United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
|
For the quarterly period ended |
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.
(Exact name of Registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices zip code)
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
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 | ☐ |
| ☐ | 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
As at October 13, 2021, there were
LOOP INDUSTRIES, INC.
TABLE OF CONTENTS
Page No. | |||||
F-1 | |||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 | ||||
17 | |||||
18 | |||||
19 | |||||
20 | |||||
20 | |||||
20 | |||||
20 | |||||
20 | |||||
21 | |||||
|
|
|
|
| |
22 | |||||
| 2 |
| Table of Contents |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Loop Industries, Inc.
Three and Six months ended August 31, 2021
Index to the Unaudited Interim Condensed Consolidated Financial Statements
Contents | Page(s) | ||
Condensed consolidated balance sheets as at August 31, 2021 and February 28, 2021 (Unaudited) | F-2 | ||
F-3 | |||
F-4 | |||
F-6 | |||
Notes to the condensed consolidated financial statements (Unaudited) | F-7 |
| F-1 |
| Table of Contents |
Loop Industries, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
|
| August 31, 2021 |
|
| February 28, 2021 |
| ||
|
|
|
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Sales tax, tax credits and other receivables (Note 3) |
|
|
|
|
|
| ||
Prepaid expenses and deposits (Note 4) |
|
|
|
|
|
| ||
Assets held for sale (Note 5) |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
Investment in joint venture (Note 10) |
|
|
|
|
|
| ||
Property, plant and equipment, net (Note 6) |
|
|
|
|
|
| ||
Intangible assets, net (Note 7) |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (Note 9) |
| $ |
|
| $ |
| ||
Current portion of long-term debt (Note 11) |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
Long-term debt (Note 11) |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
Series A Preferred stock par value $ |
|
|
|
|
|
| ||
Common stock par value $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Additional paid-in capital – Warrants (Note 18) |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive loss |
|
| ( | ) |
|
| ( | ) |
Total stockholders' equity |
|
|
|
|
|
| ||
Total liabilities and stockholders' equity |
| $ |
|
| $ |
| ||
See accompanying notes to the condensed consolidated financial statements.
| F-2 |
| Table of Contents |
Loop Industries, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
|
| Three Months Ended August 31 |
|
| Six Months Ended August 31 |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative (Note 15) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization (Notes 6 and 7) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest and other financial expenses (Note 19) |
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||
Interest income |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Foreign exchange loss (gain) |
|
| ( | ) |
|
|
|
|
|
|
|
|
| |||
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Comprehensive income (loss) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
See accompanying notes to the condensed consolidated financial statements.
| F-3 |
| Table of Contents |
Loop Industries, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
|
| Three Months Ended August 31, 2020 |
| |||||||||||||||||||||||||||||||||
|
| Common stock par value $0.0001 |
|
| Series A preferred stock par value $0.0001 |
|
| Additional |
|
| Additional Paid-in |
|
|
|
| Accumulated Other |
|
| Total |
| ||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Capital - Warrants |
|
| Accumulated Deficit |
|
| Comprehensive (Loss) |
|
| Stockholders' Equity |
| |||||||||
Balance, May 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
Issuance of shares upon the vesting of restricted stock units (Note 16) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock options issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted stock units issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Balance, August 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
|
| Three Months Ended August 31, 2021 |
| |||||||||||||||||||||||||||||||||
|
| Common stock par value $0.0001 |
|
| Series A preferred stock par value $0.0001 |
|
| Additional |
|
| Additional Paid-in |
|
|
|
| Accumulated Other |
|
| Total |
| ||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Capital - Warrants |
|
| Accumulated Deficit |
|
| Comprehensive (Loss) |
|
| Stockholders' Equity |
| |||||||||
Balance, May 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||||
Issuance of common shares and warrants for cash, net of share issuance costs (Note 13) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of warrants for financing facility (Notes 11 and 18) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of shares upon the vesting of restricted stock units (Note 16) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock options issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted stock units issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Balance, August 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
See accompanying notes to the condensed consolidated financial statements.
| F-4 |
| Table of Contents |
Loop Industries, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
|
| Six Months Ended August 31, 2020 |
| |||||||||||||||||||||||||||||||||
|
| Common stock par value $0.0001 |
|
| Series A preferred stock par value $0.0001 |
|
| Additional |
|
| Additional Paid-in |
|
|
|
| Accumulated Other |
|
| Total |
| ||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Capital - Warrants |
|
| Accumulated Deficit |
|
| Comprehensive (Loss) |
|
| Stockholders' Equity |
| |||||||||
Balance, February 29, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
Warrant issued for services (Note 18) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of shares upon the vesting of restricted stock units (Note 16) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock options issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted stock units issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Balance, August 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
|
| Six Months Ended August 31, 2021 |
| |||||||||||||||||||||||||||||||||
|
| Common stock par value $0.0001 |
|
| Series A preferred stock par value $0.0001 |
|
| Additional |
|
| Additional Paid-in |
|
|
|
| Accumulated Other |
|
| Total |
| ||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid-in Capital |
|
| Capital - Warrants |
|
| Accumulated Deficit |
|
| Comprehensive (Loss) |
|
| Stockholders' Equity |
| |||||||||
Balance, February 28, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
Issuance of common shares and warrants for cash, net of share issuance costs (Note 13) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of warrants for financing facility (Notes 11 and 18) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of shares upon the vesting of restricted stock units (Note 16) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Stock options issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Restricted stock units issued for services (Note 16) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
Foreign currency translation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Balance, August 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
See accompanying notes to the condensed consolidated financial statements.
| F-5 |
| Table of Contents |
Loop Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Six Months Ended August 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization (Notes 6 and 7) |
|
|
|
|
|
| ||
Stock-based compensation expense (Note 16) |
|
|
|
|
|
| ||
Accretion and accrued interest expenses (Note 19) |
|
|
|
|
|
| ||
Loss on revaluation of foreign exchange contracts (Note 19) |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Sales tax and tax credits receivable (Note 3) |
|
|
|
|
|
| ||
Prepaid expenses (Note 4) |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued liabilities (Note 9) |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Investment in joint venture (Note 10) |
|
|
|
|
| ( | ) | |
Deposits on machinery and equipment (Note 4) |
|
|
|
|
| ( | ) | |
Additions to property, plant and equipment (Notes 5 and 6) |
|
| ( | ) |
|
| ( | )) |
Additions to intangible assets (Note 7) |
|
| ( | ) |
|
| ( | ) |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from sale of common shares and warrants, net of share issuance costs (Note 13) |
|
|
|
|
|
| ||
Proceeds from issuance of long-term debt (Note 11) |
|
|
|
|
|
| ||
Repayment of long-term debt (Note 11) |
|
| ( | ) |
|
| ( | ) |
Net cash (used) provided by financing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
| ( | ) |
|
|
| |
Net increase (decrease) in cash |
|
|
|
|
| ( | ) | |
Cash, beginning of period |
|
|
|
|
|
| ||
Cash, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Income tax paid |
| $ |
|
| $ |
| ||
Interest paid |
| $ |
|
| $ |
| ||
Interest received |
| $ |
|
| $ |
| ||
See accompanying notes to the condensed consolidated financial statements.
| F-6 |
| Table of Contents |
Loop Industries, Inc.
Three and Six Months Ended August 31, 2021 and 2020
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. The Company, Basis of Presentation
The Company
Loop Industries, Inc. (the “Company,” “Loop Industries,” “we,” or “our”) is a technology company that 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 polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging and polyester fiber.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2021, filed with the SEC on June 1, 2021. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a
Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 28, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three- and six-month periods ended August 31, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter, for the fiscal year ending February 28, 2022, or for any other period.
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 at the date of the financial statements and the reported amounts of 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 long-lived assets and intangible assets as well as the carrying value of our joint venture investment, assets held for sale, accruals for potential liabilities, assumptions made in calculating the fair value of stock-based compensation and other equity instruments, and the assessment of performance conditions for stock-based compensation awards and the judgment in the assessment.
The COVID-19 pandemic has disrupted business operations for us and our customers, suppliers, vendors and other parties with whom we do business, and such disruptions are expected to continue for an indefinite period of time. The uncertain duration of these measures has had and may continue to have an effect on our development and commercialization efforts. In particular, as previously disclosed, the situation in the United States and the continued travel restrictions and quarantine requirements between Canada and the United States have caused disruptions in our timetable of our joint venture with Indorama in the development of our Spartanburg facility and commercialization of our technology.
| F-7 |
| Table of Contents |
Although the Company continues to monitor the situation and may adjust the Company’s current policies as more information and public health guidance become available, the COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus, the severity of the disease, the duration of the outbreak and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to assess whether there will be further impact on the development and commercialization of the Company’s technology which could have a material adverse effect on the Company’s results of operations and cash flows.
Stock-based compensation
The Company periodically issues stock options, warrants and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing expenses. 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 and warrants 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 is 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 expenses recorded in the current and future periods.
Research and development expenses
Research and development expenses relate primarily to process development and design, testing of preproduction samples, purchases of machinery and equipment for the small-scale production facility, compensation, and consulting fees, and are expensed as incurred. Total research and development expenses recorded during the six-month periods ended August 31, 2021 and 2020 amounted to $
Assets held for sale
Assets are classified as held for sale when they met the criteria set out in ASC 360-10-45-9 Long-lived assets classified as held for sale:
| · | Management, having the authority to approve the action, commits to a plan to sell the asset; |
| · | The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; |
| · | An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; |
| · | The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; |
| · | The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and |
| · | Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. |
When the criteria are met, the assets are presented at the lesser of fair market value, net of selling costs, and cost in current assets.
| F-8 |
| Table of Contents |
Foreign currency translations and transactions
The accompanying 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 is not engaged in any currency hedging activities.
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.
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 six-month periods ended August 31, 2021 and 2020, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at August 31, 2021, the potentially dilutive securities consisted of
3. Sales Tax, Tax Credits and Other Receivables
Sales tax, research and development tax credits and other receivables as at August 31, 2021 and February 28, 2021 were as follows:
|
| August 31, 2021 |
|
| February 28, 2021 |
| ||
Sales tax |
| $ |
|
| $ |
| ||
Research and development tax credits |
|
|
|
|
|
| ||
Other receivables |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
4. Prepaid Expenses and Deposits
Prepaid expenses as at August 31, 2021 and February 28, 2021 were as follows:
|
| August 31, 2021 |
|
| February 28, 2021 |
| ||
Deposits on machinery and equipment |
| $ |
|
| $ |
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-9 |
| Table of Contents |
Non-refundable cash deposits on machinery and equipment that will be used in research and development activities will be expensed, and classified as research and development expenses, in the period the equipment is received.
During the six-month period ended August 31, 2020, the Company made non-refundable cash deposits on machinery and equipment of $
5. Assets held for sale
On May 27, 2021, we acquired land in Bécancour, Québec for cash of $
The total purchase cost of the land has been allocated between the portion of land held for sale and the land to be used for the planned Infinite Loop™ manufacturing facility based on surface area.
Description |
| Balance sheet line item |
| Cost |
| |
Land held for sale |
|
| $ |
| ||
Infinite Loop™ manufacturing facility |
|
|
|
| ||
|
|
|
| $ |
| |
6. Property, Plant and Equipment
Property, plant and equipment as at August 31, 2021 and February 28, 2021 were as follows:
|
| As at August 31, 2021 |
| |||||||||
|
| Cost |
|
| Accumulated depreciation, write-down and impairment |
|
| Net book value |
| |||
Building |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Land |
|
|
|
|
|
|
|
|
| |||
Building and Land Improvements |
|
|
|
|
| ( | ) |
|
|
| ||
Machinery and equipment |
|
|
|
|
| ( | ) |
|
|
| ||
Office equipment and furniture |
|
|
|
|
| ( | ) |
|
|
| ||
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
| As at February 28, 2021 |
| |||||||||
|
| Cost |
|
| Accumulated depreciation, write-down and impairment |
|
| Net book value |
| |||
Building |
| $ |
|
| $ | ( | ) |
| $ |
| ||
Land |
|
|
|
|
|
|
|
|
| |||
Building and Land Improvements |
|
|
|
|
| ( | ) |
|
|
| ||
Machinery and equipment |
|
|
|
|
| ( | ) |
|
|
| ||
Office equipment and furniture |
|
|
|
|
| ( | ) |
|
|
| ||
|
| $ |
|
| $ | ( | ) |
| $ |
| ||
| F-10 |
| Table of Contents |
During the six-month period ended August 31, 2021, the Company acquired a parcel of land in Bécancour, Québec for $4.8 million (CDN $5.9 million). The Company intends to use a portion of the property for the construction of a commercial facility to manufacture Loop™ branded PET resin using its Infinite Loop™ technology. The excess land is classified as held for sale, as described in Note 5.
Depreciation expense for the three- and six-month periods ended August 31, 2021 amounted to $
7. Intangible Assets
Intangible assets as at August 31, 2021 and February 28, 2021 were $
During the six-months periods ended August 31, 2021 and 2020, we made additions to intangible assets of $
Amortization expense for the three- and six-month periods ended August 31, 2021 amounted to $
8. Fair value of financial instruments
The following tables present the fair value of the Company’s financial liabilities as at August 31, 2021 and February 28, 2021:
|
| Fair Value Measurements as at August 31, 2021 | |||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Level in the hierarchy | |||
Instruments measured at amortized cost: |
|
|
|
|
|
|
|
| |||
Long-term debt |
| $ | 4,238,028 |
|
| $ | 4,253,605 |
|
| Level 2 | |
|
| Fair Value Measurements at February 28, 2021 | |||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Level in the hierarchy | |||
Instruments measured at amortized cost: |
|
|
|
|
|
|
|
| |||
Long-term debt |
| $ |
|
| $ |
|
| Level 2 | |||
9. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as at August 31, 2021 and February 28, 2021 were as follows:
|
| August 31, 2021 |
|
| February 28, 2021 |
| ||
Trade accounts payable |
| $ |
|
| $ |
| ||
Accrued engineering fees |
|
|
|
|
|
| ||
Accrued employee compensation |
|
|
|
|
|
| ||
Accrued professional fees |
|
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-11 |
| Table of Contents |
10. 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 “Joint Venture 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 Joint Venture Agreement, Indorama Ventures is contributing manufacturing knowledge and Loop Industries is required to contribute its proprietary science and technology. Specifically, the Company is contributing an exclusive worldwide 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 ILT. There were no operations in ILT from the date of inception of September 24, 2018 to August 31, 2021 and, as at August 31, 2021, the carrying value of the equity investment was $
In conjunction with the SK strategic partnership described in Note 13, on June 18, 2021, the Company, Loop Innovations, LLC, a wholly-owned subsidiary of the Company (“Loop Innovations”), Indorama Ventures Holdings LP (“Indorama”) and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended (i) the Limited Liability Company Agreement between Loop Innovations, LLC and Indorama Ventures Holdings LP (the “LLC Agreement”), (ii) the Marketing Agreement between the Company and Indorama Loop Technologies, LLC (the “Marketing Agreement”) and (iii) the License Agreement between the Company and the Indorama Joint Venture Company (the “License Agreement”), each dated September 24, 2018 (collectively such amendments, the “Indorama Joint Venture Amendments”).
Under the Indorama Joint Venture Amendments, the Company, Indorama and the Indorama Joint Venture Company agreed to:
| · | terminate Indorama’s right of first refusal under the LLC Agreement over any facility to produce products utilizing any waste-to-resin technology applying the PET depolymerization process of the Company; |
| · | amend the non-compete obligations under the LLC Agreement to solely apply to the Company; |
| · | limit the scope of the Company’s grant of intellectual property rights and the scope of the exclusivity rights of the Indorama Joint Venture Company for the retrofit of existing facilities under the License Agreement to North America and Europe; and |
| · | limit the scope of the Indorama Joint Venture Company’s permitted marketing rights under the Marketing Agreement to North America and Europe. |
11. Long-Term Debt
|
| August 31, 2021 |
|
| February 28, 2021 |
| ||
Investissement Québec financing facility : |
|
|
|
|
|
| ||
Principal amount |
| $ |
|
| $ |
| ||
Unamortized discount |
|
| ( | ) |
|
| ( | ) |
Accrued interest |
|
|
|
|
|
| ||
Total Investissement Québec financing facility |
|
|
|
|
|
| ||
Term loan |
|
|
|
|
|
|
|
|
Principal amount |
|
|
|
|
|
| ||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
Total term loan, net of current portion |
|
| - |
|
|
| - |
|
Long-term debt, net of current portion |
| $ |
|
| $ |
| ||
| F-12 |
| Table of Contents |
Investissement Québec financing facility
On February 21, 2020, the Company received $
On August 26, 2021, the Company received $
The Company recorded interest expense on the Investissement Québec loan for the three- and six-month periods ended August 31, 2021 in the amount of $
The Company also agreed to issue to Investissement Québec warrants to purchase shares of common stock of the Company in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $
Term loan
On January 24, 2018, the Company obtained a $
| F-13 |
| Table of Contents |
Principal repayments due on the Company’s long-term debt over the next five years are as follows:
Years ending |
| Amount |
| |
February 28, 2022 |
| $ |
| |
February 28, 2023 |
|
|
| |
February 29, 2024 |
|
|
| |
February 28, 2025 |
|
|
| |
February 28, 2026 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
12. Related Party Transactions
Employment Agreement
On June 29, 2015, the Company entered into an employment agreement with Mr. Daniel Solomita, the Company’s President and Chief Executive Officer (“CEO”). The employment agreement is for an indefinite term.
On July 13, 2018, the Company and Mr. Solomita entered into an amendment and restatement of the employment agreement which provided for a long-term incentive grant of
On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement. The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is far simpler to purify.
During the quarters ended August 31, 2021 and 2020, no outstanding milestones were probable of being met based on the authoritative guidance provided by the FASB and, accordingly, the Company did not record any additional compensation expense. When a milestone becomes probable, the corresponding expense will be valued based on the grant date fair value on April 30, 2020, the date of the last modification of Mr. Solomita’s employment agreement. The closing price of the Company’s common stock on the Nasdaq on April 30, 2020 was $
13. Stockholders’ Equity
Common Stock
For the period ended August 31, 2021 |
| Number of shares |
|
| Amount |
| ||
Balance, February 28, 2021 |
|
|
|
| $ |
| ||
Issuance of shares upon settlement of restricted stock units |
|
|
|
|
|
| ||
Issuance of shares for cash |
|
|
|
|
|
| ||
Balance, August 31, 2021 |
|
|
|
| $ |
| ||
For the period ended August 31, 2020 |
| Number of shares |
|
| Amount |
| ||
Balance, February 29, 2020 |
|
|
|
| $ |
| ||
Issuance of shares upon settlement of restricted stock units |
|
|
|
|
|
| ||
Balance, August 31, 2020 |
|
|
|
| $ |
| ||
During the six months ended August 31, 2021, the Company recorded the following common stock transactions:
(i) | The Company issued |
(ii) | The Company issued |
| F-14 |
| Table of Contents |
During the six months ended August 31, 2020, the Company recorded the following common stock transaction:
(i) | The Company issued |
On June 22, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and between the Company and SK global chemical Co., Ltd, an accredited investor (the “Purchaser”). Pursuant to the Purchase Agreement, the Company sold to the Purchaser the following securities on July 29, 2021 for an aggregate purchase price of $
| · | an aggregate of |
| · | warrants to purchase |
| · | warrants to purchase |
| · | warrants to purchase |
The Purchaser may exercise the First Tranche Warrant at any time beginning on January 29, 2022 and the Second Tranche Warrant at any time on or after the later to occur of (i) January 29, 2022 and (ii) the first business day following the First Plant Milestone (as defined in the Second Tranche Warrant) prior to its expiration date. The Purchaser may exercise the Third Tranche Warrant at any time prior to June 14, 2022.
The table below summarizes the allocation of the aggregate purchase price, net of issuance costs, based on the relative fair-value of the components at the grant date:
Common stock |
| $ |
| |
First Tranche Warrants |
|
|
| |
Second Tranche Warrants |
|
|
| |
Third Tranche Warrants |
|
|
| |
|
| $ |
|
The fair value of the warrants was determined using the Black-Scholes model.
After the closing of the SKGC Investment, the Purchaser owns approximately
14. Research and Development Expenses
Research and development expenses for the three-month periods ended August 31, 2021 and 2020 were as follows:
|
| August 31, 2021 |
|
| August 31, 2020 |
| ||
Machinery and equipment expenditures |
| $ |
|
| $ |
| ||
Employee compensation |
|
|
|
|
|
| ||
External engineering |
|
|
|
|
|
| ||
Plant and laboratory operating expenses |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-15 |
| Table of Contents |
Research and development expenses for the six-month periods ended August 31, 2021 and 2020 were as follows:
|
| August 31, 2021 |
|
| August 31, 2020 |
| ||
Machinery and equipment expenditures |
| $ |
|
| $ |
| ||
Employee compensation |
|
|
|
|
|
| ||
External engineering |
|
|
|
|
|
| ||
Plant and laboratory operating expenses |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ | 4,229,810 |
| |
During the six-month period ended August 31, 2021, we recorded research and development tax credits of $
15. General and Administrative Expenses
General and administrative expenses for the three-month periods ended August 31, 2021 and 2020 were as follows:
|
| August 31, 2021 |
|
| August 31, 2020 |
| ||
Professional fees |
| $ |
|
| $ |
| ||
Employee compensation |
|
|
|
|
|
| ||
Directors and officers insurance |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
General and administrative expenses for the six-month periods ended August 31, 2021 and 2020 were as follows:
|
| August 31, 2021 |
|
| August 31, 2020 |
| ||
Professional fees |
| $ |
|
| $ |
| ||
Employee compensation(1) |
|
|
|
|
|
| ||
Directors and officers insurance |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
______________
(1) | Includes stock-based compensation expense. In the six-month period ended August 31, 2021, the Company recorded RSU forfeitures for an amount of $ |
16. Share-based Payments
Stock Options
During the three-month period ended August 31, 2021, the Company granted no stock options (2020 – nil), no stock options were forfeited (2020 – nil) or exercised (2020 – nil) and no stock options expired (2020 – nil).
During the six-month period ended August 31, 2021, the Company granted no stock options (2020 – nil), no stock options were forfeited (2020 – nil) or exercised (2020 – nil) and no stock options expired (2020 – nil).
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. There were no new issuances of stock options for the three- and six-month periods ended August 31, 2021 and 2020.
The total number of stock options outstanding as at August 31, 2021 was
During the three-month periods ended August 31, 2021 and 2020, stock-based compensation expense attributable to stock options amounted to $
During the six-month periods ended August 31, 2021 and 2020, stock-based compensation expense attributable to stock options amounted to $
| F-16 |
| Table of Contents |
Restricted Stock Units
During the three-month period ended August 31, 2021, the Company granted
During the six-month period ended August 31, 2021, the Company granted
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.
The total number of RSUs outstanding as at August 31, 2021 was
During the three-month periods ended August 31, 2021 and 2020, stock-based compensation attributable to RSUs amounted to $
During the six-month periods ended August 31, 2021 and 2020, stock-based compensation attributable to RSUs amounted to ($
Stock-Based Compensation Expenses
During the three-month periods ended August 31, 2021 and 2020, stock-based compensation included in research and development expenses amounted to $
During the six-month periods ended August 31, 2021 and 2020, stock-based compensation included in research and development expenses amounted to $
17. 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
| F-17 |
| Table of Contents |
The following table summarizes the continuity of the Company’s Equity Incentive Plan units during the six-month periods ended August 31, 2021 and 2020:
|
| 2021 |
|
| 2020 |
| ||
|
| Number of units |
|
| Number of units |
| ||
Outstanding, beginning of period |
|
|
|
|
|
| ||
Share reserve increase |
|
| - |
|
|
| - |
|
Units granted |
|
| ( | ) |
|
| ( | ) |
Units forfeited |
|
|
|
|
|
| ||
Units expired |
|
| - |
|
|
| - |
|
Outstanding, end of period |
|
|
|
|
|
| ||
18. Warrants
During the six-month period ended August 31, 2021, the Company issued warrants to purchase
Number of warrants |
| Exercise Price |
| Expiration date | |
| $ |
| |||
|
|
| (1) | ||
|
|
| |||
| $ |
| |||
_______________
| (1) | Expiration date is the earlier of (A) the date that is the third anniversary of the First Plant Milestone (as defined in the Second Tranche Warrants), (B) the expiration of the JV Negotiation Period (as defined in the Second Tranche Warrants), provided that the Joint Venture Transaction Agreements (as defined in the Second Tranche Warrants) have not been executed by the expiration of the JV Negotiation Period and (C) the third anniversary of the BDP Date (as defined in the Second Tranche Warrants), provided that the First Plant Milestone has not occurred as of such date. |
During the six-month period ended August 31, 2020, the Company issued, in exchange for consulting services, a warrant to purchase
19. Interest and Other Finance Costs
Interest and other finance costs for the three-month periods ended August 31, 2021 and 2020 are as follows:
|
| 2021 |
|
| 2020 |
| ||
Interest on long-term debt |
| $ |
|
| $ |
| ||
Accretion expense |
|
|
|
|
|
| ||
Loss (gain) on revaluation of foreign exchange contracts |
|
|
|
|
| ( | ) | |
|
| $ |
|
| $ | ( | ) | |
Interest and other finance costs for the six-month periods ended August 31, 2021 and 2020 are as follows:
|
| 2021 |
|
| 2020 |
| ||
Interest on long-term debt |
| $ |
|
| $ |
| ||
Accretion expense |
|
|
|
|
|
| ||
Loss (gain) on revaluation of foreign exchange contracts |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| F-18 |
| Table of Contents |
20. Commitments and Contingencies
Commercial Commitments
On September 2, 2020, the Company entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET plastic and polyester polymer for fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”). The total amount of the Chemtex Agreement is $
Contingencies
On October 13, 2020, the Company and certain of its officers were named as defendants in a proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Olivier Tremblay, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-0838 (“Tremblay Class Action”). The allegations in the complaint claim that the defendants allegedly violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. Plaintiff seeks unspecified damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020.
On October 28, 2020, the Company and certain of its officers were named as defendants in a second proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Michelle Bazzini, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-09031-UA. The allegations in this complaint are similar in nature to those made in the Tremblay Class Action.
On January 4, 2021, the United States District Court for the Southern District of New York rendered a stipulation and order granting the consolidation of the two class-action lawsuits filed in New York as In re Loop Industries, Inc. Securities Litigation, Master File No. 7:20-cv-08538. Sakari Johansson and John Jay Cappa have been appointed as Co-Lead Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP have been appointed as Co-Lead Counsel for the class.
Plaintiffs served a consolidated amended complaint on February 18, 2021 which alleges defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The consolidated amended complaint relies on the October 13, 2020 report published by a third party regarding the Company to support their allegations. Defendants served a motion to dismiss the consolidated amended complaint on April 27, 2021. Plaintiffs’ opposition to the motion to dismiss was served on May 27, 2021 and Defendants’ reply in support of the motion to dismiss was served on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of their officers and directors were named as defendants in a proposed securities class action filed in the Superior Court of Québec (District of Terrebonne, Province of Québec, Canada), in file no. 700-06-000012-205. The Application for authorization of a class action and for authorization to bring an action pursuant to section 225.4 of the Québec Securities Act (“the Application”) was filed by an individual shareholder on behalf of himself and a class of buyers who purchased our securities during the “Class Period” (not defined). Plaintiff alleges that throughout the Class Period, the defendants allegedly made false and/or misleading statements and allegedly failed to disclose material adverse facts concerning the Company’s technology, business model, operations and prospects, thus causing the Company’s stock price to be artificially inflated and thereby causing plaintiff to suffer damages. Plaintiff seeks unspecified damages stemming from losses he claims to have suffered as a result of the foregoing. On December 13, 2020, the Application was amended in order to add allegations regarding specific misrepresentations.
Management believes that these cases lack merit and intends to defend them vigorously. No amounts have been provided for in the consolidated financial statements with respect to these claims. Management has not yet determined what effect these lawsuits may have on its financial position or results of operations as they are still in the preliminary stages.
| F-19 |
| Table of Contents |
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,” “Loop Industries,” “we,” 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.” 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) industry competition, (v) our need for and ability to obtain additional funding, (vi) building our manufacturing facility, (vii) our ability to scale, manufacture and sell our products in order to generate revenues, (viii) our proposed business model and our ability to execute thereon, (ix) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting scrutiny, practices, rumors, or otherwise, (x) disease epidemics and health-related concerns, such as the current outbreak of a novel strain of coronavirus (COVID-19), which could result in (and, in the case of the COVID-19 outbreak, has resulted in some of the following) reduced access to capital markets, supply chain disruptions and scrutiny or embargoing of goods produced in affected areas, government-imposed mandatory business closures and resulting furloughs of our employees, government employment subsidy programs, travel restrictions or the like to prevent the spread of disease, and market or other changes that could result in noncash impairments of our intangible assets, and property, plant and equipment, (xi) the outcome of the current SEC investigation or recent class action litigation filed against us, (xii) our ability to hire and/or retain qualified employees and consultants and (xiii) 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.
| 3 |
| Table of Contents |
Introduction
Loop Industries is a technology company whose mission is to accelerate the world's shift toward sustainable PET plastic and polyester fiber and away from our 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, carpets and textiles 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 polymerized to create virgin-quality Loop™ branded PET resin and polyester fiber suitable for use in food-grade packaging, thus enabling our customers to meet their sustainability objectives. Loop Industries is contributing to the global movement towards a circular economy by preventing plastic waste and recovering waste plastic for a more sustainable future for all.
Industry Background and Market Opportunity
The global annual market demand for PET plastic and polyester fiber will exceed $160 billion by 2022 as projected in the 2018 IHS Polymer Market Report.
We believe, plastic pollution continues to be one of the most persistently covered environmental issues by media and local and global environmental non-governmental organizations. Some of the main concerns associated with PET are the emissions associated with its production from non-renewable hydrocarbons and the length of time it persists in landfills and the natural environment. 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. In the last few years, governments in North America and Europe have been enacting and proposing laws and regulations mandating the use of minimum recycled content in packaging underlying the strength of this issue in the marketplace. Consumer brands are seeking a solution to their plastic challenge, and they are taking action. In recent years we have seen major brands make significant commitments to close the loop on their plastic packaging by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging.
Global consumer goods companies, apparel manufacturers, and retail brands have announced significant public commitments and targets to make the transition to a circular plastic economy, namely:
| · | In January 2018, Danone’s evian® brand bottled spring water committed to a 100% recycled content package by 2025; |
| · | In 2018, Coca-Cola committed to an average recycled content of 50% across its packaging by 2030; |
| · | In 2021, PepsiCo committed to 11 European markets moving key Pepsi-branded products to 100% rPET bottles by 2022, and in the U.S., all Pepsi-branded products will be converted to 100% rPET bottles by 2030; |
| · | In 2020, L’OCCITANE en Provence committed to 100% recycled content plastic in their bottles by 2025; |
| · | In 2020, L’Oréal Group committed to using 100% recycled or biobased plastic in their packaging by 2030; |
| · | By 2025, Unilever targets increasing the use of post-consumer recycled plastic material in their packaging to at least 25%; |
| · | Colgate-Palmolive states a 2025 goal of using at least 25% post-consumer recycled plastic in packaging; |
| · | Nestlé aims to increase the amount of recycled PET used across their brands globally to 50% by 2025; |
| · | Adidas Group aims to replace all virgin polyester with recycled polyester in all adidas and Reebok products where a solution exists by 2024; |
| · | H&M is aiming to ensure that at least 25% of the plastic they use is from post-consumer recycled materials. |
| · | Walmart has an objective to use at least 17% post-consumer recycled content globally in their private brand plastic packaging and is taking action to eliminate problematic or unnecessary plastic packaging and move from single-use toward reuse models where relevant by 2025; and |
| · | Ikea’s ambition is, that by 2030, all plastic used in their products will be based on renewable or recycled material. |
There is a growing regulatory and policy environment to encourage a reduction in the production of virgin fossil fuel-based plastic and for minimum recycled content in packaging imposed by various governments. For example, on July 21 2020, the European Union announced a new tax on plastic waste starting January 1, 2021. This tax will have a rate of €800/ton on non-recycled plastic packaging. In the UK, a new £200/ton tax will apply to plastic packaging produced or imported into the UK that does not contain at least 30% recycled plastic, effective 2022. A California law enacted on September 24, 2020 requires that plastic bottles contain at least 15% post-consumer resin by 2022, 25% by 2025 and 50% by 2030. The growing regulatory environment is expected to increase the demand for recycled PET plastic further.
| 4 |
| Table of Contents |
As explained by the International Bottled Water Association, currently, mechanical recycled PET (rPET) plastic is produced principally through the conversion of bales of PET bottles. The materials have been collected and transported to a materials recovery facility (“MRF”), where they are sorted from other materials, baled, and sent to specific PET recycling facilities. The bales are broken and sorted to remove any non-PET materials. The PET is then ground and put through a separation process which separates the PET from the bottle cap and label materials. Clean PET flake is then further processed depending on its intended end market. It may become more highly refined PET pellet for new bottles or extruded into PET sheet for clamshells, trays, and cups. Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.
We believe mechanically recycled PET has a number of challenges in meeting the quality specifications and growing volume requirements implied by commitments from major brands, mainly due to the cost and variety of acceptable PET feedstock. Some mechanical recycling processes involve remelting the PET flake which reduces the quality of the rPET output each time it is recycled relative to the specifications of virgin PET produced from fossil fuels. Each time the PET plastic is mechanically recycled, its quality and clarity are reduced. Therefore, mechanically recycled PET may need to be mixed with virgin PET from fossil fuels to maintain quality. Lower quality mechanically recycled PET is often downcycled to alternate uses such as polyester fibers which may be dyed and used in carpets or clothing. Additionally, mechanically recycled PET manufactured for use in clear bottles or food containers requires predominantly clear and clean PET flakes separated from waste bales, and cannot accommodate darkly colored PET flakes, lower quality fiber feedstock, or materially contaminated feedstock, which may be cheaper.
We believe the commercialization plans of Loop™ PET resin and polyester fiber may provide the ideal solution for global brands because Loop™ PET resin and polyester fiber contains 100% recycled PET and polyester fiber content. The Loop™ PET resin and polyester fiber is virgin-quality suitable for use in food-grade packaging. That means consumer packaged goods companies will be able to choose to market packaging made from a 100% Loop™ branded PET resin and polyester fiber.
Proprietary Technology and Intellectual Property
We believe, the power of our technology lies in its ability to use post-industrial and post-consumer waste PET plastic and polyester fiber feedstocks, which could end up in landfills, rivers, oceans and natural areas, to create Loop™ PET resin. We believe our technology can deliver high-purity profitable virgin-quality PET resin suitable for use in food-grade packaging and polyester fiber.
Our Generation I technology (“GEN I”) is a hydrolysis-based depolymerization technology which yielded purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET. As the Company evaluated the transition from the GEN I technology from pilot scale to commercial scale, several challenges involving PTA and MEG purification were identified. To overcome the GEN I technology challenges, we embarked on the development of a second generation of our technology. Our Generation II technology (“GEN II”) is a methanolysis-based depolymerization technology that uses temperatures below 90 °C to depolymerize waste PET and polyester fiber. The low temperature offers several key advantages which the company believes will improve its ability to commercialize the GEN II technology, including;
| · | Lower energy usage during depolymerization and therefore reduced processing cost relative to higher temperature processes; |
| · | Avoidance of side reactions with non-PET waste, which are inherent in waste PET feedstock streams, during depolymerization which may occur during higher temperature and higher pressure depolymerization processes. This allows for a simplified distillation purification process resulting in less, and more effective, steps to isolate the desired high purity DMT and MEG monomers suitable to produce virgin-quality PET required to meet food contact regulations as well as the quality and clarity requirements of global consumer product companies; |
| · | Allowing the depolymerization of less costly and low-quality feedstocks, which cannot be effectively recycled today, such as carpet fiber, clothing and mixed plastics, and upcycling them into high-quality PET that can be used in food contact use; and |
| · | The GEN II technology uses only trace amounts of water, eliminates the need for a halogenated solvent and uses a catalyst at low concentration. |
| 5 |
| Table of Contents |
This shift, from producing the monomer PTA to the monomer DMT, was a pivotal moment for Loop Industries. We believe that GEN II requires less energy and fewer resource inputs than conventional PET production processes. We also believe it is an environmentally sustainable method for producing virgin-quality food-grade PET plastic by decoupling PET manufacturing from the fossil fuel industry.
To independently validate that our GEN II technology can produce DMT and MEG monomers at mini-pilot and pilot scale, we commissioned Kemitek, a College Centre for Technology Transfer specialized in the fields of green chemistry and chemical process scale-up. Kemitek’s findings allowed them to confirm that our technology produces monomers that meet our purity specifications for the production of PET resin and polyester fiber. The complete Kemitek report was filed with the SEC by the Company on December 14, 2020.
To protect our technology, we rely on a combination of patents, trademarks, trade secrets, confidentiality agreements and provisions as well as other contractual provisions to protect our proprietary rights, which are primarily our patents, brand names, product designs and marks, we have two technology areas, referred to as GEN I technology and the GEN II technology, with patent claims relating to our technology for depolymerizing PET.
| · | The GEN I technology portfolio has three issued U.S. patents, all expected to expire on or around July 2035. Internationally, we also have issued patents in China, the Eurasian Patent Organization, Europe, Japan, the Gulf Cooperation Council, and various other countries, an allowed patent application in the Philippines, and pending patent applications in Canada, India, Japan, South Korea, and various other countries all expected to expire, if granted, on or around July 2036, not including any patent term extension. |
| · | The GEN II technology portfolio currently consists of four patent families: |
| o | The first has two issued U.S. patent and a pending U.S. application, all expected to expire on or around September 2037. Internationally, we also have an issued patent in Bangladesh, and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around September 2038, if granted and not including any patent term extension. |
| o | An additional aspect of the GEN II technology is claimed in an issued U.S. patent and a pending U.S. application, all expected to expire on or around June 2039. Internationally, we also have an allowed patent application in Bangladesh and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around June 2039, if granted and not including any patent term extension. |
| o | A further additional aspect of the GEN II technology is the subject of a pending U.S. application. Any patents that would ultimately grant from this application would be expected to expire on or around March 2040, not including any patent term extension. |
| o | Another further additional aspect of the GEN II technology is the subject of a pending U.S. application, a pending International application, and pending applications in Canada, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries. Any patents that would ultimately grant from these applications would be expected to expire on or around March 2040, if granted and not including any patent term extension. |
Loop owns registrations for its trademarks in Canada, the European Union, the United Kingdom, and the U.S. Loop also has pending applications in Cambodia, Canada, Indonesia, Taiwan, the U.S., and Vietnam.
| 6 |
| Table of Contents |
Government Regulation and Approvals
As we seek to further develop and commercialize our technology, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations, including food packaging 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. Additionally, due to the impact of the COVID-19 pandemic, we may experience delays in obtaining such permits or approvals. 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. See “Risk Factors” below for additional information.
We believe that if we are successful in addressing food packaging regulations in various countries and economic regions, that the regulatory environment may provide Loop™ PET resin a competitive advantage relative to mechanically recycled alternative resins and virgin PET.
Loop’s PET resin was subjected to independent testing by an external and certified laboratory, which confirmed the PET complies with FDA Regulation 21 CFR § 177.1630 on August 26, 2021, as well as EU Commission Regulation No 10/2011 on July 27, 2021. These results attest that Loop’s PET is safe for use in food-contact applications, including but not limited to bottled water, carbonated drinks and food trays. Demonstration of compliance with food-contact requirements follows the No Objection Letter (“NOL”) from the FDA previously granted to Loop in March 2021. The NOL confirms Loop’s monomers can produce rPET of a purity suitable for food-contact use, provided it meets the applicable requirements of Title 21 of the Code of Federal Regulations. The monomers used in the PET resin submitted for testing were produced at Loop’s small-scale production facility in Terrebonne, Quebec.
We have received from the European Chemicals Agency a confirmation of registration for our MEG on November 17, 2020, and for our DMT on December 7, 2020. The registration under the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) Regulation (EC 1907/2006) confirms that our monomers are of a purity equal to what is currently recognized within Europe and entitles us to manufacture/import the monomers into Europe. It should be noted that MEG and DMT are on the positive list for plastic materials, which means that the two monomers can be used as food contact materials.
On August 31, 2021, Loop also received a NOL from Health Canada, which states that the PET produced by Loop’s recycling process is suitable for use in the manufacture of water bottles and articles for contact with all food types under all conditions of use. In this letter, Health Canada confirms it sees no reason to object to the use of Loop’s recycling process, provided it is technically suitable for the intended end-uses.
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 years, we have seen major brands make significant commitments to close the loop on their plastic use in two ways; by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging. We believe Loop™ PET resin provides the ideal solution for these brands because it is recyclable and is made from 100% recycled PET waste and polyester fiber, while being virgin-quality and suitable for use in food-grade packaging and polyester fiber.
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-quality of Loop™ branded PET resin and its marketability to extoll the sustainability credentials of consumer brands that incorporate it, we believe we will be able to sell Loop™ branded PET resin at a premium price relative to virgin and mechanically recycled PET resin.
| 7 |
| Table of Contents |
We are pursuing supply agreements with customers that are located in North America, Europe, and Asia. We currently have agreements with some of the world’s leading brands to be supplied from our planned commercial facility from our joint venture with Indorama Ventures Holdings LP (“Indorama”) in Spartanburg, South Carolina, 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 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 PepsiCo to purchase production capacity and incorporate Loop™ PET resin into its product packaging; |
|
|
|
| · | Multi-year supply agreement with L’OCCITANE en Provence to supply 100% recycled and sustainable Loop™ PET resin and incorporate Loop™ PET resin into its product packaging; and |
|
|
|
| · | Multi-year supply agreement with L’Oréal Group, the global leader in the beauty industry, enabling L’Oréal Group to purchase production capacity and incorporate Loop™ PET resin into its product packaging. |
Turning PET Waste into Feedstock
We use waste PET plastic and polyester fiber as feedstock. Our technology can use PET 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 PET plastics that have been recovered from the ocean and degraded by exposure to sun and salt. We believe that our ability to use many materials that mechanical recyclers cannot use is an important advantage of Loop™ PET resin over mechanically recycled PET resin. 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.
Commercialization Plan and Progress
During the six-month period ended August 31, 2021, we continued executing our corporate strategy with a focus on the commercialization of our technology. We are progressing on the engineering of our full-scale commercial facilities with our engineering partner Worley, a leading global engineering, procurement and construction company. The engineering philosophy we have adopted is “design one, build many.” This approach allows for the process design package, which has been completed, to be used as the base engineering platform for all future geographical expansion. We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction.
The Infinite Loop™ manufacturing technology is the key pillar of our commercialization blueprint. We believe our technology is at the forefront of the global transition away from fossil fuels and petrochemicals and into the circular economy, where PET plastic and polyester fiber are produced from recycled content. The Infinite Loop™ technology is being engineered to support the commitment of global consumer brands to achieve a high level of recycled content in packaging. Infinite Loop™ facilities could be located near large urban centers where more plastic is being consumed and therefore more waste plastic feedstock is likely available.
Our objective is to achieve global expansion of the technology through a mix of fully owned facilities, strategic partnerships, and licensing agreements. We believe that industrial companies, some of which today may not be in the business of manufacturing PET resin or polyester fiber, will view involvement in Infinite Loop™ projects as a growth opportunity, which may offer attractive economic returns either as Loop manufacturing partners or as licensees of the technology. We are currently pursuing projects for future commercial production facilities in four regions: Canada, Europe, Asia and the U.S.
On September 2, 2020, we entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET resin and polyester fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”). The INVISTA know how will be used for the polymerization of DMT and MEG monomer output from Loop’s depolymerization technology, the result of which is LoopTM PET resin or polyester fiber made from 100% recycled content. The INVISTA polymerization process and the associated designs are historically proven in the commercial production of PET resin and polyester fiber.
| 8 |
| Table of Contents |
We continue to focus on the completion of the Infinite Loop™ engineering design with an initial target capacity of up to 70,000 metric tons/year. Permitting, site and regulatory considerations may impact plant capacity for the various projects. The design includes the integration of our depolymerization technology with INVISTA’s polymerization technology in partnership with Worley. We intend to use this design when evaluating Infinite Loop™ facilities in various regions. Worley has completed the pre-feasibility engineering as part of the planning phase for an Infinite Loop™ manufacturing facility in the province of Québec. We expect that Worley may also play a role in the feasibility phase of engineering and the future design of larger capacity facilities.
Our market strategy is to assist global consumer goods brands in meeting their public sustainability commitments by offering packaging or polyester fibers that are made with Loop co-branded, 100% recycled, virgin-quality PET or polyester fibers. We believe that Infinite Loop™ recycled PET resin and polyester fiber could command premium pricing over virgin, petroleum-based PET resin and provide attractive economic returns. We are targeting multi-year take or pay offtake agreements for planned Infinite Loop™ production. Factors under consideration in determining project economics include pre-feasibility design engineering and cost estimate work, timing and permitting of a facility, customer offtake demand, commitment terms, and feedstock sources, quality, availability, logistics, and ramp up, among others.
Strategic Partnership with SK geo centric
Loop and SK geo centric Co., Ltd. (formerly known as SK global chemical Co. Ltd.) (“SKGC”) intend to form a joint venture with exclusivity to build sustainable PET plastic and polyester fiber manufacturing facilities throughout Asia, which accounts for approximately 60 percent of the world’s population and an estimated 70% of global PET consumption making it the largest market in terms of plastic manufacturing, consumption and waste. Under the terms of the Memorandum of Understanding (“MOU”) for the proposed joint venture, SKGC will own 51 percent of the joint venture and Loop will own 49 percent. Loop will also receive a recurring annual royalty fee as a percentage of revenue from each facility for the use of its technology.
In addition, Loop and SKGC have concluded a definitive agreement for SKGC to become a strategic investor in Loop. SKGC purchased 4,714,813 new treasury common shares of Loop at a price of $12 per share, for total consideration of $56.5 million. The equity investment transaction closed on July 29, 2021. SKGC was also granted warrants to acquire an additional 461,298 common shares at $11 per share within the next 12 months, 4,714,813 common shares at a price of $15 per share, within the next 3 years, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility. SKGC was granted one seat on Loop’s Board of Directors and as such is expected to provide valued input into the continuing development of Loop’s global commercialization strategy.
SKGC now owns approximately 10% of Loop’s common shares. In conjunction with the equity investment, Mr. Jonghyuk Lee, Vice President of SKGC’s Green Business Division, has been appointed to Loop’s Board of Directors. This appointment reflects SKGC’s strategic view of the importance of its investment in Loop, as part of its “Green for Better Life” global strategic vision.
As reported on July 8, 2021 SKGC signed a memorandum of understanding (“MOU”) with the city of Ulsan, South Korea to develop an industrial complex which would be planned to include the first Infinite Loop™ manufacturing facility in Asia.
SK global chemical unveiled on August 31, 2021 its rebrand as SK geo centric, aligning with the company’s goal of transforming into a green company and focusing on eco-friendly products such as recyclable plastics. These announcements further reinforce Loop’s alignment as an important strategic partner for SK geocentric, as we move to commercialize our technology in Asia.
Unveiling of New evian Loop Bottle
On September 20, 2021, Loop, in partnership with iconic global beverage brand evian, unveiled a new “evian Loop” prototype virgin-quality water bottle made from 100 percent recycled content. The monomers used to produce the evian Loop bottles were made at Loop’s small-scale production facility in Terrebonne, Quebec. Evian plans to begin selling water bottles made from Loop™ PET initially in South Korea next year, and subsequently in other global markets. The waste plastic used to produce these bottles include polyester fibers from carpets and clothing which are considered unrecyclable and destined for landfill and other natural environments. This initiative reflects evian’s commitment to its stated 2025 goals for circularity and recycled content.
Loop continues to work toward new brand and market introductions with additional consumer goods brand companies.
| 9 |
| Table of Contents |
Infinite Loop™ Bécancour, Québec
We are in the planning phase for an Infinite Loop™ manufacturing facility in the province of Québec (the “Québec Project”). On May 27, 2021, we acquired a 19 million square foot parcel of land in Bécancour, Québec for $4.8 million (CDN $5.9 million). The site offers attractive logistics being located on the St-Lawrence river and access to rail. The site size exceeds our project needs and we plan to sell a portion of the land to offset part of our project commitment.
The Québec Project is currently contemplated as wholly-owned and operated by Loop Industries which allows us to commercialize near our innovation and engineering teams located in Terrebonne, Québec. To fund the project and enhance our target returns, we are exploring financing options. Alternatives under exploration include incentive and financing programs supported by, or in partnership with, various levels of government.
The Québec Project would allow the Company to proceed with Infinite Loop™ commercialization in a more expeditious manner without being impacted by COVID-19 restrictions on international travel.
Infinite Loop™ Europe
We announced on September 10, 2020 a strategic partnership with SUEZ GROUP (“Suez”), with the objective to build the first Infinite Loop™ manufacturing facility in Europe. With the combination of the Infinite Loop™ technology and the resource management expertise of Suez, this partnership seeks to respond to growth in demand in Europe from global beverage and consumer goods brand companies for virgin quality PET resin made from 100 percent recycled content. Together with Suez, we have initiated the work to enable us to make a final investment decision for the project with the current priorities being site selection, feedstock sourcing and customer contracts. We continue to work with our partner on finalizing the details of the site selection.
Joint Venture with Indorama
In September 2018 we announced a joint venture with Indorama to retrofit certain PET manufacturing facilities. We entered into a Limited Liability Company Agreement between (the “LLC Agreement”), a Marketing Agreement (the “Marketing Agreement”) and a License Agreement (the “License Agreement”), each dated September 24, 2018, with Indorama through our wholly-owned subsidiary Loop Innovations, LLC (“Loop Innovations”), a Delaware limited liability company. Each company has 50/50 equity interest in the joint venture. We are contributing to the 50/50 joint venture an exclusive worldwide royalty-free license to use our proprietary technology to produce 100% sustainably produced PET resin in addition to our equity cash contribution. In 2019, the joint venture decided to increase the capacity of the planned Spartanburg, South Carolina plant due to customer demand to 40,000 metric tons per year from the initially planned 20,700 metric tons per year.
We have currently contracted for the sale of approximately 40% of the planned capacity, of the expected output of the Spartanburg facility and we will resume discussions for the remaining volume once we have more visibility on the commissioning date of the facility, although we have had and may continue to experience delays due to the COVID-19 pandemic (see “The global COVID-19 pandemic” as noted under “Risk Factors”). As part of the Joint Venture Agreement, we are committed to contribute our equity share for the costs under the joint venture agreement to construct the facility. During the year ended February 28, 2021, we made a contribution of $650,000 and as at August 31, 2021, we have contributed a total of $1,500,000 to the joint venture.
The joint venture made a decision over the summer of 2020 that due to the COVID-19 pandemic it would temporarily delay work on the project. Since then, no expenditures have been incurred by the joint venture. While both joint venture partners currently remain committed to the project, we continue to monitor the COVID-19 implications on the project timetable.
| 10 |
| Table of Contents |
In conjunction with the SK strategic partnership mentioned above, on June 18, 2021, the Company, Loop Innovations, Indorama and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended (i) the LLC Agreement, (ii) the Marketing Agreement and (iii) the License Agreement (collectively such amendments, the “Indorama Joint Venture Amendments”).
Under the Indorama Joint Venture Amendments, the Company, Indorama and the Indorama Joint Venture Company agreed to:
| · | terminate Indorama’s right of first refusal under the LLC Agreement over any facility to produce products utilizing any waste-to-resin technology applying the PET depolymerization process of the Company; |
| · | amend the non-compete obligations under the LLC Agreement to solely apply to the Company; |
| · | limit the scope of the Company’s grant of intellectual property rights and the scope of the exclusivity rights of the Indorama Joint Venture Company for the retrofit of existing facilities under the License Agreement to North America and Europe; and |
| · | limit the scope of the Indorama Joint Venture Company’s permitted marketing rights under the Marketing Agreement to North America and Europe. |
The foregoing description of the Indorama Joint Venture Amendments does not purport to be complete and is qualified in its entirety by reference to the Indorama Joint Venture Amendments, a copy of which was filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended May 31, 2021 and incorporated therein by reference.
Small-scale Production Facility and Innovation Center in Terrebonne, Québec
As part of our plan for the commercialization of future Infinite Loop™ manufacturing facilities, we decided to convert our Terrebonne, Québec pilot plant to an Infinite Loop™ small-scale production facility. This facility will be used to showcase the Infinite Loop™ end to end technology and deliver initial production volumes to support co-branded market launch campaigns with partners and customers, and train operational teams in advance of the commissioning of the Infinite Loop™ full-scale commercial plants.
We made significant investments in the small-scale production facility during the six-month period ended August 31, 2021. In particular, we installed and began operation of new distillation columns in this period. We also advanced testing and production on the two installed depolymerization reactors which substantially increase our small-scale production facility’s depolymerization capacity and confirm the design and scale-up factor for the feasibility engineering of the planned commercial-scale facilities. We anticipate the Infinite Loop™ small-scale production facility depolymerization upgrades to be largely completed by late in calendar 2021. We have also previously entered into an agreement to acquire PET polymerization equipment from Chemtex to manufacture of Loop™ branded PET resin at our small-scale production facility and deliver Loop™ branded PET resin to customers in calendar 2022.
In addition to the capital requirements for our commercialization, we continue to invest in strengthening our intellectual property portfolio, building a core competency in managing strategic relationships and continue enhancing our brand value with activities such as the September 20, 2021 co-branded marketing launch of an evian Loop bottle for the South Korean market in 2022. Our research and development innovation center in Terrebonne, Québec will continue to push forward the development of our technology.
Human Capital
Our employees are essential to our success and we are committed to providing a safe, productive, discrimination-free and harassment-free work environment. All employees are responsible for compliance with our Code of Ethics as well as our health and safety, and anti-harassment policies. These policies and practices help us foster a workplace environment that promotes inclusion and diversity.
To attract and retain highly capable and innovative employees, we have developed competitive compensation packages and benefits programs. Our compensation packages include market-competitive pay, healthcare benefits, paid time off and family leave and flexible work schedules. We also offer equity awards with multi-year vesting provisions to incentivize and reward our employees for long-term corporate performance and promote retention throughout the vesting period.
To support our employees this fiscal year and to promote their health and safety, we encouraged administrative and engineering employees to work remotely. We provided emergency leave for employees to take care of a child or parent due to COVID-19 disruptions.
As of August 31, 2021, we had 79 employees of which 32 work in research and development and 34 in engineering and operations.
| 11 |
| Table of Contents |
Results of Operations
The following table summarizes our operating results for the three-month periods ended August 31, 2021 and 2020, in U.S. Dollars.
|
| Three months ended August 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 394,527 |
|
|
| 352,282 |
|
|
| 42,245 |
|
External engineering |
|
| 551,381 |
|
|
| 942,117 |
|
|
| (390,736 | ) |
Employee compensation |
|
| 1,098,161 |
|
|
| 708,387 |
|
|
| 389,774 |
|
Machinery and equipment expenditures |
|
| 2,485,232 |
|
|
| - |
|
|
| 2,485,232 |
|
Plant and laboratory operating expenses |
|
| 707,043 |
|
|
| 584,394 |
|
|
| 122,649 |
|
Other |
|
| 48,453 |
|
|
| 162,042 |
|
|
| (113,589 | ) |
Total research and development |
|
| 5,284,797 |
|
|
| 2,749,222 |
|
|
| 2,535,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 313,292 |
|
|
| 513,649 |
|
|
| (200,357 | ) |
Professional fees |
|
| 856,997 |
|
|
| 420,434 |
|
|
| 436,563 |
|
Employee compensation |
|
| 554,830 |
|
|
| 488,824 |
|
|
| 66,006 |
|
Directors and officers insurance |
|
| 1,059,153 |
|
|
| 502,368 |
|
|
| 556,785 |
|
Other |
|
| 331,954 |
|
|
| 123,966 |
|
|
| 207,988 |
|
Total general and administrative |
|
| 3,116,226 |
|
|
| 2,049,241 |
|
|
| 1,066,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 140,770 |
|
|
| 302,587 |
|
|
| (161,817 | ) |
Interest and other financial expenses |
|
| 33,102 |
|
|
| (58,905 | ) |
|
| 92,007 |
|
Interest income |
|
| (8,413 | ) |
|
| (18,039 | ) |
|
| 9,626 |
|
Foreign exchange loss (gain) |
|
| (174,066 | ) |
|
| 103,618 |
|
|
| (277,684 | ) |
Total expenses |
|
| 8,392,416 |
|
|
| 5,127,724 |
|
|
| 3,264,692 |
|
Net loss |
| $ | (8,392,416 | ) |
| $ | (5,127,724 | ) |
| $ | (3,264,692 | ) |
Second Quarter Ended August 31, 2021
The net loss for the three-month period ended August 31, 2021 increased $3.26 million to $8.39 million, as compared to the net loss for the three-month period ended August 31, 2020 which was $5.13 million. The increase is primarily due to increased research and development expenses of $2.54 million and increased general and administrative expenses of $1.07 million, offset by a lower foreign exchange loss of $0.28 million and a decrease in depreciation and amortization expenses of $0.16 million.
The $2.54 million increase in research and development for the three-month period ended August 31, 2021 was primarily attributable to the following:
| · | $2.49 million increase in purchases of research and development machinery and equipment. Starting in Q3 of fiscal 2021, the Company expensed machinery and equipment in accordance with ASC 730, Research and Development Costs, and no longer capitalized these costs. The timing of this accounting treatment is related to management’s decision to convert our pilot plant to a small-scale production facility for brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities; |
| · | $0.39 million increase in employee compensation expenses; and |
| · | $0.12 million increase in plant and laboratory operating expenses. |
These increases are offset by a $0.39 million decrease in external engineering expenses as a larger proportion of ongoing design work for our Infinite Loop™ manufacturing process was performed by our in-house engineering team during the three months ended August 31, 2021.
| 12 |
| Table of Contents |
The $1.07 million increase in general and administrative expenses for the three-month period ended August 31, 2021 was primarily attributable to the following:
| · | $0.56 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance renewal costs; and |
| · | $0.44 million increase in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Part II, Item 1. Legal Proceedings”. |
The $0.16 million decrease in depreciation and amortization expenses for the three-month period ended August 31, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the small-scale production facility to brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities. Although the machinery and equipment will continue to be utilized at our small-scale production facility as it is an integral part of supporting the commercialization of our technology, application of ASC 730, Research and Development Costs requires machinery and equipment assets to be written off and all future costs associated with the small-scale production facility to be recognized as a research and development expense in the consolidated statements of operations and comprehensive loss.
Six Months Ended August 31, 2021
The following table summarizes our operating results for the six-month periods ended August 31, 2021 and 2020, in U.S. Dollars.
|
| Six months ended August 31, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
Revenues |
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| 790,072 |
|
|
| 704,289 |
|
|
| 85,783 |
|
External engineering |
|
| 3,454,829 |
|
|
| 1,017,049 |
|
|
| 2,437,780 |
|
Employee compensation |
|
| 2,788,744 |
|
|
| 1,175,428 |
|
|
| 1,613,316 |
|
Machinery and equipment expenditures |
|
| 5,108,125 |
|
|
| - |
|
|
| 5,108,125 |
|
Plant and laboratory operating expenses |
|
| 1,398,510 |
|
|
| 870,497 |
|
|
| 528,013 |
|
Other |
|
| 382,352 |
|
|
| 462,547 |
|
|
| (80,195 | ) |
Total research and development |
|
| 13,922,632 |
|
|
| 4,229,810 |
|
|
| 9,692,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| (70,338 | ) |
|
| 1,173,466 |
|
|
| (1,243,804 | ) |
Professional fees |
|
| 2,488,447 |
|
|
| 642,131 |
|
|
| 1,846,316 |
|
Employee compensation |
|
| 1,399,865 |
|
|
| 971,859 |
|
|
| 428,006 |
|
Directors and officers insurance |
|
| 1,927,799 |
|
|
| 975,941 |
|
|
| 951,858 |
|
Other |
|
| 531,024 |
|
|
| 238,926 |
|
|
| 292,098 |
|
Total general and administrative |
|
| 6,276,797 |
|
|
| 4,002,323 |
|
|
| 2,274,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 272,770 |
|
|
| 558,561 |
|
|
| (285,791 | ) |
Interest and other financial expenses |
|
| 63,689 |
|
|
| 67,871 |
|
|
| (4,182 | ) |
Interest income |
|
| (18,174 | ) |
|
| (58,386 | ) |
|
| 40,212 |
|
Foreign exchange loss |
|
| 32,066 |
|
|
| 180,259 |
|
|
| (148,193 | ) |
Total expenses |
|
| 20,549,780 |
|
|
| 8,980,438 |
|
|
| 11,569,342 |
|
Net loss |
| $ | (20,549,780 | ) |
| $ | (8,980,438 | ) |
| $ | (11,569,342 | ) |
The net loss for the six-month period ended August 31, 2021 increased $11.57 million to $20.55 million, as compared to the net loss for the six-month period ended August 31, 2020 which was $8.98 million. The increase is primarily due to increased research and development expenses of $9.69 million and increased general and administrative expenses of $2.27 million, offset by lower depreciation and amortization expenses of $0.29 million and a decrease in foreign exchange loss of $0.15 million.
| 13 |
| Table of Contents |
The $9.69 million increase in research and development for the six-month period ended August 31, 2021 was primarily attributable to the following:
| · | $5.11 million increase in purchases of research and development machinery and equipment. Starting in Q3 of fiscal 2021, the Company expensed research and development machinery and equipment in accordance with ASC 730, Research and Development Costs, and no longer capitalized these costs. The timing of this accounting treatment is related to management’s decision to convert our pilot plant to a small-scale production facility for brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities; |
| · | $2.44 million increase in external engineering expenses for ongoing design work for our Infinite Loop™ manufacturing process; |
| · | $1.61 million increase in employee compensation expenses; and |
| · | $0.53 million increase in plant and laboratory operating expenses. |
The $2.27 million increase in general and administrative expenses for the six-month period ended August 31, 2021 was primarily attributable to the following:
| · | $1.85 million increase in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Part II, Item 1. Legal Proceedings”; |
| · | $0.95 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance renewal costs; and |
| · | $0.43 million increase in employee compensation expenses. |
The listed increases in general and administrative expenses were partially offset by lower stock-based compensation expenses of $1.04 million which are mainly due to forfeitures of RSUs recorded in the six-month period ended August 31, 2021 for a total of $0.94 million.
The $0.29 million decrease in depreciation and amortization expenses for the six-month period ended August 31, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the small-scale production facility to brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities. Although the machinery and equipment will continue to be utilized at our small-scale production facility as it is an integral part of supporting the commercialization of our technology, application of ASC 730, Research and Development Costs requires machinery and equipment assets to be written off and all future costs associated with the small-scale production facility to be recognized as a research and development expense in the consolidated statements of operations and comprehensive loss.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We are a development stage company with no revenues, and our ongoing operations and commercialization plans have been financed primarily by raising new equity capital. To date, we have been successful in raising capital to finance our ongoing operations. As at August 31, 2021, we had cash and cash equivalents on hand of $65.56 million. Management actively monitors the Company’s cash balance and short term cash commitments to ensure current operations are funded.
As part of our strategic partnership with SKGC, SKGC purchased 4,714,813 new treasury common shares of Loop at a price of $12 per share, for total consideration of $56.5 million. The strategic equity investment closed on July 29, 2021. SKGC was also granted options to acquire an additional 461,298 common shares at $11 per share within the next 12 months, 4,714,813 common shares at a price of $15 per share, within the next 3 years, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility.
Management continues to pursue our growth strategy and is evaluating our financing plans to continue to raise capital to finance the start-up of commercial operations and continue to fund our ongoing operations. Although our liquidity position consists of cash and cash equivalents on hand of $65.56 million, our liquidity position may change and is subject to risks and uncertainties, including those discussed under “Cautionary Statements Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and the Risk Factors section included in Part I, Item 1A of our 2021 Annual Report on Form 10-K.
| 14 |
| Table of Contents |
As reflected in the accompanying consolidated financial statements, we are a development stage company, we have not yet begun commercial operations and we do not have any sources of revenue. Management believes that the Company has sufficient financial resources to fund committed operating and capital expenditures and other working capital needs for at least, but not limited to, the 12-month period from the date of issuance of the August 31, 2021 consolidated financial statements. There can be no assurance that any future financing will be available or, if available, that it will be on terms that are satisfactory to us.
We have a short-term debt obligation to a Canadian bank in connection with the purchase, in the year ended February 28, 2018, of the land and building where our small-scale production facility, research and development center and corporate offices are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the Company obtained a $1,109,614 (CDN$1,400,000) 20-year term installment 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 $4,623 (CDN$5,833) plus interest, until January 2022, at which time it will be subject to renewal. It includes an option allowing for the prepayment of the Loan without penalty.
We also have a long-term debt obligation to Investissement Québec in connection with a financing facility equal to 63.45% of all eligible expenses incurred for the expansion of its small-scale production facility up to a maximum of $3,645,875 (CDN$4,600,000). We received the first disbursement in the amount of $1,750,998 (CDN$2,209,234) on February 21, 2020 and the second disbursement in the amount of $1,894,877 (CDN$2,390,766) on August 26, 2021. There is a 36-month moratorium on both capital and interest repayments as of the first disbursement date. At the end of the 36-month moratorium, capital and interest will be repayable in 84 monthly installments. The loan bears interest at 2.36%. We have also agreed to issue to Investissement Québec warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $364,587 (CDN$460,000). The warrants were issued at a price per share equal to the higher of (i) $11.00 per share and (ii) the ten-day weighted average closing price of Loop Industries shares of common stock on the Nasdaq stock market for the 10 days prior to the issue of the warrants. The warrants can be exercised immediately upon grant and have a term of three years from the date of issuance. The loan can be repaid at any time by us without penalty. On February 21, 2020, upon the receipt of the first disbursement under this facility, we issued a warrant to purchase 15,153 shares of common stock at a price of $11.00 to Investissement Québec. On August 26, 2021, upon the receipt of the second disbursement under this facility, we issued a warrant to purchase 17,180 shares of common stock at a price of $11.00 to Investissement Québec. There is no remaining amount available under the financing facility after the second disbursement.
Flow of Funds
Summary of Cash Flows
A summary of cash flows for the six months ended August 31, 2021 and 2020 was as follows:
|
| Six Months Ended August 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash used in operating activities |
| $ | (22,400,420 | ) |
| $ | (7,455,787 | ) |
Net cash used in investing activities |
|
| (5,101,573 | ) |
|
| (2,232,238 | ) |
Net cash from (used by) financing activities |
|
| 57,954,883 |
|
|
| (26,836 | ) |
Effect of exchange rate changes on cash |
|
| (113,479 | ) |
|
| 125,433 |
|
Net (decrease) increase in cash |
| $ | 30,339,411 |
|
| $ | (10,589,428 | ) |
Net Cash Used in Operating Activities
During the six-month period ended August 31, 2021, we used $22.4 million in operations compared to $7.46 million during the six-month period ended August 31, 2020. The increase over each year is mainly due to increased spending on upgrades to the small-scale production facility, engineering and operating expenses as we advance on commercialization activities of Loop’s technology and D&O insurance payments in the amount of $1.9 million. As discussed above in the Results of Operations, the main increases in expenses were engineering fees, research and development machinery and equipment, employee compensation and professional fees.
| 15 |
| Table of Contents |
Net Cash Used in Investing Activities
During the six months ended August 31, 2021, the Company made investments of $5.10 million in property, plant and equipment as compared to $2.32 million for the six months ended August 31, 2020, primarily in connection with the purchase for $4.82 million of a parcel of Land in Bécancour, Québec for the construction of our first Infinite Loop™ manufacturing facility. The size of this parcel of land exceeds that needed for the construction of the Infinite Loop™ manufacturing facility and a portion of the land is therefore available for sale. For additional information on the land held for sale, please refer to Note 5 of the attached condensed consolidated financial statements. During the six months ended August 31, 2021, the Company made investments in intangible assets of $0.1 million, particularly in its patent technology in the United States and around the world.
During the six months ended August 31, 2020, the Company made investments of $1.12 million in property, plant and equipment as compared to $1.20 million for the six months ended August 31, 2019, primarily in connection with the upgrade of its small-scale production facility. Additionally, the Company made deposits on equipment of $1.31 million as at August 31, 2020. During the six months ended August 31, 2020, the Company made investments in intangible assets of $0.16 million as compared to $0.08 million for the six months ended August 31, 2019, particularly in its GEN II patent technology in the United States and around the world. During the six months ended August 31, 2020, the Company also made an additional contribution of $0.65 million to Indorama Loop Technologies, LLC, the joint venture with Indorama Ventures Holdings LP, USA.
Net Cash (Used) Provided by Financing Activities
During the quarter ended August 31, 2021, we raised $56.5 million through a private offering of common stock, together with warrants, in the net amount of $56.1 million. We also made payments totaling $0.03 million against our long-term debt, representing the loan agreement we entered into during the year ended February 28, 2018 to purchase the land and building of our small-scale production facility, research and development center and executive offices.
On August 26, 2021, we received $1,894,877 (CDN$2,390,766) in connection with the credit facility from Investissement Québec to finance capital expenses incurred for the expansion of our pilot plant. There is a moratorium on both capital and interest repayments until February 2023.
During the six months ended August 31, 2020, we repaid $0.03 million of long-term debt.
| 16 |
| Table of Contents |
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. In light of the uncertain and evolving situation relating to the global COVID-19 pandemic, our access to raw materials, the quality and proximity of such materials may be disrupted. We currently cannot predict the impact that the global COVID-19 pandemic will have on our access to raw materials.
| 17 |
| Table of Contents |
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 SEC’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 August 31, 2021.
B. Changes in Internal Control over Financial Reporting
There were no other changes in our internal control over financial reporting during the three-month period ended August 31, 2021 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
| 18 |
| Table of Contents |
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SEC Investigation
As previously disclosed in our Current Report on Form 8-K filed with the SEC on October 16, 2020, on October 15, 2020, we received a subpoena from the SEC requesting certain information from us, including information regarding testing, testing results and details of results from our GEN I and GEN II technologies and certain of our partnerships and agreements. Prior to its receipt, there had been no previous communication between us and the SEC on this issue. The SEC informed us that its investigation does not mean that the SEC has concluded that anyone has violated the law and that the investigation does not mean that the SEC has a negative opinion of us. We cannot predict when this matter will be resolved or what, if any, action the SEC may take following the conclusion of the investigation.
Litigation
On October 13, 2020, the Company and certain of its officers were named as defendants in a proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Olivier Tremblay, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-0838 (“Tremblay Class Action”). The allegations in the complaint claim that the defendants allegedly violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. Plaintiff seeks unspecified damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020.
On October 28, 2020, the Company and certain of its officers were named as defendants in a second proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Michelle Bazzini, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-09031-UA. The allegations in this complaint are similar in nature to those made in the Tremblay Class Action.
On January 4, 2021, the United States District Court for the Southern District of New York rendered a stipulation and order granting the consolidation of the two class-action lawsuits filed in New York as In re Loop Industries, Inc. Securities Litigation, Master File No. 7:20-cv-08538. Sakari Johansson and John Jay Cappa have been appointed as Co-Lead Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP have been appointed as Co-Lead Counsel for the class.
Plaintiffs served a consolidated amended complaint on February 18, 2021 which alleges defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The consolidated amended complaint relies on the October 13, 2020 report published by a third party regarding the Company to support their allegations. Defendants served a motion to dismiss the consolidated amended complaint on April 27, 2021. Plaintiffs’ opposition to the motion to dismiss was served on May 27, 2021 and Defendants’ reply in support of the motion to dismiss was served on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of their officers and directors were named as defendants in a proposed securities class action filed in the Superior Court of Québec (District of Terrebonne, Province of Québec, Canada), in file no. 700-06-000012-205. The Application for authorization of a class action and for authorization to bring an action pursuant to section 225.4 of the Québec Securities Act (the “Application”) was filed by an individual shareholder on behalf of himself and a class of buyers who purchased our securities during the “Class Period” (not defined). Plaintiff alleges that throughout the Class Period, the defendants allegedly made false and/or misleading statements and allegedly failed to disclose material adverse facts concerning the Company’s technology, business model, operations and prospects, thus causing the Company’s stock price to be artificially inflated and thereby causing plaintiff to suffer damages. Plaintiff seeks unspecified damages stemming from losses he claims to have suffered as a result of the foregoing. On December 13, 2020, the Application was amended in order to add allegations regarding specific misrepresentations.
| 19 |
| Table of Contents |
From time to time, we may become involved in various lawsuits and legal proceedings or investigations 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 June 1, 2021. No material changes to such risk factors have occurred during the six months ended August 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As discussed further in Note 13 to the financial statements included in this Quarterly Report, in connection with the strategic partnership with SKGC, on July 29, 2021, we issued 4,714,813 shares of our common stock and warrants to purchase 7,533,518 shares of our common stock SK geo centric Co., Ltd. (formerly known as SK global chemical Co. Ltd.).
As discussed further in Note 11 to the financial statements included in this Quarterly Report, in connection with the Investissement Québec financing facility, on August 26, 2021, we issued a warrant to purchase 17,180 shares of our common stock to Investissement Québec.
On May 12, 2020, we issued to a service provider a warrant to acquire 25,000 shares of common stock at a strike price of $9.43 per share.
Each issuance listed above was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
| 20 |
| Table of Contents |
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. | |||||
10-K | 000-54768 | May 30, 2017 | 3.1 | |||||||
8-K | 000-54768 | April 10, 2018 | 3.1 | |||||||
|
| 10-Q |
| 000-54768 |
| July 15, 2021 |
| 10.1 | ||
| Securities Purchase Agreement dated June 22, 2021 by and between SK Global Chemical Co. LTD. |
| 10-Q |
| 000-54768 |
| July 15, 2021 |
| 10.2 | |
24.1 | Power of Attorney (contained on signature page to the previously filed Annual Report on Form 10-K) |
| 10-K |
| 000-54768 |
| May 8, 2019 |
| 24.1 | |
Filed herewith | ||||||||||
|
|
| Filed herewith |
|
|
|
| |||
Furnished herewith | ||||||||||
|
|
| 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 |
|
|
|
| |
| 21 |
| Table of Contents |
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: October 14, 2021 | By: | /s/ Daniel Solomita |
|
| Name: | Daniel Solomita |
|
| Title: | President and Chief Executive Officer, and Director (Principal Executive Officer) |
|
|
|
|
|
Date: October 14, 2021 | By: | /s/ Drew Hickey | |
Name: | Drew Hickey | ||
Title: | Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer) |
| 22 |