monomers are filtered, purified and repolymerized to create virgin-quality Loop™ branded PET plastic resin and polyester fiber suitable for use in food-grade packaging to be sold to consumer goods companies.

On November 20, 2017, Loop Industries Inc. commenced trading on the NASDAQ Global Market under its new trading symbol, “LOOP.” From April 10, 2017 to November 19, 2017, our common stock was quoted on the OTCQX tier of the OTC Markets Group Inc. under the symbol “LLPP.”

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements of Loop Industries, Inc., its wholly-owned subsidiaries and joint venture (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The balance sheet information as at February 28, 2019 is derived from the Company’s audited consolidated financial statements and related notes for the fiscal year ended February 28, 2019, which is included in Item 8 of the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 8, 2019. These unaudited interim condensed consolidated financial statements should be read in conjunction with those financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair statement have been included. Operating results for the three months ended May 31, 2019 are not necessarily indicative of the results that may be expected for the year ending February 28, 2020.

Intercompany balances and transactions are eliminated on consolidation.

2. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of recorded intangible assets, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and other stock instruments.

Foreign currency translations and transactions

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income (loss) (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses. The Company currently has not engaged in any currency hedging activities.

F-7

For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI.

Stock-based compensation

Loop Industries, Inc. periodically issues stock options and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing costs. The Company accounts for stock options granted to employees based on the authoritative guidance provided by the FASB wherein the fair value of the award is measured on the grant date and where there are no performance conditions, recognized as compensation expense on the straight-line basis over the vesting period and where performance conditions exist, recognize compensation expense when it becomes probable that the performance condition will be met. Forfeitures on share-based payments are accounted for by recognizing forfeitures as they occur.

The Company accounts for stock options granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance.

The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant.

The fair value of the stock options granted are estimated using the Black-Scholes-Merton Option Pricing (“Black-Scholes”) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options, and future dividends. Stock-based compensation expense is recorded based on the value derived from the Black-Scholes model and on actual experience. The assumptions used in the Black-Scholes model could materially affect stock-based compensation expense recorded in the current and future periods.

Income taxes

The Company calculates its provision for income tax on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Research and development expenses

Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded during the three-month periods ended May 31, 2019 and 2018 amounted to $997,861and $1,066,079, respectively, and are net of government research and development tax credits and government grants from the federal and provincial taxation authorities accrued and recorded based on qualifying expenditures incurred during the fiscal periods.

Net earnings (loss) per share

The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.

For the three-month periods ended May 31, 2019 and 2018, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at May 31, 2019, the potentially dilutive securities consisted of 1,691,973 outstanding stock options (May 31, 2018 – 2,254,581), 403,767 outstanding restricted stock units (May 31, 2018 – 22,755), 962,132 outstanding warrants (May 31, 2018 – 140,667) and 1,000,000 outstanding issuable common stock (May 31, 2018 – 1,000,000).

F-8

Recently adopted accounting pronouncements

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Reform Act on items within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." Amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is not affected by this update. ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable beginning March 1, 2019. The adoption of the standard had no impact on the consolidated financial statements of the Company.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this Update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of the standard had no impact on the consolidated financial statements of the Company.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, which clarify certain amendments to guidance that may have been incorrectly or inconsistently applied by certain entities and includes Amendments to Subtopic 718-740, Compensation – Stock Compensation – Income Taxes. The guidance in paragraph 718-740-35-2, as amended by the amendments in ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, is unclear on whether an entity should recognize excess tax benefits (or tax deficiencies) for compensation expense that is taken on the entity’s tax return. The amendment to paragraph 718-740-35-2 in this Update clarifies that an entity should recognize excess tax benefits in the period in which the amount of deduction is determined. The amendments in this Update are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of the standard had no impact on the consolidated financial statements of the Company.

In February 2016, the FASB issued ASU 2016-02, “Leases,” amended in July by ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Targeted Improvements,” and ASU 2018-20, “Narrow-Scope Improvements for Lessors,” which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases. This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted these standards effective March 1, 2019. The adoption of the standard had no impact on the consolidated financial statements of the Company. The Company elected to apply the package of practical expedients that allows us not to reassess whether expired or existing contracts contain leases, the classification of these leases and whether previously capitalized initial direct costs would qualify for capitalization under Accounting Standards Codification (or “ASC”) 842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of the right-of-use assets.

3. Sales Tax, Tax Credits and Other Receivables

Sales tax, research and development tax credits and other receivables as at May 31, 2019 and February 28, 2019 were as follows:

	May 31, 2019	February 28, 2019
Sales tax	$222,215	$82,992
Research and development tax credits	455,564	410,997
Other receivables	64,214	105,011
	$741,993	$599,000

The Company is registered for the Canadian federal and provincial goods and services taxes. As such, the Company is obligated to collect, and is entitled to claim sale taxes paid on its expenses and capital expenditures incurred in Canada.

In addition, Loop Canada Inc. is entitled to receive government assistance in the form of refundable and non-refundable research and development tax credits from the federal and provincial taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are from the provincial taxation authorities and are not dependent on its ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records refundable tax credits as a reduction of research and development expenses when the Company can reasonably estimate the amounts and it is more likely than not, they will be received. During the three-month periods ended May 31, 2019 and 2018, the Company recorded $55,725 and nil, respectively, as a reduction of research and development expenses. During the three-month periods ended May 31, 2019 and 2018, research and development tax credits received by the Company from taxation authorities amounted to nil and nil, respectively.

F-9

4. Property, Plant and Equipment

	As at May 31, 2019
	Cost	Accumulated depreciation	Net book value
Building	$1,832,840	$(82,178)	$1,750,661
Land	226,540	-	226,540
Building Improvements	373,823	(122,274)	251,549
Machinery and equipment	4,650,026	(935,568)	3,714,458
Office equipment and furniture	113,989	(51,863)	62,126
Balances, end of period	$7,197,218	$(1,191,883)	$6,005,335

	As at February 28, 2019
	Cost	Accumulated depreciation	Net book value
Building	$1,882,665	$(68,596)	$1,814,069
Land	232,699	-	232,699
Building Improvements	383,985	(119,889)	264,096
Machinery and equipment	3,834,338	(841,236)	2,993,102
Office equipment and furniture	117,088	(49,791)	67,297
Balances, end of period	$6,450,775	$(1,079,512)	$5,371,263

Depreciation expense for the three-month periods ended May 31, 2019 and 2018 amounted to $161,321 and $84,590, respectively, and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss.

5. Intangible Assets

On October 27, 2014, the Company entered into an Intellectual Property Assignment Agreement with Mr. Hatem Essaddam wherein the Company purchased a certain technique and method, which was used to develop the Generation I (“GEN I”) technology, for $445,050 allowing for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure. The GEN I technology patent portfolio has two issued U.S. patents and a pending U.S. application expected to expire on or around July 2035. Internationally, the Company has an issued patent in Taiwan, an allowed application in the members of the Gulf Cooperation Council, and pending patent applications in Argentina, Australia, Brazil, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, Mexico, the Philippines, and South Africa, all expected to expire, if granted, on or around July 2036.

In addition to the $445,050 paid by the Company under the Intellectual Property Assignment Agreement, the Company is required to make four additional payments of CDN$200,000, totaling CDN$800,000, to Mr. Essaddam within sixty (60) days of attaining each of the following milestones:

●

the average production of 20 metric tonnes of terephthalic acid by the Company, as a result of the GEN I technology, for 20 operating days;

●

the average production of 30 metric tonnes of terephthalic acid by the Company, as a result of the GEN I technology, for 30 operating days;

●

the average production of 60 metric tonnes of terephthalic acid by the Company, as a result of the GEN I technology, for 60 operating days;

●

the average production of 100 metric tonnes of terephthalic acid by the Company, as a result of the GEN I technology, for 100 operating days.

F-10

Additionally, the Company is obligated to make royalty payments of up to CDN$25,700,000, based on the GEN I technology, payable as follows:

●

10% of gross profits on the sale of all products derived by the Company from the technology;

●

10% of any license fee paid to the Company in respect of any licensing or other right to use the technology that was granted to a third party by the Company; and

●

5% of any royalty or other similar payment made to the Company by a third party to whom a license or sub-license or other right to use the technology has been granted by the Company or by the third party.

The Company has no intention of commercializing the GEN I technology at this time.

During the year ended February 28, 2019, the Company finalized the development of its next generation technology, referred to as Generation II (“GEN II”), and has filed various patents in jurisdictions around the world. On April 9, 2019, the GEN II U.S. patent was formally approved and issued and is expected to expire on or around September 2037. The GEN II technology patent portfolio also has a pending U.S. application as well as a PCT application and non-PCT applications in Argentina, Bangladesh, Bolivia, Bhutan, members of the Gulf Cooperation Council, Iraq, Pakistan, Taiwan, Uruguay, and Venezuela, all expected to expire, if granted, on or around September 2037. Additionally, the Company has three pending provisional applications directed to additional aspects of the GEN II technology. Any patents that would ultimately grant from these provisional applications would be expected to expire, if granted, no earlier than 2039.

Concurrent with the GEN II development, in June 2018, the Company transitioned to its newly constructed GEN II industrial pilot plant. The GEN II technology forms the basis for the commercialization of the Company into the future.

As a result of the strategic shift away from the GEN I technology, and the development of the GEN II technology during the year ended February 28, 2019, the Company considered the carrying value of its GEN I intangible asset to be impaired and wrote off the remaining balance of the intangible asset, which amounted to $298,694.

Amortization expense for the three-month periods ended May 31, 2019 and 2018 amounted to $3,015 and $16,479, respectively, and is recorded as an operating expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

	As at May 31, 2019	As at February 28, 2019
Intangible assets, at cost - beginning of period	$127,672	$533,369
Intangible assets, accumulated depreciation – beginning of period	-	(200,629)
	127,672	332,740
Add: Additions in the period	24,811	153,477
Deduct: Amortization of intangibles	(3,015)	(59,851)
Deduct: Impairment of intangibles	-	(298,694)
Add (deduct): Foreign exchange effect	(3,356)	-
	$146,112	$127,672

F-11

6. Fair value of financial instruments

The following tables presents the fair value of the Company’s financial liabilities as at May 31, 2019 and February 28, 2019:

	Fair Value Measurements as at May 31, 2019
	Carrying Amount	Fair Value	Level in the hierarchy
Instruments measured at fair value:	$-	$-	-
Instruments measured at amortized cost:
Long-term debt	965,969	965,969	Level 2
Convertible notes (Second Issuance)	$3,556,249	$4,900,000	Level 2

	Fair Value Measurements at February 28, 2019
	Carrying Amount	Fair Value	Level in the hierarchy
Instruments measured at fair value:
Warrants (First Issuance)	$219,531	$219,531	Level 3
Instruments measured at amortized cost:
Long-term debt	1,005,518	1,005,518	Level 2
Convertible notes (First Issuance)	2,495,636	2,650,000	Level 2
Convertible notes (Second Issuance)	$3,126,886	$3,150,000	Level 2

The Warrants under the First Issuance of Convertible Notes represent a Level 3 in the fair value hierarchy. The Warrants were valued using a Monte Carlo simulation using a volatility of 71.5%. The Company recorded a loss on revaluation from the date of issuance to February 28, 2019 of $65,167.

7. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities as at May 31, 2019 and February 28, 2019 were as follows:

	May 31, 2019	February 28, 2019
Trade accounts payable	$2,086,412	$1,784,362
Accrued liabilities	555,287	520,671
Accrued bonuses	461,460	365,200
	$3,103,159	$2,670,233

F-12

8.

Joint Venture

On September 15, 2018, the Company, through its wholly-owned subsidiary Loop Innovations, LLC, a Delaware limited liability company, entered into a Joint Venture Agreement (the “Agreement”) with Indorama Ventures Holdings LP, USA, an indirect subsidiary of Indorama Ventures Public Company Limited, to manufacture and commercialize sustainable polyester resin. Each company has a 50/50 equity interest in Indorama Loop Technologies, LLC (“ILT”), which was specifically formed to operate and execute the joint venture.

Under the Agreement, Indorama Venture is contributing manufacturing knowledge and Loop is required to contribute its proprietary science and technology.

Specifically, the Company is contributing an exclusive world-wide royalty-free license to ILT to use its proprietary technology to produce 100% sustainably produced PET resin and polyester fiber.

ILT meets the accounting definition of a joint venture where neither party has control of the joint venture entity and both parties have joint control over the decision-making process in ILT. As such, the Company uses the equity method of accounting to account for its share of the investment in Indorama Loop Technologies, LLC. There was no activity in ILT from the date of inception of September 24, 2018 to February 28, 2019 and, as at February 28, 2019, the carrying value of the equity investment was nil. On April 18, 2019, Loop Innovations, LLC, the Company’s wholly-owned subsidiary, and Indorama Ventures Holdings LP, USA each contributed cash of $500,000 to ILT. As there were no other transactions during the three-month period ended May 31, 2019, the carrying value of the equity investment as at May 31, 2019 was $500,000.

9. Long-Term Debt

	May 31, 2019	February 28, 2019
Instalment loan	$965,969	$1,005,518
Less current portion	51,748	53,155
Non-current portion	$914,221	$952,363

Principal repayments due on the Instalment loan over the next five years are as follows:

Years ending February 28,	Amount
2020	$38,811
2021	51,748
2022	51,748
2023	51,748
2024	51,748
Thereafter	720,166
Total	$965,969

Interest paid on the instalment loan during the three-month periods ended May 31, 2019 and 2018 amounted to $13,070 and $13,037, respectively. As at May 31, 2019, the Company was in compliance with its financial covenants.

F-13

10.

Convertible Notes

First Issuance

On November 13, 2018, the Company issued convertible promissory notes (the “November 2018 Notes”), together with related warrants to acquire an additional 50% of the shares issued upon the conversion of the November 2018 Notes (the “November 2018 Warrants”), for an aggregate purchase price of $2,450,000 (the “November 2018 Private Placement”). On January 3, 2019, the Company issued additional convertible promissory notes from this issuance (the “November 2018 Notes”), together with related warrants to acquire an additional 50% of the shares issued upon the conversion of the November 2018 Notes (the “November 2018 Warrants”), for an aggregate purchase price of $200,000 (the “November 2018 Private Placement”).

The November 2018 Notes carry an interest rate of 8.00% per annum and mature on May 13, 2019 and July 3, 2019 (the “November 2018 Maturity Date”), respectively, upon which date the outstanding principal amount of the November 2018 Notes and all accrued and unpaid interest shall automatically convert into shares of the common stock of the Company at the price per share equal to the lesser of (i) $13.00 and (ii) the average closing price of the Company’s Common Stock on the Nasdaq stock market for the ten days preceding the day to the conversion of the November 2018 Notes (the “November 2018 Conversion Price”). The total number of shares of Common Stock to be issued upon automatic conversion shall equal the outstanding principal amount of the November 2018 Notes and all accrued and unpaid interest on the November 2018 Notes, divided by the November 2018 Conversion Price.

The November 2018 Warrants are exercisable for an additional fifty percent (50%) of the shares of Common Stock issued upon the conversion of the November 2018 Notes (the “November 2018 Warrant Shares”). The per share purchase price (the “November 2018 Exercise Price”) for each of the November 2018 Warrant Shares purchasable under the November 2018 Warrants shall be equal to the lesser of (i) $15.00 and (ii) the average closing price of the Company’s Common Stock on the Nasdaq stock market for the ten days preceding the day of the conversion of the November 2018 Notes. The November 2018 Warrants will be issued upon conversion of the November 2018 Notes. The November 2018 Warrants expire eighteen (18) months from the date of the conversion of the November 2018 Notes (the “November 2018 Expiration Date”). The Investors may exercise the November 2018 Warrants at any time prior to the November 2018 Expiration Date.

Due to the variable conversion price, the November 2018 Notes contain characteristics of a variable share-forward sales contracts (“VSF”) under the guidance of ASC 480-10. Management has determined that for the purpose of ‎the accounting for the November 2018 Notes, it is more likely than not that the November 2018 Conversion Price will be below $13.00, resulting in the issuance of a variable number of shares, the November 2018 Notes are classified as a liability, and accounted for at amortized cost.

Due to the variable number of warrants to be issued and the variable strike price of the November 2018 Warrants, these do not meet the “fixed-for-fixed” criteria under ASC 815-40. Accordingly, the November 2018 Warrants are classified as a derivative liability, initially measured at fair value and subsequently revalued at fair value through the income statement.The fair value was calculated using a Monte Carlo simulation.

The transaction costs related to this issuance were split pro-rata between the November 2018 Notes and the November 2018 Warrants. The portion relating to the November 2018 Notes were deferred and are being amortized over the life of the convertible notes. The portion relating to the November 2018 Warrants was immediately expensed.

The aggregate value of the November 2018 Notes and November 2018 Warrants as shown on the consolidated balance sheet are broken down as follows:

	May 31, 2019	February 28, 2019	Issue Date
November 2018 Convertible Notes – Liability	-	$2,495,636	$2,495,636
Accrued interest – Liability	-	60,793	-
Deferred financing costs	-	(26,557)	(63,738)
Total	-	2,529,872	2,431,898
November 2018 Warrants – Liability	-	$219,531	$154,364

F-14

On April 5, 2019, the Company and the Investors that purchased the "November 2018 Notes from the Company pursuant to the Note and Warrant Purchase Agreement dated as of November 13, 2018 or January 3, 2019, executed an Amendment, Surrender and Conversion Agreement (“Conversion Agreement”) whereby the parties agreed to convert the November 2018 Notes, and all accrued and unpaid interest, into shares of the common stock of the Company at a newly agreed conversion price per share equal to $8.55 (the “New Conversion Price”), replacing the previous formula which converted the November 2018 Notes and accrued and unpaid interest into shares of the common stock of the Company at the price per share equal to the lesser of (i) $13.00 and (ii) the average closing price of the Company’s Common Stock on the Nasdaq stock market for the ten days preceding the day to the conversion of the November 2018 Notes. The Conversion Agreement stipulates that the interest on the November 2018 Notes would be paid up to and including April 3, 2019. Pursuant to the 2018 Note Purchase Agreement, the Investors also received related warrants to acquire an additional 50% of the shares issued upon the conversion of the November 2018 Notes. As part of the Conversion Agreement, the exercise price of the November 2018 Warrants will also be the New Conversion Price, replacing the previous formula which established the conversion price for the November 2018 Warrants as the lesser of (i) $15.00 and (ii) the average closing price of the Company’s Common Stock on the Nasdaq stock market for the ten days preceding the day of the conversion of the November 2018 Notes. As a result of the Conversion Agreement, the Company issued 319,326 shares of common stock of the Company and issued 159,663 warrants. The November 2018 Warrants expire eighteen (18) months from the date of the conversion of the November 2018 Notes.

The Company recorded an expense upon revaluation of the warrants for the period from March 1, 2019 to April 5, 2019 in the amount of $8,483 (2018 – nil) and is included in operating expenses. The Company recorded accretion interest expense on the November 2018 Notes from March 1, 2019 to April 5, 2019 in the amount of $154,364 and is included in operating expenses. The Company recorded interest expense on the November 2018 Notes for the period from March 1, 2019 to April 3, 2019 in the amount of $19,433 (2018 – nil). The value of the 159,633 warrants issued as part of the conversion was determined using the Black-Scholes pricing formula and amounted to $316,929 and is included in additional paid-in capital – warrants. Also, the conversion of the November 2018 Notes into common stock resulted in a gain of $232,565 and has been offset against operating expenses.

Second Issuance

On January 15, 2019, the Company issued convertible promissory notes (the “January 2019 Notes”), together with related warrants to acquire an additional 50% of the shares issuable upon the conversion of the January 2019 Notes (the “January 2019 Warrants”), for an aggregate purchase price of $4,500,000 (the “January 2019 Private Placement”). On January 21, 2019, the Company issued additional convertible promissory notes from this issuance, together with related warrants to acquire an additional 50% of the shares issuable upon the conversion of the January 2019 Notes, for an aggregate purchase price of $400,000.

The January 2019 Notes carry an interest rate of 8.00% per annum and mature on January 15, 2020 and January 21, 2020 (the “January 2020 Maturity Date”), respectively. At the January 2020 Maturity Date, the outstanding principal amount of the January 2019 Notes shall automatically convert into shares of the common stock of the Company at the price per share equal to $8.10 (the “January 2020 Conversion Price”). The January 2020 Conversion Price may be adjusted in the event that the Company issues common shares in a private sale or offering at a lower price per share than $8.10 within 180 days of the closing date. The lower price would become the new conversion price of the January 2019 Notes, which would impact the number of shares that would be issued. The total number of shares of Common Stock to be issued upon automatic conversion shall equal the outstanding principal amount of the January 2019 Notes divided by the January 2020 Conversion Price.

With respect to accrued and unpaid interest at the January 2020 Maturity Date, the Investors have the option of receiving cash or common stock of the Company at that date. Upon the January 2020 Maturity Date, where the Investor elect’s payment of accrued and unpaid interest on the January 2019 Notes in common stock, the price per share shall be equal to the trading price of the common stock at the close of the market on the date immediately preceding the January 2020 Maturity Date.

The January 2019 Warrants are exercisable for an additional fifty percent (50%) of the shares of Common Stock issuable upon the conversion of the January 2019 Notes (the “January 2019 Warrant Shares”). The per share purchase price (the “January 2019 Exercise Price”) for each of the January 2019 Warrant Shares purchasable under the January 2019 Warrants shall be equal to 115% of the January 2020 Conversion Price. The January 2019 Warrants will be calculated and issued upon the closing date of the January 2019 Notes, based upon the initial $8.10 conversion price. As such, the Company issued 302,469 warrants at the closing dates of the January 2019 Notes. If the Investor elects to take accrued and unpaid interest on the January 2019 Notes in common stock, additional warrants will be issued to acquire 50% of the shares issued in connection with the accrued and unpaid interest (also referred to as the “January 2019 Warrants”). The January 2019 Warrants expire twenty-four (24) months from the date of their issuance (the “January 2019 Expiration Date”). The Investors may exercise the January 2019 Warrants at any time prior to the January 2019 Expiration Date.

A beneficial conversion feature (“BCF”) of a convertible note is normally characterized as the convertible portion feature that provides a rate of conversion that is below market value or “in-the-money” when issued. The BCF related to the issuance of the January 2019 Notes was recorded at the issuance date. The BCF was measured using the intrinsic value method and is shown as a discount to the carrying amount of the convertible note and is credited to additional paid-in capital. The intrinsic value of the BCF at the issuance date of the January 2019 Notes was determined to be $1,200,915.

F-15

In connection with the January 2019 Warrants issued along with the January 2019 Notes, they meet the requirements of the scope exemptions in ASC 815-10-15-74 and are thus classified as equity upon issuance. The Company determined the fair value of the warrants using the Black-Scholes pricing formula and is recognized as a discount on the carrying amount of the January 2019 Notes and is credited to additional paid-in capital. The fair value of the warrants at the issuance date was determined to be $757,704.

The allocated fair values of the BCF and the warrants was recorded as a debt discount from the face amount of the January 2019 Notes and such discount is being accreted over the expected term of the January 2019 Notes and is charged to interest expense.

The aggregate values of the January 2019 Warrants, the January 2019 Notes and the related BCF are as follows:

	May 31, 2019	February 28, 2019	Issue Date
January 2019 Convertible Notes – Liability	3,556,249	$3,126,886	$2,941,381
Accrued interest – Liability	147,011	49,011	-
Deferred financing costs	(49,711)	(69,597)	(79,539)
	3,653,549	3,106,300	2,861,842
January 2019 Beneficial Conversion Option – Equity	1,200,915	1,200,915	1,200,915
January 2019 Warrants – Equity	$757,704	$757,704	$757,704

The transaction costs relating to this issuance were split pro-rata between the January 2019 Notes, the BCF and the January 2019 Warrants. The portion relating to the January 2019 Notes were deferred and are being amortized over the life of the January 2019 Notes. The portion relating to the BCF and the January 2019 Warrants were recorded as share issuance expenses and offset against additional paid-in capital.

The Company recorded accretion interest expense on the January 2019 Notes for the three-month period ended May 31, 2019 of $429,363 (2018 – nil) and is included in operating expenses. The Company also recorded interest expense on the January 2019 Notes for the three-month period ended May 31, 2019 in the amount of $98,000 (2018 – nil).

F-16

11.

Stockholders’ Equity

Series A Preferred Stock

Mr. Solomita’s amended employment agreement July 13, 2018 provides that the Company shall issue to Mr. Solomita one share of the Company’s Series A Preferred Stock in exchange for Mr. Solomita agreeing not to terminate his employment with the Company for a period of five years from the date of the agreement. The agreement effectively provides Mr. Solomita with a “change of control” provision over the Company in the event that his currently-held 53.3% of the issued and outstanding shares of common stock of the Company is diluted to less than a majority. In order to issue Mr. Solomita his one share of Series A Preferred Stock under the amendment, the Company created a “blank check” preferred stock. Subsequently, the board of directors of the Company approved a Certificate of Designation creating the Series A Preferred Stock. Subsequently, the Company issued one share of Series A Preferred Stock to Mr. Solomita.

The one share of Series A Preferred Stock issued to Mr. Solomita holds a majority of the total voting power so long as Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of common stock of the Company, assuring Mr. Solomita of control of the Company in the event that his currently-held 53.3% of the issued and outstanding shares of common stock of the Company is diluted to a level below a majority.

Additionally, the one share of Series A Preferred Stock issued to Mr. Solomita contains protective provisions, which precludes the Company from taking certain actions without Mr. Solomita’s (or that of any person to whom the one share of Series A Preferred Stock is transferred) approval. More specifically, so long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class:

(a) 

amend the Articles of Incorporation or, unless approved by the Board of Directors, including by the Series A Director, amend the Company’s Bylaws;

(b) 

change or modify the rights, preferences or other terms of the Series A Preferred Stock, or increase or decrease the number of authorized shares of Series A Preferred Stock;

(c) 

reclassify or recapitalize any outstanding equity securities, or, unless approved by the Board of Directors, including by the Series A Director, authorize or issue, or undertake an obligation to authorize or issue, any equity securities or any debt securities convertible into or exercisable for any equity securities (other than the issuance of stock-options or securities under any employee option or benefit plan);

(d) 

authorize or effect any transaction constituting a Deemed Liquidation (as defined in this subparagraph) under the Articles, or any other merger or consolidation of the Company;

(e) 

increase or decrease the size of the Board of Directors as provided in the Bylaws of the Company or remove the Series A Director (unless approved by the Board of Directors, including the Series A Director);

(f) 

declare or pay any dividends or make any other distribution with respect to any class or series of capital stock (unless approved by the Board of Directors, including the Series A Director);

(g) 

redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares of capital stock (other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant to agreements approved by the Board of Directors under which the Company has the option to repurchase such shares at no greater than original cost upon the occurrence of certain events, such as the termination of employment) (unless approved by the Board of Directors, including the Series A Director);

F-17

(h) 

create or amend any stock option plan of the Company, if any (other than amendments that do not require approval of the stockholders under the terms of the plan or applicable law) or approve any new equity incentive plan;

(i) 

replace the President and/or Chief Executive Officer of the Company (unless approved by the Board of Directors, including the Series A Director);

(j) 

transfer assets to any subsidiary or other affiliated entity (unless approved by the Board of Directors, including the Series A Director);

(k) 

issue, or cause any subsidiary of the Company to issue, any indebtedness or debt security, other than trade accounts payable and/or letters of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase or otherwise alter in any material respect the terms of any indebtedness previously approved or required to be approved by the holders of the Series A Preferred Stock (unless approved by the Board of Directors, including the Series A Director);

(l) 

modify or change the nature of the Company’s business;

(m) 

acquire, or cause a Subsidiary of the Company to acquire, in any transaction or series of related transactions, the stock or any material assets of another person, or enter into any joint venture with any other person (unless approved by the Board of Directors, including the Series A Director); or

(n) 

sell, transfer, license, lease or otherwise dispose of, in any transaction or series of related transactions, any material assets of the Company or any Subsidiary outside the ordinary course of business (unless approved by the Board of Directors, including the Series A Director).

 

Common Stock

For the period ended May 31, 2019	Number of shares	Amount
Balance, February 28, 2019	33,805,706	$3,381
Issuance of shares for cash	600,000	60
Issuance of shares upon settlement of legal matter	150,000	15
Issuance of shares upon conversion of Convertible notes	319,326	32
Balance, May 31, 2019	34,875,032	$3,488

For the period ended May 31, 2018	Number of shares	Amount
Balance, February 28, 2018	33,751,088	$3,376
Cashless exercise of stock options	18,821	2
Issuance of shares upon vesting of restricted stock units	35,797	3
Balance, May 31, 2018	33,805,706	$3,381

During the three months ended May 31, 2019, the Company recorded the following common stock transactions:

(i)	On March 1, 2019, the Company sold 600,000 shares of its common stock at an offering price of $8.55 per share in a registered direct offering, for gross proceeds of $5,130,000;
(ii)	On March 8, 2019 and March 11, 2019, the Company issued 150,000 shares of its common stock in settlement of a legal matter;
(iii)	On April 9, 2019, the Company converted Convertible notes with a face value of $2,650,000 plus accrued interest of $80,241 at a conversion price of $8.55, into 319, 326 common shares.

During the three months ended May 31, 2018, the Company recorded the following common stock transactions:

(i)

the Company issued 18,821 shares of common stock upon the cashless exercise of 20,000 warrants.

(ii)

the Company issued 35,797 shares of common stock upon the vesting of restricted stock units.

F-18

12. Share-based Payments

Stock Options

The following tables summarizes the continuity of the Company’s stock options during the three-month periods ended May 31, 2019 and 2018:

	2019		2018
	Number of stock options	Weighted average exercise price	Number of stock options	Weighted average exercise price
Outstanding, beginning of period	1,962,400	$7.53	2,374,581	$7.99
Granted	-	-	-	-
Exercised	-	-	(20,000)	0.80
Forfeited	(10,010)	8.75	(100,000)	5.25
Expired	(260,417)	13.89	-	-
Outstanding, end of period	1,691,973	$6.60	2,254,581	$8.17
Exercisable, end of period	914,998	$6.10	926,249	$6.61

	2019		2018
Exercise price	Number of stock options outstanding	Weighted average remaining life (yrs.)	Number of stock options outstanding	Weighted average remaining life (yrs.)
$0.80	582,081	6.51	582,081	7.50
$3.00	-	-	12,500	0.01
$5.25	380,000	8.24	430,000	8.19
$8.75	16,683	0.04	-	-
$11.52	13,209	0.04	-	-
$12.00	700,000	8.29	700,000	9.29
$13.49	-	-	250,000	9.38
$13.89	-	-	280,000	9.44
Outstanding, end of period	1,691,973	7.52	2,254,581	8.60
Exercisable, end of period	914,998	7.54	926,249	7.96

The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. As there were no new issuances of stock options for the three-month periods ended May 31, 2019 and 2018, there are no principal components of the Black-Scholes option pricing model for stock options during those periods.

During the three-month periods ended May 31, 2019 and 2018, stock-based compensation expense attributable to stock options amounted to $575,513 and $978,025, respectively, and is included in operating expenses.

F-19

Restricted Stock Units

The following table summarizes the continuity of the restricted stock units (“RSUs”) during the three-month periods ended May 31, 2019 and 2018:

	2019		2018
	Number of units	Weighted average fair value price	Number of units	Weighted average fair value price
Outstanding, beginning of period	402,868	$8.77	34,102	$13.00
Granted	25,145	9.79	24,450	12.23
Issued as common stock	(7,043)	12.16	(35,797)	13.06
Forfeited	(17,203)	8.75	-	-
Outstanding, end of period	403,767	$8.73	22,755	$12.07
Outstanding vested, end of period	5,000	12.32	-	-

The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the closing share price at grant date multiplied by the number of restricted stock unit awards granted.

During the three-month periods ended May 31, 2019 and 2018, stock-based compensation attributable to RSUs amounted to $355,178 and $207,645, respectively, and is included in operating expenses.

During the three-month periods ended May 31, 2019 and 2018, stock-based compensation included in Research and development expenses amounted to $312,435 and $410,213, respectively, and in General and administrative expenses amounted to $618,255 and $775,456, respectively.

13.

Equity Incentive Plan

On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10% of the voting power of the Company, the life of the options shall not exceed 5 years.

The following table summarizes the continuity of the Company’s Equity Incentive Plan units during the three-month periods ended May 31, 2019 and 2018:

	2019	2018
	Number of units	Number of units
Outstanding, beginning of period	3,223,516	1,735,898
Automatic share reserve increase	1,500,000	1,500,000
Units granted	(25,145)	(24,450)
Units forfeited	27,213	-
Units expired	260,417	-
Outstanding, end of period	4,986,001	3,211,448

F-20

14. Warrants

The following table summarizes the continuity of warrants during the three-month periods ended May 31, 2019 and 2018:

	2019		2018
	Number of warrants	Weighted average exercise price	Number of warrants	Weighted average exercise price
Outstanding, beginning of period	802,469	$10.74	140,667	$12.00
Issued	159,663	8.55	-	-
Exercised	-	-	-	-
Expired	-	-	-	-
Outstanding, end of period	962,132	$10.38	140,667	$12.00

The expiration dates of the warrants outstanding as at May 31, 2019 are as follows:

	2019
	Number of warrants	Weighted average exercise price
January 15, 2020	277,778	$9.32
January 21, 2020	24,691	9.32
October 9, 2020	159,663	8.55
February 25, 2021	200,000	11.00
February 25, 2021	300,000	12.00
Outstanding, end of period	962,132	$10.38

15. Interest and Other Finance Costs

Interest and other finance costs for the three-month periods ended May 31, 2019 and 2018 are as follows:

	2019	2018
Interest on long-term debt	$13,070	$13,037
Interest on convertible notes	117,435	-
Accretion expense	547,562	-
Amortization of deferred finance costs	46,442	-
Revaluation of warrants	8,483	-
Gain on conversion of November 2018 Notes	(232,565)	-
Other	1,422	(124)
	$501,849	$12,913

F-21

16. Commitments

The Company has entered into multi-year supply agreements with PepsiCo, Coca-Cola’s Cross Enterprise Procurement Group and Danone SA that will enable them to purchase production capacity from the Company’s joint venture facility with IVL in the United States, and incorporate Loop™ PET resin into its product packaging starting in 2020. Also, the Company has entered into a multi-year supply agreement with L’Occitane that will enable them to purchase production capacity from the Company’s first European production facility.

17. Subsequent Event

On May 29, 2019, Loop Industries, Inc. entered into a Securities Purchase Agreement (“Purchase Agreement”) by and among the Company, Northern Private Capital Fund I Limited Partnership, an accredited investor (the “Purchaser”), and Daniel Solomita (“Solomita”), in his individual capacity and solely for the purposes of a voting arrangement, pursuant to which the Company has agreed to issue and sell to the Purchaser in a registered direct offering (“Offering”) an aggregate of 4,093,567 shares (“Shares”) of the Company’s common stock (the “Common Stock”) at a per share purchase price of $8.55 per share, for aggregate net proceeds of approximately $34.6 million, after deducting estimated offering expenses payable by the Company, of approximately $400,000. The issuance and sale of the Shares is registered under the Securities Act of 1933 pursuant to the Company’s Registration Statement on Form S-3 which was declared effective by the Securities and Exchange Commission (“SEC”) on August 10, 2018, supplemented by a prospectus supplement dated May 29, 2019. Concurrently with the Offering and pursuant to the Purchase Agreement, the Company has agreed to issue to the Purchaser options to purchase up to an additional 4,093,567 shares of the Company’s common stock at an exercise price of $11.00 per share, which will vest on December 15, 2019, and are exercisable for three years following the closing date of the Offering. The Offering closed on June 14.

F-22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information and any forward-looking statements should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, including those risks identified in the “Risk Factors” section of our most recent Annual Report on Form 10-K.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company”, “we”, “Loop” or “our”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, ability to improve and expand our capabilities, competition, expected activities and expenditures as we pursue our business plan, the adequacy of our available cash resources, regulatory compliance, plans for future growth and future operations, the size of our addressable market, market trends, and the effectiveness of the Company’s internal control over financial reporting. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) commercialization of our technology and products, (ii) our status of relationship with partners, (iii) development and protection of our intellectual property and products, (iv) our need for and ability to obtain additional financing, (v) industry competition, (vi) regulatory and other legal compliance, (vii) the exercise of the control over us by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, (viii) other factors over which we have little or no control, (ix) building our manufacturing facility, (x) and our ability to sell our products in order to generate revenues, (xi) our proposed business model and our ability to execute thereon, (xii) our ability to remedy our material weaknesses in internal control over financial reporting, (xiii) our ability to continue as a going concern and raise funds sufficient to support our ongoing operations, (xiv) whether the reassessment of our internal controls over financial reporting could lead us to conclude that there were deficiencies in its internal control over financial reporting that constitute material weaknesses, (xv) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting issues and practices, rumors or otherwise and (xvi) other factors discussed in our subsequent filings with the SEC.

Management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as at the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as at the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

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Introduction

Loop Industries, Inc. is a technology and licensing company whose mission is to accelerate the world’s shift toward sustainable plastic and away from its dependence on fossil fuels. Loop owns patented and proprietary technology that depolymerizes no and low value waste PET plastic and polyester fiber, including plastic bottles and packaging, carpet and polyester textile of any color, transparency or condition and even ocean plastics that have been degraded by the sun and salt, to its base building blocks (monomers).  The monomers are filtered, purified and repolymerized to create virgin-quality Loop™ branded PET plastic resin and polyester fiber suitable for use in food-grade packaging to be sold to consumer goods companies to help them meet their sustainability objectives.  Through our customers and production partners, Loop is leading a global movement toward a circular economy by commercializing a leading-edge technology which will ensure plastic stays in the economy for a more sustainable future for all.

Industry Background

We believe there is an increasing demand for action to address the global plastic crisis, which has been characterized by facts provided by leading academic and not-for profit organizations. For example, the University of Georgia reports eight million metric tons of plastic waste flows into our shared oceans every year, and, according to The New Plastics Economy, by 2050 more plastic waste is expected to be present in the ocean than fish (by mass). Couple this information with the global annual market demand for PET plastic and polyester fiber at nearly $130 billion, and the current growth projections from the 2018 IHS Polymer Market Report indicating this will exceed $160 billion by 2022, and the need for governments and consumer brands to take decisive action to stem this global plastic crisis becomes readily apparent.

Examples of actions and trends of 2018 and early 2019 that demonstrate the significance of the plastic crisis:

●

The United Kingdom has proposed a regulation expected to impose a tax on plastic packaging imported or manufactured in the United Kingdom that does not contain at least 30% recycled content. This compliments the proposed reform of the producer responsibility regime for packaging throughout the United Kingdom; and tools to increase the recycling of municipal waste from households and businesses in England;

●

The proposed European Union Directive on the reduction of the impact of certain plastic products on the environment is expected to require that single-use PET plastic bottles contain 25% recycled content by 2025 and 30% by 2030;

●

France has proposed to increase the price of single-use plastic containers that use virgin PET plastic by up to 10% in an effort to discourage consumers from buying packaging that does not contain recycled content;

●

Plastic pollution continues to be one of the most persistently covered environmental issues by media and local and global environmental non-governmental organizations; and

●

Global consumer goods companies have made significant commitments to make the transition to a circular plastic economy, namely:

i.

In January 2018, Danone’s evian® brand bottled spring water committed to a 100% recycled content package by 2025;

ii.

In 2018, Coca-Cola committed to an average recycled content of 50% across its plastic packaging by 2030;

iii.

In October 2018, PepsiCo committed to an average recycled content of 33% in its packaging by 2025;

iv.

In December 2018, Nestle Waters committed that its plastic packaging will contain 50% recycled content by 2025; and

v.

In February 2019, the L’OCCITANE Group, a global manufacturer and retailer of natural cosmetics, committed to a 100% recycled content package by 2025.

We believe these trends indicate that the transformation from a linear to a circular plastic economy is not only necessary and inevitable, but underway. And that this transition is leading to a substantial demand for sustainable, cost-effective, marketable Loop™ PET plastic resin and polyester fiber.

Proprietary Technology and Intellectual Property

The power of our technology lies in its ability to divert and recover what is currently considered plastic waste from landfills, rivers, oceans and natural areas for use as feedstock to create new, sustainable, infinitely recyclable Loop™ PET plastic resin and polyester fiber. We believe our technology can deliver a cost-effective and profitable virgin quality PET plastic resin suitable for use in food-grade packaging.

Our Generation I technology process yielded polyethylene terephthalate (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET plastic, through depolymerization. While monomers were of excellent purity and strong yield, we continued to challenge ourselves to drive down cost and eliminate inputs. It was during this process that we realized we could eliminate water and chlorinated solvents from the purification process, reduce the number of reagents from five to two and reduce the number of purification steps from 12 to four, if we shifted from the production of PTA to the production of dimethyl terephthalate (“DMT”), another proven monomer of PET plastic that is far simpler to purify. Since June 2018, when we transitioned to our Generation II technology and our newly built industrial pilot plant, we continue to see consistently high monomer yields, excellent purity and improved conversion costs

 

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This shift, from producing the monomer PTA to the monomer DMT was a pivotal moment for Loop. The Generation II technology is more cost-effective, easier to commercialize, more economical for our customers and requires less energy and fewer resource inputs than conventional PET production processes. We believe it to be one of the most environmentally sustainable methods for producing virgin quality food-grade PET plastic in the world.

To protect our technology, we rely on a combination of patent and trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our patents, brand names, product designs and marks.

We have two patent groups, referred to as GEN I technology and the GEN II technology, with claims relating to our proprietary technology for depolymerization of PET.

●

The GEN I portfolio has two issued U.S. patents and a pending U.S. application expected to expire on or around July 2035. Internationally, we also have an issued patent in Taiwan, an allowed application in the members of the Gulf Cooperation Council, and pending patent applications in Argentina, Australia, Brazil, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, Mexico, the Philippines, and South Africa, all expected to expire on or around July 2036 if granted.

●

The GEN II technology portfolio has an issued U.S. patent and a pending U.S. application expected to expire on or around September 2037; as well as a PCT application and non-PCT applications in Argentina, Bangladesh, Bolivia, Bhutan, members of the Gulf Cooperation Council, Iraq, Pakistan, Taiwan, Uruguay, and Venezuela, all expected to expire on or around September 2037 if granted. Additionally, we have three pending provisional applications directed to additional aspects of the GEN II technology. Any patents that would ultimately grant from these provisional applications would be expected to expire no earlier than 2039, if granted.

In connection with the continued transitioned to its newly constructed GEN II industrial pilot plant. the Company made capital asset investments of $943,891 during the three months ended May 31, 2019.

Government Regulation and Approvals

As we seek to further develop and commercialize our business, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations could increase our operational costs.

Our operations require various governmental permits and approvals. We are in the process of obtaining all necessary permits and approvals for the operation of our business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.

The use of mechanically recycled PET for food grade applications in India is not permitted, and in Japan and China it is highly inadvisable for a variety of reasons including the perception of contamination from mechanically recycled sources. We believe that means that Loop™ PET plastic resin and polyester fiber has a distinct advantage in these markets, which represent nearly three billion people or approximately 38% of the global population. Since our product is not mechanically recycled PET, we expect that demand from PET manufacturers and global consumer goods companies in these regions for 100% Loop™ branded PET plastic resin and polyester fiber will be a significant part of our strategy going forward.

Commercialization Progress and Plan of Operation

During the quarter ended May 31, 2019, we continued executing our corporate strategy where Loop focused on developing three major streams of revenue. These revenue streams are expected to be from the sale of Loop™ PET plastic resin and polyester fiber to customers from our joint venture with Indorama Ventures Limited (“IVL”), license fees from our Waste-to-Resin (“WtR™”) facilities and development fees from the sale and construction of WtR™ facilities around the world.

In September 2018, in connection with the first of these streams, we announced a joint venture with IVL to manufacture and commercialize sustainable Loop™ branded PET plastic resin and polyester fiber to meet the growing global demand from beverage and consumer packaged goods companies. The joint venture agreement details the establishment of a 20,700 metric tonnes facility in the southeastern United States. As the 20,700 metric tonnes production capacity is fully subscribed by customers. which include Danone, PepsiCo, and Coca-Cola’s Cross Enterprise Procurement Group, the joint venture is evaluating increasing the capacity of the facility. The facility is expected to commence production in the second half of the calendar year 2020.

Also, during the 2019 fiscal year and the three months ended May 31, 2019, we secured key partners such as Thyssenkrupp Industrial Solutions(“tkIS”), built our brand and continued to secure the feedstock needed to support our commercial success. We expect to sign definitive contractual agreements for feedstock in the next 12-18 months.

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Production

There are two principal modes planned for commercializing production of Loop™ branded PET plastic resin and polyester fiber. These include the retrofit of existing PET production facilities and the development of greenfield integrated WtR™ facilities around the world, which are described here.

In September of 2018, we announced a joint venture with IVL to manufacture and commercialize sustainable Loop™ branded PET plastic resin and polyester fiber to meet the growing global demand from beverage and consumer packaged goods companies. The 50/50 joint venture has an exclusive world-wide license to use our technology to retrofit existing IVL facilities, so each can produce 100% sustainable Loop™ PET plastic resin and polyester fiber. The first facility, in Spartanburg, South Carolina, is anticipated to begin commercial production in the second half of the calendar year 2020 and is expected to produce 20,700 metric tonnes of sustainable Loop™ PET plastic resin and is fully subscribed by leading global consumer brands. The engineering design work for our first facility in Spartanburg, South Carolina is progressing well.

As part of the joint venture agreement, the Company anticipates contributing equity to meet its financial obligations under the joint venture agreement with IVL. On April 18, 2019, the Company and its joint venture partner have each contributed cash of $500,000 to the joint venture. Also, due to increasing market demand from existing and potential customers, and the positive work on the preliminary engineering conducted at the facility, the joint venture is evaluating options to increase the capacity at the plant to 40,000 metric tonnes and the Company anticipates a decision to be made by the second quarter of the fiscal year 2020. If the joint venture decides to expand production capacity, this would increase the Company’s required equity contribution to the joint venture, which is estimated to be between $15,000,000-$20,000,000. The Company expects that the additional capacity will be sold to existing and new customers that are currently under negotiation.

We are also in the process of identifying additional facilities suitable for retrofit. The partnership with IVL, which we believe to be one of the world’s largest global integrated PET plastic resin manufacturer, helps bring Loop™ PET sustainable plastic resin and polyester fiber to market more quickly and further emboldens the confidence of our customers to sign multi-year supply agreements and term sheets with us.

To drive our WtR™ solution, which is a key pillar of our commercialization blueprint, December 2018 saw us enter into a Global Alliance Agreement with Thyssenkrupp Industrial Solutions (“tkIS”) aimed at transforming the future of sustainable PET plastic resin manufacturing by combining our breakthrough depolymerization technology with tkIS’s PET Melt-To-Resin® technology. As one of the world’s leading PET and polyester engineering companies, we believe tkIS is perfectly positioned to help us commercialize our WtR™ solution—a fully integrated and reimagined manufacturing facility for sustainable Loop™ PET plastic resin and polyester fiber. During the three months ended May 31, 2019, the Company and tkIS continued the process of developing such a fully integrated and reimagined manufacturing facility for sustainable Loop™ PET plastic resin and polyester fiber.

We believe the WtR™ solution will result in a highly scalable recurring revenue licensing model to supply the global demand for 100% sustainable Loop™ PET plastic resin and polyester fiber, allowing us to rapidly penetrate and transform the plastic market and fully capitalize on our disruptive potential to be the leader in the circular economy for PET plastic. This fundamentally changes where and how PET plastic resin production occurs—no longer does PET plastic resin production need to be bound to fossil fuels and fossil fuel infrastructure. WtR™ facilities could be located near large urban centers where feedstock is located, and transportation and logistics costs could be significantly reduced as the distance between feedstock, manufacturing and customer use is collapsed.

We believe the proposition for those seeking a turnkey solution to manufacture Loop™ PET plastic resin and polyester fiber, such as chemical companies, waste managers, existing recyclers and even consumer good companies around the world is compelling. We further believe this will create a recurring licensing revenue stream for us while expanding the capacity of Loop™ PET plastic resin and polyester fiber in the marketplace to meet the substantial demand from consumer goods companies.

Supply Agreements with Global Consumer Brands

Consumer brands are seeking a solution to their plastic challenge and they are taking bold action. In the past year we have seen major brands make significant commitments to close the loop on their plastic packaging in two ways, by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging. We believe Loop™ PET plastic resin and polyester fiber provides the ideal solution for these brands because Loop™ PET plastic resin and polyester fiber is recyclable and contains 100% recycled PET and polyester fiber content with virgin quality suitable for use in food-grade packaging. That means consumer packaged goods companies can now market packaging made from a 100% Loop™ branded PET plastic resin and polyester fiber.

As a result, during the 2019 fiscal year and the three months ended May 31, 2019, we delivered a significant number of announcements with some of the world’s leading brands, including:

●

Multi-year supply agreement with Danone SA, one of the world’s leading global food and beverage companies. Danone will purchase 100% sustainable and upcycled Loop™ branded PET from Loop’s joint venture facility with IVL in the United States for use in brands across its portfolio including evian®, Danone’s iconic natural spring water;

●

Multi-year supply agreement with PepsiCo, one of the largest purchasers of recycled PET plastic, enabling them to purchase production capacity from Loop’s joint venture facility with IVL in the United States and incorporate Loop™ PET plastic resin into its product packaging by 2020;

●

Multi-year supply framework with the Coca-Cola system’s Cross Enterprise Procurement Group to supply 100% recycled and sustainable Loop™ PET plastic resin from our joint venture facility with IVL in the United States to authorized Coca-Cola bottlers who enter into supply agreements with us;

 

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●

Multi-year supply agreement with L’Occitane to supply 100% recycled and sustainable Loop™ PET plastic resin from our first European production facility;

●

A new program, free to consumers of Gatorade Gx and Drinkfinity, subsidiaries of PepsiCo, to return used Gatorade Gx and Drinkfinity pods to Loop where the PET from the pods will be processed using Loop’s technology to make Loop™ PET plastic resin and polyester fiber, and all other recyclable components are sent for recycling;

●

A new program, free to consumers of Drinkworks by Keurig®, to return used Drinkworks pods to Loop where the PET from the pods will be processed using Loop’s technology to make Loop™ PET plastic resin and polyester fiber and all other recyclable components are sent for recycling;

●

An initial Letter of Intent with L’Oréal Group, the global leader in the beauty industry, working towards a multi-year supply agreement and setting the stage for L’Oréal to becoming the first major cosmetics company in the world to close the loop on their PET plastic packaging by incorporating Loop™ PET;

●

An initial Letter of Intent with Nestle Waters North America working towards a multi-year supply agreement for Loop™ PET; and

●

Working towards amulti-year supply agreement with Unilever.

Loop believes that due to the commitments by large global consumer brands to incorporate more recycled content into their product packaging, the regulatory requirements for minimum recycled content in packaging imposed by governments, the virgin-like quality of Loop™ branded PET and the marketability of Loop™ PET to extoll the sustainability credentials of consumer brands that incorporate Loop™ PET, it will sell its Loop™ branded PET at a premium price relative to virgin PET.

Turning Waste into Feedstock

To us, waste PET plastic and polyester fiber is feedstock, the materials introduced into our Generation II depolymerization technology to yield PET monomers. Our technology can use plastic bottles and packaging of any color, transparency or condition, carpet, clothing and other polyester textiles that may contain colors, dyes or additives, and even ocean plastics that have been degraded by sun and salt. This is yet another distinct advantage of Loop™ PET over mechanically recycled PET, our ability to use materials that nearly all other recyclers do not use. This also means we are creating a new market for materials that have persistently been leaking out of the waste management system and into our shared rivers, oceans and natural areas.

We have a dedicated team studying the availability of feedstock to ensure each planned facility can operate continuously. The team has already identified the sources required for our first joint venture facility with IVL and is now focused on signing supply agreements to secure this feedstock for the long term.

The team is also conducting a macro-to-micro analysis in the United States, Canada, European Union and Asia to help us evaluate the size and location of our next facilities. The approach includes a fulsome inventory of PET materials introduced into a region, the materials collected (or recycled) in the region and the material loss, or the difference between the material introduced and the material collected. This allows us to identify not only the material traditionally available for recycling, but how material can be effectively diverted from landfill, rivers, oceans and natural areas by providing a new outlet for what was formerly considered waste.

We believe the proposition for those seeking a turnkey solution to manufacture Loop™ PET plastic resin and polyester fiber, such as chemical companies, waste managers, existing recyclers and consumer good companies around the world is compelling. We further believe this will create a recurring licensing revenue stream for us while expanding the capacity of Loop™ PET plastic resin and polyester fiber in the marketplace to meet the substantial demand from consumer goods companies.

Consumer brands are seeking a solution to their plastic challenge, and they are taking bold action. In the past year we have seen major brands make significant commitments to close the loop on their plastic packaging in two ways, by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging. We believe Loop™ PET plastic resin and polyester fiber provides the ideal solution for these brands because Loop™ PET plastic resin and polyester fiber contains 100% recycled PET and polyester fiber content. The Loop™ PET plastic resin and polyester fiber is virgin quality suitable for use in food-grade packaging. That means consumer packaged goods companies can now market packaging made from a 100% Loop™ branded PET plastic resin and polyester fiber. As a result, during the 2019 fiscal year and the three months ended May 31, 2019, we delivered a significant number of announcements regarding our partnership / engagement with some of the world’s leading brands.

We plan to continue to allocate available capital to strengthen our intellectual property portfolio, build a core competency in managing strategic relationships and continue enhancing our Loop brand value. Our research and development innovation hub in Terrebonne, Quebec, Canada will continue optimizing our current technology as well as innovate into new areas of sustainability. We are investing in building a strong management team to integrate best in class processes and practices while maintaining our entrepreneurial culture.

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Results of Operations

The following table summarizes our operating results for the three-month periods ended May 31, 2019 and 2018, in U.S. Dollars.

	Three Months Ended May 31,
	2019	2018	$ Change
Revenues	$-	$-	$-
Operating expenses
Research and development
Stock-based compensation	312,435	410,213	(97,778)
Other research and development	685,426	655,866	29,560
Total research and development	997,861	1,066,079	(68,218)
General and administrative
Stock-based compensation	618,255	775,456	(157,201)
Other general and administrative	1,284,375	1,580,094	(295,719)
Total general and administrative	1,902,630	2,355,550	(452,920)
Depreciation and amortization	164,336	101,069	63,267
Interest and other finance costs	501,849	12,913	488,936
Foreign exchange (gain) loss	(12,126)	(6,081)	(6,045)
Total operating expenses	3,554,550	3,529,530	25,020
Net loss	(3,554,550)	$(3,529,530)	$(25,020)

First Quarter Ended May 31, 2019

The net loss for the three-month period ended May 31, 2019 increased $0.03 million to $3.56 million, as compared to the net loss for the three-month period ended May 31, 2018 which was $3.53 million. The increase is primarily due to increased interest and other finance costs of $0.49 million, an increase in depreciation and amortization of $0.06 million, offset by lower research and development expenses of $0.07 million and by lower general and administrative expenses of $0.45 million.

Research and development expenses for the three-month period ended May 31, 2019 amounted to $1.0 million compared to $1.07 million for the three-month period ended May 31, 2018, representing a decrease of $0.07 million, or representing an increase of $0.03 million excluding stock-based compensation. The increase of $0.03 million was primarily attributable to higher professional fees offset by higher research and development tax credits. The decrease in non-cash stock-based compensation expense of $0.10 million is mainly attributable to the timing of stock awards provided to certain employees.

General and administrative expenses for the three-month period ended May 31, 2019 amounted to $1.90 million compared to $2.36 million for the three-month period ended May 31, 2018, representing a decrease of $0.46 million, or $0.30 million excluding stock-based compensation. The decrease of $0.30 million was mainly attributable to higher employee related expenses, higher marketing and commercial insurance expenses totaling $0.28 million, offset by professional fees of $0.58 million. Stock-based compensation expense for the three-month period ended May 31, 2019 amounted to $0.62 million compared to $0.78 million for the three-month period ended May 31, 2018, representing a decrease of $0.16 million, which was mainly attributable lower stock awards provided to executives.

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Depreciation and amortization for the three-month period ended May 31, 2019 totaled $0.16 million compared to $0.10 million for the three-month period ended May 31, 2018, representing an increase of $0.06 million. This increase is mainly attributable to the addition of fixed assets at the Company’s pilot plant and corporate offices.

Interest and other finance costs for the three-month period ended May 31, 2019 totaled $0.50 million compared to $0.01 million the three-month period ended May 31, 2018, representing an increase of $0.49 million. This increase is attributable to the non-cash accretion expense also relating to the convertible notes issued during the 2019 Fiscal year in the amount of $0.59 million, the interest expense relating to the convertible notes issued during the 2019 Fiscal year in the amount of $0.12 million, the amortization of deferred financing costs also related to the convertible notes issued during the 2019 Fiscal year in the amount of $0.04 million, the revaluation expense of the November 2018 Warrants in the amount of $0.01 million offset by the gain on conversion of the November 2018 Notes in the amount of $0.27 million. During the three months ended May 31, 2018, there were no convertible notes outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Loop is a development stage company with no revenues, and our ongoing operations are being financed by raising new equity and debt capital. To date, we have been successful in raising capital to finance our ongoing operations, reflecting the potential for commercializing our branded resin and the progress made to date in implementing our business plans.

As at May 31, 2019, the Company had cash on hand of $7.0 million.On May 29, 2019, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with Northern Private Capital Fund I Limited Partnership (“Northern Capital”) pursuant to which the Company has issued and sold to Northern Capital in a registered direct offering (“Offering”) an aggregate of 4,093,567 shares of the Company’s common stock at a per share purchase price of $8.55 per share, for aggregate net proceeds of approximately $34.6 million, after deducting estimated offering expenses payable by the Company of approximately $400,000. Concurrently with the Offering and pursuant to the Purchase Agreement, the Company has issued to Northern Capital options to purchase up to an additional 4,093,567 shares of the Company’s common stock at an exercise price of $11.00 per share, which will vest on December 15, 2019, and are exercisable for three years following the closing date of the Offering and which would result in further total net proceeds of approximately $45 million. The proceeds from the Offering will be used to finance the start-up of its joint venture commercial operations, which is estimated to be between $15,000,000-$20,000,000, as well as general corporate purposes which includes continued investment in R&D for further innovation and funding ongoing operations.

As at May 31, 2019, we have a long-term debt obligation to a Canadian bank in connection with the purchase, in Fiscal 2018, of the land and building where our pilot plant and corporate offices are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the Company obtained a CDN$1,400,000 20-year term instalment loan (the “Loan”), from a Canadian bank. The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of CDN $5,833 plus interest, until January 2021, at which time it will be subject be renewal. It includes an option allowing for the prepayment of the Loan without penalty.

Flow of Funds

Summary of Cash Flows

A summary of cash flows for the three months ended May 31, 2019 and 2018 was as follows:

	Three Months Ended May 31,
	2019	2018
Net cash used in operating activities	$(2,087,353)	$(2,171,061)
Net cash used in investing activities	(995,356)	(592,316)
Net cash (used) provided by financing activities	4,253,727	(13,514)
Effect of exchange rate changes on cash	(32,796)	(17,807)
Net (decrease) increase in cash	$1,138,222	$(2,794,698)

Net Cash Used in Operating Activities

During the three months ended May 31, 2019, we used $2.1 million in operations compared to $2.2 million during the three months ended May 31, 2018. The Company continued to invest in research and development on its existing technologies and new technologies, particularly on the implementation of its GEN II technology as the Company moves to the next phase of commercialization.

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Net Cash Used in Investing Activities

During the three months ended May 31, 2019, the Company made investments of $0.5 million in property, plant and equipment as compared to $0.6 million for the three months ended May 31, 2018, primarily in connection with the upgrade of its GEN II industrial pilot plant. During the three months ended May 31, 2019, the Company made investments in intangible assets particularly in its GEN II patent technology in the United States and around the world.

During the three months ended May 31, 2019, the Company also made its initial contribution of $500,000 to Indorama Loop Technologies, LLC, the joint venture with Indorama Ventures Holdings LP, USA.

Net Cash (Used) Provided by Financing Activities

During the three months ended May 31, 2019, we raised net proceeds of $4.2 million through the sale of common stock.

Off-Balance Sheet Arrangements

As at May 31, 2019, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

As at May 31, 2019, we did not have any significant lease obligations to third parties.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to risks associated with currency fluctuations and changes in foreign currency exchange rates as well as fluctuations in the supply and price of raw materials and commodity prices. 

Foreign Currency Exchange Risk

We operate mainly through two entities, Loop Industries, Inc., which is a Nevada corporation and has a U.S. dollar functional currency, and our wholly-owned subsidiary, Loop Canada Inc. (“Loop Canada”), which is based in Terrebonne, Québec, Canada and has a Canadian dollar functional currency. Our reporting currency is the U.S. dollar.

We mainly finance our operations through the sale and issuance of shares of common stock and debt of Loop Industries, Inc. in U.S. dollars while our operations are concentrated in our wholly-owned subsidiary, Loop Canada. Accordingly, we are exposed to foreign exchange risk as we maintain bank accounts in U.S. dollars and a significant portion of our operational costs (including payroll, site costs, costs of locally sourced supplies and income taxes) are denominated in Canadian dollars.

Significant fluctuations in the U.S. dollar to the Canadian dollar exchange rates could materially affect our result of operations, cash position and funding requirements. To the extent that fluctuations in currency exchange rates cause our results of operations to differ materially from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.

From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. As part of our risk management program, we may enter into foreign exchange forward contracts to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of our operating costs and future cash flows denominated in currencies that differs from our functional currencies. We do not enter into these contracts for trading purposes or speculation, and our management believes all such contracts are entered into as hedges of underlying transactions. Nonetheless, these instruments involve costs and have risks of their own in the form of transaction costs, credit requirements and counterparty risk. If our hedging program is not successful, or if we change our hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates. Any hedging technique we implement may fail to be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the trading price of our common stock.

Commodity Price Risk

The plastics manufacturing industry is extremely price competitive because of the commodity like nature of PET resin and its correlation to the price of crude oil. The demand for recycled PET has fluctuated with the price of crude oil. If crude oil prices decline, the cost to manufacture recycled PET may become comparatively higher than the cost to manufacture virgin PET. Our ability to penetrate the market will depend in part on the cost of manufacturing virgin PET and if we do not successfully distinguish our product from those of virgin PET manufacturers, our entry into the market and our ability to secure customer contracts can be adversely affected.

Raw Material Price Risk

We purchase raw materials and packaging supplies from several sources. While all such materials are available from independent suppliers, raw materials are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other industries for the same raw materials and the availability of complementary and substitute materials. The profitability of our business also depends on the availability and proximity of these raw materials to our factories. The choice of raw materials to be used at our facility is determined primarily by the price and availability, the yield loss of lower quality raw materials, and the capabilities of the producer’s production facility. Additionally, the high cost of transportation could favor suppliers located in close proximity to our factories. If the quality of these raw materials is lower, the quality of our product may suffer. Economic and financial factors could impact our suppliers, thereby causing supply shortages. Increases in raw material costs could have a material adverse effect on our business, financial condition or results of operations. Our hedging procedures may be insufficient and our results could be materially impacted if costs of materials increase.

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ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of our Disclosure Controls and Procedures

A.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2019.

B.

Changes in Internal Control over Financial Reporting

There were no other changes in our internal control over financial reporting during the quarter ended May 31, 2019 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On January 27, 2017, two individuals (“Plaintiffs”), filed a claim against us in the Los Angeles Superior Court (“Court”), seeking damages for breach of implied covenant of good faith and fair dealing, breach of contract, and promissory fraud, asserting entitlement to shares of our common stock. On February 25, 2019, we and the Plaintiffs entered into a settlement agreement and release (“Settlement Agreement”), which sets forth the parties’ agreement in principle for settlement. Through the Settlement Agreement, we, Plaintiffs and certain other parties to the Settlement Agreement agreed to mutual releases of any and all claims.

Pursuant to the terms of the Settlement Agreement, without agreeing that any of the Plaintiffs’ claims have merit, we agreed to issue to the Plaintiffs 150,000 shares of our common stock (“Plaintiff Common Shares”) and 500,000 warrants exercisable for shares of our common stock (“Plaintiff Warrants”). The Plaintiff Common Shares will be restricted upon issuance, but within 180 days following the date of the Settlement Agreement, we have agreed to file and use its reasonable best efforts to have declared effective a registration statement to register the Plaintiff Common Shares and the shares of the Company’s common stock underlying the Plaintiff Warrants. We also agreed to maintain such registration statement for 2 years from the date of effectiveness unless the Plaintiffs sell or otherwise transfer the shares covered by such registration statement prior to the two-year anniversary. 300,000 of the Plaintiff Warrants are exercisable for shares of our common stock at an exercise price of $12.00 per share for a period of 24 months following the date of the Settlement Agreement. The remaining 200,000 Plaintiff Warrants are exercisable for shares of our common stock at an exercise price of $11.00 per share for a period of 24 months, but in the event the Company’s 5-day average trading price during any period in the first 18 months following the date of the Settlement Agreement is above $11 per share, then the exercise term of such warrants shall automatically be reduced to 18 months instead of 24 months. With respect to the Plaintiff Common Shares, 85,000 common shares were actually issued on March 8, 2019 and 65,000 common shares were actually issued on March 11, 2019.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as noted above, we are not presently a party to any legal proceedings, government actions, administrative actions, investigations or claims that are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

It is possible that we may expend financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. It is also possible that we may expend financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.

ITEM 1A. RISK FACTORS

We are subject to various risks and uncertainties in the course of our business. Risk factors relating to us are set forth under “Risk Factors” in our Annual Report on Form 10-K, filed on May 3, 2019. No material changes to such risk factors have occurred during the three months ended May 31, 2019.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 8, 2019 and March 11, 2019, the Company issued 150,000 shares of its common stock in settlement of a legal matter.

On April 9, 2019, the Company converted Convertible notes with a face value of $2,650,000 plus accrued interest of $80,241 at a conversion price of $8.55, into 319, 326 common shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.

Exhibit Index

		Incorporated by Reference
Number	Description	Form	File No.	Filing Date	Exhibit No.
4.1	Form of Amendment No. 1 to the January 15, 2019 Note Purchase Agreement, dated April 4, 2019.	8-K	001-38301	10-Apr-19	4.1
4.2	Form of Amendment to 2019 Warrant, dated April 4, 2019.	8-K	001-38301	10-Apr-19	4.2
4.3	Form of Amendment and Conversion Agreement, dated April 5, 2019.	8-K	001-38301	10-Apr-19	4.3
4.4	Form of Amendment to November 2018 Warrant, dated April 8, 2019.	8-K	001-38301	10-Apr-19	4.4
24.1	Power of Attorney (contained on signature page to the previously filed Annual Report on Form 10-K)	10-K	000-54768	08-May-19	24.1
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Furnished herewith
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Furnished herewith
101.INS	XBRL Instance Document		Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document		Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document		Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document		Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document		Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document		Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Date: July 8, 2019	By:	/s/ Daniel Solomita
	Name:	Daniel Solomita
	Title:	President and Chief Executive Officer, and Director (Principal Executive Officer)
Date: July 8, 2019	By:	/s/ Nelson Gentiletti
	Name:	Nelson Gentiletti
	Title:	Chief Financial Officer and Treasurer (Principal Accounting Officer and Principal Financial Officer)

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