Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 489K
2: EX-31.1 Certification Pursuant to Rule 13A-14(A)/15D-14(A) HTML 27K
Certifications Section 302 of the Sarbanes-Oxly
Act of 2002
3: EX-31.2 Certification Pursuant to Rule 13A-14(A)/15D-14(A) HTML 29K
Certifications Section 302 of the Sarbanes-Oxly
Act of 2002
4: EX-32.1 Certificate Pursuant to Section 18 U.S.C. Pursuant HTML 22K
to Section 906 of the Sarbanes-Oxley Act of 2002
5: EX-32.2 Certificate Pursuant to Section 18 U.S.C. Pursuant HTML 22K
to Section 906 of the Sarbanes-Oxley Act of 2002
17: R1 Document and Entity Information HTML 47K
57: R2 Condensed Consolidated Balance Sheets HTML 91K
63: R3 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
40: R4 Condensed Consolidated Statements of Operations HTML 69K
and Comprehensive Loss (Unaudited)
16: R5 Condensed Consolidated Statement of Changes in HTML 86K
Stockholders Equity (Unaudited)
56: R6 Condensed Consolidated Statements of Cash Flows HTML 98K
(Unaudited)
62: R7 The Company, Basis of Presentation and Going HTML 28K
Concern
41: R8 Summary of Significant Accounting Policies HTML 40K
15: R9 Sales Tax, Tax Credits and Other Receivables HTML 27K
68: R10 Property, Plant and Equipment HTML 32K
48: R11 Intangible Assets HTML 37K
22: R12 Fair Value of Financial Instruments HTML 48K
31: R13 Accounts Payable and Accrued Liabilities HTML 25K
67: R14 Joint Venture HTML 26K
47: R15 Long-Term Debt HTML 27K
21: R16 Convertible Notes HTML 55K
30: R17 Stockholders' Equity HTML 54K
66: R18 Share-based Payments HTML 52K
49: R19 Equity Incentive Plan HTML 29K
19: R20 Warrants HTML 32K
44: R21 Interest and Other Finance Costs HTML 29K
61: R22 Commitments HTML 24K
55: R23 Summary of Significant Accounting Policies HTML 63K
(Policies)
18: R24 Sales Tax, Tax Credits and Other Receivables HTML 24K
(Tables)
43: R25 Property, Plant and Equipment, Net (Tables) HTML 32K
60: R26 Intangible Assets, Net (Tables) HTML 27K
54: R27 Fair Value of Financial Instruments (Tables) HTML 47K
20: R28 Accounts Payable and Accrued Liabilities (Tables) HTML 25K
42: R29 Long-Term Debt (Tables) HTML 29K
32: R30 Convertible Notes (Tables) HTML 34K
25: R31 Stockholders' Equity (Tables) HTML 30K
45: R32 Share-Based Payments (Tables) HTML 57K
64: R33 Equity Incentive Plan (Tables) HTML 25K
33: R34 Warrants (Tables) HTML 35K
26: R35 Interest and Other Finance Costs (Tables) HTML 29K
46: R36 Sales Tax, Tax Credits and Other Receivables HTML 29K
(Details)
65: R37 Property, Plant and Equipment, Net (Details) HTML 41K
34: R38 Property, Plant and Equipment, Net (Details HTML 23K
Narrative)
23: R39 Intangible Assets, Net (Details) HTML 27K
37: R40 Intangible Assets, Net (Details 1) HTML 29K
13: R41 Intangible Assets, Net (Details Narrative) HTML 23K
52: R42 Fair Value of Financial Instruments (Details) HTML 33K
58: R43 Accounts Payable and Accrued Liabilities (Details) HTML 29K
38: R44 Long-Term Debt (Details) HTML 28K
14: R45 Long-Term Debt (Details 1) HTML 36K
53: R46 Long-Term Debt (Details Narrative) HTML 22K
59: R47 Convertible Notes (Details) HTML 44K
39: R48 Stockholders' Equity (Details) HTML 53K
12: R49 Share-Based Payments (Details) HTML 49K
28: R50 Share-Based Payments (Details 1) HTML 55K
36: R51 Share-Based Payments (Details 2) HTML 33K
70: R52 Share-Based Payments (Details 3) HTML 44K
51: R53 Equity Incentive Plan (Details) HTML 32K
27: R54 Warrants (Details) HTML 39K
35: R55 Warrants (Details 1) HTML 39K
69: R56 Interest and Other Finance Costs (Details) HTML 37K
24: XML IDEA XML File -- Filing Summary XML 124K
50: EXCEL IDEA Workbook of Financial Reports XLSX 66K
6: EX-101.INS XBRL Instance -- loop-20191130 XML 1.08M
8: EX-101.CAL XBRL Calculations -- loop-20191130_cal XML 130K
9: EX-101.DEF XBRL Definitions -- loop-20191130_def XML 253K
10: EX-101.LAB XBRL Labels -- loop-20191130_lab XML 601K
11: EX-101.PRE XBRL Presentations -- loop-20191130_pre XML 506K
7: EX-101.SCH XBRL Schema -- loop-20191130 XSD 139K
29: ZIP XBRL Zipped Folder -- 0001654954-20-000243-xbrl Zip 87K
Registrant’s
telephone number, including area code (450) 951-8555
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
Common
Stock
LOOP
Nasdaq
Global Market
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No
☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files) Yes ☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,”“accelerated
filer,”“smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated
filer
☐
Accelerated
filer
☒
Non-accelerated
filer
☐
Smaller reporting
company
☒
Emerging growth
company
☐
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
As at January 8,2020, there were 39,232,528 shares of the Registrant’s common
stock, par value $0.0001 per share, outstanding.
Loop
Industries, Inc. is a technology company who owns patented and
proprietary technology that depolymerizes no and low value waste
PET plastic and polyester fiber to its base building blocks
(monomers). The monomers are filtered, purified and polymerized to
create virgin-quality Loop™ branded PET plastic resin and
polyester fiber suitable for use in food-grade
packaging.
On
November 20, 2017, Loop Industries Inc. commenced trading on the
NASDAQ Global Market under its new trading symbol,
“LOOP.” From April 10, 2017 to November 19, 2017, our
common stock was quoted on the OTCQX tier of the OTC
Markets Group Inc. under the symbol
“LLPP.”
Basis of presentation
The
accompanying unaudited interim condensed consolidated financial
statements of Loop Industries, Inc., its wholly-owned subsidiaries
and joint venture (collectively, the “Company”) have
been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”)
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by US GAAP
for complete financial statements. The balance sheet information as
at February 28, 2019 is derived from the Company’s audited
consolidated financial statements and related notes for the fiscal
year ended February 28, 2019, which is included in Item 8 of the
Company’s 2019 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on May 8, 2019. These unaudited
interim condensed consolidated financial statements should be read
in conjunction with those financial statements. In the opinion of
management, all normal recurring adjustments considered necessary
for a fair statement have been included. Operating results for the
three and nine months ended November 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending
February 28, 2020.
Intercompany
balances and transactions are eliminated on
consolidation.
2. Summary of Significant Accounting Policies
Use of estimates
The
preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Those estimates and assumptions include estimates for
depreciable lives of property, plant and equipment, intangible
assets, analysis of impairments of recorded intangible assets,
accruals for potential liabilities and assumptions made in
calculating the fair value of stock-based compensation and other
stock instruments.
Foreign currency translations and transactions
The
accompanying unaudited condensed consolidated financial statements
are presented in U.S. dollars, the reporting currency of the
Company. Assets and liabilities of subsidiaries that have a
functional currency other than that of the Company are translated
to U.S. dollars at the exchange rate as at the balance sheet date.
Income and expenses are translated at the average exchange rate of
the period. The resulting translation adjustments are included in
other comprehensive income (loss) (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently has not engaged in any currency
hedging activities.
F-6
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
Stock-based compensation
The
Company periodically issues stock options and restricted stock
units to employees and directors. The Company accounts for stock
options granted to employees based on the authoritative guidance
provided by the FASB wherein the fair value of the award is
measured on the grant date and where there are no performance
conditions, recognized as compensation expense on the straight-line
basis over the vesting period and where performance conditions
exist, recognize compensation expense when it becomes probable that
the performance condition will be met. Forfeitures on share-based
payments are accounted for by recognizing forfeitures as they
occur.
The
Company accounts for stock options granted to non-employees in
accordance with the authoritative guidance of the FASB wherein the
fair value of the stock compensation is based upon the measurement
date determined as the earlier of the date at which either
a) a commitment is reached with the counterparty for
performance or b) the counterparty completes its
performance.
The
Company estimates the fair value of restricted stock unit awards to
employees and directors based on the closing market price of its
common stock on the date of grant.
The
fair value of the stock options granted are estimated using the
Black-Scholes-Merton Option Pricing (“Black-Scholes”)
model, which uses certain assumptions related to risk-free interest
rates, expected volatility, expected life of the stock options, and
future dividends. Stock-based compensation expense is recorded
based on the value derived from the Black-Scholes model and on
actual experience. The assumptions used in the Black-Scholes model
could materially affect stock-based compensation expense recorded
in the current and future periods.
Income taxes
The
Company calculates its provision for income tax on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset
and liability approach for financial accounting and reporting for
income taxes that allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future
deductibility is uncertain. The Company’s policy is to
recognize interest and/or penalties related to income tax matters
in income tax expense.
Research and development expenses
Research
and development expenses relate primarily to the development,
design, testing of preproduction samples, prototypes and models,
compensation, and consulting fees, and are expensed as incurred.
Total research and development costs recorded during the three- and
nine-month periods ended November 30, 2019 and 2018 amounted to
$1,278,172 and $3,246,246,
respectively (2018 - $792,111 and $2,924,483), respectively, and
are net of government research and development tax credits and
government grants from the federal and provincial taxation
authorities accrued and recorded based on qualifying expenditures
incurred during the fiscal periods (See Note 3).
Net 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.
F-7
For the
three- and nine-month periods ended November 30, 2019 and 2018, the
calculations of basic and diluted loss per share are the same
because potential dilutive securities would have an antidilutive
effect. As at November 30, 2019, the potentially dilutive
securities consisted of 1,657,081 outstanding stock options
(November 30, 2018 – 2,205,290), 4,219,753 outstanding
restricted stock units (November 30, 2018 – 99,498),
5,040,267 outstanding warrants (November 30, 2018 – 140,667)
and nil outstanding issuable common stock (November 30, 2018
– 1,000,000).
Recently adopted accounting pronouncements
In
February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which permits
entities to reclassify the disproportionate income tax effects of
the Tax Reform Act on items within accumulated other comprehensive
income (loss) ("AOCI") to retained earnings. These disproportionate
income tax effect items are referred to as "stranded tax effects."
Amendments in this update only relate to the reclassification of
the income tax effects of the Tax Reform Act. Other accounting
guidance that requires the effect of changes in tax laws or rates
to be included in net income from continuing operations is not
affected by this update. ASU 2018-02 should be applied either in
the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable
beginning March 1, 2019. The adoption of the standard had no impact
on the consolidated financial statements of the
Company.
In June
2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment
Accounting. The amendments in this Update expand the scope
of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. An entity should
apply the requirements of Topic 718 to nonemployee awards except
for specific guidance on inputs to an option pricing model and the
attribution of cost (that is, the period of time over which
share-based payment awards vest and the pattern of cost recognition
over that period). The amendments specify that Topic 718 applies to
all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with
Customers. The amendments in this Update are effective for
public entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
In July
2018, the FASB issued ASU 2018-09, Codification Improvements, which
clarify certain amendments to guidance that may have been
incorrectly or inconsistently applied by certain entities and
includes Amendments to Subtopic 718-740, Compensation – Stock Compensation
– Income Taxes. The guidance in paragraph
718-740-35-2, as amended by the amendments in ASU 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting, is unclear on whether
an entity should recognize excess tax benefits (or tax
deficiencies) for compensation expense that is taken on the
entity’s tax return. The amendment to paragraph 718-740-35-2
in this Update clarifies that an entity should recognize excess tax
benefits in the period in which the amount of deduction is
determined. The amendments in this Update are effective for public
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
In
February 2016, the FASB issued ASU 2016-02, “Leases,”
amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted
Improvements,” and ASU 2018-20, “Narrow-Scope
Improvements for Lessors,” which requires lessees to
recognize leases on the balance sheet while continuing to recognize
expenses in the income statement in a manner similar to current
accounting standards. For lessors, the new standard modifies the
classification criteria and the accounting for sales-type and
direct financing leases. Enhanced disclosures will also be required
to give financial statement users the ability to assess the amount,
timing, and uncertainty of cash flows arising from leases. This ASU
may either be adopted on a modified retrospective approach at the
beginning of the earliest comparative period, or through a
cumulative-effect adjustment at the adoption date. This update is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company
adopted these standards effective March 1, 2019. The adoption of
the standard had no impact on the consolidated financial statements
of the Company. The Company elected to apply the package of
practical expedients that allows us not to reassess whether expired
or existing contracts contain leases, the classification of these
leases and whether previously capitalized initial direct costs
would qualify for capitalization under Accounting Standards
Codification (or “ASC”) 842. Furthermore, we
elected to use hindsight in determining the lease term and
assessing impairment of the right-of-use assets.
The
Company is registered for the Canadian federal and provincial goods
and services taxes. As such, the Company is obligated to collect,
and is entitled to claim sale taxes paid on its expenses and
capital expenditures incurred in Canada.
In
addition, Loop Canada Inc. is entitled to receive government
assistance in the form of refundable and non-refundable research
and development tax credits from the federal and provincial
taxation authorities, based on qualifying expenditures incurred
during the fiscal year. The refundable credits are from the
provincial taxation authorities and are not dependent on its
ongoing tax status or tax position and accordingly are not
considered part of income taxes. The Company records refundable tax
credits as a reduction of research and development expenses when
the Company can reasonably estimate the amounts and it is more
likely than not, they will be received. During the three- and
nine-month periods ended November 30, 2019, the Company recorded
$56,719 and $164,702, respectively, (2018 – nil and $76,503,
respectively) as a reduction of research and development expenses.
During the three- and nine-month periods ended November 30, 2019,
research and development tax credits received by the Company from
taxation authorities amounted to nil and $175,929, respectively
(2018 – nil and nil, respectively).
Depreciation
expense for the three- and nine-month periods ended November 30,2019 amounted to $212,968 and $570,165, respectively (2018 –
$135,426 and $309,095, respectively), and is recorded as an
operating expense in the consolidated statements of operations and
comprehensive loss.
F-9
5. Intangible Assets
On
October 27, 2014, the Company entered into an Intellectual Property
Assignment Agreement with Mr. Hatem Essaddam wherein the Company
purchased a certain technique and method, which was used to develop
the Generation I (“GEN I”) technology, for $445,050
allowing for the depolymerization of polyethylene terephthalate at
ambient temperature and atmospheric pressure. The GEN I technology
patent portfolio has two issued U.S. patents and an allowed U.S.
application, all expected to expire on or around July 2035.
Internationally, the Company has issued patents in Taiwan, South
Africa, and in the members of the Gulf Cooperation Council, and
pending patent applications in Argentina, Australia, Brazil,
Canada, China, Eurasia, Europe, Hong Kong, Israel, India, Japan,
Korea, Mexico, and the Philippines, all expected to expire, if
granted, on or around July 2036.
In
addition to the $445,050 paid by the Company under the Intellectual
Property Assignment Agreement, the Company is required to make four
additional payments of CDN$200,000, totaling CDN$800,000, to Mr.
Essaddam within sixty (60) days of attaining each of the following
milestones:
●
the average
production of 20 metric tons of terephthalic acid by the Company,
as a result of the GEN I technology, for 20 operating
days;
●
the average
production of 30 metric tons of terephthalic acid by the Company,
as a result of the GEN I technology, for 30 operating
days;
●
the average
production of 60 metric tons of terephthalic acid by the Company,
as a result of the GEN I technology, for 60 operating
days;
●
the average
production of 100 metric tons of terephthalic acid by the Company,
as a result of the GEN I technology, for 100 operating
days.
Additionally,
the Company is obligated to make royalty payments of up to
CDN$25,700,000, based on the GEN I technology, payable as
follows:
●
10% of gross
profits on the sale of all products derived by the Company from the
technology;
●
10% of any license
fee paid to the Company in respect of any licensing or other right
to use the technology that was granted to a third party by the
Company; and
●
5% of any royalty
or other similar payment made to the Company by a third party to
whom a license or sub-license or other right to use the technology
has been granted by the Company or by the third party.
The
Company has no intention of commercializing the GEN I technology at
this time.
During
the year ended February 28, 2019, the Company finalized the
development of its next generation technology, referred to as
Generation II (“GEN II”), and has filed various patents
in jurisdictions around the world. The GEN II U.S.
patent issued on April 9,2019 and is expected to expire on or around September
2037.
Concurrent
with the GEN II development, in June 2018, the Company transitioned
to its newly constructed GEN II industrial pilot plant. The GEN II
technology forms the basis for the commercialization of the Company
into the future.
As a
result of the strategic shift away from the GEN I technology, and
the development of the GEN II technology during the year ended
February 28, 2019, the Company considered the carrying value of its
GEN I intangible asset to be impaired and wrote off the remaining
balance of the intangible asset, which amounted to
$298,694.
Amortization
expense for the three- and nine-month periods ended November 30,2019 amounted to $6,660 and $15,202 respectively (2018 - $19,627
and $57,615, respectively), and is recorded as an operating expense
in the unaudited condensed consolidated statements of operations
and comprehensive loss.
Financial
liabilities measured at fair value on a recurring
basis:
Warrants
(First Issuance)
$219,531
$219,531
Level 3
Financial
liabilities measured at amortized cost:
Long-term
debt
1,005,518
1,005,518
Level 2
Convertible
notes (First Issuance)
2,495,636
2,650,000
Level 2
Convertible
notes (Second Issuance)
$3,126,886
$3,150,000
Level 2
The
Warrants under the First Issuance of Convertible Notes represent a
Level 3 in the fair value hierarchy. The Warrants were valued using
a Monte Carlo simulation using a volatility of 71.5%. The Company
recorded a loss on revaluation from the date of issuance to
February 28, 2019 of $65,167.
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP
(“Indorama”), an indirect subsidiary of Indorama
Ventures Public Company Limited, to retrofit their existing PET
manufacturing facilities. The joint venture will manufacture and
commercialize sustainable LoopTM branded PET resin
and polyester fiber. The joint venture
agreement details the establishment of an initial 20,700 metric
tons per year facility. The joint venture decided to double the
capacity of the facility to 40,000 metric tons per year thus
increasing the engineering work required. Each company has a 50/50 equity interest
in Indorama Loop Technologies, LLC (“ILT”), which was
specifically formed to operate and execute the joint
venture.
Under
the Agreement, Indorama is contributing manufacturing knowledge and
Loop is required to contribute its proprietary science and
technology.
F-11
Specifically,
the Company is contributing an exclusive world-wide royalty-free
license to ILT to use its proprietary technology to produce 100%
sustainably produced PET resin and polyester fiber.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There was no activity in
ILT from the date of inception of September 24, 2018 to February28, 2019 and, as at February 28, 2019, the carrying value of the
equity investment was nil. On April18, 2019 and October 21, 2019, Loop Innovations, LLC, the
Company’s wholly owned subsidiary, and Indorama,
each contributed cash of $500,000 and
$350,000, respectively, to ILT. As there were no other
transactions during the nine-month period ended November 30, 2019,
the carrying value of the equity investment as at November 30, 2019
was $850,000.
Principal
repayments due on the Installment loan over the next five years are
as follows:
Years
ending February 28,
Amount
2020
$13,169
2021
52,675
2022
52,675
2023
52,675
2024
52,675
Thereafter
733,063
Total
$956,932
Interest
paid on the installment loan during the three- and nine-month
periods ended November 30, 2019 amounted to $14,778 and $41,840,
respectively (2018 - $13,825 and $40,305, respectively). As at
November 30, 2019, the Company was in compliance with its financial
covenants.
10. Convertible Notes
First Issuance
On November 13, 2018, the Company issued convertible promissory
notes (the “November 2018 Notes”), together with
related warrants to acquire an additional 50% of the shares issued
upon the conversion of the November 2018 Notes (the “November
2018 Warrants”), for an aggregate purchase price of
$2,450,000 (the “November 2018 Private Placement”). On
January 3, 2019, the Company issued additional convertible
promissory notes from this issuance (the “November 2018
Notes”), together with related warrants to acquire an
additional 50% of the shares issued upon the conversion of the
November 2018 Notes (the “November 2018 Warrants”), for
an aggregate purchase price of $200,000 (the “November 2018
Private Placement”). The November 2018 Notes were converted
on April 5, 2019.
The November 2018 Notes carried an interest rate of 8.00% per annum
and had original maturity dates of May 13, 2019 and July 3, 2019
(the “November 2018 Maturity Date”), respectively, upon
which date the outstanding principal amount of the November 2018
Notes and all accrued and unpaid interest would automatically
convert into shares of the common stock of the Company at the price
per share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes (the “November 2018 Conversion
Price”). The total number of shares of Common Stock to be
issued upon automatic conversion at maturity would equal the
outstanding principal amount of the November 2018 Notes and all
accrued and unpaid interest on the November 2018 Notes, divided by
the November 2018 Conversion Price.
F-12
The November 2018 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrant Shares”). The per share purchase price (the
“November 2018 Exercise Price”) for each of the
November 2018 Warrant Shares purchasable under the November 2018
Warrants was originally to be equal to the lesser of (i) $15.00 and
(ii) the average closing price of the Company’s Common Stock
on the Nasdaq stock market for the ten days preceding the day of
the conversion of the November 2018 Notes. The November 2018
Warrants were issued upon conversion of the November 2018 Notes.
The November 2018 Warrants expire eighteen (18) months from the
date of the conversion of the November 2018 Notes (the
“November 2018 Expiration Date”). The Investors may
exercise the November 2018 Warrants at any time prior to the
November 2018 Expiration Date.
Due to the variable conversion price, the November 2018 Notes
contain characteristics of a variable share-forward sales contracts
(“VSF”) under the guidance of ASC 480-10. Management
has determined that for the purpose of the accounting for
the November 2018 Notes, it is more likely than not that the
November 2018 Conversion Price will be below $13.00, resulting in
the issuance of a variable number of shares, the November 2018
Notes are classified as a liability, and accounted for at amortized
cost.
Due to the variable number of warrants to be issued and the
variable strike price of the November 2018 Warrants, these do not
meet the “fixed-for-fixed” criteria under ASC 815-40.
Accordingly, the November 2018 Warrants are classified as a
derivative liability, initially measured at fair value and
subsequently revalued at fair value through the income
statement. The
fair value was calculated using a Monte Carlo
simulation.
The
transaction costs related to this issuance were split pro-rata
between the November 2018 Notes and the November 2018 Warrants. The
portion relating to the November 2018 Notes were deferred and are
being amortized over the life of the convertible notes. The portion
relating to the November 2018 Warrants was immediately
expensed.
The aggregate value of the November 2018 Notes and November 2018
Warrants as shown on the consolidated balance sheet are broken down
as follows:
On
April 5, 2019, the Company and the Investors that purchased the
November 2018 Notes from the Company pursuant to the Note and
Warrant Purchase Agreement dated as of November 13, 2018 or January3, 2019, executed an Amendment, Surrender and Conversion Agreement
(“Conversion Agreement”) whereby the parties agreed to
convert the November 2018 Notes, and all accrued and unpaid
interest, into shares of the common stock of the Company at a newly
agreed conversion price per share equal to $8.55 (the “New
Conversion Price”), replacing the previous formula which
converted the November 2018 Notes and
accrued and unpaid interest into shares of the common stock of the
Company at the price per share equal to the lesser of (i) $13.00
and (ii) the average closing price of the Company’s Common
Stock on the Nasdaq stock market for the ten days preceding the day
to the conversion of the November 2018 Notes. The Conversion
Agreement stipulates that the interest on the November 2018 Notes
would be paid up to and including April 3, 2019. Pursuant to the
2018 Note Purchase Agreement, the Investors also received related
warrants to acquire an additional 50% of the shares issued upon the
conversion of the November 2018 Notes. As part of the Conversion
Agreement, the exercise price of the November 2018 Warrants will
also be the New Conversion Price, replacing the previous formula
which established the conversion price for the November 2018
Warrants as the lesser of (i) $15.00 and (ii) the average closing
price of the Company’s Common Stock on the Nasdaq stock
market for the ten days preceding the day of the conversion of the
November 2018 Notes. As a result of the Conversion Agreement, the
Company issued 319,326 shares of common stock of the Company and
issued 159,663 warrants. The November 2018 Warrants expire eighteen
(18) months from the date of the conversion of the November 2018
Notes, on October 5, 2020.
F-13
The
Company recorded an expense upon revaluation of the warrants for
the period from March 1, 2019 to April 5, 2019 in the amount of
$8,483 (2018 – nil) and is included in operating expenses.
The Company recorded accretion interest expense on the November
2018 Notes from March 1, 2019 to April 5, 2019 in the amount of
$154,364 and is included in operating expenses. The Company
recorded interest expense on the November 2018 Notes for the period
from March 1, 2019 to April 3, 2019 in the amount of $19,433 (2018
– nil). The value of the 159,633 warrants issued as part of
the conversion was determined using the Black-Scholes pricing
formula and amounted to $316,929 and is included in additional
paid-in capital – warrants. Also, the conversion of the
November 2018 Notes into common stock resulted in a gain of
$232,565 and has been offset against operating
expenses.
Second Issuance
On January 15, 2019, the Company issued convertible promissory
notes (the “January 2019 Notes”), together with related
warrants to acquire an additional 50% of the shares issuable upon
the conversion of the January 2019 Notes (the “January 2019
Warrants”), for an aggregate purchase price of $4,500,000
(the “January 2019 Private Placement”). On January 21,2019, the Company issued additional convertible promissory notes
from this issuance, together with related warrants to acquire an
additional 50% of the shares issuable upon the conversion of the
January 2019 Notes, for an aggregate purchase price of
$400,000.
The January 2019 Notes carry an interest rate of 8.00% per annum
and mature on January 15, 2020 and January 21, 2020 (the
“January 2020 Maturity Date”), respectively. At the
January 2020 Maturity Date, the outstanding principal amount of the
January 2019 Notes shall automatically convert into shares of the
common stock of the Company at the price per share equal to $8.10
(the “January 2020 Conversion Price”). The January 2020
Conversion Price may be adjusted in the event that the Company
issues common shares in a private sale or offering at a lower price
per share than $8.10 within 180 days of the closing date. The lower
price would become the new conversion price of the January 2019
Notes, which would impact the number of shares that would be
issued. The total number of shares of Common Stock to be issued
upon automatic conversion shall equal the outstanding principal
amount of the January 2019 Notes divided by the January 2020
Conversion Price.
With respect to accrued and unpaid interest at the January 2020
Maturity Date, the Investors have the option of receiving cash or
common stock of the Company at that date. Upon the January 2020
Maturity Date, where the Investor elects payment of accrued and
unpaid interest on the January 2019 Notes in common stock, the
price per share shall be equal to the trading price of the common
stock at the close of the market on the date immediately preceding
the January 2020 Maturity Date.
The January 2019 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issuable upon the
conversion of the January 2019 Notes (the “January 2019
Warrant Shares”). The per share purchase price (the
“January 2019 Exercise Price”) for each of the January
2019 Warrant Shares purchasable under the January 2019 Warrants
shall be equal to 115% of the January 2020 Conversion Price. The
January 2019 Warrants will be calculated and issued upon the
closing date of the January 2019 Notes, based upon the initial
$8.10 conversion price. As such, the Company issued 302,469
warrants at the closing dates of the January 2019 Notes. If the
Investor elects to take accrued and unpaid interest on the January
2019 Notes in common stock, additional warrants will be issued to
acquire 50% of the shares issued in connection with the accrued and
unpaid interest (also referred to as the “January 2019
Warrants”). The January 2019 Warrants expire twenty-four (24)
months from the date of their issuance (the “January 2019
Expiration Date”). The Investors may exercise the January
2019 Warrants at any time prior to the January 2019 Expiration
Date.
A beneficial conversion feature (“BCF”) of a
convertible note is normally characterized as the convertible
portion feature that provides a rate of conversion that is below
market value or “in-the-money” when issued. The BCF
related to the issuance of the January 2019 Notes was recorded at
the issuance date. The BCF was measured using the intrinsic value
method and is shown as a discount to the carrying amount of the
convertible note and is credited to additional paid-in capital. The
intrinsic value of the BCF at the issuance date of the January 2019
Notes was determined to be $1,200,915.
In
connection with the January 2019 Warrants issued along with the
January 2019 Notes, they meet the requirements of the scope
exemptions in ASC 815-10-15-74 and are thus classified as equity
upon issuance. The Company determined the fair value of the
warrants using the Black-Scholes pricing formula and is recognized
as a discount on the carrying amount of the January 2019 Notes and
is credited to additional paid-in capital. The fair value of the
warrants at the issuance date was determined to be
$757,704.
F-14
The allocated fair values of the BCF and the warrants was recorded
as a debt discount from the face amount of the January 2019 Notes
and such discount is being accreted over the expected term of the
January 2019 Notes and is charged to interest expense.
The aggregate values of the January 2019 Warrants, the January 2019
Notes and the related BCF are as follows:
January 2019
Beneficial Conversion Option – Equity
1,200,915
1,200,915
1,200,915
January 2019
Warrants – Equity
$719,404
$757,704
$757,704
The
transaction costs relating to this issuance were split pro-rata
between the January 2019 Notes, the BCF and the January 2019
Warrants. The portion relating to the January 2019 Notes were
deferred and are being amortized over the life of the January 2019
Notes. The portion relating to the BCF and the January 2019
Warrants were recorded as share issuance expenses and offset
against additional paid-in capital.
The
Company recorded accretion interest expense on the January 2019
Notes for the three- and nine-month periods ended November 30, 2019
of $549,090 and $1,584,977, respectively (2018 – nil and nil,
respectively) and is included in operating expenses. The Company
also recorded interest expense on the January 2019 Notes for the
three- and nine-month periods ended November 30, 2019 in the amount
of $98,000 and $313,433, respectively (2018 – nil and nil,
respectively). The Company also recorded amortization of deferred
finance costs for the three- and nine-month periods ended November30, 2019 in the amount of $19,885 and $86,212, respectively (2018
– nil and nil, respectively).
11. Stockholders’ Equity
Series A Preferred Stock
Mr.
Solomita’s amended employment agreement July 13, 2018
provides that the Company shall issue to Mr. Solomita one share of
the Company’s Series A Preferred Stock in exchange for Mr.
Solomita agreeing not to terminate his employment with the Company
for a period of five years from the date of the agreement. The
agreement effectively provides Mr. Solomita with a “change of
control” provision over the Company in the event that his
ownership of the issued and outstanding shares of common stock of
the Company is diluted to less than a majority. In order to issue
Mr. Solomita his one share of Series A Preferred Stock under the
amendment, the Company created a “blank check”
preferred stock. Subsequently, the board of directors of the
Company approved a Certificate of Designation creating the Series A
Preferred Stock. Subsequently, the Company issued one share of
Series A Preferred Stock to Mr. Solomita.
The one
share of Series A Preferred Stock issued to Mr. Solomita holds
a majority of the total voting power so long as Mr.
Solomita holds not less than 7.5% of the issued and outstanding
shares of common stock of the Company, assuring Mr. Solomita of
control of the Company in the event that his ownership of the
issued and outstanding shares of common stock of the Company is
diluted to a level below a majority. Currently, Mr.
Solomita’s ownership of 18,800,000 shares of common stock and
1 share of Series A Preferred Stock provides him with 78.1% of the
voting control of the Company.
Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita
contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomita’s (or that of any
person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of
Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, voting as a
separate class:
F-15
(a)
amend the Articles
of Incorporation or, unless approved by the Board of Directors,
including by the Series A Director, amend the Company’s
Bylaws;
(b)
change or modify
the rights, preferences or other terms of the Series A Preferred
Stock, or increase or decrease the number of authorized shares of
Series A Preferred Stock;
(c)
reclassify or
recapitalize any outstanding equity securities, or, unless approved
by the Board of Directors, including by the Series A Director,
authorize or issue, or undertake an obligation to authorize or
issue, any equity securities or any debt securities convertible
into or exercisable for any equity securities (other than the
issuance of stock-options or securities under any employee option
or benefit plan);
(d)
authorize or effect
any transaction constituting a Deemed Liquidation (as defined in
this subparagraph) under the Articles, or any other merger or
consolidation of the Company;
(e)
increase or
decrease the size of the Board of Directors as provided in the
Bylaws of the Company or remove the Series A Director (unless
approved by the Board of Directors, including the Series A
Director);
(f)
declare or pay any
dividends or make any other distribution with respect to any class
or series of capital stock (unless approved by the Board of
Directors, including the Series A Director);
(g)
redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any outstanding shares of capital stock (other
than the repurchase of shares of common stock from employees,
consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the
option to repurchase such shares at no greater than original cost
upon the occurrence of certain events, such as the termination of
employment) (unless approved by the Board of Directors, including
the Series A Director);
(h)
create or amend any
stock option plan of the Company, if any (other than amendments
that do not require approval of the stockholders under the terms of
the plan or applicable law) or approve any new equity incentive
plan;
(i)
replace the
President and/or Chief Executive Officer of the Company (unless
approved by the Board of Directors, including the Series A
Director);
(j)
transfer assets to
any subsidiary or other affiliated entity (unless approved by the
Board of Directors, including the Series A Director);
(k)
issue, or cause any
subsidiary of the Company to issue, any indebtedness or debt
security, other than trade accounts payable and/or letters of
credit, performance bonds or other similar credit support incurred
in the ordinary course of business, or amend, renew, increase or
otherwise alter in any material respect the terms of any
indebtedness previously approved or required to be approved by the
holders of the Series A Preferred Stock (unless approved by the
Board of Directors, including the Series A Director);
(l)
modify or change
the nature of the Company’s business;
(m)
acquire, or cause a
Subsidiary of the Company to acquire, in any transaction or series
of related transactions, the stock or any material assets of
another person, or enter into any joint venture with any other
person (unless approved by the Board of Directors, including the
Series A Director); or
(n)
sell, transfer,
license, lease or otherwise dispose of, in any transaction or
series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless
approved by the Board of Directors, including the Series A
Director).
On
March 1, 2019, the Company sold 600,000 shares of its common stock
at an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $5,130,000;
On
April 9, 2019, the Company converted Convertible notes with a face
value of $2,650,000 plus accrued interest of $80,241 at a
conversion price of $8.55, into 319,326 common shares.
(iv)
On June14, 2019, the Company sold 4,093,567 shares of its common stock at
an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $35,000,000;
(v)
On June21, 2019, the Company issued 7,043 shares of common stock upon the
vesting of restricted stock units related to an
employee.
(vi)
On July2, 2019 and July 3, 2019, the Company issued 23,547 shares of
common stock upon the vesting of restricted stock units related to
current and former Directors.
(vii)
On July12, 2019, the Company issued 4,565 shares of common stock upon the
cashless exercise of stock options related to an
employee.
(viii)
On July15, 2019, the Company issued 13,342 shares of common stock upon the
vesting of restricted stock units related to a former
Director.
(ix)
On July17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants.
(x)
On
October 15, 2019, the Company issued 200,000 shares of common stock
upon the vesting of restricted stock units related to the President
and Chief Executive Officer.
the Company issued
18,821 shares of common stock upon the cashless exercise of stock
options.
(ii)
the Company issued
35,797 shares of common stock upon the vesting of restricted stock
units.
F-17
12. Share-based Payments
Stock Options
The
following tables summarize the continuity of the Company’s
stock options during the nine-month periods ended November
30:
2019
2018
Number of stock
options
Weighted average
exercise price
Number of stock
options
Weighted average
exercise price
Outstanding,
beginning of period
1,962,400
$7.53
2,374,581
$7.99
Granted
-
-
13,209
11.52
Exercised
(5,000)
0.80
(20,000)
0.80
Forfeited
(39,902)
9.67
(100,000)
5.25
Expired
(260,417)
13.59
(62,500)
4.80
Outstanding, end of
period
1,657,081
$6.55
2,205,290
$8.29
Exercisable, end of
period
1,007,498
$6.38
1,065,414
$7.60
2019
2018
Exercise
price
Number of stock
options outstanding
Weighted average
remaining life (yrs.)
Number of stock
options outstanding
Weighted average
remaining life (yrs.)
$0.80
577,081
6.00
582,081
7.00
$3.00
-
-
-
-
$5.25
380,000
7.74
380,000
8.74
$8.75
-
-
-
-
$11.52
-
-
13,209
9.61
$12.00
700,000
7.79
700,000
8.79
$13.49
-
-
250,000
8.88
$13.89
-
-
280,000
0.07
Outstanding, end of
period
1,657,081
7.16
2,205,290
7.22
Exercisable, end of
period
1,007,498
7.11
1,065,414
7.62
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. The following table shows key
inputs into the valuation model for the nine months ended November
30:
2018
Exercise
price
$11.52
Risk-free interest
rate
2.82%
Expected dividend
yield
0%
Expected
volatility
78%
Expected
life
6.5 years
There
were no new issuances of stock options for the nine-month period
ended November 30, 2019.
During
the three- and nine-month periods ended November 30, 2019,
stock-based compensation expense attributable to stock options
amounted to $549,810 and $1,628,897, respectively (2018 - $789,260
and $2,591,263, respectively), and is included in operating
expenses.
F-18
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the nine-month periods ended
November 30, 2019 and 2018:
2019
2018
Number of
units
Weighted average
fair value price
Number of
units
Weighted average
fair value price
Outstanding,
beginning of period
402,868
$8.77
34,102
$13.00
Granted
4,114,567
1.06
102,818
11.54
Issued as common
stock
(243,932)
2.52
(35,797)
13.06
Forfeited
(53,750)
9.82
(1,625)
12.31
Outstanding, end of
period
4,219,753
$1.60
99,498
$11.48
Outstanding vested,
end of period
831,684
$1.19
-
$-
The
Company applies the fair value method of accounting for awards
granted through the issuance of restricted stock units. Fair value
is calculated based on the closing share price at grant date
multiplied by the number of restricted stock unit awards
granted.
During
the three- and nine-month periods ended November 30, 2019,
stock-based compensation attributable to RSUs amounted to $326,983
and $981,914, respectively (2018 - $181,646 and $570,782,
respectively), and is included in operating expenses.
During
the three- and nine-month periods ended November 30, 2019,
stock-based compensation included in research and development
expenses amounted to $311,353 and $941,142, respectively (2018 -
$249,548 and $910,004, respectively), and in General and
administrative expenses amounted to $565,440 and $1,669,669,
respectively (2018 - $721,358 and $2,252,041,
respectively).
13. Equity Incentive Plan
On July6, 2017, the Company adopted the 2017 Equity Incentive Plan (the
“Plan”). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units
to employees, directors and consultants of the Company. A total of
3,000,000 shares of common stock were initially reserved for
issuance under the Plan at July 6, 2017, with annual automatic
share reserve increases, as defined in the Plan, amounting to the
lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares
on the last day of the immediately preceding fiscal year, or (iii)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. The Plan is administered by the
Board of Directors who designates eligible participants to be
included under the Plan, the number of awards granted, the share
price pursuant to the awards and the vesting conditions and period.
The awards, when granted, will have an exercise price of no less
than the estimated fair value of shares at the date of grant and a
life not exceeding 10 years from the grant date. However, where a
participant, at the time of the grant, owns stock representing more
than 10% of the voting power of the Company, the life of the
options shall not exceed 5 years.
The
following table summarizes the continuity of the Company’s
Equity Incentive Plan units during the nine-month periods ended
November 30, 2019 and 2018:
2019
2018
Number of
units
Number of
units
Outstanding,
beginning of period
3,223,516
1,735,898
Share reserve
increase
2,000,000
1,500,000
Units
granted
(4,114,567)
(116,027)
Units
forfeited
93,652
101,625
Units
expired
260,417
50,000
Outstanding, end of
period
1,463,018
3,271,496
F-19
14. Warrants
The
following table summarizes the continuity of warrants during the
nine-month periods ended November 30, 2019 and 2018:
2019
2018
Number of
warrants
Weighted average
exercise price
Number of
warrants
Weighted average
exercise price
Outstanding,
beginning of period
802,469
$10.74
140,667
$12.00
Issued
4,253,230
10.91
-
-
Exercised
(15,432)
9.32
-
-
Expired
-
-
-
-
Outstanding, end of
period
5,040,267
$10.89
140,667
$12.00
The
expiration dates of the warrants outstanding as at November 30,2019 are as follows:
The Company has entered into multi-year supply agreements with
PepsiCo, Coca-Cola’s Cross Enterprise Procurement Group,
Danone SA and L’OCCITANE en Provence that will enable them to
purchase production capacity from the Company’s joint venture
facility with Indorama in the United States and incorporate
Loop™ PET resin into its product packaging.
On July 24, 2019, the Company signed an agreement with
Investissement Quebec providing it with a financing facility equal
to 63.45% of all eligible expenses incurred for the expansion of
its Pilot Plant up to a maximum CDN$4,600,000. There is a 36-month
moratorium on both capital and interest repayments beginning 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 will bear interest at 2.36%. The Company has also agreed
to issue to Investissement Quebec warrants to purchase common
shares of the Company in an amount equal to 10% of each
disbursement up to a maximum aggregate amount of
CDN$460,000. The warrants will be 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 will have a term of three years from the
date of issuance. The loan can be repaid at any time by the Company
without penalty. No disbursements have yet been made under the
agreement.
F-21
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.
This
Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada
corporation (the “Company”, “we”,
“Loop” or “our”), contains
“forward-looking statements,” as defined in the United
States Private Securities Litigation Reform Act of 1995. In some
cases, you can identify forward-looking statements by terminology
such as “may”, “will”,
“should”, “could”, “expects”,
“plans”, “intends”,
“anticipates”, “believes”,
“estimates”, “predicts”,
“potential” or “continue” or the negative
of such terms and other comparable terminology. These
forward-looking statements include, without limitation, statements
about our market opportunity, our strategies, ability to improve
and expand our capabilities, competition, expected activities and
expenditures as we pursue our business plan, the adequacy of our
available cash resources, regulatory compliance, plans for future
growth and future operations, the size of our addressable market,
market trends, and the effectiveness of the Company’s
internal control over financial reporting. Although we believe that
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Actual results may differ materially
from the predictions discussed in these forward-looking statements.
The economic environment within which we operate could materially
affect our actual results. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified. These risks and other factors include,
but are not limited to, those listed under “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates” included in our
most recent Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the “SEC”) and the
description of material changes thereto, if any, included in our
Quarterly Reports on Form 10-Q or subsequent filings with the SEC.
Additional factors that could materially affect these
forward-looking statements and/or predictions include, among other
things: (i) commercialization of our technology and products,
(ii) our
status of relationship with partners, (iii) development and
protection of our intellectual property and products, (iv) industry
competition, (v) our need for and ability to obtain additional
funding, (vi) building our
manufacturing facility, (vii) our ability to 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 issues and practices,
rumors or otherwise and (x) 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.
4
Introduction
Loop Industries, Inc. 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 is
contributing to the global movement toward a circular economy by
raising awareness about the importance of preventing and recovering
waste plastic from the environment to ensure plastic stays in the
economy for a more sustainable future for all.
Proprietary Technology and Intellectual Property
The power of our technology lies in its ability to divert and
recover what is currently considered plastic waste from landfills,
rivers, oceans and natural areas for use as feedstock to create
new, sustainable, infinitely recyclable Loop™ PET plastic
resin and polyester fiber. We believe our technology can deliver a
cost-effective and profitable virgin quality PET plastic resin
suitable for use in food-grade packaging.
Our Generation I technology process yielded polyethylene
terephthalate (“PTA”) and monoethylene glycol
(“MEG”), two common monomers of PET plastic, through
depolymerization. While monomers were of excellent purity and high
yield, we continued to challenge ourselves to drive down cost and
eliminate inputs. It was during this process that we realized we
could eliminate water and chlorinated solvents from the
purification process, reduce the number of reagents from five to
two and reduce the number of purification steps from 12 to four, if
we shifted from the production of PTA to the production of dimethyl
terephthalate (“DMT”), another proven monomer of PET
plastic that is far simpler to purify. Since June 2018, when we
transitioned to our Generation II technology and our newly built
industrial pilot plant, we continue to see consistently high
monomer yields, excellent purity and improved conversion
costs.
This shift, from producing the monomer PTA to the monomer DMT was a
pivotal moment for Loop. We believe that the Generation II
technology requires less energy and fewer resource inputs than
conventional PET production processes. We also believe it to be one
of the most environmentally sustainable methods for producing
virgin quality food-grade PET plastic in the world.
To protect our technology, we rely on a combination of patent and
trademark laws, trade secrets, confidentiality provisions and other
contractual provisions to protect our proprietary rights, which are
primarily our patents, brand names, product designs and
marks.
We have two patent families, referred to as GEN I technology and
the GEN II technology, with claims relating to our proprietary
technology for depolymerization of PET.
●
The
GEN I portfolio has two issued U.S. patents and an allowed U.S.
application, all expected to expire on or around July 2035.
Internationally, we also have issued patents in Taiwan, South
Africa and in the members of the Gulf Cooperation Council, and
pending patent applications in Argentina, Australia, Brazil,
Canada, China, Eurasia, Europe, Hong Kong, Israel, India, Japan,
Korea, Mexico, and the Philippines, all expected to expire, if
granted, on or around July 2036 if granted.
●
The
GEN II technology portfolio has an issued U.S. patent and a pending
U.S. application, all expected to expire on or around September
2037; as well as a PCT application and non-PCT country applications
in Argentina, Bangladesh, Bolivia, Bhutan, members of the Gulf
Cooperation Council, Iraq, Pakistan, Taiwan, Uruguay, and
Venezuela, all expected to expire on or around September 2038 if
granted. An additional aspect of the GEN II technology is claimed
in a U.S. application, a PCT application, and non-PCT country
applications in Argentina, Bangladesh, Bolivia, members of the Gulf
Cooperation Council, Pakistan, Taiwan, and Uruguay, all expected to
expire on or around June 2039 if granted. Additionally, we have two
pending provisional applications directed to further additional
aspects of the GEN II technology. Any patents that would ultimately
grant from these provisional applications would be expected to
expire no earlier than 2039, if granted.
5
In connection with the continued transitioned to its newly
constructed GEN II industrial pilot plant. the Company made capital
asset investments of $1,647,433 during the nine months ended
November 30, 2019.
Government Regulation and Approvals
As we seek to further develop and commercialize our business, we
will be subject to extensive and frequently developing federal,
state, provincial and local laws and regulations. Compliance with
current and future regulations could increase our operational
costs.
Our operations require various governmental permits and approvals.
We are in the process of obtaining all necessary permits and
approvals for the operation of our business; however, any of these
permits or approvals may be subject to denial, revocation or
modification under various circumstances. Failure to obtain or
comply with the conditions of permits and approvals or to have the
necessary approvals in place may adversely affect our operations
and may subject us to penalties.
The use of mechanically recycled PET for food grade applications in
certain countries is highly inadvisable for a variety of reasons
including the perception of contamination from mechanically
recycled sources. We believe that means that Loop™ PET
plastic resin and polyester fiber has a distinct advantage in these
markets. Since our product is not mechanically recycled PET, we
expect that demand from PET manufacturers and global consumer goods
companies in these regions for 100% Loop™ branded PET plastic
resin and polyester fiber will be a significant part of our
strategy going forward.
Prospective Future Growth
We plan
to continue to allocate available capital to strengthen our
intellectual property portfolio, build a core competency in
managing strategic relationships and continue enhancing our
Loop™ brand value. Our
research and development innovation hub in Terrebonne, Quebec,
Canada will continue to push forward the development of our
technology. We are investing in building a strong management team
to integrate best in class processes and practices while
maintaining our entrepreneurial culture.
During the three months ended November 30, 2019, we
continued executing our corporate
strategy where Loop focused on developing two major streams of
revenue. These revenue streams are expected to be from the sale of
Loop™ PET resin and polyester fiber to customers from our
joint venture with Indorama Ventures Holdings LP
(“Indorama”) and from our Waste to Resin
(“WtRTM”)
greenfield facilities, which were recently rebranded to Infinite
LoopTM.
We are continuing to develop the engineering of the Infinite LoopTM
platform and we have increased
our focus
on the development of Infinite LoopTM
projects in
Europe and in North America.
In September 2018, in connection with the first of these streams,
we announced a joint venture with Indorama to retrofit their
existing PET manufacturing facilities. The joint venture was formed
to manufacture and commercialize sustainable Loop™ PET resin
and polyester fiber to meet the growing global demand from beverage
and consumer packaged goods companies. The joint venture agreement
details the establishment of an initial 20,700 metric tons per year
facility in the southeastern United States (Spartanburg, South
Carolina).
Following
the decision of the joint venture with Indorama Ventures Holdings
LP to double the capacity of the Spartanburg plant due to customer
demand to 40,000 metric tons per year as disclosed in our 10-Q for
the period ended August 31, 2019, we identified a number of
enhancements to the plant design to improve the operability
and lower the total construction cost of the plant. The
additional engineering is underway and management anticipates it
will be completed by the end of this calendar quarter and as a
result, the commissioning of the facility is anticipated to occur
in the third quarter of the calendar year 2021.
We have
currently contracted for the sale of the initial 20,700 metric tons
expected output of the Spartanburg facility and we are in
discussion to contract the additional volume up to its increased
capacity of 40,000 metric tons.
During the three months ended November 30, 2019, the Company and
L'OCCITANE en Provence, a global manufacturer and retailer of
natural beauty and well-being products, announced that they are
expanding their supply agreement to accelerate L’OCCITANE en
Provence’s transition to 100% sustainable PET plastic in all
its bottles. Loop Industries and L'OCCITANE en Provence's supply
agreement for Loop™ branded 100% sustainable PET
plastic resin was to be supplied from Loop's first European PET
manufacturing facility. With the expanded supply agreement, Loop
will begin supplying its sustainable PET resin to L'OCCITANE en
Provence from its joint venture manufacturing facility with
Indorama in Spartanburg, South Carolina.
6
To
drive our Infinite Loop™ business
model, which is a key pillar of our commercialization blueprint,
December 2018 saw us enter into a Global Alliance Agreement with
thyssenkrupp Industrial Solutions (“tkIS”) aimed at transforming the future
of sustainable PET plastic resin manufacturing by combining our
breakthrough depolymerization technology with tkIS’s PET Melt-To-Resin® technology. As one of the
world’s leading PET and
polyester engineering companies, we believe tkIS is perfectly
positioned to help us commercialize our Infinite Loop™
solution—a fully
integrated and reimagined manufacturing facility for sustainable
Loop™ PET plastic resin
and polyester fiber. During the nine months ended November 30,2019, the Company and tkIS continued the process of developing this
fully integrated and reimagined manufacturing facility for
sustainable Loop™ PET
plastic resin and polyester fiber.
We
believe the Infinite Loop™ solution
will result in a highly scalable model to supply the global demand
for 100% sustainable Loop™ PET plastic resin and polyester
fiber, allowing us to rapidly penetrate and transform the plastic
market and fully capitalize on our disruptive potential to be the
leader in the circular economy for PET plastic. This fundamentally
changes where and how PET plastic resin production
occurs—no longer does PET
plastic resin production need to be bound to fossil fuels and
fossil fuel infrastructure. Infinite Loop™
facilities could be located near large urban centers where
feedstock is located, and transportation and logistics costs could
be significantly reduced as the distance between feedstock,
manufacturing and customer use is collapsed.
We
believe the proposition for those seeking a turnkey solution to
manufacture Loop™ PET
plastic resin and polyester fiber, such as chemical companies,
waste managers, existing recyclers and even consumer good companies
around the world is compelling. We further believe that once the
first facilities are operational it may create the possibility of
licensing the technology to create a recurring revenue stream for
us while expanding the capacity of Loop™ PET plastic resin
and polyester fiber in the marketplace to meet the substantial
demand from consumer goods companies.
Supply Agreements with Global Consumer Brands
Consumer
brands are seeking a solution to their plastic challenge and they
are taking bold action. In the past years we have seen major brands
make significant commitments to close the loop on their plastic
packaging in two ways, by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET plastic resin and
polyester fiber provides the ideal solution for these brands
because Loop™ PET plastic resin and polyester fiber is
recyclable and contains 100% recycled PET and polyester fiber
content with virgin quality suitable for use in food-grade
packaging. That means consumer packaged goods companies will be
able to market packaging made from a 100% Loop™ branded PET
plastic resin and polyester fiber.
Loop
believes that due to the commitments by large global consumer
brands to incorporate more recycled content into their product
packaging, the regulatory requirements for minimum recycled content
in packaging imposed by governments, the virgin-like quality of
Loop™ branded PET and the marketability of Loop™ PET to
extoll the sustainability credentials of consumer brands that
incorporate Loop™ PET, it will be able to sell its
Loop™ branded PET at a premium price relative to virgin and
mechanically recycled PET.
7
Turning Waste into Feedstock
To us,
waste PET plastic and polyester fiber is feedstock, the materials
introduced into our Generation II depolymerization technology to
yield PET monomers. Our technology can use plastic bottles and PET
packaging of any color, transparency or condition, carpet, clothing
and other polyester textiles that may contain colors, dyes or
additives, and even ocean plastics that have been degraded by sun
and salt. This is yet another advantage of Loop™ PET over
mechanically recycled PET, our ability to use materials that nearly
all other recyclers cannot use. This also means we are creating a
new market for materials that have persistently been leaking out of
the waste management system and into our shared rivers, oceans and
natural areas.
We are
identifying the availability of feedstock to ensure each planned
facility can operate continuously. We have identified the sources
required for our first joint venture facility with Indorama and are
now focusing on signing supply agreements to secure this feedstock
for the long term.
The
team is also studying markets in the United States, Canada,
European Union and Asia to help us evaluate the size and location
of our next facilities. The approach includes a fulsome inventory
of PET materials introduced into a region, the materials collected
(or recycled) in the region and the material loss, or the
difference between the material introduced and the material
collected. This allows us to identify not only the material
traditionally available for recycling, but how material can be
effectively diverted from landfill, rivers, oceans and natural
areas by providing a new outlet for what was formerly considered
waste.
The
following table summarizes our operating results for the
three-month periods ended November 30, 2019 and 2018, in U.S.
Dollars.
Three Months
Ended November 30
2019
2018
$
Change
Revenues
$-
$-
$-
Research and
development
Stock-based
compensation
311,353
249,548
61,805
Other
research and development
966,819
542,563
424,256
Total
research and development
1,278,172
792,111
486,061
General and
administrative
Stock-based
compensation
565,440
721,358
(155,918)
Other
general and administrative
1,260,373
1,250,489
9,884
Total
general and administrative
1,825,813
1,971,847
(146,034)
Depreciation and
amortization
219,628
155,053
64,575
Interest and other
finance costs
693,027
14,883
678,144
Interest
income
(171,274)
-
(171,274)
Foreign exchange
(gain) loss
5,533
(20,132)
25,665
Total
operating expenses
3,850,899
2,913,762
937,137
Net
loss
$(3,850,899)
$(2,913,762)
$(937,137)
The net
loss for the three-month period ended November 30, 2019 increased
$0.94 million to $3.85 million, as compared to the net loss for the
three-month period ended November 30, 2018 which was $2.91
million. The increase of $0.94 million is primarily
attributable to an increase in interest and other finance costs of
$0.68 million, an increase in research and development expenses of
$0.49 million, an increase in depreciation and amortization
expenses of $0.06 million and an increase in foreign exchange loss
of $0.03 million, partially offset by lower general and
administrative expenses of $0.15 million, and by an increase in
interest income of $0.17 million.
Research
and development expenses for the three-month period ended November30, 2019 amounted to $1.28 million compared to $0.79 million for
the three-month period ended November 30, 2018, representing an
increase of $0.49 million, or representing an increase of $0.42
million excluding stock-based compensation. The increase of $0.42
million was primarily attributable to by higher employee
compensation costs of $0.38, by higher purchases and freight costs
of $0.08 million, by higher facilities costs of $0.02 million, by
higher equipment rental costs of $0.02 and by higher license fees
of $0.03 million, offset by lower legal and professional fees of
$0.07 million and by higher research and development tax credits of
$0.06 million. The increase in non-cash stock-based compensation
expense of $0.06 million is mainly attributable to the timing of
stock awards provided to certain employees.
General
and administrative expenses for the three-month period ended
November 30, 2019 amounted to $1.83 million compared to $1.97
million for the three-month period ended November 30, 2018,
representing a decrease of $0.14 million, or an increase of $0.01
million excluding stock-based compensation. The increase of $0.01
million was mainly attributable to higher employee compensation
costs of $0.15 million and by higher commercial insurance expenses
of $0.08 million, offset by lower legal and professional fees of
$0.20 million. Stock-based compensation expense for the three-month
period ended November 30, 2019 amounted to $0.57 million compared
to $0.72 million for the three-month period ended November 30,2018, representing a decrease of $0.15 million, which was mainly
attributable to lower stock awards provided to
executives.
Depreciation
and amortization for the three-month period ended November 30, 2019
totaled $0.22 million compared to $0.16 million for the three-month
period ended November 30, 2018, representing an increase of $0.06
million. This increase is mainly attributable to the addition of
fixed assets at the Company’s pilot plant and corporate
offices.
Interest
and other finance costs for the three-month period ended November30, 2019 totaled $0.69 million compared to $0.01 million the
three-month period ended November 30, 2018, representing an
increase of $0.68 million. The increase is mainly attributable to
an increase in accretion expense of $0.55 million, an increase in
interest expense of $0.10 million and by an increase in
amortization of deferred financing costs of $0.02
million.
The
following table summarizes our operating results for the nine-month
periods ended November 30, 2019 and 2018, in U.S.
Dollars.
Nine Months
Ended November 30
2019
2018
$
Change
Revenues
$-
$-
$-
Research and
development
Stock-based
compensation
941,142
910,004
31,138
Other
research and development
2,305,104
2,014,479
290,625
Total
research and development
3,246,246
2,924,483
321,763
General and
administrative
Stock-based
compensation
1,669,669
2,252,041
(582,372)
Other
general and administrative
3,777,387
4,469,755
(692,368)
Total
general and administrative
5,447,056
6,721,796
(1,274,740)
Depreciation and
amortization
585,367
366,710
218,657
Interest and other
finance costs
1,817,091
41,117
1,775,974
Interest
income
(363,565)
-
(363,565)
Foreign exchange
(gain) loss
15,297
(72,404)
87,701
Total
operating expenses
10,747,492
9,981,702
765,790
Net
loss
$(10,747,492)
$(9,981,702)
$(765,790)
The net
loss for the nine-month period ended November 30, 2019 increased by
$0.77 million to $10.75 million, as compared to the net loss for
the nine-month period ended November 30, 2018 which was $9.98
million. The increase of $0.77 million is primarily due to an
increase in interest and other finance costs of $1.77 million, an
increase in research and development expenses of $0.32 million, ,
an increase in depreciation and amortization of $0.22 million and
an increase in the foreign exchange loss of $0.09 million,
partially offset by lower general and administrative expenses of
$1.27 million and an increase in interest income of $0.36
million.
Research
and development expenses for the nine-month period ended November30, 2019 amounted to $3.24 million compared to $2.92 million for
the nine-month period ended November 30, 2018, representing an
increase of $0.32 million, or representing an increase of $0.29
million excluding stock-based compensation. The increase of $0.29
million was primarily attributable to higher employee compensation
costs of $0.55 million, by higher facilities costs of $0.04
million, by higher purchases and freight costs of $0.07 million, by
higher license fees of $0.03 million, by higher repairs and
maintenance costs of $0.02 million, and by higher meals, travel and
entertainment expenses of $0.04 million, offset by lower legal and
professional fees of $0.36 million and by higher research and
development tax credits of $0.16 million. The decrease in non-cash
stock-based compensation expense of $0.03 million is mainly
attributable to the timing of stock awards provided to certain
employees.
General
and administrative expenses for the nine-month period ended
November 30, 2019 amounted to $5.45 million compared to $6.72
million for the nine-month period ended November 30, 2018,
representing a decrease of $1.27 million, or a decrease of $0.69
million excluding stock-based compensation. The decrease of $0.69
million was mainly attributable to lower legal and professional
fees of $1.36 million, offset by higher employee compensation costs
of $0.50 million and by higher commercial insurance expenses
totaling $0.17 million. Stock-based compensation expense for the
nine-month period ended November 30, 2019 amounted to $1.67 million
compared to $2.25 million for the nine-month period ended November30, 2018, representing a decrease of $0.58 million, which was
mainly attributable lower stock awards provided to
executives.
Depreciation
and amortization for the nine-month period ended November 30, 2019
totaled $0.59 million compared to $0.37 million for the nine-month
period ended November 30, 2018, representing an increase of $0.22
million. This increase is mainly attributable to the addition of
fixed assets at the Company’s pilot plant and corporate
offices.
10
Interest
and other finance costs for the nine-month period ended November30, 2019 totaled $1.82 million compared to $0.04 million the
nine-month period ended November 30, 2018, representing an increase
of $1.78 million. The increase is mainly attributable to an
increase in accretion expense of $1.58 million, an increase in
interest expense of $0.31 million and by an increase in
amortization of deferred financing costs of $0.09 million, offset
by a gain on conversion of the November 2018 Notes of $0.23
million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Loop is a development stage company with no revenues, and our
ongoing operations are being financed by raising new equity and
debt capital. To date, we have been successful in raising capital
to finance our ongoing operations, reflecting the potential for
commercializing our branded resin and the progress made to date in
implementing our business plans.
As at
November 30, 2019, the Company had cash on hand of $35.5
million. On May 29, 2019, the Company entered into a Securities Purchase Agreement
(“Purchase Agreement”) with Northern Private Capital
Fund I Limited Partnership (“Northern Capital”)
pursuant to which the Company has issued to Northern Capital in a
registered direct offering (“Offering”) an aggregate of
4,093,567 shares of the Company’s common stock at a per share
purchase price of $8.55 per share, for aggregate net proceeds of
approximately $34.6 million, after deducting offering expenses
payable by the Company of approximately $400,000. Concurrently with
the Offering and pursuant to the Purchase Agreement, the Company
issued to Northern Capital options to purchase up to an additional
4,093,567 shares of the Company’s common stock at an exercise
price of $11.00 per share, which vested on December 15, 2019, and
are exercisable for three years following the closing date of the
Offering and which would result in further total net proceeds of
approximately $45 million. The proceeds from the Offering
will be used to finance the start-up of its joint venture
commercial operations, which is estimated to be between $15,000,000
and $20,000,000, and further fund the development of its technology
and new technologies and its ongoing pre-revenue
operations.
On February 27, 2019, Loop Industries, Inc. entered into a
Securities Purchase Agreement with a single institutional investor,
pursuant to which the Company agreed to issue and sell to the
Purchaser, in a registered direct offering
(“Offering”), an aggregate of 600,000 shares
(“Shares”) of the Company’s common stock at a per
share purchase price of $8.55 per share, for aggregate net proceeds
of approximately $4.2 million, after deducting placement agent fees
and estimated offering expenses payable by the Company of
approximately $0.9 million. The Offering closed on March 1, 2019.
The Company intends to use the net proceeds from the Offering for
general corporate purposes and working capital.
As at
November 30, 2019, we have a long-term debt obligation to a
Canadian bank in connection with the purchase, in Fiscal 2018, of
the land and building where our pilot plant and corporate offices
are located, at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24,2018, the Company obtained a CDN$1,400,000 20-year term 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 CDN $5,833
plus interest, until January 2021, at which time it will be subject
be renewal. It includes an option allowing for the prepayment of
the Loan without penalty.
On July 24, 2019, the Company executed an agreement with
Investissement Quebec providing it with a financing from which we
can draw a total equal to 63.45% of all eligible expenses incurred
for the expansion of our Pilot Plant up to a maximum
CDN$4,600,000. There is a 36-month
moratorium on both capital and interest repayments beginning 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 will bear interest at 2.36%. The Company has also agreed
to issue to Investissement Quebec warrants convertible into common
shares in an amount equal to 10% of each disbursement up to a
maximum aggregate amount of CDN$460,000. The warrants will
be 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 will have a
term of three years from the date of issuance. The loan can be
repaid at any time by the Company without penalty. No disbursements
have yet been made under the agreement.
11
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the nine-month period ended November 30,2019 and 2018 was as follows:
Nine Months
Ended November 30
2019
2018
Net cash used in
operating activities
$(6,819,748)
$(5,455,317)
Net cash used in
investing activities
(2,592,921)
(1,523,353)
Net cash provided
from (used in) financing activities
39,127,875
2,510,529
Effect of exchange
rate changes on cash and cash equivalents
(57,105)
(53,314)
Net increase
(decrease) in cash and cash equivalents
$29,658,101
$(4,521,455)
Net Cash Used in Operating Activities
During
the nine months ended November 30, 2019, we used $6.8 million in
operations compared to $5.5 million during the nine months ended
November 30, 2018. The Company continued to invest in research and
development on its existing technologies and new technologies,
particularly on the evolution of its GEN II technology as the
Company moves to the next phase of commercialization.
Net Cash Used in Investing Activities
During
the nine months ended November 30, 2019, the Company made
investments of $1.7 million in property, plant and equipment as
compared to $1.4 million for the nine months ended November 30,2018, primarily in connection with the upgrade of its GEN II
industrial pilot plant.
During
the nine months ended November 30, 2019, the Company made
investments in intangible assets of $0.09 million as compared to
$0.09 million for the nine months ended November 30, 2018,
particularly in its GEN II patent technology in the United States
and around the world.
During
the nine months ended November 30, 2019, the Company also made its
initial contribution of $850,000
to Indorama Loop Technologies, LLC, the joint venture with
Indorama Ventures Holdings LP, USA.
Net Cash Provided from (Used in) Financing Activities
During
the nine months ended November 30, 2019, we raised net proceeds of
$39.2 million through the sale of common stock.
As at
November 30, 2019, we did not have any off-balance sheet
arrangements as defined in the rules and regulations of the
SEC.
As at
November 30, 2019, we did not have any significant lease
obligations to third parties.
12
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.
Management’s Evaluation of our Disclosure Controls and
Procedures
A.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported, within the
time periods specified in the U.S. Securities and Exchange
Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us
in our reports that we file or submit under the Securities Exchange
Act of 1934 is accumulated and communicated to our management,
including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate, to allow
timely decisions regarding required disclosure.
As of the end of the period covered by this Quarterly Report, the
Company carried out an evaluation, under the supervision and with
the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Company’s “disclosure controls and procedures”
(as defined in Rule 13a-15(e) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), pursuant to
Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures were
effective as of November 30, 2019.
B.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
during the quarter ended November 30, 2019 that materially
affected, or were reasonably likely to materially affect, our
internal control over financial reporting.
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. 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.
We are
subject to various risks and uncertainties in the course of our
business. Risk factors relating to us are set forth under
“Risk Factors” in our Annual Report on Form 10-K, filed
on May 3, 2019. No material changes to such risk factors have
occurred during the nine months ended November 30,2019.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
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.
