LOOP INDUSTRIES, INC.
10-Ks and 10-Qs
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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
quarterly period ended August 31, 2020
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or
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
transition period from ___________ to __________
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Commission
File No.
000-54768
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Loop Industries, Inc.
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(Exact
name of Registrant as specified in its charter)
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Nevada
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27-2094706
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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480 Fernand-Poitras Terrebonne, Québec, Canada J6Y
1Y4
(Address
of principal executive offices zip code)
Registrant’s
telephone number, including area code
(450) 951-8555
Securities
registered pursuant to Section
12(b) of the Act:
None
Securities
registered pursuant to Section
12(g) of the Act
:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common
Stock
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LOOP
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Nasdaq
Global Market
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Indicate by check mark 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 whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
☐ No ☒
As at October 7,
2020, there were 42,212,739 shares of the Registrant’s common
stock, par value $0.0001 per share, outstanding.
LOOP INDUSTRIES, INC.
TABLE OF CONTENTS
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No.
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4
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5
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16
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17
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18
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18
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19
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19
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19
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19
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20
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21
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3
ITEM 1.
F
INANCIAL
STATEMENTS
Loop Industries, Inc.
Three and Six months ended August 31, 2020
Index to the Unaudited Interim Condensed Consolidated Financial
Statements
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Contents
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Page(s)
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F-1
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F-2
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F-3
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F-5
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F-6
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4
Loop Industries, Inc.
Condensed Consolidated
B
alance
Sheets
(Unaudited)
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August 31, 2020
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February 29, 2020
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Assets
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Current
assets
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Cash
and cash equivalents
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$
23,128,243
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$
33,717,671
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Sales
tax, tax credits and other receivables (Note 3)
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511,156
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664,544
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Prepaid
expenses and deposits (Note 4)
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2,293,283
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141,226
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Total
current assets
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25,932,682
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34,523,441
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Investment
in joint venture (Note 9)
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1,500,000
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850,000
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Property,
plant and equipment, net (Note 5)
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8,287,408
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7,260,254
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Intangible assets,
net (Note 6)
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342,930
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202,863
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Total
assets
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$
36,063,020
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$
42,836,558
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Liabilities and Stockholders' Equity
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Current
liabilities
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Accounts
payable and accrued liabilities (Note 8)
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$
2,099,515
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$
2,082,698
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Current
portion of long-term debt (Note 10)
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53,673
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52,126
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Total
current liabilities
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2,153,188
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2,134,824
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Long-term
debt (Note 10)
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2,316,408
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2,238,026
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Total
liabilities
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4,469,596
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4,372,850
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Stockholders' Equity
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Series
A Preferred stock par value $0.0001; 25,000,000 shares authorized;
one share issued and outstanding (Note 12)
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-
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-
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Common stock par value $0.0001: 250,000,000 shares
au
thorized; 39,935,210 shares issued and outstanding
(February 29, 2020 – 39,910,774) (Note 12)
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3,994
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3,992
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Additional
paid-in capital
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84,172,723
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82,379,413
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Additional paid-in
capital – Warrants
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9,870,241
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9,785,799
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Accumulated
deficit
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(62,297,485
)
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(53,317,047
)
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Accumulated
other comprehensive loss
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(156,049
)
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(388,449
)
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Total
stockholders' equity
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31,593,424
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38,463,708
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Total
liabilities and stockholders' equity
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$
36,063,020
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$
42,836,558
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See accompanying notes to the condensed consolidated financial
statements
.
F-1
Loop Industries, Inc.
Condensed Consolidated Statements of Operations and Comprehensive
L
oss
(Unaudited)
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Three
Months Ended August 31
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Six Months
Ended August 31
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2020
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2019
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2020
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2019
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Revenue
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$
-
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$
-
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$
-
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$
-
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Expenses
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Research and
development (Note 13)
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2,749,222
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970,213
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4,229,810
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1,968,074
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General and
administrative (Note 13)
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2,049,241
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1,718,613
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4,002,323
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3,621,243
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Depreciation and
amortization (Notes 5 and 6)
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302,587
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201,403
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558,561
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365,739
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Interest and other
financial (Note 16)
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(58,905
)
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622,183
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67,871
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1,124,064
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Interest
income
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(18,039
)
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(192,259
)
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(58,386
)
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(192,291
)
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Foreign exchange
loss
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103,618
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21,890
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180,259
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9,764
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Total
expenses
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5,127,724
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3,342,043
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8,980,438
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6,896,593
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Net
Loss
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(5,127,724
)
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(3,342,043
)
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(8,980,438
)
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(6,896,593
)
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Other comprehensive
income (loss)
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Foreign currency
translation adjustment
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402,812
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102,457
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232,400
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(37,685
)
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Comprehensive
income (loss)
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$
(4,724,912
)
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$
(3,239,586
)
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$
(8,748,038
)
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$
(6,934,278
)
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Loss per
share
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Basic and
Diluted
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$
(0.13
)
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$
(0.09
)
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$
(0.22
)
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$
(0.19
)
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Weighted average
common shares outstanding
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Basic and
Diluted
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39,928,047
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38,383,156
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39,922,443
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36,548,832
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See accompanying notes to the condensed consolidated financial
statements.
F-2
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Three Months Ended August 31, 2020
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Common stock
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Preferred stock
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par value $0.0001
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par value $0.0001
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Number of Shares
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Amount
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Number of Shares
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Amount
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Additional Paid-in Capital
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Additional Paid-in Capital - Warrants
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Additional Paid-in Capital – Beneficial Conversion
Feature
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Common Stock Issuable
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Accumulated Deficit
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Accumulated Other Comprehensive (Loss)
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Total Stockholders' Equity
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Balance, May
31, 2020
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39,916,905
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$
3,993
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1
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$
-
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$
83,306,794
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$
9,870,241
|
$
-
|
$
-
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$
(57,169,761
)
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$
(558,861
)
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$
35,452,406
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|
Issuance of
shares upon the vesting of restricted stock units (Note
13)
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18,305
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1
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-
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-
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(1
)
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-
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-
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-
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-
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-
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-
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Stock options
issued for services (Note 13)
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-
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-
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-
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-
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553,540
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-
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-
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-
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-
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-
|
553,540
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Restricted
stock units issued for services (Note 13)
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-
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-
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-
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-
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312,390
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-
|
-
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-
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-
|
-
|
312,390
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|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
402,812
|
402,812
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|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,127,724
)
|
-
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(5,127,724
)
|
|
Balance, August 31, 2020
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39,935,210
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$
3,994
|
1
|
$
-
|
$
84,172,723
|
$
9,870,241
|
$
-
|
$
-
|
$
(62,297,485
)
|
$
(156,049
)
|
$
31,593,424
|
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Three Months Ended August 31, 2019
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||||||||||
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Common stock
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Preferred stock
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||
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|
par value $0.0001
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par value $0.0001
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|
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||
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Number of Shares
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Amount
|
Number of Shares
|
Amount
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Additional Paid-in Capital
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Additional Paid-in Capital - Warrants
|
Additional Paid-in Capital – Beneficial Conversion
Feature
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Common Stock Issuable
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Accumulated Deficit
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Accumulated Other Comprehensive (Loss)
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Total Stockholders' Equity
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Balance, May
31, 2019
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34,875,032
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$
3,488
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1
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$
-
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$
46,536,157
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$
1,074,633
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$
1,200,915
|
$
800,000
|
$
(42,366,142
)
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$
(430,366
)
|
$
6,818,685
|
|
Issuance of
common shares for cash, net of share issuance costs (Note
12)
|
4,093,567
|
409
|
-
|
-
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26,092,669
|
8,663,769
|
-
|
-
|
-
|
-
|
34,756,847
|
|
Issuance of
shares upon the vesting of restricted stock
units
|
43,932
|
4
|
|
|
799,996
|
|
|
(800,000
)
|
|
|
-
|
|
Issuance of
shares upon the cashless exercise of stock
options
|
4,565
|
1
|
|
|
(1
)
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|
|
-
|
|
Issuance of
shares upon exercise of warrants
|
15,432
|
1
|
|
|
182,048
|
(38,300
)
|
|
|
|
|
143,749
|
|
Stock options
issued for services (Note 13)
|
-
|
-
|
-
|
-
|
498,198
|
-
|
-
|
-
|
-
|
-
|
498,198
|
|
Restricted
stock units issued for services (Note 13)
|
-
|
-
|
-
|
-
|
305,130
|
-
|
-
|
-
|
-
|
-
|
305,130
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
102,457
|
102,457
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,342,043
)
|
-
|
(3,342,043
)
|
|
Balance, August 31, 2019
|
39,032,528
|
$
3,903
|
1
|
$
-
|
$
74,414,197
|
$
9,700,102
|
$
1,200,915
|
$
-
|
$
(45,708,185
)
|
$
(327,909
)
|
$
39,283,023
|
F-3
Loop Industries, Inc.
Condensed Consolidated Statements of Changes in Stockholders’
E
quity
(Unaudited)
|
|
Six Months Ended August 31, 2020
|
||||||||||
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|
Common stock
|
Preferred stock
|
|
|
|
|
|
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|
||
|
|
par value $0.0001
|
par value $0.0001
|
|
|
|
|
|
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|
||
|
|
Number of Shares
|
Amount
|
Number of Shares
|
Amount
|
Additional Paid-in Capital
|
Additional Paid-in Capital - Warrants
|
Additional Paid-in Capital – Beneficial Conversion
Feature
|
Common Stock Issuable
|
Accumulated Deficit
|
Accumulated Other Comprehensive (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
|
|
Warrant issued
for services (Note 15)
|
-
|
-
|
-
|
-
|
-
|
84,442
|
-
|
-
|
-
|
-
|
84,442
|
|
Issuance of
shares upon the vesting of restricted stock units (Note
13)
|
24,436
|
2
|
-
|
-
|
(2
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Stock options
issued for services (Note 13)
|
-
|
-
|
-
|
-
|
1,110,435
|
-
|
-
|
-
|
-
|
-
|
1,110,435
|
|
Restricted
stock units issued for services (Note 13)
|
-
|
-
|
-
|
-
|
682,877
|
-
|
-
|
-
|
-
|
-
|
682,877
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
232,400
|
232,400
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,980,438
)
|
-
|
(8,980,438
)
|
|
Balance, August 31, 2020
|
39,935,210
|
$
3,994
|
1
|
$
-
|
$
84,172,723
|
$
9,870,241
|
$
-
|
$
-
|
$
(62,297,485
)
|
$
(156,049
)
|
$
31,593,424
|
|
|
Six Months Ended August 31, 2019
|
||||||||||
|
|
Common stock
|
Preferred stock
|
|
|
|
|
|
|
|
||
|
|
par value $0.0001
|
par value $0.0001
|
|
|
|
|
|
|
|
||
|
|
Number of Shares
|
Amount
|
Number of Shares
|
Amount
|
Additional Paid-in Capital
|
Additional Paid-in Capital - Warrants
|
Additional Paid-in Capital – Beneficial Conversion
Feature
|
Common Stock Issuable
|
Accumulated Deficit
|
Accumulated Other Comprehensive (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
|
-
|
-
|
30,359,394
|
8,663,769
|
-
|
-
|
-
|
-
|
39,023,632
|
|
Issuance of
shares for legal settlement
|
150,000
|
15
|
-
|
-
|
(15
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of
shares upon conversion of Convertible notes
|
319,326
|
32
|
-
|
-
|
2,372,549
|
316,929
|
-
|
-
|
-
|
-
|
2,689,510
|
|
Issuance of
shares upon the vesting of restricted stock units (Note
13)
|
43,932
|
4
|
-
|
-
|
799,996
|
-
|
-
|
(800,000
)
|
-
|
-
|
-
|
|
Issuance of
shares upon the cashless exercise of stock options (Note
13)
|
4,565
|
1
|
-
|
-
|
(1
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Issuance of
shares upon exercise of warrants (Note 15)
|
15,432
|
1
|
|
|
182,048
|
(38,300
)
|
|
|
|
|
143,749
|
|
Stock options
issued for services (Note 13)
|
-
|
-
|
-
|
-
|
1,073,711
|
-
|
-
|
-
|
-
|
-
|
1,073,711
|
|
Restricted
stock units issued for services (Note 13)
|
-
|
-
|
-
|
-
|
660,307
|
-
|
-
|
-
|
-
|
-
|
660,307
|
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(37,685
)
|
(37,685
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,896,593
)
|
-
|
(6,896,593
)
|
|
Balance, August 31, 2019
|
39,032,528
|
$
3,903
|
1
|
$
-
|
$
74,414,197
|
$
9,700,102
|
$
1,200,915
|
$
-
|
$
(45,708,185
)
|
$
(327,909
)
|
$
39,283,023
|
See accompanying notes to the condensed consolidated financial
statements.
F-4
Loop Industries, Inc.
Condensed Consolidated Statements of
C
ash Flows
(Unaudited)
|
|
Six Months Ended August 31
|
|
|
|
2020
|
2019
|
|
Cash Flows from Operating Activities
|
|
|
|
Net
loss
|
$
(8,980,438
)
|
$
(6,896,593
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
and amortization (Notes 5 and 6)
|
558,561
|
365,739
|
|
Stock-based
compensation expense (Note 13)
|
1,877,754
|
1,734,018
|
|
Accrued
interest (Note 10)
|
19,291
|
215,433
|
|
Loss
on revaluation of warrants (Note 16)
|
-
|
8,483
|
|
Debt
accretion (Note 16)
|
17,658
|
1,035,888
|
|
Deferred
financing costs (Note 16)
|
-
|
66,327
|
|
Loss
(gain) on conversion of convertible notes (Note 16)
|
-
|
(232,565
)
|
|
Loss
on revaluation of foreign exchange contracts
|
11,482
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Sales
tax, tax credits and other receivables (Note 3)
|
169,018
|
(123,194
)
|
|
Prepaid
expenses (Note 4)
|
(824,675
)
|
(22,987
)
|
|
Accounts
payable and accrued liabilities (Note 8)
|
(304,438
)
|
(1,385,978
)
|
|
Net
cash used in operating activities
|
(7,455,787
)
|
(5,235,429
)
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
Investment
in joint venture (Note 9)
|
(650,000
)
|
(500,000
)
|
|
Deposits
on machinery and equipment
|
(1,305,010
)
|
-
|
|
Additions
to property, plant and equipment (Note 5)
|
(1,116,744
)
|
(1,202,766
)
|
|
Additions
to intangible assets (Note 6)
|
(160,484
)
|
(82,432
)
|
|
Net
cash used in investing activities
|
(3,232,238
)
|
(1,785,198
)
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
Proceeds
from sale of common shares (Note 12)
|
-
|
40,273,751
|
|
Share
issuance costs (Note 12)
|
-
|
(1,106,370
)
|
|
Repayment
of long-term debt (Note 10)
|
(26,836
)
|
(26,326
)
|
|
Net
cash provided from (used in) financing activities
|
(26,836
)
|
39,141,055
|
|
|
|
|
|
Effect
of exchange rate changes
|
125,433
|
(22,778
)
|
|
Net
change in cash and cash equivalents
|
(10,589,428
)
|
32,097,650
|
|
Cash
and cash equivalents, beginning of period
|
33,717,671
|
5,833,390
|
|
Cash
and cash equivalents, end of period
|
$
23,128,243
|
$
37,931,040
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Income
tax paid
|
$
-
|
$
-
|
|
Interest
paid
|
$
19,441
|
$
30,497
|
|
Interest
received
|
$
30,497
|
$
192,291
|
See accompanying notes to the condensed consolidated financial
statements.
F-5
Loop Industries, Inc.
Three and Six Months Ended August 31, 2020 and 2019
N
otes to the Condensed Consolidated
Financial Statements
(Unaudited)
1. The Company, Basis of Presentation
The Company
Loop
Industries, Inc.
(the
“Company,” “Loop Industries,”
“we,” or “our”) is a technology company
that owns patented and proprietary technology that depolymerizes no
and low-value waste PET plastic and polyester fiber to its base
building blocks (monomers). The monomers are filtered,
purified and polymerized to create virgin-quality Loop™
branded PET resin for use in food-grade packaging and polyester
fiber.
On
November 20, 2017, Loop Industries commenced trading on the NASDAQ
Global Market under its new trading symbol, “LOOP.”
From April 10, 2017 to November 19, 2017, our common
stock was quoted on the OTCQX tier of the OTC Markets
Group Inc. under the symbol “LLPP.”
Basis of presentation
The
accompanying unaudited interim condensed consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles in the United States of America (“US
GAAP”) and applicable rules and regulations of the U.S.
Securities and Exchange Commission (“SEC”) regarding
interim financial reporting. Certain information and note
disclosures included in these unaudited interim condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes included in
the Company’s Annual Report on Form 10-K for the fiscal year
ended February 29, 2020, filed with the SEC on May 5, 2020 and
amended on May 6, 2020 and September 21, 2020. The unaudited
interim condensed consolidated financial statements comprise the
consolidated financial position and results of operations of Loop
Industries, Inc. and its subsidiaries, Loop Innovations, LLC and
Loop Canada Inc. All subsidiaries are, either directly or
indirectly, wholly owned subsidiaries of Loop Industries, Inc.
(collectively, the “Company”). The Company also owns,
through Loop Innovations, LLC, a 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. The
condensed consolidated balance sheet as of February 29, 2020,
included herein, was derived from the audited financial statements
as of that date, but does not include all disclosures including
certain notes required by GAAP on an annual reporting basis. In the
opinion of management, the accompanying unaudited interim condensed
consolidated financial statements present fairly the financial
position, results of operations, comprehensive loss and cash flows
for the interim periods. The results for the three- and six-month
periods ended August 31, 2020 are not necessarily indicative of the
results to be expected for any subsequent quarter, the fiscal year
ending February 28, 2021, or any other period.
2. Summary of Significant Accounting Policies
Use of estimates
The
preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for depreciable
lives of property, plant and equipment, intangible assets, analysis
of impairments of long-lived assets and intangible assets, accruals
for potential liabilities and assumptions made in calculating the
fair value of stock-based compensation and other equity
instruments.
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
have had and may continue to have an effect on our development and
commercialization efforts. In particular, the situation in the
United States 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, which is currently continuing with renewed
discussions on structure and financing to address these
disruptions.
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 assess whether there will be further impact on the development
and commercialization of our technology which could have a material
adverse effect on our results of operations and cash
flows.
Foreign currency translations and transactions
The
accompanying unaudited condensed consolidated financial statements
are presented in U.S. dollars, the reporting currency of the
Company. Assets and liabilities of subsidiaries that have a
functional currency other than that of the Company are translated
to U.S. dollars at the exchange rate as at the balance sheet date.
Income and expenses are translated at the average exchange rate of
the period. The resulting translation adjustments are included in
other comprehensive income (loss) (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently has not engaged in any currency
hedging activities.
F-6
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
Stock-based compensation
Loop
Industries, Inc. 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.
Income taxes
The
Company calculates its provision for income tax on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income, in accordance with FASB ASC 740,
Income Taxes
. The Company uses an asset
and liability approach for financial accounting and reporting for
income taxes that allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future
deductibility is uncertain. The Company’s policy is to
recognize interest and/or penalties related to income tax matters
in income tax expense.
Research and development expenses
Research
and development expenses relate primarily to the development,
design, testing of preproduction samples, prototypes and models,
compensation, and consulting fees, and are expensed as incurred.
Total research and development costs recorded during the six-month
periods ended August 31, 2020 and 2019 amounted to
$4,229,810
and $1,968,074,
respectively, and are net of government research and development
tax credits and government grants from the federal and provincial
taxation authorities accrued and recorded based on qualifying
expenditures incurred during the fiscal periods.
F-7
Net earnings (loss) per share
The
Company computes net loss per share in accordance with FASB ASC
260,
Earnings Per Share
.
Basic earnings (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted
average number of shares of common stock outstanding during the
year. The Company includes common stock issuable in its
calculation. Diluted earnings (loss) per share is computed by
dividing the net income (loss) applicable to common stockholders by
the weighted average number of common shares outstanding plus the
number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued, using the
treasury stock method. Potential common shares are excluded from
the computation if their effect is antidilutive.
For the
six-month periods ended August 31, 2020 and 2019, the calculations
of basic and diluted loss per share are the same because potential
dilutive securities would have an antidilutive effect. As at August
31, 2020, the potentially dilutive securities consisted of
1,590,470 outstanding stock options (August 31, 2019 –
1,657,081), 4,313,750 outstanding restricted stock units (August
31, 2019 – 4,419,753) and 4,884,331 outstanding warrants
(August 31, 2019 – 5,040,267).
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 the standard had no impact on the consolidated financial
statements of the Company.
In
February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
, which permits
entities to reclassify the disproportionate income tax effects of
the Tax Reform Act on items within accumulated other comprehensive
income (loss) ("AOCI") to retained earnings. These disproportionate
income tax effect items are referred to as "stranded tax effects."
Amendments in this update only relate to the reclassification of
the income tax effects of the Tax Reform Act. Other accounting
guidance that requires the effect of changes in tax laws or rates
to be included in net income from continuing operations is not
affected by this update. ASU 2018-02 should be applied either in
the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable
beginning March 1, 2020. The adoption of the standard had no impact
on the consolidated financial statements of the
Company.
In
February 2016, the FASB issued ASU 2016-02, “Leases,”
amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted
Improvements,” and ASU 2018-20, “Narrow-Scope
Improvements for Lessors,” which requires lessees to
recognize leases on the balance sheet while continuing to recognize
expenses in the income statement in a manner similar to current
accounting standards. For lessors, the new standard modifies the
classification criteria and the accounting for sales-type and
direct financing leases. Enhanced disclosures will also be required
to give financial statement users the ability to assess the amount,
timing, and uncertainty of cash flows arising from leases. This ASU
may either be adopted on a modified retrospective approach at the
beginning of the earliest comparative period, or through a
cumulative-effect adjustment at the adoption date. This update is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company
adopted these standards effective March 1, 2020. The adoption of
the standard had no impact on the consolidated financial statements
of the Company. The Company elected to apply the package of
practical expedients that allows us not to reassess whether expired
or existing contracts contain leases, the classification of these
leases and whether previously capitalized initial direct costs
would qualify for capitalization under Accounting Standards
Codification (or “
ASC
”) 842. Furthermore, we
elected to use hindsight in determining the lease term and
assessing impairment of the right-of-use assets.
Recently issued accounting pronouncements not yet
adopted
In December 2019, the FASB issued ASU 2019-12, “Simplifying
the Accounting for Income Taxes,” which removes specific
exceptions to the general principles in ASC 740, “Income
Taxes,” and clarifies certain aspects of the existing
guidance. This update is effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years, with early adoption being permitted as of the beginning of
an interim or annual reporting period. All amendments to this ASU
must be adopted in the same period on a prospective basis, with
certain exceptions. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
F-8
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.
3.
Sales Tax, Tax Credits and Other
Receivables
Sales tax, research and development tax credits and other
receivables as at August 31, 2020 and February 29, 2020 were as
follows:
|
|
August
31,
2020
|
February
29,
2020
|
|
Sales
tax
|
$
232,506
|
$
180 971
|
|
Research and
development tax credits
|
177,237
|
447,843
|
|
Other
receivables
|
101,413
|
35,730
|
|
|
$
511,156
|
$
664,544
|
4.
Prepaid Expenses and
Deposits
Prepaid expenses as at August 31, 2020 and February 29, 2020 were
as follows:
|
|
August
31,
2020
|
February
29,
2020
|
|
Machinery and
equipment
|
$
1,305,010
|
$
-
|
|
Insurance
|
907,895
|
61,891
|
|
Other prepaid
expenses
|
80,378
|
79,335
|
|
|
$
2,293,283
|
$
141,226
|
Deposits made on machinery and equipment are
non-refundable.
5. Property, Plant and Equipment
|
|
As at August 31,
2020
|
||
|
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|
Building
|
$
1,900,849
|
$
(164,404
)
|
$
1,736,445
|
|
Land
|
234,965
|
-
|
234,965
|
|
Building and land
improvements
|
1,446,246
|
(303,364
)
|
1,142,882
|
|
Machinery and
equipment
|
6,984,840
|
(1,909,269
)
|
5,075,571
|
|
Office equipment
and furniture
|
170,671
|
(73,126
)
|
97,545
|
|
Balances, end of
period
|
$
10,737,571
|
$
(2,450,163
)
|
$
8,287,408
|
|
|
As at February
29, 2020
|
||
|
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
|
Building
|
$
1,846,070
|
$
(128,911
)
|
$
1,717,159
|
|
Land
|
264,868
|
-
|
264,868
|
|
Building and land
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
|
|
Balances, end of
period
|
$
9,092,483
|
$
(1,832,229
)
|
$
7,260,254
|
F-9
Depreciation
expense for the three- and six-month periods ended August 31, 2020
amounted to $291,498 and $539,697, respectively (2019 –
195,876 and $357,197, respectively), and is recorded as an
operating expense in the consolidated statements of operations and
comprehensive loss.
6. Intangible Assets
|
|
August
31,
2020
|
February
29,
2020
|
|
|
|
|
|
Intangible assets,
at cost - beginning of period
|
$
225,174
|
$
127,672
|
|
Intangible assets,
accumulated depreciation – beginning of period
|
(22,310
)
|
-
|
|
|
202,864
|
127,672
|
|
|
|
|
|
Add: Additions in
the period
|
153,753
|
99,972
|
|
Deduct:
Amortization of intangibles
|
(18,864
)
|
(22,631
)
|
|
Deduct: Foreign
exchange effect
|
5,177
|
(2,150
)
|
|
|
$
342,930
|
$
202,863
|
Amortization
expense for the three- and six-month periods ended August 31, 2020
amounted to $11,088 and $18,864, respectively (2019 - $5,527 and
$8,545, respectively), and is recorded as an operating expense in
the unaudited condensed consolidated statements of operations and
comprehensive loss.
7.
Fair value of financial
instruments
The
following tables present the fair value of the Company’s
financial liabilities as at August 31, 2020 and February 29,
2020:
|
|
Fair Value
Measurements as at August 31, 2020
|
||
|
|
Carrying
Amount
|
Fair
Value
|
Level in the
hierarchy
|
|
Instruments
measured at fair value on a recurring basis:
|
|
|
|
|
Foreign exchange
contracts
|
$
44,923
|
$
44,923
|
Level
1
|
|
|
|
|
|
|
Instruments
measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$
2,370,081
|
$
2,380,882
|
Level
2
|
|
|
Fair Value
Measurements at February 29, 2020
|
||
|
|
Carrying
Amount
|
Fair
Value
|
Level in
the hierarchy
|
|
Instruments
measured at fair value on a recurring basis:
|
|
|
|
|
Foreign exchange
contracts
|
$
26,840
|
$
26,840
|
Level
1
|
|
|
|
|
|
|
Instruments
measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$
2,290,152
|
$
2,291,109
|
Level
2
|
F-10
8.
Accounts Payable and
Accrued Liabilities
Accounts payable and accrued liabilities as at August 31, 2020 and
February 29, 2020 were as follows:
|
|
August
31,
2020
|
February
29,
2020
|
|
Trade accounts
payable
|
$
890,101
|
$
814,081
|
|
Trade accrued
liabilities
|
492,621
|
593,789
|
|
Accrued employee
compensation
|
618,434
|
634,807
|
|
Foreign exchange
contracts
|
44,923
|
26,840
|
|
Other accrued
liabilities
|
53,436
|
13,181
|
|
|
$
2,099,515
|
$
2,082,698
|
9. Joint Venture
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP, USA,
an indirect subsidiary of Indorama Ventures Public Company Limited
(“Indorama Ventures”), 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 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 August 31,
2020 and, as at August 31, 2020, 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 three- and six-month periods ended
August 31, 2020, we made contributions to ILT of nil and $650,000
respectively (2019 – nil and $500,000). These contributions
to ILT, which have been matched by Indorama Ventures, were used to
fund engineering design costs which have been capitalized in
ILT.
10. Long-Term Debt
|
|
August
31,
2020
|
February
29,
2020
|
|
Investissement
Québec financing facility:
|
|
|
|
Principal
amount
|
$
1,693,938
|
$
1,645,122
|
|
Unamortized
discount
|
(279,908
)
|
(289,852
)
|
|
Accrued
interest
|
21,250
|
958
|
|
Total
Investissement Québec financing facility
|
1,435,280
|
1,356,228
|
|
Term
loan
|
|
|
|
Principal
amount
|
934,801
|
933,924
|
|
Less: current
portion
|
(53,673
)
|
(52,126
)
|
|
Total term loan,
net of current portion
|
881,128
|
881,798
|
|
Long-term debt, net
of current portion
|
$
2,316,408
|
$
2,238,026
|
Investissement Québec financing facility
On February 21, 2020, the Company received $1,693,938
(CDN$2,209,234) from Investissement Québec as the first
disbursement of our financing facility, out of a maximum of
$3,527,066 (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 loan 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, $35,271
(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 three- and six-month periods ended August 31, 2020 in
the amount of $9,875 and $19,291 respectively (2019 – nil and
nil) and an accretion expense of $9,112 and $17,658 respectively
(2019 – nil and nil).
F-11
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 $352,707 (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 August 31,
2020.
The remaining amount available under the financing facility
is $1,833,128 (CDN$2,390,766) to be received in a maximum of two
additional disbursements.
Term loan
On
January 24, 2018, the Company obtained a $1,073,455 (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 $4,472 (CDN$5,833) plus interest, until January
2021, at which time the monthly repayment amount and interest rate
will be subject to renewal. It includes an option allowing for the
prepayment of the Loan without penalty. During the three- and
six-month periods ended August 31, 2020, we repaid $14,143 and
$26,836 respectively (2019 – $13,269 and $26,326) on the
principal balance of the Loan and interest paid amounted to $9,130
and $19,441 and (2019 - $13,993 and $27,062). The terms of the
credit facility require the Company to comply with certain
financial covenants. As at August 31, 2020 and 2019, the Company
was in compliance with its financial covenants.
Principal
repayments due on the Company’s long-term debt over the next
five years are as follows:
|
Years
ending
|
Amount
|
|
February 28,
2021
|
$
26,836
|
|
February 28,
2022
|
53,673
|
|
February 28,
2023
|
53,673
|
|
February 29,
2024
|
295,660
|
|
February 28,
2025
|
295,660
|
|
Thereafter
|
1,889,818
|
|
Total
|
$
2,615,320
|
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 which provided for a
long-term incentive grant of 4,000,000 shares of the
Company’s common stock, in tranches of one million shares
each, upon the achievement of four performance milestones. This was
modified to provide a grant of 4,000,000 restricted stock units
covering 4,000,000 shares of the Company’s common stock while
the performance milestones remained the same. The grant of the
restricted stock units became effective 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.
F-12
On April 30, 2020, the Company and Mr. Solomita entered into an
amendment of Mr. Solomita’s employment
agreement. The amendment
clarified the milestones
consistent with the shift in the Company’s business from the
production of terephthalate to the production of dimethyl
terephthalate, another proven monomer of PET plastic that is far
simpler to purify.
During
the three- and six-month periods ended August 31, 2020 and August
31, 2019, 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
Common Stock
|
For
the period ended August 31, 2020
|
Number
of
shares
|
Amount
|
|
Balance, February
29, 2020
|
39,910,774
|
$
3,992
|
|
Issuance of shares
upon settlement of restricted stock units
|
24,436
|
2
|
|
Balance, August 31,
2020
|
39,935,210
|
$
3,994
|
|
For
the period ended August 31, 2019
|
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
for services rendered
|
43,932
|
4
|
|
Issuance of shares
upon the cashless exercise of stock options
|
4,565
|
1
|
|
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
|
319,326
|
32
|
|
Balance, August 31,
2019
|
39,032,528
|
$
3,903
|
During
the six months ended August 31, 2020, the Company recorded the
following common stock transaction:
|
(i)
|
The
Company issued 24,436 shares of its common stock to settle
restricted stock units that vested in the period.
|
During
the six months ended August 31, 2019, 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 June
21, 2019, the Company issued 7,043 shares of common stock upon the
vesting of restricted stock units related to an
employee.
|
|
(vi)
|
On July
2, 2019 and July 3, 2019, the Company issued 23,547 shares of
common stock upon the vesting of restricted stock units related to
current and former Directors.
|
|
(vii)
|
On July
12, 2019, the Company issued 4,565 shares of common stock upon the
cashless exercise of stock options related to an
employee.
|
|
(viii)
|
On July
15, 2019, the Company issued 13,342 shares of common stock upon the
vesting of restricted stock units related to a former
Director.
|
|
(ix)
|
On July
17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants.
|
F-13
13. Share-based Payments
Stock Options
During
the six-month period ended August 31, 2020, the Company granted
3,389 stock options (2019 – nil) with a weighted average
exercise price of $8.78 (2019 – nil), no stock options were
forfeited (2019 – 39,902; weighted average exercise price:
$9.67) or exercised (2019 – 5,000; weighted average exercise
price: $0.80) and no stock options expired (2019 – 260,417;
weighted average exercise price: $13.59).
The
Company applies the fair value method of accounting for stock-based
compensation awards granted. Fair value is calculated based on a
Black-Scholes option pricing model. The principal components of the
pricing model were as follows:
|
|
2020
|
2019
|
|
Exercise
price
|
$
8.78
|
$
-
|
|
Risk-free interest
rate
|
1.05
%
|
-
|
|
Expected dividend
yield
|
0.00
%
|
-
|
|
Expected
volatility
|
75.95
%
|
-
|
|
Expected
life
|
7.5 years
|
-
|
The
total number of stock options outstanding as at August 31, 2020 was
1,587,081 (2019 – 1,657,081) with a weighted average exercise
price of $6.81 (2019 - $6.55), of which 1,083,748 were exercisable
(2019 – 958,748) with a weighted average exercise price of
$7.05 (2019 – $6.26).
During
the three- and six-month periods ended August 31, 2020, stock-based
compensation expense attributable to stock options amounted to
$553,540 and $1,110,435 respectively (2019 - $498,198 and
$1,073,711) and is included in expenses.
Restricted Stock Units
During
the six-month period ended August 31, 2020, the Company granted
122,373 restricted stock units (“RSUs”) (2019 –
4,114,567) with a weighted average fair value of $8.86 (2019
– $1.06), settled 24,436 RSUs (2019 – 43,932) with a
weighted average fair value of $9.78 (2019 – 10.36) and 2,989
RSUs were forfeited (2019 – 53,750) with a weighted average
fair value of $8.78 (2019 – $9.82).
The
Company applies the fair value method of accounting for awards
granted through the issuance of restricted stock units. Fair value
is calculated based on the closing share price at grant date
multiplied by the number of restricted stock unit awards
granted.
The
total number of RSUs outstanding as at August 31, 2020 was
4,313,750 (2019 – 4,218,802), of which 891,327 were
vested (2019 – 1,031,684).
During
the three- and six-month periods ended August 31, 2020, stock-based
compensation expense attributable to RSUs amounted to $312,390 and
$682,877 respectively (2019 - $305,130 and $660,307) and is
included in expenses.
During
the three- and six-month periods ended August 31, 2020 and August
31, 2019, stock-based compensation included in research and
development expenses amounted to $352,282 and $704,289 respectively
(2019 – $250,242 and $660,455), and in general and
administrative expenses amounted to $513,648 and $1,173,465
respectively (2019 - $755,229 and $1,530,686).
F-14
14. Equity Incentive Plan
On July
6, 2017, the Company adopted the 2017 Equity Incentive Plan (the
“Plan”). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units
to employees, directors and consultants of the Company. A total of
3,000,000 shares of common stock were initially reserved for
issuance under the Plan at July 6, 2017, with annual automatic
share reserve increases, as defined in the Plan, amounting to the
lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares
on the last day of the immediately preceding fiscal year, or (iii)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. In March 2020, the Board of
Directors elected to waive the annual share reserve increase for
the fiscal year ending 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 six-month periods ended
August 31, 2020 and 2019:
|
|
2020
|
2019
|
|
|
Number of
units
|
Number of
units
|
|
Outstanding,
beginning of period
|
1,300,518
|
3,223,516
|
|
Share reserve
increase
|
-
|
2,000,000
|
|
Units
granted
|
(125,762
)
|
(4,114,567
)
|
|
Units
forfeited
|
2,989
|
93,652
|
|
Units
expired
|
-
|
260,417
|
|
Outstanding, end of
period
|
1,177,745
|
1,463,018
|
15. Warrants
During
the six-month period ended August 31, 2020, the Company issued, in
exchange for consulting services, a warrant to purchase 25,000
shares of our common stock at the price of $9.43 per share expiring
May 12, 2022 and warrants to issue 200,000 shares of our common
stock with an exercise price of $11.00 expired. No warrants were
exercised or forfeited in the six-month period ended August 31,
2020.
During
the six-month period ended August 31, 2019, the Company issued a
warrant to purchase 159,663 shares of our common stock at the price
of $8.55 per share expiring October 5, 2020 as well as a warrant to
purchase 4,093,567 shares of our common stock at the price of
$11.00 per share expiring June 14, 2022. During the six-month
period ended August 31, 2019, 15,432 shares of our common stock
were issued upon the exercise of a warrant with an exercise price
of $9.32. No warrants were forfeited and no warrants expired in the
six-month period ended August 31, 2019.
16. Interest and Other Finance Costs
Interest and other finance costs for the three- and six-month
periods ended August 31, 2020 and 2019 are as follows:
|
|
Three Months
Ended August 31
|
Six Months Ended
August 31
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Interest
on long-term debt
|
$
19,005
|
$
13,993
|
$
38,732
|
$
27,062
|
|
Interest
on convertible notes
|
-
|
98,000
|
-
|
215,433
|
|
Accretion
expense
|
9,112
|
488,325
|
17,658
|
1,035,888
|
|
Amortization
of deferred finance costs
|
-
|
19,885
|
-
|
66,327
|
|
Loss
(gain) on revaluation of foreign exchange contracts
|
(87,022
)
|
-
|
11,481
|
-
|
|
Revaluation
of warrants
|
-
|
-
|
-
|
8,483
|
|
Gain on
conversion of November 2018 Notes
|
-
|
-
|
-
|
(232,565
)
|
|
Other
|
-
|
1,980
|
-
|
3,436
|
|
|
$
(58,905
)
|
$
622,183
|
$
67,871
|
$
1,124,064
|
F-15
17. Subsequent events
On
September 21, 2020, the Company 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 $12.1125 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 approximately $25,087,500.
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 Chemtex Agreement
represents a total commitment of $4,300,000, of which $500,000 was
paid by the Company in September 2020, and covers the know-how and
design of two Infinite Loop
TM
facilities.
On
September 10, 2020, the Company entered into a partnership
agreement with Suez Groupe (“Suez”), the Enhanced
Recycling Partnership Agreement (the “Partnership”),
with the purpose to cooperate in building an Infinite
Loop
TM
facility in Europe. There is currently no existing commitment by
either party as to the funding of this project.
F-16
ITEM 2.
M
ANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information and any forward-looking statements should
be read in conjunction with the unaudited financial information and
the notes thereto included in this Quarterly Report on Form 10-Q,
including those risks identified in the “Risk Factors”
section of our most recent Annual Report on Form 10-K, as
amended.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada
corporation
(the
“Company,” “Loop Industries,”
“we,” or “our”)
, contains
“forward-looking statements,” as defined in the United
States Private Securities Litigation Reform Act of 1995. In some
cases, you can identify forward-looking statements by terminology
such as “may,” “will,”
“should,” “could,” “expects,”
“plans,” “intends,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential” or “continue” or the negative
of such terms and other comparable terminology. These
forward-looking statements include, without limitation, statements
about our market opportunity, our strategies, ability to improve
and expand our capabilities, competition, expected activities and
expenditures as we pursue our business plan, the adequacy of our
available cash resources, regulatory compliance, plans for future
growth and future operations, the size of our addressable market,
market trends, and the effectiveness of the Company’s
internal control over financial reporting. Although we believe that
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Actual results may differ materially
from the predictions discussed in these forward-looking statements.
The economic environment within which we operate could materially
affect our actual results. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot
be predicted or quantified. These risks and other factors include,
but are not limited to, those listed under “Risk
Factors.” Additional factors that could materially affect
these forward-looking statements and/or predictions include, among
other things: (i) commercialization of our technology and products,
(ii) our
status of relationship with partners,
(iii) development and
protection of our intellectual property and products, (iv) industry
competition, (v) our need for and ability to obtain additional
funding, (vi)
building our
manufacturing facility, (vii) our ability to sell our products in
order to generate revenues, (viii) our proposed business model and
our ability to execute thereon,
(ix) adverse effects on the
Company’s business and operations as a result of increased
regulatory, media or financial reporting issues and practices,
rumors or otherwise, (x) disease epidemics and health related
concerns, such as the current outbreak of
a novel strain of coronavirus (
COVID-19),
which could result in (and, in the case of the COVID-19 outbreak,
has resulted in some of the following) reduced access to capital
markets, supply chain disruptions and scrutiny or embargoing of
goods produced in affected areas, government-imposed mandatory
business closures and resulting furloughs of our employees, travel
restrictions or the like to prevent the spread of disease, and
market or other changes that could result in noncash impairments of
our intangible assets, and property, plant and equipment, and (xi)
other factors discussed in our subsequent filings with the
SEC.
Management
has included projections and estimates in this Form 10-Q, which are
based primarily on management’s experience in the industry,
assessments of our results of operations, discussions and
negotiations with third parties and a review of information filed
by our competitors with the SEC or otherwise publicly
available.
In
addition, statements that “we believe” and similar
statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to
us as at the date of this Form 10-Q, and while we believe such
information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should
not be read to indicate that we have conducted an exhaustive
inquiry into, or review of, all potentially available relevant
information. These statements are inherently uncertain, and
investors are cautioned not to unduly rely upon these
statements.
We
caution readers not to place undue reliance on any such
forward-looking statements, which speak only as at the date made.
We disclaim any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
5
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
and polyester fiber suitable for use in food-grade packaging, thus
enabling our customers to meet their sustainability objectives.
Loop Industries is contributing to the global movement towards a
circular economy by preventing plastic waste and recovering waste
plastic for a more sustainable future for all.
Industry Background
We believe there is an increasing demand for action to address the
global plastic crisis, which has been characterized by facts
provided by leading academic and not-for profit organizations. For
example, the University of Georgia reports eight million metric
tons of plastic waste flows into our shared oceans every year, and,
according to The New Plastics Economy, by 2050 more plastic waste
is expected to be present in the ocean than fish (by mass). Couple
this information with the global annual market demand for PET
plastic and polyester fiber at nearly $130 billion, and the current
growth projections from the 2018 I Polymer Market Report indicating
this will exceed $160 billion by 2022, and the need for governments
and consumer brands to take decisive action to stem this global
plastic crisis becomes readily apparent.
In the last few years, there are numerous examples of governments
in North America and Europe proposing laws and regulations
mandating the use of minimum recycled content in packaging
underlying the strength of this issue in the marketplace. Plastic
pollution continues to be one of the most persistently covered
environmental issues by media and local and global environmental
non-governmental organizations.
Also, global consumer goods companies have made significant
commitments to make the transition to a circular plastic economy,
namely:
i)
In
January 2018, Danone’s evian® brand bottled spring water
committed to a 100% recycled content package by 2025;
ii)
In
2018, Coca-Cola committed to an average recycled content of 50%
across its packaging by 2030;
iii)
In
October 2018, PepsiCo committed to use an average of 25% recycled
plastic in its packaging by 2025; PepsiCo is also aiming to
use 50% recycled plastic in its bottles across
the European Union by 2030;
iv)
In
2018, L’OCCITANE en Provence committed to a 100% recycled
content package by 2025; and
v)
In March 2019, the L’Oréal Group, a
global
manufacturer and
retailer of natural cosmetics, committed to using 50% recycled or
bio-sourced plastic in their packaging by 2025 and in 2020, they
committed to using 100% recycled or biobased plastic in their
packaging by 2030.
We believe these trends indicate that the transformation from a
linear to a circular plastic economy is inevitable and underway.
This transition is leading to a substantial demand for sustainable
products such as Loop™ PET resin and polyester
fiber.
Proprietary Technology and Intellectual Property
The power of our technology lies in its ability to use as feedstock
what is currently considered waste PET plastic and polyester fiber
from landfills, rivers, oceans and natural areas to create new,
sustainable, infinitely recyclable Loop™ PET resin and
polyester fiber. We believe our technology can deliver a
cost-effective and profitable virgin quality PET resin suitable for
use in food-grade packaging.
Our Generation I (“GEN I”) technology process yielded
purified terephthalic acid (“PTA”) and monoethylene
glycol (“MEG”), two common monomers of PET, through
depolymerization. While the monomers were of excellent purity and
strong yield, we continued to challenge ourselves to drive down
costs and eliminate inputs.
It
was during this process that we realized we could simplify our
process and increase yields at a lower cost, namely by eliminating
water and chlorinated solvents from the depolymerization process
and reducing the number of reagents from five to two, if we shifted
from the production of PTA to the production of dimethyl
terephthalate (“DMT”), another proven monomer of PET
that is far simpler to purify. Since June 2018, when we
transitioned to this Generation II (“GEN II”)
technology and our industrial pilot plant, we continue to see
consistently high monomer yields, excellent purity, and improved
conversion costs.
6
This shift, from producing the monomer PTA to the monomer DMT, was
a pivotal moment for Loop Industries. We believe that the GEN II
technology requires less energy and fewer resource inputs than
conventional PET production processes. We also believe it is one of
the most environmentally sustainable methods for producing virgin
quality food-grade PET plastic in the world.
In connection with the continuing development of our GEN II
technology, we continued to invest in our industrial pilot plant.
We made capital investments in the pilot plant
of $1,116,744
during the six months ended August 31, 2020.
To protect our technology, we rely on a combination of patents,
trademarks, trade secrets, confidentiality agreements and
provisions as well as other contractual provisions to protect our
proprietary rights, which are primarily our patents, brand names,
product designs and marks.
We have two patent families, referred to as GEN I technology and
the GEN II technology, with claims relating to our technology for
depolymerizing PET.
●
The
GEN I portfolio has three issued U.S. patents, all expected to
expire on or around July 2035. Internationally, we also have issued
patents in Australia, Israel, Taiwan, South Africa, Eurasia and in
the members of the Gulf Cooperation Council, and pending patent
applications in Argentina, Brazil, Canada, China, Europe, Hong
Kong, India, Japan, Korea, Mexico, and the Philippines, all
expected to expire, if granted, on or around July
2036.
●
The
GEN II technology portfolio currently consists of four patent
families:
o
The
first has an issued U.S. patent and an allowed U.S. application,
all expected to expire on or around September 2037.
Internationally, we also have an allowed application in Bangladesh,
and pending applications in Argentina, Australia, Bolivia, Bhutan,
Brazil, Canada, China, Eurasia, Europe, members of the Gulf
Cooperation Council, India, Iraq, Israel, Japan, Korea, Mexico,
Pakistan, Philippines, South Africa, Taiwan, Uruguay, and
Venezuela, all expected to expire on or around September 2038, if
granted.
o
An
additional aspect of the GEN II technology is claimed in an allowed
U.S. application, and non-PCT country applications in Argentina,
Bangladesh, Bolivia, members of the Gulf Cooperation Council,
Pakistan, Taiwan, and Uruguay, all expected to expire on or around
June 2039, 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 a PCT 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, a PCT application, and non-PCT
country 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.
7
Government Regulation and Approvals
As we seek to further develop and commercialize our business, we
will be subject to extensive and frequently developing federal,
state, provincial and local laws and regulations. Compliance with
current and future regulations could increase our operational
costs.
Our operations require various governmental permits and approvals.
We are in the process of obtaining all necessary permits and
approvals for the operation of our business; however, any of these
permits or approvals may be subject to denial, revocation or
modification under various circumstances. Additionally, due to the
impact of the COVID-19 pandemic, we may experience delays in
obtaining such permits or approvals. Failure to obtain or comply
with the conditions of permits and approvals or to have the
necessary approvals in place may adversely affect our operations
and may subject us to penalties.
The use of mechanically recycled PET for food-grade applications in
certain countries is highly inadvisable for a variety of reasons
including the perception of contamination from mechanically
recycled sources. We believe that means that Loop™ PET resin
has a distinct advantage in these markets. Since our product is not
mechanically recycled PET, we expect that demand from PET
manufacturers and global consumer goods companies in these regions
for 100% Loop™ branded PET resin will be a significant part
of our strategy going forward.
Supply Agreements with Global Consumer Brands
Consumer
brands are seeking a solution to their plastic challenge and they
are taking bold action. In the past years we have seen major brands
make significant commitments to close the loop on their plastic
packaging in two ways, by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET resin and
polyester fiber provides the ideal solution for these brands
because Loop™ PET resin and polyester fiber is recyclable and
is made from 100% recycled PET and polyester fiber with
virgin-quality suitable for use in food-grade
packaging.
Loop
Industries believes that due to the commitments by large global
consumer brands to incorporate more recycled content into their
product packaging, the regulatory requirements for minimum recycled
content in packaging imposed by governments, the virgin-quality of
Loop™ branded PET and the marketability of Loop™ PET to
extoll the sustainability credentials of consumer brands that
incorporate Loop™ PET, it will be able to sell its
Loop™ branded PET at a premium price relative to virgin and
mechanically recycled PET.
In the last years, we have made a significant number of
announcements with some of the world’s leading brands to be
supplied from our planned first commercial facility from our joint
venture with Indorama Ventures Holdings LP (“Indorama”)
in Spartanburg, South Carolina, including:
●
Multi-year supply agreement with Danone SA, one of
the world’s leading global food and beverage companies.
Danone will purchase 100% sustainable and upcycled Loop™
branded PET for use in brands across its portfolio including
evian®, Danone’s
iconic natural spring
water
;
●
Multi-year
supply agreement with PepsiCo, one of the largest purchasers of
recycled PET plastic, enabling PepsiCo to purchase production
capacity and incorporate Loop™ PET resin into its product
packaging;
●
Multi-year
supply framework with the Coca-Cola system’s Cross Enterprise
Procurement Group to supply 100% recycled and sustainable
Loop™ PET resin to authorized Coca-Cola bottlers who enter
into supply agreements with us;
●
Multi-year
supply agreement with L’OCCITANE en Provence to supply 100%
recycled and sustainable Loop™ PET resin and incorporate
Loop™ PET resin into its product packaging; and
●
Multi-year
supply agreement with L’Oréal Group, the global leader
in the beauty industry, enabling L’Oréal Group to
purchase production capacity and incorporate Loop™ PET resin
into its product packaging.
8
Turning Waste into Feedstock
We use
waste PET plastic and polyester fiber as feedstock; these materials
are introduced into our GEN II depolymerization technology to yield
PET monomers DMT and MEG. 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.
This is yet another advantage of Loop™ PET over mechanically
recycled PET, our ability to use many materials that mechanical
recyclers cannot use. This also means we are creating a new market
for materials that have persistently been leaking out of the waste
management system and into our shared rivers, oceans and natural
areas.
We are
identifying the availability of feedstock to ensure each facility
can operate continuously at planned scale. We have identified the
sources required for our first joint venture facility with Indorama
and are now focusing on signing supply agreements to secure this
feedstock for the long term.
We are
also studying certain markets in the United States, Canada,
European Union and Asia to help us evaluate the size and location
of our next facilities. The approach includes a fulsome inventory
of PET materials introduced into a region, the materials collected
(or recycled) in the region and the material loss, or the
difference between the material introduced and the material
collected. This allows us to identify not only the material
traditionally available for recycling, but how material can be
effectively diverted from landfills, rivers, oceans and natural
areas by providing a new outlet for what was formerly considered
waste.
Commercialization Progress
During
the six months ended August 31, 2020, we continued executing our
corporate strategy where Loop Industries focused on developing two
distinct business models for the commercialization of Loop™
PET resin and polyester fiber to customers: 1) from our joint
venture with Indorama, and 2) from Infinite Loop
TM
, our state of the
art manufacturing technology.
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 and polyester fiber
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 in the
‘circular’ economy for 100% sustainable and recycled
PET resin and polyester fiber.
We
entered into a joint venture Agreement (the “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 Indorama Loop Technologies,
LLC (“ILT”), which was specifically formed to operate
and execute 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 and polyester fiber 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.
As
disclosed in our 10-Q for the period ended August 31, 2019, the
joint venture decided to double the capacity of the planned
Spartanburg plant due to customer demand to 40,000 metric tons per
year. Following that decision, we identified a number of
enhancements to the plant design to improve the operability
and optimize the total construction cost of the plant and expected
the commissioning of the plant to occur in the third quarter of
calendar 2021.
We have currently contracted for the sale of the initial 20,700
metric tons expected output of the Spartanburg facility and we
continue discussions to contract the additional volume up to its
planned increased capacity of 40,000 metric tons.
As part of
the Joint Venture Agreement to establish the facility to produce
40,000 metric tons, we are committed to contribute our equity share
for the costs under the joint venture agreement to construct the
facility. During the six-month period ended August 31, 2020 we made
a contribution of $650,000 and as at August 31, 2020, we have
contributed a total of $1,500,000 to the joint
venture.
On
March 25, 2020, due to the COVID-19 pandemic, the Québec
provincial government issued an order that all non-essential
business and commercial activity in the province shut down. The
order provided exemptions that allowed us to continue reduced
operations at our pilot plant and we continued working remotely to
support the engineering activities with our joint venture partner,
Indorama, and our engineering partner, for the Spartanburg joint
venture facility and pursue our plans for the commercialization of
our technology. On May 11, the government announced that we could
re-start complete operations. We have implemented all the necessary
measures required by the Québec provincial government to
ensure a safe work environment for our employees and we are
operating at full capacity.
9
Over
the period, our team in Canada continued to optimize our technology
and make engineering design improvements which have reduced both
capital and operating costs and further enhanced the projected
return on investment for the project. These improvements were
achieved together with Worley Group Inc. (“Worley”), a
leading global engineering, procurement and construction
company.
In
order to move forward more expeditiously with the Spartanburg
facility and its overall commercialization plans, and in light of
the continuing improvements which have been achieved, we have
expressed our desire to and are exploring joint venture structures
and financing alternatives with Indorama to increase our equity
participation in the project. Indorama has reiterated to the joint
venture its commitment to maintaining an investment in the
Spartanburg project, which is strategically important to support
the sustainability objectives of its customers. Discussions on the
joint venture structure and financing are on-going.
In our 10-K which was filed on May 5, 2020 and amended on May 6,
2020 and September 21, 2020 we indicated that we were monitoring
the COVID-19 pandemic and the possible impacts it could have on the
expected commissioning date. The continued border closures and
quarantine requirements between Canada and the US continued to
cause disruptions in our timetable. As a result, we continue to
expect a delay in the anticipated commissioning date of the
facility. The revised commissioning date will be established once
the COVID- 19 situation subsides and the border
re-opens.
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 100% recycled content. The Infinite Loop™
technology is engineered to support the commitment of global
consumer brands to achieve a high level of recycled content in
packaging. Our technology allows for waste plastic currently not
able to be recycled to now become fully circular and upcycled into
the highest purity PET plastic and polyester fiber. Infinite
Loop™ facilities could be located near large urban centers
where more plastic is being consumed and therefore more waste
plastic feedstock is available.
Our
objective is to achieve global expansion of the technology through
a mix of fully owned facilities, partnerships, and licensing
agreements. We believe that industrial companies, which today are
not in the business of manufacturing PET and polyester fiber, will
view our Infinite Loop™ manufacturing technology as a growth
opportunity for the future, which offers attractive economic
returns either as Loop manufacturing partners or as licensees of
Loop technology.
In
September 2020, we made two key announcements regarding significant
advancements for the Infinite Loop
TM
manufacturing technology. First, we completed a partnership 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”). Coupled
with Loop Industries’ depolymerization technology,
INVISTA’s leading depolymerization know-how make Infinite
Loop™ manufacturing facilities an end-to-end solution to meet
the global demand for Loop™ branded PET resin and polyester
fiber made from 100% recycled content.
Second,
we announced a strategic partnership with SUEZ GROUPE
(“SUEZ”), a world leader in environmental services,
with plans to build the first Infinite Loop™ manufacturing
facility in Europe. With the combination of the Infinite
Loop
TM
technology package 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 aggressive targets for a high level of recycled
content in their products.
During
this quarter, we also accelerated the completion of our engineering
design together with Worley which is a key partner in the
deployment of Loop’s PET manufacturing facilities and plays a
key role in the integration of our depolymerization process with
INVISTA’s polymerization technology.
In
addition to the capital requirements for our commercialization we
plan to continue to allocate available capital to strengthen our
intellectual property portfolio, build a core competency in
managing strategic relationships and continue enhancing our brand
value. Our research and development innovation hub in Terrebonne,
Québec, Canada will continue to push forward the development
of our technology.
10
We are
investing in building a strong management team to integrate best in
class processes and practices while maintaining our entrepreneurial
culture. On March 9, 2020, we hired Mr. Stephen Champagne as Chief
Technology Officer. Mr. Champagne has over 25 years of industrial
experience having participated in all project phases
from laboratory development through
engineering, procurement, and construction, all the way to plant
commissioning.
On
September 21, 2020, we hired Ms. Sheila Morin as Chief Marketing
Officer. Ms. Morin has more than 20 years of experience in sales
and marketing and has worked for large global consumer packaged
goods companies such as L’Oréal, Danone and Proctor
& Gamble.
Immediately
prior to joining Loop Industries, she held the position of
Executive Vice-President & CMO, Brands and Consumer Experience
at Cirque du Soleil Group.
Results of Operations
The
following table summarizes our operating results for the
three-month periods ended August 31, 2020 and 2019, in U.S.
Dollars.
|
|
Three Months
Ended August 31
|
||
|
|
2020
|
2019
|
$
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
352,282
|
317,353
|
34,929
|
|
Other
research and development
|
2,396,940
|
652,860
|
1,744,080
|
|
Total
research and development
|
2,749,222
|
970,213
|
1,779,009
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
513,648
|
485,975
|
27,673
|
|
Other
general and administrative
|
1,535,593
|
1,232,638
|
302,955
|
|
Total
general and administrative
|
2,049,241
|
1,718,613
|
330,628
|
|
|
|
|
|
|
Depreciation and
amortization
|
302,587
|
201,403
|
101,184
|
|
Interest and other
financial
|
(58,905
)
|
622,183
|
(681,088
))
|
|
Interest
income
|
(18,039
)
|
(192,259
)
|
174,220
|
|
Foreign exchange
loss
|
103,618
|
21,890
|
81,728
|
|
Total
operating expenses
|
5,127,724
|
3,342,043
|
1,785,681
|
|
Net
loss
|
$
(5,127,724
)
|
$
(3,342,043
)
|
$
(1,785,681
))
|
Second Quarter Ended August 31, 2020
The net
loss for the three-month period ended August 31, 2020 increased
$1.79 million to $5.13 million, as compared to the net loss for the
three-month period ended August 31, 2019 which was $3.34
million. The increase of $1.79 million is primarily
attributable to higher research and development expenses of $1.78
million, higher general and administrative expenses of $0.33
million, higher depreciation and amortization expenses, a decrease
in interest income of $0.17 million and an increase in foreign
exchange loss, offset by lower interest and other financial
expenses of $0.68 million.
Research
and development expenses for the three-month period ended August
31, 2020 amounted to $2.75 million compared to $0.97 million for
the three-month period ended August 31, 2019, representing an
increase of $1.78 million, or representing an increase of $1.74
million excluding stock-based compensation. The increase of $1.74
million was primarily attributable to higher engineering fees of
$0.93 million due to investment in the engineering design of our
depolymerization process, higher plant and laboratory consumables
and maintenance expenses of $0.31 million, higher employee
compensation expenses of $0.26 million and by lower research and
development tax credits of $0.10 million. During the three-month
period ended August 31, 2020, the Company recorded a COVID-19
related government wage subsidy of $0.07 million in research and
development expenses. The increase in non-cash stock-based
compensation expense of $0.03 million is mainly attributable to the
timing of stock awards provided to certain employees.
11
General
and administrative expenses for the three-month period ended August
31, 2020 amounted to $2.04 million compared to $1.72 million for
the three-month period ended August 31, 2019, representing an
increase of $0.33 million, or an increase of $0.30 million
excluding stock-based compensation. The increase of $0.30 million
was mainly attributable to higher insurance expenses of $0.36 and
higher legal and professional fees of $0.23 million offset by lower
employee compensation costs of $0.23 million. During the
three-month period ended August 31, 2020, the Company recorded a
COVID-19 related government wage subsidy of $0.02 million in
general and administrative expenses. Stock-based compensation
expense for the three-month period ended August 31, 2020 amounted
to $0.51 million compared to $0.49 million for the three-month
period ended August 31, 2019, representing an increase of $0.03
million, which was mainly attributable lower stock awards provided
to executives.
Depreciation
and amortization expenses for the three-month period ended August
31, 2020 totaled $0.30 million compared to $0.20 million for the
three-month period ended August 31, 2019, representing an increase
of $0.10 million. This increase is mainly attributable to the
addition of fixed assets at the Company’s pilot plant and
corporate offices.
Interest
and other financial expenses for the three-month period ended
August 31, 2020 totaled $(0.06) million compared to $0.62 million
the three-month period ended August 31, 2019, representing a
decrease of $0.68 million. The decrease is mainly attributable to a
decrease in accretion expense of $0.48 million, a decrease in
interest expense on convertible notes of $0.10 million and by an
increase in gain on revaluation of foreign exchange contracts of
$0.09 million.
Six Months Ended August 31, 2020
The
following table summarizes our operating results for the six-month
periods ended August 31, 2020 and 2019, in U.S.
Dollars.
|
|
Six Months Ended
August 31
|
||
|
|
2020
|
2019
|
$
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
704,289
|
629,788
|
74,501
|
|
Other
research and development
|
3,525,521
|
1,338,286
|
2,187,235
|
|
Total
research and development
|
4,229,810
|
1,968,074
|
2,261,736
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
1,173,465
|
1,104,230
|
69,235
|
|
Other
general and administrative
|
2,828,858
|
2,517,013
|
311,845
|
|
Total
general and administrative
|
4,002,323
|
3,621,243
|
381,080
|
|
|
|
|
|
|
Depreciation and
amortization
|
558,561
|
365,739
|
192,822
|
|
Interest and other
financial
|
67,871
|
1,124,064
|
(1,056,193
)
|
|
Interest
income
|
(58,386
)
|
(192,291
)
|
133,905
|
|
Foreign exchange
(gain) loss
|
180,259
|
9,764
|
170,495
|
|
Total
operating expenses
|
8,980,438
|
6,896,593
|
2,083,845
|
|
Net
loss
|
$
(8,980,438
)
|
$
(6,896,593
)
|
$
(2,083,845
)
|
The net
loss for the six-month period ended August 31, 2020 increased by
$2.08 million to $8.98 million, as compared to the net loss for the
six-month period ended August 31, 2019 which was to $6.90
million. The increase of $2.08 million is primarily due to
higher research and development expenses of $2.26 million, higher
general and administrative expenses of $0.38 million, higher
depreciation and amortization expenses, a higher foreign exchange
loss and lower interest income of $0.13 million, offset by an
decrease in interest and other financial expenses of $1.06
million.
12
Research
and development expenses for the six-month period ended August 31,
2020 amounted to $4.23 million compared to $1.97 million for the
six-month period ended August 31, 2019, representing an increase of
$2.26 million, or representing an increase of $2.19 million
excluding stock-based compensation. The increase of $2.19 million
was primarily attributable to higher engineering fees of $0.97
million, partly due to investment in the engineering design of our
depolymerization process, higher plant and laboratory consumables
and maintenance expenses of $0.37 million, higher employee
compensation expenses of $0.33 million and by lower research and
development tax credits of $0.38 million. During the six-month
period ended August 31, 2020, the Company recorded a decrease in
refundable research and development tax credits receivable,
increasing research and development expenses by $0.27 million which
was partially offset by a COVID-19 related government wage subsidy
of $0.19 million The decrease in non-cash stock-based compensation
expense of $0.07 million is mainly attributable to the timing of
stock awards provided to certain employees.
General
and administrative expenses for the six-month period ended August
31, 2020 amounted to $4.00 million compared to $3.62 million for
the six-month period ended August 31, 2019, representing an
increase of $0.38 million, or an increase of $0.31 million
excluding stock-based compensation. The increase of $0.31 million
was mainly attributable to higher insurance expenses of $0.73
offset by lower employee compensation costs of $0.32
million.
During the
six-month period ended August 31, 2020, the Company recorded a
COVID-19 related government wage subsidy of $0.06 million in
general and administrative expenses. Stock-based compensation
expense for the six-month period ended August 31, 2020 amounted to
$1.17 million compared to $1.10 million for the six-month period
ended August 31, 2019, representing a decrease of $0.07 million,
which was mainly attributable lower stock awards provided to
executives.
Depreciation
and amortization expenses for the six-month period ended August 31,
2020 totaled $0.59 million compared to $0.37 million for the
six-month period ended August 31, 2019, representing an increase of
$0.19 million. This increase is mainly attributable to the addition
of fixed assets at the Company’s pilot plant and corporate
offices.
Interest
and other finance costs for the six-month period ended August 31,
2020 totaled $0.07 million compared to $1.13 million the six-month
period ended August 31, 2019, representing a decrease of $1.06
million. The decrease is mainly attributable to a decrease in
accretion expense of $1.02 million and a decrease in interest
expense on convertible notes of $0.22 million offset by a decrease
in gain on conversion of convertible notes of $0.23
million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We are a development stage company with no revenues, and our
ongoing operations and commercialization plans are being financed
by raising new equity and debt capital. To date, we have been
successful in raising capital to finance our ongoing operations,
reflecting the potential for commercializing our branded resin and
the progress made to date in implementing our business plans. As at
August 31, 2020, we had cash and cash equivalents on hand of $23.13
million.
Management continues to be positive about our growth strategy and
is evaluating our financing plans to continue to raise capital to
finance the start-up of commercial operations and continue to fund
the further development of our ongoing operations. Although we
continue to be in a good liquidity position with cash and cash
equivalents on hand of $23.13 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
$12.1125 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 estimated net proceeds from the
offering, including net proceeds received in connection with the
Underwriter’s option to purchase additional shares, were
$25.09 million.
13
As reflected in the accompanying interim unaudited condensed
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 planned operating and
capital expenditures and other working capital needs for at least,
but not limited to, the 12-month period from the date of issuance
of the August 31, 2020 interim condensed 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 August 31, 2020, we have a long-term debt obligation to a
Canadian bank in connection with the purchase, in the year ended
February 28, 2018, of the land and building where our pilot plant
and corporate offices are located at 480 Fernand-Poitras,
Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the
Company obtained a $1,073,455 (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
$4,472 (CDN$5,833) plus interest, until January 2021, at which time
it will be subject to renewal. It includes an option allowing for
the prepayment of the Loan without penalty.
We also have a long-term debt obligation to Investissement
Québec in connection with a financing facility equal to 63.45%
of all eligible expenses incurred for the expansion of its Pilot
Plant up to a maximum of $3,527,066 (CDN$4,600,000). We received
the first disbursement in the amount of $1,693,938 (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
$352,707 (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.
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the six-month period ended August 31,
2020 and 2019 was as follows:
|
|
Six Months Ended
August 31
|
|
|
|
2020
|
2019
|
|
Net cash used in
operating activities
|
$
(7,455,787
)
|
$
(5,235,429
)
|
|
Net cash used in
investing activities
|
(3,232,238
)
|
(1,785,198
)
|
|
Net cash provided
(used) by financing activities
|
(26,836
)
|
39,141,055
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
125,433
|
(22,778
)
|
|
Net increase
(decrease) in cash and cash equivalents
|
$
(10,589,428
)
|
$
32,097,650
|
Net Cash Used in Operating Activities
During
the six months ended August 31, 2020, we used $7,46 million in
operations compared to $5.24 million during the six months ended
August 31, 2019. The increase in cash used in operations of $2.22
million is mainly attributable to the prepayment of annual
directors’ and officers’ insurance premium and other
prepayments of $0.8 million and increased research and development
expenses. The variation in the amount of prepaid directors and
officers insurance is due to an increase of $1.30 million of the
annual premium as well as a change in the payment structure wherein
a full up-front payment was made in the current year compared to
monthly payments being made in the prior year. The Company
continued to invest in research and development on its existing
technologies and new technologies, particularly on the evolution of
its GEN II technology as the Company moves to the next phase of
commercialization.
14
Net Cash Used in Investing Activities
During
the six months ended August 31, 2020, the Company made investments
of $1.12 million in property, plant and equipment as compared to
$1.20 million for the six months ended August 31, 2019, primarily
in connection with the upgrade of its GEN II industrial pilot
plant. Additionally, the Company has made deposits on equipment of
$1.04 million as at August 31, 2020 compared to nil at August 31,
2019.
During
the six months ended August 31, 2020, the Company made investments
in intangible assets of $0.16 million as compared to $0.08 million
for the six months ended August 31, 2019, particularly in its GEN
II patent technology in the United States and around the
world.
During
the six months ended August 31, 2020, the Company also made a
contribution of $0.65 million
to
Indorama Loop Technologies, LLC, the joint venture with
Indorama Ventures Holdings LP, USA compared to $0.50 million for
the six months ended August 31, 2019.
Net Cash Provided from (
Used in)
Financing
Activities
During
the six months ended August 31, 2020, we repaid $0.03 million of
long-term debt.
Off-Balance Sheet Arrangements
As at
August 31, 2020, we did not have any off-balance sheet arrangements
as defined in the rules and regulations of the SEC.
As at
August 31, 2020, we did not have any significant lease obligations
to third parties.
15
ITEM 3.
Q
UANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to risks associated with currency fluctuations and
changes in foreign currency exchange rates as well as fluctuations
in the supply and price of raw materials and commodity
prices.
Foreign Currency Exchange Risk
We operate mainly through two entities, Loop Industries, Inc.,
which is a Nevada corporation and has a U.S. dollar functional
currency, and our wholly-owned subsidiary, Loop Canada Inc.
(“Loop Canada”), which is based in Terrebonne,
Québec, Canada and has a Canadian dollar functional currency.
Our reporting currency is the U.S. dollar.
We mainly finance our operations through the sale and issuance of
shares of common stock and debt of Loop Industries, Inc. in U.S.
dollars while our operations are concentrated in our wholly-owned
subsidiary, Loop Canada. Accordingly, we are exposed to foreign
exchange risk as we maintain bank accounts in U.S. dollars and a
significant portion of our operational costs (including payroll,
site costs, costs of locally sourced supplies and income taxes) are
denominated in Canadian dollars.
Significant fluctuations in the U.S. dollar to the Canadian dollar
exchange rates could materially affect our result of operations,
cash position and funding requirements. To the extent that
fluctuations in currency exchange rates cause our results of
operations to differ materially from our expectations or the
expectations of our investors, the trading price of our common
stock could be adversely affected.
From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. As part of our risk management program, we may enter
into foreign exchange forward contracts to lock in the exchange
rates for future foreign currency transactions, which is intended
to reduce the variability of our operating costs and future cash
flows denominated in currencies that differs from our functional
currencies. We do not enter into these contracts for trading
purposes or speculation, and our management believes all such
contracts are entered into as hedges of underlying transactions.
Nonetheless, these instruments involve costs and have risks of
their own in the form of transaction costs, credit requirements and
counterparty risk. If our hedging program is not successful, or if
we change our hedging activities in the future, we may experience
significant unexpected expenses from fluctuations in exchange
rates. Any hedging technique we implement may fail to be effective.
If our hedging activities are not effective, changes in currency
exchange rates may have a more significant impact on the trading
price of our common stock.
Commodity Price Risk
The plastics manufacturing industry is extremely price competitive
because of the commodity like nature of PET resin and its
correlation to the price of crude oil. The demand for recycled PET
has fluctuated with the price of crude oil. If crude oil prices
decline, the cost to manufacture recycled PET may become
comparatively higher than the cost to manufacture virgin PET. Our
ability to penetrate the market will depend in part on the cost of
manufacturing virgin PET and if we do not successfully distinguish
our product from those of virgin PET manufacturers, our entry into
the market and our ability to secure customer contracts can be
adversely affected.
Raw Material Price Risk
We purchase raw materials and packaging supplies from several
sources. While all such materials are available from independent
suppliers, raw materials are subject to fluctuations in price and
availability attributable to a number of factors, including general
economic conditions, commodity price fluctuations, the demand by
other industries for the same raw materials and the availability of
complementary and substitute materials.
The profitability of
our business also depends on the availability and proximity of
these raw materials to our factories. The choice of raw materials
to be used at our facility is determined primarily by the price and
availability, the yield loss of lower quality raw materials, and
the capabilities of the producer’s production facility.
Additionally, the high cost of transportation could favor suppliers
located in close proximity to our factories. If the quality of
these raw materials is lower, the quality of our product may
suffer.
Economic and financial factors
could impact our suppliers, thereby causing supply shortages.
Increases in raw material costs could have a material adverse
effect on our business, financial condition or results of
operations. Our hedging procedures may be insufficient, and our
results could be materially impacted if costs of materials
increase. In light of the uncertain and evolving situation relating
to the global COVID-19 pandemic, our access to raw materials, the
quality and proximity of such materials may be disrupted. We
currently cannot predict the impact that the global COVID-19
pandemic will have on our access to raw
materials.
16
ITEM 4.
C
ONTROLS AND
PROCEDURES
Management’s Evaluation of our Disclosure Controls and
Procedures
A.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by us in our reports that we
file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our
principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely
decisions regarding required disclosure.
As of the end of the period covered by this Quarterly Report, the
Company carried out an evaluation, under the supervision and with
the participation of the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the
Company’s “disclosure controls and procedures”
(as defined in Rule 13a-15(e) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), pursuant to
Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures were
effective as of August 31, 2020.
B.
Changes
in Internal Control over Financial Reporting
There
were no other changes in our internal control over financial
reporting during the six-month period ended August 31, 2020 that
materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.
17
PART II. OTHER INFORMATION
ITEM 1.
L
EGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. Except
as noted above, we are not presently a party to any legal
proceedings, government actions, administrative actions,
investigations or claims that are pending against us or involve us
that, in the opinion of our management, could reasonably be
expected to have a material adverse effect on our business,
financial condition or operating results. However, litigation is
subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our
business.
It is
possible that we may expend financial and managerial resources in
the defense of our intellectual property rights in the future if we
believe that our rights have been violated. It is also possible
that we may expend financial and managerial resources to defend
against claims that our products and services infringe upon the
intellectual property rights of third parties.
ITEM 1A.
R
ISK FACTORS
We are
subject to various risks and uncertainties in the course of our
business. Risk factors relating to us are set forth under
“Risk Factors” in our Annual Report on Form 10-K, filed
on May 5, 2020 and amended on May 6, 2020 and September 21, 2020.
Other than as included below, no material changes to such risk
factors have occurred during the six months ended August 31,
2020.
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.
The uncertain duration of these measures have 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 period between March
25, 2020 and May 11, 2020 to continue reduced operations at our
pilot plant, the situation in the United States 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 impact on the development and
commercialization of our technology could have a material adverse
effect on our results of operations and cash
flows.
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. 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.
18
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.
ITEM 2.
U
NREGISTERED SALES OF EQUITY
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.
ITEM 3.
D
EFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4.
M
INE SAFETY DISCLOSURES
Not
applicable.
ITEM 5.
O
THER INFORMATION
None.
19
ITEM 6.
E
XHIBITS
The
following Exhibits, as required by Item 601 of Regulation SK, are
attached or incorporated by reference, as stated
below.
Exhibit Index
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit No.
|
|
|
Amendment
to Securities Purchase Agreement dated June 14, 2019 between Loop
Industries, Inc. and the Purchaser identified therein.
|
|
8-K
|
|
001-38301
|
|
14-Jun-19
|
|
10.1
|
|
|
|
Employment Agreement, dated August 26, 2020, by and between
Loop Canada Inc. and Sheila Morin
|
|
|
|
Filed
herewith
|
|
|
|
|
|
|
|
Know-how and Engineering Agreement, dated September 2, 2020, by and
between Loop Canada Inc. and Chemtex Global
Corporation
|
|
|
|
Filed herewith
|
|
|
|
|
|
|
|
Enhanced Recycling Partnership Agreement, dated September 10, 2020,
by and between Loop Industries, Inc. and Suez
Groupe
|
|
|
|
Filed herewith
|
|
|
|
|
|
|
|
Power
of Attorney (contained on signature page to the previously filed
Annual Report on Form 10-K)
|
|
10-K
|
|
000-54768
|
|
05-May-19
|
|
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.
|
|
|
|
Furnished
herewith
|
|
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Furnished
herewith
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
Filed
herewith
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
Filed
herewith
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
Filed
herewith
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
Filed
herewith
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
Filed
herewith
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
Filed
herewith
|
|
|
|
|
20
S
IGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
|
Date:
October 7, 2020
|
By:
|
/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
President
and Chief Executive Officer, and Director (Principal Executive
Officer)
|
|
|
|
|
|
|
|
Date:
October 7, 2020
|
By:
|
/s/ Nelson Gentiletti
|
|
|
|
Name:
|
Nelson
Gentiletti
|
|
|
|
Title:
|
Chief
Financial Officer and Treasurer (Principal Accounting Officer and
Principal Financial Officer)
|
|
|
|
|
|
|
21
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits