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 29, 2020
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or
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☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ___________ to __________
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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 every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files) 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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Non-accelerated
filer
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☐
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Smaller
reporting company
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☒
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Emerging growth
company
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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 if whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. Yes ☐ No ☒
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,
2019, 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 $230,397,389.
As at April 30, 2020, there were 39,916,905 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 2020 Annual
Meeting of Stockholders.
LOOP INDUSTRIES, INC.
TABLE OF CONTENTS
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Page No.
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Business
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4
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Risk
Factors
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9
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Properties
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16
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Legal
Proceedings
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16
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Mine
Safety Disclosures
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16
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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17
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Selected
Financial Data
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17
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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18
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Quantitative
and Qualitative Disclosures About Market Risk
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27
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Financial
Statements and Supplementary Data
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28
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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29
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Controls
and Procedures
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29
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Other
Information
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30
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Directors,
Executive Officers and Corporate Governance
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31
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Executive
Compensation
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31
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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31
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Certain
Relationships and Related Transactions, and Director
Independence
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31
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Principal
Accounting Fees and Services
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31
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Exhibits
and Financial Statement Schedules
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32
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Form
10-K Summary
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34
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Signatures
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35
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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,” “Loop
Industries,” “we,” or “our”),
contains “forward-looking statements,” as defined in
the United States Private Securities Litigation Reform Act of 1995.
In some cases, you can identify forward-looking statements by
terminology such as “may”, “will”,
“should”, “could”, “expects”,
“plans”, “intends”,
“anticipates”, “believes”,
“estimates”, “predicts”,
“potential” or “continue” or the negative
of such terms and other comparable terminology. These
forward-looking statements include, without limitation, statements
about our market opportunity, our strategies, ability to improve
and expand our capabilities, competition, expected activities and
expenditures as we pursue our business plan, the adequacy of our
available cash resources, regulatory compliance, plans for future
growth and future operations, the size of our addressable market,
market trends, and the effectiveness of the Company’s
internal control over financial reporting. Although we believe that
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Actual results may differ materially
from the predictions discussed in these forward-looking statements.
The economic environment within which we operate could materially
affect our actual results. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified. These risks and other factors include,
but are not limited to, those listed under “Risk
Factors.” Additional factors that could materially affect
these forward-looking statements and/or predictions include, among
other things: (i) commercialization of our technology and products,
(ii) our status
of relationship with partners,
(iii) development and
protection of our intellectual property and products, (iv) industry
competition, (v) our need for and ability to obtain additional
funding, (vi)
building our manufacturing
facility, (vii) our ability to 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, (x) disease epidemics and health related
concerns, such as the current outbreak of a novel strain of
coronavirus (COVID-19), which could result in (and, in the case of
the COVID-19 outbreak, has resulted in some of the following)
reduced access to capital markets, supply chain disruptions and
scrutiny or embargoing of goods produced in affected areas,
government-imposed mandatory business closures and resulting
furloughs of our employees, travel restrictions or the like to
prevent the spread of disease, and market or other changes that
could result in noncash impairments of our intangible assets, and
property, plant and equipment, and (xi) 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 the chemical
process of breaking a polymer down into its monomer component(s),
or smaller oligomers.
PET
is an acronym for polyethylene
terephthalate, which is a resin and a type of polyester showing
excellent tensile and impact strength, chemical resistance,
clarity, and processability, and reasonable thermal stability. PET
is the material which is most commonly used for plastic packaging,
including plastic bottles for water and carbonated soft drinks, and
containers for food and other consumer products; it is commonly
identified by the number “1”, often inside an image of
a triangle, on the packaging. PET is also used as a polyester fiber
for a variety of applications including textiles.
I
TEM 1. BUSINESS
Overview
Loop
Industries is a technology company whose mission is to accelerate
the world's shift toward sustainable PET plastic and polyester
fiber and away from our dependence on fossil fuels. Loop Industries
owns patented and proprietary technology that depolymerizes no- and
low-value waste PET plastic and polyester fiber, including bottles,
packaging, carpets, and other textiles of any color, transparency
or condition, including waste PET plastic recovered from the ocean
that has been degraded by the sun and salt, to its base building
blocks (monomers). The monomers are filtered, purified, and
polymerized to create virgin-quality Loop™ branded PET resin
suitable for use in food-grade packaging, and polyester fiber, thus
enabling our customers to meet their sustainability objectives.
Loop Industries is contributing to the global movement towards a
circular economy by preventing plastic waste and recovering waste
plastic for a more sustainable future for all.
Industry Background
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.
In the
last few years, there are numerous examples of governments in North
America and Europe proposing laws and regulations mandating the use
of minimum recycled content in packaging underlying the strength of
this issue in the marketplace. Plastic pollution continues to be
one of the most persistently covered environmental issues by media
and local and global environmental non-governmental
organizations.
Also,
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
packaging by 2030;
iii.
In October 2018,
PepsiCo committed to use an average of 25% recycled plastic in its
packaging by 2025; PepsiCo is also aiming to use
50% recycled plastic in its bottles across
the European Union by 2030;
iv.
In 2018,
L’OCCITANE en Provence committed to a 100% recycled content
package by 2025; and
v.
In March 2019, the
L’Oréal Group, a global
manufacturer and retailer
of natural cosmetics, committed to using 50% recycled or
bio-sourced plastic in their packaging by 2025.
We
believe these trends indicate that the transformation from a linear
to a circular plastic economy is inevitable and underway. This
transition is leading to a substantial demand for sustainable
products such as Loop™ PET resin and polyester
fiber.
4
Proprietary Technology and Intellectual Property
The
power of our technology lies in its ability to use as feedstock
what is currently considered waste PET plastic and polyester fiber
from landfills, rivers, oceans and natural areas to create new,
sustainable, infinitely recyclable Loop™ PET resin and
polyester fiber. We believe our technology can deliver a
cost-effective and profitable virgin quality PET resin suitable for
use in food-grade packaging.
Our
Generation I (“GEN I”) technology process yielded
purified terephthalic acid (“PTA”) and monoethylene
glycol (“MEG”), two common monomers of PET, through
depolymerization. While the monomers were of excellent purity and
strong yield, we continued to challenge ourselves to drive down
costs and eliminate inputs. It was during this process that we
realized we could simplify our process and increase yields at a
lower cost, namely by eliminating water and chlorinated solvents
from the depolymerization process and reducing the number of
reagents from five to two, if we shifted from the production of PTA
to the production of dimethyl terephthalate (“DMT”),
another proven monomer of PET that is far simpler to purify. Since
June 2018, when we transitioned to this Generation II (“GEN
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 Industries. We believe that the GEN II
technology requires less energy and fewer resource inputs than
conventional PET production processes. We also believe it is one of
the most environmentally sustainable methods for producing virgin
quality food-grade PET plastic in the world.
In
connection with the continuing development of our GEN II
technology, we continued to invest in our industrial pilot plant.
We made capital investments in the pilot plant of $2,439,013 during
the year ended February 29, 2020.
To
protect our technology, we rely on a combination of patents,
trademarks, trade secrets, confidentiality agreements and
provisions as well as other contractual provisions to protect our
proprietary rights, which are primarily our patents, brand names,
product designs and marks.
We
have two patent families, referred to as GEN I technology and the
GEN II technology, with claims relating to our technology for
depolymerizing PET.
●
The GEN I
portfolio has two issued U.S. patents and a pending U.S.
application, all expected to expire on or around July 2035.
Internationally, we also have issued patents in Taiwan, South
Africa and in the members of the Gulf Cooperation Council, allowed
patent applications in Australia and Eurasia, and pending patent
applications in Argentina, Brazil, Canada, China, Europe, Hong
Kong, Israel, India, Japan, Korea, Mexico, and the Philippines, all
expected to expire, if granted, on or around July
2036.
●
The GEN II
technology portfolio has an issued U.S. patent and a pending U.S.
application, all expected to expire, if granted, on or around
September 2037. Internationally, we also have a PCT application, an
allowed application in Bangladesh, and pending non-PCT country
applications in Argentina, Bolivia, Bhutan, members of the Gulf
Cooperation Council, Iraq, Pakistan, Taiwan, Uruguay, and
Venezuela, all expected to expire on or around September 2038, if
granted. An additional aspect of the GEN II technology is claimed
in a U.S. application, a PCT application, and non-PCT country
applications in Argentina, Bangladesh, Bolivia, members of the Gulf
Cooperation Council, Pakistan, Taiwan, and Uruguay, all expected to
expire on or around June 2039, if granted. Additionally, we have
two pending U.S. provisional applications directed to further
additional aspects of the GEN II technology. Any patents that would
ultimately grant from these provisional applications would be
expected to expire no earlier than 2040, 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.
5
Our
operations require various governmental permits and approvals. We
are in the process of obtaining all necessary permits and approvals
for the operation of our business; however, any of these permits or
approvals may be subject to denial, revocation or modification
under various circumstances. Additionally, due to the impact of the
COVID-19 pandemic, we may experience delays in obtaining such
permits or approvals. Failure to obtain or comply with the
conditions of permits and approvals or to have the necessary
approvals in place may adversely affect our operations and may
subject us to penalties.
The
use of mechanically recycled PET for food-grade applications in
certain countries is highly inadvisable for a variety of reasons
including the perception of contamination from mechanically
recycled sources. We believe that means that Loop™ PET resin
has a distinct advantage in these markets. Since our product is not
mechanically recycled PET, we expect that demand from PET
manufacturers and global consumer goods companies in these regions
for 100% Loop™ branded PET resin will be a significant part
of our strategy going forward.
Supply Agreements with Global Consumer Brands
Consumer
brands are seeking a solution to their plastic challenge and they
are taking bold action. In the past years we have seen major brands
make significant commitments to close the loop on their plastic
packaging in two ways, by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET resin and
polyester fiber provides the ideal solution for these brands
because Loop™ PET 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.
Loop
Industries believes that due to the commitments by large global
consumer brands to incorporate more recycled content into their
product packaging, the regulatory requirements for minimum recycled
content in packaging imposed by governments, the virgin-like
quality of Loop™ branded PET and the marketability of
Loop™ PET to extoll the sustainability credentials of
consumer brands that incorporate Loop™ PET, it will be able
to sell its Loop™ branded PET at a premium price relative to
virgin and mechanically recycled PET.
In the
last two years, we have made a significant number of announcements
with some of the world’s leading brands to be supplied from
our planned first commercial facility from our joint venture with
Indorama Ventures Holdings LP (“Indorama”) in
Spartanburg, South Carolina, including:
●
Multi-year supply
agreement with Danone SA, one of the world’s leading global
food and beverage companies. Danone will purchase 100% sustainable
and upcycled Loop™ branded PET for use in brands across its
portfolio including evian®, Danone’s
iconic natural spring
water
;
●
Multi-year supply
agreement with PepsiCo, one of the largest purchasers of recycled
PET plastic, enabling them to purchase production capacity and
incorporate Loop™ PET resin into its product
packaging;
●
Multi-year supply
framework with the Coca-Cola system’s Cross Enterprise
Procurement Group to supply 100% recycled and sustainable
Loop™ PET resin to authorized Coca-Cola bottlers who enter
into supply agreements with us;
●
Multi-year supply
agreement with L’OCCITANE en Provence to supply 100% recycled
and sustainable Loop™ PET resin and incorporate Loop™
PET resin into its product packaging; and
●
Multi-year supply
agreement with L’Oréal Group, the global leader in the
beauty industry, enabling them to purchase production capacity and
incorporate Loop™ PET resin into its product
packaging.
Turning Waste into Feedstock
To us,
waste PET plastic and polyester fiber is feedstock, the materials
introduced into our GEN 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 advantage of Loop™ PET over mechanically
recycled PET, our ability to use many materials that mechanical
recyclers cannot use. This also means we are creating a new market
for materials that have persistently been leaking out of the waste
management system and into our shared rivers, oceans and natural
areas.
6
We are
identifying the availability of feedstock to ensure each planned
facility can operate continuously. We have identified the sources
required for our first joint venture facility with Indorama and are
now focusing on signing supply agreements to secure this feedstock
for the long term.
The
team is also studying certain markets in the United States, Canada,
European Union and Asia to help us evaluate the size and location
of our next facilities. The approach includes a fulsome inventory
of PET materials introduced into a region, the materials collected
(or recycled) in the region and the material loss, or the
difference between the material introduced and the material
collected. This allows us to identify not only the material
traditionally available for recycling, but how material can be
effectively diverted from landfills, rivers, oceans and natural
areas by providing a new outlet for what was formerly considered
waste.
Commercialization Progress
During
the year ended February 29, 2020, we continued executing our
corporate strategy where Loop Industries focused on developing two
distinct business models for the commercialization of Loop™
PET resin and polyester fiber to customers: 1) from our joint
venture with Indorama, and 2) from our Infinite Loop
TM
greenfield
facilities. We continue to develop the engineering of the
Infinite
Loop
TM
platform and we have increased
our focus on the
development of Infinite Loop
TM
projects in
Europe and in North America.
In
September 2018, in connection with one of our business models, we
announced a joint venture with Indorama to retrofit their existing
PET manufacturing facilities. The joint venture was formed with the
objective to manufacture and commercialize sustainable Loop™
PET resin and polyester fiber to meet the growing global demand
from beverage and consumer packaged goods companies. The joint
venture agreement details the establishment of an initial 20,700
metric tons per year facility in Spartanburg, South Carolina, in
the southeastern United States.
Following
the decision of the joint venture with Indorama to double the
capacity of the planned Spartanburg plant due to customer demand to
40,000 metric tons per year as disclosed in our 10-Q for the period
ended August 31, 2019, we identified a number of enhancements to
the plant design to improve the operability and optimize the
total construction cost of the plant. We announced that the
commissioning of the plant is expected to take place in the third
quarter of calendar 2021. All parties are working diligently
towards achieving this timetable although we are monitoring the
impact of COVID-19 on the project. as well as the operations of our
partners. The commissioning date may be impacted by the
COVID-19 pandemic.
We have currently contracted for the sale of the initial 20,700
metric tons expected output of the Spartanburg facility and we
continue discussions to contract the additional volume up to its
planned increased capacity of 40,000 metric tons.
To
drive our Infinite Loop
™
business
model, which is a key pillar of our commercialization blueprint, we
intend to partner with PET polymerization technology providers and
EPC companies (Engineering, Procurement, Construction). As Loop
Industries’ technology is agnostic to PET polymerization
technology, we are also exploring relationships with other partners
that provide PET polymerization technology to help us commercialize
our Infinite Loop™ solution—a fully integrated and
reimagined manufacturing facility for sustainable Loop™ PET
resin and polyester fiber.
We
believe the Infinite Loop
™
solution
will result in a highly scalable model to supply the global demand
for 100% sustainable Loop™ PET 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 also changes where
and how PET resin production occurs—no longer does PET resin
production need to be bound to fossil fuels and fossil fuel
infrastructure. Infinite Loop
™
facilities
could be located near large urban centers where feedstock is
located, and transportation and logistics costs could be
significantly reduced as the distance between feedstock,
manufacturing and customer use is collapsed.
We
believe the proposition for those seeking a turnkey solution to
manufacture Loop™ PET resin and polyester fiber, such as
chemical companies, waste managers, existing recyclers and even
consumer good companies around the world is compelling. We further
believe that once the first facilities are operational, it may
create the possibility of licensing the technology to create a
recurring revenue stream for us, while expanding the capacity of
Loop™ PET resin and polyester fiber in the marketplace to
meet the substantial demand from consumer goods
companies.
7
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 brand
value. Our research and development innovation hub in Terrebonne,
Québec, Canada will continue to push forward the development
of our technology. We are investing in building a strong management
team to integrate best in class processes and practices while
maintaining our entrepreneurial culture. On March 9, 2020, we hired
Mr. Stephen Champagne as Chief Technology Officer. Mr. Champagne
has over 25 years of industrial experience having participated in
all project phases
from
laboratory development through engineering, procurement, and
construction, all the way to plant commissioning.
Employees
As at
April 30, 2020, we have 53 employees, all of which are located in
Terrebonne, Québec, Canada. Due to the COVID-19 pandemic, we
have furloughed 31 employees until government restrictions are
lifted. 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 our capital stock 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 us.
The GEN I technology has now been superseded by the development of
our 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, our wholly-owned subsidiary, 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, Québec, 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.
8
Available Information
Our
website is www.loopindustries.com, and our investor relations web
page can be found at
https://www.loopindustries.com/en/investors/home. 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.
I
TEM 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 occur, 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 29, 2020 was $14.51 million. We
have five customer agreements signed, we have however 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.
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.
9
The global COVID-19 pandemic has adversely affected, and may in the
future adversely affect, our business, results of operations and
financial condition.
In
December 2019, COVID-19 began to impact the population of Wuhan,
China. The continued spread of COVID-19 globally could result in a
widespread health crisis that could adversely affect the global
economy and financial markets. In light of the uncertain and
rapidly evolving situation relating to COVID-19, we have taken
precautionary measures intended to minimize the risk of COVID-19 to
our employees, our customers, and the communities in which we
operate, which could negatively impact our business. National,
state and local authorities have recommended social distancing and
imposed or are considering quarantine and isolation measures on
large portions of the population, including mandatory business
closures. These measures, although intended to protect the
population, are expected to have serious adverse impacts on
domestic and foreign economies of uncertain severity and duration.
As of the date of this Annual Report on Form 10-K, the COVID-19
outbreak has already begun to cause disruption to our business,
including our furloughing a number of employees. Potential
financial impacts associated with the COVID-19 outbreak include,
but are not limited to, delays in critical development and
commercialization activities and potential incremental costs
associated with mitigating the effects of the outbreak, furloughs
of employees, disruption of supply chains, demand for our product,
shipping of raw materials, restrictions on manufacturing, the
movement of employees, and a decline in value of assets held by us,
including property and equipment. Specifically, the COVID-19
pandemic may have an impact on the operations and the strategies of
our first commercial facility from our joint venture with Indorama
in Spartanburg, South Carolina. Although we continue to monitor the
situation and may adjust our current policies as more information
and public health guidance become available, the COVID-19 outbreak
is ongoing, and its dynamic nature, including uncertainties
relating to the ultimate spread of the virus, the severity of the
disease, the duration of the outbreak and actions that may be taken
by governmental authorities to contain the outbreak or to treat its
impact, makes it difficult to accurately forecast any effects on
our results of operations for 2021 and beyond.
As a
result of COVID-19 and the measures designed to contain the spread
of the virus, we may not have the materials or capacity to continue
our development efforts according to our schedule. Further, there
may be logistics issues, including our ability and to quickly
resume operations, if necessary, and transportation demands that
may cause further delays. While the disruptions and restrictions on
the ability to travel, quarantines, furloughs of employees, and
reduced operation of our pilot plant, as well as general
limitations on movement are expected to be temporary, the duration
of the disruption, and related financial impact, cannot be
estimated at this time. Should the distribution continue for an
extended period of time, the impact on the development and
commercialization of our technology could have a material adverse
effect on our results of operations and cash flows.
The macro-economic environment in the United States and abroad has
adversely affected, and may in the future adversely affect, our
ability to raise capital, which may potentially impact our ability
to continue our operations.
We
have and, prior to commercialization, will continue to rely on
raising funds from investors and/or other sources to support our
research and development activities and our operations.
Macro-economic conditions in the United States and abroad may
result in a tightening of the credit markets and/or less capital
available for small public companies, which may make it more
difficult to raise capital. Specifically, the outbreak of COVID-19
has caused significant disruptions to the global financial markets,
which could increase the cost of capital and adversely impact our
ability to raise additional capital, which could negatively affect
our liquidity in the future. If we are unable to raise funds as and
when we need them, we may be forced to curtail our operations or
even cease operating altogether. Therefore, unfavorable
macroeconomic conditions, including as a result of COVID-19 and any
resulting recession or slowed economic growth, could have a
negative impact on us. It is not possible at this time to estimate
the impact that COVID-19 could have on our business, as the impact
will depend on future developments, which are highly
uncertain.
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.
10
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 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 used
principally for research and development. In order to fully
implement our business plan, we will need to scale the operations
to a to a larger industrial commercial 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, Québec. 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.
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. In light of the uncertain and evolving
situation relating to the global COVID-19 pandemic, our access to
raw materials, the quality and proximity of such materials may be
disrupted. We currently cannot predict the impact that the global
COVID-19 pandemic will have on our access to raw
materials.
11
The loss of the services of Mr. Daniel Solomita, our President
and Chief Executive Officer, and Chairman of the Board of
Directors, 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 must operate under policies, procedures, and
controls for the operation of a chemical manufacturing facility as
required under various federal, provincial and local regulations
and codes. Failure to comply with such regulations and codes may
lead to disruption of operations at the pilot plant and the
development of our technology, and financial
sanctions.
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.
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.
12
If we fail to maintain an effective system of internal control over
financial reporting, 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.
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.
The
COVID-19 pandemic has not had a significant impact on the design
and effectiveness of the Company’s internal controls over
financial reporting.
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.
13
RISKS ASSOCIATED WITH OUR SECURITIES
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;
●
volatility in the
financial and credit markets, including the recent volatility due,
in part, to the current COVID-19 outbreak;
●
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.
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
the total voting power of our capital stock, and accordingly, has
control over stockholder matters, our business and
management.
As at
April 30, 2020, Mr. Daniel Solomita, our President and Chief
Executive Officer, Chairman of the Board of Directors, and
controlling shareholder, beneficially owns 18,800,000 shares of
common stock, or 47.1% 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 Mr. Solomita of control of the Company
in the event that his ownership of the issued and outstanding
shares of our common stock is diluted to a level below a majority.
Currently, Mr. Solomita’s beneficial ownership of 18,800,000
shares of common stock and 1 share of Series A Preferred Stock
provides him with 77.8% of the voting control of the
Company.
14
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
our stockholders, 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.
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.
15
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 December 22, 2017 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 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.
I
TEM 3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. We are
not presently a party to any legal proceedings, government actions,
administrative actions, investigations or claims that are pending
against us or involve us that, in the opinion of our management,
could reasonably be expected to have a material adverse effect on
our business, financial condition or operating results. However,
litigation is subject to inherent uncertainties, and an adverse
result in these or other matters may arise from time to time that
may harm our business.
It is
possible that we may expend financial and managerial resources in
the defense of our intellectual property rights in the future if we
believe that our rights have been violated. It is also possible
that we may expend financial and managerial resources to defend
against claims that our products and services infringe upon the
intellectual property rights of third parties.
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 2020 annual meeting of stockholders, to
be filed with the Commission pursuant to Regulation 14A, not later
than 120 days after February 29, 2020.
16
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
April 30, 2020, there were 39,916,905 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) held by
approximately 65 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
On
February 21, 2020, upon the receipt of the first of three potential
disbursements pursuant to our agreement with Investissement
Québec for a financing facility, we issued a warrant to
acquire 15,153 shares of common stock at a strike price of $11.00
per share, representing a value of 10% of the disbursement. We
received gross proceeds of $1,645,122 (CDN$2,209,234) and paid
$34,254 (CDN$46,000) in transaction costs. The proceeds were used
to finance capital expenses incurred for the expansion of our pilot
plant.
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 29, 2020.
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.
17
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 is a technology company whose mission is to accelerate
the world's shift toward sustainable PET plastic and polyester
fiber and away from our dependence on fossil fuels. Loop Industries
owns patented and proprietary technology that depolymerizes no- and
low-value waste PET plastic and polyester fiber, including bottles,
packaging, carpets, and other textiles of any color, transparency
or condition, including waste PET plastic recovered from the ocean
that has been degraded by the sun and salt, to its base building
blocks (monomers). The monomers are filtered, purified and
polymerized to create virgin-quality Loop™ branded PET resin
suitable for use in food-grade packaging, and polyester fiber, thus
enabling our customers to meet their sustainability objectives.
Loop Industries is contributing to the global movement towards a
circular economy by preventing plastic waste and recovering waste
plastic for a more sustainable future for all.
Plan of Operation
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, Québec, Canada will continue to push
forward the development of our technology. We are investing in
building a strong management team to integrate best in class
processes and practices while maintaining our entrepreneurial
culture.
During
the year ended February 29, 2020, we continued executing our
corporate strategy where Loop Industries focused on developing
distinct business models for the commercialization of Loop™
PET resin and polyester fiber to customers: 1) from our joint
venture with Indorama, and 2) from our Infinite Loop™
greenfield facilities. We are continuing to develop the engineering
of the Infinite Loop™ platform and we have increased our
focus on the development of Infinite Loop™ projects in Europe
and in North America.
In
September of 2018, in connection with one of our business models,
we announced a joint venture with Indorama to retrofit their
existing PET manufacturing facilities. The joint venture was formed
to manufacture and commercialize sustainable Loop™ PET resin
and polyester fiber to meet the growing global demand from beverage
and consumer packaged goods companies.
The joint venture agreement details
the establishment of an initial 20,700 metric tons per year
facility in Spartanburg, South Carolina.
Following
the decision of the joint venture with Indorama to double the
capacity of the planned Spartanburg plant due to customer demand to
40,000 metric tons per year as disclosed in our 10-Q for the period
ended August 31, 2019, we identified a number of enhancements to
the plant design to improve the operability and lower the
total construction cost of the plant.
We
have currently contracted
for the sale of the initial 20,700 metric tons expected output of
the Spartanburg facility and we continue discussions to contract
the additional volume up to its planned increased capacity of
40,000 metric tons.
As
part of the joint venture agreement to establish the facility to
produce 40,000 metric tons, we are committed to contribute its
equity share for the costs under the joint venture agreement to
construct the facility. As at April 30, 2020, we have contributed
$1,500,000 to the joint venture.
On
March 25, 2020, due to the COVID-19 pandemic, the Québec
provincial government issued an order that all non-essential
business and commercial activity in the province is required to
shut down until April 13 and the order provides exemptions that
allow us to continue reduced operations at the pilot plant and we
have been continuing work with our joint venture partner, Indorama,
and our engineering partner, to oversee the engineering for the
Spartanburg joint venture facility and pursue our plans for the
commercialization of our technology. We have made arrangements for
certain employees to work remotely to support these engineering
activities. The government has recently announced that we can
re-start complete operations on May 11.
The Québec provincial
government order has not significantly impacted our ability to work
to advance this project to date and the commercialization plan for
commissioning of the planned Spartanburg facility is currently
unchanged. However, the planned timing may potentially be affected
by the COVID-19 pandemic. We are monitoring the potential impact of
the pandemic on the global economy and capital markets, as well as
on the operations of our partners who are critical to achieving the
anticipated commissioning date of the facility scheduled for the
third quarter of the calendar year 2021. Both Loop and our partners
are fully committed to the joint venture and are working diligently
on the commercialization plan.
18
We,
through our wholly-owned subsidiary Loop Innovations, LLC, a
Delaware limited liability company, entered into a Joint Venture
Agreement (the “Agreement”), as stated above, with
Indorama, to manufacture and commercialize sustainable PET resin
and polyester fiber to meet the growing global demand from beverage
and consumer packaged goods companies. Each company has 50/50
equity interest in Indorama Loop Technologies, LLC
(“ILT”), which was specifically formed to operate and
execute the joint venture.
This
partnership brings together Indorama’s manufacturing
footprint and Loop Industries’ proprietary science and
technology to become a supplier in the ‘circular’
economy for 100% sustainable and recycled PET resin and polyester
fiber.
We are
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 in addition
to its equity cash contribution.
To
drive our Infinite Loop
™
business
model, which is a key pillar of our commercialization blueprint, we
intend to partner with PET polymerization technology providers and
EPC companies (Engineering, Procurement, Construction). As Loop
Industries’ technology is agnostic to PET polymerization
technology, we are also exploring other partners that provide PET
polymerization technology to help us commercialize our Infinite
Loop™ solution
—
a
fully integrated and reimagined manufacturing facility for
sustainable Loop
™
PET
resin and polyester fiber.
We
believe the Infinite Loop
™
solution
will result in a highly scalable model to supply the global demand
for 100% sustainable Loop™ PET 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 also fundamentally
changes where and how PET resin production occurs—no longer
does PET resin production need to be bound to fossil fuels and
fossil fuel infrastructure. Infinite Loop
™
facilities
could be located near large urban centers where feedstock is
located, and transportation and logistics costs could be
significantly reduced as the distance between feedstock,
manufacturing and customer use is collapsed.
We
believe the proposition for those seeking a turnkey solution to
manufacture Loop™ PET resin and polyester fiber, such as
chemical companies, waste managers, existing recyclers and even
consumer good companies around the world is compelling. We further
believe that once the first facilities are operational it may
create the possibility of licensing the technology to create a
recurring revenue stream for us while expanding the capacity of
Loop™ PET 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 resin and
polyester fiber provides the ideal solution for these brands
because Loop™ PET resin and polyester fiber contains 100%
recycled PET and polyester fiber content. The Loop™ PET resin
and polyester fiber is virgin quality suitable for use in
food-grade packaging. That means consumer packaged goods companies
can now market packaging made from a 100% Loop™ branded PET
resin and polyester fiber.
Loop
Industries believes that due to the commitments by large global
consumer brands to incorporate more recycled content into their
product packaging, the regulatory requirements for minimum recycled
content in packaging imposed by governments, the virgin-like
quality of Loop™ branded PET and the marketability of
Loop™ PET to extoll the sustainability credentials of
consumer brands that incorporate Loop™ PET, it will be able
to sell its Loop™ branded PET at a premium price relative to
virgin and mechanically recycled PET.
19
Results of Operations
Fourth Quarter Ended February 29, 2020
The
following table summarizes our operating results for the
three-month periods ended February 29, 2020 and February 28, 2019,
in U.S. Dollars.
|
|
Three Months
Ended
|
||
|
|
February 29,
2020
|
February 28,
2019
|
$ Change
|
|
Revenues
|
$
-
|
$
|
$
-
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
311,253
|
250,251
|
61,002
|
|
Other
research and development
|
1,159,676
|
273,815
|
885,861
|
|
Total
research and development
|
1,470,929
|
524,066
|
946,863
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
547,327
|
575,240
|
(27,913
)
|
|
Legal
settlement
|
-
|
4,041,627
|
(4,041,627
)
|
|
Other
general and administrative
|
1,221,037
|
1,514,203
|
(293,166
)
|
|
Total
general and administrative
|
1,768,364
|
6,131,070
|
(4,362,706
)
|
|
|
|
|
|
|
Depreciation and
amortization
|
245,065
|
136,285
|
108,780
|
|
Impairment of
intangible assets
|
-
|
298,694
|
(298,694
)
|
|
Interest and other
finance costs
|
406,215
|
425,964
|
(19,749
)
|
|
Interest
income
|
(136,913
)
|
-
|
(136,913
)
|
|
Foreign
exchange loss (gain)
|
4,303
|
38,632
|
(34,329
)
|
|
Total
expenses
|
3,757,963
|
7,554,711
|
(3,796,748
)
|
|
Net
loss
|
$
(3,757,963
)
|
(7,554,711
)
|
$
3,796,748
|
|
|
|
|
|
The net
loss for the three-month period ended February 29, 2020 decreased
$3.80 million to $3.76 million, as compared to the net loss for the
three-month period ended February 28, 2019 which was $7.55
million. The decrease is primarily due to decreased general
and administrative expenses of $4.36 million, a decrease in
impairment of intangible assets of $0.30 million, an increase in
interest income of $0.14 million, partially offset by higher
research and development expenses of $0.95 million and by higher
depreciation and amortization of $0.11 million.
Research
and development expenses for the three-month period ended February
29, 2020 amounted to $1.47 million compared to $0.52 million for
the three-month period ended February 28, 2019, representing an
increase of $0.95 million, or $0.89 million excluding stock-based
compensation. The increase of $0.89 million was primarily
attributable to higher employee related expenses of $0.63 million,
higher spending for purchases and consumables of $0.15 million and
higher professional fees of $0.06 million. The increase in non-cash
stock-based compensation expense of $0.06 million is mainly
attributable to the timing of certain stock awards provided to
employees.
20
General
and administrative expenses for the three-month period ended
February 29, 2020 amounted to $1.77 million compared to $6.13
million for the three-month period ended February 28, 2019,
representing a decrease of $4.36 million, or $0.29 million
excluding stock-based compensation and the legal settlement. The
decrease of $4.36 million was primarily due to a legal settlement
expense which amounted to $4.04 million for the three-month period
ended February 28, 2019 compared to nil for the three-month period
ended February 29, 2020. Other variances were attributable to lower
employee related expenses of $0.23 million, lower legal, accounting
and other professional fees of $0.41 million offset by higher
Directors’ and Officers’ insurance expenses of $0.24
million. Stock-based compensation expense for the three-month
period ended February 29, 2020 amounted to $0.55 million compared
to $0.58 million for the three-month period ended February 28,
2019, representing a decrease of $0.03 million. The decrease was
mainly attributable to lower stock awards provided to
executives.
Depreciation
and amortization for the three-month period ended February 29, 2020
totaled $0.25 million compared to $0.14 million for the three-month
period ended February 28, 2019, representing an increase of $0.11
million. The increase is mainly attributable to an increase in the
amount of fixed assets held at our pilot plant and corporate
offices. Impairment of intangible assets for the three-month period
ended February 29, 2020 was nil compared to $0.30 million for the
three-month period ended February 28, 2019, representing a decrease
of $0.30 million. The increase is entirely attributable to the
write-off of the remaining intangible asset balance of the GEN I
technology of $0.30 million in the three-month period ended
February 28, 2019.
Interest
and other finance costs for the three-month period ended February
29, 2020 totaled $0.41 million compared to $0.43 for the
three-month period ended February 28, 2019, representing a decrease
of $0.02 million. The decrease is mainly attributable to a decrease
in interest expense relating to the convertible notes converted
during the year in the amount of $0.06 million offset by an
increase in accretion expense also relating to the convertible
notes converted during the year in the amount of $0.04
million.
Fiscal Year Ended February 29, 2020
The
following table summarizes our operating results for the years
ended February 29, 2020 and February 28, 2019, in U.S.
Dollars.
|
|
Years
Ended
|
||
|
|
February 29,
2020
|
February
28,
2019
|
$
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
1,252,394
|
1,160,254
|
92,140
|
|
Other
research and development
|
3,464,781
|
2,288,293
|
1,176,488
|
|
Total
research and development
|
4,717,175
|
3,448,547
|
1,268,628
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
2,216,997
|
2,824,902
|
(607,905
)
|
|
Legal
settlement
|
-
|
4,041,627
|
(4,041,627
)
|
|
Other
general and administrative
|
4,998,423
|
5,986,336
|
(987,913
)
|
|
Total
general and administrative
|
7,215,420
|
12,852,865
|
(5,637,445
)
|
|
|
|
|
|
|
Depreciation and
amortization
|
830,432
|
502,996
|
327,436
|
|
Impairment of
intangible assets
|
-
|
298,694
|
(298,694
)
|
|
Interest and other
finance costs
|
2,223,304
|
467,082
|
1,756,222
|
|
Interest
income
|
(500,478
)
|
-
|
(500,478
)
|
|
Foreign
exchange loss (gain)
|
19,602
|
(33,773
)
|
53,375
|
|
Total
expenses
|
14,505,455
|
17,536,411
|
(3,030,956
)
|
|
Net
loss
|
$
(14,505,455
)
|
(17,536,411
)
|
3,030,956
|
|
|
|
|
|
21
The net
loss for the year ended February 29, 2020 decreased by $3.03
million, to $14.51 million, as compared to the net loss for the
year ended February 28, 2019 which was $17.54 million. The decrease
is primarily explained by lower general and administrative expenses
of $5.64 million, an increase in interest income of $0.50 million
and a decrease of impairment of intangible assets of $0.30 million
offset by an increase in research and development expenses of $1.27
million, an increase in interest and other finance costs of $1.76
million, an increase in depreciation and amortization of $0.33
million and an increase in foreign exchange of $0.05
million.
Research
and development expenses for year ended February 29, 2020 amounted
to $4.72 million compared to $3.45 million for the year ended
February 28, 2019, representing an increase of $1.27 million, or
$1.18 million excluding stock-based compensation. The increase of
$1.18 million was primarily attributable to higher employee related
expenses of $1.01 million, increased purchases and consumables of
$0.21 million, higher travel costs of $0.06 and higher facilities
costs of $0.05 offset by lower professional fees of $0.30 million.
The increase in non-cash stock-based compensation expense of $0.09
million was attributable to the timing of certain stock awards
provided to employees.
General
and administrative expenses for the year ended February 29, 2020
totaled $7.22 million compared to $12.85 million for the year
ended February 28, 2019, representing a decrease of $5.64 million,
or $0.99 million excluding stock-based compensation and the legal
settlement. The decrease of $5.64 million was primarily
attributable to a legal settlement expense which amounted to nil
for the year ended February 29, 2020 compared to $4.04 million for
the year ended February 28, 2019. Other variances were attributable
to lower legal fees of $2.04 million offset by higher
Directors’ and Officers’ insurance expenses of $0.4
million, higher employee related expenses of $0.27 million as well
as higher accounting and other professional fees of $0.27 million.
Stock-based compensation expense for the year ended February 29,
2020 amounted to $2.22 million compared to $2.82 million for the
year ended February 28, 2019, representing a decrease of $0.61
million. The decrease was mainly attributable to lower stock awards
provided to executives.
Depreciation
and amortization for the year ended February 29, 2020 totaled $0.83
million compared to $0.50 million for the year ended February 28,
2019, representing an increase of $0.33 million. The increase is
mainly attributable to an increase in the amount of fixed assets
held at our pilot plant and corporate offices. Impairment of
intangible assets for the year ended February 29, 2020 was nil
compared to $0.30 million for the year ended February 28, 2019,
representing a decrease of $0.3 million. The decrease is mainly
attributable to the write-off of the remaining intangible asset
balance of the GEN I technology of $0.3 in the year ended February
28, 2019.
Interest
and other finance costs for the year ended February 29, 2020
totaled $2.22 million compared to $0.47 million for the year ended
February 28, 2019, representing an increase of $1.76 million. The
increase is mainly attributable to an increase in accretion expense
related to convertible notes of $1.76 million and increased
interest expense also relating to the convertible notes issued
during the year of $0.26 million offset by a gain on conversion
related to the convertible notes of $0.23 million and a decreased
expense for revaluation of financial instruments of $0.03
million.
LIQUIDITY AND CAPITAL RESOURCES
We are
a development stage company with no revenues, and our ongoing
operations and commercialization plans 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 29, 2020, we had cash and cash equivalents on hand of
$33.72 million.
Although
we continue to be in a good liquidity position with cash and cash
equivalents on hand of $33.72 million, in light of the current
global COVID-19 pandemic, our liquidity position may change,
including the inability to raise new equity and debt, disruption in
completing repayments or disbursements to our creditors. 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 29, 2020, we incurred a net loss of
$14.51 million, used cash in operations of $9.10 million and had an
accumulated deficit as at February 29, 2020 of $53.32 million, 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 29, 2020, we have a long-term debt obligation to a
Canadian bank in connection with the purchase, in the year ended
February 28, 2018, of the land and building where our pilot plant
and corporate offices are located at 480 Fernand-Poitras,
Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the
Company obtained a $1,042,520 (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
$4,344 (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.
We also
have a long-term debt obligation to Investissement Québec in
connection with a financing facility equal to 63.45% of all
eligible expenses incurred for the expansion of its Pilot Plant up
to a maximum of $3,425,423 (CDN$4,600,000). We received the first
disbursement in the amount of $ 1,645,122 (CDN$2,209,234) on
February 21, 2020.
There
is a 36-month moratorium on both capital and interest repayments as
of the first disbursement date. At the end of the 36-month
moratorium, capital and interest will be repayable in 84 monthly
installments. The loan bears interest at 2.36%. We have also agreed
to issue to Investissement Québec warrants to purchase shares
of our common stock in an amount equal to 10% of each disbursement
up to a maximum aggregate amount of $342,542 (CDN$460,000). The
warrants will be issued at a price per share equal to the higher of
(i) $11.00 per share and (ii) the ten-day weighted average closing
price of Loop Industries shares of common stock on the Nasdaq stock
market for the 10 days prior to the issue of the warrants. The
warrants can be exercised immediately upon grant and will have a
term of three years from the date of issuance. The loan can be
repaid at any time by us without penalty. On February 21, 2020,
upon the receipt of the first disbursement under this facility, we
issued a warrant to purchase 15,153 shares of common stock at a
price of $11.00 to Investissement Québec.
22
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the years ended February 29, 2020, and
February 28, 2019 and 2018 was as follows:
|
|
Years
Ended
|
||
|
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
Net cash used in
operating activities
|
$
(9,092,549
)
|
$
(7,562,487
)
|
$
(6,391,486
)
|
|
Net cash used in
investing activities
|
(3,388,985
)
|
(2,046,119
)
|
(2,798,372
)
|
|
Net cash provided
by financing activities
|
40,463,141
|
7,328,024
|
16,504,451
|
|
Effect of exchange
rate changes on cash
|
(97,326
)
|
(35,741
)
|
(81,367
)
|
|
Net change in
cash
|
$
27,884,281
|
$
(2,316,323
)
|
$
7,233,226
|
Net Cash Used in Operating Activities
During
the year ended February 29, 2020, we used $9.10 million in
operations compared to $7.56 million during the year ended February
28, 2019 and $6.39 million during the year ended February 28, 2018.
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 29, 2020, we used $3.39 million in
investing activities. We made capital asset investments of $2.54
million of which $2.44 million was mainly attributable to the
expansion and additions to our pilot plant and executive offices in
Terrebonne, Canada. We also invested $0.1 million in our
intellectual property as we developed, during the year ended
February 29, 2020, our next generation GEN II technology and filed
various patents in various jurisdictions around the world which
await approval. During the year ended February 29, 2020 we made
capital contributions to our joint venture with Indorama for a
total of $0.85 million.
Net Cash Provided by Financing Activities
During
the year ended February 29, 2020, we raised $40.46 million mainly
through two separate registered direct offerings of common stock,
in the net amounts of $34.60 million and $4.20 million,
respectively. We also made payments totaling $0.05 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, 2019, we raised $7.38 million through the
issuance of convertible debt and $15.69 million through the sale of
additional common stock and the exercise of warrants in the year
ended February 28, 2018.
During
the year ended February 29, 2020, we paid a total of $312,000 in
interest in connection with convertible notes (2019 – nil;
2018 – nil) that were converted during the year.
On
February 21, 2020, we received $1,645,122 (CDN$2,209,234) in
connection with the credit facility from Investissement Québec
to finance capital expenses incurred for the expansion of our pilot
plant. There is a 36-month moratorium on both capital and interest
repayments beginning on the date of receipt of the
funds.
On
January 24, 2018, in connection with the purchase of land and the
building, we obtained a credit facility from a Canadian bank in the
amount of $1,042,520 (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 $4,344 (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 $56,482 during the
year ended February 29, 2020 (2019 - $50,040; 2018 – 5,125).
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 that we comply with certain financial covenants.
As at February 29, 2020 and February 28, 2019, we were in
compliance with its financial covenants.
23
OFF-BALANCE SHEET ARRANGEMENTS
As at
February 29, 2020, we did not have any off-balance sheet
arrangements as defined in the rules and regulations of the
SEC.
As at
February 29, 2020, we did not have any significant lease
obligations to third parties.
OUTLOOK
In
connection with the upcoming fiscal year ending February 28, 2021,
we will continue to monitor the potential impacts of COVID-19 on
our business. We intend to continue to execute our corporate
strategy. We believe we must execute on several areas of our
operational strategic plan, namely:
●
Protecting our
intellectual property;
●
Continuing to
upgrade our pilot plant to ensure the highest quality of
sustainable Loop™ PET resin and polyester fiber is produced
at the facility;
●
Identifying and
securing feedstock to ensure our facilities can operate
continuously and efficiently;
●
With our joint
venture with Indorama, complete the engineering work associated
with the Spartanburg facility and proceed with
construction;
●
Continuing to
execute brand and other partnerships and/or commercial agreements
with customers; and
●
Continuing to
drive the development of our Infinite Loop™ solution, which
we believe is a key pillar of our ambition to sell 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.
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 long-lived assets and intangibles, 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.
24
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 the carrying value of intangible assets subject to
amortization whenever events or changes in circumstances indicate
that the carrying amount of an intangible asset might not be
recoverable, or a change in the remaining useful life of an
intangible asset. 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. 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 and restricted stock units to
employees and directors as part of their compensation. We account
for stock options and restricted stock units granted to employees
and directors 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 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 has been
met.
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 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.
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.
25
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 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.
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.
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.
26
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.
The
following table summarizes the exchange rates used:
|
|
Years
Ended
|
||
|
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
Period end Canadian
$: US Dollar exchange rate
|
$
0.74
|
$
0.76
|
$
0.78
|
|
Average period
Canadian $: US Dollar exchange rate
|
$
0.75
|
$
0.76
|
$
0.78
|
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.
27
I
TEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Loop Industries, Inc.
February 29, 2020
Index to the Consolidated Financial Statements
|
Contents
|
Page(s)
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Consolidated
balance sheets as at February 29, 2020 and February 28,
2019
|
F-3
|
|
|
|
|
Consolidated
statements of operations and comprehensive loss for the years ended
February 29, 2020, February 28, 2019 and February 28,
2018
|
F-4
|
|
|
|
|
Consolidated
statement of changes in stockholders’ equity for the years
ended February 29, 2020, February 28, 2019 and February 28,
2018
|
F-5
|
|
|
|
|
Consolidated
statement of cash flows for the years ended February 29, 2020,
February 28, 2019 and February 28, 2018
|
F-6
|
|
|
|
|
Notes
to the consolidated financial statements
|
F-7
|
28
F-1
F-3
Loop Industries, Inc.
Consolidated Balance Sheets
(in United States dollars)
|
|
As
at
|
|
|
|
February 29,
2020
|
February 28,
2019
|
|
|
|
|
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
33,717,671
|
$
5,833,390
|
|
Sales tax, tax
credits and other receivables (Note 3)
|
664,544
|
599,000
|
|
Prepaid
expenses
|
141,226
|
226,521
|
|
Total current
assets
|
34,523,441
|
6,658,911
|
|
Investment in
joint venture
|
850,000
|
-
|
|
Property, plant
and equipment, net (Note 4)
|
7,260,254
|
5,371,263
|
|
Intangible assets,
net (Note 5)
|
202,863
|
127,672
|
|
Total
assets
|
$
42,836,558
|
$
12,157,846
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Accounts payable
and accrued liabilities
|
$
2,082,698
|
$
2,670,233
|
|
Convertible notes
(Note 10)
|
-
|
5,636,172
|
|
Warrants (Note
10)
|
-
|
219,531
|
|
Current portion of
long-term debt (Note 9)
|
52,126
|
53,155
|
|
Total current
liabilities
|
2,134,824
|
8,579,091
|
|
Long-term debt
(Note 9)
|
2,238,026
|
952,363
|
|
Total
liabilities
|
4,372,850
|
9,531,454
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
Series A Preferred
stock par value $0.0001; 25,000,000 shares authorized; one share
issued and outstanding (Note 12)
|
-
|
-
|
|
Common stock par
value $0.0001; 250,000,000 shares authorized; 39,910,774 shares
issued and outstanding (2019 – 33,805,706) (Note
12)
|
3,992
|
3,381
|
|
Additional paid-in
capital (Note 13)
|
82,379,413
|
38,966,208
|
|
Additional paid-in
capital – Warrants (Note 10)
|
9,785,799
|
757,704
|
|
Additional paid-in
capital - Beneficial conversion feature (Note 10)
|
-
|
1.200,915
|
|
Common stock
issuable, nil shares (2019-1,000,000 shares) (Note 11)
|
-
|
800,000
|
|
Accumulated
deficit
|
(53,317,047
)
|
(38,811,592
)
|
|
Accumulated other
comprehensive loss
|
(388,449
)
|
(290,224
)
|
|
Total
stockholders' equity
|
38,463,708
|
2,626,392
|
|
Total liabilities
and stockholders' equity
|
$
42,836,558
|
$
12,157,846
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements
.
F-3
Loop Industries, Inc.
Consolidated Statements of Operations and Comprehensive
Loss
(in United States dollars)
|
|
Years
Ended
|
||
|
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
Revenue
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Expenses
-
|
|
|
|
|
Research and
development (Notes 2 and 3)
|
4,717,175
|
3,448,547
|
6,694,778
|
|
General and
administrative
|
7,215,420
|
8,811,237
|
6,860,623
|
|
Legal settlement
(Note 18)
|
-
|
4,041,627
|
-
|
|
Depreciation and
amortization (Notes 4 and 5)
|
830,432
|
502,997
|
367,176
|
|
Impairment of
intangible assets (Note 5)
|
-
|
298,694
|
-
|
|
Interest and other
finance costs (Notes 9, 10 and 17)
|
2,223,304
|
467,082
|
5,125
|
|
Interest
income
|
(500,478
)
|
-
|
-
|
|
Foreign exchange
loss (gain)
|
19,602
|
(33,773
)
|
109,676
|
|
Total
expenses
|
14,505,455
|
17,536,411
|
14,037,378
|
|
|
|
|
|
|
Net
loss
|
(14,505,455
)
|
(17,536,411
)
|
(14,037,378
)
|
|
|
|
|
|
|
Other
comprehensive loss -
|
|
|
|
|
Foreign currency
translation adjustment
|
(98,225
)
|
(121,124
)
|
(17,889
)
|
|
Comprehensive
loss
|
$
(14,603,680
)
|
$
(17,657,535
)
|
$
(14,055,267
)
|
|
Loss per
share
|
|
|
|
|
Basic and
diluted
|
$
(0.38
)
|
$
(0.52
)
|
$
(0.43
)
|
|
Weighted average
common shares outstanding
|
|
|
|
|
Basic and
diluted
|
37,936,094
|
33,795,600
|
32,642,741
|
See accompanying notes to the consolidated financial
statements.
F-4
Loop Industries, Inc.
Consolidated Statement of Changes in Stockholders’
Equity
For the Years Ended February 29, 2020, February 28, 2019
and February 28, 2018
(in United States dollars)
|
|
Common Stock par
value $0.0001
|
Preferred stock
par value $0.0001
|
|
||||||||
|
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 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 (Note 12)
|
1,829,061
|
183
|
-
|
-
|
14,052,298
|
-
|
-
|
-
|
-
|
-
|
14,052,481
|
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
6,281,319
|
-
|
-
|
-
|
-
|
-
|
6,281,319
|
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
265,994
|
-
|
-
|
-
|
-
|
-
|
265,994
|
|
Issuance of shares upon exercise of
warrants for cash (Note 13)
|
355,020
|
35
|
-
|
-
|
1,641,981
|
-
|
-
|
-
|
-
|
-
|
1,642,016
|
|
Issuance of shares upon cashless
exercise of warrants (Note 13)
|
115,034
|
12
|
-
|
-
|
(12
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,889
)
|
(17,889
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,037,378
)
|
-
|
(14,037,378
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2018
|
33,751,088
|
$
3,376
|
1
|
$
-
|
$
30,964,970
|
$
-
|
$
-
|
$
800,000
|
$
(21,275,181
)
|
$
(169,100
)
|
$
10,324,065
|
See accompanying notes to the consolidated financial
statements.
F-5
|
|
Common
stock
par value
$0.0001
|
Preferred
stock
par value
$0.0001
|
|
|
|
|
|
|
|
||
|
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2018
|
33,751,088
|
$
3,376
|
1
|
$
-
|
$
30,964,970
|
$
-
|
$
-
|
$
800,000
|
$
(21,275,181
)
|
$
(169,100
)
|
$
10,324,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon cashless
exercise of warrants (Note 12)
|
18,821
|
2
|
-
|
-
|
(2
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of shares upon vesting of
restricted stock units (Note 12)
|
35,797
|
3
|
-
|
-
|
(3
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
3,176,786
|
-
|
-
|
-
|
-
|
-
|
3,176,786
|
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
808,374
|
-
|
-
|
-
|
-
|
-
|
808,374
|
|
Legal settlement (Note
18)
|
-
|
-
|
-
|
-
|
4,041,627
|
-
|
-
|
-
|
-
|
-
|
4,041,627
|
|
Issuance of Convertible notes (Note
10)
|
-
|
-
|
-
|
-
|
(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-6
|
|
Common
stock
|
Preferred
stock
|
|
|
|
|
|
|
|
||
|
|
par value
$0.0001
|
par value
$0.0001
|
|
|
|
|
|
|
|
||
|
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in Capital
- Warrants
|
Additional
Paid-in Capital
– Beneficial Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2019
|
33,805,706
|
$
3,381
|
1
|
$
-
|
$
38,966,208
|
$
757,704
|
$
1,200,915
|
$
800,000
|
$
(38,811,592
)
|
$
(290,224
)
|
$
2,626,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash,
net of share issuance costs (Note 12)
|
4,693,567
|
469
|
-
|
-
|
30,408,410
|
8,663,769
|
-
|
-
|
-
|
-
|
39,072,648
|
|
Issuance of shares for legal
settlement (Note 18)
|
150,000
|
15
|
-
|
-
|
(15
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of shares upon conversion
of Convertible notes (Notes 10 and Note 12)
|
932,084
|
94
|
-
|
-
|
8,553,403
|
324,672
|
(1,200,915
)
|
-
|
-
|
-
|
7,677,254
|
|
Issuance of shares upon the vesting
of restricted stock units (Note 12)
|
244,884
|
25
|
-
|
-
|
799,975
|
-
|
-
|
(800,000
)
|
-
|
-
|
-
|
|
Issuance of shares upon the
cashless exercise of stock options (Note 12)
|
69,101
|
7
|
-
|
-
|
(7
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of shares upon exercise of
warrants (Notes 12 and 15)
|
15,432
|
1
|
-
|
-
|
182,048
|
(38,300
)
|
-
|
-
|
-
|
-
|
143,749
|
|
Issuance of warrants for financing
facility (Notes 9 and 19)
|
-
|
-
|
-
|
-
|
-
|
77,954
|
-
|
-
|
-
|
-
|
77,954
|
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
2,178,948
|
-
|
-
|
-
|
-
|
-
|
2,178,948
|
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
1,290,443
|
-
|
-
|
-
|
-
|
-
|
1,290,443
|
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(98,225
)
|
(98,225
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,505,455
)
|
-
|
(14,505,455
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 29, 2020
|
39,910,774
|
$
3,992
|
1
|
$
-
|
$
82,379,413
|
$
9,785,799
|
$
-
|
$
-
|
$
(53,317,047
)
|
$
(388,449
)
|
$
38,463,708
|
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 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
Cash Flows from Operating Activities
|
|
|
|
|
Net
loss
|
$
(14,505,455
)
|
$
(17,536,411
)
|
$
(14,037,378
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation and
amortization (Notes 4 and 5)
|
830,432
|
502,997
|
367,176
|
|
Impairment of
intangible assets (Note 5)
|
-
|
298,694
|
-
|
|
Warrants issued
for legal settlement (Note 18)
|
-
|
2,271,627
|
-
|
|
Shares issued for
legal settlement (Note 18)
|
-
|
1,770,000
|
-
|
|
Stock-based
compensation (Note 13)
|
3,469,390
|
3,985,160
|
6,547,313
|
|
Accrued interest
(Note 10)
|
363,390
|
109,804
|
-
|
|
Loss on
revaluation of warrants (Note 10)
|
8,483
|
65,167
|
-
|
|
Convertible notes
debt discount amortization (Note 10)
|
1,892,185
|
185,505
|
-
|
|
Deferred financing
costs
|
96,155
|
47,123
|
-
|
|
Gain on conversion
of convertible notes (Note 10)
|
(232,565
)
|
-
|
-
|
|
Fair value of
warrants issued (Note 9)
|
7,744
|
-
|
-
|
|
Loss on
revaluation of foreign exchange contracts
|
27,129
|
-
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
Valued added tax
and tax credits receivable
|
(77,294
)
|
(234,366
)
|
(218,560
)
|
|
Prepaid
expenses
|
83,876
|
285,052
|
(511,573
)
|
|
Accounts payable
and accrued liabilities
|
(1,056,019
)
|
687,161
|
1,821,536
|
|
Advances from
controlling stockholder
|
-
|
-
|
(360,000
)
|
|
Net cash used in
operating activities
|
(9,092,549
)
|
(7,562,487
)
|
(6,391,486
)
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
Investment in
joint venture (Note 8)
|
(850,000
)
|
-
|
-
|
|
Additions to
property, plant and equipment (Note 4)
|
(2,439,013
)
|
(1,892,654
)
|
(2,710,053
)
|
|
Additions to
intangible assets (Note 5)
|
(99,972
)
|
(153,465
)
|
(88,319
)
|
|
Net cash used in
investing activities
|
(3,388,985
)
|
(2,046,119
)
|
(2,798,372
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
Proceeds from
sales of common shares and exercise of warrants, net of share
issuance costs (Note12)
|
39,216,399
|
(25,544
)
|
15,694,497
|
|
Repayment of
advances from controlling stockholder (Note 11)
|
-
|
-
|
(278,472
)
|
|
Proceeds from
issuance of long-term debt (Note 9)
|
1,645,122
|
-
|
-
|
|
Proceeds from
issuance of convertible notes (Note 10)
|
-
|
7,550,000
|
1,092,980
|
|
Deferred financing
costs
|
(34,254
)
|
(143,277
)
|
-
|
|
Payment of accrued
interest on convertible notes (Note 10)
|
(312,000
)
|
-
|
-
|
|
Repayment of
long-term debt
|
(52,126
)
|
(53,155
)
|
(4,554
)
|
|
Net cash provided
by financing activities
|
40,463,141
|
7,328,024
|
16,504,451
|
|
|
|
|
|
|
Effect of exchange
rate changes
|
(97,326
)
|
(35,741
)
|
(81,367
)
|
|
Net change in
cash
|
27,884,281
|
(2,316,323
)
|
7,233,226
|
|
Cash and cash
equivalents, beginning of year
|
5,833,390
|
8,149,713
|
916,487
|
|
Cash and cash
equivalents, end of year
|
$
33,717,671
|
$
5,833,390
|
$
8,149,713
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
Income tax
paid
|
$
-
|
$
-
|
$
-
|
|
Interest
paid
|
$
368,482
|
$
54,040
|
$
5,125
|
|
Interest
received
|
$
500,478
|
$
-
|
$
-
|
See accompanying notes to the consolidated financial
statements.
F-8
Loop Industries, Inc.
February 29, 2020, February 28, 2019 and February 28,
2018
Notes to the Consolidated Financial Statements
(in United States dollars except where otherwise
indicated)
1. The Company and Basis of Presentation
The Company
Loop
Industries, Inc. (the “Company,” “Loop
Industries,” “we,” or “our”) is a
technology company that owns patented and proprietary technology
that depolymerizes no and low value waste PET plastic and polyester
fiber to its base building blocks (monomers). The monomers
are filtered, purified and polymerized to create virgin-quality
Loop™ branded PET resin and polyester fiber suitable for use
in food-grade packaging.
On
November 20, 2017, Loop Industries Inc. commenced trading on the
NASDAQ Global Market under its new trading symbol,
“LOOP.” From April 10, 2017 to November 19, 2017, our
common stock was quoted on the OTCQX tier of the OTC
Markets Group Inc. under the symbol
“LLPP.”
Basis of presentation
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, Indorama Loop
Technologies, LLC, which is accounted for under the equity
method.
Intercompany
balances and transactions are eliminated on
consolidation.
2. Summary of Significant Accounting Policies
Use of estimates
The
preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for depreciable
lives of property, plant and equipment, intangible assets, analysis
of impairments of long-lived assets and intangibles, 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.
F-9
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.
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.
F-10
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 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.
Government grants
US GAAP
for profit-oriented entities does not define government grants; nor
is there specific guidance applicable to government grants. Under
the Company’s accounting policy for government grants and
consistent with non-authoritative guidance, grants are recognized
on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which the grants are
intended to compensate.
Grants
that relate to the acquisition of an asset are recognized as a
reduction of the cost of the asset and in the statement of
operations and comprehensive loss as the asset is depreciated or
amortized.
A grant
that is compensation for expenses or losses already incurred, or
for which there are no future related costs, is recognized in the
statement of operations and comprehensive loss in the period in
which it becomes receivable.
Low-interest
loans or interest-free loans from a government are initially
measured at fair value and interest expense is recognized on the
loan subsequently under the effective interest method, with the
difference recognized as a government grant
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
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
reviews the carrying values of its property, plant and equipment
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group might not be
recoverable. Assets are grouped at the lowest level for which
identifiable cash flows are largely independent when testing for,
and measuring for, impairment. In performing its review of
recoverability, the Company estimates the future cash flows
expected to result from the use of the asset or asset group and its
eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount of the asset or
asset group, an impairment loss is recognized in the consolidated
statements of operations. Measurement of the impairment loss is
based on the excess of the carrying amount of the asset or asset
group over the fair value calculated using discounted expected
future cash flows. As at February 29, 2020, and February 28, 2019
and 2018, the Company determined that there were no indicators of
impairment and therefore, did not recognize any impairment of its
property, plant and equipment.
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 the carrying value of intangible assets subject to
amortization whenever events or changes in circumstances indicate
that the carrying amount of an intangible asset might not be
recoverable, or a change in the remaining useful life of an
intangible asset. 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. 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
The
Company periodically issues stock options and restricted stock
units to employees and directors as part of their compensation. The
Company accounts for stock options and restricted stock units
granted to employees and directors 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 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.
F-12
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 29, 2020, February 28, 2019 and February 28, 2018
amounted to $4.72 million,$3.45 million and $6.69 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 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 29, 2020, February 28, 2019 and February 28,
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 29, 2020, the potentially
dilutive securities consisted of 1,587,081 outstanding stock
options (2019 –1,962,400; 2018 – 2,374,581), 4,218,802
outstanding restricted stock units (2019 – 402,868;
2018– 34,102), 5,059,331 outstanding warrants (2019 –
802,469; 2018 – 140,667) and nil outstanding issuable common
stock (2019 – 1,000,000; 2018 –
1,000,000).
Recently adopted accounting pronouncements
In
February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
, which permits
entities to reclassify the disproportionate income tax effects of
the Tax Reform Act on items within accumulated other comprehensive
income (loss) ("AOCI") to retained earnings. These disproportionate
income tax effect items are referred to as "stranded tax effects."
Amendments in this update only relate to the reclassification of
the income tax effects of the Tax Reform Act. Other accounting
guidance that requires the effect of changes in tax laws or rates
to be included in net income from continuing operations is not
affected by this update. ASU 2018-02 should be applied either in
the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Reform Act is recognized. The Company adopted ASU
2018-02 on March 1, 2019 and include its effects in the current
fiscal year. The adoption of the standard had no impact on the
consolidated financial statements of the Company.
In June
2018, the FASB issued ASU 2018-07,
Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment
Accounting
. The amendments in this update expand the scope
of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. An entity should
apply the requirements of Topic 718 to nonemployee awards except
for specific guidance on inputs to an option pricing model and the
attribution of cost (that is, the period of time over which
share-based payment awards vest and the pattern of cost recognition
over that period). The amendments specify that Topic 718 applies to
all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with
Customers
. The amendments in this Update are effective for
public entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
F-13
In July
2018, the FASB issued ASU 2018-09,
Codification Improvements
, which
clarify certain amendments to guidance that may have been
incorrectly or inconsistently applied by certain entities and
includes Amendments to Subtopic 718-740
, Compensation – Stock Compensation
– Income Taxes
. The guidance in paragraph
718-740-35-2, as amended by the amendments in ASU 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting, is unclear on whether
an entity should recognize excess tax benefits (or tax
deficiencies) for compensation expense that is taken on the
entity’s tax return. The amendment to paragraph 718-740-35-2
in this Update clarifies that an entity should recognize excess tax
benefits in the period in which the amount of deduction is
determined. The amendments in this Update are effective for public
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
In
February 2016, the FASB issued ASU 2016-02, “Leases,”
amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted
Improvements,” and ASU 2018-20, “Narrow-Scope
Improvements for Lessors,” which requires lessees to
recognize leases on the balance sheet while continuing to recognize
expenses in the income statement in a manner similar to current
accounting standards. For lessors, the new standard modifies the
classification criteria and the accounting for sales-type and
direct financing leases. Enhanced disclosures will also be required
to give financial statement users the ability to assess the amount,
timing, and uncertainty of cash flows arising from leases. This ASU
may either be adopted on a modified retrospective approach at the
beginning of the earliest comparative period, or through a
cumulative-effect adjustment at the adoption date. This update is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company
adopted these standards effective March 1, 2019 through a
cumulative-effect adjustment at the adoption date. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
Recently issued accounting pronouncements not yet
adopted
In June
2016, the FASB issued ASU 2016-13, “Financial
Instruments—Credit Losses”. This ASU added a new
impairment model (known as the current expected credit loss
(“CECL”) model) that is based on expected losses rather
than incurred losses. Under the new guidance, an entity recognizes
an allowance for its estimate of expected credit losses and applies
to most debt instruments, trade receivables, lease receivables,
financial guarantee contracts, and other loan commitments. The CECL
model does not have a minimum threshold for recognition of
impairment losses and entities will need to measure expected credit
losses on assets that have a low risk of loss. This update is
effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years for smaller
reporting companies. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
In
August 2018, the FASB issued ASU 2018-15, “Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement that Is a Service Contract,” which aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). This update is
effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. We are still
evaluating the impact of this accounting guidance on our results of
operations and financial position.
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes”, which removes specific
exceptions to the general principles in ASC 740, “Income
Taxes,” and clarifies certain aspects of the existing
guidance. This update is effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years, with early adoption being permitted as of the beginning of
an interim or annual reporting period. All amendments to this ASU
must be adopted in the same period on a prospective basis, with
certain exceptions. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
3. Sales Tax, Tax Credits and Other Receivables
Sales
tax, research and development tax credits and other receivables as
at February 29, 2020 and February 28, 2019 were as
follows:
|
|
February 29,
2020
|
February 28,
2019
|
|
Sales
tax
|
$
180,971
|
$
82,992
|
|
Research and
development tax credits
|
447,843
|
410,997
|
|
Other
receivables
|
35,730
|
105,011
|
|
|
$
664,544
|
$
599,000
|
F-14
The
Company is registered for the Canadian federal and provincial goods
and services taxes. As such, the Company is obligated to collect
from third parties, and is entitled to claim sales taxes paid on
its expenses and capital expenditures incurred in
Canada.
In
addition, Loop Canada Inc. is entitled to receive government
assistance in the form of refundable and non-refundable research
and development tax credits from the federal and provincial
taxation authorities, based on qualifying expenditures incurred
during the fiscal year. The refundable credits are from the
provincial taxation authorities and are not dependent on its
ongoing tax status or tax position and accordingly are not
considered part of income taxes. The Company records refundable tax
credits as a reduction of research and development expenses when
the Company can reasonably estimate the amounts and it is more
likely than not, they will be received. During the year ended
February 29, 2020, the Company recorded $221,603, (2019 –
$305,592; 2018 – 221,202) as a reduction of research and
development expenses. During the year ended February 29,2020,
research and development tax credits received by the Company from
taxation authorities amounted to $175,929 (2019 – nil; 2018 -
nil).
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 29, 2020 amounted to nil (2019 - $73,581; 2018 –
$4,000) and government grants receivable at February 29, 2020
amounted to nil (2019 – nil; 2018 - $73,581).
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 29, 2020, the Company was eligible
for non-cash research and development tax credits in the amount of
$251,019 (2019 - $255,975; 2018 - $248,690). These non-cash tax
credits, which have an unlimited carry forward period are not
recognized in the Company’s consolidated financial
statements.
4. Property, Plant and Equipment
|
|
As at February 29,
2020
|
||
|
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|
Building
|
$
1,846,070
|
$
(128,911
)
|
$
1,717,159
|
|
Land
|
264,868
|
-
|
264,868
|
|
Building
Improvements
|
733,884
|
(214,068
)
|
519,816
|
|
Machinery and
equipment
|
6,085,195
|
(1,426,465
)
|
4,658,730
|
|
Office equipment
and furniture
|
162,466
|
(62,785
)
|
99,681
|
|
|
$
9,092,483
|
$
(1,832,229
)
|
$
7,260,254
|
|
|
|
|
|
|
|
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
|
|
|
$
6,450,775
|
$
(1,079,512
)
|
$
5,371,263
|
Depreciation
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$807,800 for the year ended February 29, 2020 (2019 - $443,146;
2018 - $303,597).
F-15
During
the year ended February 29, 2020, the Company recorded a government
grant in connection with the financing facility received from
Investissement Québec as a reduction in the cost of fixed
assets for a total of $179,522 (2019 – nil; 2018 –
nil). More details on the Investissement Québec financing
facility can be found in note 9, Long-Term Debt.
5. Intangible Assets
During
the year ending February 29, 2020, the Company finalized the
development of its next Generation II (“GEN II”)
technology and filed various patents in jurisdictions around the
world. On April 9, 2019, the first GEN II U.S. patent was issued.
The GEN II technology portfolio has an issued U.S. patent and a
pending U.S. application, all expected to expire, if granted, on or
around September 2037. Internationally, the GEN II technology
portfolio also has a PCT application, an allowed application in
Bangladesh, and pending non-PCT country applications in Argentina,
Bolivia, Bhutan, members of the Gulf Cooperation Council, Iraq,
Pakistan, Taiwan, Uruguay, and Venezuela, all expected to expire on
or around September 2038 if granted. Additional aspects of the GEN
II technology are claimed in a U.S. application, a PCT application,
and non-PCT country applications in Argentina, Bangladesh, Bolivia,
members of the Gulf Cooperation Council, Pakistan, Taiwan, and
Uruguay, all expected to expire on or around June 2039, if granted.
Additionally, we have two pending provisional applications directed
to further additional aspects of the GEN II technology. Any patents
that would ultimately grant from these provisional applications
would be expected to expire no earlier than 2040, 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
$22,631 for the year ended February 29, 2020 (2019 - $59,851; 2018
- $63,579).
|
|
As at February
29,
2020
|
As at February
28,
2019
|
|
|
|
|
|
Intangible assets,
at cost -
beginning of
period
|
$
127,672
|
$
533,369
|
|
|
|
|
|
Intangible assets,
accumulated depreciation -
beginning of
period
|
-
|
(200,629
)
|
|
|
127,672
|
332,740
|
|
|
|
|
|
Add: Additions in
the year
|
99,972
|
153,477
|
|
Deduct:
Amortization of intangibles
|
(22,631
)
|
(59,851
)
|
|
Deduct: Impairment
of intangibles
|
-
|
(298,694
)
|
|
Deduct: Foreign
exchange effect
|
(2,150
)
|
-
|
|
|
$
202,863
|
$
127,672
|
F-16
6. Fair value of financial instruments
The
following table presents the fair value of the Company’s
financial liabilities and warrants at February 29, 2020 and
February 28, 2019:
|
|
Fair Value
Measurements as at February 29, 2020
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Instruments
measured at fair value on a recurring basis:
|
$
-
|
$
-
|
-
|
|
|
|
|
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
956,932
|
956,932
|
Level 2
|
|
Investissement
Québec financing facility
|
$
1,356,228
|
$
1,357,185
|
Level 2
|
|
|
Fair Value
Measurements at February 28, 2019
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Financial
liabilities measured at fair value on a recurring
basis:
|
|
|
|
|
Warrants
(First Issuance)
|
$
219,531
|
$
219,531
|
Level
3
|
|
|
|
|
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
1,005,518
|
1,005,518
|
Level
2
|
|
Convertible
notes (First Issuance)
|
2,495,636
|
2,650,000
|
Level
2
|
|
Convertible
notes (Second Issuance)
|
$
3,126,886
|
$
3,150,000
|
Level
2
|
The
Warrants under the First Issuance of Convertible Notes represent a
Level 3 in the fair value hierarchy. The Warrants were valued using
a Monte Carlo simulation using a volatility of 71.5%. The Company
recorded a loss on revaluation from the date of issuance to
February 28, 2019 of $65,167.
7.
Accounts Payable and
Accrued Liabilities
Accounts
payable and accrued liabilities as at February 29, 2020 and
February 28, 2019 were as follows:
|
|
February
29,
2020
|
February
28,
2019
|
|
Trade accounts
payable
|
$
814,081
|
$
1,784,362
|
|
Trade accrued
liabilities
|
593,789
|
330,805
|
|
Accrued employee
compensation
|
634,807
|
554,204
|
|
Other accrued
liabilities
|
40,021
|
862
|
|
|
$
2,082,698
|
$
2,670,233
|
F-17
8. Joint Venture
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP
(“Indorama”), an indirect subsidiary of Indorama
Ventures Public Company Limited, to retrofit their existing PET
manufacturing facilities. The joint venture is expected to
manufacture and commercialize sustainable
Loop
TM
branded
PET resin and polyester fiber. The joint venture agreement
details the establishment of an initial 20,700 metric tons per year
facility. The joint venture agreed to double the capacity of the
facility to 40,000 metric tons per year thus increasing the
engineering work required. Each company has a 50/50 equity interest
in Indorama Loop Technologies, LLC (“ILT”), which was
specifically formed to operate and execute the joint venture.
Equity funding of the JV is also split on a 50/50
basis.
Under
the Agreement, Indorama is required to contribute manufacturing
knowledge and the Company is required to contribute its proprietary
science and technology. Specifically, the Company will contribute
an exclusive world-wide royalty-free license for ILT to use its
proprietary technology to produce 100% sustainably produced PET
resin and polyester fiber in addition to its cash
contributions.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There was no activity in
ILT from the date of inception of September 24, 2018 to February
28, 2019 and, as at February 28, 2019, the carrying value of the
equity investment was nil. On April 18, 2019 and October 21, 2019,
Loop Innovations, LLC, the Company’s wholly owned subsidiary,
and Indorama, each contributed cash of $850,000, respectively, to
ILT. As there were no other transactions during the year ended
February 29, 2020, the carrying value of the equity investment as
at February 28, 2019 was $850,000.
9. Long-Term Debt
Investissement Québec financing facility
On July
24, 2019, the Company signed an agreement with Investissement
Québec providing it with a financing facility equal to 63.45%
of all eligible expenses incurred for the expansion of its pilot
plant up to a maximum of $3,425,423 (CDN$4,600,000). There is a
36-month moratorium on both capital and interest repayments
beginning as of the first disbursement date. At the end of the
36-month moratorium, capital and interest will be repayable in 84
monthly installments. The loan bears interest at 2.36%.
The Company, under the loan
agreement, is required to pay fees representing 1% of the loan
amount, $34,254 (CDN$46,000), to IQ. The Company has also agreed to
issue to Investissement Québec warrants to purchase shares of
common stock of the Company in an amount equal to 10% of each
disbursement up to a maximum aggregate amount of $342,542
(CDN$460,000). The warrants will be issued at a price per share
equal to the higher of (i) $11.00 per share and (ii) the ten-day
weighted average closing price of Loop Industries shares of common
stock on the Nasdaq stock market for the 10 days prior to the issue
of the warrants. The warrants can be exercised immediately upon
grant and will have a term of three years from the date of
issuance. The loan can be repaid at any time by the Company without
penalty. On February 21, 2020, the Company received $1,645,122
(CDN$2,209,234) based on its first claim made with Investissement
Québec and issued a warrant to acquire 15,153 shares of common
stock at a strike price of $11.00 per share to Investissement
Québec in connection therewith. This was the first and only
disbursement of the financing facility received as at February 29,
2020.
The
financing facility is composed of three elements: the loan, the
warrants and the interest discount. Stock warrants are freestanding
instruments that provide the right to acquire/purchase a
company’s stock at some point in the future. Because warrants
are freestanding instruments (even if issued along with debt or
some other instruments), they must be recorded separately. The
warrants meet the requirements of the scope exemption 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. The fair value of the warrants was
determined to be $77,954.
The
Company believes that the terms of the debt on a stand-alone basis
are not representative of market given the risk-free interest rate
of the loan which was based on the rate of a 10-year Canadian Bond
at the time of the agreement. US GAAP for profit-oriented entities
does not define government grants; nor is there specific guidance
applicable to government grants. However, US practice may look to
other sources of non-authoritative guidance. Under the
Company’s accounting policy for government grants,
low-interest loans or interest-free loans from a government are
initially measured at fair value and interest expense is recognized
on the loan subsequently under the effective interest method, with
the difference recognized as a government grant and recognized on a
systematic basis over the periods in which the entity recognizes as
expenses the related costs for which the grants are intended to
compensate. The government grant portion of the first disbursement
was recorded as a reduction of fixed assets.
The
allocated fair values of the government grant and the warrants is
recorded in the financial statements as a debt discount from the
face amount of the loan and such discount is amortized over the
expected term of the convertible note and is charged to interest
expense.
F-18
The
company established the fair value of the loan for the portion
drawn on February 20, 2020 at $1,354,408 based on a discount rate
of 5.45%. The discount rate used was based on the external
financing from a Canadian bank.
Even if
ASC 470-20-25-2 specifies that the entity issues debt with
equity-classified stock purchase warrants, it uses the relative
fair value method at time of issuance to allocate the consideration
received to the debt and the warrants. Because the total fair value
of the debt and the warrants are less than the cash received, the
Company believes that the With and Without Method shall be used.
The debt and warrants that are separately valued are recorded at
their respective fair values and the excess of the total
transaction proceeds over the sum of those fair value amounts is
allocated to the remaining component, i.e. the government
grant.
The
financing facility is secured by a principal hypothec in the amount
of $3,425,423 (CDN$4,600,000) and an additional hypothec in the
amount of $685,085 (CDN$920,000) over the universality of its
present and future, tangible and intangible movable property,
excluding however all intellectual property. This
hypothec is subordinate to all
other hypothecs published on June 21, 2019 except for any hypothecs
that the Company may have granted to a shareholder, a related
person or related company, an insurer, a tenant, or a
supplier.
The
aggregate value of the Investissement Québec financing
facility as shown on the consolidated balance sheet is broken down
as follows:
|
|
February 29,
2020
|
Issue Date
|
|
Investissement
Québec loan
|
$
1,356,228
|
$
1,354,408
|
|
|
|
|
|
Government grant -
assets
|
178,891
|
179,522
|
|
|
|
|
|
Warrants -
equity
|
$
77,954
|
$
77,954
|
The
Company recorded interest expense on the Investissement Québec
loan from the issue date to February 29, 2020 in the amount of $968
(2019 – nil; 2018 – nil) and an accretion expense of
$872 (2019 – nil; 2018 – nil).
Term loan
On
January 24, 2018, the Company obtained a credit facility,
consisting of a $37,233 (CDN$50,000) credit card facility and a
$1,042,520 (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 $4,344 (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 $56,482 during
the year ended February 29, 2020 (2019 - $54,040; 2018 -
$5,125).
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 29, 2020 and February 28, 2019, the
Company was in compliance with its financial
covenants.
|
|
February
29,
2020
|
February
28,
2019
|
|
Instalment
loan
|
$
933,924
|
$
1,005,518
|
|
Less current
portion
|
52,126
|
53,155
|
|
Non-current
portion
|
$
881,798
|
$
952,363
|
F-19
Principal
repayments due on the Company’s long-term debt over the next
five years are as follows:
|
Years
ending
|
Amount
|
|
February 28,
2021
|
$
52,126
|
|
February 28,
2022
|
52,126
|
|
February 28,
2023
|
52,126
|
|
February 29,
2024
|
287,140
|
|
February 28,
2025
|
287,140
|
|
Thereafter
|
1,848,388
|
|
Total
|
$
2,579,046
|
10.
Convertible Notes
First Issuance
On
November 13, 2018, the Company issued convertible 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 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
used the net proceeds of the November 2018 Private Placement for
general corporate and working capital purposes. The November 2018
Notes were converted on April 5, 2019.
The
November 2018 Notes carried an interest rate of 8.00% per annum and
had initial maturity dates of May 13, 2019 and July 3, 2019 (the
“November 2018 Maturity Date”), respectively, upon
which date the outstanding principal amount of the November 2018
Notes and all accrued and unpaid interest shall automatically
convert into shares of the common stock of the Company at the price
per share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes (the “November 2018 Conversion
Price”). The total number of shares of Common Stock to be
issued upon automatic conversion shall equal the outstanding
principal amount of the November 2018 Notes and all accrued and
unpaid interest on the November 2018 Notes, divided by the November
2018 Conversion Price.
The
November 2018 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrant Shares”). The per share purchase price (the
“November 2018 Exercise Price”) for each of the
November 2018 Warrant Shares purchasable under the November 2018
Warrants shall be equal to the lesser of (i) $15.00 and (ii) the
average closing price of the Company’s Common Stock on the
Nasdaq stock market for the ten days preceding the day of the
conversion of the November 2018 Notes. The November 2018 Warrants
will be issued upon conversion of the November 2018 Notes. The
November 2018 Warrants expire eighteen (18) months from the date of
the conversion of the November 2018 Notes (the “November 2018
Expiration Date”). The Investors may exercise the November
2018 Warrants at any time prior to the November 2018 Expiration
Date.
Due to
the variable conversion price, the November 2018 Notes contain
characteristics of a variable share-forward sales contracts
(“VSF”) under the guidance of ASC 480-10. Management
has determined that for the purpose of the accounting for
the November 2018 Notes, it is more likely than not that the
November 2018 Conversion Price will be below $13.00, resulting in
the issuance of a variable number of shares, the November 2018
Notes are classified as a liability, and accounted for at amortized
cost.
Due to
the variable number of warrants to be issued and the variable
strike price of the November 2018 Warrants, these do not meet the
“fixed-for-fixed” criteria under ASC 815-40.
Accordingly, the November 2018 Warrants are classified as a
derivative liability, initially measured at fair value and
subsequently revalued at fair value through the income
statement.
The fair value
was calculated using a Monte Carlo simulation.
F-20
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 29,
2020
|
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
)
|
|
|
-
|
2,529,872
|
2,431,898
|
|
|
|
|
|
|
November 2018
Warrants - Liability
|
-
|
$
219,531
|
$
154,364
|
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.
On
April 5, 2019, the Company and the Investors that purchased the
November 2018 Notes from the Company pursuant to the Note and
Warrant Purchase Agreement dated as of November 13, 2018 or January
3, 2019, executed an Amendment, Surrender and Conversion Agreement
(“Conversion Agreement”) whereby the parties agreed to
convert the November 2018 Notes, and all accrued and unpaid
interest, into shares of the common stock of the Company at a newly
agreed conversion price per share equal to $8.55 (the “New
Conversion Price”), replacing the previous formula which
converted the November 2018 Notes and accrued and unpaid interest
into shares of the common stock of the Company at the price per
share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes. The Conversion Agreement stipulates
that the interest on the November 2018 Notes would be paid up to
and including April 3, 2019. Pursuant to the 2018 Note Purchase
Agreement, the Investors also received related warrants to acquire
an additional 50% of the shares issued upon the conversion of the
November 2018 Notes. As part of the Conversion Agreement, the
exercise price of the November 2018 Warrants will also be the New
Conversion Price, replacing the previous formula which established
the conversion price for the November 2018 Warrants as the lesser
of (i) $15.00 and (ii) the average closing price of the
Company’s Common Stock on the Nasdaq stock market for the ten
days preceding the day of the conversion of the November 2018
Notes. As a result of the Conversion Agreement, the Company issued
319,326 shares of common stock of the Company and issued 159,663
warrants. The November 2018 Warrants expire eighteen (18) months
from the date of the conversion of the November 2018 Notes, on
October 5, 2020.
The
Company recorded an expense upon revaluation of the warrants for
the period from March 1, 2019 to April 5, 2019 in the amount of
$8,483 (2018 – nil) and is included in operating expenses.
The Company recorded accretion interest expense on the November
2018 Notes from March 1, 2019 to April 5, 2019 in the amount of
$154,364 and is included in operating expenses. The Company
recorded interest expense on the November 2018 Notes for the period
from March 1, 2019 to April 3, 2019 in the amount of $19,433 (2018
– nil). The value of the 159,633 warrants issued as part of
the conversion was determined using the Black-Scholes pricing
formula and amounted to $316,929 and is included in additional
paid-in capital – warrants. Also, the conversion of the
November 2018 Notes into common stock resulted in a gain of
$232,565 and has been offset against operating
expenses.
Second Issuance
On
January 15, 2019, the Company issued convertible 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 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 used the net proceeds of the January
2019 Private Placement for general corporate and working capital
purposes.
The
January 2019 Notes carried an interest rate of 8.00% per annum and
had initial maturity dates of 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. The January 2019 Notes were converted at the
January 2020 Maturity Date with no adjustment to the January 2020
Conversion Price.
F-21
With
respect to accrued and unpaid interest at the January 2020 Maturity
Date, the Investors had the option of receiving cash or common
stock of the Company at that date. Upon the January 2020 Maturity
Date, where the Investor elects payment of accrued and unpaid
interest on the January 2019 Notes in common stock, the price per
share shall be equal to the trading price of the common stock at
the close of the market on the date immediately preceding the
January 2020 Maturity Date. On the January 2020 Maturity Date,
$312,000 in accrued interest was paid in cash and a value of
$80,000 was paid in common stock (7,820 shares).
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 elected to take accrued and unpaid interest on the January
2019 Notes in common stock, additional warrants would 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”). Upon conversion, 3,911 additional warrants were
issued in connection with accrued interest paid in common stock.
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 fair
value of the additional warrants issued in connection with accrued
interest paid in stock was also calculated using the Black-Scholes
and amounted to $7,744.
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.
The
aggregate values of the beneficial conversion feature, the January
2019 Warrants and the January 2019 Notes are broken down as
follows:
|
|
February 29,
2020
|
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
|
$
727,148
|
$
757,704
|
$
757,704
|
The
Company recorded accretion expense during the year ended February
29, 2020 of $1,773,114 (2019 – $185,505; 2018 - nil) and is
included in operating expenses. The Company recorded interest
expense on the January 2019 Notes for the year ended February 29,
2020 in the amount of $342,989 (2019 – $49,011; 2018 –
nil).
F-22
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. Upon
conversion of the notes, the liability portion and $80,000 in
accrued interest were reversed to equity (common stock $61,28 and
additional paid-in capital $4,979,939) and the BCF was reversed to
additional paid-in capital.
11. Related Party Transactions
Advances from controlling stockholder
Mr.
Daniel Solomita, the Company’s controlling 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 29, 2020 and 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.
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. Such approval was granted by the Company’s
shareholders at the Company’s 2019 annual meeting. 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 the first
milestone would be met. 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. The 1,000,000
performance incentive shares of common stock have been replaced by
restricted stock units and are issuable to Mr. Solomita, 200,000 of
which were settled in October 2019. During the years ended February
29, 2020, February 28, 2019 and February 28, 2018, no other
milestones became probable of being met and, accordingly, the
Company did not record any additional compensation
expense.
F-23
12. Stockholders’ Equity
Series A Preferred Stock
Mr.
Solomita’s amended employment agreement of February 15, 2016
provides that the Company shall issue to Mr. Solomita one share of
the Company’s Series A Preferred Stock in exchange for Mr.
Solomita agreeing not to terminate his employment with the Company
for a period of five years from the date of the agreement. The
agreement effectively provides Mr. Solomita with a “change of
control” provision over the Company in the event that his
ownership of the issued and outstanding shares of common stock of
the Company is diluted to less than a majority. In order to issue
Mr. Solomita his one share of Series A Preferred Stock under the
amendment, the Company created a “blank check”
preferred stock. Subsequently, the board of directors of the
Company approved a Certificate of Designation creating the Series A
Preferred Stock. Subsequently, the Company issued one share of
Series A Preferred Stock to Mr. Solomita.
The one
share of Series A Preferred Stock issued to Mr. Solomita holds
a majority of the total voting power so long as Mr.
Solomita holds not less than 7.5% of the issued and outstanding
shares of common stock of the Company, assuring Mr. Solomita of
control of the Company in the event that his ownership of the
issued and outstanding shares of common stock of the Company is
diluted to a level below a majority. Currently, Mr.
Solomita’s ownership of 18,800,000 shares of common stock and
1 share of Series A Preferred Stock provides him with 77.8% of the
voting control of the Company.
Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita
contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomita’s (or that of any
person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of
Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, voting as a
separate class:
(a)
amend the Articles
of Incorporation or, unless approved by the Board of Directors,
including by the Series A Director, amend the Company’s
By-laws;
(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
By-laws of the Company or remove the Series A Director (unless
approved by the Board of Directors, including the Series A
Director);
(f)
declare or pay any
dividends or make any other distribution with respect to any class
or series of capital stock (unless approved by the Board of
Directors, including the Series A Director);
(g)
redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any outstanding shares of capital stock (other
than the repurchase of shares of common stock from employees,
consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the
option to repurchase such shares at no greater than original cost
upon the occurrence of certain events, such as the termination of
employment) (unless approved by the Board of Directors, including
the Series A Director);
(h)
create or amend any
stock option plan of the Company, if any (other than amendments
that do not require approval of the stockholders under the terms of
the plan or applicable law) or approve any new equity incentive
plan;
(i)
replace the
President and/or Chief Executive Officer of the Company (unless
approved by the Board of Directors, including the Series A
Director);
(j)
transfer assets to
any subsidiary or other affiliated entity (unless approved by the
Board of Directors, including the Series A Director);
(k)
issue, or cause any
subsidiary of the Company to issue, any indebtedness or debt
security, other than trade accounts payable and/or letters of
credit, performance bonds or other similar credit support incurred
in the ordinary course of business, or amend, renew, increase or
otherwise alter in any material respect the terms of any
indebtedness previously approved or required to be approved by the
holders of the Series A Preferred Stock (unless approved by the
Board of Directors, including the Series A Director);
(l)
modify or change
the nature of the Company’s business;
(m)
acquire, or cause a
Subsidiary of the Company to acquire, in any transaction or series
of related transactions, the stock or any material assets of
another person, or enter into any joint venture with any other
person (unless approved by the Board of Directors, including the
Series A Director); or
(n)
sell, transfer,
license, lease or otherwise dispose of, in any transaction or
series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless
approved by the Board of Directors, including the Series A
Director).
F-24
Common Stock
|
For
the year ended February 29, 2020
|
Number of
shares
|
Amount
|
|
Balance, February
28, 2019
|
33,805,706
|
$
3,381
|
|
Issuance of shares
for cash
|
4,693,567
|
469
|
|
Issuance of shares
upon vesting of restricted stock units
|
244,884
|
25
|
|
Issuance of shares
upon the cashless exercise of stock options
|
69,101
|
7
|
|
Issuance of shares
upon the exercise of warrants
|
15,432
|
1
|
|
Issuance of shares
upon settlement of legal matter
|
150,000
|
15
|
|
Issuance of shares
upon conversion of convertible notes
|
932,084
|
94
|
|
Balance, February
29, 2020
|
39,910,774
|
$
3,992
|
|
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
|
During
the year ended February 29, 2020, the Company recorded the
following common stock transactions:
(i)
On
March 1, 2019, the Company sold 600,000 shares of its common stock
at an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $5,130,000;
(ii)
On
March 8, 2019 and March 11, 2019, the Company issued 150,000 shares
of its common stock in settlement of a legal matter;
(iii)
On
April 9, 2019, the Company converted convertible notes with a face
value of $2,650,000 plus accrued interest of $80,241 at a
conversion price of $8.55, into 319,326 common shares;
(iv)
On June
14, 2019, the Company sold 4,093,567 shares of its common stock at
an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $35,000,000;
(v)
On July
17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants;
(vi)
On
January 16, 2020 and January 21, 2020, the Company converted
convertible notes with a face value of $4,900,000 at a conversion
price of $8.10 plus $80,000 of accrued interest at a conversion
price of $10.23 into a total of 612,758 shares of common
stock;
(vii)
The
Company issued 244,884 shares of common stock, in aggregate, upon
the vesting of restricted stock units related to employees and
Directors; and
(viii)
The
Company issued 69,101 shares of common stock, in aggregate, upon
the cashless exercise of stock options related to
employees;
During
the year ended February 28, 2019, the Company recorded the
following common stock transactions:
(i)
the Company issued
18,821 shares of common stock upon the cashless exercise of stock
options related to employees; and
(ii)
the Company issued
35,797 shares of common stock upon the vesting of restricted stock
units related to employees and Directors.
F-25
13. Share-Based Payments
Stock Options
The
following tables summarizes the continuity of the Company’s
stock options during the years ended February 29, 2020 and February
28, 2019:
|
|
2020
|
2019
|
||
|
|
Number of stock
options
|
Weighted average
exercise price
|
Number of stock
options
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
1,962,400
|
$
7.53
|
2,374,581
|
$
7.99
|
|
Granted
|
-
|
-
|
39,902
|
9.67
|
|
Exercised
|
(75,000
)
|
0.80
|
(20,000
)
|
0.80
|
|
Forfeited
|
(39,902
)
|
9.67
|
(369,583
)
|
11.49
|
|
Expired
|
(260,417
)
|
13.59
|
(62,500
)
|
4.80
|
|
Outstanding, end of
year
|
1,587,081
|
$
6.81
|
1,962,400
|
$
7.53
|
|
Exercisable, end of
year
|
986,248
|
$
6.89
|
1,126,664
|
$
7.72
|
|
|
2020
|
2019
|
||
|
Exercise Price
|
Number of stock
options outstanding
|
Weighted average
remaining life
|
Number of stock options
outstanding
|
Weighted average remaining
life
|
|
$
0.80
|
507,081
|
5.75
|
582,081
|
6.76
|
|
$
5.25
|
380,000
|
7.49
|
380,000
|
8.50
|
|
$
8.75
|
-
|
-
|
26,693
|
10.00
|
|
$
11.52
|
-
|
-
|
13,209
|
9.36
|
|
$
12.00
|
700,000
|
7.54
|
700,000
|
8.54
|
|
$
13.49
|
-
|
-
|
193,750
|
0.17
|
|
$
13.89
|
-
|
-
|
66,667
|
0.01
|
|
Outstanding, end of
year
|
1,587,081
|
6.96
|
1,962,400
|
6.91
|
|
Exercisable, end of
year
|
986,248
|
6.97
|
1,126,664
|
5.99
|
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:
|
|
2020
|
2019
|
2018
|
|
Exercise
price
|
$
-
|
$
8.75 to $11.52
|
$
5.25 to $13.89
|
|
Risk-free interest
rate
|
-
|
2.70% to
2.82%
|
1.46% to
2.15%
|
|
Expected dividend
yield
|
-
|
0%
|
0%
|
|
Expected
volatility
|
-
|
78%
|
80%
to 94%
|
|
Expected
life
|
-
|
6.5
to 7 years
|
3 to
6 years
|
There
were no new issuances of stock options for the year ended February
29, 2020.
During
the year ended February 29, 2020, stock-based compensation expense
attributable to stock options amounted to $2,178,948 (2019 -
$3,176,786; 2018 - $6,281,319) and is included in operating
expenses.
F-26
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the years February 29, 2020 and
February 28, 2019:
|
|
2020
|
2019
|
||
|
|
Number of
units
|
Weighted average
fair value price
|
Number of units
|
Weighted average fair value
price
|
|
Outstanding,
beginning of year
|
402,868
|
$
8.77
|
34,102
|
$
13.00
|
|
Granted
|
4,114,567
|
1.06
|
406,188
|
8.80
|
|
Settled
|
(244,884
)
|
2.54
|
(35,797
)
|
13.06
|
|
Forfeited
|
(53,750
)
|
9.82
|
(1,625
)
|
12.31
|
|
Outstanding, end of
year
|
4,218,802
|
$
1.60
|
402,868
|
$
8.77
|
|
Outstanding vested,
end of year
|
831,684
|
$
1.19
|
-
|
$
-
|
The
Company applies the fair value method of accounting for awards
granted through the issuance of restricted stock units. Fair value
is calculated based on closing share price at grant date multiplied
by the number of restricted stock unit awards granted.
During
the year ended February 29, 2020, stock-based compensation
attributable to RSUs amounted to $1,290,443 (2019 - $808,374; 2018
–$265,994) and is included in operating
expenses.
14.
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. A discretionary share reserve
increase of 500,000 shares was approved at the 2019 Annual Meeting
of Stockholders held on June 27, 2019. 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 29,
2020 and February 28, 2019:
|
|
2020
|
2019
|
|
|
Number of
units
|
Number of units
|
|
Outstanding,
beginning of year
|
3,223,516
|
1,735,898
|
|
Share reserve
increase
|
2,000,000
|
1,500,000
|
|
Units
granted
|
(4,114,567
)
|
(446,090
)
|
|
Units
forfeited
|
93,652
|
371, 208
|
|
Units
expired
|
97,917
|
62,500
|
|
Outstanding, end of
year
|
1,300,518
|
3,223,516
|
F-27
15. Warrants
|
|
2020
|
2019
|
||
|
|
Number of
warrants
|
Weighted average
exercise price
|
Number of
warrants
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
802,469
|
$
10.74
|
140,667
|
$
12.00
|
|
Issued
|
4,272,294
|
10.91
|
802,469
|
10,74
|
|
Exercised
|
(15,432
)
|
9.32
|
-
|
-
|
|
Expired
|
-
|
-
|
(140,667
)
|
12.00
|
|
Outstanding, end of
year
|
5,059,331
|
$
10.92
|
802,469
|
$
10.74
|
The
expiration dates of the warrants outstanding as at February 29,
2020 are as follows:
|
|
2020
|
|
|
|
Number of
warrants
|
Weighted average
exercise price
|
|
August 25,
2020
|
200,000
|
$
11.00
|
|
October 5,
2020
|
159,663
|
8.55
|
|
January 15,
2021
|
281,689
|
9.32
|
|
January 21,
2021
|
9,259
|
9.32
|
|
February 25,
2021
|
300,000
|
12.00
|
|
June 14,
2022
|
4,093,567
|
11.00
|
|
February 21,
2023
|
15,153
|
11.00
|
|
Outstanding, end of
year
|
5,059,331
|
$
10.89
|
16. Income Taxes
The
components of the Company’s loss before taxes are summarized
below:
|
|
Years ended
February 28,
|
||
|
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
U.S.
operations
|
$
(4,220,000
)
|
$
(8,948,305
)
|
$
(8,509,651
)
|
|
Foreign
operations
|
(10,285,455
)
|
(8,588,106
)
|
(5,527,727
)
|
|
Loss before
taxes
|
$
(14,505,455
)
|
$
(17,536,411
)
|
$
(14,037,378
)
|
F-28
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 29,
2020
|
February 28,
2019
|
February 28,
2018
|
|
Statutory Federal
rate
|
21
%
|
21
%
|
32.7
%
|
|
|
|
|
|
|
Federal income tax
at statutory rate
|
$
(3,046,145
)
|
$
(3,682,646
)
|
$
(4,585,497
)
|
|
Effect of foreign
jurisdiction
|
(424,593
)
|
(308,046
)
|
320,769
|
|
Non-deductible
expenses
|
1,069,845
|
888,749
|
2,169,384
|
|
Tax credits
related to research and development expenditures
|
(446,967
)
|
(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
|
2,847,860
|
3,489,269
|
1,365,289
|
|
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”) were deficit earnings & profits
corporations, as such no income was recognized by Loop Industries
during the year ended February 28, 2018. No further inclusions were
made thereafter based on guidance issued. Additional guidance may
be issued after February 29, 2020 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.
With
the enactment of U.S. tax reform, we recorded, for the year ended
February 28, 2018, tax expense of $876,812 to reflect the
revaluation of deferred taxes. For the years ended February 28,
2019 and February 29, 2020, we finalized our provisional estimate
of the enactment of U.S. tax reform without additional tax
expense.
On
March 27, the US government signed the Coronavirus Aid, Relief and
Economic Security (“CARES”) Act into law, a $2 trillion
relief package to provide support to individuals, businesses and
government organizations during the COVID-19 pandemic. The income
tax provisions contained in the CARES Act are not likely to have an
impact for the Company.
The
Company has net operating loss carry forwards of approximately 2020
- $16,074,873 (2019 - $14,473,810) for U.S. Federal income tax
purposes expiring between 2035 and 2037, post 2018 net operating
losses may be carried forward indefinitely. The Company has net
operating loss carry forwards for Canadian Federal and Québec
tax purposes of approximately 2020 - $14,670,709 (CDN$19,701,295)
and 2019 - $7,495,099 (CDN$10,065,169), expiring between 2037 and
2040. Realization of future tax assets is dependent on future
earnings, the timing and amount of which are uncertain.
Accordingly, the net future tax assets have been fully offset by a
valuation allowance. The valuation allowance increased by
$2,896,093 and $3,270,369, respectively, for the years ended
February 29, 2020 and 2019. The Company has provided a full
valuation allowance on the deferred tax assets as a result of the
uncertainty regarding the probability of its
realization.
F-29
The
Company has approximately $3,258,598 (CDN$4,375,971), 2019 -
$3,477,574 (CDN$4,670,034) of research and development expenditures
for Canadian Federal and Québec provincial 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 29,
2020
|
February 28,
2019
|
|
Deferred tax
assets
|
|
|
|
Canada net
operating loss carry forward
|
$
3,905,836
|
$
2,026,984
|
|
U.S. net operating
loss carry forward
|
3,376,117
|
3,165,937
|
|
Accrual and
reserves
|
186,985
|
118,309
|
|
Intangibles
|
92,292
|
-
|
|
Property, plant
and equipment
|
140,538
|
-
|
|
Research and
development expenditures and credits
|
1,426,470
|
1,058,010
|
|
Other
|
126,362
|
38,418
|
|
Deferred tax assets
|
9,254,600
|
6,407,658
|
|
Deferred tax
liabilities
|
|
|
|
Property, plant
and equipment
|
-
|
(41,636
)
|
|
Intangibles
|
(27,267
)
|
(34,785
)
|
|
Accrual and
reserves
|
-
|
-
|
|
Investment tax
credits
|
-
|
-
|
|
Unrealized foreign
exchange
|
-
|
-
|
|
Deferred tax liabilities
|
(27,267
)
|
(76,421
)
|
|
|
|
|
|
Deferred tax
assets, net
|
9,227,333
|
6,331,239
|
|
Valuation
allowance
|
(9,227,333
)
|
(6,331,239
)
|
|
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. Realization of the Company's
deferred tax assets 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.
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-30
17. Interest and Other Finance Costs
Interest
and other finance costs for the years ended February 29, 2020,
February 28, 2019 and February 28, 2018 are as
follows:
|
|
2020
|
2019
|
2018
|
|
Interest
on long-term debt
|
$
57,450
|
$
54,040
|
$
5,125
|
|
Interest
on convertible notes
|
362,426
|
109,804
|
-
|
|
Accretion
expense
|
1,892,185
|
185,505
|
-
|
|
Amortization
of deferred finance costs
|
96,155
|
47,123
|
-
|
|
Revaluation
of warrants
|
8,483
|
65,167
|
-
|
|
Loss on
revaluation of foreign exchange contracts
|
27,129
|
-
|
-
|
|
Gain on
conversion of November 2018 Notes
|
(232,565
)
|
-
|
-
|
|
Other
|
12,041
|
5,811
|
-
|
|
|
$
2,223,304
|
$
467,450
|
$
5,125
|
18. Legal Settlement
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.
19. Commitments
The
Company has entered into multi-year supply agreements with PepsiCo,
Coca-Cola’s Cross Enterprise Procurement Group, Danone SA,
L’OCCITANE en Provence and L’Oréal that will
enable them to purchase Loop™ PET resin from the
Company’s joint venture facility with Indorama in the United
States.
F-31
20. Subsequent Event
Potential impact of the COVID-19 pandemic
The
Company announced on March 25, 2020, that due to the COVID-19
pandemic the Québec provincial government issued an order that
all non-essential business and commercial activity in the province
is required to shut down until April 13 and has since been extended
it to May 4. The order provides exemptions that allow the Company
to continue reduced operations at the pilot plant.
Capital contribution to the joint venture
On
March 13, 2020, Loop Innovations, LLC, a wholly-owned subsidiary of
Loop Industries, Inc. contributed $650,000 to Indorama Loop
Technologies, LLC, the joint venture with Indorama.
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 29, 2020
were 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.
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 29,
2020. Based on this assessment, management determined that the
Company’s internal control over financial reporting as of
February 29, 2020 was effective.
29
Changes in Internal Control over Financial Reporting
There
were no 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 controls 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.
30
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:
https://www.loopindustries.com/en/investors/corporate-governance.
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.
Employment Agreement
On April 30, 2020, the Company and Mr. Solomita entered into an
amendment of Mr. Solomita’s employment
agreement. The amendment
clarified the milestones
consistent with the shift in the Company’s business from the
production of terephthalate to the production of dimethyl
terephthalate, another proven monomer of PET plastic that is far
simpler to purify.
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.
31
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 amended 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
|
10-K
|
001-38301
|
May 8,
2019
|
4.1
|
|
|
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
|
|
|
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
|
333-226789
|
August
10, 2018
|
4.1
|
|
|
2017
Equity Incentive Plan
|
10-Q
|
000-54768
|
October
11, 2017
|
4.3
|
|
|
Form of
Stock Option Agreement
|
10-Q
|
000-54768
|
October
11, 2017
|
4.4
|
|
|
Form of
Restricted Stock Unit Agreement
|
10-Q
|
000-54768
|
October
11, 2017
|
4.5
|
|
32
|
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
|
|
|
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
|
|
|
Securities
Purchase Agreement, dated February 27, 2019, by and between Loop
Industries, Inc. and the purchaser identified therein.
|
8-K
|
001-8301
|
February
28, 2019
|
10.1
|
|
|
Form of
Note and Warrant Purchase Agreement, dated January 15,
2019.
|
8-K
|
001-8301
|
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
|
001-8301
|
November
29, 2018
|
10.1
|
|
|
Form of
Warrant, dated November 13, 2018 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-8301
|
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
|
001-8301
|
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
|
001-8301
|
September
28, 2018
|
10.1
|
|
|
License
Agreement, dated September 24, 2018 by and between Loop Industries,
Inc. and Indorama Loop Technologies, LLC.
|
8-K
|
001-8301
|
September
28, 2018
|
10.2
|
|
|
Marketing
Agreement, dated September 24, 2018, by and between Loop
Industries, Inc. and Indorama Loop Technologies, LLC.
|
8-K
|
001-8301
|
September
28, 2018
|
10.3
|
|
|
Form of
Common Stock Subscription Agreement
|
8-K
|
001-8301
|
January
18, 2018
|
10.1
|
|
|
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
|
|
|
Employment
Agreement, dated December 19, 2018, by and between Loop Canada Inc.
and Nelson Gentiletti.
|
10-K
|
000-54768
|
May 8,
2019
|
10.35
|
|
|
Employment
Agreement May 28, 2019 by and between Loop Canada Inc. and Michel
Megelas
|
|
|
Filed
herewith
|
|
|
|
Amendment
No. 1, dated April 30, 2020, to the Amended and Restated Employment
Agreement by and between Loop Industries, Inc. and Daniel Solomita,
dated July 13, 2018.
|
|
|
Filed
herewith
|
|
33
|
Code
of Ethics
|
8-K
|
000-54768
|
Jan 31,
2017
|
14.1
|
|||||
|
Subsidiaries
of Registrant
|
10-K
|
000-54768
|
May 30,
2017
|
21.1
|
|||||
|
23.1
|
Consent of PricewaterhouseCoopers LLP regarding the registration on
form S-3 filed with the SEC on October 8, 2019
|
|
|
Filed herewith
|
|
||||
|
23.2
|
Consent
of PricewaterhouseCoopers LLP regarding the registration on form
S-8 files with the SEC on July 10, 201
|
|
|
Filed
herewith
|
|
||||
|
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.
|
|
|
F
urnished
herewith
|
|
|||||
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Furnished
herewith
|
|
|||||
|
101.INS
|
XBRL
Instance Document
|
|
|
Filed
herewith
|
|
||||
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
|
Filed
herewith
|
|
||||
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
Filed
herewith
|
|
||||
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
Filed
herewith
|
|
||||
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
Filed
herewith
|
|
||||
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
Filed
herewith
|
|
||||
|
104
|
Cover
Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101)
|
|
|
|
|
||||
________
†
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.
34
|
Table of Contents
|
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 4, 2020
|
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 4, 2020
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
(principal
executive officer)
|
|
|
|
|
|
|
|
Date:
May 4, 2020
|
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 4, 2020
|
By:
|
/s/ Sidney Horn
|
|
|
|
Name:
|
Sidney
Horn
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 4, 2020
|
By:
|
/s/ Jay Stubina
|
|
|
|
Name:
|
Jay
Stubina
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 4, 2020
|
By:
|
/s/ Andrew Lapham
|
|
|
|
Name:
|
Andrew
Lapham
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 4, 2020
|
By:
|
/s/ Laurence Sellyn
|
|
|
|
Name:
|
Laurence
Sellyn
|
|
|
|
Title:
|
Lead
Director
|
|
35
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 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