LOOP INDUSTRIES, INC.
10-Ks and 10-Qs
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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
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☒
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
fiscal year ended February 28, 2019
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or
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________ to __________
Liquidity and
capital resources
Commission
File No.
000-54768
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Loop Industries, Inc.
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(Exact
name of Registrant as specified in its charter)
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Nevada
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27-2094706
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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480 Fernand-Poitras Terrebonne, Québec, Canada J6Y
1Y4
(Address
of principal executive offices zip code)
Registrant’s
telephone number, including area code
(450) 951-8555
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock
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LOOP
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Nasdaq Global Market
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
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 and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post 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):
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Large accelerated
filer
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Accelerated
filer
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☒
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Non-accelerated
filer
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☐
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Smaller reporting
company
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☒
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(Do not check if a
smaller reporting company)
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Emerging growth
company
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☐
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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 August 31,
2018, the last business day of the Registrant’s most recently
completed second fiscal quarter, the aggregate market value of the
voting common stock held by non-affiliates of the Registrant
(without admitting that any person whose shares are not included in
such calculation is an affiliate) was approximately $149,232,154.
As at May 2, 2019, there were 34,875,032 shares of the
Registrant’s common stock, par value $0.0001 per share,
outstanding.
Documents
incorporated by reference:
Items 10, 11, 12
(as to security ownership of certain beneficial owners and
management), 13 and 14 of Part III shall be incorporated by
reference information from the registrant's proxy statement to be
filed with the Securities and Exchange Commission in connection
with the solicitation of proxies for the registrant's 2019 Annual
Meeting of Stockholders.
LOOP INDUSTRIES, INC.
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Page No.
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PART I
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Item
1.
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Business
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4
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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17
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Item
2.
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Properties
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17
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Item
3.
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Legal
Proceedings
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18
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Item
4.
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Mine
Safety Disclosures
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18
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PART II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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19
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Item
6.
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Selected
Financial Data
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19
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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20
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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28
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Item
8.
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Financial
Statements and Supplementary Data
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29
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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30
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Item
9A.
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Controls
and Procedures
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30
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Item
9B.
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Other
Information
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31
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PART III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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32
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Item
11.
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Executive
Compensation
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32
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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32
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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32
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Item
14.
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Principal
Accounting Fees and Services
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32
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PART IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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33
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Item
16
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Form
10-K Summary
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37
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Signatures
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38
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K of Loop Industries, Inc., a Nevada
corporation (the “Company,” “we,” or
“our”), contains “forward-looking
statements,” as defined in the United States Private
Securities Litigation Reform Act of 1995. In some cases, you can
identify forward-looking statements by terminology such as
“may”, “will”, “should”,
“could”, “expects”, “plans”,
“intends”, “anticipates”,
“believes”, “estimates”,
“predicts”, “potential” or
“continue” or the negative of such terms and other
comparable terminology. These forward-looking statements include,
without limitation, statements about our market opportunity, our
strategies, ability to improve and expand our capabilities,
competition, expected activities and expenditures as we pursue our
business plan, the adequacy of our available cash resources,
regulatory compliance, plans for future growth and future
operations, the size of our addressable market, market trends, and
the effectiveness of the Company’s internal control over
financial reporting. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Actual results may differ materially from the
predictions discussed in these forward-looking statements. The
economic environment within which we operate could materially
affect our actual results. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified. These risks and other factors include,
but are not limited to, those listed under “Risk
Factors.” Additional factors that could materially affect
these forward-looking statements and/or predictions include, among
other things:
(i) commercialization
of our technology and products, (ii) our status of relationship
with partners, (iii) development and protection of our intellectual
property and products, (iv) industry competition, (v) our need for
and ability to obtain additional funding, (vi) building our
manufacturing facility, (vii) and 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-K, 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-K, 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.
P
ART I
As used
in this Annual Report on Form 10-K, the following terms are being
provided so investors can better understand our
business:
Depolymerization
refers to a chemical
process of breaking down polymers into its monomers or smaller
oligomers.
PET
is an acronym for polyethylene
terephthalate, which is a plastic resin and a type of polyester
showing excellent tensile and impact strength, chemical resistance,
clarity, process-ability and reasonable thermal stability. PET is
the material which is most commonly used for plastic packaging,
including plastic bottles for water, carbonated soft drinks,
containers for food and other consumer products, and is usually
identified by a number 1, often inside an image of a triangle, on
the packaging as well as on polyester fiber for a variety of
applications including textiles.
I
TEM 1. BUSINESS
Overview
Loop
Industries, Inc. is a technology and licensing company whose
mission is to accelerate the world’s shift toward sustainable
plastic 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, carpet and polyester textile of any color,
transparency or condition and even ocean plastics that have been
degraded by the sun and salt, to its base building blocks
(monomers). The monomers are filtered, purified and
repolymerized to create virgin-quality Loop™ branded PET
plastic resin and polyester fiber suitable for use in food-grade
packaging to be sold to consumer goods companies to help them meet
their sustainability objectives. Through our customers and
production partners, Loop is leading a global movement toward a
circular economy by commercializing a leading-edge technology which
will ensure plastic stays in the economy for a more sustainable
future for all.
Industry Background
We believe there is an increasing demand for action to address the
global plastic crisis, which has been characterized by facts
provided by leading academic and not-for profit organizations. For
example, the University of Georgia reports eight million metric
tons of plastic waste flows into our shared oceans every year, and,
according to The New Plastics Economy, by 2050 more plastic waste
is expected to be present in the ocean than fish (by mass). Couple
this information with the global annual market demand for PET
plastic and polyester fiber at nearly $130 billion, and the current
growth projections from the 2018 IHS Polymer Market Report
indicating this will exceed $160 billion by 2022, and the need for
governments and consumer brands to take decisive action to stem
this global plastic crisis becomes readily apparent.
Examples of actions and trends of 2018 and early 2019 that
demonstrate the significance of the plastic crisis:
●
The United Kingdom has
proposed a
regulation expected to impose a
tax on
plastic packaging imported or manufactured in the United Kingdom
that does not contain at least 30% recycled content. This
compliments the proposed reform of the producer responsibility
regime for packaging
throughout the United
Kingdom
; and tools to increase
the recycling of municipal waste from households and businesses in
England;
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The proposed European
Union
Directive on the reduction of
the impact of certain plastic products on the
environment
is expected to
require that single-use PET plastic bottles contain 25% recycled
content by 2025 and 30% by 2030;
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France
has proposed to increase the price of single-use plastic containers
that use virgin PET plastic by up to 10% in an effort to discourage
consumers from buying packaging that does not contain recycled
content;
●
Plastic
pollution continues to be one of the most persistently covered
environmental issues by media and local and global environmental
non-governmental organizations; and
●
Global
consumer goods companies have made significant commitments to make
the transition to a circular plastic economy, namely:
i.
In
January 2018, Danone’s evian® brand bottled spring water
committed to a 100% recycled content package by 2025;
ii.
In
2018, Coca-Cola committed to an average recycled content of 50%
across its plastic packaging by 2030;
iii.
In
October 2018, PepsiCo committed to an average recycled content of
33% in its packaging by 2025;
iv.
In
December 2018, Nestle Waters committed that its plastic packaging
will contain 50% recycled content by 2025; and
v.
In February 2019, the L’OCCITANE Group, a
global
manufacturer and
retailer of natural cosmetics, committed to a 100% recycled content
package by 2025.
We believe these trends indicate that the transformation from a
linear to a circular plastic economy is not only necessary and
inevitable, but underway. And that this transition is leading to a
substantial demand for sustainable, cost-effective, marketable
Loop™ PET plastic resin and polyester fiber.
4
Our Technology
The power of our technology lies in its ability to divert and
recover what is currently considered plastic waste from landfills,
rivers, oceans and natural areas for use as feedstock to create
new, sustainable, infinitely recyclable Loop™ PET plastic
resin and polyester fiber. We believe our technology can deliver a
cost-effective and profitable virgin quality PET plastic resin
suitable for use in food-grade packaging.
Our Generation I technology process yielded polyethylene
terephthalate (“PTA”) and monoethylene glycol
(“MEG”), two common monomers of PET plastic, through
depolymerization. While monomers were of excellent purity and
strong yield, we continued to challenge ourselves to drive down
cost and eliminate inputs. It was during this process that we
realized we could eliminate water and chlorinated solvents from the
purification process, reduce the number of reagents from five to
two and reduce the number of purification steps from 12 to four, if
we shifted from the production of PTA to the production of dimethyl
terephthalate (“DMT”), another proven monomer of PET
plastic that is far simpler to purify. Since June 2018, when we
transitioned to our Generation II technology and our newly built
industrial pilot plant, we continue to see consistently high
monomer yields, excellent purity and improved conversion
costs
This shift, from producing the monomer PTA to the monomer DMT was a
pivotal moment for Loop. The Generation II technology is more
cost-effective, easier to commercialize, more economical for our
customers and requires less energy and fewer resource inputs than
conventional PET production processes. We believe it to be one of
the most environmentally sustainable methods for producing virgin
quality food-grade PET plastic in the world.
To protect our technology, and in addition to the patents we hold
for our Generation I (or “GEN I”) technology, we have
patents pending for our Generation II (or “GEN II”)
technology in various jurisdictions around the world.
On
April 9, 2019, the GEN II U.S. patent was formally approved and
issued.
Freedom to Operate searches
have also been conducted that indicate no conflicts with any of our
existing patents or applications and we adhere to rigorous internal
data and confidentiality controls.
Commercialization Progress
During the year ended February 28, 2019, we continued executing our
corporate strategy where Loop focused on developing three major
streams of revenue. These revenue streams are expected to be from
the sale of Loop™ PET plastic resin and polyester fiber to
customers from our joint venture with Indorama Ventures Limited
(“IVL”), license fees from our Waste-to-Resin
(“WtR™”) facilities and development fees from the
sale and construction of WtR™ facilities around the
world.
In September 2018, in connection with the first of these streams,
we announced a joint venture with IVL to manufacture and
commercialize sustainable Loop™ branded PET plastic resin and
polyester fiber to meet the growing global demand from beverage and
consumer packaged goods companies. The joint venture agreement
details the establishment of a 20,700 metric tonnes facility in the
southeastern United States. As the 20,700 metric tonnes production
capacity is fully subscribed by customers. which include Danone,
PepsiCo, and Coca-Cola’s Cross Enterprise Procurement Group,
the joint venture is evaluating increasing the capacity of the
facility. The facility is expected to commence production in the
second half of the calendar year 2020.
Also, in the 2019 fiscal year, we secured key partners such as
Thyssenkrupp Industrial Solutions(“tkIS”), built our
brand and continued to secure the feedstock needed to support our
commercial success.
Production
There are two principal modes planned for commercializing
production of Loop™ branded PET plastic resin and polyester
fiber. These include the retrofit of existing PET production
facilities and the development of greenfield integrated WtR™
facilities around the world, which are described here.
In September of 2018, we announced a joint venture with IVL to
manufacture and commercialize sustainable Loop™ branded PET
plastic resin and polyester fiber to meet the growing global demand
from beverage and consumer packaged goods companies. The 50/50
joint venture has an exclusive world-wide license to use our
technology to retrofit existing IVL facilities, so each can produce
100% sustainable Loop™ PET plastic resin and polyester fiber.
The first facility, in Spartanburg, South Carolina, is anticipated
to begin commercial production in the second half of the calendar
year 2020 and is expected to produce 20,700 metric tonnes of
sustainable Loop™ PET plastic resin and is fully subscribed
by leading global consumer brands.
5
As part of the joint venture agreement, the Company anticipates
contributing equity to meet its financial obligations under the
joint venture agreement with IVL. As at May 2, 2019, the Company
has contributed $500,000 to the joint venture. Also, due to
increasing market demand from existing and potential customers, and
the positive work on the preliminary engineering conducted at the
facility, the joint venture is evaluating options to increase the
capacity at the plant to 40,000 metric tonnes and the Company
anticipates a decision to be made by the second quarter of the
fiscal year 2020. If the joint venture decides to expand production
capacity, this would increase the Company’s required equity
contribution to the joint venture. The Company expects that the
additional capacity will be sold to existing and new customers that
are currently under negotiation.
We are also in the process of identifying additional facilities
suitable for retrofit. The partnership with IVL, which we believe
to be one of the world’s largest global integrated PET
plastic resin manufacturer, helps bring Loop™ PET sustainable
plastic resin and polyester fiber to market more quickly and
further emboldens the confidence of our customers to sign
multi-year supply agreements and term sheets with us.
To drive our WtR™ solution, which is a key pillar of our
commercialization blueprint, December 2018 saw us enter into a
Global Alliance Agreement with Thyssenkrupp Industrial Solutions
(“tkIS”) aimed at transforming the future of
sustainable PET plastic resin manufacturing by combining our
breakthrough depolymerization technology with tkIS’s PET
Melt-To-Resin® technology. As one of the world’s leading
PET and polyester engineering companies, we believe tkIS is
perfectly positioned to help us commercialize our WtR™
solution—a fully integrated and reimagined manufacturing
facility for sustainable Loop™ PET plastic resin and
polyester fiber.
We believe the WtR™ solution will result in a highly scalable
recurring revenue licensing model to supply the global demand for
100% sustainable Loop™ PET plastic resin and polyester fiber,
allowing us to rapidly penetrate and transform the plastic market
and fully capitalize on our disruptive potential to be the leader
in the circular economy for PET plastic. This fundamentally changes
where and how PET plastic resin production occurs—no longer
does PET plastic resin production need to be bound to fossil fuels
and fossil fuel infrastructure. WtR™ facilities could be
located near large urban centers where feedstock is located, and
transportation and logistics costs could be significantly reduced
as the distance between feedstock, manufacturing and customer use
is collapsed.
We believe the proposition for those seeking a turnkey solution to
manufacture Loop™ PET plastic resin and polyester fiber, such
as chemical companies, waste managers, existing recyclers and even
consumer good companies around the world is compelling. We further
believe this will create a recurring licensing revenue stream for
us while expanding the capacity of Loop™ PET plastic resin
and polyester fiber in the marketplace to meet the substantial
demand from consumer goods companies.
6
Supply Agreements with Global Consumer Brands
Consumer brands are seeking a solution to their plastic challenge
and they are taking bold action. In the past year we have seen
major brands make significant commitments to close the loop on
their plastic packaging in two ways, by transitioning their
packaging to recyclable materials and by incorporating more
recycled content into their packaging. We believe Loop™ PET
plastic resin and polyester fiber provides the ideal solution for
these brands because Loop™ PET plastic resin and polyester
fiber is recyclable and contains 100% recycled PET and polyester
fiber content with virgin quality suitable for use in food-grade
packaging. That means consumer packaged goods companies can now
market packaging made from a 100% Loop™ branded PET plastic
resin and polyester fiber.
As a result, in the 2019 Fiscal year, we delivered a significant
number of announcements with some of the world’s leading
brands, including:
●
Multi-year supply agreement with Danone SA, one of
the world’s leading global food and beverage
companies.
Danone will purchase
100% sustainable and upcycled Loop™ branded PET from
Loop’s joint venture facility with IVL in the United
States for use in brands across its portfolio including
evian
®
,
Danone’s iconic natural spring water
;
●
Multi-year
supply agreement with PepsiCo, one of the largest purchasers of
recycled PET plastic, enabling them to purchase production capacity
from Loop’s joint venture facility with IVL in the United
States and incorporate Loop™ PET plastic resin into its
product packaging by 2020;
●
Multi-year
supply framework with the Coca-Cola system’s Cross Enterprise
Procurement Group to supply 100% recycled and sustainable
Loop™ PET plastic resin from our joint venture facility with
IVL in the United States to authorized Coca-Cola bottlers who enter
into supply agreements with us;
●
Multi-year supply
agreement with L’Occitane to
supply 100% recycled and sustainable Loop™
PET plastic resin from our first European production
facility;
●
A
new program, free to consumers of Gatorade Gx and Drinkfinity,
subsidiaries of PepsiCo, to return used Gatorade Gx and Drinkfinity
pods to Loop where the PET from the pods will be processed using
Loop’s technology to make Loop™ PET plastic resin and
polyester fiber, and all other recyclable components are sent for
recycling;
●
A
new program, free to consumers of Drinkworks by Keurig®, to
return used Drinkworks pods to Loop where the PET from the pods
will be processed using Loop’s technology to make Loop™
PET plastic resin and polyester fiber and all other recyclable
components are sent for recycling;
●
Letter
of Intent with L’Oréal Group, the global leader in the
beauty industry setting the stage for L’Oréal to work
towards becoming the first major cosmetics company in the world to
close the loop on their PET plastic packaging by incorporating
Loop™ PET; and
●
Letter of Intent
with Nestle Waters North America setting forth the framework
conditions for a multi-year supply agreement for Loop™
PET.
Loop believes that due to the commitments by large global consumer
brands to incorporate more recycled content into their product
packaging, the regulatory requirements for minimum recycled content
in packaging imposed by governments, the virgin-like quality of
Loop™ branded PET and the marketability of Loop™ PET to
extoll the sustainability credentials of consumer brands that
incorporate Loop™ PET, it will sell its Loop™ branded
PET at a premium price relative to virgin PET.
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 packaging of any color, transparency or condition,
carpet, clothing and other polyester textiles that may contain
colors, dyes or additives, and even ocean plastics that have been
degraded by sun and salt. This is yet another distinct advantage of
Loop™ PET over mechanically recycled PET, our ability to use
materials that nearly all other recyclers do not use. This also
means we are creating a new market for materials that have
persistently been leaking out of the waste management system and
into our shared rivers, oceans and natural areas.
We have a dedicated team studying the availability of feedstock to
ensure each planned facility can operate continuously. The team has
already identified the sources required for our first joint venture
facility with IVL and is now focused on signing supply agreements
to secure this feedstock for the long term.
The team is also conducting a macro-to-micro analysis in the United
States, Canada, European Union and Asia to help us evaluate the
size and location of our next facilities. The approach includes a
fulsome inventory of PET materials introduced into a region, the
materials collected (or recycled) in the region and the material
loss, or the difference between the material introduced and the
material collected. This allows us to identify not only the
material traditionally available for recycling, but how material
can be effectively diverted from landfill, rivers, oceans and
natural areas by providing a new outlet for what was formerly
considered waste.
Intellectual Property
We rely
on a combination of patent and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to
protect our proprietary rights, which are primarily our patents,
brand names, product designs and marks.
We have
two patent groups, referred to as GEN I technology and the GEN II
technology, with claims relating to our proprietary technology for
depolymerization of PET.
●
The GEN I portfolio
has two issued U.S. patents and a pending U.S. application expected
to expire on or around July 2035. Internationally, we also have an
issued patent in Taiwan, an allowed application in the members of
the Gulf Cooperation Council, and pending patent applications in
Argentina, Australia, Brazil, Canada, China, Eurasia, Europe,
Israel, India, Japan, Korea, Mexico, the Philippines, and South
Africa, all expected to expire on or around July 2036 if
granted.
●
The GEN II
technology portfolio has an issued U.S. patent and a pending U.S.
application expected to expire on or around September 2037; as well
as a PCT application and non-PCT applications in Argentina,
Bangladesh, Bolivia, Bhutan, members of the Gulf Cooperation
Council, Iraq, Pakistan, Taiwan, Uruguay, and Venezuela, all
expected to expire on or around September 2037 if granted.
Additionally, we have three pending provisional applications
directed to additional aspects of the GEN II technology. Any
patents that would ultimately grant from these provisional
applications would be expected to expire no earlier than 2039, if
granted.
Government Regulation and Approvals
As we
seek to further develop and commercialize our business, we will be
subject to extensive and frequently developing federal, state,
provincial and local laws and regulations. Compliance with current
and future regulations could increase our operational
costs.
Our
operations require various governmental permits and approvals. We
are in the process of obtaining all necessary permits and approvals
for the operation of our business; however, any of these permits or
approvals may be subject to denial, revocation or modification
under various circumstances. Failure to obtain or comply with the
conditions of permits and approvals or to have the necessary
approvals in place may adversely affect our operations and may
subject us to penalties.
The use of mechanically recycled PET for food grade applications in
India is not permitted, and in Japan and China it is highly
inadvisable for a variety of reasons including the perception of
contamination from mechanically recycled sources. We believe that
means that Loop™ PET plastic resin and polyester fiber has a
distinct advantage in these markets, which represent nearly three
billion people or approximately 38% of the global population. Since
our product is not mechanically recycled PET, we expect that demand
from PET manufacturers and global consumer goods companies in these
regions for 100% Loop™ branded PET plastic resin and
polyester fiber will be a significant part of our strategy going
forward
.
8
Employees
As at
May 2, 2019, we have 34 employees, 33 of which are located in
Terrebonne, Quebec, Canada and one located in Toronto, Ontario,
Canada. We have no collective bargaining agreements with our
employees, and we have not experienced any work stoppages. We
consider our relations with our employees to be good.
Corporate History
We were
originally incorporated in Nevada in March 2010 under the name
Radikal Phones Inc., which was changed to First American Group Inc.
in October 2010. On June 29, 2015, we completed a reverse
acquisition of Loop Holdings, Inc. (“Loop Holdings”)
whereby we acquired all of Loop Holdings’ issued and
outstanding shares of common stock in a share exchange for
approximately 78.1% of the capital stock of our Company at the
time. The depolymerization business of Loop Holdings became our
sole operating business. On June 22, 2015, our board of directors
approved a change in the fiscal year end date from September 30 to
the last day of February. On
July
21, 2015, we changed our name to Loop Industries, Inc.
Loop
Holdings was originally incorporated in Nevada on October 23, 2014.
The depolymerization technology underlying our business was
originally developed by Hatem Essaddam who sold the technology and
related intellectual property rights to Loop Holdings in October
2014, pursuant to an Intellectual Property Assignment Agreement
dated October 27, 2014, by and among Hatem Essaddam, Loop Holdings,
and Daniel Solomita. The intellectual property acquired pursuant to
such Intellectual Property Agreement formed the basis for
establishing the GEN I technology that was initially used by the
Company. The GEN I technology has now been superseded by the
development of the Company’s GEN II technology, which forms
the basis for our commercialization into the future. We do not
intend to commercialize our GEN I technology.
On May
24, 2016, 9449507 Canada Inc. was organized under the federal laws
of Canada and on November 11, 2016 became a wholly-owned subsidiary
of Loop Industries, Inc. following the transfer by Mr. Solomita of
all of the issued and outstanding shares of common stock of 9449507
Canada Inc. to Loop Industries, Inc. On December 23,
2016,
9449507
Canada Inc. changed its legal name to Loop Canada Inc.
On
December 31, 2016, 8198381 Canada Inc. entered into a purchase and
sale agreement to transfer to Loop Canada Inc., all assets and
liabilities it held pertaining to our business of depolymerizing
plastics, including employees and operations.
On
March 9, 2017, Loop Holdings, a wholly-owned subsidiary of the
Company, merged with and into Loop Industries, Inc., with Loop
Industries, Inc. being the surviving entity as a result of the
merger.
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.” From
October 29, 2015 through April 7, 2017, our common stock was quoted
on the OTCQB tier of the OTC Markets Group Inc. under the stock
symbol “LLPP.” From September 26, 2012 to October 28,
2015, our common stock was quoted on the OTCQB tier of the OTC
Markets Group Inc. under the stock symbol
“FAMG.”
Corporate Information
Our
principal executive offices are located at 480 Fernand-Poitras
Street, Terrebonne, Quebec, Canada J6Y 1Y4. Our telephone number is
(450) 951-8555. The information contained on, or that can be
accessed through, our website is not a part of this Annual Report
on Form 10-K.
9
Available Information
Our
website is located at www.loopindustries.com, and our investor
relations website is located at
https://www.loopindustries.com/en/investors/sec. Copies of our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to these reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, are
available, free of charge, on our investor relations website as
soon as reasonably practicable after we file such material
electronically with or furnish it to the Securities and Exchange
Commission, or the SEC. The SEC also maintains a website that
contains our SEC filings. The address of the site is
www.sec.gov.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together
with all of the other information included in this Form 10-K before
making an investment decision with regard to our securities. The
statements contained in or incorporated herein that are not
historic facts are forward-looking statements that are subject to
risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking
statements. If any of the following risks actually occurs, our
business, financial condition or results of operations could be
harmed. In that case, you may lose all or part of your
investment.
RISKS RELATING TO OUR COMPANY
We have incurred net losses since inception. We expect to continue
to incur losses for the foreseeable future and may never achieve or
maintain profitability. We have never generated revenue and may
never be profitable.
Since our inception in 2010, we have incurred net losses. Our net
loss for the year ended February 28, 2019 was
$17.5 million. We have four customer agreements signed and we have
earned no revenues to date. We have financed our operations
primarily through sales of common stock and incurrence of debt and
have devoted substantial efforts to research and development, as
well as building our team. We expect to continue to incur
significant expenses and increasing operating losses for the
foreseeable future. The net losses we incur may fluctuate
significantly from quarter to quarter. Although we believe that our
business plan has significant profit potential, we may not attain
profitable operations and management may not succeed in realizing
our business objectives. Our ability to generate revenue depends on
our ability to successfully complete the development of our
products, obtain the regulatory approvals necessary to
commercialize our products and attract additional customers. We
expect to incur operating losses in future periods. These losses
will occur as we do not have any revenues to offset the expenses
associated with our business operations. We may not generate
revenues from product sales for the next several years, if ever. If
we are not able to develop our business as anticipated, we may not
be able to generate revenues or achieve profitability. We cannot
guarantee that we will ever be successful in generating revenues in
the future. If we are unable to generate revenues, we will not be
able to earn profits or continue operations.
Our limited operating history may make it difficult for you to
evaluate the success of our business to date and to assess our
future viability.
Our business was started in October 2014 with the incorporation of
Loop Holdings, Inc. and 8198381 Canada Inc., and the acquisition of
intellectual property from Hatem Essaddam
in October 2014.
Our operations to date have been
primarily limited to organizing and staffing our company, business
planning, raising capital and developing our technology. We have
not yet demonstrated the ability to manufacture a commercial-scale
product or conduct sales and marketing activities necessary for
successful commercialization. Consequently, any predictions you
make about our future success or viability may not be as accurate
as they could be if we had a longer operating history. In addition,
as a new business, we may encounter unforeseen expenses,
difficulties, complications, delays and other known and unknown
factors. We will need to transition from a company with a research
focus to a company that is also capable of supporting commercial
activities. We may not be successful in such a
transition.
There is no history upon which to base any assumption as to the
likelihood that we will prove successful, and we can provide
investors with no assurance that we will generate any operating
revenues or ever achieve profitable operations. If we are
unsuccessful in addressing these risks, our business will almost
certainly fail.
10
We may not be able to execute our business plan or stay in business
without additional funding.
Our ability to generate future operating revenues depends in part
on whether we can obtain the financing necessary to implement our
business plan. We will likely require additional financing through
the issuance of debt and/or equity in order to establish profitable
operations, and such financing may not be forthcoming. If we are
unable to attract investors to invest in our business, we may not
be able to acquire additional financing through debt or equity
markets. Even if additional financing is available, it may not be
available on terms favorable to us. Our failure to secure
additional financing on favorable terms when it becomes required
would have an adverse effect on our ability to remain in
business.
Our technology may not be successful in developing commercial
products.
We and our potential future collaborators may spend many years and
dedicate significant financial and other resources developing our
technology that may never be successfully commercialized. Our
technology may never become successfully commercialized for any of
the following reasons:
●
we
may not be able to secure sufficient funding to progress our
technology through development and commercial
validation;
●
we
or our future collaborators may be unable to obtain the requisite
regulatory approvals for our technology;
●
competitors
may launch competing or more effective technology;
●
our
technology may not be commercially successful;
●
current
and future collaborators may be unable to fully develop and
commercialize products containing our technology or may decide, for
whatever reason, not to commercialize such products;
and
●
we
may be unable to secure adequate patent protection in the necessary
jurisdictions.
If any of these things were to occur, it could have a material
adverse effect on our business and our results of
operations.
If we are unable to successfully scale our manufacturing processes,
we may not meet customer demand.
To be successful, we will have to successfully scale our
manufacturing processes while maintaining high product quality and
reliability. If we cannot maintain high product quality on a large
scale, our business will be adversely affected. We may encounter
difficulties in scaling up production, including problems with the
supply of key components. Even if we are successful in developing
our manufacturing capability, we do not know whether we will do so
in time to satisfy the requirements of our customers. The current
manufacturing facility is a pilot plant with limited production
capacity. In order to fully implement our business plan, we will
need to move the operations to a larger facility, develop strategic
partnerships or find other means to produce greater volumes of
finished product.
Decreases in our ability to develop or apply new technology and
know-how may affect our competitiveness.
Our success depends partially on our ability to improve production
processes and services. We must also introduce new products and
services to meet changing customer needs. If we are unable to
implement better production processes or to develop new products
through research and development or licensing of new technology, we
may not be able to remain competitive with other manufacturers. As
a result, our business, financial condition or results of
operations could be adversely affected.
Disruption at, damage to or destruction of our pilot plant or
facilities could impede our ability to continue innovating and
refining our technological process, which would harm our business,
financial condition and operating results.
Our research and development activities are performed from a single
location in Terrebonne, Quebec. Our continued innovation activities
rely on an uninterrupted and fully functioning pilot plant.
Interruptions in operations at this location could result in our
inability to provide the most efficient and effective technological
solution to our customers. A number of factors could cause
interruptions, including, but not limited to, equipment
malfunctions or failures, technology malfunctions, work stoppages
or slow-downs, damage to or destruction of the facility or regional
power shortages. As our equipment ages, it will need to be
replaced. Any disruption that impedes our ability to optimize our
process in a timely manner could reduce our revenues and materially
harm our business.
11
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. If our cost to manufacture
recycled PET is not competitive with virgin PET or if the price of
oil reduces significantly, it may adversely impact our ability to
penetrate the market or be profitable.
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.
We are vulnerable to fluctuations in the supply and price of raw
materials.
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.
The loss of the services of Mr. Daniel Solomita, our President
and Chief Executive Officer, Chairman of the Board of Directors,
and majority stockholder, or our failure to timely identify and
retain competent personnel could negatively impact our ability to
develop our business.
The development of our business and the marketing of our
prospective products will continue to place a significant strain on
our limited personnel, management, and other resources. Our future
success depends upon the continued services of our executive
officers who are developing our business, and on our ability to
identify and retain competent consultants and employees with the
skills required to execute our business objectives. The loss of the
services of Mr. Daniel Solomita or our failure to timely identify
and retain competent personnel could negatively impact our ability
to develop our business which could adversely affect our financial
results and impair our growth.
Our pilot plant continues to be modernized and we have not yet
fully implemented all policies, procedures, and controls for the
operation of a chemical manufacturing facility as required under
various federal, provincial and local regulations and
codes.
We are subject to health and safety as well as environmental,
zoning and any other regulatory requirements to operate our pilot
plant, and as our business evolves, we, directly or indirectly
through our partners or other related parties, may be subject to
additional government regulations. Any failure to comply with
ongoing regulatory requirements, as well as discovery of previously
unknown problems, may result in, among other things, costly
regulatory inspections, fines or remediation plans. If regulatory
issues arise, the value of our business and our operating results
may be adversely affected.
Additionally, applicable regulations may change, and additional
government regulations may be enacted that could impact our
business. We cannot predict the likelihood, nature or extent of
government regulation that may arise from future legislation or
administrative action, either in the United States or abroad. If we
are not able to maintain regulatory compliance, are slow or unable
to adopt new requirements or policies, or effect changes to
existing requirements, our business may be adversely
affected.
12
Our failure to protect our intellectual property and proprietary
technology may significantly impair our competitive
advantage.
Our success and ability to compete depends in large part upon
protecting our proprietary technology. We rely on a combination of
patent, trademark and trade secret protection, confidentiality,
nondisclosure and nonuse agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent
the misappropriation of our intellectual property, particularly in
foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. The patent and trademark
law and trade secret protection may not be adequate to deter third
party infringement or misappropriation of our patents, trademarks
and similar proprietary rights.
We may face costly intellectual property infringement claims, the
result of which would decrease the amount of cash available to
operate and complete our business plan.
We anticipate that, from time to time, we will receive
communications from third parties asserting that we are infringing
certain patents and other intellectual property rights of others or
seeking indemnification against alleged infringement. If
anticipated claims arise, we will evaluate their merits. Any claims
of infringement brought forth by third parties could result in
protracted and costly litigation, damages for infringement, and the
necessity of obtaining a license relating to one or more of our
products or current or future technologies, which may not be
available on commercially reasonable terms or at all. Litigation,
which could result in substantial costs to us and diversion of our
resources, may be necessary to enforce our patents or other
intellectual property rights or to defend us against claimed
infringement of the rights of others. Any intellectual property
litigation and the failure to obtain necessary licenses or other
rights could have a material adverse effect on our business,
financial condition and results of operations.
We rely in part on trade secrets to protect our technology, and our
failure to obtain or maintain trade secret protection could harm
our business.
We rely on trade secrets to protect some of our technology and
proprietary information, especially where we believe patent
protection is not appropriate or obtainable. However, trade secrets
are difficult to protect. Litigating a claim that a third party had
illegally obtained and used our trade secrets would be expensive
and time consuming, and the outcome would be unpredictable.
Moreover, if our competitors independently develop similar
knowledge, methods and know-how, it will be difficult for us to
enforce our rights and our business could be harmed.
We have identified material weaknesses in our internal control over
financial reporting and if we fail to maintain an effective system
of internal control over financial reporting in the future, we may
not be able to accurately or timely report our financial condition
or results of operations, which may adversely affect investor
confidence in us and the price of our common stock.
We are required to evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”). Section 404 requires us to include an
internal control report with our Annual Report on Form 10-K. This
report must include management’s assessment of the
effectiveness of our internal control over financial reporting as
at the end of the fiscal year. This report must also include
disclosure of any material weaknesses in internal control over
financial reporting that we have identified.
We have identified material weaknesses in our internal controls
over financial reporting in connection with the audits of Fiscal
2017 and Fiscal 2018. As at February 28, 2017, we identified a
material weakness relating primarily to the lack of formalized
procedures around financial reporting. In the third quarter of
Fiscal 2018, we identified a material weakness relating to the
accounting for stock-based compensation, which contributed to the
restatement of the previously issued 2017 annual consolidated
financial statements and of our first and second quarter
consolidated financial statements for fiscal 2018.
We have taken steps to remediate the issues that contributed to the
material weaknesses
and w
hile
we believe that these efforts have improved our internal control
over financial reporting, see Item 9A. “Controls and
Procedures,” there can be no assurance that the adjustments
will ensure that we identify or avoid a material weakness in the
future. Further, we may not be able to remediate a future material
weakness in a timely manner and our management may be required to
devote significant time and expense to remediate any such material
weakness.
13
The process of designing and implementing internal control over
financial reporting required to comply with Section 404 of the
Sarbanes-Oxley Act is time consuming, costly and complicated. If
during the evaluation and testing process, we identify one or more
other material weaknesses in our internal control over financial
reporting or determine that existing material weaknesses have not
been remediated, our management will be unable to assert that our
internal control over financial reporting is effective. Even if our
management concludes that our internal control over financial
reporting is effective, our independent registered public
accounting firm may conclude that there are material weaknesses
with respect to our internal controls or the level at which our
internal controls are documented, designed, implemented or
reviewed. If we are unable to assert that our internal control over
financial reporting is effective, or when required in the future,
if our independent registered public accounting firm is unable to
express an opinion as to the effectiveness of our internal control
over financial reporting, investors may lose confidence in the
accuracy and completeness of our financial reports, the market
price of our common stock could be adversely affected and we could
become subject to litigation or investigations by the stock
exchange on which our securities are listed, the SEC or other
regulatory authorities, which could require additional financial
and management resources.
We are subject to risks associated with currency fluctuations, and
changes in foreign currency exchange rates could impact our results
of operations.
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 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 U.S. dollar to 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.
We are subject to certain risks related to litigation filed by or
against us, and adverse results may harm our business.
We cannot predict with certainty the cost of defense, of
prosecution or of the ultimate outcome of litigation and other
proceedings filed by or against us, including penalties or other
civil or criminal sanctions, or remedies or damage awards, and
adverse results in any litigation and other proceedings may
materially harm our business. Litigation and other proceedings may
include, but are not limited to, actions relating to intellectual
property, international trade, commercial arrangements, product
liability, environmental, health and safety, joint venture
agreements, labor and employment or other harms resulting from the
actions of individuals or entities outside of our control. In the
case of intellectual property litigation and proceedings, adverse
outcomes could include the cancellation, invalidation or other loss
of material intellectual property rights used in our business and
injunctions prohibiting our use of business processes or technology
that are subject to third-party patents or other third-party
intellectual property rights.
14
RISKS ASSOCIATED WITH OUR SECURITIES
The issuance of common stock upon conversion of our November 2018
Convertible Notes and our January 2019 Convertible Notes, and
specifically the floating conversion price feature of our November
2018 Convertible Notes, could require us to issue a substantially
greater number of shares, which may adversely affect the market
price of our common stock and cause dilution to our existing
stockholders.
Our November 2018 Convertible Notes and our January 2019
Convertible Notes are convertible into shares of our common stock
under certain circumstances as described under “Recent
Developments” herein. Upon conversion of the November 2018
Convertible Notes and the January 2019 Convertible Notes, in
accordance with their terms, we will be required to deliver shares
of our common stock to their holders. Our stockholders will
experience dilution in their ownership percentage of common stock
upon our issuance of common stock in connection with the conversion
of the November 2018 Convertible Notes and the January 2019
Convertible Notes. Because the number of shares we will be required
to issue upon conversion of the November 2018 Convertible Notes is
subject to a floating conversion price that is not subject to a
floor, the number of shares issuable could prove to be
significantly greater in the event of a decrease in the trading
price of our common stock, which decrease could cause substantial
dilution to our existing stockholders. Any such issuances of common
stock will result in immediate dilution to the interests of other
stockholders. Further, any sales in the public market of any shares
of common stock issued upon conversion or hedging or arbitrage
trading activity that develops due to the potential conversion of
the November 2018 Convertible Notes or of the January 2019
Convertible Notes could adversely affect prevailing market prices
of our common stock.
Raising additional funds may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish
rights to our technologies.
If we raise additional funds through equity offerings or offerings
of equity-linked securities, including warrants or convertible debt
securities, our existing stockholders may experience significant
dilution, and the terms of such securities may include liquidation
or other preferences that may adversely affect the rights of our
stockholders. Debt financings, if available, may subject us to
restrictive covenants that could limit our flexibility in
conducting future business activities, including covenants limiting
or restricting our ability to incur additional debt, dispose of
assets or incur capital expenditures. We may also incur ongoing
interest expense and be required to grant a security interest in
our assets in connection with any debt issuance. If we raise
additional funds through strategic partnerships or licensing
agreements with third parties, we may have to relinquish valuable
rights to our technologies or grant licenses on terms that are not
favorable to us.
Trading volume in our stock can fluctuate and an active trading
market for our common stock may not be available on a consistent
basis to provide stockholders with adequate liquidity. Our stock
price may be volatile, and our stockholders could incur significant
investment losses.
The trading price for our common stock will be affected by a number
of factors, including:
●
any
change in the status of our Nasdaq listing;
●
the
need for near-term financing to continue operations;
●
reported
progress in our efforts to develop and commercialize our
technology, relative to investor expectations;
●
general
market conditions and other factors unrelated to our operating
performance or the operating performance of our
competitors;
●
future
issuances and/or sales of our securities;
●
announcements
or the absence of announcements by us, or our competitors,
regarding collaborations, new products, significant contracts,
commercial relationships or capital commitments;
●
commencement
of, or involvement in, litigation;
●
any
major change in our board of directors or management;
●
changes
in governmental regulations or in the status of our regulatory
approvals;
●
announcements
related to patents issued to us or our competitors and to
litigation involving our intellectual property;
●
a
lack of, or limited, or negative industry or security analyst
coverage;
●
uncertainty
regarding our ability to secure additional cash resources with
which to operate our business;
●
short-selling
or similar activities by third parties; and
●
other
factors described elsewhere in these Risk Factors.
15
As a result of these factors, our stockholders may not be able to
resell their shares at, or above, their purchase price. In
addition, the stock prices of many technology companies have
experienced wide fluctuations that have often been unrelated to the
operating performance of those companies. Any negative change in
the public’s perception of the prospects of companies in our
industry could depress our stock price regardless of our results of
operations. These factors may have a material adverse effect on the
market price and liquidity of our common stock and affect our
ability to obtain required financing.
Our President and Chief Executive Officer and Chairman of the Board
of Directors, Mr. Daniel Solomita, beneficially owns a majority of
our capital stock, and accordingly, has control over stockholder
matters, our business and management.
As at May 2, 2019, Mr. Daniel Solomita, our President and Chief
Executive Officer, Chairman of the Board of Directors, and majority
stockholder, beneficially owns 18,600,000 shares of common stock,
or 53.3% of our issued and outstanding shares of common stock and
also holds one share of Series A Preferred Stock. 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 our common stock,
assuring that Mr. Solomita retains control even if his
presently-held 53.3% of the issued and outstanding shares of our
common stock is diluted to a level below a majority.
Additionally, the one share of Series A Preferred Stock issued to
Mr. Solomita contains protective provisions, which precludes us
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, we are not permitted to
take certain actions 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, including for example and
without limitation, amending our articles of incorporation,
changing or modifying the rights of the Series A Preferred Stock,
including increasing or decreasing the number of authorized shares
of Series A Preferred Stock, increasing or decreasing the size of
the board of directors or remove the director appointed by the
holders of our Series A Preferred Stock and declaring or paying any
dividend or other distribution.
Moreover, because of the significant ownership position held by our
insiders, new investors may not be able to effect a change in our
business or management, and therefore, stockholders would have no
recourse as a result of decisions made by management.
In addition, sales of significant amounts of shares held by Mr.
Solomita, or the prospect of these sales, could adversely affect
the market price of our common stock. Management’s stock
ownership may discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in
turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
Anti-takeover effects of certain provisions of Nevada state law
hinder a potential takeover of our company.
Though not now, we may in the future become subject to
Nevada’s control share law. A corporation is subject to
Nevada’s control share law if it has more than 200
stockholders, at least 100 of whom are stockholders of record and
residents of Nevada, and it does business in Nevada or through an
affiliated corporation. The law focuses on the acquisition of a
“controlling interest” which means the ownership of
outstanding voting shares sufficient, but for the control share
law, to enable the acquiring person to exercise the following
proportions of the voting power of the company in the election of
directors: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or
more. The ability to exercise such voting power may be direct or
indirect, as well as individual or in association with
others.
The effect of the control share law is that the acquiring person,
and those acting in association with it, obtains only such voting
rights in the control shares as are conferred by a resolution of
the stockholders of the Company, approved at a special or annual
meeting of stockholders. The control share law contemplates that
voting rights will be considered only once by the other
stockholders. Thus, there is no authority to strip voting rights
from the control shares of an acquiring person once those rights
have been approved. If the stockholders do not grant voting rights
to the control shares acquired by an acquiring person, those shares
do not become permanent non-voting shares. The acquiring person is
free to sell its shares to others. If the buyers of those shares
themselves do not acquire a controlling interest, their shares do
not become governed by the control share law.
16
If control shares are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of the
voting power, any stockholder of record, other than an acquiring
person, who has not voted in favor of approval of voting rights, is
entitled to demand fair value for such stockholder’s
shares.
In addition to the control share law, Nevada has a business
combination law which prohibits certain business combinations
between Nevada corporations and “interested
stockholders” for three years after the “interested
stockholder” first becomes an “interested
stockholder,” unless the company’s board of directors
approves the combination in advance. For purposes of Nevada law, an
“interested stockholder” is any person who is (i) the
beneficial owner, directly or indirectly, of ten percent or more of
the voting power of the outstanding voting shares of the company,
or (ii) an affiliate or associate of the company and at any time
within the two previous years was the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the then
outstanding shares of the company. The definition of the term
“combination” is sufficiently broad to cover virtually
any kind of transaction that would allow a potential acquirer to
use the company’s assets to finance the acquisition or
otherwise to benefit its own interests rather than the interests of
the company and its other stockholders.
The effect of Nevada’s business combination law is to
potentially discourage parties interested in taking control of us
from doing so if it cannot obtain the approval of our board of
directors.
Because we do not intend to pay any cash dividends on our common
stock, our stockholders will not be able to receive a return on
their shares unless they sell them.
We intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Unless we
pay dividends, our stockholders will not be able to receive a
return on their shares unless they sell them. Stockholders may not
be able to sell shares when desired. Before you invest in our
securities, you should be aware that there are various risks. You
should consider carefully these risk factors, together with all of
the other information included in this annual report before you
decide to purchase our securities. If any of the following risks
and uncertainties develop into actual events, our business,
financial condition or results of operations could be materially
adversely affected.
The recently passed comprehensive tax reform bill could adversely
affect our business and financial results.
On December 22, 2017, President Trump signed into law the Tax Cuts
and Jobs Act (“TCJA”) that significantly reforms the
Internal Revenue Code of 1986, as amended. The TCJA, among other
things, includes changes to U.S. federal tax rates, imposes
significant additional limitations on the deductibility of interest
and net operating loss carryforwards, allows for the expensing of
capital expenditures, and puts into effect the migration from a
"worldwide" system of taxation to a territorial system. The impact
of enactment of U.S. tax reform was recorded on a provisional basis
as the legislation provides for additional guidance to be issued by
the U.S. Treasury Department on several provisions including the
computation of the transition tax. We continue to examine the
impact this tax reform legislation may have on our business and we
urge our stockholders to consult with their legal and tax advisors
with respect to such legislation and the potential tax consequences
of investing in our common stock.
I
TEM 1B. UNRESOLVED STAFF
COMMENTS
Not
applicable.
I
TEM 2. PROPERTIES
On
January 26, 2018, we completed the purchase of the land and
building housing our pilot plant and corporate offices located at
480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. The
22,042 square foot facility includes 4,080 square feet for our
executive offices and 17,962 square feet for our innovation and
operational activities. We believe that our existing facilities are
adequate for our current needs.
17
I
TEM 3. LEGAL PROCEEDINGS
On January 27, 2017, two individuals (“Plaintiffs”),
filed a claim against us in the Los Angeles Superior Court
(“Court”), seeking damages for breach of implied
covenant of good faith and fair dealing, breach of contract, and
promissory fraud, asserting entitlement to shares of our common
stock. On February 25, 2019, we and the Plaintiffs entered into a
settlement agreement and release (“Settlement
Agreement”), which sets forth the parties’ agreement in
principle for settlement. Through the Settlement Agreement, we,
Plaintiffs and certain other parties to the Settlement Agreement
agreed to mutual releases of any and all claims.
Pursuant to the terms of the Settlement Agreement, without agreeing
that any of the Plaintiffs’ claims have merit, we agreed to
issue to the Plaintiffs 150,000 shares of our common stock
(“Plaintiff Common Shares”) and 500,000 warrants
exercisable for shares of our common stock (“Plaintiff
Warrants”). The Plaintiff Common Shares will be restricted
upon issuance, but within 180 days following the date of the
Settlement Agreement, we have agreed to file and use its reasonable
best efforts to have declared effective a registration statement to
register the Plaintiff Common Shares and the shares of the
Company’s common stock underlying the Plaintiff Warrants. We
also agreed to maintain such registration statement for 2 years
from the date of effectiveness unless the Plaintiffs sell or
otherwise transfer the shares covered by such registration
statement prior to the two-year anniversary. 300,000 of the
Plaintiff Warrants are exercisable for shares of our common stock
at an exercise price of $12.00 per share for a period of 24 months
following the date of the Settlement Agreement. The remaining
200,000 Plaintiff Warrants are exercisable for shares of our common
stock at an exercise price of $11.00 per share for a period of 24
months, but in the event the Company’s 5-day average trading
price during any period in the first 18 months following the date
of the Settlement Agreement is above $11 per share, then the
exercise term of such warrants shall automatically be reduced to 18
months instead of 24 months.
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Except
as noted above, we are not presently a party to any legal
proceedings, government actions, administrative actions,
investigations or claims that are pending against us or involve us
that, in the opinion of our management, could reasonably be
expected to have a material adverse effect on our business,
financial condition or operating results. However, litigation is
subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our
business.
It is
possible that we may expend financial and managerial resources in
the defense of our intellectual property rights in the future if we
believe that our rights have been violated. It is also possible
that we may expend financial and managerial resources to defend
against claims that our products and services infringe upon the
intellectual property rights of third parties.
I
TEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
I
TEM 4.1. EXECUTIVE OFFICERS OF THE
REGISTRANT
The
information required by this item is incorporated by reference from
the section captioned “Executive Officers” contained in
our proxy statement for the 2019 annual meeting of stockholders, to
be filed with the Commission pursuant to Regulation 14A, not later
than 120 days after February 28, 2019.
18
P
ART II
I
TEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information for Common Stock
Our
common stock is currently traded on the Nasdaq Global Market under
the 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.”
From October 29, 2015 through April 7, 2017, our common stock was
quoted on the OTCQB tier of the OTC Markets Group Inc. under the
stock symbol “LLPP.” From September 26, 2012 to October
28, 2015, our common stock was quoted on the OTCQB tier of the OTC
Markets Group Inc. under the stock symbol
“FAMG.”
Holders
As at
May 2, 2019, there were 34,875,032 shares of common stock issued
and outstanding (excluding shares of common stock issuable upon
conversion or conversion into shares of common stock of all of our
currently outstanding Series A Preferred Stock and exercise of our
warrants) held by approximately 78 stockholders of record. The
actual number of stockholders is greater than this number of record
holders, and includes stockholders who are beneficial owners, but
whose shares are held in street name by brokers and other nominees.
This number of holders of record also does not include stockholders
whose shares may be held in trust by other entities.
Dividends
We have
not declared any dividends and we do not plan to declare any
dividends in the foreseeable future. There are no restrictions in
our Articles of Incorporation or By-laws that prevent us from
declaring dividends. The Nevada Revised Statutes, however, prohibit
us from declaring dividends where, after giving effect to the
distribution of the dividend:
●
we would not be
able to pay our debts as they become due in the usual course of
business; or
●
our total assets
would be less than the sum of our total liabilities plus the amount
that would be needed to satisfy the rights of stockholders who have
preferential rights superior to those receiving the distribution,
unless otherwise permitted under our Articles of
Incorporation.
Recent Sales of Unregistered Securities and Use of
Proceeds
During
the year ended February 28, 2019, we issued:
●
150,000 shares of
common stock pursuant to the terms of the Settlement Agreement. For
more information, see “ITEM 3. Legal Proceedings” of
this Form 10-K;
●
On January 15,
2019, we sold convertible promissory notes and warrants to
accredited investors for an aggregate purchase price of $4,500,000.
We relied on Section 4(a)(2) of the Securities Act or the private
offering safe harbor provision of Rule 506 of Regulation D
promulgated thereunder based on the following factors: (i) the
number of offerees or purchasers, as applicable, (ii) the absence
of general solicitation, (iii) representations obtained from the
purchasers relative to their accreditation and/or sophistication
and/or their relationship to the company (directors and officers),
(iv) the provision of appropriate disclosure, and (v) the placement
of restrictive legends on the certificates reflecting the
securities coupled with investment representations obtained from
the purchasers.
●
On November 13,
2018, we sold convertible promissory notes and warrants to
accredited investors for an aggregate purchase price of $2,450,000
and on January 3, 2019, we sold convertible promissory notes and
warrants to accredited investors for an aggregate purchase price of
$200,000. We relied on Section 4(a)(2) of the Securities Act or the
private offering safe harbor provision of Rule 506 of Regulation D
promulgated thereunder based on the following factors: (i) the
number of offerees or purchasers, as applicable, (ii) the absence
of general solicitation, (iii) representations obtained from the
purchasers relative to their accreditation and/or sophistication
and/or their relationship to the company (directors and officers),
(iv) the provision of appropriate disclosure, and (v) the placement
of restrictive legends on the certificates reflecting the
securities coupled with investment representations obtained from
the purchasers.
Purchases of Equity Securities by the Registrant and Affiliated
Purchasers
We did
not purchase any of our shares of common stock or other securities
during the year ended February 28, 2019.
I
TEM 6. SELECTED FINANCIAL
DATA
Pursuant
to SEC Release No. 33-8876, we are permitted to use the scaled
disclosure requirements applicable to a “smaller reporting
company,” as defined in Rule 12b-2 of the Exchange Act, and
therefore, we are not required to provide the information called
for by this Item.
19
I
TEM 7. 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 “Risk Factors” discussed
elsewhere in this Report. Please refer to the Cautionary Note
Regarding Forward-Looking Statements on page 4.
Introduction
Loop
Industries, Inc. is an innovative technology company focused on
sustainability. Our
mission is to
accelerate the world’s shift toward sustainable plastic and
away from its dependence on fossil fuels. Loop’s patented and
proprietary technology decouples plastic from fossil fuels by
depolymerizing waste polyester plastic and fiber to its base
building blocks (monomers). The resulting monomers are then
polymerized into virgin-quality PET plastic that meets FDA
requirements for use in food-grade plastic packaging, such as water
and soda bottles, and polyester fiber for textile
applications.
Loop’s technology allows for low value and no value waste PET
plastic and polyester fibers such as carpets and clothing to be
upcycled into high value PET/polyester packaging for consumer goods
companies. The Company’s zero energy depolymerization
technology specifically targets PET/polyester, allowing for the
removal of all waste impurities, such as colors/dyes, labels and
non-PET plastic waste. The Company believes this provides it with
an innovative technology to help achieve our mission.
Loop’s
technology uses waste PET plastics such as water bottles, soda
bottles, consumer packaging, carpets, polyester textiles and
industrial waste as feedstock to process. These feedstocks are
available through municipal triage centers, industrial recycling
and landfill reclamation projects.
Plan of Operation
During the year ended February 28, 2019, we continued executing our
corporate strategy where Loop focused on developing three major
streams of revenue. These revenue streams are expected to be from
the sale of Loop™ PET plastic resin and polyester fiber to
customers from our joint venture with Indorama Ventures Limited
(“IVL”), license fees from our Waste-to-Resin
(“WtR™”) facilities and development fees from the
sale and construction of WtR™ facilities around the world. In
September of 2018, in connection with the first of these streams,
we announced a joint venture with IVL to manufacture and
commercialize sustainable Loop™ branded PET plastic resin and
polyester fiber to meet the growing global demand from beverage and
consumer packaged goods companies. The 50/50 joint venture has an
exclusive world-wide license to use our technology to retrofit
existing IVL facilities, so each can produce 100% sustainable
Loop™ PET plastic resin and polyester fiber. The first
facility, in Spartanburg, South Carolina, is anticipated to begin
commercial production in the second half of the calendar year 2020
and is expected to produce 20,700 metric tonnes of sustainable
Loop™ PET plastic resin and is fully subscribed by leading
global consumer brands. As part of the joint venture agreement to
establish the facility to produce 20,700 metric tonnes, the Company
is committed to contribute its equity share of the costs under the
joint venture agreement to construct the facility. As at May 2,
2019, the Company has contributed $500,000 to the joint venture.
Also, due to increasing market demand from existing and potential
customers,
as well
as the positive work on the preliminary engineering
work
conducted at the
facility,
the joint venture is
evaluating options to increase the capacity at the plant to 40,000
metric tonnes and anticipates a decision to be made by the second
quarter of the fiscal year 2020. This would entail increasing the
Company’s equity contribution.
The Company, through its wholly-owned subsidiary Loop Innovations,
LLC, a Delaware limited liability company, entered into a Joint
Venture Agreement (the “Agreement”), as stated above,
with Indorama Ventures Holdings LP, USA, an indirect subsidiary of
Indorama Ventures Public Company Limited, to manufacture and
commercialize sustainable polyester resin to meet the growing
global demand from beverage and consumer packaged goods companies.
Each company will have 50/50 equity interest in Loop Indorama
Technologies, LLC (“ILT”), which was specifically
formed to operate and execute the joint venture.
20
This partnership brings together Indorama Venture’s
manufacturing footprint and Loop’s proprietary science and
technology to become a supplier in the ‘circular’
economy for 100% sustainable and recycled PET resin and polyester
fiber.
The Company is contributing to the 50/50 joint venture an exclusive
world-wide royalty-free license to use its proprietary technology
to produce 100% sustainably produced PET resin and polyester
fiber.
The Company expects to record its first commercial revenues from
the joint venture in the second half of the calendar year
2020.
We believe the proposition for those seeking a turnkey solution to
manufacture Loop™ PET plastic resin and polyester fiber, such
as chemical companies, waste managers, existing recyclers and
consumer good companies around the world is compelling. We further
believe this will create a recurring licensing revenue stream for
us while expanding the capacity of Loop™ PET plastic resin
and polyester fiber in the marketplace to meet the substantial
demand from consumer goods companies.
Consumer brands are seeking a solution to their plastic challenge,
and they are taking bold action. In the past year we have seen
major brands make significant commitments to close the loop on
their plastic packaging in two ways, by transitioning their
packaging to recyclable materials and by incorporating more
recycled content into their packaging. We believe Loop™ PET
plastic resin and polyester fiber provides the ideal solution for
these brands because Loop™ PET plastic resin and polyester
fiber contains 100% recycled PET and polyester fiber content. The
Loop™ PET plastic resin and polyester fiber is virgin quality
suitable for use in food-grade packaging. That means consumer
packaged goods companies can now market packaging made from a 100%
Loop™ branded PET plastic resin and polyester fiber. As a
result, in fiscal 2019 we delivered a significant number of
announcements regarding our partnership / engagement with some of
the world’s leading brands.
We plan
to continue to allocate available capital to strengthen our
intellectual property portfolio, build a core competency in
managing strategic relationships and continue enhancing our Loop
brand value. Our research and development innovation hub in
Terrebonne, Quebec, Canada will continue optimizing our current
technology as well as innovate into new areas of sustainability. We
are investing in building a strong management team to integrate
best in class processes and practices while maintaining our
entrepreneurial culture.
Results of Operations
The
following table summarizes our operating results for the
three-month periods ended February 28, 2019 and 2018, in U.S.
Dollars.
|
|
Three Months Ended February 28,
|
||
|
|
2019
|
2018
|
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock based
compensation
|
250,251
|
479,816
|
(229,565
)
|
|
Other research and
development
|
273,815
|
873,199
|
(559,384
)
|
|
Total research and
development
|
524,066
|
1,353,015
|
(828,949
)
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
575,240
|
743,580
|
(168,340
)
|
|
Legal settlement
|
4,041,627
|
-
|
4,041,627
|
|
Other general and
administrative
|
1,514,203
|
1,425,749
|
88,454
|
|
Total general and
administrative
|
6,131,070
|
2,169,329
|
3,961,741
|
|
|
|
|
|
|
Depreciation and
amortization
|
136,285
|
86,160
|
50,125
|
|
Impairment of intangible
assets
|
298,694
|
-
|
298,694
|
|
Interest and other finance
costs
|
425,964
|
5,125
|
420,839
|
|
Foreign exchange loss
(gain)
|
38,632
|
21,042
|
17,590
|
|
Total operating
expenses
|
7,554,711
|
3,634,671
|
3,920,040
|
|
Net
loss
|
$
(7,554,711
)
|
$
(3,634,671
)
|
$
(3,920,040
)
|
21
Fourth Quarter Ended February 28, 2019
The net
loss for the three-month period ended February 28, 2019 increased
$3.9 million to $7.5 million, as compared to the net loss for the
three-month period ended February 28, 2018 which was $3.6
million. The increase is primarily due to increased general
and administrative expenses of $4.0 million, an increase in
depreciation and amortization and impairment of intangible assets
of $0.3 million, an increase in interest and other finance costs of
$0.4 million, offset by lower research and development expenses of
$0.8 million.
Research
and development expenses for the three-month period ended February
28, 2019 amounted to $0.5 million compared to $1.4 million for the
three-month period ended February 28, 2018, representing a decrease
of $0.8 million, or $0.6 million excluding stock-based
compensation. The decrease of $0.6 million was primarily
attributable to lower employee related expenses of $0.1 million,
lower professional fees of $0.2 million and by lower spending for
purchases and consumables of $0.3 million. The decrease in non-cash
stock-based compensation expense of $0.2 million is mainly
attributable to the termination of an individual whose vesting of
stock options ceased upon termination.
General
and administrative expenses for the three-month period ended
February 28, 2019 amounted to $6.1 million compared to $2.2 million
for the three-month period ended February 28, 2018, representing an
increase of $4.0 million, or $0.1 million excluding stock-based
compensation and the legal settlement. The increase of $4.0 million
was primarily due to the legal settlement expense which amounted to
$4.0 million compared to nil for the three-month period ended
February 28, 2018. Other variances were attributable to higher
employee related expenses of $0.4 million associated with an
increased number of employees, offset by lower legal, accounting
and other professional fees of $0.1 million and by lower other
general operating expenses of $0.2 million. Stock-based
compensation expense for the three-month period ended February 28,
2019 amounted to $0.6 million compared to $0.8 million for the
three-month period ended February 28, 2018, representing an
increase of $0.2 million. The decrease was mainly attributable the
timing of certain stock awards provided to executives.
Depreciation
and amortization for the three-month period ended February 28, 2019
totaled $0.14 million compared to $0.09 million for the three-month
period ended February 28, 2018, representing an increase of $0.05
million. The increase is mainly attributable to an increase in the
amount of fixed assets held at the Company’s pilot plant and
corporate offices. Impairment of intangible assets for the
three-month period ended February 28, 2019 totaled $0.3 million
compared to nil for the three-month period ended February 28, 2018,
representing an increase of $0.3 million. The increase is entirely
attributable to the write-off of the remaining intangible asset
balance of the GEN I technology of $0.3 million.
Interest
and other finance costs for the year three-month period ended
February 28, 2019 totaled $0.4 million compared to a negligible
amount for the three-month period ended February 28, 2018,
representing an increase of $0.4 million. The increase is mainly
attributable to an increase in interest expense relating to the
convertible notes issued during the year in the amount of $0.1
million, an increase in accretion expense also relating to the
convertible notes issued during the year in the amount of $0.2
million, an increase in the amortization of deferred financing
costs also related to the convertible notes issued during the year
in the amount of $0.05 million and an increase in the revaluation
expense of the November 2018 Warrants in the amount of $0.07
million.
22
The
following table summarizes our operating results for the years
ended February 28, 2019 and 2018, in U.S. Dollars.
|
|
Years
Ended February 28,
|
||
|
|
2019
|
2018
|
$
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
1,160,254
|
3,601,336
|
(2,441,082
)
|
|
Other
research and development
|
2,288,293
|
3,093,442
|
(805,149
)
|
|
Total
research and development
|
3,448,547
|
6,694,778
|
(3,246,231
)
|
|
|
|
||
|
General
and administrative
|
|
|
|
|
Stock-based
compensation
|
2,824,902
|
2,945,978
|
(121,076
)
|
|
Legal
settlement
|
4,041,627
|
-
|
4,041,627
|
|
Other general
and administrative
|
5,986,336
|
3,914,645
|
2,071,691
|
|
Total general
and administrative
|
12,852,865
|
6,860,623
|
5,992,242
|
|
|
|
||
|
Depreciation and
amortization
|
502,996
|
367,176
|
135,820
|
|
Impairment of
intangible assets
|
298,694
|
-
|
298,694
|
|
Interest and other
finance costs
|
467,082
|
5,125
|
461,957
|
|
Foreign
exchange loss (gain)
|
(33,773
)
|
109,676
|
(143,449
)
|
|
Total
operating expenses
|
17,536,411
|
14,037,378
|
3,499,033
|
|
Net
loss
|
$
(17,536,411
)
|
$
(14,037,378
)
|
$
(3,499,033
)
|
Fiscal Year Ended February 28, 2019
The net
loss for the year ended February 28, 2019 increased by $3.5
million, to $17.5 million, as compared to the net loss for the year
ended February 28, 2018 which was $14.0 million. The increase is
primarily explained by higher general and administrative expenses
of $6.0 million, an increase in depreciation and amortization and
impairment of intangible assets of $0.4 million, an increase in
interest and other finance costs of $0.5 million, offset by lower
research and development expenses of $3.3 million and foreign
exchange of $0.1 million.
Research
and development expenses for year ended February 28, 2019 amounted
to $3.5 million compared to $6.7 million for the year ended
February 28, 2018, representing a decrease of $3.2 million, or $0.8
million excluding stock-based compensation. The decrease of $0.8
million was primarily attributable to lower employee related
expenses of $0.2 million as well as lower professional fees of $0.6
million. The decrease in non-cash stock-based compensation expense
of $2.4 million was attributable to a one-time charge in the prior
year corresponding to stock options that fully vested upon their
issuance in the third quarter of fiscal 2018.
General
and administrative expenses for the year ended February 28, 2019
totaled $12.9 million compared to $6.9 million for the year ended
February 28, 2018, representing an increase of $6.0 million, or
$2.1 million excluding stock-based compensation and the legal
settlement. The increase of $6.0 million was primarily attributable
to the legal settlement expense which amounted to $4.0 million
compared to nil for the three-month period ended February 28, 2018.
Other variances were attributable to higher employee related
expenses of $1.0 million as well as higher legal fees of $1.0
million, which was related to the defense and subsequent settlement
of litigation that had been brought against the Company, and to
higher Directors’ and Officers’ insurance of $0.3
million. Stock-based compensation expense for the year ended
February 28, 2019 amounted to $2.8 million compared to $2.9 million
for the year ended February 28, 2018, representing a decrease of
$0.1 million. The decrease was mainly attributable to the timing of
certain stock awards provided to executives.
Depreciation
and amortization for the year ended February 28, 2019 totaled $0.5
million compared to $0.4 million for the year ended February 28,
2018, representing an increase of $0.1 million. The increase is
mainly attributable to an increase in the amount of fixed assets
held at the Company’s pilot plant and corporate offices.
Impairment of intangible assets for the year ended February 28,
2019 totaled $0.3 million compared to nil for the year ended
February 28, 2018, representing an increase of $0.3 million. The
increase is mainly attributable to the write-off of the remaining
intangible asset balance of the GEN I technology of $0.3 million
and a $0.1 million increase due to additions of capital assets in
the pilot plant for research and development.
Interest
and other finance costs for the year ended February 28, 2019
totaled $0.5 million compared to a negligible amount for the year
ended February 28, 2018, representing an increase of $0.5 million.
The increase is mainly attributable to increased interest costs on
the long-term debt, which was used to acquire the land and building
of our pilot plant and executive offices, in the amount of $0.05
million, an increase in interest expense relating to the
convertible notes issued during the year in the amount of $0.1
million, an increase in accretion expense also relating to the
convertible notes issued during the year in the amount of $0.2
million, an increase in the amortization of deferred financing
costs also related to the convertible notes issued during the year
in the amount of $0.05 million and an increase in the revaluation
expense of the November 2018 Warrants in the amount of $0.07
million.
23
LIQUIDITY AND CAPITAL RESOURCES
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 February 28, 2019, we
had cash on hand of $5.8 million. Subsequent to the year end, on
March 1, 2019, we completed a registered direct offering for net
proceeds of approximately $4.2 million.
Management continues to be positive about our growth strategy and
is evaluating our financing plans to continue to raise capital to
finance the start-up of commercial operations and continue to fund
the further development of our ongoing operations.
As reflected in the accompanying consolidated financial statements,
we are a development stage company, we have not yet begun
commercial operations and we do not have any sources of revenue.
During the year ended February 28, 2019, we incurred a net loss of
$17.5 million, used cash in operations of $7.6 million and had an
accumulated deficit as at February 28, 2019 of $38,811,592, all of
these factors raise substantial doubt about our ability to continue
as a going concern. There can be no assurance that any future
financing will be available or, if available, that it will be on
terms that are satisfactory to us.
As at February 28, 2019, we have a long-term debt obligation to a
Canadian bank in connection with the purchase, in Fiscal 2018, of
the land and building where our pilot plant and corporate offices
are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada
J6Y 1Y4. On January 24, 2018, the Company obtained a CDN$1,400,000
20-year term instalment loan (the “Loan”), from a
Canadian bank. The Loan bears interest at the bank’s Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in
monthly payments of CDN $5,833 plus interest, until January 2021,
at which time it will be subject to renewal. It includes an option
allowing for the prepayment of the Loan without
penalty.
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the years ended February 28, 2019, 2018
and 2017 was as follows:
|
|
Years Ended
February 28
|
||
|
|
2019
|
2018
|
2017
|
|
Net cash used in
operating activities
|
$
(7,562,487
)
|
$
(6,391,486
)
|
$
(2,833,490
)
|
|
Net cash used in
investing activities
|
(2,046,119
)
|
(2,798,372
)
|
(513,022
)
|
|
Net cash provided
by financing activities
|
7,328,024
|
16,504,451
|
3,986,016
|
|
Effect of exchange
rate changes on cash
|
(35,741
)
|
(81,367
)
|
(145,603
)
|
|
Net (decrease)
increase in cash
|
$
(2,316,323
)
|
$
7,233,226
|
$
493,901
|
Net Cash Used in Operating Activities
During
the year ended February 28, 2019, we used $7.6 million in
operations compared to $6.4 million during the year ended February
28, 2018 and $2.8 million during the year ended February 28, 2017.
The increase over each year is mainly due to increased operating
expenses as we move to the next phase of
commercialization.
Net Cash Used in Investing Activities
During
the year ended February 28, 2019, we made capital asset investments
of $2.1 million of which $1.9 million was mainly attributable to
the expansion and additions to our pilot plant and executive
offices in Terrebonne, Canada. We also invested $0.2 million in our
intellectual property as we developed, during the year ended
February 28, 2019, our next generation GEN II technology and filed
various patents in various jurisdictions around the world which
await approval.
Net Cash Provided by Financing Activities
During
the year ended February 28, 2019, we raised $7.3 million mainly
through the sale of two separate issuances of convertible notes, in
the gross amounts of $2.7 million and $4.9 million, respectively.
We also made payments totaling $0.1 million against our long-term
debt, representing the loan agreement we entered into during the
year ended February 28, 2018 to purchase the land and building of
our pilot plant and executive offices. During the year ended
February 28, 2018, we raised $15.7 million through the sale of
additional common stock and the exercise of warrants.
On
January 24, 2018, in connection with the purchase of land and the
building, Company obtained a credit facility from a Canadian bank
in the amount of CDN$1,400,000. 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. Interest paid amounted to $54,040 during the year ended
February 28, 2019 (2018 - $5,125; 2017 - nil). The credit facility
is secured by a first ranking hypothec of Loop Canada Inc.’s
bank accounts, receivables, inventory, incorporeal rights and
property, plant and equipment. In addition, Loop Industries, Inc.,
Loop Canada Inc.’s parent company, has guaranteed the credit
facility and has provided a postponement of any payments that may
be made on intercompany loan amounts owed by Loop Canada Inc. to
Loop Industries, Inc. The terms of the credit facility require the
Company to comply with certain financial covenants. As at February
28, 2019 and 2018, the Company was in compliance with its financial
covenants.
24
OUTLOOK
In connection with the upcoming fiscal year ending February 28,
2020, we intend to continue to execute our corporate strategy. We
believe we must execute on several areas of our operational
strategic plan, namely:
●
Raising
sufficient funds to finance our operations, including through the
issuance of debt and/or equity;
●
Vigorously
protecting our intellectual property;
●
Continuing
to upgrade our pilot plant to ensure the highest quality of
sustainable Loop™ PET plastic resin and polyester fiber is
produced at the facility;
●
Identifying
and securing feedstock to ensure our facilities can operate
continuously and efficiently;
●
Continuing
to execute brand and other partnership and/or commercial agreements
with our customers; and
●
Continuing
to drive the development of our WtR™ solution, which we
believe is a key pillar of our ambition to license our technology
to potential commercial partners.
Risks that may affect our ability to execute on this strategy
include, but are not limited to, those listed under “Risk
Factors” elsewhere in this Annual Report.
OFF-BALANCE SHEET ARRANGEMENTS
As at
February 28, 2019, we did not have any off-balance sheet
arrangements as defined in the rules and regulations of the
SEC.
As at
February 28, 2019, we did not have any significant lease
obligations to third parties.
As at
February 28, 2019, we have a long-term debt obligation to a
Canadian bank in connection with the purchase, in Fiscal 2018, of
the land and building where our pilot plant and corporate offices
are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada
J6Y 1Y4. On January 24, 2018, the Company obtained a CDN$1,400,000
20-year term instalment loan (the “Loan”), from a
Canadian bank. The Loan bears interest at the bank’s Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in
monthly payments of CDN $5,833 plus interest, until January 2021,
at which time it will be subject be renewal. It includes an option
allowing for the prepayment of the Loan without
penalty.
25
CRITICAL 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 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 the fair value of convertible
notes and related warrants.
Intangible assets
Intangible
assets are recorded at cost and are amortized over their estimated
useful lives, unless the useful life is indefinite, using the
straight-line method over 7 years.
The
Company reviews intangible assets subject to amortization at least
annually to determine if any adverse conditions exist or a change
in circumstances has occurred that would indicate impairment or a
change in the remaining useful life. If the carrying value of an
asset exceeds its undiscounted cash flows, the Company writes down
the carrying value of the intangible asset to its fair value in the
period identified. If the carrying value of assets is determined
not to be recoverable, the Company records an impairment loss equal
to the excess of the carrying value over the fair value of the
assets. The Company’s estimate of fair value is based on the
best information available, in the absence of quoted market prices.
The Company generally calculates fair value as the present value of
estimated future cash flows that the Company expects to generate
from the asset using an undiscounted cash flow income approach as
described above. If the estimate of an intangible asset’s
remaining useful life is changed, the Company amortizes the
remaining carrying value of the intangible asset prospectively over
the revised remaining useful life.
Stock-Based Compensation
We
periodically issue stock options to employees and non-employees in
non-capital raising transactions for services and financing costs.
We account for stock options granted to employees based on the
authoritative guidance provided by the Financial Accounting
Standards Board (“FASB”) wherein the fair value of the
award is measured on the grant date and where there are not
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 has been met.
We
account for stock options granted to non-employees in accordance
with the authoritative guidance of the FASB wherein the fair value
of the stock-based 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
fair value of our stock option grants is determined using the
Black-Scholes-Merton Option Pricing model, which uses certain
assumptions related to risk-free interest rates, expected
volatility, expected life of the warrants, and future dividends.
Compensation expense is recorded based upon the value derived from
the Black-Scholes-Merton Option Pricing model and based on actual
experience. The assumptions used in the Black-Scholes-Merton Option
Pricing model could materially affect compensation expense recorded
in future periods.
26
Convertible notes
Distinguishing Liabilities from Equity Instruments
Issued
The
Company applies the guidance in ASC Topic 480 to determine the
classification of financial instruments issued. The Company first
determines if the instruments should be classified as liabilities
under this guidance based on the redemption features, if
mandatorily redeemable or not, and the method of redemption, if in
cash, a variable number of shares or a fixed number of
shares.
If the
terms proved that an instrument is mandatorily redeemable in cash,
or the holder can compel a settlement in cash, or will be settled
in a variable number of shares predominantly based on a fixed
monetary amount, the instrument is generally classified as a
liability. Instruments that are settled by issuing a fixed number
of shares are generally classified as equity
instruments.
In some
cases, the instruments issued contain settlement features that
differ depending upon the prevailing price of the Company’s
shares at the date of settlement. Depending on the share price, the
instrument will be settled either in a manner consistent with ASC
Topic 480 liability treatment, by issuing a variable number of
shares based on a fixed monetary amount, or in a manner consistent
with ASC Topic 480 treatment for an equity instrument, by issuing a
fixed number of shares if the share price is above or below certain
levels. In these cases, the Company assesses the likelihood of the
various possible settlement outcomes at the inception of the
instrument. The classification of the instrument is based on the
outcome that is more likely than not to occur. Factors that the
Company considers in evaluating the likelihood of the outcomes
include:
●
The terms of the
instrument, including its maturity date and the formula for
adjustments to the range;
●
The volatility of
the Company’s stock;
●
The relationship
between the price of the Company’s stock on the inception
date and fixed prices or ranges the low and high end of the
original range; and
●
Historical and
expected dividend levels.
When
warrants or similar instruments are issued, the Company applies the
guidance in ASC Topic 815 to determine if the warrants should be
classified as equity instruments or as derivative instruments.
Generally, warrants that are both indexed to the Company’s
own stock and that would be classified as equity instruments are
not classified as derivative instruments under this guidance. A key
element to consider in determining if a warrant would be considered
indexed to the Company’s own stock is if the warrants
settlement amount is equal to the difference between the fair value
of a fixed number of equity shares and a fixed monetary amount.
This criterion is sometimes known as the “fixed-for
fixed” criteria. In cases where the fixed for fixed criteria
are not met, the warrants are classified as derivative
instruments.
Convertible
liabilities are also assessed to determine if they contain a
beneficial conversion feature. 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. A BCF related to the issuance of a convertible note is
recorded as equity at its intrinsic value at the issue
date.
Initial measurement
Instruments
are initially measured at fair value. If multiple instruments are
issued together, the aggregate proceeds are allocated first to
derivative instruments or any instrument that will be subsequently
accounted for at fair value and the remainder is to the allocated
to the various instruments based on their relative fair
value.
Subsequent measurement
Instruments
initially classified as liabilities are subsequently measured at
the present value of the amount to be paid, either in cash or by
issuing a variable number of shares based on a fixed monetary
amount, and at settlement, accruing interest cost using the rate
implicit at inception.
Derivative
instruments are recorded at fair value at each reporting period and
the variations in fair value are recorded in the consolidated
statements of operations and comprehensive loss.
Deferred financing costs and other transaction costs
Deferred
financing costs represent commitment fees, legal fees and other
costs associated with obtaining commitments for financing. These
fees are amortized as a component of interest expense over the
terms of the respective financing agreements, including convertible
notes, on a straight-line basis. Unamortized deferred financing
fees are expensed in full when the associated debt is refinanced or
repaid before maturity. Costs incurred in seeking financial
transactions that do not close are expensed in the period in which
it is determined that the financing will not be successful.
Deferred financing fees are deducted from their related liabilities
on the balance sheet.
Transaction
costs associated with the equity portion of convertible notes are
reflected as a charge to deficit or as a reduction of accumulated
paid-in-capital. The cost of issuing equity is reflected as a
reduction of accumulated paid-in-capital.
27
Foreign Currency Translations and Transactions
The
accompanying consolidated financial statements are presented in
U.S. dollars, the functional 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 and loss (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently has not engaged in any currency
hedging activities.
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
The
Company currently has not engaged in any currency hedging
activities.
The
following table summarizes the exchange rates used:
|
|
Years Ended
February 28
|
||
|
|
2019
|
2018
|
2017
|
|
Period end Canadian
$: US Dollar exchange rate
|
$
0.76
|
$
0.78
|
$
0.75
|
|
Average period
Canadian $: US Dollar exchange rate
|
$
0.76
|
$
0.78
|
$
0.76
|
Expenditures
are translated at the average exchange rate for the period
presented.
See
Notes to the consolidated financial statements included elsewhere
in this Form 10-K for management’s discussion of recently
issued accounting pronouncements.
I
TEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant
to SEC Release No. 33-8876, we are permitted to use the scaled
disclosure requirements applicable to a “smaller reporting
company,” as defined in Rule 12b-2 of the Exchange Act, and
therefore, we are not required to provide the information called
for by this Item.
28
I
TEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Loop Industries, Inc.
February 28, 2019
Index to the Consolidated Financial Statements
|
Contents
|
Page(s)
|
|
|
|
|
Reports of Independent Registered Public Accounting
Firm
s
|
F-1
|
|
|
|
|
Consolidated
balance sheets as at February 28, 2019 and 2018
|
F-4
|
|
|
|
|
Consolidated
statements of operations and comprehensive loss for the years ended
February 28, 2019 and 2018
|
F-5
|
|
|
|
|
Consolidated
statement of changes in stockholders’ equity for the years
ended February 28, 2019 and 2018
|
F-6
|
|
|
|
|
Consolidated
statement of cash flows for the years ended February 28, 2019 and
2018
|
F-8
|
|
|
|
|
Notes
to the consolidated financial statements
|
F-9
|
29
F-1
F-2
F-3
Loop Industries, Inc.
Consolidated Balance Sheets
(in United States dollars)
|
|
As at February 28,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash
|
$
5,833,390
|
$
8,149,713
|
|
Sales
tax, tax credits and other receivables (Note 2)
|
599,000
|
364,634
|
|
Prepaid
expenses
|
226,521
|
511,573
|
|
Total current
assets
|
6,658,911
|
9,025,920
|
|
Property,
plant and equipment, net (Note 3)
|
5,371,263
|
4,036,903
|
|
Intangible assets,
net (Note 4)
|
127,672
|
332,740
|
|
Total
assets
|
$
12,157,846
|
$
13,395,563
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable and accrued liabilities
|
$
2,670,233
|
$
1,983,072
|
|
Convertible
notes (Note 7)
|
5,636,172
|
-
|
|
Warrants
(Note 7)
|
219,531
|
-
|
|
Current
portion of long-term debt (Note 6)
|
53,155
|
54,649
|
|
Total
current liabilities
|
8,579,091
|
2,037,721
|
|
Long-term
debt (Note 6)
|
952,363
|
1,033,777
|
|
Total
liabilities
|
9,531,454
|
3,071,498
|
|
|
|
|
|
Contingencies
(Note 15)
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
Series
A Preferred stock par value $0.0001; 25,000,000 shares authorized;
one share issued and outstanding (Note 9)
|
-
|
-
|
|
Common stock par value $0.0001; 250,000,000 shares
au
thorized; 33,805,706 shares issued and outstanding (2018
– 33,751,088) (Note 9)
|
3,381
|
3,376
|
|
Additional
paid-in capital (Note 10)
|
38,966,208
|
30,964,970
|
|
Additional
paid-in capital – Warrants (Note 7)
|
757,704
|
-
|
|
Additional
paid-in capital - Beneficial conversion feature (Note
7)
|
1,200,915
|
-
|
|
Common stock
issuable, 1,000,000 shares (Note 8)
|
800,000
|
800,000
|
|
Accumulated
deficit
|
(38,811,592
)
|
(21,275,181
)
|
|
Accumulated
other comprehensive loss
|
(290,224
)
|
(169,100
)
|
|
Total
stockholders' equity
|
2,626,392
|
10,324,065
|
|
Total
liabilities and stockholders' equity
|
$
12,157,846
|
$
13,395,563
|
|
|
|
|
|
Going
Concern (Note 1)
|
|
|
See accompanying notes to the consolidated financial
statements
.
F-4
Loop Industries, Inc.
Consolidated Statements of Operations and Comprehensive
Loss
(in United States dollars)
|
|
Years
Ended February 28,
|
||
|
|
2019
|
2018
|
2017
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
Expenses -
|
|
|
|
|
Research
and development (Note 2)
|
3,448,547
|
6,694,778
|
1,454,440
|
|
General
and administrative
|
8,811,237
|
6,860,623
|
2,280,281
|
|
Legal
settlement (Note15)
|
4,041,627
|
-
|
-
|
|
Depreciation
and amortization (Notes 3 and 4)
|
502,997
|
367,176
|
397,445
|
|
Impairment
of intangible assets (Note 4)
|
298,694
|
-
|
-
|
|
Interest
and other finance costs (Note 7)
|
467,082
|
5,125
|
-
|
|
Foreign
exchange loss (gain)
|
(33,773
)
|
109,676
|
(18,165
)
|
|
Total
operating expenses
|
17,536,411
|
14,037,378
|
4,114,001
|
|
|
|
|
|
|
Net
loss
|
(17,536,411
)
|
(14,037,378
)
|
(4,114,001
)
|
|
|
|
|
|
|
Other
comprehensive loss -
|
|
|
|
|
Foreign
currency translation adjustment
|
(121,124
)
|
(17,889
)
|
(157,142
)
|
|
Comprehensive
loss
|
$
(17,657,535
)
|
$
(14,055,267
)
|
$
(4,271,143
)
|
|
Loss
per share
|
|
|
|
|
Basic
and diluted
|
$
(0.52
)
|
$
(0.43
)
|
$
(0.13
)
|
|
Weighted
average common shares outstanding
|
|
|
|
|
Basic
and diluted
|
33,795,600
|
32,642,741
|
31,102,004
|
See accompanying notes to the consolidated financial
statements.
F-5
Loop Industries, Inc.
Consolidated Statement of Changes in Stockholders’
Equity
For the Years Ended February 28, 2019, 2018 and
2017
(in United States dollars)
|
|
Common
stock
|
Preferred
stock
|
|
||||||||
|
|
par
value $0.0001
|
par
value $0.0001
|
|
||||||||
|
|
Number
of Shares
|
Amount
|
Number
of Shares
|
Amount
|
Additional
Paid-in Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common
Stock Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 29, 2016
|
29,910,800
|
$
2,992
|
1
|
$
-
|
$
3,918,356
|
$
-
|
$
-
|
$
614,001
|
$
(3,123,802
)
|
$
5,931
|
$
1,417,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common shares for cash
|
1,275,340
|
128
|
-
|
-
|
3,825,888
|
-
|
-
|
-
|
-
|
-
|
3,826,016
|
|
Reclassification
of common shares issuable to shares outstanding
|
204,667
|
20
|
-
|
-
|
613,981
|
-
|
-
|
(614,001
)
|
-
|
-
|
-
|
|
Warrants
issued for services
|
|
|
-
|
-
|
135,673
|
-
|
-
|
-
|
-
|
-
|
135,673
|
|
Cancellation
of shares issued for services and as a
settlement
|
(200,000
)
|
(20
)
|
-
|
-
|
20
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of
common shares upon exercise of warrants for
cash
|
200,000
|
20
|
-
|
-
|
159,980
|
-
|
-
|
-
|
-
|
-
|
160,000
|
|
Issuance of
shares for services
|
23,166
|
2
|
-
|
-
|
69,496
|
-
|
-
|
-
|
-
|
-
|
69,498
|
|
Issuance of
shares upon cashless exercise of warrants
|
38,000
|
4
|
-
|
-
|
(4
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Fair value of
issuable shares for services-officer
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
800,000
|
-
|
-
|
800,000
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(157,142
)
|
(157,142
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,114,001
)
|
-
|
(4,114,001
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2017
|
31,451,973
|
3,146
|
1
|
-
|
8,723,390
|
-
|
-
|
800,000
|
(7,237,803
)
|
(151,211
)
|
2,137,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
common shares for cash, net of share issuance
costs
|
1,829,061
|
183
|
-
|
-
|
14,052,298
|
-
|
-
|
-
|
-
|
-
|
14,052,481
|
|
Stock options
issued for services (Note 10)
|
-
|
-
|
-
|
-
|
6,281,319
|
-
|
-
|
-
|
-
|
-
|
6,281,319
|
|
Restricted
stock units issued for services
(Note
10)
|
-
|
-
|
-
|
-
|
265,994
|
-
|
-
|
-
|
-
|
-
|
265,994
|
|
Issuance of
shares upon exercise of warrants for cash (Note
9)
|
355,020
|
35
|
-
|
-
|
1,641,981
|
-
|
-
|
-
|
-
|
-
|
1,642,016
|
|
Issuance of
shares upon cashless exercise of warrants (Note
9)
|
115,034
|
12
|
-
|
-
|
(12
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(17,889
)
|
(17,889
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
|
-
|
-
|
-
|
(14,037,378
)
|
-
|
(14,037,378
)
|
F-6
|
|
Common
stock
par
value $0.0001
|
Preferred
stock
par
value $0.0001
|
|
|
|
|
|
|
|
||
|
|
Number
of Shares
|
par
value $0.0001
|
Number
of Shares
|
Amount
|
Additional
Paid-in Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common
Stock Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
Balance, February 28, 2018
|
33,751,088
|
3,376
|
1
|
-
|
30,964,970
|
-
|
-
|
800,000
|
(21,275,181
)
|
(169,100
)
|
10,324,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of
shares upon cashless exercise of warrants (Note
9)
|
18,821
|
2
|
-
|
-
|
(2
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of
shares upon vesting of restricted stock units (Note
9)
|
35,797
|
3
|
-
|
-
|
(3
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock options
issued for services (Note 10)
|
-
|
-
|
-
|
-
|
3,176,786
|
-
|
-
|
-
|
-
|
-
|
3,176,786
|
|
Restricted
stock units issued for services (Note 10
|
-
|
-
|
-
|
|
808,374
|
-
|
-
|
-
|
-
|
-
|
808,374
|
|
Legal
settlement (Note 15)
|
-
|
-
|
-
|
-
|
4,041,627
|
-
|
-
|
-
|
-
|
-
|
4,041,627
|
|
Issuance of
Convertible notes (Note 7)
|
-
|
-
|
-
|
-
|
(25,544
)
|
757,704
|
1,200,915
|
-
|
-
|
-
|
1,933,075
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(121,124
)
|
(121,124
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,536,411
)
|
|
(17,536,411
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2019
|
33,805,706
|
$
3,381
|
1
|
$
-
|
$
38,966,208
|
757,704
|
1,200,915
|
$
800,000
|
$
(38,811,592
)
|
$
(290,224
)
|
$
2,626,392
|
See accompanying notes to the consolidated financial
statements.
F-7
Loop Industries, Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
|
|
Years
Ended February 28,
|
||
|
|
2019
|
2018
|
2017
|
|
Cash Flows from Operating Activities
|
|
|
|
|
Net
loss
|
$
(17,536,411
)
|
$
(14,037,378
)
|
$
(4,114,001
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation
and amortization
|
502,997
|
367,176
|
397,445
|
|
Impairment
of intangible assets
|
298,694
|
-
|
-
|
|
Warrants
issued for legal settlement
|
2,271,627
|
-
|
-
|
|
Shares
issued for legal settlement
|
1,770,000
|
-
|
69,498
|
|
Stock
options issued for services
|
3,176,786
|
6,281,319
|
135,673
|
|
Restricted
stock units issued for services
|
808,374
|
265,994
|
-
|
|
Common
stock issuable for services
|
-
|
-
|
800,000
|
|
Accrued
interest
|
109,804
|
-
|
-
|
|
Loss
on revaluation of warrants
|
65,167
|
-
|
-
|
|
Convertible
notes debt discount amortization
|
185,505
|
-
|
-
|
|
Amortization
of deferred financing costs
|
47,123
|
-
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Valued
added tax and tax credits receivable
|
(234,366
)
|
(218,560
)
|
(94,336
)
|
|
Prepaid
expenses
|
285,052
|
(511,573
)
|
36,129
|
|
Accounts
payable and accrued liabilities
|
687,161
|
1,821,536
|
(201,544
)
|
|
Advances
from majority stockholder
|
-
|
(360,000
)
|
137,646
|
|
Net
cash used in operating activities
|
(7,562,487
)
|
(6,391,486
)
|
(2,833,490
)
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
Additions
to property, plant and equipment
|
(1,892,654
)
|
(2,710,053
)
|
(513,022
)
|
|
Additions
to intangible assets
|
(153,465
)
|
(88,319
)
|
-
|
|
Net
cash used in investing activities
|
(2,046,119
)
|
(2,798,372
)
|
(513,022
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
Proceeds
from sales of common shares and exercise of warrants, net of share
issuance costs
|
-
|
15,694,497
|
3,986,016
|
|
Repayment
of advances from majority stockholder
|
-
|
(278,472
)
|
-
|
|
Proceeds
from issuance of long-term debt
|
7,550,000
|
1,092,980
|
-
|
|
Share
issue expenses
|
(25,544
)
|
-
|
-
|
|
Deferred
financing costs
|
(143,277
)
|
-
|
-
|
|
Repayment
of long-term debt
|
(53,155
)
|
(4,554
)
|
-
|
|
Net
cash provided by financing activities
|
7,328,024
|
16,504,451
|
3,986,016
|
|
|
|
|
|
|
Effect
of exchange rate changes
|
(35,741
)
|
(81,367
)
|
(145,603
)
|
|
Net
change in cash
|
(2,316,323
)
|
7,233,226
|
493,901
|
|
Cash,
beginning of year
|
8,149,713
|
916,487
|
422,586
|
|
Cash,
end of year
|
$
5,833,390
|
$
8,149,713
|
$
916,487
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
Income
tax paid
|
$
-
|
$
-
|
$
-
|
|
Interest
paid
|
$
54,040
|
$
5,125
|
$
-
|
See accompanying notes to the consolidated financial
statements.
F-8
Loop Industries, Inc.
February 28, 2019, 2018 and 2017
Notes to the Consolidated Financial Statements
(in United States dollars except where otherwise
indicated)
1. The Company, Basis of Presentation and Going
Concern
The Company
Loop
Industries, Inc. is a technology and licensing company who owns
patented and proprietary technology that depolymerizes no and low
value waste PET plastic and polyester fiber to its base building
blocks (monomers). The monomers are filtered, purified and
repolymerized to create virgin-quality Loop™ branded PET
plastic resin and polyester fiber suitable for use in food-grade
packaging to be sold to consumer goods companies.
Loop
Industries, Inc. (“Loop Industries” or the
“Company”) was originally incorporated in Nevada in
March 2010 under the name Radikal Phones Inc., which was changed to
First American Group Inc. in October 2010. On
June
29, 2015, Loop Industries, Inc. (then known as First American
Group) completed a reverse acquisition of Loop Holdings, Inc.
(“Loop Holdings”), whereby the Company acquired all of
its outstanding shares of common stock in a share exchange for
approximately 78.1% of the capital of the Company at the
time. The depolymerization business of Loop Holdings became
our sole operating business. On June 22, 2015, the Board of
Directors approved a change in the fiscal year end date from
September 30 to the last day of February. On July 21, 2015, the
Company changed its name to Loop Industries, Inc.
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.” From
October 29, 2015 through April 7, 2017, our common stock was quoted
on the OTCQB tier of the OTC Markets Group Inc. under the stock
symbol “LLPP.” From September 26, 2012 to October 28,
2015, our common stock was quoted on the OTCQB tier of the OTC
Markets Group Inc. under the stock symbol
“FAMG.”
Basis of presentation
These
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
of America (“US GAAP”) and comprise the consolidated
financial position and results of operations of Loop Industries,
Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada
Inc. All subsidiaries are, either directly or indirectly,
wholly-owned subsidiaries of Loop Industries, Inc. (collectively,
the “Company”). The Company also owns, through Loop
Innovations, LLC, a 50% interest in a joint venture, Loop Indorama
Technologies, LLC, which is accounted for under the equity
method.
Prior
to December 31, 2016, 819 Canada was accounted for a variable
interest entity requiring consolidation as Loop Industries, Inc.
was the primary beneficiary of 819 Canada, having the power to
direct its activities. On
December
31, 2016, all employees, assets, liabilities, and operations
pertaining to the Company’s depolymerization business were
transferred to Loop Canada Inc.
Intercompany
balances and transactions are eliminated on
consolidation.
Going Concern
The
accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the
normal course of business.
As
reflected in the accompanying consolidated financial statements, we
are a development stage company, we have not yet begun commercial
operations and we do not have any sources of revenue.
During
the year ended February 28, 2019, the Company incurred a net loss
of $17.5 million (2018 - $14.0 million; 2017 - $4.1 million), used
cash in operations of $7.6 million (2018 - $6.4 million; 2017- $2.8
million) and had an accumulated deficit as at February 28, 2019 of
$38,811,592, all of these factors raise substantial doubt about the
Company’s ability to continue as a going
concern.
At the current stage of its development, Loop is a pre-revenue
company, with its ongoing operations being financed by raising new
equity capital and borrowings. To date, the Company has been
successful in raising capital to finance its ongoing
operations.
As at
February 28, 2019, the Company had cash on hand of $5.8 million.
Subsequent to the year-end, on March 1, 2019, the Company raised
net proceeds of $4.2 million from a single institutional investor
from the sale of 600,000 shares in a registered direct offering
(Note16). Management is evaluating its plans to raise additional
financing, the proceeds from which would be used to finance the
start-up of its joint venture commercial operations, which is
estimated to be between $8,000,000-$10,000,000 and further fund the
development of its technology and new technologies.
There can be no assurance that any future
financing will be available or, if available, that it will be on
terms that are satisfactory to the Company.
The
accompanying consolidated financial statements do not reflect the
adjustments to the carrying values of assets and liabilities and
the reported expenses and balance sheet classifications that would
be necessary if the Company were unable to realize its assets and
discharge its liabilities as a going concern in the normal course
of operations. Such adjustments could be material.
F-9
2. Summary of Significant Accounting Policies
Use of estimates
The
preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for depreciable
lives of property, plant and equipment, intangible assets, analysis
of impairments of recorded intangible assets, accruals for
potential liabilities and assumptions made in calculating the fair
value of stock-based compensation and the fair value of convertible
notes and related warrants.
Fair value of financial instruments
The
Company applies Financial Accounting Standards Board
(“FASB”) Codification (“ASC”) 820,
Fair Value Measurement
,
which defines fair value and establishes a framework for measuring
fair value and making disclosures about fair value measurements.
FASB ASC 820 establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring financial instruments at fair value. Market price
observability is impacted by a number of factors, including the
type of financial instruments and the characteristics specific to
them. Financial instruments with readily available quoted prices or
for which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair
value.
There
are three levels within the hierarchy that may be used to measure
fair value:
|
Level 1
–
|
A
quoted price in an active market for identical assets or
liabilities.
|
|
|
|
|
Level 2
–
|
Significant
pricing inputs are observable inputs, which are inputs that reflect
the assumptions market participants would use in pricing the asset
or liability developed based on market data obtained from
independent sources.
|
|
|
|
|
Level 3
–
|
Significant
pricing inputs are unobservable inputs, which are inputs that
reflect the Company’s own assumptions about the assumptions
market participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances.
|
The
fair value measurements level of an asset or liability within the
fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques
used should maximize the use of observable inputs and minimize the
use of unobservable inputs.
The
valuation methodologies described above may produce a fair value
calculation that may not be indicative of future net realizable
value or reflective of future fair values.
The
fair value of cash and accounts payable and accrued liabilities
approximate their carrying values due to their short-term
maturity.
Convertible notes
Distinguishing Liabilities from Equity Instruments
Issued
The
Company applies the guidance in ASC Topic 480 to determine the
classification of financial instruments issued. The Company first
determines if the instruments should be classified as liabilities
under this guidance based on the redemption features, if
mandatorily redeemable or not, and the method of redemption, if in
cash, a variable number of shares or a fixed number of
shares.
If the
terms proved that an instrument is mandatorily redeemable in cash,
or the holder can compel a settlement in cash, or will be settled
in a variable number of shares predominantly based on a fixed
monetary amount, the instrument is generally classified as a
liability. Instruments that are settled by issuing a fixed number
of shares are generally classified as equity
instruments.
F-10
In some
cases, the instruments issued contain settlement features that
differ depending upon the prevailing price of the Company’s
shares at the date of settlement. Depending on the share price, the
instrument will be settled either in a manner consistent with ASC
Topic 480 liability treatment, by issuing a variable number of
shares based on a fixed monetary amount, or in a manner consistent
with ASC Topic 480 treatment for an equity instrument, by issuing a
fixed number of shares if the share price is above or below certain
levels. In these cases, the Company assesses the likelihood of the
various possible settlement outcomes at the inception of the
instrument. The classification of the instrument is based on the
outcome that is more likely than not to occur. Factors that the
Company considers in evaluating the likelihood of the outcomes
include:
●
The terms of the
instrument, including its maturity date and the formula for
adjustments to the range.
●
The volatility of
the Company’s stock.
●
The relationship
between the price of the Company’s stock on the inception
date and fixed prices or ranges the low and high end of the
original range.
●
Historical and
expected dividend levels.
When
warrants or similar instruments are issued, the Company applies the
guidance in ASC Topic 815 to determine if the warrants should be
classified as equity instruments or as derivative instruments.
Generally, warrants that are both indexed to the Company’s
own stock and that would be classified as equity instruments are
not classified as derivative instruments under this guidance. A key
element to consider in determining if a warrant would be considered
indexed to the Company’s own stock is if the warrants
settlement amount is equal to the difference between the fair value
of a fixed number of equity shares and a fixed monetary amount.
This criterion is sometimes known as the “fixed-for
fixed” criteria. In cases where the fixed for fixed criteria
are not met, the warrants are classified as derivative
instruments.
Convertible
liabilities are also assessed to determine if they contain a
beneficial conversion feature. 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. A BCF related to the issuance of a convertible note is
recorded at is intrinsic value at the issue date.
Initial measurement
Instruments
are initially measured at fair value. If multiple instruments are
issued together, the aggregate proceeds are allocated first to
derivative instruments or any instrument that will be subsequently
accounted for at fair value and the remainder is to the allocated
to the various instruments based on their relative fair
value.
Subsequent measurement
Instruments
initially classified as liabilities are subsequently measured at
the present value of the amount to be paid, either in cash or by
issuing a variable number of shares based on a fixed monetary
amount, and at settlement, accruing interest cost using the rate
implicit at inception.
Derivative
instruments are recorded at fair value at each reporting period and
the variations in fair value recorded in income.
Deferred financing costs and other transaction costs
Deferred
financing costs represent commitment fees, legal fees and other
costs associated with obtaining commitments for financing. These
fees are amortized as a component of interest expense over the
terms of the respective financing agreements, including convertible
notes, on a straight-line basis. Unamortized deferred financing
fees are expensed in full when the associated debt is refinanced or
repaid before maturity. Costs incurred in seeking financial
transactions that do not close are expensed in the period in which
it is determined that the financing will not be successful.
Deferred financing fees related to the liability portion of
Convertible Notes are deducted from their related liabilities on
the balance sheet.
Transaction
costs associated with the equity portion of convertible notes are
reflected as a charge to deficit or as a reduction of accumulated
paid-in-capital. The cost of issuing equity is reflected as a
reduction of accumulated paid-in-capital.
Foreign currency translations and transactions
The
accompanying consolidated financial statements are presented in
U.S. dollars, the functional 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 and loss (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently has not engaged in any currency
hedging activities.
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
F-11
Value added tax and tax credits receivable
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. As at February 28, 2019,
the computed net recoverable sale taxes amounted to $82,992 (2018
– $177,903).
In
addition, Loop Canada 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 year ended February 28, 2019, the
Company recorded $305,592 (2018 – $221,202; 2017 - $148,547)
as a reduction of research and development expenses. During the
year ended February 28, 2019, research and development tax credits
received by the Company from taxation authorities amounted to nil
(2018 – nil; 2017 - $88,080). As at February 28, 2019,
research and development tax credits receivable from taxation
authorities amounted to $410,997 (2018 - $109,298).
Research
and development expenses are also presented net of eligible
government grants from the federal and provincial taxation
authorities. Government grants received during the year ended
February 28, 2019 were $73,581 and government grants receivable at
February 28, 2019 amounted to nil (2018 – $4,000 and $73,581,
respectively; 2017 - nil and nil, respectively).
The
Company is also eligible for non-refundable research and
development tax credits from the federal taxation authorities which
can be used as a reduction of income tax expense in any given year
to the extent the Company has taxable income. The Company has not
had taxable income since inception and has not been able to use
these non-refundable federal research and development tax credits.
During the year ended February 28, 2019, the Company was eligible
for non-cash research and development tax credits in the amount of
$255,975 (2018 - $248,690; 2017 – $25,227).
Property, plant and equipment
Property,
plant and equipment are recorded at cost and are amortized over
their estimated useful lives, unless the useful life is indefinite,
using the straight-line method over the following
periods:
|
Building
|
30
years
|
|
Land
|
Indefinite
|
|
Office
equipment and furniture
|
8
years
|
|
Machinery
and equipment
|
3-8
years
|
|
Building
improvements
|
5
years
|
Costs
related to repairs and maintenance of property, plant and equipment
are expensed in the period in which they are incurred. Upon sale or
disposal, the Company writes off the cost of the asset and the
related amount of accumulated depreciation. The resulting gain or
loss is included in the consolidated statement of operations and
comprehensive loss.
Management
assesses the carrying value of property, plant and equipment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. If there is indication of
impairment, management prepares an estimate of future cash flows
expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount
of the asset, an impairment loss is recognized to write down the
asset to its estimated recoverable value. As at February 28, 2019,
2018 and 2017, the Company determined that there were no indicators
of impairment and did not recognize any impairment of its property,
plant and equipment.
F-12
Intangible assets
Intangible
assets are recorded at cost and are amortized over their estimated
useful lives, unless the useful life is indefinite, using the
straight-line method over 7 years.
The
Company reviews intangible assets subject to amortization at least
annually to determine if any adverse conditions exist or a change
in circumstances has occurred that would indicate impairment or a
change in the remaining useful life. If the carrying value of an
asset exceeds its undiscounted cash flows, the Company writes down
the carrying value of the intangible asset to its fair value in the
period identified. If the carrying value of assets is determined
not to be recoverable, the Company records an impairment loss equal
to the excess of the carrying value over the fair value of the
assets. The Company’s estimate of fair value is based on the
best information available, in the absence of quoted market prices.
The Company generally calculates fair value as the present value of
estimated future cash flows that the Company expects to generate
from the asset using a discounted cash flow income approach as
described above. If the estimate of an intangible asset’s
remaining useful life is changed, the Company amortizes the
remaining carrying value of the intangible asset prospectively over
the revised remaining useful life.
Stock-based compensation
Loop
Industries periodically issues stock options to employees and
non-employees in non-capital raising transactions for services and
financing costs. The Company accounts for stock options granted to
employees based on the authoritative guidance provided by the FASB
wherein the fair value of the award is measured on the grant date
and where there are no performance conditions, recognized as
compensation expense on the straight-line basis over the vesting
period and where performance conditions exist, recognize
compensation expense when it becomes probable that the performance
condition will been 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 years
ended February 28, 2019, 2018 and 2017 amounted to $3.5
million,$6.7 million
and $1.5
million, respectively, and are net of government research and
development tax credits and government grants from the federal and
provincial taxation authorities accrued and recorded during the
year based on qualifying expenditures incurred during the fiscal
year.
Net earnings (loss) per share
The
Company computes net loss per share in accordance with FASB ASC
260,
Earnings Per Share
.
Basic earnings (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted
average number of shares of common stock outstanding during the
year. The Company includes common stock issuable in its
calculation. Diluted earnings (loss) per share is computed by
dividing the net income (loss) applicable to common stockholders by
the weighted average number of common shares outstanding plus the
number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued, using the
treasury stock method. Potential common shares are excluded from
the computation if their effect is antidilutive.
For the
years ended February 28, 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 February 28,
2019, the potentially dilutive securities consisted of 1,962,400
outstanding stock options (2018 – 2,374,581; 2017 –
1,010,000), 402,868 outstanding restricted stock units (2018
– 34,102; 2017 - nil) and 802,469 outstanding warrants (2018
– 140,667; 2017 – 637,670).
F-13
Recently adopted accounting pronouncements
In May
2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic
718) Scope of Modification Accounting
, which amends the
guidance in Topic 718 to clarify when a change to the terms or
conditions of a share-based payment award requires the application
of the guidance in Topic 718. The amendments provide that an entity
shall account for the effects of a modification of a share-based
payment award unless all the following conditions are
met:
a.
The fair value (or
calculated value or intrinsic value, if such an alternative
measurement method is used) of the modified award is the same as
the fair value (or calculated value or intrinsic value, if such an
alternative measurement method is used) of the original award
immediately before the original award is modified. If the
modification does not affect any of the inputs to the valuation
technique that the entity uses to value the award, the entity is
not required to estimate the value immediately before and after the
modification.
b.
The vesting
conditions of the modified award are the same as the vesting
conditions of the original award immediately before the original
award is modified.
c.
The classification
of the modified award as an equity instrument or a liability
instrument is the same as the classification of the original award
immediately before the original award is modified.
For
public business entities, the amendments in this Update are
effective for fiscal years beginning after
December
15, 2017, including interim periods within those fiscal years. The
company adopted ASU 2017-09 on March 1, 2018. The adoption of the
standard had no impact on the consolidated financial
statements.
Recently issued 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 Company does not expect that ASU
2018-02 will have an impact on its consolidated financial
statements.
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 Company does
not expect that ASU 2018-07 will have an impact on its consolidated
financial statements.
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 Company does
not expect that this update will have an impact on its consolidated
financial statements.
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 is
required to adopt these standards effective March 1, 2019, but it
still in the process of determining the quantitative impact on the
Company’s consolidated financial statements. The Company will
elect 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 will
elect to use hindsight in determining the lease term and assessing
impairment of the right-of-use assets.
F-14
3. Property, Plant and Equipment
|
|
As at February 28,
2019
|
||
|
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|
Building
|
$
1,882,665
|
$
(68,596
)
|
$
1,814,069
|
|
Land
|
232,699
|
-
|
232,699
|
|
Building
Improvements
|
383,985
|
(119,889
)
|
264,096
|
|
Machinery and
equipment
|
3,834,338
|
(841,236
)
|
2,993,102
|
|
Office equipment
and furniture
|
117,088
|
(49,791
)
|
67,297
|
|
Outstanding, end of
period
|
$
6,450,775
|
$
(1,079,512
)
|
$
5,371,263
|
|
|
As at February 28,
2018
|
||
|
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|
Building
|
$
1,935,423
|
$
(6,009
)
|
$
1,929,414
|
|
Land
|
239,239
|
-
|
239,239
|
|
Building
Improvements
|
377,253
|
(225,298
)
|
151,955
|
|
Machinery and
equipment
|
2,189,195
|
(536,222
)
|
1,652,973
|
|
Office equipment
and furniture
|
101,756
|
(38,434
)
|
63,322
|
|
Outstanding, end of
period
|
$
4,842,866
|
$
(805,963
)
|
$
4,036,903
|
Depreciation
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$443,146 for the year ended February 28, 2019 (2018 - $303,597;
2017 - $333,866).
In
conjunction with the purchase of the building during the year ended
February 28, 2017 in which the Company previously was a tenant, the
Company performed a review of the useful lives of its property,
plant and equipment. Building improvements, previously classified
as leasehold improvements, have had their useful lives adjusted to
5 years from 3 years. During the year ended February 28, 2018, the
Company recorded an adjustment of $8,000 to reflect the
deceleration of the depreciation.
4. Intangible Assets
On
October 27, 2014, the Company entered into an Intellectual Property
Assignment Agreement with Mr. Hatem Essaddam wherein the Company
purchased a certain technique and method, which was used to develop
the Generation I (“GEN I”) technology, for $445,050
allowing for the depolymerization of polyethylene terephthalate at
ambient temperature and atmospheric pressure. The GEN I technology
patent portfolio has two issued U.S. patents and a pending U.S.
application expected to expire on or around July 2035.
Internationally, we also have an issued patent in Taiwan, an
allowed application in the members of the Gulf Cooperation Council,
and pending patent applications in Argentina, Australia, Brazil,
Canada, China, Eurasia, Europe, Israel, India, Japan, Korea,
Mexico, the Philippines, and South Africa, all expected to expire
on or around July 2036 if granted. At the date of acquisition, the
acquired intangible asset has an estimated useful life of 7 years
and was being amortized on a straight-line basis
In
addition to the $445,050 paid by the Company under the Intellectual
Property Assignment Agreement, the Company is required to make four
additional payments of CDN$200,000, totaling CDN$800,000, to Mr.
Essaddam within sixty (60) days of attaining each of the following
milestones:
●
the average
production of 20 metric tonnes of terephthalic acid by the Company,
as a result of the GEN I technology, for 20 operating
days;
●
the average
production of 30 metric tonnes of terephthalic acid by the Company,
as a result of the GEN I technology, for 30 operating
days;
●
the average
production of 60 metric tonnes of terephthalic acid by the Company,
as a result of the GEN I technology, for 60 operating
days;
●
the average
production of 100 metric tonnes of terephthalic acid by the
Company, as a result of the GEN I technology, for 100 operating
days.
As at
February 28, 2019, none of the milestones had been met, and
accordingly no additional payments have been made.
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.
F-15
As at
February 28, 2019, the Company had not made any royalty payments
under the Intellectual Property Assignment Agreement, referred to
as the GEN I technology.
The Company has determined that it
have no intent of commercializing the GEN I
technology.
During
the year ended February 28, 2019, the Company finalized the
development of its next Generation II (“GEN II”)
technology and has filed various patents in jurisdictions around
the world. On April 9, 2019, the GEN II U.S. patent was formally
approved and issued. The GEN II technology patent portfolio has an
issued U.S. patent and a pending U.S. application expected to
expire on or around September 2037; as well as a PCT application
and non-PCT applications in Argentina, Bangladesh, Bolivia, Bhutan,
members of the Gulf Cooperation Council, Iraq, Pakistan, Taiwan,
Uruguay, and Venezuela, all expected to expire on or around
September 2037 if granted. Additionally, we have three pending
provisional applications directed to additional aspects of the GEN
II technology. Any patents that would ultimately grant from these
provisional applications would be expected to expire no earlier
than 2039 if granted.
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 its GEN I intangible asset, which amounted to
$298,694.
Amortization
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$59,851 for the year ended February 28, 2019 (2018 - $63,579; 2017
- $63,579).
|
|
As at February
28,
|
As at February
28,
|
|
|
2019
|
2018
|
|
|
|
|
|
Intangible assets,
as cost -
beginning of
period
|
$
533,369
|
$
445,050
|
|
Intangible assets,
accumulated depreciation -
beginning of
period
|
(200,629
)
|
(137,050
)
|
|
|
332,740
|
308,000
|
|
|
|
|
|
Add: Additions in
the year
|
153,477
|
88,319
|
|
Deduct:
Amortization of intangibles
|
(59,851
)
|
(63,579
)
|
|
Deduct: Impairment
of intangibles
|
(298,694
)
|
-
|
|
|
$
127,672
|
$
332,740
|
5.
Joint
Venture
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP, USA,
an indirect subsidiary of Indorama Ventures Public Company Limited,
to manufacture and commercialize sustainable polyester resin. Each
company has a 50/50 equity interest in Loop Indorama Technologies,
LLC (“ILT”), which was specifically formed to operate
and execute the joint venture.
Under
the Agreement, Indorama Venture is required to contribute
manufacturing knowledge and Loop is required to contribute its
proprietary science and technology.
Specifically,
the Company will contribute an exclusive world-wide royalty-free
license for ITL to use its proprietary technology to produce 100%
sustainably produced PET resin and polyester fiber.
ITL
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 IVL. As
such, the Company uses the equity method of accounting to account
for its share of the investment in Loop Indorama Technologies, LLC.
As there has been no activity in ILT from the date of inception of
September 24, 2018 to February 28, 2019 and, as at February 28,
2019, no transactions have been recorded in the joint venture
entity, the carrying value of the equity investment is
nil.
During the year ended February 28, 2019, the Company entered into
multi-year supply agreements with PepsiCo, Coca-Cola’s Cross
Entreprise Procurement Group and Danone SA that will enable them to
purchase production capacity from the Company’s joint venture
facility with IVL in the United States, and incorporate Loop™
PET resin into its product packaging starting in 2020.Also during
the year ended February 28, 2019, the Company entered into a
multi-year supply agreement with L’Occitane that will enable
them to purchase production capacity from the Company’s first
European production facility.
On April 18, 2019, Loop Innovations, LLC, a wholly-owned subsidiary
of Loop Industries, Inc. contributed $500,000 to
Loop
Indorama Technologies, LLC, the joint venture with Indorama
Ventures Holdings LP, USA.
F-16
6. Credit Facility and Long-Term Debt
On
January 24, 2018, the Company obtained a credit facility,
consisting of a CDN$50,000 credit card facility and a CDN$1,400,000
20-year term instalment loan (the “Loan”), from a
Canadian bank. The Loan bears interest at the bank’s Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in
monthly payments of CDN $5,833 plus interest, until January 2021,
at which time it will be subject to renewal. It includes an option
allowing for the prepayment of the Loan without penalty. Interest
paid amounted to $54,040 during the year ended February 28, 2019
(2018 - $5,125; 2017 - nil).
The
credit facility is secured by a first ranking hypothec of Loop
Canada Inc.’s bank accounts, receivables, inventory,
incorporeal rights and property, plant and equipment. In addition,
Loop Industries, Inc., Loop Canada Inc.’s parent company, has
guaranteed the credit facility and has provided a postponement of
any payments that may be made on intercompany loan amounts owed by
Loop Canada Inc. to Loop Industries, Inc. The terms of the credit
facility require the Company to comply with certain financial
covenants. As at February 28, 2019 and 2018, the Company was in
compliance with its financial covenants.
|
|
February
28,
2019
|
February
28,
2018
|
|
Instalment
loan
|
$
1,005,518
|
$
1,088,426
|
|
Less current
portion
|
53,155
|
54,649
|
|
Non-current
portion
|
$
952,363
|
$
1,033,777
|
Principal
repayments due on the Loan over the next five years are as
follows:
|
Years ending February 28,
|
Amount
|
|
2020
|
$
53,155
|
|
2021
|
53,155
|
|
2022
|
53,155
|
|
2023
|
53,155
|
|
2024
|
53,155
|
|
Thereafter
|
739,743
|
|
Total
|
$
1,005,518
|
7.
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 Company expects to use the net
proceeds of the November 2018 Private Placement for general
corporate and working capital purposes.
The November 2018 Notes carry an interest rate of 8.00% per annum
and mature on May 13, 2019 and July 3, 2019 (the “November
2018 Maturity Date”), respectively, upon which date the
outstanding principal amount of the November 2018 Notes and all
accrued and unpaid interest shall automatically convert into shares
of the common stock of the Company at the price per share equal to
the lesser of (i) $13.00 and (ii) the average closing price of the
Company’s Common Stock on the Nasdaq stock market for the ten
days preceding the day to the conversion of the November 2018 Notes
(the “November 2018 Conversion Price”). The total
number of shares of Common Stock to be issued upon automatic
conversion shall equal the outstanding principal amount of the
November 2018 Notes and all accrued and unpaid interest on the
November 2018 Notes, divided by the November 2018 Conversion
Price.
The November 2018 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrant Shares”). The per share purchase price (the
“November 2018 Exercise Price”) for each of the
November 2018 Warrant Shares purchasable under the November 2018
Warrants shall be equal to the lesser of (i) $15.00 and (ii) the
average closing price of the Company’s Common Stock on the
Nasdaq stock market for the ten days preceding the day of the
conversion of the November 2018 Notes. The November 2018 Warrants
will be issued upon conversion of the November 2018 Notes. The
November 2018 Warrants expire eighteen (18) months from the date of
the conversion of the November 2018 Notes (the “November 2018
Expiration Date”). The Investors may exercise the November
2018 Warrants at any time prior to the November 2018 Expiration
Date.
F-17
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 aggregate value of the November 2018 Notes and November 2018
Warrants as shown on the consolidated balance sheet are broken down
as follows:
|
|
February
28,
2019
|
Issue
Date
|
|
November 2018
Convertible Notes - Liability
|
$
2,495,636
|
$
2,495,636
|
|
Accrued interest
– Liability
|
60,793
|
-
|
|
Deferred financing
costs
|
(26,557
)
|
(63,738
)
|
|
Total
|
2,529,872
|
2,431,898
|
|
|
|
|
|
November 2018
Warrants - Liability
|
$
219,531
|
$
154,364
|
The
Company recorded an expense upon revaluation of the warrants
between the issue date and February 28, 2019 of $65,167 (2018
– nil; 2017 - nil) and is included in operating expenses. The
Company recorded interest expense on the November 2018 Notes from
the issue date to February 28, 2019 in the amount of $60,793 (2018
– nil; 2017 – nil).
The
transaction costs relating 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.
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 (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 $400,000 (the “January 2019 Private
Placement”). The Company expects to use the net proceeds of
the January 2019 Private Placement for general corporate and
working capital purposes.
The January 2019 Notes carry an interest rate of 8.00% per annum
and mature on January 15, 2020 and January 21, 2020 (the
“January 2020 Maturity Date”), respectively. At the
January 2020 Maturity Date, the outstanding principal amount of the
January 2019 Notes shall automatically convert into shares of the
common stock of the Company at the price per share equal to $8.10
(the “January 2020 Conversion Price”). The January 2020
Conversion Price may be adjusted in the event that the Company
issues common shares in a private sale or offering at a lower price
per share than $8.10 within 180 days of the closing date. The lower
price would become the new conversion price of the January 2019
Notes, which would impact the number of shares that would be
issued. The total number of shares of Common Stock to be issued
upon automatic conversion shall equal the outstanding principal
amount of the January 2019 Notes divided by the January 2020
Conversion Price.
With respect to accrued and unpaid interest at the January 2020
Maturity Date, the Investors have the option of receiving cash or
common stock of the Company at that date. Upon the January 2020
Maturity Date, where the Investor elect’s payment of accrued
and unpaid interest on the January 2019 Notes in common stock, the
price per share shall be equal to the trading price of the common
stock at the close of the market on the date immediately preceding
the January 2020 Maturity Date.
F-18
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. A BCF
related to the issuance of a convertible note is recorded at the
issue date. With the conversion feature on the January 2019 Notes
being “in the money”, the beneficial conversion feature
is measured using the intrinsic value method and is shown as a
discount on the carrying amount of the convertible note and is
credited to additional paid-in capital. The intrinsic value of the
beneficial conversion feature at the issue 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 shown as a
discount on the carrying amount of the convertible note and is
credited to additional paid-in capital. The fair value of the
warrants at the issue date was determined to be
$757,704.
The allocated fair values of the beneficial conversion feature and
the warrants is recorded in the financial statements as a debt
discount from the face amount of the convertible note and such
discount is amortized over the expected term of the convertible
note and is charged to interest expense.
F-19
The aggregate values of the beneficial conversion feature, the
January 2019 Warrants and the January 2019 Notes are broken down as
follows:
|
|
February
28,
2019
|
Issue
Date
|
|
January 2019
Convertible Notes – Liability
|
$
3,126,886
|
$
2,941,381
|
|
Accrued interest -
Liability
|
49,011
|
-
|
|
Deferred financing
costs
|
(69,597
)
|
(79,539
)
|
|
|
3,106,300
|
2,861,842
|
|
|
|
|
|
January 2019
Beneficial Conversion Option – Equity
|
1,200,915
|
1,200,915
|
|
|
|
|
|
January 2019
Warrants – Equity
|
$
757,704
|
$
757,704
|
The
Company recorded accretion expense between the issue date and
February 28, 2019 of $185,505 (2018 – nil; 2017 - nil) and is
included in operating expenses. The Company recorded interest
expense on the January 2019 Notes from the issue date to February
28, 2019 in the amount of $49,011 (2018 – nil; 2017 –
nil).
The
transaction costs relating to this issuance were split pro-rata
between the January 2019 Notes, the beneficial conversion feature
and the January 2019 Warrants. The portion relating to the January
2019 Notes were deferred and are being amortized over the life of
the convertible notes. The portion relating to the beneficial
conversion feature and January 2019 Warrants were recorded as share
issuance expenses and offset against paid-in capital.
8. Related Party Transactions
Advances from majority stockholder
Mr.
Daniel Solomita, the Company’s majority stockholder and CEO,
and companies controlled by him, previously made advances to the
Company totaling $278,472 as at February 28, 2017. The advances
were unsecured, non-interest bearing with no formal terms of
repayment. Also, as at February 28, 2017, accrued compensation
totaling $360,000 was owed to Mr. Solomita. During the year ended
February 28, 2018, the Company paid to Mr. Solomita or companies
controlled by him, as applicable, an aggregate amount of $638,472.
As at February 28, 2019, no amounts were owed to Mr. Solomita or to
companies controlled by him.
Employment Agreement
On June
29, 2015, the Company entered into an employment agreement with Mr.
Daniel Solomita, the Company’s President and Chief Executive
Officer (“CEO”). The employment agreement is for
an indefinite term.
On July
13, 2018, the Company and Mr. Solomita entered into an amendment
and restatement of the employment agreement.
The amended and restated employment agreement
provides for an increase in Mr. Solomita’s base salary and
eligibility to participate in an annual cash bonus subject to
performance measures. Mr. Solomita’s base salary and bonus
opportunity are retroactive effective to March 1, 2018.
For the year ended February 28, 2019, compensation expense
for the Company’s CEO amounted to $798,791 (2018 -$189,540;
2017 - $210,618), inclusive of the retroactive adjustment in
accordance with the employment agreement as amended and restated on
July 13, 2018.
In
addition, the employment agreement provided for a long-term
incentive grant of 4,000,000 shares of the Company’s common
stock, in tranches of one million shares each, upon the achievement
of four performance milestones. This was modified to provide a
grant of 4,000,000 restricted stock units covering 4,000,000 shares
of the Company’s common stock while the performance
milestones remained the same. The Company’s board of
directors approved the grant of the restricted stock units,
effective and contingent upon approval by the Company’s
shareholders at the Company’s 2019 annual meeting, of an
increase in the number of shares available for grant under the
Plan. The restricted stock units vest upon the achievement of
applicable performance milestones, as follows:
i)
1,000,000 shares of
common stock shall be issued to Mr. Solomita when the
Company’s securities are listed on an exchange or the OTCQX
tier of the OTC Markets;
ii)
1,000,000 shares of
common stock shall be issued to Mr. Solomita when the Company
executes a contract for a minimum quantity of 25,000 M/T of PTA/EG
or a PET;
iii)
1,000,000 shares of
common stock shall be issued to Mr. Solomita when the
Company’s first full-scale production facility is in
commercial operation; and
iv)
1,000,000 shares of
common stock shall be issued to Mr. Solomita when the
Company’s second full-scale production facility is in
commercial operation.
During
the year ended February 28, 2017, it became probable that Mr.
Solomita would meet his first milestone. Accordingly, 1,000,000
performance incentive shares of common stock with a fair value of
$800,000 were earned and are issuable to Mr. Solomita. This amount
was reflected as stock-based compensation expense during the year
ended February 28, 2017 based on the grant date fair value. During
the years ended February 28, 2019 and 2018, no other milestones
became probable of being met and, accordingly, the Company did not
record any additional compensation expense.
F-20
9. Stockholders’ Equity
Series A Preferred Stock
On
February 15, 2016, the Company and Mr. Solomita agreed to amend his
employment. The amendment 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 amendment. The amendment effectively provides Mr.
Solomita with a “change of control” provision over the
Company in the event that his currently-held 55.0% of the issued
and outstanding shares of common stock of the Company is diluted to
less than a majority. In order to issue Mr. Solomita his one share
of Series A Preferred Stock under the amendment, the Company
created a “blank check” preferred stock. Subsequently,
the board of directors of the Company approved a Certificate of
Designation creating the Series A Preferred Stock. Subsequently,
the Company issued one share of Series A Preferred Stock to Mr.
Solomita.
The one
share of Series A Preferred Stock issued to Mr. Solomita holds
a majority of the total voting power so long as Mr.
Solomita holds not less than 7.5% of the issued and outstanding
shares of common stock of the Company, assuring Mr. Solomita of
control of the Company in the event that his currently-held 55.0%
of the issued and outstanding shares of common stock of the Company
is diluted to a level below a majority.
Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita
contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomita’s (or that of any
person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of
Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, voting as a
separate class:
(a)
amend the Articles
of Incorporation or, unless approved by the Board of Directors,
including by the Series A Director, amend the Company’s
Bylaws;
(b)
change or modify
the rights, preferences or other terms of the Series A Preferred
Stock, or increase or decrease the number of authorized shares of
Series A Preferred Stock;
(c)
reclassify or
recapitalize any outstanding equity securities, or, unless approved
by the Board of Directors, including by the Series A Director,
authorize or issue, or undertake an obligation to authorize or
issue, any equity securities or any debt securities convertible
into or exercisable for any equity securities (other than the
issuance of stock-options or securities under any employee option
or benefit plan);
(d)
authorize or effect
any transaction constituting a Deemed Liquidation (as defined in
this subparagraph) under the Articles, or any other merger or
consolidation of the Company;
(e)
increase or
decrease the size of the Board of Directors as provided in the
Bylaws of the Company or remove the Series A Director (unless
approved by the Board of Directors, including the Series A
Director);
(f)
declare or pay any
dividends or make any other distribution with respect to any class
or series of capital stock (unless approved by the Board of
Directors, including the Series A Director);
(g)
redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any outstanding shares of capital stock (other
than the repurchase of shares of common stock from employees,
consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the
option to repurchase such shares at no greater than original cost
upon the occurrence of certain events, such as the termination of
employment) (unless approved by the Board of Directors, including
the Series A Director);
(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);
F-21
(j)
transfer assets to
any subsidiary or other affiliated entity (unless approved by the
Board of Directors, including the Series A Director);
(k)
issue, or cause any
subsidiary of the Company to issue, any indebtedness or debt
security, other than trade accounts payable and/or letters of
credit, performance bonds or other similar credit support incurred
in the ordinary course of business, or amend, renew, increase or
otherwise alter in any material respect the terms of any
indebtedness previously approved or required to be approved by the
holders of the Series A Preferred Stock (unless approved by the
Board of Directors, including the Series A Director);
(l)
modify or change
the nature of the Company’s business;
(m)
acquire, or cause a
Subsidiary of the Company to acquire, in any transaction or series
of related transactions, the stock or any material assets of
another person, or enter into any joint venture with any other
person (unless approved by the Board of Directors, including the
Series A Director); or
(n)
sell, transfer,
license, lease or otherwise dispose of, in any transaction or
series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless
approved by the Board of Directors, including the Series A
Director).
Common Stock
|
For
the year ended February 28, 2019
|
Number of
shares
|
Amount
|
|
Balance, February
28, 2018
|
33,751,088
|
$
3,376
|
|
Cashless exercise
of stock options
|
18,821
|
2
|
|
Issuance of shares
upon vesting of restricted stock units
|
35,797
|
3
|
|
Balance, February
28, 2019
|
33,805,706
|
$
3,381
|
|
For
the year ended February 28, 2018
|
Number of
shares
|
Amount
|
|
Balance, February
28, 2017
|
31,451,973
|
$
3,146
|
|
Issuance of shares
for cash
|
1,829,061
|
183
|
|
Cashless exercise
of stock options
|
115,034
|
12
|
|
Issuance of shares
upon exercise of warrants
|
355,020
|
35
|
|
Balance, February
28, 2018
|
33,751,088
|
$
3,376
|
During
the year ended February 28, 2019:
(iii)
the Company issued
18,821 shares of common stock upon the cashless exercise of 20,000
warrants.
(iv)
the Company issued
35,797 shares of common stock upon the vesting of restricted stock
units.
During
the year ended February 28, 2018:
(i)
the
Company sold 1,123,266 shares of its common stock at an offering
price of $5.25 per share, for gross proceeds of
$5,897,188;
(ii)
the
Company sold units consisting of 705,795 shares of its common stock
and 171,917 warrants to acquire common stock at an offering price
of $12.00 per share, for gross proceeds of $8,469,536;
(iii)
the
Company issued 355,020 shares of common stock ranging from $0.80 to
$12.00 per share upon the exercise of warrants, resulting in
proceeds to the Company of $1,642,016; and
(iv)
the
Company issued 115,034 shares upon cashless exercises of 122,919
warrants.
Share
issuance costs for the private placements amounted to $314,243, in
aggregate, and were recorded as a reduction of the gross proceeds
received.
January 2018 Private Placement (the “Private
Placement”)
On
January 9, 2018, the Company commenced a Private Placement Offering
whereby the Company would issue units for $12.00 per unit, with
each unit consisting of one share of common stock and one warrant
to purchase 0.25 shares of common stock at $12.00 per share
exercisable sixty days from the date of closing of the private
placement round in the event that the Company does not file the
Resale Registration Statement or, prior to that date, if the holder
elects to forego its registration rights. The warrant expires one
year from the date of issuance.
The
Purchase Agreement provides the unit holder with certain
registration rights, including resale registration rights, with
respect to the common stock issued in connection with the Private
Placement, as well as shares issuable upon the exercise of the
warrants, and standard anti-dilution protection for a period of
ninety days, following the date of closing of the private placement
round, which in the event the Company issues common stock for
consideration of less than $12.00 per share, allows for an
adjustment to the conversion ratio.
At the
closing of round one of the Private Placement on January 11, 2018,
the Company issued for an aggregate 617,667 common shares and
warrants to purchase up to 154,416 shares of common stock,
resulting in gross proceeds of $7,412,000. On January 22, 2018,
warrants were exercised for 31,250 common shares for total proceeds
of $375,000.
At the
closing of round two of the Private Placement on January 30, 2018,
the Company issued for an aggregate 70,000 common shares and
warrants to purchase up to 17,500 shares of common stock, resulting
in gross proceeds of $840,000. No warrants have been
exercised.
In
April 2018, as the Company did not file the Resale Registration
Statements, the aforementioned warrants to purchase 140,666 common
shares, with an exercise price of $12.00 per share and an
expiration date of no later than January 30, 2019, became
exercisable.
F-22
10. Share-Based Payments
Stock Options
The
following tables summarizes the continuity of the Company’s
stock options during the years ended February 28, 2019 and
2018:
|
|
2019
|
2018
|
||
|
|
Number of stock
options
|
Weighted average
exercise price
|
Number of stock
options
|
Weighted average
exercise price
|
|
Outstanding,
beginning of period
|
2,374,581
|
$
7.99
|
1,010,000
|
$
0.96
|
|
Granted
|
39,902
|
9.67
|
2,310,000
|
9.23
|
|
Exercised
|
(20,000
)
|
0.80
|
(245,034
)
|
0.80
|
|
Forfeited
|
(369,583
)
|
11.49
|
(620,385
)
|
4.97
|
|
Expired
|
(62,500
)
|
4.80
|
(80,000
)
|
0.80
|
|
Outstanding, end of
period
|
1,962,400
|
$
7.53
|
2,374,581
|
$
7.99
|
|
Exercisable, end of
period
|
1,126,664
|
$
7.72
|
841,249
|
$
6.32
|
|
|
2019
|
2018
|
||
|
Exercise
price
|
Number of stock
options outstanding
|
Weighted average
remaining life
|
Number of stock
options outstanding
|
Weighted average
remaining life
|
|
$
0.80
|
582,081
|
6.76
|
602,081
|
7.75
|
|
$
3.00
|
-
|
-
|
12,500
|
0.25
|
|
$
5.25
|
380,000
|
8.50
|
530,000
|
9.49
|
|
$
8.75
|
26,693
|
10.0
|
-
|
-
|
|
$
11.52
|
13,209
|
9.36
|
-
|
-
|
|
$
12.00
|
700,000
|
8.54
|
700,000
|
9.54
|
|
$
13.49
|
193,750
|
0.17
|
250,000
|
9.63
|
|
$
13.89
|
66,667
|
0.01
|
280,000
|
9.69
|
|
Outstanding, end of
period
|
1,962,400
|
6.91
|
2,374,581
|
9.05
|
|
Exercisable, end of
period
|
1,126,664
|
5.99
|
841,249
|
7.67
|
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 principal components of the
pricing model were as follows:
|
|
2019
|
2018
|
2017
|
|
Exercise
price
|
$ 8.75
- 11.52
|
$ 5.25
- 13.89
|
$
3.00
|
|
Risk-free interest
rate
|
2.70% -
2.82%
|
1.46 -
2.15%
|
0.91%
|
|
Expected dividend
yield
|
0%
|
0%
|
0%
|
|
Expected
volatility
|
78%
|
80% to
94%
|
122%
|
|
Expected
life
|
6.5 to
7 years
|
3 to 6
years
|
2
years
|
During
the year ended February 28, 2019, stock-based compensation expense
attributable to stock options amounted to $3,176,786 (2018 -
$6,281,319; 2017 - $135,673) and is included in operating
expenses.
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the years ended February 28, 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
|
34,102
|
$
13.00
|
-
|
$
-
|
|
Granted
|
406,188
|
8.80
|
34,102
|
13.00
|
|
Vested
|
(35,797
)
|
13.06
|
-
|
-
|
|
Forfeited
|
(1,625
)
|
12.31
|
-
|
-
|
|
Outstanding, end of
period
|
402,868
|
$
8.77
|
34,102
|
$
13.00
|
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 closing share price at grant date multiplied
by the number of restricted stock unit awards granted.
During
the year ended February 28, 2019, stock-based compensation
attributable to RSUs amounted to $808,374 (2018 - $265,994; 2017
– nil) and is included in operating expenses.
F-23
11.
Equity Incentive
Plan
On July
6, 2017, the Company adopted the 2017 Equity Incentive Plan (the
“Plan”). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units
to employees, directors and consultants of the Company. A total of
3,000,000 shares of common stock were initially reserved for
issuance under the Plan at July 6, 2017, with annual automatic
share reserve increases, as defined in the Plan, amounting to the
lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares
on the last day of the immediately preceding fiscal year, or (iii)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. The Plan is administered by the
Board of Directors who designates eligible participants to be
included under the Plan, the number of awards granted, the share
price pursuant to the awards and the vesting conditions and period.
The awards, when granted, will have an exercise price of no less
than the estimated fair value of shares at the date of grant and a
life not exceeding 10 years from the grant date. However, where a
participant, at the time of the grant, owns stock representing more
than 10% of the voting power of the Company, the life of the
options shall not exceed 5 years.
The
following table summarizes the continuity of the Company’s
Equity Incentive Plan units during the years ended February 28,
2019 and 2018:
|
|
2019
|
2018
|
|
|
Number of
units
|
Number of
units
|
|
Outstanding,
beginning of period
|
1,735,898
|
-
|
|
Issuance upon
registration
|
-
|
3,000,000
|
|
Automatic share
reserve increase
|
1,500,000
|
-
|
|
Units
granted
|
(446,090
)
|
(1,264,102
)
|
|
Units
forfeited
|
371,208
|
-
|
|
Units
expired
|
62,500
|
-
|
|
Outstanding, end of
period
|
3,223,516
|
1,735,898
|
12. Warrants
|
|
2019
|
2018
|
||
|
|
Number of
warrants
|
Weighted average
exercise price
|
Number of
warrants
|
Weighted average
exercise price
|
|
Outstanding,
beginning of period
|
140,667
|
$
12.00
|
637,670
|
$
6.00
|
|
Issued
|
802,469
|
10.74
|
171,917
|
12.00
|
|
Exercised
|
-
|
-
|
(225,020
)
|
6.83
|
|
Expired
|
(140,667
)
|
12.00
|
(443,900
)
|
6.00
|
|
Outstanding, end of
period
|
802,469
|
$
10.74
|
140,667
|
$
12.00
|
The
expiration dates of the warrants outstanding as at February 28,
2019 are as follows:
|
|
2019
|
|
|
|
Number of
warrants
|
Weighted average
exercise price
|
|
January 15,
2020
|
277,778
|
$
9.32
|
|
January 21,
2020
|
24,691
|
9.32
|
|
February 25,
2021
|
200,000
|
11.00
|
|
February 25,
2021
|
300,000
|
12.00
|
|
Outstanding, end of
period
|
802,469
|
$
10.74
|
F-24
13. Income Taxes
The components of the Company’s loss before taxes are
summarized below:
|
|
Years
ended February 28,
|
||
|
|
2019
|
2018
|
2017
|
|
U.S.
operations
|
$
(8,948,305
)
|
$
(8,509,651
)
|
$
(2,155,934
)
|
|
Foreign
operations
|
(8,588,106
)
|
(5,527,727
)
|
(1,958,067
)
|
|
Loss
before taxes
|
$
(17,536,411
)
|
$
(14,037,378
)
|
$
(4,114,001
)
|
A reconciliation from the statutory U.S. income tax rate and the
Company’s effective income tax rate, as computed on loss
before taxes, is as follows:
|
|
Years ended February 28,
|
||
|
|
2019
|
2018
|
2017
|
|
Statutory
Federal rate (21.0% in 2019; 32.7% in 2018; 35.0% in
2017)
|
|
|
|
|
Federal
income tax at statutory rate
|
$
(3,682,646
)
|
$
(4,585,497
)
|
$
(1,439,900
)
|
|
Effect
of foreign jurisdiction
|
(308,046
)
|
320,769
|
40,018
|
|
Non-deductible
expenses
|
888,749
|
2,169,384
|
(48,326
)
|
|
Tax
credits related to research and development
expenditures
|
(387,326
)
|
(146,757
)
|
-
|
|
Impact
of Tax Cuts and Jobs Act Enactment
|
-
|
876,812
|
-
|
|
Unrecognized
tax benefit of net operating losses and other available
deductions
|
3,489,269
|
1,365,289
|
1,448,208
|
|
Effective
income tax expense
|
$
-
|
$
-
|
$
-
|
|
Current
|
$
-
|
$
-
|
$
-
|
|
Deferred
|
$
-
|
$
-
|
$
-
|
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act
(“U.S. tax reform”) that lowers the statutory tax rate
on U.S. earnings to 21%, taxes historic foreign earnings at a
reduced rate of tax, establishes a territorial tax system and
enacts new taxes associated with global operations.
The impact of enactment of U.S. tax reform was recorded on a
provisional basis as the legislation provides for additional
guidance to be issued by the U.S. Treasury Department on several
provisions including the computation of the transition tax. The
Company’s Controlled Foreign Corporations
(“CFCs”), being Loop Canada Inc. and 9449710 Canada
Inc., were deficit E&T corporations, and as such no income was
recognized by Loop Industries during the year ended February 28,
2019 (2018 – nil; 2017 – nil). No further inclusions
were made during the year ended February 28, 2019 based on guidance
issued during the year. Additional guidance may be issued after
February 28, 2019 and any resulting effects will be recorded at
that time.
Additionally, as part of tax reform, the U.S. has enacted a minimum
tax on foreign earnings (“global intangible low-taxed
income”). The Company has not made an accrual for the
deferred tax aspects of this provision as Loop Industries’
CFCs have suffered net tested losses.
The enactment of U.S. tax reform reduced the corporate tax rate to
21%, effective January 1, 2018, for all corporations. US GAAP
requires the effect of a change in tax laws or rates to be
recognized as of the date of enactment, therefore the Company
revalued its deferred tax assets and liabilities as at December 22,
2017. As a result of the revaluation, the Company recorded a tax
expense of $876,812 during the year ended February 28, 2018, to
reflect the revaluation of deferred taxes. However, as in prior
years, a valuation allowance was provided against the deferred tax
asset.
F-25
The Company has accumulated the following losses for income tax
purposes which may be carried forward to reduce U.S. Federal and
Canadian Federal and provincial taxable income in future years, and
will expire as follows:
|
|
U.S.
|
Canada
|
|
|
|
Federal
|
Federal
|
Québec
|
|
2035
|
$
56,699
|
$
-
|
$
-
|
|
2036
|
521,398
|
-
|
-
|
|
2037
|
4,419,150
|
278,623
|
278,623
|
|
2038
|
1,560,483
|
3,096,139
|
3,096,139
|
|
2039
|
-
|
4,268,317
|
4,281,955
|
|
Indefinite
|
8,038,528
|
-
|
-
|
|
|
$
14,596,258
|
$
7,643,079
|
$
7,656,717
|
In addition, the Company has approximately CDN$4,679,187 of
research and development expenditures for Canadian Federal tax
purposes and CDN$4,670,034 for Québec tax purposes that are
available to reduce taxable income in future years and have an
unlimited carry forward period, the benefit of which has not been
reflected in these financial statements. Research and development
expenditures are subject to audit by the taxation authorities and
accordingly, these amounts may vary.
The tax effect of temporary differences between US GAAP accounting
and federal income tax accounting creating deferred income tax
assets and liabilities were as follows:
|
|
As at
February 28,
|
|
|
|
2019
|
2018
|
|
Deferred
tax assets
|
|
|
|
Canada
net operating loss carry forward
|
$
2,026,984
|
$
1,127,381
|
|
U.S.
net operating loss carry forward
|
3,165,937
|
1,377,008
|
|
Accrual
and reserves
|
118,309
|
-
|
|
Property,
plant and equipment
|
|
136,200
|
|
Research
and development expenditures and credits
|
1,058,010
|
472,608
|
|
Unrealized
foreign exchange
|
-
|
9,462
|
|
Other
|
38,418
|
-
|
|
Deferred tax
assets
|
6,407,658
|
3,122,659
|
|
Deferred
tax liabilities
|
|
|
|
Property,
plant and equipment
|
(41,636
)
|
(2,367
)
|
|
Intangibles
|
(34,785
)
|
(1,489
)
|
|
Accrual
and reserves
|
-
|
(49,236
)
|
|
Investment
tax credits
|
-
|
-
|
|
Unrealized
foreign exchange
|
-
|
(8,697
)
|
|
Deferred tax liabilities
|
(76,421
)
|
(61,789
)
|
|
|
|
|
|
Deferred
tax assets, net
|
6,331,239
|
3,060,870
|
|
Valuation
allowance
|
(6,331,239
)
|
(3,060,870
)
|
|
Deferred tax assets, net
|
$
-
|
$
-
|
Assessment of the amount of value assigned to the Company's
deferred tax assets under the applicable accounting rules is
judgmental. The Company is required to consider all available
positive and negative evidence in evaluating the likelihood that
the Company will be able to realize the benefit of its deferred tax
assets in the future. Such evidence includes scheduled
reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and the results of recent
operations. Since this evaluation requires consideration of
events that may occur some years into the future, there is an
element of judgment involved. The realization of the
Company's deferred tax assets, including those related to income
tax loss carryforwards, is dependent on generating sufficient
taxable income in future periods. Management does not believe
that it is more likely than not that future taxable income will be
sufficient to allow it to recover substantially all of the value
assigned to its deferred tax assets. Accordingly, the Company
has provided for a valuation allowance of the Company's deferred
tax asset. For the years ended February 28, 2019, 2018 and 2017,
the valuation allowance increased by $3,270,369, $1,446,422 and
$1,247,252, respectively.
The tax years subject to examination by major tax jurisdiction
include the years 2016 and forward by the U.S. Internal Revenue
Service and most state jurisdictions, and the years 2016 and
forward for the Canadian jurisdiction.
F-26
14.
Fair value of financial
instruments
The
following table presents the fair value of the Company’s
financial liabilities and warrants at February 28,
2019:
|
|
Fair Value
Measurements at February 28, 2019
|
||
|
|
Carrying
Amount
|
Fair
Value
|
Level in the
hierarchy
|
|
Instruments
measured at fair value:
|
|
|
|
|
Warrants
(First Issuance)
|
$
219,531
|
$
219,531
|
Level
3
|
|
|
|
|
|
|
Instruments
measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
1,005,518
|
1,005,518
|
Level
2
|
|
Convertible
notes (First Issuance)
|
2,495,636
|
2,650,000
|
Level
2
|
|
Convertible
notes (Second Issuance)
|
$
3,126,886
|
$
3,150,000
|
Level
2
|
The
Warrants under the First Issuance of Convertible Notes represent a
Level 3 in the fair value hierarchy. The Warrants were valued using
a Monte Carlo simulation using a volatility of 71.5%. The Company
recorded a loss on revaluation from the date of issuance to
February 28, 2019 of $65,167 and has been included in operating
expenses.
15. Contingencies
On January 27, 2017, two individuals (“Plaintiffs”),
filed a claim against the Company in the Los Angeles Superior Court
(“Court”), seeking damages for breach of implied
covenant of good faith and fair dealing, breach of contract, and
promissory fraud, asserting entitlement to shares of the
Company’s common stock.
On February 25, 2019, the Company and the
Plaintiffs entered into a settlement agreement and release
(“Settlement Agreement”), which sets forth the
parties’ agreement in principle for settlement. Through the
Settlement Agreement, Plaintiffs, the Company and certain other
parties to the Settlement Agreement agreed to mutual releases of
any and all claims.
Pursuant to the terms of the Settlement Agreement, without agreeing
that any of the Plaintiffs’ claims have merit,
the Company agreed to issue to the
Plaintiffs 150,000 shares of the Company’s common stock
(“Plaintiff Common Shares”) and 500,000 warrants
exercisable for shares of the Company’s common stock
(“Plaintiff Warrants”). The Plaintiff Common Shares
will be restricted upon issuance, but within 180 days following the
date of the Settlement Agreement, the Company has agreed to file
and use its reasonable best efforts to have declared effective a
registration statement to register the Plaintiff Common Shares and
the shares of the Company’s common stock underlying the
Plaintiff Warrants. The Company also agreed to maintain such
registration statement for 2 years from the date of effectiveness
unless the Plaintiffs sell or otherwise transfer the shares covered
by such registration statement prior to the two-year
anniversary.
300,000 of the
Plaintiff Warrants are exercisable for shares of the
Company’s common stock at an exercise price of $12.00 per
share for a period of 24 months following the date of the
Settlement Agreement. The remaining 200,000 Plaintiff Warrants are
exercisable for shares of the Company’s common stock at an
exercise price of $11.00 per share for a period of 24 months, but
in the event the Company’s 5-day average trading price during
any period in the first 18 months following the date of the
Settlement Agreement is above $11 per share, then the exercise term
of such warrants shall automatically be reduced to 18 months
instead of 24 months.
In connection with the legal settlement, the Company recorded an
expense in the amount of $4,041,627, based on the fair value of the
Plaintiff Common Shares and Plaintiff Warrants that were issued on
February 25, 2019, under the terms of the Settlement
Agreement.
F-27
16. Subsequent Events
On February 27, 2019, Loop Industries, Inc. entered into a
Securities Purchase Agreement with a single institutional investor,
pursuant to which the Company has 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.
On April 5, 2019, the Company and certain investors (the
"Investors") that purchased convertible notes (the "November 2018
Notes") from the Company pursuant to the Note and Warrant Purchase
Agreement dated as of November 13, 2018 or January 3, 2019 (the
"2018 Note Purchase Agreement"), signed 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 (the “November 2018
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 April 18, 2019, Loop Innovations, LLC, a wholly-owned subsidiary
of Loop Industries, Inc. contributed $500,000 to
Loop
Indorama Technologies, LLC, the joint venture with Indorama
Ventures Holdings LP, USA.
F-28
I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
I
TEM 9A. CONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
Under
the supervision and with the participation of our management,
including our Chief Executive Officer and the Chief Financial
Officer, we are responsible for conducting an evaluation of the
effectiveness of the design and operation of our internal controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, as at the end of the fiscal year covered by this
report. Disclosure controls and procedures means that the material
information required to be included in our SEC reports is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms relating to our company, including
any consolidating subsidiaries, and was made known to us by others
within those entities, particularly during the period when this
report was being prepared. Based on this assessment, management
determined that the Company’s disclosure controls and
procedures over financial reporting as of February 28, 2019
was effective.
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting for the company. Internal
control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Exchange Act, as amended, as a
process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer and effected by our
Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with GAAP in the United States of America
and includes those policies and procedures that:
●
Pertain to the
maintenance of records that in reasonable detail accurately and
fairly reflect our transactions and dispositions of our
assets;
●
Provide reasonable
assurance our transactions are recorded as necessary to permit
preparation of our financial statements in accordance with GAAP,
and that receipts and expenditures are being made only in
accordance with authorizations of our management and directors;
and
●
Provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Management,
our Chief Executive Officer and Chief Financial Officer have
performed an evaluation of our internal control over financial
reporting under the framework in
Internal Control-Integrated Framework
(2013)
, issued by the Committee of Sponsoring Organizations
of the Treadway Commission. The objective of this assessment was to
determine whether our internal control over financial reporting was
effective at February 28, 2019. Based on this assessment,
management determined that the Company’s internal control
over financial reporting as of February 28, 2019 was
effective.
In connection with our prior years’ assessments of the
effectiveness of internal control over financial reporting as at
February 28, 2018, we concluded that there was a material weakness
related specifically to the accounting for stock-based
compensation. In connection with the material weaknesses identified
as at February 28, 2018, associated specifically to the accounting
for share-based payments, during the year ended February 28, 2019,
management took steps towards remediating our material weakness in
connection with the accounting for share-based payments, by
expanding our in-house expertise on accounting for share-based
payments, as well as continuing to consult with external third
parties on more complex share-based payment arrangements. This
remediation process commenced during the fourth quarter of Fiscal
2018 and has been successfully implemented.
As a result of the actions noted above, the material weaknesses
identified as part of our Fiscal 2018 assessment were remediated
during Fiscal 2019.
The
effectiveness of the Company’s internal control over
financial reporting as of February 28, 2019, has been audited
by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included in
Item 8 of this Annual Report on Form 10-K.
30
Changes in Internal Control over Financial Reporting
Changes
in internal controls over financial reporting have been reported in
the section “Management’s Annual Report on Internal
Control Over Financial Reporting” and include the
implementation and formalization of certain controls relating to
the accounting for stock-based compensation, which included
expanding our in-house expertise on
accounting for stock-based compensation under US GAAP, as well as
establishing formal protocols that require management to consult
with external third parties on more complex share-based payment
arrangements.
These changes were implemented to remediate
the material weaknesses in internal control over accounting for
share-based payment arrangements described above.
With
the exception of the remediation procedures identified with respect
to the accounting for share-based payment arrangements, there were
no other changes in our internal control over financial reporting
during our most recent fiscal year that materially affected, or
were reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitation on the Effectiveness of Internal
Controls
The
effectiveness of any system of internal control over financial
reporting is subject to inherent limitations, including the
exercise of judgment in designing, implementing, operating, and
evaluating the controls and procedures, and the inability to
eliminate misconduct completely. Accordingly, any system of
internal control over financial reporting can only provide
reasonable, not absolute, assurances. In addition, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. We intend to continue to monitor and
upgrade our internal controls as necessary or appropriate for our
business but cannot assure that such improvements will be
sufficient to provide us with effective internal control over
financial reporting.
I
TEM 9B. OTHER INFORMATION
None.
31
P
ART III
I
TEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
The
information required by this item concerning our directors is
incorporated by reference to the information set forth in the
section titled “Election of Directors” in our Proxy
Statement. Information required by this item concerning our
executive officers is incorporated by reference to the information
set forth in the section entitled “Executive Officers”
in our Proxy Statement. Information required by this item
concerning our audit committee and our security holder director
nomination procedures is incorporated by reference to the
information set forth in the section entitled “Corporate
Governance” in our Proxy Statement. Information regarding
Section 16 reporting compliance is incorporated by reference to the
information set forth in the section entitled “Section 16(a)
Beneficial Ownership Reporting Compliance” in our Proxy
Statement.
Our
Board of Directors adopted a Code of Ethics for all of our
directors, officers and employees on January 25, 2017. A copy of
our Code of Ethics is available under Corporate Governance
Documents in the Investors section of our website, and via the
following hyperlink:
http://www.loopindustries.com/assets/docs/Code_of_Ethics.pdf
.
To date, there have been no waivers under our Code of Ethics. We
will post waivers, if and when granted, of our Code of Ethics on
our website at
www.loopindustries.com
. The
information contained on, or that can be accessed through, our
website is not a part of this Annual Report on Form
10-K.
I
TEM 11. EXECUTIVE
COMPENSATION
The
information required by this item regarding director’s
compensation table and compensation risk management disclosures are
incorporated by reference to the information set forth in the
section titled “Corporate Governance” in our Proxy
Statement. All other information required by this item regarding
executive compensation is incorporated by reference to the
information set forth in the section titled “Executive
Compensation” in our Proxy Statement.
I
TEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
information required by this item regarding security ownership of
certain beneficial owners and management and related stockholder
matters is incorporated by reference to the information set forth
in the sections titled “Security Ownership of Certain
Beneficial Owners and Management” and “Executive
Compensation” in our Proxy Statement.
I
TEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
It is
the policy of the Board that all transactions required to be
reported pursuant to Item 404 of Regulation S-K be subject to
approval by the Audit Committee of the Board. In furtherance of
relevant Nasdaq rules and our commitment to corporate governance,
the charter of the Audit Committee provides that the Audit
Committee shall review and approve any proposed related party
transactions including, transactions required to be reported
pursuant to Item 404 of Regulation S-K for potential conflict of
interest situations. The Audit Committee reviews the material facts
of all transactions that require the committee’s approval and
either approves or disapproves of the transaction. In determining
whether to approve a transaction, the Audit Committee will take
into account, among other factors it deems appropriate, whether the
transaction is on terms no less favorable than terms generally
available to an unaffiliated third-party under the same or similar
circumstances.
The
additional information required by this item regarding director
independence, certain relationships and related party transactions
is incorporated by reference to the information set forth in the
sections titled “Transactions with Related Persons” and
“Corporate Governance” in our Proxy
Statement.
I
TEM 14.
PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The
information required by this section is incorporated by reference
from the information in the section entitled “Ratification of
Appointment of Independent Registered Public Accounting Firm”
in our Proxy Statement.
32
P
ART IV
I
TEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULE
(1)
Financial Statements
The
response to this portion of Item 15 is set forth under Item 8
above.
(2)
Financial Statement Schedules.
All
schedules have been omitted because they are not required or
because the required information is given in the Consolidated
Financial Statements or Notes thereto set forth under Item 8
above.
(3)
Exhibits.
The
following Exhibits, as required by Item 601 of Regulation SK, are
attached or incorporated by reference, as stated
below.
for
Exhibit Index
|
|
|
Incorporated by
Reference
|
|||
|
Number
|
Description
|
Form
|
File No.
|
Filing Date
|
Exhibit No.
|
|
Share Exchange Agreement, dated
June 29, 2015, by and among First American Group Inc., Loop
Holdings, Inc., and the stockholders of Loop Holdings,
Inc.
|
8-K
|
000-54768
|
June 30,
2015
|
2.1
|
|
|
Articles of Incorporation, as a
mended to date
|
10-K
|
000-54768
|
May 30, 2017
|
3.1
|
|
|
By-laws, as amended to
date
|
8-K
|
000-54768
|
April 10,
2018
|
3.1
|
|
|
Description of
Securities
|
8-K
|
001-38301
|
Filed
herewith
|
|
|
|
Form of Amendment No. 1 to the
January 15, 2019 Note Purchase Agreement, dated April 4,
2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.1
|
|
|
Form of Amendment to 2019 Warrant,
dated April 4, 2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.2
|
|
|
Form of Amendment and Conversion
Agreement, dated April 5, 2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.3
|
|
|
Form of Amendment to
November 2018 Warrant, dated April 8, 2019
|
8-K
|
001-38301
|
April 10, 2019
|
4.4
|
|
|
Form of Convertible Promissory
Note, dated January 15, 2019 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
January 16,
2019
|
4.1
|
|
33
|
Form of Warrant, dated January 15,
2019 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
January 16,
2019
|
4.2
|
|
|
Form of Note and Warrant Purchase
Agreement, dated November 13, 2018.
|
8-K
|
001-38301
|
November 13,
2018
|
4.1
|
|
|
Form of Note, dated November 13,
2018 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
November 13,
2018
|
4.2
|
|
|
Form of Warrant, dated January 11,
2018
|
8-K
|
001-38301
|
January 18,
2018
|
4.1
|
|
|
Form of
Indenture
|
S-3
|
001-38301
|
August 10,
2018
|
4.1
|
|
|
Intellectual Property Assignment
Agreement dated October 27, 2014, as supplemented April 10, 2015,
by and among Hatem Essaddam, Loop Holdings, Inc. and Daniel
Solomita.
|
10-K
|
000-54768
|
May 30,
2017
|
10.1
|
|
|
Subscription Agreement, dated May
22, 2015, by and between 9121820 Canada Inc. and Loop Holdings,
Inc.
|
10-K
|
000-54768
|
May 30,
2017
|
10.2
|
|
|
Technology Transfer Agreement,
dated June 22, 2015 by and between 8198381 Canada Inc. and Loop
Holdings, Inc.
|
8-K
|
000-54768
|
June 30,
2015
|
10.7
|
|
|
Amended and Restated Employment
Agreement, dated July 13, 2018, by and between Loop Industries,
Inc. and Daniel Solomita.
|
8-K
|
001-38301
|
July 13,
2018
|
10.12
|
|
|
Master Services Agreement, dated
September 1, 2015, by and between 8198381 Canada Inc. and Loop
Holdings, Inc
|
10-K
|
000-54768
|
May 30,
2017
|
10.5
|
|
|
Purchase and Sale Agreement, by and
between 8198381 Canada Inc. and Loop Canada Inc. (formerly 9449507
Canada Inc.)
|
10-K
|
000-54786
|
May 30,
2017
|
10.7
|
34
|
Agreement for Services, dated
February 28, 2017, by and between Loop Industries, Inc. and
Drinkfinity USA, Inc.
|
10-K
|
000-54768
|
May 30,
2017
|
10.8
|
|
|
Articles of Merger of Loop
Holdings, Inc. into Loop Industries, Inc.
|
10-K
|
000-54768
|
May 30,
2017
|
10.9
|
|
|
Form of Indemnification
Agreement
|
10-K
|
000-54768
|
May 30,
2017
|
10.10
|
|
|
Employment Agreement, dated
September 27, 2017, by and between Loop Industries, Inc. and
Antonella Penta
|
10-K
|
001-38301
|
May 14,
2018
|
10.11
|
|
|
Securities Purchase Agreement,
dated February 27, 2019, by and between Loop Industries, Inc. and
the purchaser identified therein.
|
8-K
|
001-38301
|
February 28,
2019
|
10.1
|
|
|
Form of Note and Warrant
Purchase Agreement, dated January 15, 2019.
|
8-K
|
001-38301
|
January 16,
2019
|
10.1
|
|
|
Master Term and Conditions Supply
Agreement, dated November 23, 2018, by and between Loop Industries,
Inc. and Coca-Cola Cross Enterprise Procurement
Group.
|
8-K
|
001-38301
|
November 29,
2018
|
10.1
|
35
|
Form of Warrant, dated November 13,
2018 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
November
13, 2018
|
10.1
|
|
|
Terms and Conditions Agreement,
dated October 9, 2018, by and between Loop Industries, Inc. and
Pepsi-Cola Advertising and Marketing, Inc.
|
8-K
|
001-38301
|
October 15,
2018
|
10.1
|
|
|
Limited Liability Company
Agreement, dated September 24, 2018, by and between Loop
Industries, Inc. and Indorama Loop Technologies,
LLC.
|
8-K
|
001-38301
|
September 28,
2018
|
10.1
|
|
|
License Agreement, dated September
24, 2018 by and between Loop Industries, Inc. and Indorama Loop
Technologies, LLC.
|
8-K
|
001-38301
|
September 28,
2018
|
10.2
|
|
|
Marketing Agreement, dated
September 24, 2018, by and between Loop Industries, Inc. and
Indorama Loop Technologies, LLC.
|
8-K
|
001-38301
|
September 28,
2018
|
10.3
|
|
|
Form of Common Stock Subscription
Agreement
|
8-K
|
001-38301
|
January 18,
2018
|
10.1
|
|
|
Employment Agreement, dated October
20, 2017, by and between Loop Canada Inc. and Frank
Zitella.
|
10-Q
|
000-54768
|
January 12,
2018
|
10.3
|
|
|
Employment Agreement, dated April
10, 2018, by and between Loop Canada Inc. and Nelson
Switzer]
|
10-Q/A
|
000-54768
|
July 11,
2018
|
10.12
|
36
|
Employment Agreement, dated
December 19, 2018, by and between Loop Canada Inc. and Nelson
Gentiletti.
|
|
000-54768
|
Filed
herewith
|
|
|
|
Code of Ethics
|
8-K
|
000-54768
|
Jan 31, 2017
|
14.1
|
|
|
Subsidiaries of
Registrant
|
10-K
|
000-54768
|
May 30, 2017
|
21.1
|
|
|
24.1
|
Power of Attorney (contained on
signature page to the previously filed Annual Report on Form
10-K)
|
10-K
|
000-54768
|
May 30, 2017
|
24.1
|
|
Certification of Principal
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Filed
herewith
|
|
|
|
Certification of Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Filed
herewith
|
|
|
|
Certification of Principal
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Filed
herewith
|
|
|
|
Certification of Principal
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Filed
herewith
|
|
|
|
101.INS
|
XBRL Instance
Document
|
|
|
Filed
herewith
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
Document
|
|
|
Filed
herewith
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation
Linkbase Document
|
|
|
Filed
herewith
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition
Linkbase Document
|
|
|
Filed
herewith
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label
Linkbase Document
|
|
|
Filed
herewith
|
|
|
101.PRE
|
XBRL Taxonomy Extension
Presentation Linkbase Document
|
|
|
Filed
herewith
|
|
________
†
Portions of this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment and this exhibit
has been submitted separately to the SEC.
I
TEM 16. FORM 10-K SUMMARY
None.
37
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
LOOP INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
Date:
May 2, 2019
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
|
|
|
|
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
|
Date:
May 7, 2019
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
(principal
executive officer)
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Nelson Gentiletti
|
|
|
|
Name:
|
Nelson
Gentiletti
|
|
|
|
Title:
|
Chief
Operating Officer and Chief Financial Officer (principal accounting
officer and principal financial officer), Secretary and
Treasurer
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Sidney Horn
|
|
|
|
Name:
|
Sidney
Horn
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Shaun Higgins
|
|
|
|
Name:
|
Shaun
Higgins
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Leslie Murphy
|
|
|
|
Name:
|
Leslie
Murphy
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Laurence Sellyn
|
|
|
|
Name:
|
Laurence
Sellyn
|
|
|
|
Title:
|
Lead
Director
|
|
|
|
|
|
|
|
Date:
May 7, 2019
|
By:
|
/s/ Jay Stubina
|
|
|
|
Name:
|
Jay
Stubina
|
|
|
|
Title:
|
Director
|
|
38
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresItem 4. 1. Executive Officers Of The RegistrantPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement ScheduleItem 16. Form 10-k Summary