LOOP INDUSTRIES, INC.
10-Ks and 10-Qs
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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
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☒
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
fiscal year ended February 28, 2021
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or
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________ to __________
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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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller
reporting company
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☒
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Emerging growth
company
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☐
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark 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,
2020, 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 $187,211,121.
As at May 27, 2021, there were 42,433,320 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 2021 Annual
Meeting of Stockholders.
LOOP INDUSTRIES, INC.
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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 scale, manufacture and
sell our products in order to generate revenues, (viii) our
proposed business model and our ability to execute thereon,
(ix) adverse effects on the Company’s business and operations
as a result of increased regulatory, media or financial reporting
scrutiny, practices, rumors, or otherwise, (x) disease epidemics
and health related concerns, such as the current outbreak of
a novel strain of coronavirus
(
COVID-19), which could result in (and, in the case of the
COVID-19 outbreak, has resulted in some of the following) reduced
access to capital markets, supply chain disruptions and scrutiny or
embargoing of goods produced in affected areas, government-imposed
mandatory business closures and resulting furloughs of our
employees, government employment subsidy programs, travel
restrictions or the like to prevent the spread of disease, and
market or other changes that could result in noncash impairments of
our intangible assets, and property, plant and equipment, (xi) the
outcome of the current SEC investigation or recent class action
litigation filed against us, (xii) our ability to hire and/or
retain qualified employees and consultants and (xiii) other factors
discussed in our subsequent filings with the SEC.
Management
has included projections and estimates in this Form 10-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.
DMT
is an acronym for
dimethyl
terephthalate, which is a monomer
used in the production of polyethylene terephthalate
(“PET”).
MEG
is an acronym for Monoethylene
Glycol, which is a monomer used in the production of
PET.
Polymerization
refers to a process of
reacting monomer molecules together in a chemical reaction to form
polymer chains or three-dimensional networks.
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 the production of
polyester fiber, and 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, clothing and apparel.
Industry and Market Data
The
industry and market data relating to our business included in this
Annual Report on Form 10-K on our internal estimates and research,
as well as publications, research, surveys and studies conducted by
independent third parties not affiliated to us. We include data
obtained from International Bottled Water Association (found at
https://www.bottledwater.org/).
Industry
publications, studies and surveys generally state that they were
prepared based on sources believed to be reliable, although there
is no guarantee of accuracy. While we believe that each of these
studies and publications is reliable, we have not independently
verified the market and industry data provided by third-party
sources. In addition, while we believe our internal research is
reliable, not all such research has been verified by any
independent source. We note that assumptions underlying industry
and market data are subject to risks and uncertainties, including
those discussed under “Cautionary Statements Regarding
Regarding Forward-Looking Statements” and “Item 1A.
Risk Factors” of this annual report.
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 plastic bottles and packaging, carpets and
textiles of any color, transparency or condition and even ocean
plastics that have been degraded by the sun and salt, to its base
building blocks (monomers). The monomers are filtered, purified and
polymerized to create virgin-quality Loop™ branded PET resin
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 reducing plastic waste and recovering waste
plastic for a sustainable future.
Industry Background and Market Opportunity
The global annual market demand for PET plastic and polyester fiber
at nearly $130 billion per year, and the current growth projections
from the 2018 IHS Polymer Market Report indicate this will exceed
$160 billion by 2022.
We believe, plastic pollution continues to be one of the most
persistently covered environmental issues by media and local and
global environmental non-governmental organizations. Some of the
main concerns associated with PET are the emissions associated with
its production from non-renewable hydrocarbons and the length of
time it persists in landfills and the natural environment. There is
an increasing demand for action to address the global plastic
crisis, which has been characterized by facts provided by leading
academic and not-for profit organizations. In the last few years,
governments in North America and Europe have been enacting and
proposing laws and regulations mandating the use of minimum
recycled content in packaging underlying the strength of this issue
in the marketplace. Consumer brands are seeking a solution to their
plastic challenge, and they are taking action. In recent years we
have seen major brands make significant commitments to close the
loop on their plastic packaging by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging.
3
Global consumer goods companies, apparel manufacturers, and retail
brands have announced significant public commitments and targets to
make the transition to a circular plastic economy,
namely:
●
In
January 2018, Danone’s evian® brand bottled spring water
committed to a 100% recycled content package by 2025;
●
In
2018, Coca-Cola committed to an average recycled content of 50%
across its packaging by 2030;
●
In
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;
●
In
2020, L’OCCITANE en Provence committed to 100% recycled
content plastic in their bottles by 2025;
●
In 2020, L’Oréal Group committed to
using 100% recycled or biobased plastic in their packaging by
2030
;
●
By
2025, Unilever targets increasing the use of post-consumer recycled
plastic material in their packaging to at least 25%;
●
Colgate-Palmolive
states a 2025 goal of increasing recycled content for plastic to
25%;
●
Nestlé
aims to increase the amount of recycled PET used across
their brands globally to 50% by 2025;
●
Adidas
Group aims to replace all virgin polyester with recycled
polyester in all adidas and Reebok products where a solution
exists by 2024;
●
H&M is
aiming to use 30% recycled material by 2025 (based on their 2018
usage as baseline) and ensuring that at least 25% of
the plastic they use in packaging is
from recycled content;
●
Walmart
has an objective to use at least 17% post-consumer recycled content
globally in their private brand plastic packaging and is taking
action to eliminate problematic or unnecessary plastic packaging
and move from single-use towards reuse models where relevant by
2025; and
●
Ikea’s
ambition is, that by 2030, all plastic used in their products will
be based on renewable or recycled material.
There
is a growing regulatory and policy environment to encourage a
reduction in the production of virgin fossil fuel based plastic and
for minimum recycled content in packaging imposed by various
governments. For example,
on July 21
2020, the European Union announced a new tax on plastic waste
starting January 1, 2021. This tax will have a rate of
€800/ton on nonrecycled plastic packaging
.
In the UK,
a new £200/ton tax will apply to plastic packaging produced or
imported into the UK that does not contain at least 30% recycled
plastic, effective 2022.
A
California law filed on September 24, 2020 requires that plastic
bottles contain at least 15% post consumer resin by 2022, 25% by
2025 and 50% by 2030. The growing regulatory environment is
expected to increase the demand for recycled PET plastic
further.
As explained by the International Bottled Water Association,
currently, mechanical recycled PET (rPET) plastic is produced
principally through the conversion of bales of PET bottles. The
materials have been collected and transported to a materials
recovery facility (“MRF”), where they are sorted from
other materials, baled, and sent to specific PET recycling
facilities. The bales are broken and sorted to remove any non-PET
materials. The PET is then ground and put through a separation
process which separates the PET from the bottle cap and label
materials. Clean PET flake is then further processed depending on
its intended end market. It may become more highly refined PET
pellet for new bottles or extruded into PET sheet for clamshells,
trays, and cups. Recycled PET is also spun into fiber for carpet,
clothing, fiber fill, or other materials. We believe mechanically
recycled PET has a number of challenges in meeting the quality
specifications and growing volume requirements implied by
commitments from major brands, mainly due to the cost and variety
of acceptable PET feedstock.
Some mechanical recycling processes involve remelting the PET flake
which reduces the quality of the rPET output each time it is
recycled relative to the specifications of virgin PET produced from
fossil fuels. Each time the PET plastic is mechanically recycled,
its quality and clarity are reduced. Therefore, mechanically
recycled PET may need to be mixed with virgin PET from fossil fuels
to maintain quality. Lower quality mechanically recycled PET is
often downcycled to alternate uses such as polyester fibers which
may be dyed and used in carpets or clothing. Additionally,
mechanically recycled PET manufactured for use in clear bottles or
food containers requires predominently clear and clean PET flakes
separated from waste bales, and cannot accommodate darkly colored
PET flakes, lower quality fiber feedstock, or materially
contaminated feedstock, which may be cheaper.
We believe the commercialization plans of Loop™ PET resin and
polyester fiber may provide the ideal solution for global brands
because Loop™ PET resin and polyester fiber contains 100%
recycled PET and polyester fiber content. The Loop™ PET resin
and polyester fiber is virgin quality suitable for use in
food-grade packaging. That means consumer packaged goods companies
will be able to choose to market packaging made from a 100%
Loop™ branded PET resin and polyester fiber.
4
Proprietary Technology and Intellectual Property
We believe, the power of our technology lies in its ability to use
post-industrial and post-consumer waste PET plastic and polyester
fiber feedstocks, which could end up in landfills, rivers, oceans
and natural areas, to create Loop™ PET resin. We believe our
technology can deliver high-purity profitable virgin quality PET
resin suitable for use in food-grade packaging and polyester
fiber.
Our Generation I technology (“GEN I”) is a
hydrolysis-based depolymerization technology which yielded purified
terephthalic acid (“PTA”) and monoethylene glycol
(“MEG”), two common monomers of PET.
As the
Company evaluated the transition from the GEN I technology from
pilot scale to commercial scale, several challenges involving PTA
and MEG purification were identified
.
To overcome the GEN I technology
challenges, we embarked on the development of a second generation
of our technology
.
Our
Generation II technology
(“GEN II”)
is a
methanolysis-based depolymerization technology that uses
temperatures below 90 °C to depolymerize waste PET and
polyester fiber. The low temperature offers several key advantages
which the company believes will improve its ability to
commercialize the GEN II technology, including;
●
Lower energy usage
during depolymerization and therefore reduced processing cost
relative to higher temperature processes;
●
Avoidance of side
reactions with non-PET waste, which are inherent in waste PET
feedstock streams, during depolymerization which may occur during
higher temperature and higher pressure depolymerization processes.
This allows for a simplified distillation purification process
resulting in less, and more effective, steps to isolate the desired
high purity DMT and MEG monomers suitable to produce virgin quality
PET required to meet food contact regulations as well as the
quality and clarity requirements of global consumer product
companies;
●
Allowing the
depolymerization of less costly and low-quality feedstocks, which
cannot be effectively recycled today, such as carpet fiber,
clothing and mixed plastics, and upcycling them into high quality
PET that can used in food contact use; and
●
The GEN II
technology uses only trace amounts of water, eliminates the need
for a halogenated solvent and uses a catalyst at low
concentration.
This shift, from producing the monomer PTA to the monomer DMT, was
a pivotal moment for Loop Industries. We believe that GEN II
requires less energy and fewer resource inputs than conventional
PET production processes
.
We also
believe it is an environmentally sustainable method for producing
virgin quality food-grade PET plastic by decoupling PET
manufacturing from the fossil fuel industry.
To
independently validate that our GEN II technology can produce DMT
and MEG monomers at mini-pilot and pilot scale, we commissioned
Kemitek, a College Centre for Technology Transfer specialized in
the fields of green chemistry and chemical process scale-up.
Kemitek’s findings allowed them to confirm that our
technology produces monomers that meet our purity specifications
for the production of PET resin and polyester fiber. The complete,
Kemitek report was filed with the SEC by the Company on December
14, 2020.
To protect our technology, we rely on a combination of patents,
trademarks, trade secrets, confidentiality agreements and
provisions as well as other contractual provisions to protect our
proprietary rights, which are primarily our patents, brand names,
product designs and marks, We have two technology areas, referred
to as GEN I technology and the GEN II technology, with patent
claims relating to our technology for depolymerizing
PET.
●
The
GEN I technology portfolio has three issued U.S. patents, all
expected to expire on or around July 2035. Internationally, we also
have issued patents in Argentina, Australia, Europe, Eurasia,
Israel, Taiwan, South Africa, and in the members of the Gulf
Cooperation Council, allowed patent applications in China and
Japan, and pending patent applications in Brazil, Canada, Hong
Kong, India, Korea, Mexico, and the Philippines, all expected to
expire, if granted, on or around July 2036, not including any
patent term extension.
5
●
The
GEN II technology portfolio currently consists of four patent
families:
o
The
first has two issued U.S. patent and a pending U.S. application,
all expected to expire on or around September 2037.
Internationally, we also have an issued patent in Bangladesh, and
pending applications in Argentina, Australia, Bolivia, Brazil,
Bhutan, Canada, China, Columbia, Eurasia, Europe, members of the
Gulf Countries, Hong Kong, Indonesia, Israel, India, Iraq, Japan,
Korea, Kuwait, Laos, Mexico, Malaysia, Panama, Papua New Guinea,
Philippines, Pakistan, Singapore, Taiwan, Uruguay, Uzbekistan,
Venezuela, and South Africa, all expected to expire on or around
September 2038, if granted and not including any patent term
extension.
o
An
additional aspect of the GEN II technology is claimed in an issued
U.S. patent and a pending U.S. application. Internationally, we
also have an allowed patent application in Bangladesh and pending
applications in Algeria, Argentina, Australia, Bahrain, Bolivia,
Brazil, Cambodia, Canada, Chile, China, Eurasia, Egypt, Europe,
India, Indonesia, Israel, Iran, Japan, Korea, Kuwait, Laos,
Malaysia, members of the Gulf Cooperation Council, Mexico, Morocco,
New Zealand, Oman, Pakistan, Panama, Peru, Philippines, Qatar,
Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Tunisia,
United Arab Emirates, Uruguay, Uzbekistan and Vietnam, all expected
to expire on or around June 2039, if granted and not including any
patent term extension.
o
A
further additional aspect of the GEN II technology is the
subject of a U.S. application and an International application. Any
patents that would ultimately grant from these applications would
be expected to expire on or around March 2040, not including any
patent term extension.
o
Another
further additional aspect of the GEN II technology is the
subject of a U.S. application, an International application, and
pending applications in Argentina, Bolivia, Bangladesh, members of
the Gulf Cooperation Council, Pakistan, Taiwan, and Uruguay. Any
patents that would ultimately grant from these applications would
be expected to expire on or around March 2040, not including any
patent term extension.
Loop owns
registrations for its trademarks in Canada, the European Union, the
United Kingdom, and the U.S. Loop also has pending applications in
Cambodia, Canada, Indonesia, Taiwan, the U.S., and
Vietnam.
Government Regulation and Approvals
As we seek to further develop and commercialize our technology, we
will be subject to extensive and frequently developing federal,
state, provincial and local laws and regulations. Compliance with
current and future regulations, including food packaging
regulations, could increase our operational costs.
Our operations require various governmental permits and approvals.
We are in the process of obtaining all necessary permits and
approvals for the operation of our business; however, any of these
permits or approvals may be subject to denial, revocation or
modification under various circumstances. Additionally, due to the
impact of the COVID-19 pandemic, we may experience delays in
obtaining such permits or approvals. Failure to obtain or comply
with the conditions of permits and approvals or to have the
necessary approvals in place may adversely affect our operations
and may subject us to penalties. See “
Risk Factors
” below for additional
information.
We believe that if we are successful in addressing food packaging
regulations in various countries and economic regions, that the
regulatory environment may provide Loop™ PET resin a
competive advantage relative to mechanically recycled alternative
resins and virgin PET.
We
received a no-objection letter (NOL) on March 1, 2021 from the US
Federal Food and Drug Administration (“FDA”) to confirm
the capability of Loop Industries’ tertiary recycling
process, known as methanolysis, in cleaning and producing
post-industrial and post-consumer recycled PET for use in the
manufacture of food-contact articles that contact all food types
all conditions of use for which PET is permitted.
The request to the FDA was initiated on November
23, 2020 and the NOL grant was provided within the expected
response period of three to six months.
We have
received from the European Chemicals Agency a confirmation of
registration for our MEG on November 17, 2020, and for our DMT on
December 7, 2020. The registration under the
Registration, Evaluation, Authorization and
Restriction of Chemicals
(“REACH”) Regulation
(EC 1907/2006) confirms that our monomers are of a purity equal to
what is currently recognized within Europe and entitles us to
manufacture/import the monomers into Europe. It should be noted
that MEG and DMT are on the positive list for plastic materials,
which means that the two monomers can be used as food contact
materials.
The
levels of monomer purity confirmed by Kemitek’s verification
are in line with the data submitted for the REACH registration of
our DMT and MEG monomers and additionally support the March 1, 2021
NOL from the FDA.
6
Supply Agreements with Global Consumer Brands
Consumer
brands are seeking a solution to their plastic challenge and they
are taking bold action. In the past years, we have seen major
brands make significant commitments to close the loop on their
plastic use in two ways; by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET resin provides the
ideal solution for these brands because it is recyclable and is
made from 100% recycled PET waste and polyester fiber, while being
virgin-quality and suitable for use in food-grade packaging and
polyester fiber.
We
believe 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-quality of Loop™
branded PET resin and its marketability to extoll the
sustainability credentials of consumer brands that incorporate it,
we believe we will be able to sell Loop™ branded PET resin at
a premium price relative to virgin and mechanically recycled PET
resin.
We are pursuing supply agreements with customers that are located
in North America, Europe, and Asia. We currently have agreements
with some of the world’s leading brands to be supplied from
our planned commercial facility from our joint venture with
Indorama Ventures Holdings LP (“Indorama”) in
Spartanburg, South Carolina, including:
●
Multi-year supply agreement with Danone SA, one of
the world’s leading global food and beverage companies.
Danone will purchase 100% sustainable and upcycled Loop™
branded PET for use in brands across its portfolio including
evian®, Danone’s
iconic natural spring
water
;
●
Multi-year
supply agreement with PepsiCo, one of the largest purchasers of
recycled PET plastic, enabling PepsiCo to purchase production
capacity and incorporate Loop™ PET resin into its product
packaging;
●
Multi-year
supply agreement with L’OCCITANE en Provence to supply 100%
recycled and sustainable Loop™ PET resin and incorporate
Loop™ PET resin into its product packaging; and
●
Multi-year
supply agreement with L’Oréal Group, the global leader
in the beauty industry, enabling L’Oréal Group to
purchase production capacity and incorporate Loop™ PET resin
into its product packaging.
Turning PET Waste into Feedstock
We use
waste PET plastic and polyester fiber as feedstock. Our technology
can use PET plastic bottles and packaging of any color,
transparency or condition, carpet, clothing and other polyester
textiles that may contain colors, dyes or additives, and even PET
plastics that have been recovered from the ocean and degraded by
exposure to sun and salt. We believe that our ability to use many
materials that mechanical recyclers cannot use is an important
advantage of Loop™ PET resin over mechanically recycled PET
resin. This also means we are creating a new market for materials
that have persistently been leaking out of the waste management
system and into our shared rivers, oceans and natural
areas.
7
Commercialization Plan and Progress
During
the year ended February 28, 2021, we continued executing our
corporate strategy with a focus on the commercialization of our
technology. We are progressing on the engineering of our full-scale
commercial facilities with our engineering partner Worley, a
leading global engineering, procurement and construction company.
The engineering philosophy we have adopted is design one, build
many. This approach allows for the process design package, which
has been completed, to be used as the base engineering platform for
all future geographical expansion. We believe this approach allows
for a quick execution, speed to market and lends itself well to
modular construction.
The
Infinite Loop
TM
manufacturing technology is the key pillar of our commercialization
blueprint. We believe our technology is at the forefront of the
global transition away from fossil fuels and petrochemicals and
into the circular economy, where PET plastic and polyester fiber
are produced from recycled content. The Infinite Loop™
technology is being engineered to support the commitment of global
consumer brands to achieve a high level of recycled content in
packaging. Infinite Loop™ facilities could be located near
large urban centers where more plastic is being consumed and
therefore more waste plastic feedstock is likely
available.
Our
objective is to achieve global expansion of the technology through
a mix of fully owned facilities, strategic partnerships, and
licensing agreements. We believe that industrial companies, some of
which today may not be in the business of manufacturing PET resin
or polyester fiber, will view involvement in Infinite Loop™
projects as a growth opportunity, which may offer attractive
economic returns either as Loop manufacturing partners or as
licensees of the technology.
On
September 2, 2020, we entered into a know-how and engineering
agreement (the “Chemtex Agreement”) with Chemtex Global
Corporation (“Chemtex”) to license the PET resin and
polyester fiber manufacturing know-how of INVISTA’s
technology and licensing group, INVISTA Performance Technologies
(IPT) (“INVISTA”). The INVISTA know how will be used
for the polymerization of DMT and MEG monomer output from
Loop’s depolymerization technology, the result of which is
Loop
TM
PET resin or polyester fiber made from 100% recycled content. The
INVISTA polymerization process and the associated designs are
historically proven in the commercial production of PET resin and
polyester fiber.
We
continue to focus on the completion of the Infinite
Loop
TM
engineering design with an intial target capacity of up to 70,000
metric tons/year. Permitting, site and regulatory considerations
may impact plant capacity for the various projects. The design
includes the integration of our depolymerization technology with
INVISTA’s polymerization technology in partnership with
Worley. We intend to use this design when evaluating Infinite
Loop
TM
facilities in various regions. Worley has completed the
pre-feasibility engineering as part of the planning phase for an
Infinite Loop
TM
manufacturing facility in the province of Québec. We expect
that Worley may also play a role in the feasibility phase of
engineering and the future design of larger capacity
facilities.
We
believe that Infinite Loop
TM
recycled PET resin and polyester fiber would command premium
pricing over virgin, petroleum-based PET resin and provide
attractive economic returns. We are targeting multi-year take or
pay offtake agreements for planned Infinite Loop
TM
production. Factors under consideration in determining project
economics include pre-feasibility design engineering and cost
estimate work, timing and permitting of a facility, customer
offtake demand, commitment terms, and feedstock sources, quality,
availability, logistics, and ramp up, among others.
Infinite Loop
TM
Bécancour,
Québec
We are
in the planning phase for an Infinite Loop
TM
manufacturing facility in the province of Québec (the
“Québec Project”). On May 27, 2021, we acquired a
19 million square foot parcel of land in Bécancour,
Québec for $4.8 million (CDN $5.9 million) (the “New
Site”). The site offers attractive logistics being located on
the St-Lawrence river and access to rail. As previously disclosed,
we had identified a different 2 million square feet parcel of land
in Bécancour, Québec (the “Previous Site”),
and had negotiated an option right to purchase that parcel of land.
The environmental impact of building on the New Site is lower than
the Previous Site because we will be recycling an industrial site
that has previously been demolished. The development of this site
will likely not result in the destruction of wetlands or forest and
it reduces the overall construction costs and permitting time. The
site size exceeds our project needs and we may choose to sell a
portion of the land to offset part of our project commitment. We
will not exercise the purchase option which was agreed in January
2021 to acquire the Previous Site and we will cease monthly
payments for the option rights of the Previous Site.
8
The
Québec Project is currently contemplated as wholly-owned and
operated by Loop Industries which allows us to commercialize near
our Innovation and Engineering teams located in Terrebonne,
Québec. To fund the project and enhance our target returns, we
are exploring financing options. Alternatives under exploration
include incentive and financing programs supported by, or in
partnership with, various levels of government.
The
Québec Project would allow the Company to proceed with
Infinite Loop
TM
commercialization in a more expeditious manner without being
impacted by COVID-19 restrictions on international
travel.
Infinite Loop
TM
Europe
We
announced on September 10, 2020 a strategic partnership with SUEZ
GROUP (“Suez”), with the objective to build the first
Infinite Loop™ manufacturing facility in Europe. With the
combination of the Infinite Loop
TM
technology and the resource management expertise of Suez, this
partnership seeks to respond to
growth in demand in Europe from
global beverage and consumer goods brand companies who we believe
are committed to ambitious targets for a high level of recycled
content in their products. Together with Suez, we have initiated
the work to enable us to make a final investment decision for the
project with the current priorities being on the site selection,
permitting, and feedstock requirements and engineering. We are
targeting final site selection during the summer of
2021.
Joint Venture with Indorama
In
September 2018 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 to meet the growing
global demand from beverage and consumer packaged goods companies.
This partnership brings together Indorama’s manufacturing
footprint and Loop Industries’ proprietary technology to
become a supplier of 100% sustainable and recycled PET
resin.
We
entered into a joint venture agreement (“Joint Venture
Agreement”) with Indorama through our wholly-owned subsidiary
Loop Innovations, LLC, a Delaware limited liability company. Each
company has 50/50 equity interest in the joint venture. We are
contributing to the 50/50 joint venture an exclusive world-wide
royalty-free license to use its proprietary technology to produce
100% sustainably produced PET resin in addition to our equity cash
contribution. 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. In 2019, the
joint venture decided to increase the capacity of the planned
Spartanburg plant due to customer demand to 40,000 metric tons per
year.
We have currently contracted for the sale of approximately 40% of
the planned capacity, of the expected output of the Spartanburg
facility and we will resume discussions for the remaining
volume
once
we have more visibility on the commissioning date of the facility,
although we have had and may continue to experience delays due to
the COVID-19 pandemic (see
“The global COVID-19 pandemic” as
noted under “Risk Factors”)
.
As part of the Joint Venture
Agreement, we are committed to contribute our equity share for the
costs under the joint venture agreement to construct the facility.
During the year ended February 28, 2021, we made a contribution of
$650,000 and as at February 28, 2021, we have contributed a total
of $1,500,000 to the joint venture.
The joint venture made a decision over the summer of 2020 that due
to the COVID-19 pandemic it would temporarily delay work on the
project. Since then, no expenditures have been incurred by the
joint venture. The travel restrictions and quarantine requirements
between Canada and the US continued to cause disruptions in our
timetable. While both joint venture partners currently remain
committed to the project, we continue to monitor the COVID-19
implications on the project timetable.
Demonstration Plant and Innovation Center in Terrebonne,
Québec
As part
of our plan for the commercialization of future Infinite
Loop
TM
manufacturing facilities, we decided to convert our Terrebonne,
Québec pilot plant to an Infinite Loop
TM
demonstration and training facility. This demonstration facility
will be used to showcase the Infinite Loop
TM
end to end
technology to potential partners and customers, and train
operational teams in advance of the commissioning of commercial
plants.
9
We made
significant investments in the demonstration plant during the year
ended February 28, 2021. In particular, we installed and began
operation of two new depolymerization reactors in the last quarter.
The depolymerization reactors substantially increase our
demonstration facility’s depolymerization capacity and
confirm the design and scale-up factor for the feasibility
engineering of the planned commercial-scale facilities. In
addition, we have also entered into an agreement to acquire PET
polymerization equipment from Chemtex to manufacture of Loop™
branded PET resin at our demonstration plant. We anticipate the
Infinite Loop
TM
demonstration plant project to be largely completed by late in
calendar 2021 and delivering Loop™ branded PET resin to
customers starting in calendar 2022.
In
addition to the capital requirements for our commercialization, we
plan to continue to invest in strengthening our intellectual
property portfolio, building a core competency in managing
strategic relationships and continue enhancing our brand value. Our
research and development innovation center in Terrebonne,
Québec will continue to push forward the development of our
technology.
Human Capital
Our
employees are essential to our success and we are committed to
providing a safe, productive, discrimination-free and
harassment-free work environment. All employees are responsible for
compliance with our Code of Ethics as well as our health and
safety, and anti-harassment policies. These policies and practices
help us foster a workplace environment that promotes inclusion and
diversity.
To
attract and retain highly capable and innovative employees, we have
developed competitive compensation packages and benefits programs.
Our compensation packages include market-competitive pay,
healthcare benefits, paid time off and family leave and flexible
work schedules. We also offer equity awards with multi-year vesting
provisions to incentivize and reward our employees for long term
corporate performance and promote retention throughout the vesting
period.
To
support our employees this fiscal year and to promote their health
and safety, we encouraged administrative and engineering employees
to work remotely. We provided emergency leave for employees to take
care of a child or parent due to COVID-19 disruptions.
We are
investing in building a 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. On January 11, 2021, Mr. Yves Perron was hired
as the Company’s Vice-President, Engineering and
Construction. On February 26, 2021, Mr. Nelson Gentiletti retired
and stepped down as the Company’s Chief Operating Officer
(“COO”) and Chief Financial Officer (“CFO”)
on March 1, 2021, on which date Drew Hickey was appointed as the
Company’s CFO. Mr. Gentiletti remained with the Company until
April 30, 2021 to ensure an orderly transition of his
responsibilities. In addition, on October 6, 2020, the Company
retained the services of Mr. Laurent Auguste in an advisory
capacity to oversee all the Company’s European activities. As
of February 28, 2021, we had 64 employees of which 29 work in
research and development and 22 in engineering and
operations.
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.
10
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.
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.
11
RISK FACTORS SUMMARY
This
risk factor summary contains a high-level summary of risks
associated with our business, but does not address all of the risks
that we face. Additional discussion of the risks summarized below,
and other risks that we face, may be found immediately following
this summary.
●
We
have incurred net losses and have never generated revenue since
inception and expect to continue to incur losses for the
foreseeable future and may never achieve or maintain
profitability.
●
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.
●
We
may not be able to execute our business plan or stay in business
without additional funding.
●
The
global COVID-19 pandemic has adversely affected, and may in the
future adversely affect, our business, results of operations and
financial condition.
●
We
are subject to certain risks related to litigation filed by or
against us and investigations we are subject to, and adverse
results may harm our business.
●
We
have been named as a defendant in a putative shareholder class
action lawsuits and are subject to an SEC Investigation which could
have a material adverse impact on our business, financial
condition, results of operation, cash flows and
reputation.
●
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.
●
Our
technology may not be successful in developing commercial products
and if we are unable to successfully scale our manufacturing
processes, we may not meet customer demand.
●
We
face business risks due to our relationships with strategic
partners.
●
Decreases
in our ability to develop or apply new technology and know-how or
protect our intellectual property and proprietary technology or
obtain or maintain trade secret protection may affect our
competitiveness.
●
Disruption
at, damage to or destruction of our demonstration and training
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.
●
The
plastics manufacturing industry is extremely price-competitive
because of the commodity-like nature of virgin 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.
●
We
are vulnerable to fluctuations in the supply and price of raw
materials.
●
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.
●
Our
demonstration and training facility and other facilities 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.
●
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 subject to various federal, provincial, state and local laws
and regulations and failure to secure and maintain permits could
result in costs that have a material adverse effect on our
business, results of operations and financial
condition.
●
Raising
additional funds may cause dilution to our existing stockholders,
restrict our operations or require us to relinquish rights to our
technologies.
●
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.
●
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.
●
Anti-takeover
effects of certain provisions of Nevada state law hinder a
potential takeover of our company.
●
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.
12
RISKS RELATING TO OUR BUSINESS AND TECHNOLOGY
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 material revenue
and may never be profitable.
Since our inception in 2010, we have incurred net losses. Our net
loss for the year ended February 28, 2021 was $
36.34
million and we have earned no revenues to
date. We have financed our operations primarily through sales of
common stock and incurrence of debt and have devoted substantial
efforts to research and development, as well as building our team.
We expect to continue to incur significant expenses and increasing
operating losses for the foreseeable future. The net losses we
incur may fluctuate significantly from quarter to quarter. Although
we believe that our business plan has significant profit potential,
we may not attain profitable operations and management may not
succeed in realizing our business objectives. Our ability to
generate revenue depends on our ability to successfully complete
the development of our technology and products, obtain the
regulatory approvals necessary to commercialize our products,
attract additional customers, finance, build and operate commercial
facilities. 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
our GEN I technology 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 and our demonstration and
training plant. 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
a combination of the issuance of debt, equity, and/or joint
ventures and/or government incentive programs 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.
The global COVID-19 pandemic has adversely affected, and may in the
future adversely affect, our business, results of operations and
financial condition.
The COVID-19 pandemic has disrupted business operations for us and
our customers, suppliers, vendors and other parties with whom we do
business, and such disruptions are expected to continue for an
indefinite period of time. In an effort to control the spread
of COVID-19, governments and municipalities around the world have
instituted restrictive measures, including orders to
shelter-in-place, travel restrictions, mandated business closures
and social distancing. The pandemic and resulting governmental
restrictions and regulations have adversely affected businesses,
economies, and financial markets globally, leading to an economic
downturn, a sharp increase in unemployment and increased market
volatility of uncertain severity and duration. Additionally,
as a result the disruption to the global economy, we may experience
a decline in the consumption of our products as a result of change
of consumer preference, perception or confidence and spending
habits. Any continued disruption or prolonged change in consumer
spending habits could adversely affect our business.
The uncertain duration of these measures has had and may continue
to have increasingly negative effects on critical development and
commercialization efforts. In particular, although we were
able to take advantage of exemptions in the order
from
Québec provincial
government closing all non-essential business and commercial
activity in the province during the shutdown periods from March 25,
2020 to May 11, 2020 and December 25, 2020 to February 7, 2021 to
continue reduced operations at our pilot plant, the situation
globally and the continued border closures and quarantine
requirements between Canada and the United States have caused
disruptions in our timetable of our joint venture with
Indorama in the development of our Spartanburg facility and
commercialization of our technology. We cannot ensure whether there
will be further delays in light of the COVID-19 pandemic and
further delays on the development and commercialization of our
technology could have a material adverse effect on our results of
operations and cash flows.
13
In addition, as a result of COVID-19 and the measures designed to
contain the spread of the virus, we may experience further
restrictions on the movement of employees, disruption of supply
chains, shipping of raw materials, restrictions on manufacturing
and decline in value of assets held by us, including property and
equipment. In particular, the COVID-19 outbreak has caused
disruption to our business, including our furloughing a number of
employees, which have now returned to work in full, either in
person or in a work-from-home capacity.
Additionally,
our management team
has, and will likely continue, to spend time, attention and
resources monitoring the COVID-19 pandemic and seeking to manage
its effects on our business and
workforce.
Further,
we are in the process of obtaining all necessary permits and
approvals for the operation of our business, which processes may be
delayed due to the impact of the COVID-19
pandemic.
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 pandemic is ongoing, and its dynamic
nature, including uncertainties relating to the ultimate spread of
the virus, the severity of the disease, the duration of the
outbreak and actions that may be taken by governmental authorities
to contain the outbreak or to treat its impact, makes it difficult
to accurately forecast any effects on our results of operations for
2021 and beyond.
Additionally, our
efforts to mitigate the impact of COVID-19 on our business,
employees and the community in which we operate efforts may not be
successful and may require additional costs and have a material
adverse effect on our results of operations and cash
flows.
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, operations impacts, and
transportation disruptions that may cause further delays or
increase costs.
The macroeconomic 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 or volatility 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.
If any of these things were to occur, it could have a material
adverse effect on our business and our results of
operations.
14
We face business risks due to our relationships with strategic
partners.
We rely on our strategic partner relationships for the scaling,
manufacturing and commercialization of our technology. We have
various arrangements with Indorama and Suez to commercially scale
our technology in Spartanburg and Europe respectively and with
Chemtex and our external engineering firm Worley. We also have
various supply agreements with Danone, Pepsi, L’Oreal and
L’OCCITANE en Provence for our planned Spartanburg facility.
Termination of any of these agreements could have an adverse effect
on our business. In particular, certain of our agreements with our
strategic partners have termination rights related to the
satisfaction of milestones, some of which we have not achieved.
Other than as noted below and though we have not received any
indication from our strategic partners as to their indication to
terminate, we cannot provide assurance that these strategic
partners with whom we have entered into such agreements will not
exercise their applicable termination rights, which are not within
our control. For example, we previously announced that Coca-Cola
Cross Enterprise Procurement Group (“CEPG”) advised us
that it was terminating our Master Terms and Conditions Supply
Agreement for Loop PET plastic, dated November 14, 2018 (the
“MTC”) because we did not satisfy our first production
milestone from the joint venture facility by July 2020 as required
by the MTC. CEPG indicated in its notice that it is open and
interested in exploring a new framework agreement with us for North
America and/or Europe. We cannot provide any assurances that we
will be able to enter into a new agreement with CEPG on terms that
are favorable to us or at all.
Any failure of our strategic partners or us to meet our required
commitments, whether financial or otherwise, could result in a
termination of such agreements as described above, operational
issues, increased expenditures or damage to our reputation or loss
of clients or customers, any of which could adversely affect our
business and operations, financial performance or
prospects.
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 at 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 demonstration plant with limited
production capacity used principally for research and development,
training and customer marketing purposes. In order to fully
implement our business plan, we will need to scale the operations
to a larger industrial commercial facility, develop strategic
partnerships or find other means to produce greater volumes of
finished product. We, however, have not yet tested our technology
at the scale that will be required for large commercial use nor at
a scale sufficient to conclude the success of our
technology.
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.
15
The plastics manufacturing industry is extremely price-competitive
because of the commodity-like nature of virgin 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 historically 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 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 feedstock supply strategy, including any 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.
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.
We are subject to certain risks related to litigation filed by or
against us and investigations we are subject to, 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,
investigations 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, including
the subpoena we received from the SEC in October 2020 requesting
certain information regarding testing, testing results and details
of results from our GEN I and GEN II technologies and certain of
our partnerships and agreements. 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. We
expect to continue to incur legal fees in relation to litigation,
investigations and other proceedings.
16
We have been named as a defendant in a putative shareholder class
action lawsuits and are subject to an SEC Investigation which could
have a material adverse impact on our business, financial
condition, results of operation, cash flows and
reputation.
We are defending against a putative shareholder class action
lawsuits described in “Item 3. Legal
Proceedings—Litigation,” including any appeals of such
lawsuit. We are currently unable to estimate the possible loss or
possible range of loss, if any, associated with the resolution of
these lawsuits. In the event that our initial defense of these
lawsuits is unsuccessful, there can be no assurance that we will
prevail in any appeal. Any adverse outcome, including any
plaintiff’s appeal of the judgment in this case, could have a
material adverse effect on our business, financial condition,
results of operation, cash flows and reputation. In addition, there
can be no assurance that our insurance carriers will cover all or
part of the defense costs, or any liabilities that may arise from
these matters. The litigation process may utilize a significant
portion of our cash resources and divert management’s
attention from the day-to-day operations of our company, all of
which could harm our business. We also may be subject to claims for
indemnification related to these matters, and we cannot predict the
impact that indemnification claims may have on our business or
financial results.
In addition, as described in “Item 3. Legal
Proceedings—SEC Investigation,” of this annual report,
the SEC in October 2020 requesting certain information regarding
testing, testing results and details of results from our GEN I and
GEN II technologies and certain of our partnerships and agreements.
We cannot predict or provide any assurance as to the timing,
outcome or consequences of the SEC investigation. If the
SEC were to conclude that enforcement action is appropriate, we
could be required to pay civil penalties and fines, and the SEC
could impose other sanctions against us or against our current and
former officers and directors. We have incurred, and may continue
to incur, significant expenses related to legal and other
professional services in connection with matters relating to or
arising from the SEC investigation. In addition, our
board of directors, management and employees may expend a
substantial amount of time on the SEC investigation,
diverting resources and attention that would otherwise be directed
toward our operations and implementation of our business strategy,
all of which could materially adversely affect our business,
financial condition and results of operations. Furthermore, while
the SEC has informed us that the investigation should not be
construed as an indication by the SEC or its staff that any
violation of law has occurred, nor as a reflection upon any person,
entity or security, publicity surrounding the foregoing, or any SEC
enforcement action or settlement as a result of the SEC’s
investigation, even if ultimately resolved favorably for us, could
have an adverse impact on our reputation, business, financial
condition, results of operations or cash position.
Our demonstration and training facility or other facilities 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 demonstration and training facility or other
facilities 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
demonstration and training facility and our other facilities, 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 Canada, 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.
17
Our failure to protect our intellectual property and proprietary
technology may significantly impair our competitive
advantage.
Our success and ability to compete depend 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.
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.
18
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 differ 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 various federal, provincial, state and local laws
and regulations and failure to secure and maintain permits could
result in costs that have a material adverse effect on our
business, results of operations and financial
condition.
Many federal, provincial, state and local regulations govern plants
and facilities and licenses to be held by individuals. 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. The requirements for
such
permits
vary
depending on the location where our regulated activities are
operated. As these are governmental permitting processes, there is
a degree of uncertainty as to whether a permit will be granted, the
time it will take for a permit to be issued, the duration of the
permit and the conditions that may be imposed in connection with
the granting of the permit.
We believe that we have all licenses required to conduct our
operations and are in material compliance with
applicable
regulatory
requirements. Failure to comply with
applicable regulations could result in substantial fines or
revocation of our permits and licenses or an inability to perform
work, which could adversely affect our
business.
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.
19
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;
●
our
ability 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 or investigations;
●
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;
●
limited
trading liquidity in our shares and any short positions held;
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 May 27, 2021, Mr. Daniel Solomita, our President and Chief
Executive Officer, Chairman of the Board of Directors, and
controlling shareholder, beneficially owns 19,010,000 shares of
common stock, or 44.8% 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 19,010,000
shares of common stock and 1 share of Series A Preferred Stock
provides him with 77.0% 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 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.
20
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.
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.
Changes in tax legislation in the countries the Company has
operations could adversely affect our results of operations and
financial condition.
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.
21
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 31.9
thousand square foot facility includes 7.4 thousand square feet for
our executive offices and 24.5 thousand square feet for our
innovation and operational activities. We believe that our existing
facilities are adequate for our current needs.
On May
27, 2021, we acquired a 19 million square foot parcel of land in
Bécancour, Québec for approximately $4.8 million (CDN $
5.9 million). The site is part of our planning for an Infinite
Loop
TM
manufacturing facility. The location is near existing industrial
infrastructure, which reduces project costs, permitting time and
does not result in the destruction of wetlands or
forest.
I
TEM 3. LEGAL PROCEEDINGS
SEC Investigation
As previously disclosed in our Current Report on Form 8-K filed
with the SEC on October 16, 2020, on October 15, 2020, we received
a subpoena from the SEC requesting certain information from us,
including information regarding testing, testing results and
details of results from our GEN I and GEN II technologies and
certain of our partnerships and agreements. Prior to its receipt,
there had been no previous communication between us and the SEC on
this issue and we were unaware of this investigation. The SEC
informed us that its investigation does not mean that the SEC has
concluded that anyone has violated the law and that the
investigation does not mean that the SEC has a negative opinion of
us. We cannot predict when this matter will be resolved or what, if
any, action the SEC may take following the conclusion of the
investigation.
Litigation
On October 13, 2020, the Company and certain of its officers were
named as defendants in a proposed class action lawsuit filed in the
United States District Court for the Southern District of New York,
captioned
Olivier Tremblay, Individually
and on Behalf of All Other Similarly Situated v. Loop Industries,
Inc., Daniel Solomita, and Nelson Gentiletti
, Case No. 7:20-cv-0838
(“
Tremblay Class
Action”). The allegations in the complaint claim that the
defendants allegedly violated Sections 10(b) and 20(a) and Rule
10b-5 of the Securities Exchange Act of 1934 by allegedly making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. Plaintiff seeks unspecified damages on behalf of a class of
purchasers of Loop’s securities between September 24, 2018
and October 12, 2020.
On
October 28, 2020, the Company and certain of its officers were
named as defendants in a second proposed class action lawsuit filed
in the United States District Court for the Southern District of
New York, captioned
Michelle
Bazzini, Individually and on Behalf of All Other Similarly Situated
v. Loop Industries, Inc., Daniel Solomita, and Nelson
Gentiletti
, Case No. 7:20-cv-09031-UA. The allegations in
this complaint are similar in nature to those made in the Tremblay
Class Action.
22
On
January 4, 2021, the United States District Court for the Southern
District of New York rendered a stipulation and order granting the
consolidation of the two class action lawsuits filed in New York as
In re Loop Industries, Inc.
Securities Litigation
, Master File No.
7:20-cv-08538.
Sakari
Johansson and John Jay Cappa have been appointed as Co-Lead
Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP
have been appointed as Co-Lead Counsel for the class.
Plaintiffs served a consolidated amended complaint on February 18,
2021 which alleges defendants violated Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934 by making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. The consolidated amended complaint relies on the October
13, 2020 report published by a third party regarding the Company to
support their allegations. Defendants served a motion to dismiss
the consolidated amended complaint on April 27, 2021.
Plaintiffs’ opposition to the motion to Dismiss was served on
May 27, 2021 and Defendants’ reply in support of the motion
to dismiss is due on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of
their officers and directors were named as defendants in a proposed
securities class action filed in the Superior Court of Québec
(District of Terrebonne, Province of Québec, Canada), in file
no. 700-06-000012-205. The
Application for authorization
of a class action and for authorization to bring an action pursuant
to section 225.4 of the Québec Securities
Act
(the
“Application”) was filed by an individual shareholder
on behalf of himself and a class of buyers who purchased our
securities during the “Class Period” (not defined).
Plaintiff alleges that throughout the Class Period, the defendants
allegedly made false and/or misleading statements and allegedly
failed to disclose material adverse facts concerning the
Company’s technology, business model, operations and
prospects, thus causing the Company’s stock price to be
artificially inflated and thereby causing plaintiff to suffer
damages. Plaintiff seeks unspecified damages stemming from losses
he claims to have suffered as a result of the foregoing.
On December 13, 2020, the Application
was amended in order to add allegations regarding specific
misrepresentations.
From
time to time, we may become involved in various lawsuits and legal
proceedings or investigations which arise in the ordinary course of
business. Except as noted above, we are not presently a party to
any legal proceedings, government actions, administrative actions,
investigations or claims that are pending against us or involve us
that, in the opinion of our management, could reasonably be
expected to have a material adverse effect on our business,
financial condition or operating results. However, litigation is
subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our
business.
It is
possible that we may expend financial and managerial resources in
the defense of our intellectual property rights in the future if we
believe that our rights have been violated. It is also possible
that we may expend financial and managerial resources to defend
against claims that our products and services infringe upon the
intellectual property rights of third parties.
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 2021 annual meeting of stockholders, to
be filed with the Commission pursuant to Regulation 14A, not later
than 120 days after February 28, 2021.
23
P
ART II
I
TEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information for Common Stock
Our
common stock is currently traded on the Nasdaq Global Market under
the symbol “LOOP.” From April 10, 2017 to November 19,
2017, our common stock was quoted on the OTCQX tier of
the OTC Markets Group Inc. under the symbol “LLPP.”
From October 29, 2015 through April 7, 2017, our common stock was
quoted on the OTCQB tier of the OTC Markets Group Inc. under the
stock symbol “LLPP.” From September 26, 2012 to October
28, 2015, our common stock was quoted on the OTCQB tier of the OTC
Markets Group Inc. under the stock symbol
“FAMG.”
Holders
As at
May 27, 2021, there were 42,433,320 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 52 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 May
12, 2020, we issued a warrant to acquire 25,000 shares of common
stock at a strike price of $9.43 per share
.
Purchases of Equity Securities by the Registrant and Affiliated
Purchasers
We did
not purchase any of our shares of common stock or other securities
during the year ended February 28, 2021.
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.
24
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 plastic bottles and packaging, carpets and
textiles of any color, transparency or condition and even ocean
plastics that have been degraded by the sun and salt, to its base
building blocks (monomers). The monomers are filtered, purified and
polymerized to create virgin-quality Loop™ branded PET resin
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 reducing plastic waste and recovering waste
plastic for a sustainable future.
Consumer brands are seeking a solution to their plastic challenge,
and they are taking bold action. In the past years, we have seen
major brands make significant commitments to close the loop on
their plastic use in two ways; by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET resin and
polyester fiber provides the ideal solution for these brands
because
it is recyclable and is made from 100% recycled
waste PET and polyester fiber, while being virgin-quality and
suitable for use in food-grade packaging.
Commercialization Plan and Progress
During
the year ended February 28, 2021, we continued executing our
corporate strategy with a focus on the commercialization of our
technology. We are progressing on the engineering of our full-scale
commercial facilities with our engineering partner Worley, a
leading global engineering, procurement and construction company.
The engineering philosophy we have adopted is design one, build
many. This approach allows for the process design package, which
has been completed, to be used as the base engineering platform for
all future geographical expansion. We believe this approach allows
for a quick execution, speed to market and lends itself well to
modular construction.
The
Infinite Loop
TM
manufacturing technology is the key pillar of our commercialization
blueprint. We believe our technology is at the forefront of the
global transition away from fossil fuels and petrochemicals and
into the circular economy, where PET plastic and polyester fiber
are produced from recycled content. The Infinite Loop™
technology is being engineered to support the commitment of global
consumer brands to achieve a high level of recycled content in
packaging. Infinite Loop™ facilities could be located near
large urban centers where more plastic is being consumed and
therefore more waste plastic feedstock is likely
available.
Our
objective is to achieve global expansion of the technology through
a mix of fully owned facilities, strategic partnerships, and
licensing agreements. We believe that industrial companies, some of
which today may not be in the business of manufacturing PET resin
or polyester fiber, will view involvement in Infinite Loop™
projects as a growth opportunity, which may offer attractive
economic returns either as Loop manufacturing partners or as
licensees of the technology.
On
September 2, 2020, we entered into a know-how and engineering
agreement (the “Chemtex Agreement”) with Chemtex Global
Corporation (“Chemtex”) to license the PET resin and
polyester fiber manufacturing know-how of INVISTA’s
technology and licensing group, INVISTA Performance Technologies
(IPT) (“INVISTA”). The INVISTA know how will be used
for the polymerization of DMT and MEG monomer output from
Loop’s depolymerization technology, the result of which is
Loop
TM
PET resin or polyester fiber made from 100% recycled content. The
INVISTA polymerization process and the associated designs are
historically proven in the commercial production of PET resin and
polyester fiber.
25
We
continue to focus on the completion of the Infinite
Loop
TM
engineering design with an intial target capacity of up to 70,000
metric tons/year. Permitting, site and regulatory considerations
may impact plant capacity for the various projects. The design
includes the integration of our depolymerization technology with
INVISTA’s polymerization technology in partnership with
Worley. We intend to use this design when evaluating Infinite
Loop
TM
facilities in various regions. Worley has completed the
pre-feasibility engineering as part of the planning phase for an
Infinite Loop
TM
manufacturing facility in the province of Québec. We expect
that Worley may also play a role in the feasibility phase of
engineering and the future design of larger capacity
facilities.
We
believe that Infinite Loop
TM
recycled PET resin and polyester fiber would command premium
pricing over virgin, petroleum-based PET resin and provide
attractive economic returns. We are targeting multi-year take or
pay offtake agreements for planned Infinite Loop
TM
production. Factors under consideration in determining project
economics include pre-feasibility design engineering and cost
estimate work, timing and permitting of a facility, customer
offtake demand, commitment terms, and feedstock sources, quality,
availability, logistics, and ramp up, among others.
Infinite Loop
TM
Bécancour,
Québec
We are
in the planning phase for an Infinite Loop
TM
manufacturing facility in the province of Québec (the
“Québec Project”). On May 27, 2021, we acquired a
19 million square foot parcel of land in Bécancour,
Québec for $4.8 million (CDN $5.9 million) (the “New
Site”). The site offers attractive logistics being located on
the St-Lawrence river and access to rail. As previously disclosed,
we had identified a different 2 million square feet parcel of land
in Bécancour, Québec (the “Previous Site”),
and had negotiated an option right to purchase that parcel of land.
The environmental impact of building on the New Site is lower than
the Previous Site because we will be recycling an industrial site
that has previously been demolished. The development of this site
will likely not result in the destruction of wetlands or forest and
it reduces the overall construction costs and permitting time. The
site size exceeds our project needs and we may choose to sell a
portion of the land to offset part of our project commitment. We
will not exercise the purchase option which was agreed in January
2021 to acquire the Previous Site and we will cease monthly
payments for the option rights of the Previous Site.
The
Québec Project is currently contemplated as wholly-owned and
operated by Loop Industries which allows us to commercialize near
our Innovation and Engineering teams located in Terrebonne,
Québec. To fund the project and enhance our target returns, we
are exploring financing options. Alternatives under exploration
include incentive and financing programs supported by, or in
partnership with, various levels of government.
The
Québec Project would allow the Company to proceed with
Infinite Loop
TM
commercialization in a more expeditious manner without being
impacted by COVID-19 restrictions on international
travel.
Infinite Loop
TM
Europe
We
announced on September 10, 2020 a strategic partnership with SUEZ
GROUP (“Suez”), with the objective to build the first
Infinite Loop™ manufacturing facility in Europe. With the
combination of the Infinite Loop
TM
technology and the resource management expertise of Suez, this
partnership seeks to respond to
growth in demand in Europe from
global beverage and consumer goods brand companies who we believe
are committed to ambitious targets for a high level of recycled
content in their products. Together with Suez, we have initiated
the work to enable us to make a final investment decision for the
project with the current priorities being on the site selection,
permitting, and feedstock requirements and engineering. We are
targeting final site selection during the summer of
2021.
Joint Venture with Indorama
In
September 2018 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 to meet the growing
global demand from beverage and consumer packaged goods companies.
This partnership brings together Indorama’s manufacturing
footprint and Loop Industries’ proprietary technology to
become a supplier of 100% sustainable and recycled PET
resin.
26
We
entered into a joint venture agreement (“Joint Venture
Agreement”) with Indorama through our wholly-owned subsidiary
Loop Innovations, LLC, a Delaware limited liability company. Each
company has 50/50 equity interest in the joint venture. We are
contributing to the 50/50 joint venture an exclusive world-wide
royalty-free license to use its proprietary technology to produce
100% sustainably produced PET resin in addition to our equity cash
contribution. 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. In 2019, the
joint venture decided to increase the capacity of the planned
Spartanburg plant due to customer demand to 40,000 metric tons per
year.
We have currently contracted for the sale of approximately 40% of
the planned capacity, of the expected output of the Spartanburg
facility and we will resume discussions for the remaining
volume
once
we have more visibility on the commissioning date of the facility,
although we have had and may continue to experience delays due to
the COVID-19 pandemic (see
“The global COVID-19 pandemic” as
noted under “Risk Factors”)
.
As part of the Joint Venture
Agreement, we are committed to contribute our equity share for the
costs under the joint venture agreement to construct the facility.
During the year ended February 28, 2021, we made a contribution of
$650,000 and as at February 28, 2021, we have contributed a total
of $1,500,000 to the joint venture.
The joint venture made a decision over the summer of 2020 that due
to the COVID-19 pandemic it would temporarily delay work on the
project. Since then, no expenditures have been incurred by the
joint venture. The travel restrictions and quarantine requirements
between Canada and the US continued to cause disruptions in our
timetable. While both joint venture partners currently remain
committed to the project, we continue to monitor the COVID-19
implications on the project timetable.
Demonstration Plant and Innovation Center in Terrebonne,
Québec
As part
of our plan for the commercialization of future Infinite
Loop
TM
manufacturing facilities, we decided to convert our Terrebonne,
Québec pilot plant to an Infinite Loop
TM
demonstration and training facility. This demonstration facility
will be used to showcase the Infinite Loop
TM
end to end
technology to potential partners and customers, and train
operational teams in advance of the commissioning of commercial
plants.
We made
significant investments in the demonstration plant during the year
ended February 28, 2021. In particular, we installed and began
operation of two new depolymerization reactors in the last quarter.
The depolymerization reactors substantially increase our
demonstration facility’s depolymerization capacity and
confirm the design and scale-up factor for the feasibility
engineering of the planned commercial-scale facilities. In
addition, we have also entered into an agreement to acquire PET
polymerization equipment from Chemtex to manufacture of Loop™
branded PET resin at our demonstration plant. We anticipate the
Infinite Loop
TM
demonstration plant project to be largely completed by late in
calendar 2021 and delivering Loop™ branded PET resin to
customers starting in calendar 2022.
In
addition to the capital requirements for our commercialization, we
plan to continue to invest in strengthening our intellectual
property portfolio, building a core competency in managing
strategic relationships and continue enhancing our brand value. Our
research and development innovation center in Terrebonne,
Québec will continue to push forward the development of our
technology.
27
Results of Operations
Fourth Quarter Ended February 28, 2021
The
following table summarizes our operating results for the
three-month periods ended February 28, 2021 and February 29, 2020,
in U.S. Dollars.
|
|
Three
months ended
|
||
|
|
February
28, 2021
|
February 29,
2020
|
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
362,321
|
311,253
|
51,068
|
|
External
engineering
|
2,414,038
|
65,871
|
2,348,167
|
|
Employee
compensation
|
1,000,652
|
766,977
|
233,675
|
|
Machinery and
equipment expenditures
|
3,823,535
|
-
|
3,823,535
|
|
Demonstration plant
operating expenses
|
466,724
|
280,043
|
186,681
|
|
Other
|
115,651
|
46,785
|
68,866
|
|
Total research and
development
|
8,182,921
|
1,470,929
|
6,711,992
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
537,556
|
547,327
|
(9,771
)
|
|
Professional
fees
|
2,807,583
|
275,151
|
2,532,432
|
|
Employee
compensation
|
760,450
|
382,645
|
377,805
|
|
Directors and
officers insurance
|
616,693
|
345,366
|
271,327
|
|
Other
|
91,720
|
217,875
|
(126,155
)
|
|
Total general and
administrative
|
4,814,002
|
1,768,364
|
3,045,638
|
|
|
|
|
|
|
Depreciation and
amortization
|
121,321
|
245,065
|
(123,744
)
|
|
Interest and other
financial expenses
|
55,980
|
406,215
|
(350,235
)
|
|
Interest
income
|
(14,649
)
|
(136,913
)
|
122,264
|
|
Foreign exchange
loss
|
33,929
|
4,303
|
29,626
|
|
Total
expenses
|
13,193,503
|
3,757,963
|
9,435,540
|
|
Net
loss
|
$
(13,193,503
)
|
$
(3,757,963
)
|
$
(9,435,540
)
|
The net
loss for the three-month period ended February 28, 2021 increased
$9.44 million to $13.19 million, as compared to the net loss for
the three-month period ended February 29, 2020 which was $3.76
million. The increase is primarily due to increased research
and development expenses of $6.71 million, increased general and
administrative expenses of $3.05 million and a decrease in interest
income of $0.12 million, partially offset by lower interest and
other financial expenses of $0.35 million, an increased foreign
exchange loss of $0.03 million and by lower depreciation and
amortization expenses of $0.12 million.
28
The
$6.71 million increase in research and development for the
three-month period ended February 28, 2021 was primarily
attributable to the following:
●
$3.82 million
increase in purchases of research and development machinery and
equipment, including two new recently installed depolymerization
reactors. Starting in Q3 of fiscal 2021, the Company
expensed
research and development machinery
and equipment in accordance with
ASC 730, Research and Development
Costs,
and no longer capitalizes these costs.
The timing of this accounting treatment
is
related to management’s decision to convert our pilot plant
to exclusively a demonstration and training facility for our future
Infinite Loop™ manufacturing facilities, therefore foregoing
any alternative future use of its machinery and equipment assets
in other applications.
;
●
$2.35 million
increase in external engineering expenses for ongoing design work
for our Infinite Loop
TM
manufacturing process;
●
$0.23 million
increase in employee compensation expenses; and
●
$0.19 million
increase in pilot plant and laboratory operating
expenses.
The
$3.05 million increase in general and administrative expenses for
the three-month period ended February 28, 2021 was primarily
attributable to the following:
●
$2.53 million
increase in expenses for legal and professional fees due to costs
principally associated with the ongoing SEC investigation and class
action suits described in “Item 3. Legal
Proceedings”;
●
$0.38 million
increase in employee compensation expenses; and
●
$0.27 million
increase in insurance expenses mainly due to directors and officers
(“D&O”) insurance renewal costs.
The
$0.12 million decrease in depreciation and amortization expenses
for the three-month period ended February 28, 2021 is mainly
attributable to the write-down of machinery and equipment assets
related to t
he decision
in the
third quarter of
fiscal 2021 to
dedicate the demonstration and training facility to research and
development activities
. Although the machinery and equipment
will continue to be utilized at our demonstration and training
facility as it is an integral part of supporting the
commercialization of our technology, application of
ASC 730, Research and Development Costs
requires
machinery and
equipment assets
to be written off and
all future costs associated with the demonstration and training
facility
to be recognized as a research and development
expense in the consolidated statements of operations and
comprehensive loss.
The
decrease in interest and other financial expenses of $0.35 million
for the three-month period ended February 28, 2021 is mainly
attributable to a decrease in interest expense and accretion
expense relating to the convertible notes converted in fiscal 2020
in the amount of $0.31 million and $0.05 million, respectively,
offset by increased interest and accretion expenses related to the
Investissement Québec loan totaling $0.02
million.
29
Fiscal Year Ended February 28, 2021
The
following table summarizes our operating results for the years
ended February 28, 2021 and February 29, 2020, in U.S.
Dollars.
|
|
Years
ended
|
||
|
|
February 28,
2021
|
February 29,
2020
|
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
1,417,004
|
1,252,394
|
164,610
|
|
External
engineering
|
5,655,997
|
149,333
|
5,506,664
|
|
Employee
compensation
|
3,040,121
|
2,279,579
|
760,542
|
|
Machinery and
equipment expenditures
|
6,149,075
|
-
|
6,149,075
|
|
Demonstration plant
operating expenses
|
1,852,615
|
901,687
|
950,928
|
|
Other
|
572,202
|
134,182
|
438,020
|
|
Total research and
development
|
18,687,014
|
4,717,175
|
13,969,839
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
2,257,622
|
2,216,997
|
40,625
|
|
Professional
fees
|
4,613,717
|
1,193,884
|
3,419,833
|
|
Employee
compensation
|
2,131,597
|
2,299,175
|
(167,578
)
|
|
Directors and
officers insurance
|
2,072,647
|
761,876
|
1,310,771
|
|
Other
|
464,757
|
743,488
|
(278,731
)
|
|
Total general and
administrative
|
11,540,340
|
7,215,420
|
4,324,920
|
|
|
|
|
|
|
Depreciation and
amortization
|
775,675
|
807,447
|
(31,772
)
|
|
Impairment of
property, plant and equipment
|
5,043,119
|
22,985
|
5,020,134
|
|
Interest and other
financial expenses
|
81,996
|
2,223,304
|
(2,141,308
)
|
|
Interest
income
|
(93,043
)
|
(500,478
)
|
407,435
|
|
Foreign exchange
loss
|
309,822
|
19,602
|
290,220
|
|
Total
expenses
|
36,344,923
|
14,505,455
|
21,839,468
|
|
Net
loss
|
$
(36,344,923
)
|
$
(14,505,455
)
|
$
(21,839,468
)
|
|
|
|
|
|
The net
loss for the year ended February 28, 2021 increased $21.84 million
to $36.34 million, as compared to the net loss for the year ended
February 29, 2020 which was $14.51 million. The increase is
primarily due to increased research and development expenses of
$13.97 million, increased expense for impairment of property, plant
and equipment of $5.02 million, increased general and
administrative expenses of $4.32 million, a decrease in interest
income of $0.41 million and an increased foreign loss of $0.29
million, partially offset by lower interest and other financial
expenses of $2.14 million and by lower depreciation and
amortization expenses of $0.03 million.
30
The
$13.97 million increase in research and development for the year
ended February 28, 2021 was primarily attributable to the
following:
●
$6.15 million
increase in purchases of research and development machinery and
equipment, including two new recently installed depolymerization
reactors. The Company expensed research and development machinery
and equipment in accordance with
ASC 730, Research and Development
Costs,
and no longer capitalizes these costs.
The timing of this accounting treatment
is
related to management’s decision to convert our pilot plant
to exclusively a demonstration and training facility for our future
Infinite Loop™ manufacturing facilities, therefore foregoing
any alternative future use of its machinery and equipment assets in
other applications;
●
$5.51 million
increase in external engineering expenses for ongoing design work
for our Infinite Loop
TM
manufacturing process;
●
$0.95 million
increase in pilot plant and laboratory operating expenses;
and
●
$0.76 million
increase in employee compensation expenses.
The
$4.32 million increase in general and administrative expenses for
the year ended February 28, 2021 was primarily attributable to the
following:
●
$3.42 million
increase in expenses for legal and professional fees due to costs
principally associated with the ongoing SEC investigation and class
action suits described in “Item 3. Legal Proceedings”;
and
●
$1.31 million
increase in insurance expenses mainly due to D&O insurance
renewal costs.
The
$0.32 million decrease in depreciation and amortization expenses
for the three-month period ended February 28, 2021 is mainly
attributable to the write-down of machinery and equipment assets
related to t
he decision in
the
third quarter
of fiscal 2021 to
dedicate the demonstration and training facility to research and
development activities
. Although the machinery and equipment
will continue to be utilized at our demonstration and training
facility as it is an integral part of supporting the
commercialization of our technology, application of
ASC 730, Research and Development Costs
requires
machinery and
equipment assets
for a total of $5.04
million to be written off and all future costs associated with the
demonstration and training facility
to be recognized as a
research and development expense in the consolidated statements of
operations and comprehensive loss.
The
decrease in interest and other financial expenses of $2.14 million
for the three-month period ended February 28, 2021 is mainly
attributable to a decrease in interest expense and accretion
expense relating to the convertible notes converted in fiscal 2020
in the amount of $1.89 million and $0.36 million, respectively,
offset by increased interest and accretion expenses related to the
Investissement Québec loan totaling $0.08
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. As
at February 28, 2021, we had cash and cash equivalents on hand of
$35.22 million. Management actively monitors the Company’s
cash balance and short term cash commitments to ensure current
operations are funded. We are also exploring options to finance our
commercial projects.
Management continues to pursue our growth strategy and is
evaluating our financing plans to continue to raise capital to
finance the start-up of commercial operations and continue to fund
the further development of our ongoing operations. Although our
liquidity position consists of cash and cash equivalents on hand of
$35.22 million, in light of the current global COVID-19 pandemic
and its impacts on the global capital markets, our liquidity
position may change, including the inability to raise new equity
and debt, disruption in completing repayments or disbursements to
our creditors.
On
September 21, 2020, we entered into an underwriting agreement (the
“Underwriting Agreement”) with Roth Capital Partners,
LLC, as underwriter (the “Underwriter”), relating to
the sale and issuance of an aggregate of 1,880,000 shares (the
“Shares”) of the Company’s common stock. The
offering price to the public of the Shares was $12.75 per share,
and the Underwriters have agreed to purchase the Shares from the
Company pursuant to the Underwriting Agreement at a price of $12.11
per share. Under the terms of the Underwriting Agreement, the
Company also granted the Underwriters an option, exercisable for 30
days, to purchase up to an additional 282,000 shares of Common
Stock at the same price per share as the Shares which was exercised
for 207,000 shares. The net proceeds from the offering, including
net proceeds received in connection with the Underwriter’s
option to purchase additional shares, were $25.00
million.
31
As reflected in the accompanying consolidated financial statements,
we are a development stage company, we have not yet begun
commercial operations and we do not have any sources of revenue.
Management believes that the Company has sufficient financial
resources to fund committed operating and capital expenditures and
other working capital needs for at least, but not limited to, the
12-month period from the date of issuance of the February 28, 2021
consolidated financial statements. There can be no assurance that
any future financing will be available or, if available, that it
will be on terms that are satisfactory to us.
As at February 28, 2021, we had accounts payable and accrued
liabilities of $9.06 million (Note 7 to the financial statements)
which include legal fees, engineering, contracting professional
fees and cost of machinery and equipment. The engineering and
contracting professional fees relate to investment in
commercialisation of the Infinite
Loop
TM
commercial facilities design and the
conversion of the pilot plant into the demonstration and training
facility of Infinite Loop
TM
at Terrebone, Québec. The D&O
and legal fees increased due to the SEC investigation and class
action lawsuits.
We have a short-term debt obligation to a Canadian bank in
connection with the purchase, in the year ended February 28, 2018,
of the land and building where our pilot plant and corporate
offices are located at 480 Fernand-Poitras, Terrebonne,
Québec, Canada J6Y 1Y4. On January 24, 2018, the Company
obtained a $1,103,666 (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 $4,598
(CDN$5,833) plus interest, until January 2022, at which time it
will be subject to renewal. It includes an option allowing for the
prepayment of the Loan without penalty.
We also have a long-term debt obligation to Investissement
Québec in connection with a financing facility equal to 63.45%
of all eligible expenses incurred for the expansion of its Pilot
Demonstration and training plant up to a maximum of $3,626,330
(CDN$4,600,000). We received the first disbursement in the amount
of $1,741,611 (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 $362,633 (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. The remaining amount
available under the financing facility
is $1,884,719
(CDN$2,390,766) to be received in a maximum of two additional
disbursements before June 30, 2021.
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:
|
|
February 28,
2021
|
February 29,
2020
|
|
Period end Canadian
$: US Dollar exchange rate
|
$
0.79
|
$
0.74
|
|
Average period
Canadian $: US Dollar exchange rate
|
$
0.76
|
$
0.75
|
Expenditures
are translated at the average exchange rate for the period
presented.
32
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the years ended February 28, 2021, and
February 29, 2020 and February 28, 2019 was as
follows:
|
|
Years
Ended
|
|
|
|
February 28,
2021
|
February 29,
2020
|
|
Net cash used in
operating activities
|
$
(22,490,636
)
|
$
(9,092,549
)
|
|
Net cash used in
investing activities
|
(2,977,364
)
|
(3,388,985
)
|
|
Net cash provided
by financing activities
|
26,598,668
|
40,463,141
|
|
Effect of exchange
rate changes on cash
|
373,612
|
(97,326
)
|
|
Net change in
cash
|
$
1,504,280
|
$
27,884,281
|
Net Cash Used in Operating Activities
During
the year ended February 28, 2021, we used $22.49 million in
operations compared to $9.09 million during the year ended February
29, 2020. The increase over each year is mainly due to increased
operating expenses as we move forward on commercialization
activities. As discussed above in the Results of Operations, the
main increases in expenses were engineering fees, research and
development machinery and equipment and legal fees.
Net Cash Used in Investing Activities
During
the year ended February 28, 2021, we used $2.98 million in
investing activities. We made capital asset investments of $1.74
million which was mainly attributable to the expansion and
additions to our pilot plant and executive offices in Terrebonne,
Canada, before the decision to convert our pilot plant to
exclusively a demonstration and training facility at which point we
began expensing machinery and equipment expenditures related to our
demonstration and training facility as research and development
expenses. We also invested $0.59 million in our intellectual
property as we developed, during the year ended February 28, 2021,
our next generation GEN II technology and filed various patents in
various jurisdictions around the world, most of which await
approval. During the year ended February 28, 2021 we made capital
contributions to our joint venture with Indorama for a total of
$0.65 million.
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 28, 2021, we raised $26.65 million through
a registered direct offering of common stock, in the net amount of
$25.00 million and through warrants exercised for $1.65 million. 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 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.
33
During
the year ended February 28, 2020, we paid a total of $312,000 in
interest in connection with convertible notes that were converted
during that year.
On
February 21, 2020, we received $1,741,611 (CDN$2,209,234) in
connection with the credit facility from Investissement Québec
to finance capital expenses incurred for the expansion of our
pilot. There is a 36-month moratorium on both capital and interest
repayments beginning on the date of receipt of the
funds.
OUTLOOK
In connection with the upcoming fiscal year ending February 28,
2022, 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 and convert our pilot plant into a demonstration and
training facility to ensure the highest quality of sustainable
Loop™ PET resin is produced at the facility;
●
Continuing
to drive the commercialization of our Infinite Loop™
solution, which we believe is a key pillar of our ambition to sell
our technology to potential commercial partners.
●
Supporting Worley in the Class IV
pre-feasibility
engineering for the
Québec and European project evaluations;
●
Identifying
and evaluating specific site locations in both Québec and
Europe for commercial operations;
●
Identifying
and securing feedstock to ensure our current demonstration and
training facility and potential commercial facilities can operate
continuously and efficiently;
●
Identifying and
evaluating financial options and incentives including various forms
of debt, equity, strategic partnership, incentive and financing
programs supported by, or in partnership with, governments to fund
the commercial projects;
●
Identfying and pursuing additional strategic
partners and regions for new Infinite
Loop
TM
projects
●
With
our joint venture with Indorama, complete the engineering work
associated with the Spartanburg facility and proceed with
construction; and
●
Continuing
to execute brand and other partnerships and/or commercial
agreements with customers.
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.
34
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 at the date of the financial
statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for depreciable
lives of property, plant and equipment, intangible assets, analysis
of impairments of long-lived assets and intangible assets as well
as the carrying value of our joint venture investment, accruals for
potential liabilities, assumptions made in calculating the fair
value of stock-based compensation and other equity instruments, and
the assessment of performance conditions for stock-based
compensation awards and the judgement in the
assessment.
The
COVID-19 pandemic has disrupted business operations for us and our
customers, suppliers, vendors and other parties with whom we do
business, and such disruptions are expected to continue for an
indefinite period of time. The uncertain duration of these measures
has had and may continue to have an effect on our development and
commercialization efforts. In particular, as previously disclosed,
the situation in the United States and the continued travel
restrictions and quarantine requirements between Canada and the
United States have caused disruptions in our timetable of our joint
venture with Indorama in the development of our Spartanburg
facility and commercialization of our technology.
Although
the Company continues to monitor the situation and may adjust the
Company’s current policies as more information and public
health guidance become available, the COVID-19 pandemic is ongoing,
and its dynamic nature, including uncertainties relating to the
ultimate spread of the virus, the severity of the disease, the
duration of the outbreak and actions that may be taken by
governmental authorities to contain the outbreak or to treat its
impact, makes it difficult to assess whether there will be further
impact on the development and commercialization of the
Company’s technology which could have a material adverse
effect on the Company’s results of operations and cash
flows.
Stock-Based Compensation
The
Company periodically issues stock options, warrants and restricted
stock units to employees and non
-
employees in non
-
capital raising transactions for services
and financing expenses. The Company accounts for stock options
granted to employees based on the authoritative guidance provided
by the FASB wherein the fair value of the award is measured on the
grant date and where there are no performance conditions,
recognized as compensation expense on the straight
-
line basis over the vesting period and
where performance conditions exist, recognize compensation expense
when it becomes probable that the performance condition will be
met. Forfeitures on share
-
based
payments are accounted for by recognizing forfeitures as they
occur.
The
Company accounts for stock options and warrants granted to
non
-
employees in accordance
with the authoritative guidance of the FASB wherein the fair value
of the stock compensation is based upon the measurement date
determined as the earlier of the date at which either
a) a commitment is reached with the counterparty for
performance or b) the counterparty completes its
performance.
The
Company estimates the fair value of restricted stock unit awards to
employees and directors based on the closing market price of its
common stock on the date of grant.
The
fair value of the stock options granted 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.
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.
Starting in the third quarter of the
fiscal year ended February 28, 2021, machinery and equipment
purchases related to the pilot plant which is now dedicated solely
to research and development activities with no alternative use are
also expensed as incurred.
See
Notes to the consolidated financial statements included elsewhere
in this Form 10-K for management’s discussion of recently
issued accounting pronouncements.
35
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.
I
TEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Loop Industries, Inc.
February 28, 2021
Index to the Consolidated Financial Statements
|
Contents
|
Page(s)
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F
-
1
|
|
|
|
|
Consolidated
balance sheets as at February 28, 2021 and February 29,
2020
|
F
-
2
|
|
|
|
|
Consolidated
statements of operations and comprehensive loss for the years ended
February 28, 2021 and February 29, 2020
|
F
-
3
|
|
|
|
|
Consolidated
statement of changes in stockholders’ equity for the years
ended February 28, 2021 and February 29, 2020
|
F
-
4
|
|
|
|
|
Consolidated
statement of cash flows for the years ended February 28, 2021 and
February 29
|
F
-
6
|
|
|
|
|
Notes
to the consolidated financial statements
|
F
-
7
|
36
F-1
F-2
Loop Industries, Inc.
C
onsolidated Balance Sheets
(in United States dollars)
|
|
As
at
|
|
|
|
February
28, 2021
|
February
29, 2020
|
|
|
|
|
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash
and cash equivalents
|
$
35,221,951
|
$
33,717,671
|
|
Sales
tax, tax credits and other receivables (Note 3)
|
1,763,835
|
664,544
|
|
Prepaid
expenses
|
609,782
|
141,226
|
|
Total current
assets
|
37,595,568
|
34,523,441
|
|
Investment
in joint venture
|
1,500,000
|
850,000
|
|
Property,
plant and equipment, net (Note 4)
|
3,513,051
|
7,260,254
|
|
Intangible assets,
net (Note 5)
|
794,894
|
202,863
|
|
Total
assets
|
$
43,403,513
|
$
42,836,558
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Accounts
payable and accrued liabilities (Note 7)
|
$
8,124,865
|
$
2,082,698
|
|
Current
portion of long-term debt (Note 9)
|
938,116
|
52,126
|
|
Total
current liabilities
|
9,062,081
|
2,134,824
|
|
Long-term
debt (Note 9)
|
1,516,008
|
2,238,026
|
|
Total
liabilities
|
10,578,989
|
4,372,850
|
|
|
|
|
|
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
au
thorized; 42,413,691 shares issued and outstanding (2020
– 39,910,774) (Note 12)
|
4,242
|
3,992
|
|
Additional
paid-in capital
|
113,662,677
|
82,379,413
|
|
Additional
paid-in capital – Warrants
|
8,826,165
|
9,785,799
|
|
Accumulated
deficit
|
(89,661,970
)
|
(53,317,047
)
|
|
Accumulated
other comprehensive loss
|
(6,590
)
|
(388,449
)
|
|
Total
stockholders' equity
|
32,824,524
|
38,463,708
|
|
Total
liabilities and stockholders' equity
|
$
43,403,513
|
$
42,836,558
|
See accompanying notes to the consolidated financial
statements
.
F-3
Loop Industries, Inc.
C
onsolidated Statements of Operations
and Comprehensive Loss
(in United States dollars)
|
|
Years
Ended
|
|
|
|
February
28, 2021
|
February
29, 2020
|
|
Revenue
|
$
-
|
$
-
|
|
|
|
|
|
Expenses :
|
|
|
|
Research
and development (Notes 13 and 15)
|
18,687,014
|
4,717,175
|
|
General
and administrative (Notes 14 and 15)
|
11,540,340
|
7,215,420
|
|
Write-down and
impairment of property, plant and equipment (Note 5)
|
5,043,119
|
22,985
|
|
Depreciation
and amortization (Notes 4 and 5)
|
775,675
|
807,447
|
|
Interest and other
financial expenses
(Note
18)
|
81,996
|
2,223,304
|
|
Interest
income
|
(93,043
)
|
(500,478
)
|
|
Foreign
exchange loss (gain)
|
309,822
|
19,602
|
|
Total
expenses
|
36,344,923
|
14,505,455
|
|
|
|
|
|
Net
loss
|
(36,344,923
)
|
(14,505,455
)
|
|
|
|
|
|
Other
comprehensive loss -
|
|
|
|
Foreign
currency translation adjustment
|
381,859
|
(98,225
)
|
|
Comprehensive
loss
|
$
(35,963,064
)
|
$
(14,603,680
)
|
|
Loss
per share
|
|
|
|
Basic
and diluted
|
$
(0.89
)
|
$
(0.38
)
|
|
Weighted
average common shares outstanding
|
|
|
|
Basic
and diluted
|
40,983,752
|
37,936,094
|
See accompanying notes to the consolidated financial
statements.
F-4
Loop Industries, Inc.
C
onsolidated Statement of Changes
in Stockholders’ Equity
For the Years Ended February 28, 2021 and February 29,
2020
(in United States dollars)
|
|
Year
ended February 29, 2020
|
||||||||||
|
|
Common
stock
|
Preferred
stock
|
|
|
|
|
|
|
|
||
|
|
par
value $0.0001
|
par
value $0.0001
|
|
|
|
|
|
|
|
||
|
|
Number
of Shares
|
Amount
|
Number
of Shares
|
Amount
|
AdditionalPaid-in
Capital
|
AdditionalPaid-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 20)
|
150,000
|
15
|
-
|
-
|
(15
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance
of shares upon conversion of Convertible notes (Notes
10)
|
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
15)
|
244,884
|
25
|
-
|
-
|
799,975
|
-
|
-
|
(800,000
)
|
-
|
-
|
-
|
|
Issuance
of shares upon the cashless exercise of stock options (Note
15)
|
69,101
|
7
|
-
|
-
|
(7
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance
of shares upon exercise of warrants (Notes 10 and 17)
|
15,432
|
1
|
-
|
-
|
182,048
|
(38,300
)
|
-
|
-
|
-
|
-
|
143,749
|
|
Issuance
of warrants for financing facility (Notes 9 and 17)
|
-
|
-
|
-
|
-
|
-
|
77,954
|
-
|
-
|
-
|
-
|
77,954
|
|
Stock
options granted for services (Note 15)
|
-
|
-
|
-
|
-
|
2,178,948
|
-
|
-
|
-
|
-
|
-
|
2,178,948
|
|
Restricted
stock units granted for services (Note 15)
|
-
|
-
|
-
|
-
|
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
|
F-5
Loop Industries, Inc.
Consolidated Statement of Changes in Stockholders’
Equity
For the Years Ended February 28, 2021 and February 29,
2020 (continued)
(in United States dollars)
|
|
Year
ended February 28, 2021
|
||||||||||
|
|
Common
stock
|
Preferred
stock
|
|
|
|
|
|
|
|
||
|
|
par
value $0.0001
|
par
value $0.0001
|
|
|
|
|
|
|
|
||
|
|
Number
of Shares
|
Amount
|
Number
of Shares
|
Amount
|
AdditionalPaid-in
Capital
|
AdditionalPaid-in
Capital - Warrants
|
Additional
Paid-in Capital – Beneficial Conversion
Feature
|
Common
Stock Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 29, 2020
|
39,910,774
|
$
3,992
|
1
|
$
-
|
$
82,379,413
|
$
9,785,799
|
$
-
|
$
-
|
$
(53,317,047
)
|
$
(388,449
)
|
$
38,463,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for cash, net of share issuance costs (Note
12)
|
2,087,000
|
209
|
-
|
-
|
24,996,419
|
-
|
-
|
-
|
-
|
-
|
24,996,628
|
|
Issuance
of shares upon the vesting of restricted stock units (Notes 12 and
15)
|
225,388
|
22
|
-
|
-
|
(22
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance
of shares upon exercise of warrants (Notes 10 and 17)
|
190,529
|
19
|
-
|
-
|
2,046,852
|
(394,245
)
|
-
|
-
|
-
|
-
|
1,652,626
|
|
Issuance
of warrant for services (Note 17)
|
-
|
-
|
-
|
-
|
-
|
84,442
|
-
|
-
|
-
|
-
|
84,442
|
|
Expiration
of warrants (Notes 10 and 17)
|
-
|
-
|
-
|
-
|
649,831
|
(649,831
)
|
-
|
-
|
-
|
-
|
-
|
|
Stock
options granted for services (Note 17)
|
-
|
-
|
-
|
-
|
2,212,078
|
-
|
-
|
-
|
-
|
-
|
2,212,078
|
|
Restricted
stock units granted for services (Note 17)
|
-
|
-
|
-
|
-
|
1,378,106
|
-
|
-
|
-
|
-
|
-
|
1,378,106
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
381,859
|
381,859
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(36,344,923
)
|
-
|
(36,344,923
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2021
|
42,413,691
|
$
4,242
|
1
|
$
-
|
$
113,662,677
|
$
8,826,165
|
$
-
|
$
-
|
$
(89,661,970
)
|
$
(6,590
)
|
$
32,824,524
|
See accompanying notes to the consolidated financial
statements.
F-6
Loop Industries, Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
|
|
February
28, 2021
|
February
29, 2020
|
|
Cash Flows from Operating Activities
|
|
|
|
Net
loss
|
$
(36,344,923
)
|
$
(14,505,455
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization (Notes 4 and 5)
|
775,675
|
807,447
|
|
Stock-based
compensation (Note 15)
|
3,674,626
|
3,469,390
|
|
Write-down
and impairment of property, plant and equipment (Note
4)
|
5,043,120
|
22,985
|
|
Accretion,
and accrued interest (Note 18)
|
76,446
|
2,255,575
|
|
Deferred
financing costs
|
-
|
96,155
|
|
Gain
on conversion of convertible notes (Notes 10 and 18)
|
-
|
(232,565
)
|
|
Other,
net
|
(32,605
)
|
43,356
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Valued
added tax and tax credits receivable
|
(1,034,014
)
|
(77,294
)
|
|
Prepaid
expenses
|
(449,535
)
|
83,876
|
|
Accounts
payable and accrued liabilities
|
5,800,575
|
(1,056,019
)
|
|
Net
cash used in operating activities
|
(22,490,636
)
|
(9,092,549
)
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
Investment
in joint venture (Note 8)
|
(650,000
)
|
(850,000
)
|
|
Additions
to property, plant and equipment (Note 4)
|
(1,735,079
)
|
(2,439,013
)
|
|
Additions
to intangible assets (Note 5)
|
(592,285
)
|
(99,972
)
|
|
Net
cash used in investing activities
|
(2,977,364
)
|
(3,388,985
)
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
Proceeds
from sales of common shares and exercise of warrants, net of share
issuance costs (Note 12)
|
26,649,253
|
39,182,145
|
|
Proceeds
from issuance of long-term debt (Note 9)
|
-
|
1,645,122
|
|
Payment
of accrued interest on convertible notes (Note 10)
|
-
|
(312,000
)
|
|
Repayment
of long-term debt
|
(50,585
)
|
(52,126
)
|
|
Net
cash provided by financing activities
|
26,598,668
|
40,463,141
|
|
|
|
|
|
Effect
of exchange rate changes
|
373,612
|
(97,326
)
|
|
Net
change in cash
|
1,504,280
|
27,884,281
|
|
Cash
and cash equivalents, beginning of year
|
33,717,671
|
5,833,390
|
|
Cash
and cash equivalents, end of year
|
$
35,221,951
|
$
33,717,671
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Income
tax paid
|
$
-
|
$
-
|
|
Interest
paid
|
$
38,157
|
$
368,482
|
|
Interest
received
|
$
93,043
|
$
500,478
|
See accompanying notes to the consolidated financial
statements.
F-7
Loop Industries, Inc.
February 28, 2021 and February 29, 2020
N
otes 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 suitable for use in food-grade packaging and
polyester fiber.
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 intangible assets as well
as the carrying value of our joint venture investment, accruals for
potential liabilities, assumptions made in calculating the fair
value of stock-based compensation and other equity instruments, and
the assessment of performance conditions for stock-based
compensation awards and the judgement in the
assessment.
The
COVID-19 pandemic has disrupted business operations for us and our
customers, suppliers, vendors and other parties with whom we do
business, and such disruptions are expected to continue for an
indefinite period of time. The uncertain duration of these measures
has had and may continue to have an effect on our development and
commercialization efforts. In particular, as previously disclosed,
the situation in the United States and the continued travel
restrictions and quarantine requirements between Canada and the
United States have caused disruptions in our timetable of our joint
venture with Indorama in the development of our Spartanburg
facility and
commercialization
of our technology.
Although
the Company continues to monitor the situation and may adjust the
Company’s current policies as more information and public
health guidance become available, the COVID-19 pandemic is ongoing,
and its dynamic nature, including uncertainties relating to the
ultimate spread of the virus, the severity of the disease, the
duration of the outbreak and actions that may be taken by
governmental authorities to contain the outbreak or to treat its
impact, makes it difficult to assess whether there will be further
impact on the development and commercialization of the
Company’s technology which could have a material adverse
effect on the Company’s results of operations and cash
flows.
F-8
Fair value of financial instruments
The
Company applies Financial Accounting Standards Board
(“FASB”) Codification (“ASC”) 820,
Fair Value Measurement
,
which defines fair value and establishes a framework for measuring
fair value and making disclosures about fair value measurements.
FASB ASC 820 establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring financial instruments at fair value. Market price
observability is impacted by a number of factors, including the
type of financial instruments and the characteristics specific to
them. Financial instruments with readily available quoted prices or
for which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair
value.
There
are three levels within the hierarchy that may be used to measure
fair value:
|
Level 1
–
|
A
quoted price in an active market for identical assets or
liabilities.
|
|
|
|
|
Level 2
–
|
Significant
pricing inputs are observable inputs, which are inputs that reflect
the assumptions market participants would use in pricing the asset
or liability developed based on market data obtained from
independent sources.
|
|
|
|
|
Level 3
–
|
Significant
pricing inputs are unobservable inputs, which are inputs that
reflect the Company’s own assumptions about the assumptions
market participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances.
|
The
fair value measurements level of an asset or liability within the
fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques
used should maximize the use of observable inputs and minimize the
use of unobservable inputs.
The
valuation methodologies described above may produce a fair value
calculation that may not be indicative of future net realizable
value or reflective of future fair values.
The
fair value of cash and accounts payable and accrued liabilities
approximate their carrying values due to their short-term
maturity.
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.
F-9
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 reporting currency of the Company. Assets and
liabilities of subsidiaries that have a functional currency other
than that of the Company are translated to U.S. dollars at the
exchange rate as at the balance sheet date. Income and expenses are
translated at the average exchange rate of the period. The
resulting translation adjustments are included in other
comprehensive income (loss) (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently is not engaged in any currency
hedging activities.
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
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.
F-10
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.
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.
Starting in the third quarter of the
fiscal year ended February 28, 2021, machinery and equipment
purchases related to the pilot plant which is now dedicated solely
to research and development activities with no alternative use are
also expensed as incurred.
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, warrants and restricted
stock units to employees and non
-
employees in non
-
capital raising transactions for services
and financing expenses. The Company accounts for stock options
granted to employees based on the authoritative guidance provided
by the FASB wherein the fair value of the award is measured on the
grant date and where there are no performance conditions,
recognized as compensation expense on the straight
-
line basis over the vesting period and
where performance conditions exist, recognize compensation expense
when it becomes probable that the performance condition will be
met. Forfeitures on share
-
based
payments are accounted for by recognizing forfeitures as they
occur.
The
Company accounts for stock options and warrants granted to
non
-
employees in accordance
with the authoritative guidance of the FASB wherein the fair value
of the stock compensation is based upon the measurement date
determined as the earlier of the date at which either
a) a commitment is reached with the counterparty for
performance or b) the counterparty completes its
performance.
The
Company estimates the fair value of restricted stock unit awards to
employees and directors based on the closing market price of its
common stock on the date of grant.
The
fair value of the stock options granted 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-11
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.
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 28, 2021 and February 29, 2020, the
calculations of basic and diluted loss per share are the same
because potential dilutive securities would have an antidilutive
effect. As at February 28, 2021, the potentially dilutive
securities consisted of 1,587,081 outstanding stock options (2020
– 1,587,081), 4,210,520 outstanding restricted stock units
(2020 – 4,218,802), and 4,133,720 outstanding warrants (2020
– 5,059,331).
Recently adopted accounting pronouncements
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. The adoption
of this accounting guidance did not materially impact our results
of operations or financial position.
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
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 do not expect this accounting guidance to
materially impact our results of operations or financial
position.
F-12
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate
Reform,” which provides optional guidance for a limited
period of time to ease the potential burden in accounting for (or
recognizing the effects of) reference rate reform on financial
reporting. This update provides optional expedients and exceptions
for applying GAAP to contracts, hedging relationships, and other
transactions that reference the London Interbank Offered Rate or
another reference rate expected to be discontinued because of
reference rate reform. This update is effective as of March 12,
2020, through December 31, 2022. We are currently evaluating this
accounting guidance and have not elected an adoption
date.
3.
Sales Tax, Tax Credits and Other
Receivables
Sales tax, research and development tax credits and other
receivables as at February 28, 2021 and February 29, 2020 were as
follows:
|
|
February 28,
2021
|
February 29,
2020
|
|
Sales
tax
|
$
1,155,504
|
$
180,971
|
|
Research and
development tax credits
|
435,467
|
447,843
|
|
Other
receivables
|
172,864
|
35,730
|
|
|
$
1,763,835
|
$
664,544
|
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 28, 2021, the Company recorded a $115,566
net expense included in research and development expenses due to
adjustments made to prior year estimates of refundable tax credits.
This adjustment was related to a re-assessment by tax authorities,
reducing our research and development tax credits and resulted in
the Company repaying $93,249 during the year ended February 28,
2021 for research and development tax credits previously received
by the Company from taxation authorities. During the year ended
February 29, 2020, the Company recorded tax credits of $221,603 as
a reduction of research and development expenses and received
$175,929 from taxation authorities for research and development tax
credits.
We
received during the year ended February 28, 2021 a wage subsidy
from the Canadian federal government related to a COVID-19 relief
program that amounted to $259,273 (2020 - nil), of which $221,603
was recorded against research and development expenses and $37,670
against general and administrative expenses. Government grants
receivable at February 28, 2021 amounted to nil (2020 –
nil).
The
Company is also eligible for non-refundable research and
development tax credits from the federal taxation authorities which
can be used as a reduction of income tax expense in any given year
to the extent the Company has taxable income. The Company has not
had taxable income since inception and has not been able to use
these non-refundable federal research and development tax credits.
During the year ended February 28, 2021, the Company was eligible
for non-cash research and development tax credits in the amount of
$272,206 (2020 – $251,019). These non-cash tax credits, which
have an unlimited carry forward period are not recognized in the
Company’s consolidated financial statements. As at February
28, 2020, the carry forward balance of non-cash research and
development tax credits was $1,090,691 (2020 -
$764,507).
F-13
4. Property, Plant and Equipment
|
|
As at February 28,
2021
|
||
|
|
Cost
|
Accumulated
depreciation, write-down and impairment
|
Net book
value
|
|
Building
|
$
1,954,345
|
$
(201,589
)
|
$
1,752,756
|
|
Land
|
241,578
|
-
|
241,578
|
|
Building
Improvements
|
1,804,872
|
(474,114
)
|
1,330,758
|
|
Machinery and
equipment
|
6,514,252
|
(6,514,252
)
|
-
|
|
Office equipment
and furniture
|
292,946
|
(104,987
)
|
187,959
|
|
|
$
10,807,993
|
$
(7,294,942
)
|
$
3,513,051
|
|
|
As at February 29,
2020
|
||
|
|
Cost
|
Accumulated
depreciation, write-down and impairment
|
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
|
Depreciation
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$733,831 for the year ended February 28, 2021 (2020 -
$807,800).
During
the year ended February 28, 2021, the Company recorded write-down
and impairment expenses of $5,043,119, (2020 – $22,985).
In
the year ended February 28,
2021
, the Company’s management
made the decision
to convert its pilot plant to exclusively
a demonstration and training facility for our future
Infinite
Loop™ manufacturing facilities, therefore
foregoing any alternative future use of its machinery and equipment
assets contained within the pilot plant
.
As such, the carrying value of the machinery and
equipment was written off resulting in an expense of $5,034,606
being recognized in the year ended February 28, 2021. With the
decision to dedicate the demonstration and training facility to
research and development, the accounting for future costs
associated with these activities are considered in scope of ASC
730, Research and Development Costs, and
will be recognized
as a research and development expense in the consolidated
statements of operations and comprehensive loss in the period they
are incurred. During the year ended February 28, 2021, the Company
purchased $7,475,742 of machinery and equipment
associated with its ongoing research and
development activities, which have no future alternative use and as
such,
were recognized as research and development expenses
in the consolidated statements of operations and comprehensive
loss.
See Note 14 for components of
research and development expenses.
F-14
5. Intangible Assets
During
the year ending February 28, 2021, the Company continued to develop
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 two issued U.S. patents 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 an issued patent and an allowed application in Bangladesh,
and pending applications in Argentina, Australia, Bolivia, Brazil,
Bhutan, Canada, China, Columbia, Eurasia, Europe, members of the
Gulf Countries, Hong Kong, Indonesia, Israel, India, Iraq, Japan,
Korea, Kuwait, Laos, Mexico, Malaysia, Panama, Papua New Guinea,
Philippines, Pakistan, Singapore, Taiwan, Uruguay, Uzbekistan,
Venezuela, and South Africa, all expected to expire on or around
September 2038, if granted. Additional aspects of the GEN II
technology are claimed in an issued U.S. patent and a pending U.S.
application, an allowed patent application in Bangladesh, and
pending applications in Algeria,Argentina, Australia, Bahrain,
Bolivia, Brazil, Cambodia, Canada, Chile, China, Eurasia, Egypt,
Europe, India, Indonesia, Israel, Iran, Japan, Korea, Kuwait, Laos,
Malaysia, members of the Gulf Cooperation Council, Mexico, Morocco,
New Zealand, Oman, Pakistan, Panama, Peru, Philippines, Qatar,
Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Tunisia,
United Arab Emirates, Uruguay, Uzbekistan and Vietnam, all expected
to expire on or around June 2039, if granted.. Additionally, a
further apsect of the GEN II technology are subject of a U.S.
application and an International application. Any patents that
would ultimately grant from these applications would be expected to
expire on or around March 2040. Another additional aspect of the
GEN II technology is the subject of a U.S. application, an
International application, and pending applications in Argentina,
Bolivia, Bangladesh, members of the Gulf Cooperation Council,
Pakistan, Taiwan, and Uruguay. Any patents that wouldtely grant
from these applications would be expected to expire on or around
March 2040.
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.
Amortization
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$41,844 for the year ended February 28, 2021 (2020 -
$22,631).
|
|
As at February
28,
|
As at February
29,
|
|
|
2021
|
2020
|
|
|
|
|
|
Patents, at cost
– beginning of period
|
$
225,174
|
$
127,672
|
|
Patents,
accumulated depreciation – beginning of period
|
(22,310
)
|
-
|
|
Patents, net
– beginning of period
|
202,864
|
127,672
|
|
|
|
|
|
Additions in the
year – patents
|
623,811
|
99,972
|
|
Amortization of
patents
|
(41,844
)
|
(22,631
)
|
|
Foreign exchange
effect
|
10,063
|
(2,150
)
|
|
Patents, net
– end of period
|
$
794,894
|
$
202,863
|
F-15
6.
Fair value of financial
instruments
The
following table presents the fair value of the Company’s
financial liabilities at February 28, 2021 and February 29,
2020:
|
|
Fair Value
Measurements as at February 28, 2021
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$
2,454,123
|
$
2,464,540
|
Level 2
|
|
|
Fair Value
Measurements at February 29, 2020
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Financial
liabilities measured at amortized
cost:
|
|
|
|
|
Long-term
debt
|
$
2,290,152
|
$
2,314,117
|
Level 2
|
7.
Accounts Payable and
Accrued Liabilities
Accounts payable and accrued liabilities as at February 28, 2021
and February 29, 2020 were as follows:
|
|
February 28,
2021
|
February 29,
2020
|
|
Trade accounts
payable
|
$
5,082,736
|
$
814,081
|
|
Accrued engineering
fees
|
535,359
|
-
|
|
Accrued employee
compensation and payroll taxes
|
970,154
|
873,242
|
|
Accrued
professional fees
|
1,270,628
|
133,038
|
|
Other accrued
liabilities
|
265,988
|
262,337
|
|
|
$
8,124,865
|
$
2,082,698
|
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 “Joint
Venture Agreement”) with Indorama Ventures Holdings LP, USA,
an indirect subsidiary of Indorama Ventures Public Company Limited,
to manufacture and commercialize sustainable polyester resin. Each
company has a 50/50 equity interest in Indorama Loop Technologies,
LLC (“ILT”), which was specifically formed to operate
and execute the joint venture.
Under
the Joint Venture Agreement, Indorama Ventures is contributing
manufacturing knowledge and Loop Industries is required to
contribute its proprietary science and technology. Specifically,
the Company is contributing an exclusive world-wide royalty-free
license to ILT to use its proprietary technology to produce 100%
sustainably produced PET resin and polyester fiber.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There were no operations in
ILT from the date of inception of September 24, 2018 to February
28, 2021 and, as at February 28, 2021, the carrying value of the
equity investment was $1,500,000, which is the total of the cash
contributions we have made to ILT. During the year ended February
28, 2021, we made contributions to ILT of $650,000 (2020 –
$850,000). These contributions to ILT, which have been matched by
Indorama Ventures, were used to fund engineering design costs which
have been capitalized in ILT.
Although
the Company remains committed to the project, the joint venture
made a decision in July 2020 that due to the COVID-19 situation it
would delay work. Since then, no expenditures have been incurred by
the joint venture.
F-16
9.
Long-term Debt
|
|
February 28,
2021
|
February 29,
2020
|
|
Investissement
Québec financing facility:
|
|
|
|
Principal
amount
|
$
1,741,612
|
$
1,645,122
|
|
Unamortized
discount
|
(268,192
)
|
(289,852
)
|
|
Accrued
interest
|
42,588
|
958
|
|
Total
Investissement Québec financing facility
|
1,516,008
|
1,356,228
|
|
Term
loan
|
|
|
|
Principal
amount
|
938,116
|
933,924
|
|
Less: current
portion
|
(938,116
)
|
(52,126
)
|
|
Total term loan,
net of current portion
|
-
|
881,798
|
|
Long-term debt, net
of current portion
|
$
1,516,008
|
$
2,238,026
|
Investissement Québec financing facility
On February 21, 2020, the Company received $1,741,611
(CDN$2,209,234) from Investissement Québec as the first
disbursement of our financing facility, out of a maximum of
$3,626,330 (CDN$4,600,000) (the “Financing Facility”).
The loan bears interest at 2.36% and there is a 36-month moratorium
on both capital and interest repayments starting on the date of the
first disbursement, after which capital and interest is repayable
in 84 monthly installments.
The
Company established the fair value of the lo an for the first
disbursement at $1,354,408 based on a discount rate of 5.45%, which
reflected a debt discount of $290,714. The discount rate used was
based on the external financing from a Canadian
bank.
The Company, under the loan agreement, was
required to pay fees representing 1% of the loan amount, $36,263
(CDN$46,000) to Investissment Québec which we deferred and
recorded as a reduction of the Financing Facility. Debt discount
and deferred financing expenses are amortized to “Interest
and other financial expenses” in our
Consolidated Statements of Operations and
Comprehensive Loss.
The
Company recorded interest expense on the Investissement Québec
loan for the year ended February 28, 2021 in the amount of $39,599
(2020 – $968) and an accretion expense of $36,847 (2020
– $872).
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 $362,633 (CDN$460,000). The exercise price of the
warrants is 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. I
n connection the first disbursement of the
Financing Facility
, the Company
issued a warrant
(“First
Disbursement Warrant”)
to acquire 15,153 shares of
common stock at a strike price of $11.00 per share to
Investissement Québec. The Company determined the fair value
of the warrants using the Black-Scholes pricing formula. The fair
value of the First Disbursement Warrant was determined to be
$77,954 and is included in “Additional paid-in capital
– Warrants” in our Condensed Consolidated Balance
Sheets.
The First Disbursement
Warrant
remains outstanding as at February 28,
2021.
The remaining amount available under the financing facility
is $1,884,719 (CDN$2,390,766) to be received in a maximum of two
additional disbursements before June 30, 2021.
Term Loan
On
January 24, 2018, the Company obtained a $1,103,666 (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 $4,598 (CDN$5,833) plus interest, until January
2022. It includes an option allowing for the prepayment of the Loan
without penalty.
In January 2021, the
Company and the Canadian bank agreed to maintain the same repayment
amount and interest rate until January 2022,
at which time
the monthly repayment amount and interest rate will be subject to
renewal
.
During the year ended
February 28, 2021, we repaid $50,585 (2020 – $52,126) on the
principal balance of the Loan and interest paid amounted to $38,157
(2020 – $56,152). The terms of the credit facility require
the Company to comply with certain financial covenants. As at
February 28, 2021 and February 29, 2020, the Company was in
compliance with its financial covenants.
F-17
Principal
repayments due on the Company’s bank indebtedness over the
next five years are as follows:
|
Years
ending
|
Amount
|
|
February 28,
2022
|
$
938,116
|
|
February 28,
2023
|
-
|
|
February 28,
2024
|
248,798
|
|
February 29,
2025
|
248,798
|
|
February 28,
2026
|
248,794
|
|
Thereafter
|
995,222
|
|
Total
|
$
2,679,728
|
10.
Convertible Notes
First Issuance
Initial terms and accounting treatment
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-18
The aggregate value of the November 2018 Notes and November 2018
Warrants as shown on the consolidated balance sheet are broken down
as follows:
|
|
February 28,
2021
|
February 29,
2020
|
Issue Date
|
|
November 2018
Convertible Notes - Liability
|
$
-
|
$
-
|
$
2,495,636
|
|
Accrued interest
– Liability
|
-
|
-
|
-
|
|
Deferred financing
costs
|
-
|
-
|
(63,738
)
|
|
|
-
|
-
|
2,431,898
|
|
|
|
|
|
|
November 2018
Warrants - Liability
|
$
-
|
$
-
|
$
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.
Amendment and subsequent accounting treatment
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 expiration date
was eighteen (18) months from the date of the conversion of the
November 2018 Notes, on October 5, 2020. All of the November 2018
Warrants were exercised in the quarter ended November 30,
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 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.
F-19
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 automatically converted 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 could have been adjusted in the event
that the Company issued 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 would 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.
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 elected payment of accrued and
unpaid interest on the January 2019 Notes in common stock, the
price per share would 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
would equal to 115% of the January 2020 Conversion Price. The
January 2019 Warrants would 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 could exercise the January 2019
Warrants at any time prior to the January 2019 Expiration Date.
During the year ended February 28, 2021, 30,864 of the January 2019
Warrants were exercised (2020 – 15,432). The remaining
January 2019 Warrants expired on January 15, 2021.
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.
F-20
The aggregate values of the beneficial conversion feature, the
January 2019 Warrants and the January 2019 Notes are broken down as
follows:
|
|
February 28,
2021
|
February 29,
2020
|
Issue Date
|
|
January 2019
Convertible Notes – Liability
|
$
-
|
$
-
|
$
2,941,381
|
|
Accrued interest
– Liability
|
-
|
-
|
-
|
|
Deferred financing
costs
|
-
|
-
|
(79,539
)
|
|
|
-
|
-
|
2,861,842
|
|
|
|
|
|
|
January 2019
Beneficial Conversion Option – Equity
|
-
|
-
|
1,200,915
|
|
|
|
|
|
|
January 2019
Warrants – Equity
|
$
-
|
$
727,148
|
$
757,704
|
The
Company recorded accretion expense during the year ended February
28, 2021 of $1,773,114 (2020 – $1,773,114; 2019 - $185,505)
and is included in operating expenses. The Company recorded
interest expense on the January 2019 Notes for the year ended
February 29, 2021 in the amount of $342,989 (2020 – $342,989;
2019 – $49,011).
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
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 performance conditions in the form 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
DMT/MEG 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.
F-21
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, of which
200,000 were settled in October 2020 and 200,000 were settled in
October 2019.
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.
As at
February 28, 2021, 3,600,000 (2020 – 3,800,000) of Mr.
Solomita’s RSUs were outstanding of which 600,000 were vested
(2020 – 800,000). The vested units are settled annually in
tranches of 200,000 units. The unvested 3,000,000 RSUs would be
forfeited if Mr. Solomita left the Company, except in the case of
termination without cause or resignation for good reason, in which
case he would receive 50% of the unvested RSUs at the time of
termination, or 100% in the case of termination without cause or
resignation for good reason within 24 months after a change in
control. During the years ended February 28, 2021 and February 29,
2020, no outstanding milestones were probable of being
met
based on the
authoritative guidance provided by the FASB and, accordingly, the
Company did not record any additional compensation expense. When a
milestone becomes probable, the corresponding expense will be
valued based on the grant date fair value on April 30, 2020, the
date of the last modification of Mr. Solomita’s employment
agreement. The closing price of the Company’s common stock on
the Nasdaq on April 30, 2020 was $7.74 per share.
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 19,010,000 shares of common stock and
1 share of Series A Preferred Stock provides him with 77.0% 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;
F-22
(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).
Common Stock
|
For
the year ended February 28, 2021
|
Number of
shares
|
Amount
|
|
Balance, February
29, 2020
|
39,910,774
|
$
3,992
|
|
Issuance of shares
for cash
|
2,087,000
|
209
|
|
Issuance of shares
upon the exercise of warrants
|
190,529
|
19
|
|
Issuance of shares
upon settlement of restricted stock units
|
225,388
|
22
|
|
Balance, February
28, 2021
|
42,413,691
|
$
4,242
|
F-23
|
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
|
During
the year ended February 28, 2021, the Company recorded the
following common stock transactions:
(i)
On
September 23, 2020 and October 1, 2020, the Company sold 1,880,000
and 207,000 shares, respectively of its common stock at an offering
price of $12.75 per share in a registered direct offering, for
total gross proceeds of $26,609,250.
(ii)
The
company issued 190,529 shares of its common stock upon the exercise
of warrants.
(iii)
On
October 15, 2020, the Company issued 200,000 shares of common stock
to settle restricted stock units related to the President and Chief
Executive Officer.
(iv)
The
Company issued 25,388 shares of its common stock to settle
restricted stock units that vested in the period.
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;
F-24
13. Research and development expenses
Research
and development expenses for the years ended February 28, 2021 and
February 29, 2020 were as follows:
|
|
February 28,
2021
|
February 29,2020
|
|
External
engineering
|
$
5,655,997
|
$
149,333
|
|
Employee
compensation
|
4,457,125
|
3,531,973
|
|
Machinery and
equipment expenditures
|
6,149,075
|
-
|
|
Demonstration plant
operating expenses
|
1,852,615
|
901,687
|
|
Other
|
572,202
|
134,182
|
|
|
$
18,687,014
|
$
4,717,175
|
14. General and administrative expenses
General
and administrative expenses for the years ended February 28, 2021
and February 29, 2020 were as follows:
|
|
February 28,
2021
|
February
29,2020
|
|
Professional
fees
|
$
4,613,717
|
$
1,193,884
|
|
Employee
compensation
|
4,389,219
|
4,516,171
|
|
Directors and
officers insurance
|
2,072,647
|
761,876
|
|
Other
|
464,757
|
743,489
|
|
|
$
11,540,340
|
$
7,215,420
|
15. Share-Based
Payments
Stock Options
The
following tables summarizes the continuity of the Company’s
stock options during the years ended February 28, 2021 and February
29, 2020:
|
|
2021
|
2020
|
||
|
|
Number of stock
options
|
Weighted average
exercise price
|
Number of stock
options
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
1,587,081
|
$
6.81
|
1,962,400
|
$
7.53
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
(75,000
)
|
0.80
|
|
Forfeited
|
-
|
-
|
(39,902
)
|
9.67
|
|
Expired
|
-
|
-
|
(260,417
)
|
13.59
|
|
Outstanding, end of
year
|
1,587,081
|
$
6.81
|
1,587,081
|
$
6.81
|
|
Exercisable, end of
year
|
1,181,248
|
$
7.19
|
986,248
|
$
6.89
|
F-25
|
|
2021
|
2020
|
||
|
Exercise price
|
Number of stock
options outstanding
|
Weighted average
remaining life (years)
|
Number of stock options
outstanding
|
Weighted average remaining life
(years)
|
|
$
0.80
|
507,081
|
4.75
|
507,081
|
5.75
|
|
$
5.25
|
380,000
|
6.49
|
380,000
|
7.49
|
|
$
12.00
|
700,000
|
6.54
|
700,000
|
7.54
|
|
Outstanding, end of
year
|
1,587,081
|
5.96
|
1,587,081
|
6.96
|
|
Exercisable, end of
year
|
1,181,248
|
6.06
|
986,248
|
6.97
|
The
Company applies the fair value method of accounting for stock-based
compensation awards granted. Fair value is calculated based on a
Black-Scholes option pricing model. There were no new issuances of
stock options for the years ended February 28, 2021 and February
29, 2020.
During
the year ended February 28, 2021, stock-based compensation expense
attributable to stock options amounted to $2,212,078 (2020 –
$2,178,948).
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the years February 28, 2021 and
February 29, 2020:
|
|
2021
|
2020
|
||
|
|
Number of
units
|
Weighted average
fair value price
|
Number of units
|
Weighted average fair value
price
|
|
Outstanding,
beginning of year
|
4,218,802
|
$
1.60
|
402,868
|
$
8.77
|
|
Granted
|
239,611
|
9.74
|
4,114,567
|
1.06
|
|
Settled
|
(225,388
)
|
1.80
|
(244,884
)
|
2.54
|
|
Forfeited
|
(22,505
)
|
12.27
|
(53,750
)
|
9.82
|
|
Outstanding, end of
year
|
4,210,520
|
$
1.98
|
4,218,802
|
$
1.60
|
|
Outstanding vested,
end of year
|
691,327
|
$
2.07
|
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 28, 2021, stock-based compensation
attributable to RSUs amounted to $1,378,106 (2020 -
$1,290,443).
During
the years ended February 28, 2021 and February 29, 2020,
stock-based compensation included in research and development
expenses amounted to $1,417,004 and $1,252,394 respectively, and in
general and administrative expenses amounted to $2,257,622 and
$2,216,997 respectively.
F-26
16.
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. In March 2020, the Board of
Directors elected to waive the annual share reserve increase for
the fiscal year ended February 28, 2021. The Plan is administered
by the Board of Directors who designates eligible participants to
be included under the Plan, the number of awards granted, the share
price pursuant to the awards and the vesting conditions and period.
The awards, when granted, will have an exercise price of no less
than the estimated fair value of shares at the date of grant and a
life not exceeding 10 years from the grant date. However, where a
participant, at the time of the grant, owns stock representing more
than 10% of the voting power of the Company, the life of the
options shall not exceed 5 years.
The
following table summarizes the continuity of the Company’s
Equity Incentive Plan units during the years ended February 28,
2021 and February 29, 2020:
|
|
2021
|
2020
|
|
|
Number of
units
|
Number of
units
|
|
Outstanding,
beginning of year
|
1,300,518
|
3,223,516
|
|
Share reserve
increase
|
-
|
2,000,000
|
|
Units
granted
|
(239,611
)
|
(4,114,567
)
|
|
Units
forfeited
|
22,505
|
93,652
|
|
Units
expired
|
-
|
97,917
|
|
Outstanding, end of
year
|
1,083,412
|
1,300,518
|
17. Warrants
|
|
2021
|
2020
|
||
|
|
Number of
warrants
|
Weighted average
exercise price
|
Number of
warrants
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
5,059,331
|
$
10.89
|
802,469
|
$
10.74
|
|
Issued
|
25,000
|
9.43
|
4,272,294
|
10.91
|
|
Exercised
|
(190,529
)
|
8.68
|
(15,432
)
|
9.32
|
|
Expired
|
(760,082
)
|
10.83
|
-
|
-
|
|
Outstanding, end of
year
|
4,133,720
|
$
10.99
|
5,059,331
|
$
10.89
|
F-27
The
expiration dates of the warrants outstanding as at February 28,
2021 are as follows:
|
|
2021
|
|
|
|
Number of
warrants
|
Weighted average exercise
price
|
|
May 12,
2022
|
25,000
|
$
9.43
|
|
June 14,
2022
|
4,093,567
|
11.00
|
|
February 21,
2023
|
15,153
|
11.00
|
|
Outstanding, end of
year
|
4,133,720
|
$
10.99
|
18. Interest and Other Finance Costs
Interest and other finance costs for the years ended February 28,
2021 and February 29, 2021 are as follows:
|
|
2021
|
2020
|
|
Interest
on long-term debt
|
$
77,756
|
$
57,450
|
|
Interest
on convertible notes
|
-
|
362,426
|
|
Accretion
expense
|
36,847
|
1,892,185
|
|
Amortization
of deferred finance costs
|
-
|
96,155
|
|
Revaluation
of warrants
|
-
|
8,483
|
|
Gain on
conversion of November 2018 Notes
|
|
(232,565
)
|
|
Other
|
(32,607
)
|
39,170
|
|
|
$
81,996
|
$
2,223,304
|
19. Income Taxes
The components of the Company’s loss before taxes are
summarized below:
|
|
February 28,
2021
|
February 29,
2020
|
|
U.S.
operations
|
$
(7,126,988
)
|
$
(4,220,000
)
|
|
Foreign
operations
|
(29,217,935
)
|
(10,285,455
)
|
|
Loss
before taxes
|
$
(36,344,923
)
|
$
(14,505,455
)
|
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:
|
|
February 28,
2021
|
February 29,
2020
|
|
Statutory
Federal rate
|
21
%
|
21
%
|
|
|
|
|
|
Federal
income tax at statutory rate
|
$
(7,632,436
)
|
$
(3,046,145
)
|
|
Effect
of foreign jurisdiction
|
(1,433,653
)
|
(424,593
)
|
|
Non-deductible
expenses
|
695,941
|
1,069,845
|
|
Tax
credits related to research and development
expenditures
|
(302,703
)
|
(446,967
)
|
|
Unrecognized
tax benefit of net operating losses and other available
deductions
|
8,672,851
|
2,847,860
|
|
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 provided for additional
guidance to be issued by the U.S. Department of the Treasury on
several provisions including the computation of the transition tax.
Loop's Controlled Foreign Corporations ("CFC") were deficit
earnings & profit corporations, as such no income was
recognized by Loop during 2018. No further inclusions were made
thereafter based on the guidance issued.
Additionally, as part of tax reform, the U.S. has enacted a minimum
tax on foreign earnings (“global intangible low tax
income”). We have not made an accrual for the deferred tax
aspects of this provision as Loop's 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 through February 28, 2021, we finalized our provisional
estimate of the enactment of U.S. tax reform without additional tax
expense.
On March 27, 2020, 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
$22,043,030 (2020 – $16,074,873) for U.S. Federal income tax
purposes expiring between 2035 and 2038, 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 34,715,320 (CDN$43,953,067), 2020
– 15,560,615 (CDN$19,701,295), and 35,224,105
(CDN$44,597,239), 2020 – 15,727,538 (CDN$19,912,636),
respectively, expiring between 2037 and 2041. 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 $8,860,563 and $2,896,093, respectively, for the years
ended February 28, 2021 and February 29, 2020. 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 $3,678,832 (CDN$4,657,769), 2020 -
$3,340,127 (CDN$4,485,456), 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 28,
2021
|
February 29,
2020
|
|
Deferred
tax assets
|
|
|
|
Canada
net operating loss carry forward
|
$
9,258,070
|
$
3,905,836
|
|
U.S.
net operating loss carry forward
|
4,629,036
|
3,376,117
|
|
Accrual
and reserves
|
335,742
|
186,985
|
|
Intangibles
|
123,711
|
92,292
|
|
Property,
plant and equipment
|
2,482,633
|
140,538
|
|
Research
and development expenditures and credits
|
1,778,078
|
1,426,470
|
|
Other
|
698
|
126,362
|
|
Deferred tax
assets
|
18,607,968
|
9,254,600
|
|
Deferred
tax liabilities
|
|
|
|
Property,
plant and equipment
|
-
|
-
|
|
Intangibles
|
(211,049
)
|
(27,267
)
|
|
Accrual
and reserves
|
(64,112
)
|
-
|
|
Investment
tax credits
|
-
|
-
|
|
Unrealized
foreign exchange
|
-
|
-
|
|
Other
|
(244,910
)
|
-
|
|
Deferred tax liabilities
|
(520,072
)
|
(27,267
)
|
|
|
|
|
|
Deferred
tax assets, net
|
18,087,896
|
9,227,333
|
|
Valuation
allowance
|
(18,087,896
)
|
(9,227,333
)
|
|
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.
20. 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.
During the year ended February 28, 2021, all of the Plaintiff
Warrants expired.
F-30
21. Commitments and Contingencies
Commercial commitments
On
September 2, 2020, the Company entered into a know-how and
engineering agreement (the “Chemtex Agreement”) with
Chemtex Global Corporation (“Chemtex”) to license the
PET plastic and polyester polymer for fiber manufacturing know-how
of INVISTA’s technology and licensing group, INVISTA
Performance Technologies (IPT) (“INVISTA”). The total
amount of the Chemtex Agreement is $4,300,000 and covers the
know-how and design of two Infinite
Loop™
facilities. Payment terms are
based on the completion of certain milestones and total $2,150,000
for each facility. During the year ended February 28, 2021,
$900,000 was paid by the Company related to this agreement and
included in research and development expenses.
On October 29, 2020, Coca-Cola Cross Enterprise Procurement Group
(“CEPG”) advised
the Company of
its intention to terminate the Master Terms and
Conditions Supply Agreement for Loop PET plastic, dated November
14, 2018 (the “MTC”) because the Company did not
satisfy its first production milestone from the joint venture
facility by July 2020 as required by the MTC.
Contingencies
On October 13, 2020, the Company and certain of its officers were
named as defendants in a proposed class action lawsuit filed in the
United States District Court for the Southern District of New York,
captioned
Olivier Tremblay, Individually
and on Behalf of All Other Similarly Situated v. Loop Industries,
Inc., Daniel Solomita, and Nelson Gentiletti
, Case No. 7:20-cv-0838 (“Tremblay Class
Action”). The allegations in the complaint claim that the
defendants allegedly violated Sections 10(b) and 20(a) and Rule
10b-5 of the Securities Exchange Act of 1934 by allegedly making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. Plaintiff seeks unspecified damages on behalf of a class of
purchasers of Loop’s securities between September 24, 2018
and October 12, 2020.
On
October 28, 2020, the Company and certain of its officers were
named as defendants in a second proposed class action lawsuit filed
in the United States District Court for the Southern District of
New York, captioned
Michelle
Bazzini, Individually and on Behalf of All Other Similarly Situated
v. Loop Industries, Inc., Daniel Solomita, and Nelson
Gentiletti
, Case No. 7:20-cv-09031-UA. The allegations in
this complaint are similar in nature to those made in the Tremblay
Class Action.
On
January 4, 2021, the United States District Court for the Southern
District of New York rendered a stipulation and order granting the
consolidation of the two class action lawsuits filed in New York as
In re Loop Industries, Inc.
Securities Litigation
, Master File No.
7:20-cv-08538.
Sakari
Johansson and John Jay Cappa have been appointed as Co-Lead
Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP
have been appointed as Co-Lead Counsel for the class.
Plaintiffs served a consolidated amended complaint on February 18,
2021 which alleges defendants violated Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934 by making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. The consolidated amended complaint relies on the October
13, 2020 report published by a third party regarding the Company to
support their allegations. Defendants served a motion to dismiss
the consolidated amended complaint on April 27, 2021.
Plaintiffs’ opposition to the motion to Dismiss was served on
May 27, 2021 and Defendants’ reply in support of the motion
to dismiss is due on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of
their officers and directors were named as defendants in a proposed
securities class action filed in the Superior Court of Québec
(District of Terrebonne, Province of Québec, Canada), in file
no. 700-06-000012-205. The
Application for authorization
of a class action and for authorization to bring an action pursuant
to section 225.4 of the Québec Securities
Act
(“the
Application”) was filed by an individual shareholder on
behalf of himself and a class of buyers who purchased our
securities during the “Class Period” (not defined).
Plaintiff alleges that throughout the Class Period, the defendants
allegedly made false and/or misleading statements and allegedly
failed to disclose material adverse facts concerning the
Company’s technology, business model, operations and
prospects, thus causing the Company’s stock price to be
artificially inflated and thereby causing plaintiff to suffer
damages. Plaintiff seeks unspecified damages stemming from losses
he claims to have suffered as a result of the foregoing. On
December 13, 2020, the Application was amended in order to add
allegations regarding specific
misrepresentations.
Management
believes that these cases lack merit and intends to defend them
vigorously. No amounts have been provided for in the consolidated
financial statements with respect to these claims. Management has
not yet determined what effect these lawsuits may have on its
financial position or results of operations as they are still in
the preliminary stages.
22. Subsequent Events
F-31
I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
I
TEM 9A. CONTROLS AND
PROCEDURES
Disclosure Controls and Procedures
Under
the supervision and with the participation of our management,
including our Chief Executive Officer and the Chief Financial
Officer, we are responsible for conducting an evaluation of the
effectiveness of the design and operation of our internal controls
and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, as at the end of the fiscal year covered by this
report. Disclosure controls and procedures means that the material
information required to be included in our SEC reports is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms relating to our company, including
any consolidating subsidiaries, and was made known to us by others
within those entities, particularly during the period when this
report was being prepared. Based on this assessment, management
determined that the Company’s disclosure controls and
procedures over financial reporting as of February 28, 2021
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 28,
2021. Based on this assessment, management determined that the
Company’s internal control over financial reporting as of
February 28, 2021 was effective.
Attestation Report of the Registered Public Accounting
Firm
This
Annual Report does not include an attestation report of the
Company’s registered public accounting firm regarding
internal controls over financial reporting. Management’s
report was not subject to attestation by our registered public
accounting firm pursuant to law, rules and regulations that permit
us to provide only management’s report in this Annual
Report.
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.
37
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.
38
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
39
|
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
|
|
40
|
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
|
|
|
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 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
|
10-K
|
000-54768
|
May
5, 2020
|
10.21
|
|
|
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.
|
10-K
|
000-54768
|
May
5, 2020
|
10.22
|
|
|
Employment
Agreement, dated February 23, 2021, by and between Loop Canada Inc.
and Thomas Andrew (Drew) Hickey.
|
|
|
Filed
herewith
|
|
|
|
Deed of sale of 7000 boulevard
Raoul Duchesne, Becancour, Quebec, dated May 27,
2021
|
|
|
Filed
herewith
|
|
41
|
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, form S-3 filed with the SEC
on August 10, 2018, and form S-8 filed with the SEC on July 10,
2019.
|
|
|
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
|
|
|||||
|
Kemitek
Report, dated December 10, 2020
|
8-K
|
000-54768
|
December 14,
2020
|
99.2
|
|||||
|
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.
42
S
IGNATURES
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 28, 2021
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
|
|
|
|
|
||
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Daniel Solomita and
Drew Hickey, and each of them, as his or her true and lawful
attorney-in-fact and agent with full power of substitution, for him
or her in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with
the SEC, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as
fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
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 28, 2021
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
(principal
executive officer)
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Drew Hickey
|
|
|
|
Name:
|
Drew
Hickey
|
|
|
|
Title:
|
Chief
Financial Officer (principal accounting officer and principal
financial officer)
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Peter Kezios
|
|
|
|
Name:
|
Peter
Kezios
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Jay Stubina
|
|
|
|
Name:
|
Jay
Stubina
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Andrew Lapham
|
|
|
|
Name:
|
Andrew
Lapham
|
|
|
|
Title:
|
Director
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Laurence Sellyn
|
|
|
|
Name:
|
Laurence
Sellyn
|
|
|
|
Title:
|
Lead
Director
|
|
|
|
|
|
|
|
Date:
May 28, 2021
|
By:
|
/s/ Louise Sams
|
|
|
|
Name:
|
Louise
Sams
|
|
|
|
Title:
|
Director
|
|
43
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