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 May 31, 2021
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or
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ___________ to __________
Commission
File No.
000-54768
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Loop Industries, Inc.
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(Exact
name of Registrant as specified in its charter)
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Nevada
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27-2094706
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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480 Fernand-Poitras Terrebonne, Québec, Canada J6Y
1Y4
(Address
of principal executive offices zip code)
Registrant’s
telephone number, including area code
(450) 951-8555
Securities
registered pursuant to Section
12(b) of the Act:
None
Securities
registered pursuant to Section
12(g) of the Act
:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common
Stock
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LOOP
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Nasdaq
Global Market
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Indicate by check mark 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 July 14,
2021, there were 42,445,351 shares of the Registrant’s common
stock, par value $0.0001 per share, outstanding.
LOOP INDUSTRIES, INC.
TABLE OF CONTENTS
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18
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18
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18
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19
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20
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P
ART I. FINANCIAL INFORMATION
I
TEM 1. FINANCIAL
STATEMENTS
Loop Industries, Inc.
Three months ended May 31, 2021
Index to the Unaudited Interim Condensed Consolidated Financial
Statements
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Contents
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Page(s)
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F-2
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F-3
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F-4
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F-5
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F-6
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F-1
Loop Industries, Inc.
C
ondensed Consolidated Balance
Sheets
(Unaudited)
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As
at
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May 31,
2021
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February 28,
2021
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Assets
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Current
assets
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Cash
and cash equivalents
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$
18,037,062
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$
35,221,951
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Sales
tax, tax credits and other receivables (Note 3)
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1,551,702
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1,763,835
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Prepaid
expenses (Note 4)
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1,978,390
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609,782
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Total current
assets
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21,567,154
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37,595,568
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Investment
in joint venture
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1,500,000
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1,500,000
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Property,
plant and equipment, net (Note 5)
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8,569,606
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3,513,051
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Intangible assets,
net (Note 6)
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881,223
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794,894
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Total
assets
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$
32,517,983
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$
43,403,513
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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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$
9,057,423
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$
8,124,865
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Current
portion of long-term debt (Note 10)
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971,257
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938,116
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Total
current liabilities
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10,028,680
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9,062,981
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Long-term
debt (Note 10)
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1,614,971
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1,516,008
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Total
liabilities
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11,643,651
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10,578,989
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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 $0.0001; 250,000,000 shares
au
thorized; 42,433,320 shares issued and outstanding
(February 28, 2021 – 42,413,691) (Note 12)
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4,244
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4,242
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Additional
paid-in capital
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113,663,032
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113,662,677
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Additional
paid-in capital – Warrants
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8,826,165
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8,826,165
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Accumulated
deficit
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(101,819,334
)
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(89,661,970
)
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Accumulated
other comprehensive loss
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200,225
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(6,590
)
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Total
stockholders' equity
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20,874,332
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32,824,524
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Total
liabilities and stockholders' equity
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$
32,517,983
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$
43,403,513
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See accompanying notes to the condensed consolidated financial
statements
.
F-2
Loop Industries, Inc.
C
ondensed Consolidated Statements of
Operations and Comprehensive Loss
(Unaudited)
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Three
Months Ended
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May 31,
2021
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May 31,
2020
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Revenue
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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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8,637,905
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1,480,588
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General
and administrative (Notes 14)
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3,160,571
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1,953,081
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Depreciation
and amortization (Notes 5 and 6)
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132,001
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255,974
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Interest and other
financial expenses
(Note
18)
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30,588
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126,776
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Interest
income
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(9,761
)
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(40,346
)
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Foreign
exchange loss (gain)
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206,060
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76,641
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Total
expenses
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12,157,364
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3,852,714
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Net
loss
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(12,157,364
)
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(3,852,714
)
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Other
comprehensive loss -
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Foreign
currency translation adjustment
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206,815
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(170,412
)
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Comprehensive
loss
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$
(11,950,549
)
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$
(4,023,126
)
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Loss
per share
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Basic
and diluted
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$
(0.29
)
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$
(0.10
)
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Weighted
average common shares outstanding
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Basic
and diluted
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42,433,107
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39,916,838
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See accompanying notes to the condensed consolidated financial
statements.
F-3
Loop Industries, Inc.
C
ondensed Consolidated Statement
of Changes in Stockholders’ Equity
(Unaudited)
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Three
months ended May 31, 2020
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Common
stock
par
value $0.0001
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Preferred
stock
par
value $0.0001
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Number
of Shares
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Amount
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Number
of Shares
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Amount
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Additional
Paid-in Capital
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Additional
Paid-in Capital - Warrants
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Accumulated
Deficit
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Accumulated
Other Comprehensive (Loss)
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Total
Stockholders' Equity
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Balance,
February 29, 2020
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39,910,774
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$
3,992
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1
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$
-
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$
82,379,413
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$
9,785,799
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$
(53,317,047
)
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$
(388,449
)
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$
38,463,708
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Issuance of
shares upon the vesting of restricted stock units (Note
15)
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6,131
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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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Warrant issued
for services (Note 17)
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-
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-
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-
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-
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-
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84,442
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-
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-
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84,442
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Stock options
issued for services (Note 15)
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-
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-
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-
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-
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556,895
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-
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-
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-
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556,895
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Restricted
stock units issued for services (Note 15)
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-
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-
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-
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-
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370,487
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-
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-
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-
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370,487
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Foreign
currency translation
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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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-
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(170,412
)
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(170,412
)
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Net
loss
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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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(3,852,714
)
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-
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(3,852,714
)
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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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Three
months ended May 31, 2021
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||||||||
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Common
stock par value $0.0001
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Preferred
stock par value $0.0001
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Number
of Shares
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Amount
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Number
of Shares
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Amount
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Additional
Paid-in Capital
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Additional
Paid-in Capital – Warrants
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Accumulated
Deficit
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Accumulated
Other Comprehensive Income (Loss)
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Total
Stockholders’ Equity
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Balance,
February 28, 2021
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42,413,691
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$
4,242
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1
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$
-
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$
113,662,677
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$
8,826,165
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$
(89,661,970
)
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$
(6,590
)
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$
32,824,524
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Issuance of
shares upon the vesting of restricted stock units (Note
15)
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19,629
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2
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-
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-
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(2
)
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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 15)
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-
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-
|
-
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-
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549,318
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-
|
-
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-
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549,318
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Restricted
stock units issued (forfeited) for services (Note
15)
|
-
|
-
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-
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-
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(548,961
)
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-
|
-
|
-
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(548,961
)
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|
Foreign
currency translation
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-
|
-
|
-
|
-
|
-
|
-
|
-
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206,815
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206,815
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Net
loss
|
-
|
-
|
-
|
-
|
-
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-
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(12,157,364
)
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-
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(12,157,364
)
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Balance, May
31, 2021
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42,433,320
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$
4,244
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1
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$
-
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$
113,663,032
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$
8,826,165
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$
(101,819,334
)
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$
200,225
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$
20,874,332
|
See accompanying notes to the condensed consolidated financial
statements.
F-4
Loop Industries, Inc.
C
ondensed Consolidated Statements of
Cash Flows
(Unaudited)
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Three
Months Ended May 31,
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2021
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2020
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Cash Flows from Operating Activities
|
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Net
loss
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$
(12,157,364
)
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$
(3,852,714
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
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Depreciation
and amortization (Notes 5 and 6)
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132,001
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256,090
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Stock-based
compensation expense (Note 15)
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15,357
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1,011,824
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Accretion
and accrued interest expenses (Note 18)
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21,408
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17,963
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Loss
on revaluation of foreign exchange contracts (Note 18)
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-
|
98,502
|
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Changes
in operating assets and liabilities:
|
|
|
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Sales
tax and tax credits receivable (Note 3)
|
287,116
|
76,410
|
|
Prepaid
expenses (Note 4)
|
(1,326,519
)
|
(1,865,216
)
|
|
Accounts
payable and accrued liabilities (Note 8)
|
622,443
|
(720,759
)
|
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Net
cash used in operating activities
|
(12,405,558
)
|
(4,977,900
)
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Cash Flows from Investing Activities
|
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Investment
in joint venture (Note 9)
|
-
|
(650,000
)
|
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Additions
to property, plant and equipment (Note 5)
|
(4,867,007
)
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(394,403
)
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Additions
to intangible assets (Note 6)
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(52,319
)
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(144,386
)
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Net
cash used in investing activities
|
(4,919,326
)
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(1,188,789
)
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Cash Flows from Financing Activities
|
|
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Repayment
of long-term debt (Note 10)
|
(14,496
)
|
(12,693
)
|
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Net
cash (used) provided by financing activities
|
(14,496
)
|
(12,693
)
|
|
|
|
|
|
Effect
of exchange rate changes
|
154,491
|
(29,534
)
|
|
Net
decrease in cash
|
(17,184,889
)
|
(6,208,916
)
|
|
Cash,
beginning of period
|
35,221,951
|
33,717,671
|
|
Cash,
end of period
|
$
18,037,062
|
$
27,508,755
|
|
|
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Supplemental Disclosure of Cash Flow Information:
|
|
|
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Income
tax paid
|
$
-
|
$
-
|
|
Interest
paid
|
$
9,178
|
$
10,311
|
|
Interest
received
|
$
9,761
|
$
40,346
|
See accompanying notes to the condensed consolidated financial
statements.
F-5
Loop Industries, Inc.
Three Months Ended May 31, 2021 and 2020
N
otes to the Condensed Consolidated
Financial Statements
(Unaudited)
1. The Company and Basis of Presentation
The Company
Loop
Industries, Inc.
(the
“Company,” “Loop Industries,”
“we,” or “our”) is a technology company
that owns patented and proprietary technology that depolymerizes no
and low-value waste PET plastic and polyester fiber to its base
building blocks (monomers). The monomers are filtered,
purified and polymerized to create virgin-quality Loop™
branded PET resin suitable for use in food-grade packaging and
polyester fiber.
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 28, 2021, filed with the SEC on June 1, 2021. 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 28, 2021,
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 months ended May
31, 2021 are not necessarily indicative of the results to be
expected for any subsequent quarter, for the fiscal year ending
February 28, 2022, or for 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 as well
as the carrying value of our joint venture investment, accruals for
potential liabilities, assumptions made in calculating the fair
value of stock-based compensation and other equity instruments, and
the assessment of performance conditions for stock-based
compensation awards and the judgment in the
assessment.
The
COVID-19 pandemic has disrupted business operations for us and our
customers, suppliers, vendors and other parties with whom we do
business, and such disruptions are expected to continue for an
indefinite period of time. The uncertain duration of these measures
has had and may continue to have an effect on our development and
commercialization efforts. In particular, as previously disclosed,
the situation in the United States and the continued travel
restrictions and quarantine requirements between Canada and the
United States have caused disruptions in our timetable of our joint
venture with Indorama in the development of our Spartanburg
facility and
commercialization
of our technology.
F-6
Although
the Company continues to monitor the situation and may adjust the
Company’s current policies as more information and public
health guidance become available, the COVID-19 pandemic is ongoing,
and its dynamic nature, including uncertainties relating to the
ultimate spread of the virus, the severity of the disease, the
duration of the outbreak and actions that may be taken by
governmental authorities to contain the outbreak or to treat its
impact, makes it difficult to assess whether there will be further
impact on the development and commercialization of the
Company’s technology which could have a material adverse
effect on the Company’s results of operations and cash
flows.
Stock-based compensation
The
Company periodically issues stock options, warrants and restricted
stock units to employees and non
-
employees in non
-
capital raising transactions for services
and financing expenses. The Company accounts for stock options
granted to employees based on the authoritative guidance provided
by the FASB wherein the fair value of the award is measured on the
grant date and where there are no performance conditions,
recognized as compensation expense on the straight
-
line basis over the vesting period and
where performance conditions exist, recognize compensation expense
when it becomes probable that the performance condition will be
met. Forfeitures on share
-
based
payments are accounted for by recognizing forfeitures as they
occur.
The
Company accounts for stock options and warrants granted to
non
-
employees in accordance
with the authoritative guidance of the FASB wherein the fair value
of the stock compensation is based upon the measurement date
determined as the earlier of the date at which either
a) a commitment is reached with the counterparty for
performance or b) the counterparty completes its
performance.
The
Company estimates the fair value of restricted stock unit awards to
employees and directors based on the closing market price of its
common stock on the date of grant.
The
fair value of the stock options granted are estimated using the
Black
-
Scholes
-
Merton Option Pricing
(“Black
-
Scholes”)
model, which uses certain assumptions related to risk
-
free interest rates, expected volatility,
expected life of the stock options, and future dividends.
Stock
-
based compensation
expense is recorded based on the value derived from the
Black
-
Scholes model and on
actual experience. The assumptions used in the Black
-
Scholes model could materially affect
stock
-
based compensation
expenses recorded in the current and future periods.
Research and development expenses
Research
and development expenses relate primarily to the development,
design, testing of preproduction samples, prototypes and models,
compensation, and consulting fees, and are expensed as incurred.
Total research and development expenses recorded during the
three-month periods ended May 31, 2021 and 2020 amounted to
$8,637,905
and $1,480,588,
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.
Foreign currency translations and transactions
The
accompanying consolidated financial statements are presented in
U.S. dollars, the reporting currency of the Company. Assets and
liabilities of subsidiaries that have a functional currency other
than that of the Company are translated to U.S. dollars at the
exchange rate as at the balance sheet date. Income and expenses are
translated at the average exchange rate of the period. The
resulting translation adjustments are included in other
comprehensive income (loss) (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently is not engaged in any currency
hedging activities.
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
Net earnings (loss) per share
F-7
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
three-month periods ended May 31, 2021 and 2020, the calculations
of basic and diluted loss per share are the same because potential
dilutive securities would have an antidilutive effect. As at May
31, 2021, the potentially dilutive securities consisted of
1,587,081 outstanding stock options (2020 – 1,587,081),
4,149,125 outstanding restricted stock units (2020 –
4,293,407), and 4,133,720 outstanding warrants (2020 –
5,084,331).
3.
Sales Tax, Tax Credits and Other
Receivables
Sales tax, research and development tax credits and other
receivables as at May 31, 2021 and February 28, 2021 were as
follows:
|
|
May 31,
2021
|
February 28,
2021
|
|
Sales
tax
|
$
935,883
|
$
1,155,504
|
|
Research and
development tax credits
|
500,345
|
435,467
|
|
Other
receivables
|
115,474
|
172,864
|
|
|
$
1,551,702
|
$
1,763,835
|
4.
Prepaid
expenses
Prepaid expenses and deposits as at May 31, 2021 and February 28,
2021 were as follows:
|
|
May 31,
2021
|
February 28,
2021
|
|
Directors and
officers insurance
|
$
812,455
|
$
-
|
|
Deposits on
machinery and equipment
|
965,670
|
379,395
|
|
Other
|
200,265
|
230,387
|
|
|
$
1,978,390
|
$
609,782
|
Non-refundable
cash deposits on machinery and equipment that will be used in
research and development activities will be expensed, and
classified as research and development expenses, in the period the
equipment is received and placed into use.
F-8
5. Property, Plant and Equipment
|
|
As at May 31,
2021
|
||
|
|
Cost
|
Accumulated
depreciation, write-down and impairment
|
Net book
value
|
|
Building
|
$
2,053,585
|
$
(228,932
)
|
$
1,824,653
|
|
Land
|
5,173,641
|
-
|
5,173,641
|
|
Building
Improvements
|
1,938,596
|
(594,078
)
|
1,344,518
|
|
Machinery and
equipment
|
6,514,252
|
(6,514,252
)
|
-
|
|
Office equipment
and furniture
|
342,258
|
(115,464
)
|
226,794
|
|
|
$
16,022,332
|
$
(7,452,726
)
|
$
8,569,606
|
|
|
As at February 28,
2021
|
||
|
|
Cost
|
Accumulated
depreciation, write-down and impairment
|
Net book
value
|
|
Building
|
$
1,954,345
|
$
(201,589
)
|
$
1,752,756
|
|
Land
|
241,578
|
-
|
241,578
|
|
Building
Improvements
|
1,804,872
|
(474,114
)
|
1,330,758
|
|
Machinery and
equipment
|
6,514,252
|
(6,514,252
)
|
-
|
|
Office equipment
and furniture
|
292,946
|
(104,987
)
|
187,959
|
|
|
$
10,807,993
|
$
(7,294,942
)
|
$
3,513,051
|
During
the three-month period ended May 31, 2021, the Company acquired a
19 million square foot parcel of land in Bécancour,
Québec for $4.9 million (CDN $5.9 million). The Company
intended use for the site is to construct a commercial facility to
manufacture Loop™ branded PET resin using its Infinite
Loop™
technology
.
Depreciation
expense for the three-month periods ended May 31, 2021 and 2020
amounted to $115,057 and $248,199, respectively, and is recorded as
an operating expense in the consolidated statements of operations
and comprehensive loss.
F-9
6. Intangible Assets
|
|
As at May
31,
2021
|
As at February 28,
2021
|
|
|
|
|
|
|
|
|
|
Patents, at cost -
beginning of period
|
$
859,048
|
$
225,174
|
|
Patents,
accumulated depreciation – beginning of period
|
(64,154
)
|
(22,310
)
|
|
Patents, net
– beginning of period
|
794,894
|
202,864
|
|
|
|
|
|
Additions in the
period – patents
|
52,319
|
623,811
|
|
Amortization of
patents
|
(16,944
)
|
(41,844
)
|
|
Foreign exchange
effect
|
50,954
|
10,063
|
|
Patents, net
– end of period
|
$
881,223
|
$
794,894
|
Amortization
expense for the three-month periods ended May 31, 2021 and 2020
amounted to $16,944 and $7,891, 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 presents the fair value of the Company’s
financial liabilities as at May 31, 2021 and February 28,
2021:
|
|
Fair Value
Measurements as at May 31, 2021
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Instruments
measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$
2,586,227
|
$
2,596,787
|
Level
2
|
|
|
Fair Value
Measurements at February 28, 2021
|
||
|
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
|
Instruments
measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$
2,454,123
|
$
2,464,540
|
Level
2
|
F-10
8.
Accounts Payable and
Accrued Liabilities
Accounts payable and accrued liabilities as at May 31, 2021 and
February 28, 2021 were as follows:
|
|
May 31,
2021
|
February 28,
2021
|
|
Trade accounts
payable
|
$
5,279,857
|
$
5,082,736
|
|
Accrued employee
compensation
|
1,051,109
|
970,154
|
|
Accrued
professional fees
|
1,040,791
|
1,270,628
|
| Accrued engineering fees |
862,645
|
535,359
|
|
Other accrued
liabilities
|
823,021
|
265,988
|
|
|
$
9,057,423
|
$
8,124,865
|
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 “Joint
Venture Agreement”) with Indorama Ventures Holdings LP, USA,
an indirect subsidiary of Indorama Ventures Public Company Limited,
to manufacture and commercialize sustainable polyester resin. Each
company has a 50/50 equity interest in Indorama Loop Technologies,
LLC (“ILT”), which was specifically formed to operate
and execute the joint venture.
Under
the Joint Venture Agreement, Indorama Ventures is contributing
manufacturing knowledge and Loop Industries is required to
contribute its proprietary science and technology. Specifically,
the Company is contributing an exclusive worldwide royalty-free
license to ILT to use its proprietary technology to produce 100%
sustainably produced PET resin and polyester fiber.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There were no operations in
ILT from the date of inception of September 24, 2018 to February
28, 2021 and, as at February 28, 2021, the carrying value of the
equity investment was $1,500,000, which is the total of the cash
contributions we have made to ILT.
During the year ended February 28, 2021, we made
contributions to ILT of $650,000 (2020 – $850,000). These
contributions to ILT, which have been matched by Indorama Ventures,
were used to fund engineering design costs which have been
capitalized in ILT.
See Note 20. Subsequent Events for the description of an amendment
to the Joint Venture Agreement dated June 18, 2021.
10. Long-Term Debt
Long-term debt as of May 31, 2021 and February 28, 2021, was
comprised of the following:
|
|
May 31,
2021
|
February 28,
2021
|
|
Investissement
Québec financing facility :
|
|
|
|
Principal
amount
|
$
1,830,048
|
$
1,741,612
|
|
Unamortized
discount
|
(271,001
)
|
(268,192
)
|
|
Accrued
interest
|
55,924
|
42,588
|
|
Total
Investissement Québec financing facility
|
1,614,971
|
1,516,008
|
|
Term
loan
|
|
|
|
Principal
amount
|
971,256
|
938,116
|
|
Less: current
portion
|
(971,256
)
|
(938,116
)
|
|
Total term loan,
net of current portion
|
-
|
-
|
|
Long-term debt, net
of current portion
|
$
1,614,971
|
$
1,516,008
|
F-11
Investissement Québec financing facility
On February 21, 2020, the Company received $1,830,048
(CDN$2,209,234) from Investissement Québec as the first
disbursement of our financing facility, out of a maximum of
$3,810,471 (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, $38,105
(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-month period ended May 31, 2021 in the amount of
$10,882 (2020 – $9,416) and an accretion expense of $10,526
(2020 – $8,547).
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 $381,047 (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 May 31, 2021.
The remaining amount available under the financing facility
is $1,980,422 (CDN$2,390,766) and relates to expenditures incurred
up to June 30, 2021 in connection with our demonstration and
training facility.
Term Loan
On
January 24, 2018, the Company obtained a $1,159,708 (CDN$1,400,000)
20-year term installment loan (the “Loan”), from a
Canadian bank. The Loan bears interest at the bank’s Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in
monthly payments of $4,832 (CDN$5,833) plus interest, until January
2022. It includes an option allowing for the prepayment of the Loan
without penalty.
In January 2021, the
Company and the Canadian bank agreed to maintain the same repayment
amount and interest rate until January 2022,
at which time
the monthly repayment amount and interest rate will be subject to
renewal
.
During the three-month
period ended May 31, 2021, we repaid $14,496 (2020 – $12,693)
on the principal balance of the Loan and interest paid amounted to
$9,178 (2020 – $10,311). The terms of the credit facility
require the Company to comply with certain financial covenants. As
at May 31, 2021 and 2020, the Company was in compliance with its
financial covenants.
Principal
repayments due on the Company’s bank indebtedness over the
next five years are as follows:
|
Years
ending
|
Amount
|
|
February 28,
2022
|
$
45,560
|
|
February 28,
2023
|
57,985
|
|
February 29,
2024
|
319,417
|
|
February 28,
2025
|
319,417
|
|
February 28,
2026
|
319,417
|
|
Thereafter
|
1,727,084
|
|
Total
|
$
2,788,880
|
F-12
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.
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
simpler to purify.
During
the quarters ended May 31, 2021 and May 31, 2020, no outstanding
milestones were probable of being met
based on the authoritative guidance
provided by the FASB and, accordingly, the Company did not record
any additional compensation expense. When a milestone becomes
probable, the corresponding expense will be valued based on the
grant date fair value on April 30, 2020, the date of the last
modification of Mr. Solomita’s employment agreement. The
closing price of the Company’s common stock on the Nasdaq on
April 30, 2020 was $7.74 per share.
12. Stockholders’ Equity
Common Stock
|
For
the period ended May 31, 2021
|
Number of
shares
|
Amount
|
|
Balance, February
28, 2021
|
42,413,691
|
$
4,242
|
|
Issuance of shares
upon settlement of restricted stock units
|
19,629
|
2
|
|
Balance, May 31,
2021
|
42,433,320
|
$
4,244
|
|
For
the period ended May 31, 2020
|
Number of
shares
|
Amount
|
|
Balance, February
29, 2020
|
39,910,774
|
$
3,992
|
|
Issuance of shares
upon settlement of restricted stock units
|
6,131
|
1
|
|
Balance, May 31,
2020
|
39,916,905
|
$
3,993
|
During
the three months ended May 31, 2021, the Company recorded the
following common stock transaction:
(i)
The
Company issued 19,629 shares of the common stock to settle
restricted stock units that vested in the period.
During
the three months ended May 31, 2020, the Company recorded the
following common stock transaction:
(i)
The
Company issued 6,131 shares of the common stock to settle
restricted stock units that vested in the period.
F-13
13. Research and Development Expenses
Research
and development expenses for the three-month periods ended May 31,
2021 and 2020 were as follows:
|
|
May 31,
2021
|
May 31, 2020
|
|
External
engineering
|
$
2,903,448
|
$
74,932
|
|
Employee
compensation
|
2,086,128
|
819,048
|
|
Machinery and
equipment expenditures
|
2,622,892
|
-
|
|
Demonstration plant
operating expenses
|
691,537
|
286,103
|
|
Other
|
333,900
|
300,505
|
|
|
$
8,637,905
|
$
1,480,588
|
14. General and Administrative Expenses
General
and administrative expenses for the three-month periods ended May
31, 2021 and 2020 were as follows:
|
|
May 31,
2021
|
May 31, 2020
|
|
Professional
fees
|
$
1,631,451
|
$
221,697
|
|
Employee
compensation
(1)
|
461,405
|
1,142,851
|
|
Directors and
officers insurance
|
868,647
|
473,574
|
|
Other
|
199,068
|
114,959
|
|
|
$
3,160,571
|
$
1,953,081
|
|
(1)
|
Includes
stock-based compensation expense. In the three-month period
ended May 31, 2021, the Company recorded RSU forfeitures for an
amount of $935,837 (2020 – $4,005) as a net reversal of
stock-based compensation.
|
15. Share-based Payments
Stock Options
During
the three-month period ended May 31, 2021, the Company granted no
stock options (2020 – nil), no stock options were forfeited
(2020 – nil) or exercised (2020 – nil) and no stock
options expired (2020 – nil).
The
Company applies the fair value method of accounting for stock-based
compensation awards granted. Fair value is calculated based on a
Black-Scholes option pricing model. There were no new issuances of
stock options for the three-month periods ended May 31, 2021 and
2020.
The
total number of stock options outstanding as at May 31, 2021 was
1,587,081 (2020 – 1,587,081) with a weighted average exercise
price of $6.81 (2020 - $6.81), of which 1,229,998 were exercisable
(2019 – 986,248) with a weighted average exercise price of
$7.25 (2020 – $7.32).
During
the three-month periods ended May 31, 2021 and 2020, stock-based
compensation expense attributable to stock options amounted to
$549,318 and $556,895, respectively, and is included in operating
expenses.
F-14
Restricted Stock Units
During
the three-month period ended May 31, 2021, the Company granted
253,758 restricted stock units (“RSUs”) (2020 –
83,725) with a weighted average fair value of $8.85 (2020 –
$8.71), settled 19,629 RSUs (2020 – 6,131) with a weighted
average fair value of $9.02 (2020 – $9.55) and 295,524 RSUs
were forfeited (2020 – 2,989) with a weighted average fair
value of $7.93 (2020 – $8.78).
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 May 31, 2021 was 4,149,125
(2020 – 4,293,407), of which 696,327 were vested (2020
– 836,684).
During
the three-month periods ended May 31, 2021 and 2020, stock-based
compensation attributable to RSUs amounted to ($533,961) and
$370,487, respectively, and is included in operating expenses. The
net reversal in expenses attributable to RSUs in the three-month
period ended May 31, 2021 is due to forfeitures recorded in the
period for a total of $935,837 (2020 – $4,005).
During
the three-month periods ended May 31, 2021 and 2020, stock-based
compensation included in research and development expenses amounted
to $395,545 and $352,007, respectively, and in general and
administrative expenses amounted to ($380,188) and $659,817,
respectively. The net reversal in stock-based compensation included
in general and administrative expenses in the three-month period
ended May 31, 2021 is due to forfeitures recorded in the period for
a total of $935,837 (2020 – $4,005).
16. Equity Incentive Plan
On July
6, 2017, the Company adopted the 2017 Equity Incentive Plan (the
“Plan”). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units
to employees, directors and consultants of the Company. A total of
3,000,000 shares of common stock were initially reserved for
issuance under the Plan at July 6, 2017, with annual automatic
share reserve increases, as defined in the Plan, amounting to the
lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares
on the last day of the immediately preceding fiscal year, or (iii)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. On March 1, 2021 and 2020, the Board
of Directors opted to waive the annual share reserve increase. 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 three-month periods ended
May 31, 2021 and 2020:
|
|
2021
|
2020
|
|
|
Number of
units
|
Number of units
|
|
Outstanding,
beginning of period
|
1,083,412
|
1,300,518
|
|
Automatic share
reserve increase
|
-
|
-
|
|
Units
granted
|
(253,758
)
|
(87,114
)
|
|
Units
forfeited
|
295,524
|
2,989
|
|
Units
expired
|
-
|
-
|
|
Outstanding, end of
period
|
1,125,178
|
1,216,393
|
F-15
17. Warrants
During
the three-month period ended May 31, 2021, no warrants were
granted, were forfeited, were exercised nor expired.
During
the three-month period ended May 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. No warrants were exercised or expired in the
three-month period ended May 31, 2021.
18. Interest and Other Financial Expenses
Interest and other financial expenses for the three-month periods
ended May 31, 2021 and 2020 are as follows:
|
|
2021
|
2020
|
|
Interest on
long-term debt
|
$
20,059
|
$
19,727
|
|
Accretion
expense
|
10,529
|
8,547
|
|
Loss on
revaluation of foreign exchange contracts
|
-
|
98,502
|
|
|
$
30,588
|
$
126,776
|
19. Commitments and Contingencies
Commercial Commitments
On
September 2, 2020, the Company entered into a know-how and
engineering agreement (the “Chemtex Agreement”) with
Chemtex Global Corporation (“Chemtex”) to license the
PET plastic and polyester polymer for fiber manufacturing know-how
of INVISTA’s technology and licensing group, INVISTA
Performance Technologies (IPT) (“INVISTA”). The total
amount of the Chemtex Agreement is $4,300,000 and covers the
know-how and design of two Infinite
Loop™
facilities. Payment terms are
based on the completion of certain milestones and total $2,150,000
for each facility. As at May 31, 2021, the cumulative amount paid
was $900,000 and during the three-month period ended May 31, 2021,
no additional amount was paid by the Company related to this
agreement and included in research and development
expenses.
Contingencies
On October 13, 2020, the Company and certain of its officers were
named as defendants in a proposed class-action lawsuit filed in the
United States District Court for the Southern District of New York,
captioned
Olivier Tremblay, Individually
and on Behalf of All Other Similarly Situated v. Loop Industries,
Inc., Daniel Solomita, and Nelson Gentiletti
, Case No. 7:20-cv-0838 (“Tremblay Class
Action”). The allegations in the complaint claim that the
defendants allegedly violated Sections 10(b) and 20(a) and Rule
10b-5 of the Securities Exchange Act of 1934 by allegedly making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. Plaintiff seeks unspecified damages on behalf of a class of
purchasers of Loop’s securities between September 24, 2018
and October 12, 2020.
On
October 28, 2020, the Company and certain of its officers were
named as defendants in a second proposed class-action lawsuit filed
in the United States District Court for the Southern District of
New York, captioned
Michelle
Bazzini, Individually and on Behalf of All Other Similarly Situated
v. Loop Industries, Inc., Daniel Solomita, and Nelson
Gentiletti
, Case No. 7:20-cv-09031-UA. The allegations in
this complaint are similar in nature to those made in the Tremblay
Class Action.
On
January 4, 2021, the United States District Court for the Southern
District of New York rendered a stipulation and order granting the
consolidation of the two class-action lawsuits filed in New York as
In re Loop Industries, Inc.
Securities Litigation
, Master File No.
7:20-cv-08538.
Sakari
Johansson and John Jay Cappa have been appointed as Co-Lead
Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP
have been appointed as Co-Lead Counsel for the class.
F-16
Plaintiffs served a consolidated amended complaint on February 18,
2021 which alleges defendants violated Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934 by making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. The consolidated amended complaint relies on the October
13, 2020 report published by a third party regarding the Company to
support their allegations. Defendants served a motion to dismiss
the consolidated amended complaint on April 27, 2021.
Plaintiffs’ opposition to the motion to Dismiss was served on
May 27, 2021 and Defendants’ reply in support of the motion
to dismiss was served on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of
their officers and directors were named as defendants in a proposed
securities class action filed in the Superior Court of Québec
(District of Terrebonne, Province of Québec, Canada), in file
no. 700-06-000012-205. The
Application for authorization
of a class action and for authorization to bring an action pursuant
to section 225.4 of the Québec Securities
Act
(“the
Application”) was filed by an individual shareholder on
behalf of himself and a class of buyers who purchased our
securities during the “Class Period” (not defined).
Plaintiff alleges that throughout the Class Period, the defendants
allegedly made false and/or misleading statements and allegedly
failed to disclose material adverse facts concerning the
Company’s technology, business model, operations and
prospects, thus causing the Company’s stock price to be
artificially inflated and thereby causing plaintiff to suffer
damages. Plaintiff seeks unspecified damages stemming from losses
he claims to have suffered as a result of the foregoing. On
December 13, 2020, the Application was amended in order to add
allegations regarding specific
misrepresentations.
Management
believes that these cases lack merit and intends to defend them
vigorously. No amounts have been provided for in the consolidated
financial statements with respect to these claims. Management has
not yet determined what effect these lawsuits may have on its
financial position or results of operations as they are still in
the preliminary stages.
20. Subsequent Events
Strategic Partnership
On June
22, 2021, the Company entered into a Securities Purchase Agreement
(the “Purchase Agreement”) by and between the Company
and SK global chemical Co., Ltd, an accredited investor (the
“Purchaser”). Pursuant to the Purchase Agreement, the
Company has agreed to issue and sell to the Purchaser the following
securities for an aggregate purchase price of approximately $56.5
million (collectively, the “Investment”):
●
an aggregate of
4,714,813 shares (the “Shares”) of the Company’s
common stock (the “Common Stock”);
●
warrants to
purchase 4,714,813 shares of Common Stock for an exercise price of
$15.00 (the “First Tranche Warrants”), with an
expiration date of the third anniversary of the issue
date;
●
warrants to
purchase 2,357,407 shares of Common Stock for an exercise price of
$20.00 (the “Second Tranche Warrants”), with an
expiration date of the earlier of (A) the date that is the third
anniversary of the First Plant Milestone (as defined in the Second
Tranche Warrants), (B) the expiration of the JV Negotiation Period
(as defined in the Second Tranche Warrants), provided that the
Joint Venture Transaction Agreements (as defined in the Second
Tranche Warrants) have not been executed by the expiration of the
JV Negotiation Period and (C) the third anniversary of the Date of
approval of the basic engineering package for the facilities
constructed by the JV, provided that the First Plant Milestone has
not occurred as of such date; and
●
warrants to
purchase 461,298 shares of Common Stock for an exercise price of
$11.00 (the “Third Tranche Warrants,” and together with
First Tranche Warrants and the Second Tranche Warrants, the
“Warrants”), with an expiration date of June 14,
2022.
The
Purchaser may exercise the First Tranche Warrant and the Third
Tranche Warrant at any time prior to their applicable expiration
dates. The Purchaser may exercise the Second Tranche Warrant at any
time on or after the first business day following the First Plant
Milestone (as defined in the Second Tranche Warrant) prior to its
expiration date.
After
the closing of the Investment, the Purchaser is expected to own
approximately 10.0% of the issued and outstanding Common Stock as
of that date.
Simultaneous
with the execution of the Purchase Agreement, the Company and the
Purchaser entered into a Joint Venture Memorandum of Understanding
(“JV MOU”) with respect to a potential joint venture to
commercialize the Company’s plastic recycling technology in
Asia (“Proposed Asia JV”). The JV MOU, which is
non-binding, outlines certain principal terms for the Proposed Asia
JV. The Purchase Agreement provides that the parties will negotiate
exclusively with one another from the date of the Purchase
Agreement until the date which is six months from the BDP Date (as
defined in the Purchase Agreement) with respect to the Proposed
Asia JV (subject to extension in accordance with the terms and
conditions of the Purchase Agreement), with the objective of
executing definitive agreements for the Proposed Asia
JV.
F-17
Joint Venture Amendment
In
conjunction with the SK strategic partnership described above, on
June 18, 2021, the Company, Loop Innovations, LLC, a wholly-owned
subsidiary of the Company (“Loop Innovations”),
Indorama Ventures Holdings LP (“Indorama”) and Indorama
Loop Technologies, LLC (the “Indorama Joint Venture
Company”) amended (i) the Limited Liability Company Agreement
between Loop Innovations, LLC and Indorama Ventures Holdings LP
(the “LLC Agreement”), (ii) the Marketing Agreement
between the Company and Indorama Loop Technologies, LLC (the
“Marketing Agreement”) and (iii) the License Agreement
between the Company and the Indorama Joint Venture Company (the
“License Agreement”), each dated September 24, 2018
(collectively such amendments, the “Indorama Joint Venture
Amendments”).
Under
the Indorama Joint Venture Amendments, the Company, Indorama and
the Indorama Joint Venture Company agreed to:
●
terminate
Indorama’s right of first refusal under the LLC Agreement
over any facility to produce products utilizing any waste-to-resin
technology applying the PET depolymerization process of the
Company;
●
amend the
non-compete obligations under the LLC Agreement to solely apply to
the Company;
●
limit the scope of
the Company’s grant of intellectual property rights and the
scope of the exclusivity rights of the Indorama Joint Venture
Company for the retrofit of existing facilities under the License
Agreement to North America and Europe; and
●
limit the scope of
the Indorama Joint Venture Company’s permitted marketing
rights under the Marketing Agreement to North America and
Europe.
F-18
I
TEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following information and any forward-looking statements should
be read in conjunction with the unaudited financial information and
the notes thereto included in this Quarterly Report on Form 10-Q,
including those risks identified in the “Risk Factors”
section of our most recent Annual Report on Form 10-K.
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 scale, manufacture and
sell our products in order to generate revenues, (viii) our
proposed business model and our ability to execute thereon,
(ix) adverse effects on the Company’s business and operations
as a result of increased regulatory, media or financial reporting
scrutiny, practices, rumors, or otherwise, (x) disease epidemics
and health related concerns, such as the current outbreak of
a novel strain of coronavirus
(
COVID-19), which could result in (and, in the case of the
COVID-19 outbreak, has resulted in some of the following) reduced
access to capital markets, supply chain disruptions and scrutiny or
embargoing of goods produced in affected areas, government-imposed
mandatory business closures and resulting furloughs of our
employees, government employment subsidy programs, travel
restrictions or the like to prevent the spread of disease, and
market or other changes that could result in noncash impairments of
our intangible assets, and property, plant and equipment, (xi) the
outcome of the current SEC investigation or recent class action
litigation filed against us, (xii) our ability to hire and/or
retain qualified employees and consultants and (xiii) other factors
discussed in our subsequent filings with the SEC.
Management
has included projections and estimates in this Form 10-Q, which are
based primarily on management’s experience in the industry,
assessments of our results of operations, discussions and
negotiations with third parties and a review of information filed
by our competitors with the SEC or otherwise publicly
available.
In
addition, statements that “we believe” and similar
statements reflect our beliefs and opinions on the relevant
subject. These statements are based upon information available to
us as at the date of this Form 10-Q, and while we believe such
information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should
not be read to indicate that we have conducted an exhaustive
inquiry into, or review of, all potentially available relevant
information. These statements are inherently uncertain, and
investors are cautioned not to unduly rely upon these
statements.
We
caution readers not to place undue reliance on any such
forward-looking statements, which speak only as at the date made.
We disclaim any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
4
Introduction
Loop Industries is a technology company whose mission is to
accelerate the world’s shift toward sustainable PET plastic
and polyester fiber and away from our dependence on fossil fuels.
Loop Industries owns patented and proprietary technology that
depolymerizes no and low-value waste PET plastic and polyester
fiber, including plastic bottles and packaging, carpets and
textiles of any color, transparency or condition and even ocean
plastics that have been degraded by the sun and salt, to its base
building blocks (monomers). The monomers are filtered, purified and
polymerized to create virgin-quality Loop™ branded PET resin
suitable for use in food-grade packaging and polyester fiber, thus
enabling our customers to meet their sustainability objectives.
Loop Industries is contributing to the global movement toward a
circular economy by reducing plastic waste and recovering waste
plastic for a sustainable future.
Industry Background and Market Opportunity
The global annual market demand for PET plastic and polyester fiber
at nearly $130 billion per year, and the current growth projections
from the 2018 IHS Polymer Market Report indicate this will exceed
$160 billion by 2022.
We believe, plastic pollution continues to be one of the most
persistently covered environmental issues by media and local and
global environmental non-governmental organizations. Some of the
main concerns associated with PET are the emissions associated with
its production from non-renewable hydrocarbons and the length of
time it persists in landfills and the natural environment. There is
an increasing demand for action to address the global plastic
crisis, which has been characterized by facts provided by leading
academic and not-for-profit organizations. In the last few years,
governments in North America and Europe have been enacting and
proposing laws and regulations mandating the use of minimum
recycled content in packaging underlying the strength of this issue
in the marketplace. Consumer brands are seeking a solution to their
plastic challenge, and they are taking action. In recent years we
have seen major brands make significant commitments to close the
loop on their plastic packaging by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging.
Global consumer goods companies, apparel manufacturers, and retail
brands have announced significant public commitments and targets to
make the transition to a circular plastic economy,
namely:
●
In
January 2018, Danone’s evian® brand bottled spring water
committed to a 100% recycled content package by 2025;
●
In
2018, Coca-Cola committed to an average recycled content of 50%
across its packaging by 2030;
●
In
October 2018, PepsiCo committed to use an average of 25% recycled
plastic in its packaging by 2025, PepsiCo is also aiming to
use 50% recycled plastic in its bottles across
the European Union by 2030;
●
In
2020, L’OCCITANE en Provence committed to 100% recycled
content plastic in their bottles by 2025;
●
In 2020, L’Oréal Group committed to
using 100% recycled or biobased plastic in their packaging by
2030
;
●
By
2025, Unilever targets increasing the use of post-consumer recycled
plastic material in their packaging to at least 25%;
●
Colgate-Palmolive
states a 2025 goal of increasing recycled content for plastic to
25%;
●
Nestlé
aims to increase the amount of recycled PET used across
their brands globally to 50% by 2025;
●
Adidas
Group aims to replace all virgin polyester with recycled
polyester in all adidas and Reebok products where a solution
exists by 2024;
●
H&M is
aiming to ensure that at least 25% of the plastic they use is from
post-consumer recycled materials.
●
Walmart
has an objective to use at least 17% post-consumer recycled content
globally in their private brand plastic packaging and is taking
action to eliminate problematic or unnecessary plastic packaging
and move from single-use toward reuse models where relevant by
2025; and
●
Ikea’s
ambition is, that by 2030, all plastic used in their products will
be based on renewable or recycled material.
Additionally,
there is a growing regulatory and policy environment to encourage a
reduction in the production of virgin fossil fuel based plastic and
a minimum recycled content in packaging imposed by various
governments. For example,
on July 21
2020, the European Union announced a new tax on plastic waste
starting January 1, 2021. This tax will have a rate of
€800/ton on nonrecycled plastic packaging
.
In the UK,
a new £200/ton tax will apply to plastic packaging produced or
imported into the UK that does not contain at least 30% recycled
plastic, effective 2022.
A
California law filed on September 24, 2020 requires that plastic
bottles contain at least 15% post-consumer resin by 2022, 25% by
2025 and 50% by 2030. The growing regulatory environment is
expected to increase the demand for recycled PET plastic
further.
We
believe that mechanical recycling processes may not be adequate to
meet increasing demand resulting from companies’ changing
packaging demand and shifting regulatory environment discussed
above.
As explained by the International Bottled Water
Association, currently, mechanical recycled PET (rPET) plastic is
produced principally through the conversion of bales of PET
bottles. The materials have to be collected and transported to a
materials recovery facility (“MRF”), where they are
sorted from other materials, baled, and sent to specific PET
recycling facilities. The bales are broken and sorted to remove any
non-PET materials. The PET is then ground and put through a
separation process which separates the PET from the bottle cap and
label materials. Clean PET flake is then further processed
depending on its intended end market. It may become more highly
refined PET pellet for new bottles or extruded into PET sheet for
clamshells, trays, and cups. Recycled PET is also spun into fiber
for carpet, clothing, fiber fill, or other materials.
5
We believe mechanically recycled PET has a number of challenges in
meeting the quality specifications and growing volume requirements
implied by commitments from major brands, mainly due to the cost
and variety of acceptable PET feedstock.
Some mechanical recycling processes involve
remelting the PET flake which reduces the quality of the rPET
output each time it is recycled relative to the specifications of
virgin PET produced from fossil fuels. Each time the PET plastic is
mechanically recycled, its quality and clarity are reduced.
Therefore, mechanically recycled PET may need to be mixed with
virgin PET from fossil fuels to maintain quality. Lower quality
mechanically recycled PET is often downcycled to alternate uses
such as polyester fibers which may be dyed and used in carpets or
clothing. Additionally, mechanically recycled PET manufactured for
use in clear bottles or food containers requires predominantly
clear and clean PET flakes separated from waste bales, and cannot
accommodate darkly colored PET flakes, lower quality fiber
feedstock, or materially contaminated feedstock, which may be
cheaper.
We believe the commercialization plans of Loop™ PET resin and
polyester fiber may provide the ideal solution for global brands
because Loop™ PET resin and polyester fiber contains 100%
recycled PET and polyester fiber content. The Loop™ PET resin
and polyester fiber is virgin quality suitable for use in
food-grade packaging. That means consumer packaged goods companies
will be able to choose to market packaging made from a 100%
Loop™ branded PET resin and polyester fiber.
Proprietary Technology and Intellectual Property
We believe, the power of our technology lies in its ability to use
post-industrial and post-consumer waste PET plastic and polyester
fiber feedstocks, which could end up in landfills, rivers, oceans
and natural areas, to create Loop™ PET resin. We believe our
technology can deliver high-purity profitable virgin quality PET
resin suitable for use in food-grade packaging and polyester
fiber.
Our Generation I technology (“GEN I”) is a
hydrolysis-based depolymerization technology which yielded purified
terephthalic acid (“PTA”) and monoethylene glycol
(“MEG”), two common monomers of PET.
As the
Company evaluated the transition from the GEN I technology from
pilot scale to commercial scale, several challenges involving PTA
and MEG purification were identified
.
To overcome the GEN I technology
challenges, we embarked on the development of a second generation
of our technology
.
Our
Generation II technology
(“GEN II”)
is a
methanolysis-based depolymerization technology that uses
temperatures below 90 °C to depolymerize waste PET and
polyester fiber. The low temperature offers several key advantages
which the company believes will improve its ability to
commercialize the GEN II technology, including;
●
Lower energy usage
during depolymerization and therefore reduced processing cost
relative to higher temperature processes;
●
Avoidance of side
reactions with non-PET waste, which are inherent in waste PET
feedstock streams, during depolymerization which may occur during
higher temperature and higher pressure depolymerization processes.
This allows for a simplified distillation purification process
resulting in less, and more effective, steps to isolate the desired
high purity DMT and MEG monomers suitable to produce virgin quality
PET required to meet food contact regulations as well as the
quality and clarity requirements of global consumer product
companies;
●
Allowing the
depolymerization of less costly and low-quality feedstocks, which
cannot be effectively recycled today, such as carpet fiber,
clothing and mixed plastics, and upcycling them into high-quality
PET that can be used in food contact use; and
●
The GEN II
technology uses only trace amounts of water, eliminates the need
for a halogenated solvent and uses a catalyst at low
concentration.
This shift, from producing the monomer PTA to the monomer DMT, was
a pivotal moment for Loop Industries. We believe that GEN II
requires less energy and fewer resource inputs than conventional
PET production processes
.
We also
believe it is an environmentally sustainable method for producing
virgin quality food-grade PET plastic by decoupling PET
manufacturing from the fossil fuel industry.
To
independently validate that our GEN II technology can produce DMT
and MEG monomers at mini-pilot and pilot scale, we commissioned
Kemitek, a College Centre for Technology Transfer specialized in
the fields of green chemistry and chemical process scale-up.
Kemitek’s findings allowed them to confirm that our
technology produces monomers that meet our purity specifications
for the production of PET resin and polyester fiber. The complete,
Kemitek report was filed with the SEC by the Company on December
14, 2020.
6
To protect our technology, we rely on a combination of patents,
trademarks, trade secrets, confidentiality agreements and
provisions as well as other contractual provisions to protect our
proprietary rights, which are primarily our patents, brand names,
product designs and marks, We have two technology areas, referred
to as GEN I technology and the GEN II technology, with patent
claims relating to our technology for depolymerizing
PET.
●
The
GEN I technology portfolio has three issued U.S. patents, all
expected to expire on or around July 2035. Internationally, we also
have issued patents in Argentina, Australia, Europe, Eurasia,
China, Israel, Japan, Taiwan, South Africa, and in the members of
the Gulf Cooperation Council and pending patent applications in
Brazil, Canada, Hong Kong, India, Korea, Mexico, and the
Philippines, all expected to expire, if granted, on or around July
2036, not including any patent term extension.
●
The
GEN II technology portfolio currently consists of four patent
families:
o
The
first has two issued U.S. patent and a pending U.S. application,
all expected to expire on or around September 2037.
Internationally, we also have an issued patent in Bangladesh, and
pending applications in Argentina, Australia, Bolivia, Brazil,
Bhutan, Canada, China, Colombia, Eurasia, Europe, members of the
Gulf Countries, Hong Kong, Indonesia, Israel, India, Iraq, Japan,
Korea, Kuwait, Laos, Mexico, Malaysia, Panama, Papua New Guinea,
Philippines, Pakistan, Singapore, Taiwan, Uruguay, Uzbekistan,
Venezuela, and South Africa, all expected to expire on or around
September 2038, if granted and not including any patent term
extension.
o
An
additional aspect of the GEN II technology is claimed in an issued
U.S. patent and a pending U.S. application. Internationally, we
also have an allowed patent application in Bangladesh and pending
applications in Algeria, Argentina, Australia, Bahrain, Bolivia,
Brazil, Cambodia, Canada, Chile, China, Eurasia, Egypt, Europe,
India, Indonesia, Israel, Iran, Japan, Korea, Kuwait, Laos,
Malaysia, members of the Gulf Cooperation Council, Mexico, Morocco,
New Zealand, Oman, Pakistan, Panama, Peru, Philippines, Qatar,
Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Tunisia,
United Arab Emirates, Uruguay, Uzbekistan and Vietnam, all expected
to expire on or around June 2039, if granted and not including any
patent term extension.
o
A
further additional aspect of the GEN II technology is the
subject of a U.S. application and an International application. Any
patents that would ultimately grant from these applications would
be expected to expire on or around March 2040, not including any
patent term extension.
o
Another
further additional aspect of the GEN II technology is the
subject of a U.S. application, an International application, and
pending applications in Argentina, Bolivia, Bangladesh, members of
the Gulf Cooperation Council, Pakistan, Taiwan, and Uruguay. Any
patents that would ultimately grant from these applications would
be expected to expire on or around March 2040, not including any
patent term extension.
Loop
owns registrations for its trademarks in Canada, the European
Union, the United Kingdom, and the U.S. Loop also has pending
applications in Cambodia, Canada, Indonesia, Taiwan, the U.S., and
Vietnam.
Government Regulation and Approvals
As we seek to further develop and commercialize our technology, we
will be subject to extensive and frequently developing federal,
state, provincial and local laws and regulations. Compliance with
current and future regulations, including food packaging
regulations, could increase our operational costs.
Our operations require various governmental permits and approvals.
We are in the process of obtaining all necessary permits and
approvals for the operation of our business; however, any of these
permits or approvals may be subject to denial, revocation or
modification under various circumstances. Additionally, due to the
impact of the COVID-19 pandemic, we may experience delays in
obtaining such permits or approvals. Failure to obtain or comply
with the conditions of permits and approvals or to have the
necessary approvals in place may adversely affect our operations
and may subject us to penalties. See “
Risk Factors
” below for additional
information.
We believe that if we are successful in addressing food packaging
regulations in various countries and economic regions, that the
regulatory environment may provide Loop™ PET resin a
competitive advantage relative to mechanically recycled alternative
resins and virgin PET.
7
We
received a no-objection letter (NOL) on March 1, 2021 from the US
Federal Food and Drug Administration (“FDA”) to confirm
the capability of Loop Industries’ tertiary recycling
process, known as methanolysis, in cleaning and producing
post-industrial and post-consumer recycled PET for use in the
manufacture of food-contact articles that contact all food types
all conditions of use for which PET is permitted.
The request to the FDA was initiated on November
23, 2020 and the NOL grant was provided within the expected
response period of three to six months.
We have
received from the European Chemicals Agency a confirmation of
registration for our MEG on November 17, 2020, and for our DMT on
December 7, 2020. The registration under the
Registration, Evaluation, Authorization and
Restriction of Chemicals
(“REACH”) Regulation
(EC 1907/2006) confirms that our monomers are of a purity equal to
what is currently recognized within Europe and entitles us to
manufacture/import the monomers into Europe. It should be noted
that MEG and DMT are on the positive list for plastic materials,
which means that the two monomers can be used as food contact
materials.
The
levels of monomer purity confirmed by Kemitek’s verification
are in line with the data submitted for the REACH registration of
our DMT and MEG monomers and additionally support the March 1, 2021
NOL from the FDA.
Supply Agreements with Global Consumer Brands
Consumer
brands are seeking a solution to their plastic challenge and they
are taking bold action. In the past years, we have seen major
brands make significant commitments to close the loop on their
plastic use in two ways; by transitioning their packaging to
recyclable materials and by incorporating more recycled content
into their packaging. We believe Loop™ PET resin provides the
ideal solution for these brands because it is recyclable and is
made from 100% recycled PET waste and polyester fiber, while being
virgin-quality and suitable for use in food-grade packaging and
polyester fiber.
Due to
the commitments by large global consumer brands to incorporate more
recycled content into their product packaging, the regulatory
requirements for minimum recycled content in packaging imposed by
governments, the virgin-quality of Loop™ branded PET resin
and its marketability to extoll the sustainability credentials of
consumer brands that incorporate it, we believe we will be able to
sell Loop™ branded PET resin at a premium price relative to
virgin and mechanically recycled PET resin.
We are pursuing supply agreements with customers that are located
in North America, Europe, and Asia. We currently have agreements
with some of the world’s leading brands to be supplied from
our planned commercial facility from our joint venture with
Indorama Ventures Holdings LP (“Indorama”) in
Spartanburg, South Carolina, including:
●
Multi-year supply agreement with Danone SA, one of
the world’s leading global food and beverage companies.
Danone will purchase 100% sustainable and upcycled Loop™
branded PET for use in brands across its portfolio including
evian®, Danone’s
iconic natural spring
water
;
●
Multi-year
supply agreement with PepsiCo, one of the largest purchasers of
recycled PET plastic, enabling PepsiCo to purchase production
capacity and incorporate Loop™ PET resin into its product
packaging;
●
Multi-year
supply agreement with L’OCCITANE en Provence to supply 100%
recycled and sustainable Loop™ PET resin and incorporate
Loop™ PET resin into its product packaging; and
●
Multi-year
supply agreement with L’Oréal Group, the global leader
in the beauty industry, enabling L’Oréal Group to
purchase production capacity and incorporate Loop™ PET resin
into its product packaging.
Turning PET Waste into Feedstock
We use
waste PET plastic and polyester fiber as feedstock. Our technology
can use PET plastic bottles and packaging of any color,
transparency or condition, carpet, clothing and other polyester
textiles that may contain colors, dyes or additives, and even PET
plastics that have been recovered from the ocean and degraded by
exposure to sun and salt. We believe that our ability to use many
materials that mechanical recyclers cannot use is an important
advantage of Loop™ PET resin over mechanically recycled PET
resin. This also means we are creating a new market for materials
that have persistently been leaking out of the waste management
system and into our shared rivers, oceans and natural
areas.
8
Commercialization Plan and Progress
During
the three month-period ended May 31, 2021, we continued executing
our corporate strategy with a focus on the commercialization of our
technology. We are progressing on the engineering of our full-scale
commercial facilities with our engineering partner Worley, a
leading global engineering, procurement and construction company.
Our design approach allows for the process design package, which
has been completed, to be used as the base engineering platform for
all future geographical expansion. We believe this approach allows
for a quick execution, speed to market and lends itself well to
modular construction.
The
Infinite Loop
TM
manufacturing technology is the key pillar of our commercialization
blueprint. We believe our technology is at the forefront of the
global transition away from fossil fuels and petrochemicals and
into the circular economy, where PET plastic and polyester fiber
are produced from recycled content. The Infinite Loop™
technology is being engineered to support the commitment of global
consumer brands to achieve a high level of recycled content in
packaging. Infinite Loop™ facilities could be located near
large urban centers where more plastic is being consumed and
therefore more waste plastic feedstock is likely
available.
Our
objective is to achieve global expansion of the technology through
a mix of fully owned facilities, strategic partnerships, and
licensing agreements. We believe that industrial companies, some of
which today may not be in the business of manufacturing PET resin
or polyester fiber, will view involvement in Infinite Loop™
projects as a growth opportunity, which may offer attractive
economic returns either as Loop manufacturing partners or as
licensees of the technology. We are currently pursuing projects for
future commercial production facilities in four regions: Canada,
Europe, Asia and the U.S.
On
September 2, 2020, we entered into a know-how and engineering
agreement (the “Chemtex Agreement”) with Chemtex Global
Corporation (“Chemtex”) to license the PET resin and
polyester fiber manufacturing know-how of INVISTA’s
technology and licensing group, INVISTA Performance Technologies
(IPT) (“INVISTA”). The INVISTA know-how will be used
for the polymerization of DMT and MEG monomer output from
Loop’s depolymerization technology, the result of which is
Loop
TM
PET resin or polyester fiber made from 100% recycled content. The
INVISTA polymerization process and the associated designs are
historically proven in the commercial production of PET resin and
polyester fiber.
We
continue to focus on the completion of the Infinite
Loop
TM
engineering design with an initial target capacity of up to 70,000
metric tons/year. Permitting, site and regulatory considerations
may impact plant capacity for the various projects. As discussed
above, the design includes the integration of our depolymerization
technology with INVISTA’s polymerization technology in
partnership with Worley. We intend to use this design when
evaluating Infinite Loop
TM
facilities in various regions. Worley has completed the
pre-feasibility engineering as part of the planning phase for an
Infinite Loop
TM
manufacturing facility in the province of Québec. We expect
that Worley may also play a role in the feasibility phase of
engineering and the future design of larger capacity
facilities.
We
believe that Infinite Loop
TM
recycled PET resin and polyester fiber could command premium
pricing over virgin, petroleum-based PET resin and provide
attractive economic returns. We are targeting multi-year take or
pay offtake agreements for planned Infinite Loop
TM
production. Factors under consideration in determining project
economics include pre-feasibility design engineering and cost
estimate work, timing and permitting of a facility, customer
offtake demand, commitment terms, and feedstock sources, quality,
availability, logistics, and ramp up, among others.
Strategic Partnership with SK Global Chemical
We and
SK global chemical Co. Ltd. (“SKGC”) intend to form a
joint venture with exclusivity to build sustainable PET plastic and
polyester fiber manufacturing facilities throughout Asia, which
accounts for approximately 60 percent of the world’s
population, making it a key market in terms of plastic
manufacturing, consumption and waste. Under the terms of the
Memorandum of Understanding (“MOU”) for the proposed
joint venture, SKGC will own 51 percent of the joint venture and we
will own 49 percent. We will also receive a recurring annual
royalty fee as a percentage of revenue from each facility for the
use of its technology.
In
addition, we and SKGC have entered into a definitive agreement for
SKGC to become a strategic investor in Loop. SKGC will purchase
4,714,813 of our common shares at a price of $12 per share, for
total consideration of $56.5 million.
Closing of the strategic equity
investment will be as soon as practical and no later than 90 days
from the June 23, 2021 announcement.
We will
also grant SKGC options to acquire an additional 461,298 common
shares at $11 per share within the next 12 months, 4,714,813 common
shares at a price of $15 per share, within the next 3 years, and a
further 2,357,407 shares at $20 per share, conditional upon the
timing of construction of the first Asian manufacturing facility.
SKGC is being granted a seat on our Board of Directors and as such
is expected to provide valued input into the continuing development
of our global commercialization strategy.
9
Infinite Loop
TM
Bécancour,
Québec
We are
in the planning phase for an Infinite Loop
TM
manufacturing facility in the province of Québec (the
“Québec Project”). On May 27, 2021, we acquired a
19 million square foot parcel of land in Bécancour,
Québec for $4.9 million (CDN $5.9 million) (the “New
Site”). The site offers attractive logistics being located on
the St-Lawrence river and access to rail. As previously disclosed,
we had identified a different 2 million square feet parcel of land
in Bécancour, Québec (the “Previous Site”),
and had negotiated an option right to purchase that parcel of land.
The purchase option was canceled in May 2021. The environmental
impact of building on the New Site is lower than the Previous Site
because we will be recycling an industrial site that has previously
been demolished. The development of this site will likely not
result in the destruction of wetlands or forest and it reduces the
overall construction costs and permitting time. The site size
exceeds our project needs and we may choose to sell a portion of
the land to offset part of our project commitment.
The
Québec Project is currently contemplated as wholly-owned and
operated by us which allows us to commercialize near our innovation
and engineering teams located in Terrebonne, Québec. To fund
the project and enhance our target returns, we are exploring
financing options. Alternatives under exploration include incentive
and financing programs supported by, or in partnership with,
various levels of government.
The
Québec Project would allow us to proceed with Infinite
Loop
TM
commercialization in a more expeditious manner without being
impacted by COVID-19 restrictions on international
travel.
Infinite Loop
TM
Europe
We
announced on September 10, 2020 a strategic partnership with SUEZ
GROUP (“Suez”), with the objective to build the first
Infinite Loop™ manufacturing facility in Europe. With the
combination of the Infinite Loop
TM
technology and the resource management expertise of Suez, this
partnership seeks to respond to
growth in demand in Europe from
global beverage and consumer goods brand companies who we believe
are committed to ambitious targets for a high level of recycled
content in their products. Together with Suez, we have initiated
the work to enable us to make a final investment decision for the
project with the current priorities being on the site selection,
permitting, and feedstock requirements and engineering. We are
targeting final site selection during the summer of
2021.
Joint Venture with Indorama
In
September 2018 we announced a joint venture with Indorama to
retrofit their existing PET manufacturing facilities. The joint
venture was formed with the objective to manufacture and
commercialize sustainable Loop™ PET resin to meet the growing
global demand from beverage and consumer packaged goods companies.
This partnership brings together Indorama’s manufacturing
footprint and Loop Industries’ proprietary technology to
become a supplier of 100% sustainable and recycled PET
resin.
We
entered into a Limited Liability Company Agreement between (the
“LLC Agreement”), a Marketing Agreement (the
“Marketing Agreement”) and a License Agreement (the
“License Agreement”), each dated September 24, 2018
(together, the “Joint Venture Agreements”), with
Indorama through our wholly-owned subsidiary Loop Innovations, LLC
(“Loop Innovations”), a Delaware limited liability
company. Each company has 50/50 equity interest in the joint
venture. We are contributing to the 50/50 joint venture an
exclusive worldwide royalty-free license to use our proprietary
technology to produce 100% sustainably produced PET resin in
addition to our equity cash contribution. The Joint Venture
Agreement details the establishment of an initial 20,700 metric
tons per year facility in Spartanburg, South Carolina, in the
southeastern United States. In 2019, the joint venture decided to
increase the capacity of the planned Spartanburg plant due to
customer demand to 40,000 metric tons per year.
We have currently contracted for the sale of approximately 40% of
the planned capacity, of the expected output of the Spartanburg
facility and we will resume discussions for the remaining
volume
once
we have more visibility on the commissioning date of the facility,
although we have had and may continue to experience delays due to
the COVID-19 pandemic (see
“The global COVID-19 pandemic” as
noted under “Risk Factors”)
.
As part of the Joint Venture
Agreement, we are committed to contribute our equity share for the
costs under the joint venture agreement to construct the facility.
During the year ended February 28, 2021, we made a contribution of
$650,000 and as at May 31, 2021, we have contributed a total of
$1,500,000 to the joint venture.
10
The joint venture made a decision over the
summer of 2020 that due to the COVID-19 pandemic it would
temporarily delay work on the project. Since then, no expenditures
have been incurred by the joint venture. The travel restrictions
and quarantine requirements between Canada and the US continued to
cause disruptions in our timetable. While both joint venture
partners currently remain committed to the project, we continue to
monitor the COVID-19 implications on the project
timetable.
In
conjunction with the SK strategic partnership mentioned above, on
June 18, 2021, we, Loop Innovations, Indorama and Indorama Loop
Technologies, LLC (the “Indorama Joint Venture
Company”) amended the Joint Venture Agreements (the
“Indorama Joint Venture Amendments”).
Under
the Indorama Joint Venture Amendments, we, Indorama and the
Indorama Joint Venture Company agreed to:
●
terminate
Indorama’s right of first refusal under the LLC Agreement
over any facility to produce products utilizing any waste-to-resin
technology applying our PET depolymerization
process
●
amend the
non-compete obligations under the LLC Agreement to solely apply to
the Company;
●
limit the scope of
our grant of intellectual property rights and the scope of the
exclusivity rights of the Indorama Joint Venture Company for the
retrofit of existing facilities under the License Agreement to
North America and Europe; and
●
limit the scope of
the Indorama Joint Venture Company’s permitted marketing
rights under the Marketing Agreement to North America and
Europe.
The
foregoing description of the Indorama Joint Venture Amendments does
not purport to be complete and is qualified in its entirety by
reference to the Indorama Joint Venture Amendments, a copy of which
are filed as exhibits to this Quarterly Report on Form 10-Q for the
quarter ended May 31, 2021.
Demonstration Plant and Innovation Center in Terrebonne,
Québec
As part
of our plan for the commercialization of future Infinite
Loop
TM
manufacturing facilities, we decided to convert our Terrebonne,
Québec pilot plant to an Infinite Loop
TM
demonstration and training facility. This demonstration facility
will be used to showcase the Infinite Loop
TM
end to end
technology to potential partners and customers, and train
operational teams in advance of the commissioning of commercial
plants.
We made
significant investments in the demonstration plant during the
three-month period ended May 31, 2021. In particular, we began
installation of new distillation columns in the last quarter. We
also continued testing on the two recently installed
depolymerization reactors which substantially increase our
demonstration facility’s depolymerization capacity and
confirm the design and scale-up factor for the feasibility
engineering of the planned commercial-scale facilities. In
addition, we have also entered into an agreement to acquire PET
polymerization equipment from Chemtex to manufacture of Loop™
branded PET resin at our demonstration plant. We anticipate the
Infinite Loop
TM
demonstration plant project to be largely completed by late in
calendar 2021 and delivering Loop™ branded PET resin to
customers in calendar 2022.
In
addition to the capital requirements for our commercialization, we
continue to invest in strengthening our intellectual property
portfolio, building a core competency in managing strategic
relationships and continue enhancing our brand value. Our research
and development innovation center in Terrebonne, Québec will
continue to push forward the development of our
technology.
Human Capital
Our
employees are essential to our success and we are committed to
providing a safe, productive, discrimination-free and
harassment-free work environment. All employees are responsible for
compliance with our Code of Ethics as well as our health and
safety, and anti-harassment policies. These policies and practices
help us foster a workplace environment that promotes inclusion and
diversity.
To
attract and retain highly capable and innovative employees, we have
developed competitive compensation packages and benefits programs.
Our compensation packages include market-competitive pay,
healthcare benefits, paid time off and family leave and flexible
work schedules. We also offer equity awards with multi-year vesting
provisions to incentivize and reward our employees for long-term
corporate performance and promote retention throughout the vesting
period.
To
support our employees this fiscal year and to promote their health
and safety, we encouraged administrative and engineering employees
to work remotely. We provided emergency leave for employees to take
care of a child or parent due to COVID-19 disruptions.
As of
May 31, 2021, we had 74 employees of which 29 work in research and
development and 32 in engineering and
operations.
11
Results of Operations
The
following table summarizes our operating results for the
three-month periods ended May 31, 2021 and 2020, in U.S.
Dollars.
|
|
Three months ended
May 31,
|
||
|
|
2021
|
2020
|
Change
|
|
Revenues
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
Research and
development
|
|
|
|
|
Stock-based
compensation
|
395,545
|
352,007
|
43,538
|
|
External
engineering
|
2,903,448
|
74,932
|
2,828,516
|
|
Employee
compensation
|
1,690,583
|
467,041
|
1,223,542
|
|
Machinery and
equipment expenditures
|
2,622,892
|
-
|
2,622,892
|
|
Demonstration plant
operating expenses
|
691,537
|
286,103
|
405,434
|
|
Other
|
333,900
|
300,505
|
33,395
|
|
Total research and
development
|
8,637,905
|
1,480,588
|
7,157,317
|
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
Stock-based
compensation
|
(383,630
)
|
659,817
|
(1,043,447
)
|
|
Professional
fees
|
1,631,451
|
221,697
|
1,409,754
|
|
Employee
compensation
|
845,035
|
483,034
|
362,001
|
|
Directors and
officers insurance
|
868,647
|
473,574
|
395,073
|
|
Other
|
199,068
|
114,959
|
84,109
|
|
Total general and
administrative
|
3,160,571
|
1,953,081
|
1,207,490
|
|
|
|
|
|
|
Depreciation and
amortization
|
132,001
|
255,974
|
(123,973
)
|
|
Interest and other
financial expenses
|
30,588
|
126,776
|
(96,188
)
|
|
Interest
income
|
(9,761
)
|
(40,346
)
|
30,585
|
|
Foreign exchange
loss
|
206,060
|
76,641
|
129,419
|
|
Total
expenses
|
12,157,364
|
3,852,714
|
8,304,650
|
|
Net
loss
|
$
(12,157,364
)
|
$
(3,852,714
)
|
$
(8,304,650
)
|
First Quarter Ended May 31, 2021
The net
loss for the three-month period ended May 31, 2021 increased $8.30
million to $12.16 million, as compared to the net loss for the
three-month period ended May 31, 2020 which was $3.85
million. The increase is primarily due to increased research
and development expenses of $7.16 million, increased general and
administrative expenses of $1.21 million, an increase in foreign
exchange loss of $0.13 million and a decrease in interest income of
$0.03 million, partially offset by lower depreciation and
amortization expenses of $0.12 million and lower interest and other
financial expenses of $0.1 million.
12
The
$7.16 million increase in research and development for the
three-month period ended May 31, 2021 was primarily attributable to
the following:
●
$2.83 million
increase in external engineering expenses for ongoing design work
for our Infinite Loop
TM
manufacturing process;
●
$2.62 million
increase in purchases of research and development machinery and
equipment. Starting in Q3 of fiscal 2021, we
expense
research and development machinery
and equipment in accordance with
ASC 730, Research and Development
Costs,
and no longer capitalize these costs.
The timing of this accounting treatment
is
related to management’s decision to convert our pilot plant
to exclusively a demonstration and training facility for our future
Infinite Loop™ manufacturing facilities, therefore foregoing
any alternative future use of its machinery and equipment assets
in other
applications
;
●
$1.2 million
increase in employee compensation expenses due to an increase in
hiring; and
●
$0.41 million
increase in demonstration plant and laboratory operating expenses
due to increased activity at our demonstration plant.
The
$1.21 million increase in general and administrative expenses for
the three-month period ended May 31, 2021 was primarily
attributable to the following:
●
$1.41 million
increase in expenses for legal and professional fees due to costs
principally associated with the ongoing SEC investigation and class
action suits described in “Part II, Item 1. Legal
Proceedings”;
●
$0.40 million
increase in insurance expenses mainly due to directors and officers
(“D&O”) insurance renewal costs; and
●
$0.36 million
increase in employee compensation expenses due to an increase in
hiring.
The
listed increases in general and administrative expenses were
partially offset by lower stock-based compensation expenses of
$1.04 million which are mainly due to forfeitures of RSUs recorded
in the three-month period ended May 31, 2021 for a total of $0.94
million.
The
$0.12 million decrease in depreciation and amortization expenses
for the three-month period ended May 31, 2021 is mainly
attributable to the write-down of machinery and equipment assets
related to t
he decision
in the
third quarter of
fiscal 2021 to
dedicate the demonstration and training facility to research and
development activities
. Although the machinery and equipment
will continue to be utilized at our demonstration and training
facility as it is an integral part of supporting the
commercialization of our technology, application of
ASC 730, Research and Development Costs
requires
machinery and
equipment assets
to be written off and
all future costs associated with the demonstration and training
facility
to be recognized as a research and development
expense in the consolidated statements of operations and
comprehensive loss.
The
$0.12 million increase in foreign exchange loss for the three-month
period ended May 31, 2021 is mainly due to the fluctuation in
USD/CAD exchange rates. The $0.10 million decrease in interest and
other financial expenses for the three-month period ended May 31,
2021 is mainly due to the loss on revaluation of foreign exchange
contracts in the three-month period ended May 31, 2020 which was
nil in the three-month period ended May 31, 2021. The $0.03 million
decrease in interest income for the three-month period ended May
31, 2021 is mainly due to lower interest rates as well as lower
cash balances on which we receive interest.
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. As
at May 31, 2021, we had cash and cash equivalents on hand of $18.04
million. Management actively monitors the Company’s cash
balance and short term cash commitments to ensure current
operations are funded. We are also exploring options to finance our
commercial projects.
Management continues to pursue our growth strategy and is
evaluating our financing plans to continue to raise capital to
finance the start-up of commercial operations and continue to fund
the further development of our ongoing operations. Although our
liquidity position consists of cash and cash equivalents on hand of
$18.04 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.
As part
of our strategic partnership with SKGC, SKGC will purchase
4,714,813 new treasury common shares of Loop at a price of $12 per
share, for total consideration of $56.5 million. Closing of the
strategic equity investment will be as soon as practical and no
later than 90 days from the June 23, 2021
announcement.
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 committed operating and
capital expenditures and other working capital needs for at least,
but not limited to, the 12-month period from the date of issuance
of the May 31, 2021 interim unaudited 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.
13
We have a short-term debt obligation to a Canadian bank in
connection with the purchase, in the year ended February 28, 2018,
of the land and building where our demonstration plant and
corporate offices are located at 480 Fernand-Poitras, Terrebonne,
Québec, Canada J6Y 1Y4. On January 24, 2018, the Company
obtained a $1,159,708 (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 $4,832
(CDN$5,833) plus interest, until January 2022, at which time it
will be subject to renewal. It includes an option allowing for the
prepayment of the Loan without penalty.
We also have a long-term debt obligation to Investissement
Québec in connection with a financing facility equal to 63.45%
of all eligible expenses incurred for the expansion of our
demonstration and training plant up to a maximum of $3,810,471
(CDN$4,600,000). We received the first disbursement in the amount
of $1,830,048 (CDN$2,209,234) on February 21, 2020. See Note 10 in
the accompanying interim unaudited condensed consolidated financial
statements for additional information. The remaining amount
available under the financing facility
after the first
disbursement was $1,980,422 (CDN$2,390,766)
and
relates to expenditures incurred up
to June 30, 2021 in connection with our demonstration and training
facility.
Flow of Funds
Summary of Cash Flows
A
summary of cash flows for the three months ended May 31, 2021 and
2020 was as follows:
|
|
Three Months Ended
May 31,
|
|
|
|
2021
|
2020
|
|
Net cash used in
operating activities
|
$
(12,405,558
)
|
$
(4,977,900
)
|
|
Net cash used in
investing activities
|
(4,919,326
)
|
(1,188,789
)
|
|
Net cash used by
financing activities
|
(14,496
)
|
(12,693
)
|
|
Effect of exchange
rate changes on cash
|
154,491
|
(29,534
)
|
|
Net (decrease)
increase in cash
|
$
(17,184,889
)
|
$
(6,208,916
)
|
Net Cash Used in Operating Activities
During the three-month period ended May 31, 2021, we used $12.41
million in operations compared to $4.98 million during the
three-month period ended May 31, 2020. This increase is mainly due
to increased operating expenses as we move forward on
commercialization activities and D&O insurance payments in the
amount of $1.9 million due to an increase in the annual premium. As
discussed above in the Results of Operations, the main increases in
expenses were engineering fees for ongoing design work for our
Infinite Loop
TM
manufacturing process, research and development machinery and
equipment expenses related to upgrades in our demonstration plant,
employee compensation due to an increase in hiring and professional
fees mainly due to the ongoing SEC investigation and class action
suits.
Net Cash Used in Investing Activities
During
the three months ended May 31, 2021, we made investments of $4.92
million in property, plant and equipment as compared to $1.19
million for the three months ended May 31, 2020, primarily in
connection with the purchase for $4.90 million of a parcel of Land
in Bécancour, Québec for the construction of our first
Infinite Loop™ manufacturing facility. During the three
months ended May 31, 2021, we made investments in intangible assets
of $0.05 million, particularly in its patent technology in the
United States and around the world.
During
the three months ended May 31, 2020, we made investments of $0.39
million in property, plant and equipment, primarily in connection
with the upgrade of its pilot plant. During the three months ended
May 31, 2020, we made investments in intangible assets of $0.14
million, particularly in its patent technology in the United States
and around the world. During the three months ended May 31, 2020,
we also made an additional
contribution of $0.65 million to
Indorama
Loop Technologies, LLC, the joint venture with Indorama Ventures
Holdings LP, USA.
Net Cash (Used) Provided by Financing Activities
During
the three months ended May 31, 2021 and 2020, we repaid $0.01
million of long-term debt.
14
I
TEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are subject to risks associated with currency fluctuations and
changes in foreign currency exchange rates as well as fluctuations
in the supply and price of raw materials and commodity
prices.
Foreign Currency Exchange Risk
We operate mainly through two entities, Loop Industries, Inc.,
which is a Nevada corporation and has a U.S. dollar functional
currency, and our wholly-owned subsidiary, Loop Canada Inc.
(“Loop Canada”), which is based in Terrebonne,
Québec, Canada and has a Canadian dollar functional currency.
Our reporting currency is the U.S. dollar.
We mainly finance our operations through the sale and issuance of
shares of common stock and debt of Loop Industries, Inc. in U.S.
dollars while our operations are concentrated in our wholly-owned
subsidiary, Loop Canada. Accordingly, we are exposed to foreign
exchange risk as we maintain bank accounts in U.S. dollars and a
significant portion of our operational costs (including payroll,
site costs, costs of locally sourced supplies and income taxes) are
denominated in Canadian dollars.
Significant fluctuations in the U.S. dollar to the Canadian dollar
exchange rates could materially affect our result of operations,
cash position and funding requirements. To the extent that
fluctuations in currency exchange rates cause our results of
operations to differ materially from our expectations or the
expectations of our investors, the trading price of our common
stock could be adversely affected.
From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. As part of our risk management program, we may enter
into foreign exchange forward contracts to lock in the exchange
rates for future foreign currency transactions, which is intended
to reduce the variability of our operating costs and future cash
flows denominated in currencies that differs from our functional
currencies. We do not enter into these contracts for trading
purposes or speculation, and our management believes all such
contracts are entered into as hedges of underlying transactions.
Nonetheless, these instruments involve costs and have risks of
their own in the form of transaction costs, credit requirements and
counterparty risk. If our hedging program is not successful, or if
we change our hedging activities in the future, we may experience
significant unexpected expenses from fluctuations in exchange
rates. Any hedging technique we implement may fail to be effective.
If our hedging activities are not effective, changes in currency
exchange rates may have a more significant impact on the trading
price of our common stock.
Commodity Price Risk
The plastics manufacturing industry is extremely price competitive
because of the commodity like nature of PET resin and its
correlation to the price of crude oil. The demand for recycled PET
has fluctuated with the price of crude oil. If crude oil prices
decline, the cost to manufacture recycled PET may become
comparatively higher than the cost to manufacture virgin PET. Our
ability to penetrate the market will depend in part on the cost of
manufacturing virgin PET and if we do not successfully distinguish
our product from those of virgin PET manufacturers, our entry into
the market and our ability to secure customer contracts can be
adversely affected.
Raw Material Price Risk
We purchase raw materials and packaging supplies
from several sources. While all such materials are available from
independent suppliers, raw materials are subject to fluctuations in
price and availability attributable to a number of factors,
including general economic conditions, commodity price
fluctuations, the demand by other industries for the same raw
materials and the availability of complementary and substitute
materials.
The profitability of our business also depends on
the availability and proximity of these raw materials to our
factories. The choice of raw materials to be used at our facility
is determined primarily by the price and availability, the yield
loss of lower
quality raw
materials, and the capabilities of the producer’s production
facility. Additionally, the high cost of transportation could favor
suppliers located in close proximity to our factories. If the
quality of these raw materials is lower, the quality of our product
may suffer.
Economic and financial
factors could impact our suppliers, thereby causing supply
shortages. Increases in raw material costs could have a material
adverse effect on our business, financial condition or results of
operations. 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.
15
I
TEM 4. CONTROLS 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 May 31, 2021.
B.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
during the quarter ended May 31, 2021 that materially affected, or
were reasonably likely to materially affect, our internal control
over financial reporting.
16
P
ART II. OTHER INFORMATION
I
TEM 1. LEGAL
PROCEEDINGS
SEC Investigation
As previously disclosed in our Current Report on Form 8-K filed
with the SEC on October 16, 2020, on October 15, 2020, we received
a subpoena from the SEC requesting certain information from us,
including information regarding testing, testing results and
details of results from our GEN I and GEN II technologies and
certain of our partnerships and agreements. The SEC informed us
that its investigation does not mean that the SEC has concluded
that anyone has violated the law and that the investigation does
not mean that the SEC has a negative opinion of us. We cannot
predict when this matter will be resolved or what, if any, action
the SEC may take following the conclusion of the
investigation.
Litigation
On October 13, 2020, the Company and certain of its officers were
named as defendants in a proposed class-action lawsuit filed in the
United States District Court for the Southern District of New York,
captioned
Olivier Tremblay, Individually
and on Behalf of All Other Similarly Situated v. Loop Industries,
Inc., Daniel Solomita, and Nelson Gentiletti
, Case No. 7:20-cv-0838
(“
Tremblay Class
Action”). The allegations in the complaint claim that the
defendants allegedly violated Sections 10(b) and 20(a) and Rule
10b-5 of the Securities Exchange Act of 1934 by allegedly making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. Plaintiff seeks unspecified damages on behalf of a class of
purchasers of Loop’s securities between September 24, 2018
and October 12, 2020.
On
October 28, 2020, the Company and certain of its officers were
named as defendants in a second proposed class-action lawsuit filed
in the United States District Court for the Southern District of
New York, captioned
Michelle
Bazzini, Individually and on Behalf of All Other Similarly Situated
v. Loop Industries, Inc., Daniel Solomita, and Nelson
Gentiletti
, Case No. 7:20-cv-09031-UA. The allegations in
this complaint are similar in nature to those made in the Tremblay
Class Action.
On
January 4, 2021, the United States District Court for the Southern
District of New York rendered a stipulation and order granting the
consolidation of the two class-action lawsuits filed in New York as
In re Loop Industries, Inc.
Securities Litigation
, Master File No.
7:20-cv-08538.
Sakari
Johansson and John Jay Cappa have been appointed as Co-Lead
Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP
have been appointed as Co-Lead Counsel for the class.
Plaintiffs served a consolidated amended complaint on February 18,
2021 which alleges defendants violated Sections 10(b) and 20(a) and
Rule 10b-5 of the Securities Exchange Act of 1934 by making
materially false and/or misleading statements, as well as allegedly
failing to disclose material adverse facts about the
Company’s business, operations, and prospects, which caused
the Company’s securities to trade at artificially inflated
prices. The consolidated amended complaint relies on the October
13, 2020 report published by a third party regarding the Company to
support their allegations. Defendants served a motion to dismiss
the consolidated amended complaint on April 27, 2021.
Plaintiffs’ opposition to the motion to Dismiss was served on
May 27, 2021 and Defendants’ reply in support of the motion
to dismiss was served on June 11, 2021.
On October 13, 2020, the Company, Loop Canada Inc. and certain of
their officers and directors were named as defendants in a proposed
securities class action filed in the Superior Court of Québec
(District of Terrebonne, Province of Québec, Canada), in file
no. 700-06-000012-205. The
Application for authorization
of a class action and for authorization to bring an action pursuant
to section 225.4 of the Québec Securities
Act
(the
“Application”) was filed by an individual shareholder
on behalf of himself and a class of buyers who purchased our
securities during the “Class Period” (not defined).
Plaintiff alleges that throughout the Class Period, the defendants
allegedly made false and/or misleading statements and allegedly
failed to disclose material adverse facts concerning the
Company’s technology, business model, operations and
prospects, thus causing the Company’s stock price to be
artificially inflated and thereby causing plaintiff to suffer
damages. Plaintiff seeks unspecified damages stemming from losses
he claims to have suffered as a result of the foregoing.
On December 13, 2020, the Application
was amended in order to add allegations regarding specific
misrepresentations.
17
From
time to time, we may become involved in various lawsuits and legal
proceedings or investigations which arise in the ordinary course of
business. Except as noted above, we are not presently a party to
any legal proceedings, government actions, administrative actions,
investigations or claims that are pending against us or involve us
that, in the opinion of our management, could reasonably be
expected to have a material adverse effect on our business,
financial condition or operating results. However, litigation is
subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our
business.
It is
possible that we may expend financial and managerial resources in
the defense of our intellectual property rights in the future if we
believe that our rights have been violated. It is also possible
that we may expend financial and managerial resources to defend
against claims that our products and services infringe upon the
intellectual property rights of third parties.
I
TEM 1A. RISK 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 June 1, 2021. No material changes to such risk factors have
occurred during the three months ended May 31, 2021.
I
TEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
On May
12, 2020, we issued to a service provider a warrant to acquire
25,000 shares of common stock at a strike price of $9.43 per
share.
I
TEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
I
TEM 4.
MINE SAFETY DISCLOSURES
Not
applicable.
I
TEM 5. OTHER
INFORMATION
None.
18
I
TEM 6. EXHIBITS
The
following Exhibits, as required by Item 601 of Regulation SK, are
attached or incorporated by reference, as stated
below.
Exhibit Index
|
|
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Incorporated by Reference
|
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||||
|
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Filing Date
|
|
Exhibit No.
|
|
|
Articles
of Incorporation, as amended to date
|
|
10-K
|
|
000-54768
|
|
May
30, 2017
|
|
3.1
|
|
|
|
By-laws,
as amended to date
|
|
8-K
|
|
000-54768
|
|
April
10, 2018
|
|
3.1
|
|
|
10.1
|
|
Amendment to Joint Venture
Agreements
dated June 18, 2021 by and between the Company,
Indorama Ventures Holdings LP and other parties
thereto
|
|
|
|
Filed herewith
|
|
|
|
|
|
10.2
|
|
Securities Purchase Agreement dated June 22, 2021 by and between SK
Global Chemical Co. LTD.
|
|
|
|
Filed
herewith
|
|
|
|
|
|
24.1
|
|
Power
of Attorney (contained on signature page to the previously filed
Annual Report on Form 10-K)
|
|
10-K
|
|
000-54768
|
|
08-May-19
|
|
24.1
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Filed herewith
|
|
|
|
|
|
|
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Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Filed herewith
|
|
|
|
|
|
|
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Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
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Furnished herewith
|
|
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Furnished herewith
|
|
|
|
|
|
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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
|
|
|
|
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19
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:
July 15, 2021
|
By:
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/s/ Daniel Solomita
|
|
|
|
Name:
|
Daniel
Solomita
|
|
|
|
Title:
|
President
and Chief Executive Officer, and Director (Principal Executive
Officer)
|
|
|
|
|
|
|
|
Date:
July 15, 2021
|
By:
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/s/ Drew Hickey
|
|
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|
Name:
|
Drew
Hickey
|
|
|
|
Title:
|
Chief
Financial Officer and Treasurer (Principal Accounting Officer and
Principal Financial Officer)
|
|
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20
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