10-Q 1 loop_10q.htm FORM 10-Q loop_10q.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended November 30, 2021

 

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

loop_10qimg1.jpg

Loop Industries, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada

27-2094706

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

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:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

LOOP

Nasdaq Global Market

 

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):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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 January 10, 2022, there were 47,388,056 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.

 

 

 

 

 LOOP INDUSTRIES, INC.

 

TABLE OF CONTENTS

 

Page No.

PART I. Financial Information

Item 1.

Financial Statements

F-1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

19

PART II. Other Information

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

Item 3.

Defaults Upon Senior Securities

21

Item 4.

Mine Safety Disclosures

21

Item 5.

Other Information

21

Item 6.

Exhibits

22

 

 

 

 

 

Signatures

23

 

 

2

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Loop Industries, Inc.

Three and Nine months ended November 30, 2021

Index to the Unaudited Interim Condensed Consolidated Financial Statements

 

Contents

Page(s)

Condensed consolidated balance sheets as at November 30, 2021 and February 28, 2021 (Unaudited)

F‑2

Condensed consolidated statements of operations and comprehensive loss for the three and nine months ended November 30, 2021 and 2020 (Unaudited)

F‑3

Condensed consolidated statement of changes in stockholders’ equity for the three and nine months ended November 30, 2021 and 2020 (Unaudited)

F‑4

Condensed consolidated statement of cash flows for the nine months ended November 30, 2021 and 2020 (Unaudited)

F‑6

Notes to the condensed consolidated financial statements (Unaudited)

F‑7

 

 
F-1

Table of Contents

 

Loop Industries, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

November 30,

2021

 

 

February 28,

2021

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$54,860,046

 

 

$35,221,951

 

Sales tax, tax credits and other receivables (Note 3)

 

 

825,384

 

 

 

1,763,835

 

Prepaid expenses and deposits (Note 4)

 

 

1,989,970

 

 

 

609,782

 

Assets held for sale (Note 5)

 

 

3,364,374

 

 

 

-

 

Total current assets

 

 

61,039,774

 

 

 

37,595,568

 

Investment in joint venture (Note 10)

 

 

1,500,000

 

 

 

1,500,000

 

Property, plant and equipment, net (Note 6)

 

 

5,540,679

 

 

 

3,513,051

 

Intangible assets, net (Note 7)

 

 

1,081,447

 

 

 

794,894

 

Total assets

 

$69,161,900

 

 

$43,403,513

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities (Note 9)

 

$5,422,386

 

 

$8,124,865

 

Current portion of long-term debt (Note 11)

 

 

889,228

 

 

 

938,116

 

Total current liabilities

 

 

6,311,614

 

 

 

9,062,981

 

Long-term debt (Note 11)

 

 

3,315,345

 

 

 

1,516,008

 

Total liabilities

 

 

9,626,959

 

 

 

10,578,989

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.0001: 250,000,000 shares authorized; 47,388,056 shares issued and outstanding (February 28, 2021 – 42,413,691) (Note 13)

 

 

4,740

 

 

 

4,242

 

Additional paid-in capital

 

 

149,734,659

 

 

 

113,662,677

 

Additional paid-in capital – Warrants (Note 18)

 

 

30,272,496

 

 

 

8,826,165

 

Accumulated deficit

 

 

(120,309,993)

 

 

(89,661,970)

Accumulated other comprehensive loss

 

 

(166,961)

 

 

(6,590)

Total stockholders' equity

 

 

59,534,941

 

 

 

32,824,524

 

Total liabilities and stockholders' equity

 

$69,161,900

 

 

$43,403,513

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-2

Table of Contents

 

Loop Industries, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

 

 

Three Months Ended

November 30

 

 

Nine Months Ended

November 30

 

 

 

          2021

 

 

2020

 

 

        2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (Note 14)

 

 

6,835,304

 

 

 

6,274,283

 

 

 

20,757,937

 

 

 

10,504,093

 

General and administrative (Note 15)

 

 

3,091,255

 

 

 

2,724,016

 

 

 

9,368,052

 

 

 

6,726,339

 

Write-down and impairment of property, plant and equipment

 

 

-

 

 

 

5,034,606

 

 

 

-

 

 

 

5,043,120

 

Depreciation and amortization (Notes 6 and 7)

 

 

135,035

 

 

 

104,307

 

 

 

407,806

 

 

 

654,354

 

Interest expense and other financial (income) expenses (Note 19)

 

 

49,655

 

 

 

(41,855)

 

 

113,344

 

 

 

26,016

 

Interest income

 

 

(23,654)

 

 

(20,008)

 

 

(41,828)

 

 

(78,394)

Foreign exchange loss (gain)

 

 

10,648

 

 

 

95,644

 

 

 

42,712

 

 

 

275,903

 

Total expenses

 

 

10,098,243

 

 

 

14,170,993

 

 

 

30,648,023

 

 

 

23,151,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(10,098,243)

 

 

(14,170,993)

 

 

(30,648,023)

 

 

(23,151,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(13,473)

 

 

66,170

 

 

 

(160,371)

 

 

298,570

 

Comprehensive loss

 

$(10,111,716)

 

$(14,104,823)

 

$(30,808,394)

 

$(22,852,861)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$(0.21)

 

$(0.34)

 

$(0.69)

 

$(0.57)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

47,264,646

 

 

 

41,715,806

 

 

 

44,600,557

 

 

 

40,515,885

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-3

Table of Contents

  

Loop Industries, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

 

Three Months Ended November 30, 2020

 

 

 

Common stock

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

par value $0.0001

 

 

par value $0.0001

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Amount

 

 

Number of Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Additional
Paid-in Capital - Warrants

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive (Loss)

 

 

Total Stockholders' Equity

 

Balance, August 31, 2020

 

 

39,935,210

 

 

$3,994

 

 

 

1

 

 

$-

 

 

$84,172,723

 

 

$9,870,241

 

 

$(62,297,485)

 

$(156,049)

 

$31,593,424

 

Issuance of common shares for cash, net of share issuance costs (Note 13)

 

 

2,087,000

 

 

 

209

 

 

 

-

 

 

 

-

 

 

 

24,996,419

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,996,628

 

Issuance of shares upon exercise of warrants (Note 18)

 

 

190,529

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

2,046,854

 

 

 

(394,245)

 

 

-

 

 

 

-

 

 

 

1,652,628

 

Issuance of shares upon the vesting of restricted stock units (Note 16)

 

 

200,000

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

(20)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock options granted for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

551,720

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

551,720

 

Restricted stock units issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

345,274

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

345,274

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

66,170

 

 

 

66,170

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,170,993)

 

 

-

 

 

 

(14,170,993)

Balance, November 30, 2020

 

 

42,412,739

 

 

$4,242

 

 

 

1

 

 

$-

 

 

$112,112,970

 

 

$9,475,996

 

 

$(76,468,478)

 

$(89,879)

 

$45,034,851

 

 

 

 

Three Months Ended November 30, 2021

 

 

 

Common stock

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

par value $0.0001

 

 

par value $0.0001

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Amount

 

 

Number of Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Additional
Paid-in Capital - Warrants

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive (Loss)

 

 

Total Stockholders' Equity

 

Balance, August 31, 2021

 

 

47,160,164

 

 

$4,717

 

 

 

1

 

 

$-

 

 

$149,008,231

 

 

$30,356,938

 

 

$(110,211,750)

 

$(153,488)

 

$69,004,648

 

Issuance of shares upon the vesting of restricted stock units (Note 16)

 

 

200,000

 

 

 

20

 

 

 

-

 

 

 

-

 

 

 

(20)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares upon exercise of warrants (Note 18)

 

 

11,666

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

84,441

 

 

 

(84,442)

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares upon exercise of options (Note 16)

 

 

16,226

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock options issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

311,004

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

311,004

 

Restricted stock units issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

331,005

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

331,005

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,473)

 

 

(13,473)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,098,243)

 

 

-

 

 

 

(10,098,243)

Balance, November 30, 2021

 

 

47,388,056

 

 

$4,740

 

 

 

1

 

 

$-

 

 

$149,734,659

 

 

$30,272,496

 

 

$(120,309,993)

 

$(166,961)

 

$59,534,941

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-4

Table of Contents

 

Loop Industries, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

 

Nine Months Ended November 30, 2020

 

 

 

Common stock

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

par value $0.0001

 

 

par value $0.0001

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Amount

 

 

Number of Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Additional
Paid-in Capital - Warrants

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive (Loss)

 

 

Total Stockholders' Equity

 

Balance, February 29, 2020

 

 

39,910,774

 

 

$3,992

 

 

 

1

 

 

$-

 

 

$82,379,413

 

 

$9,785,799

 

 

$(53,317,047)

 

$(388,449)

 

$38,463,708

 

Issuance of common shares for cash, net of share issuance costs (Note 13)

 

 

2,087,000

 

 

 

209

 

 

 

-

 

 

 

-

 

 

 

24,996,419

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,996,628

 

Issuance of shares upon exercise of warrants (Note 16)

 

 

190,529

 

 

 

19

 

 

 

-

 

 

 

-

 

 

 

2,046,853

 

 

 

(394,245)

 

 

-

 

 

 

-

 

 

 

1,652,627

 

Warrant issued for services (Note 18)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

84,442

 

 

 

-

 

 

 

-

 

 

 

84,442

 

Issuance of shares upon the vesting of restricted stock units (Note 16)

 

 

224,436

 

 

 

22

 

 

 

-

 

 

 

-

 

 

 

(22)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock options issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,662,155

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,662,155

 

Restricted stock units issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,028,152

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,028,152

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

298,570

 

 

 

298,570

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,151,431)

 

 

-

 

 

 

(23,151,431)

Balance, November 30, 2020

 

 

42,412,739

 

 

$4,242

 

 

 

1

 

 

$-

 

 

$112,112,970

 

 

$9,475,996

 

 

$(76,468,478)

 

$(89,879)

 

$45,034,851

 

 

 

 

Nine Months Ended November 30, 2021

 

 

 

Common stock

 

 

Series A preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

par value $0.0001

 

 

par value $0.0001

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Amount

 

 

Number of Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Additional
Paid-in Capital - Warrants

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive (Loss)

 

 

Total Stockholders' Equity

 

Balance, February 28, 2021

 

 

42,413,691

 

 

$4,242

 

 

 

1

 

 

$-

 

 

$113,662,677

 

 

$8,826,165

 

 

$(89,661,970)

 

$(6,590)

 

$32,824,524

 

Issuance of common shares and warrants for cash, net of share issuance costs (Note 13)

 

 

4,714,813

 

 

 

471

 

 

 

-

 

 

 

-

 

 

 

34,625,823

 

 

 

21,461,450

 

 

 

-

 

 

 

-

 

 

 

56,087,744

 

Issuance of warrants for financing facility (Notes 11 and 18)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

69,323

 

 

 

-

 

 

 

-

 

 

 

69,323

 

Issuance of shares upon the vesting of restricted stock units (Note 16)

 

 

231,660

 

 

 

24

 

 

 

-

 

 

 

-

 

 

 

(24)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares upon exercise of warrants (Note 16)

 

 

11,666

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

84,441

 

 

 

(84,442)

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares upon exercise of options (Note 16)

 

 

16,226

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

(2)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock options issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,203,975

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,203,975

 

Restricted stock units issued for services (Note 16)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

157,769

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

157,769

 

Foreign currency translation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(160,371)

 

 

(160,371)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(30,648,023)

 

 

-

 

 

 

(30,648,023)

Balance, November 30, 2021

 

 

47,388,056

 

 

$4,740

 

 

 

1

 

 

$-

 

 

$149,734,659

 

 

$30,272,496

 

 

$(120,309,993)

 

$(166,961)

 

$59,534,941

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-5

Table of Contents

 

Loop Industries, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended November 30,

 

 

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$(30,648,023)

 

$(23,151,431)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization (Notes 6 and 7)

 

 

407,806

 

 

 

654,354

 

Stock-based compensation expense (Note 16)

 

 

1,361,744

 

 

 

2,774,749

 

Write-down and impairment of property, plant and equipment

 

 

-

 

 

 

5,043,120

 

Accretion and accrued interest expenses (Note 19)

 

 

82,393

 

 

 

56,259

 

Loss (gain) on revaluation of foreign exchange contracts (Note 19)

 

 

-

 

 

 

(58,945)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Sales tax and tax credits receivable (Note 3)

 

 

948,328

 

 

 

(477,855)

Prepaid expenses (Note 4)

 

 

(1,394,272)

 

 

(1,075,291)

Accounts payable and accrued liabilities (Note 9)

 

 

(3,587,932)

 

 

1,690,789

 

Net cash used in operating activities

 

 

(32,829,956)

 

 

(14,544,251)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Investment in joint venture (Note 10)

 

 

-

 

 

 

(650,000)

Additions to property, plant and equipment (Notes 5 and 6)

 

 

(5,022,255)

 

 

(1,580,795)

Additions to intangible assets (Note 7)

 

 

(348,017)

 

 

(155,798)

Net cash used in investing activities

 

 

(5,370,272)

 

 

(2,386,593)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from sale of common shares and warrants, and exercise of warrants, net of share issuance costs (Note 13)

 

 

56,087,746

 

 

 

26,649,253

 

Proceeds from issuance of long-term debt (Note 11)

 

 

1,868,954

 

 

 

-

 

Repayment of long-term debt (Note 11)

 

 

(41,041)

 

 

(32,781)

Net cash (used) provided by financing activities

 

 

57,915,659

 

 

 

26,616,472

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes

 

 

(77,336)

 

 

210,516

 

Net increase (decrease) in cash

 

 

19,638,095

 

 

 

9,896,144

 

Cash, beginning of period

 

 

35,221,951

 

 

 

33,717,671

 

Cash, end of period

 

$54,860,046

 

 

$43,613,815

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Income tax paid

 

$-

 

 

$-

 

Interest paid

 

$30,506

 

 

$28,613

 

Interest received

 

$23,654

 

 

$78,394

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 
F-6

Table of Contents

 

Loop Industries, Inc.

Three and Nine Months Ended November 30, 2021 and 2020

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

1.  The Company, Basis of Presentation

 

The Company

 

Loop Industries, Inc. (the “Company,” “Loop Industries,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber to its base building blocks (monomers).  The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging and polyester fiber. The Company is currently in the development stage with no revenues.  The Company is in the process of pursuing the construction of Infinite Loop™ commercial scale facilities in Québec, Canada, and with strategic partners in Europe and South Korea. Additionally, the company has a joint venture to pursue the retrofitting of existing fossil fuel PET polymerization facilities with its recycling technology.

 

Risks and uncertainties

 

Our ability to implement our business plan and generate future operating revenues depends in part on whether we can obtain the necessary financing through a combination of the issuance of debt, equity, and/or joint ventures and/or government incentive programs. We have committed a portion of our cash on hand for certain long lead equipment in connection with the Bécancour project. We expect to enter into additional commitments to move the project ahead within our targeted construction timeframes. However, there is a risk that we may not be able to attract additional financing through debt or equity markets. Even if additional financing is available, it may not be available on terms favorable to us. Our failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on our ability to execute our business plan.

 

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- and nine-month periods ended November 30, 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, assets held for sale, 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.

 

Although the Company continues to monitor the situation and may adjust the Company’s current policies as more information and public health guidance continues to evolve, 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.

 

 
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Table of Contents

 

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 is 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 process development and design, testing of preproduction samples, purchases of machinery and equipment for the small-scale Terrebonne production facility (the “Terrebonne Facility”), compensation, and consulting fees, and are expensed as incurred. Total research and development expenses recorded during the nine-month periods ended November 30, 2021 and 2020 amounted to $20,757,937 and $10,504,093, 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.

 

Assets held for sale

 

Assets are classified as held for sale when they met the criteria set out in ASC 360-10-45-9 Long-lived assets classified as held for sale:

 

 

·

Management, having the authority to approve the action, commits to a plan to sell the asset;

 

 

 

 

·

The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

 

 

 

 

·

An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;

 

 

 

 

·

The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year;

 

 

 

 

·

The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

 

 

 

 

·

Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

 
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Table of Contents

  

When the criteria are met, the assets are presented at the lesser of fair market value, net of selling costs, and cost in current assets.

 

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

 

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 nine-month periods ended November 30, 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 November 30, 2021, the potentially dilutive securities consisted of 1,570,000 outstanding stock options (2020 – 1,587,081), 4,014,928 outstanding restricted stock units (2020 – 4,171,609), and 11,659,418 outstanding warrants (2020 – 4,693,802).

 

Recently issued accounting pronouncements not yet adopted

 

In November 2021, the FASB issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance”. This ASU provided guidance to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Under the new guidance, an entity is required to provide the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item and, (3) significant terms and conditions of the transactions, including commitments and contingencies. This update is effective for fiscal years beginning after December 15, 2021. We do not expect this accounting guidance to materially impact our results of operations or financial position.

 

3. Sales Tax, Tax Credits and Other Receivables

 

Sales tax, research and development tax credits and other receivables as at November 30, 2021 and February 28, 2021 were as follows:

 

 

 

November 30,

2021

 

 

February 28,

2021

 

Sales tax

 

$502,180

 

 

$1,155,504

 

Research and development tax credits

 

 

208,256

 

 

 

435,467

 

Other receivables

 

 

114,948

 

 

 

172,864

 

 

 

$825,384

 

 

$1,763,835

 

 

In the nine-month period ended November 30, 2021, the Company received 327,429 (2021 – nil) reimbursable research and development tax credits in cash.

 

 
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Table of Contents

 

4. Prepaid Expenses and Deposits

 

Prepaid expenses and deposits as at November 30, 2021 and February 28, 2021 were as follows:

 

 

 

November 30,

2021

 

 

February 28,

2021

 

Cash deposits on machinery and equipment

 

$739,863

 

 

$379,395

 

Insurance

 

 

1,073,650

 

 

 

-

 

Other

 

 

176,457

 

 

 

230,387

 

 

 

$1,989,970

 

 

$609,782

 

 

The Company has paid $739,863 of non-refundable cash deposits on machinery and equipment, $638,273 of which will be used in connection with the Terrebonne Facility in research and development activities will be expensed, and classified as research and development expenses, in the period the equipment is received. The Company also made $101,590 of non-refundable cash deposits on machinery and equipment that will be used in connection with the construction of our Infinite Loop manufacturing facility in Bécancour, Québec which will be expensed in the period the equipment is received.

 

5. Asset held for sale

 

On May 27, 2021, we acquired land in Bécancour, Québec for cash of $4.8 million (CDN $5.9 million). The site is part of our planning for an Infinite Loop manufacturing facility. We are using a portion of the land in connection with the construction of our Infinite Loop manufacturing facility and selling the excess land. The portion of the land we are committed to selling meets all criteria under ASC 360 Property, plant and equipment to be classified as an asset held for sale.

 

The total purchase cost of the land has been allocated between the portion of land held for sale and the land being used for the Infinite Loop manufacturing facility based on surface area.

 

Description

 

Balance sheet line item

 

Cost

 

Land held for sale

 

Assets held for sale

 

$3,364,373

 

Infinite Loop manufacturing facility

 

Property, plant and equipment, net

 

 

1,391,556

 

 

 

 

 

$4,755,929

 

  

6. Property, Plant and Equipment

 

Property, plant and equipment as at November 30, 2021 and February 28, 2021 were as follows:

 

 

 

As at November 30, 2021

 

 

 

Cost

 

 

Accumulated depreciation, write-down and impairment

 

 

Net book value

 

Building

 

$1,939,801

 

 

$(248,333)

 

$1,691,468

 

Land

 

 

1,632,003

 

 

 

-

 

 

 

1,632,003

 

Building and Land Improvements

 

 

2,797,984

 

 

 

(754,713)

 

 

2,043,271

 

Machinery and equipment

 

 

6,514,252

 

 

 

(6,514,252)

 

 

-

 

Office equipment and furniture

 

 

294,146

 

 

 

(120,209)

 

 

173,937

 

 

 

$13,178,186

 

 

$(7,637,507)

 

$5,540,679

 

 

 
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Table of Contents

 

 

 

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 and Land 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

 

 

On May 27, 2021, the Company acquired a parcel of land in Bécancour, Québec for $4.8 million (CDN $5.9 million). The Company is using a portion of the property for the construction of a commercial facility to manufacture Loop™ branded PET resin using its Infinite Loop™ technology. The excess land is classified as asset held for sale, as described in Note 5.

 

During the three-month period ended November 30, 2021, the Company incurred civil construction costs of $902,325 for site preparation on the Bécancour land for the planned commercial facility.

 

Depreciation expense for the three- and nine-month periods ended November 30, 2021 amounted to $114,799 and $351,589, respectively (2020– $93,006 and $624,189, respectively), and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss.

 

7. Intangible Assets

 

Intangible assets as at November 30, 2021 and February 28, 2021 were $1,081,447and $794,894, respectively.

 

During the nine-months periods ended November 30, 2021 and 2020, we made additions to intangible assets of $348,017 and $452,758, respectively.

 

Amortization expense for the three- and nine-month periods ended November 30, 2021 amounted to $20,236 and $56,216, respectively (2020 - $11,301 and $30,165, respectively), and is recorded as an operating expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

8. Fair value of financial instruments

 

The following tables present the fair value of the Company’s financial liabilitiy, being long-term debt as at November 30, 2021 and February 28, 2021:

 

 

 

Fair Value as at November 30, 2021

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Level in the hierarchy

 

Instruments carried at amortized cost:

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

4,204,573

 

 

$

4,219,305

 

 

Level 2

 

 

 

 

Fair Value at February 28, 2021

 

 

 

Carrying

Amount

 

 

Fair Value

 

 

Level in the hierarchy

 

Instruments carried at amortized cost:

 

 

 

 

 

 

 

 

 

Long-term debt

 

$2,454,123

 

 

$2,464,540

 

 

Level 2

 

 

 
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Table of Contents

 

9. Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities as at November 30, 2021 and February 28, 2021 were as follows:

 

 

 

November 30,

2021

 

 

February 28,

2021

 

Trade accounts payable

 

$2,513,404

 

 

$5,082,736

 

Accrued construction costs

 

 

902,325

 

 

 

-

 

Accrued employee compensation

 

 

1,187,977

 

 

 

970,154

 

Accrued engineering fees

 

 

312,155

 

 

 

535,359

 

Accrued professional fees

 

 

288,966

 

 

 

1,270,628

 

Other accrued liabilities

 

 

217,559

 

 

 

265,988

 

 

 

$5,422,386

 

 

$8,124,865

 

 

10. 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 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 November 30, 2021 and, as at November 30, 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 nine-month period ended November 30, 2021, we made no contributions to ILT (2020 – $650,000). These contributions to ILT, which have been matched by Indorama Ventures, were used to fund engineering design costs which have been capitalized in ILT.

 

In conjunction with the SK strategic partnership described in Note 13, 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-12

Table of Contents

  

11. Long‑Term Debt

 

 

 

November 30,

2021

 

 

February 28,

2021

 

Investissement Québec financing facility :

 

 

 

 

 

 

Principal amount

 

$3,595,998

 

 

$1,741,612

 

Unamortized discount

 

 

(366,219)

 

 

(268,192)

Accrued interest

 

 

85,566

 

 

 

42,588

 

Total Investissement Québec financing facility

 

 

3,315,345

 

 

 

1,516,008

 

Term loan

 

 

 

 

 

 

 

 

Principal amount

 

 

889,228

 

 

 

938,116

 

Less: current portion

 

 

(889,228)

 

 

(938,116)

Total term loan, net of current portion

 

 

-

 

 

 

-

 

Long-term debt, net of current portion

 

$3,315,345

 

 

$1,516,008

 

 

Investissement Québec financing facility

 

On February 21, 2020, the Company received $1,727,043 (CDN$2,209,234) from Investissement Québec as the first disbursement of our financing facility, out of a maximum of $3,595,998 (CDN$4,600,000) (the “Financing Facility”). The loan bears interest at 2.36% and there is a 36-month moratorium on both capital and interest repayments starting on the date of the first disbursement, after which capital and interest is repayable in 84 monthly installments. The Company established the fair value of the loan for the first disbursement at $1,354,408 based on a discount rate of 5.45%, which reflected a debt discount of $290,714. The discount rate used was based on the external financing from a Canadian bank. The Company, under the loan agreement, was required to pay fees representing 1% of the loan amount, $35,960 (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.

 

On August 26, 2021, the Company received $1,868,954 (CDN$2,390,766) from Investissement Québec as the second disbursement of the Financing Facility, the balance of the total amount available under the Financing Facility. The second disbursement bears the same interest rate and repayment terms as the first disbursement. The Company established the fair value of the loan for the first disbursement at $1,750,395 based on a discount rate of 3.95%, which reflected a debt discount of $139,390. The discount rate used was based on the external financing from a Canadian bank. There were no fees associated with the second disbursement. Debt discount and deferred financing expenses are amortized to “Interest and other financial expenses” in our Consolidated Statements of Operations and Comprehensive Loss.

 

The Company recorded interest expense on the Investissement Québec loan for the three- and nine-month periods ended November 30, 2021 in the amount of $21,704 and $44,098 respectively (2020 – $10,003 and $28,816) and an accretion expense of $16,723 and $38,295 respectively (2020 – $9,387 and $27,045).

 

The Company 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 $359,600 (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 have a term of three years from the date of issuance. The loan can be repaid at any time by the Company without penalty. In connection with 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. In connection with the second disbursement of the Financing Facility, the Company issued a warrant (“Second Disbursement Warrant”) to acquire 17,180 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 $69,323 and is included in “Additional paid-in capital – Warrants” in our Condensed Consolidated Balance Sheets. The First and Second Disbursement Warrants remain outstanding as at November 30, 2021.

 

 
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Term loan

 

On January 24, 2018, the Company obtained a $1,109,614 (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 $4,560 (CDN$5,833) plus interest, maturing in January 2022. It includes an option allowing for the prepayment of the Loan without penalty. During the three- and nine-month periods ended November 30, 2021, we repaid $13,680 and $41,041 respectively (2020 – $13,497 and $32,781) on the principal balance of the Loan and interest paid amounted to $11,010 and $30,506 and (2020 – $9,172 and $29,102). The terms of the credit facility require the Company to comply with certain financial covenants. As at November 30, 2021 and 2020, the Company was in compliance with its financial covenants.

 

Principal repayments due on the Company’s long-term debt over the next five years are as follows:

 

Years ending

 

Amount

 

February 28, 2022

 

$

889,228

 

February 28, 2023

 

 

-

 

February 29, 2024

 

 

513,705

 

February 28, 2025

 

 

513,705

 

February 28, 2026

 

 

513,705

 

Thereafter

 

 

2,054,881

 

Total

 

$

4,485,224

 

 

12. 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 far simpler to purify.

 

During the quarters ended November 30, 2021 and 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.

 

 
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13. Stockholders’ Equity

 

Common Stock

 

For the nine months ended November 30, 2021

 

Number of

shares

 

 

Amount

 

Balance, February 28, 2021

 

 

42,413,691

 

 

$4,242

 

Issuance of shares upon settlement of restricted stock units

 

 

231,660

 

 

 

24

 

Issuance of shares for cash

 

 

4,714,813

 

 

 

471

 

Issuance of shares upon exercise of warrants

 

 

11,666

 

 

 

1

 

Issuance of shares upon exercise of options

 

 

16,226

 

 

 

2

 

Balance, November 30, 2021

 

 

47,388,056

 

 

$4,740

 

 

For the nine months ended November 30, 2020

 

Number of

shares

 

 

Amount

 

Balance, February 29, 2020

 

 

39,910,774

 

 

$3,992

 

Issuance of shares for cash

 

 

2,087,000

 

 

 

209

 

Issuance of shares upon the exercise of warrants

 

 

190,529

 

 

 

19

 

Issuance of shares upon settlement of restricted stock units

 

 

224,436

 

 

 

22

 

Balance, November 30, 2020

 

 

42,412,739

 

 

$4,242

 

 

During the nine months ended November 30, 2021, the Company recorded the following common stock transactions:

 

(i)

The Company issued 231,660 shares of the common stock to settle restricted stock units that vested in the period.

(ii)

The Company issued 4,714,813 shares of its common stock, with warrants, at an aggregate offering price of $12.00 per share for total gross proceeds of $56,577,756 and net proceeds of $56,084,304.

(iii)

The Company issued 11,666 shares of its common stock upon the exercise of a warrant.

(iv)

The Company issued 16,226 shares of its common stock upon the exercise of stock options.

 

During the nine months ended November 30, 2020, the Company recorded the following common stock transaction:

 

(i)

On September 23, 2020 and October 1, 2020, the Company sold 1,880,000 and 207,000 shares, respectively of its common stock at an offering price of $12.75 per share in a registered direct offering, for total gross proceeds of $26,609,250.

(ii)

The company issued 192,529 shares of its common stock upon the exercise of warrants.

(iii)

On October 15, 2020, the Company issued 200,000 shares of common stock to settle restricted stock units related to the President and Chief Executive Officer.

(iv)

The Company issued 24,436 shares of its common stock to settle restricted stock units that vested in the period.

 

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 sold to the Purchaser the following securities on July 29, 2021 for an aggregate purchase price of $56.5 million (collectively, the “SKGC 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 BDP Date (as defined in the Second Tranche Warrants), 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, with an expiration date of June 14, 2022 (the “Third Tranche Warrants,” and together with First Tranche Warrants and the Second Tranche Warrants, the “Warrants”).

 

The Purchaser may exercise the First Tranche Warrant at any time beginning on January 29, 2022 and the Second Tranche Warrant at any time on or after the later to occur of (i) January 29, 2022 and (ii) the first business day following the First Plant Milestone (as defined in the Second Tranche Warrant) prior to its expiration date. The Purchaser may exercise the Third Tranche Warrant at any time prior to June 14, 2022.

 

 
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The table below summarizes the allocation of the aggregate purchase price, net of issuance costs, based on the relative fair-value of the components at the grant date:

 

Common stock

 

$34,622,854

 

First Tranche Warrants

 

 

13,158,981

 

Second Tranche Warrants

 

 

7,167,195

 

Third Tranche Warrants

 

 

1,135,274

 

 

 

$56,084,304

 

 

The fair value of the warrants was determined using the Black-Scholes model.

 

After the closing of the SKGC Investment, the Purchaser owns approximately 10.0% of the issued and outstanding Common Stock as of that date.

 

14. Research and Development Expenses

 

Research and development expenses for the three-month periods ended November 30, 2021 and 2020 were as follows:

 

 

 

November 30,

2021

 

 

November 30,

2020

 

Machinery and equipment expenditures

 

$2,599,758

 

 

$2,325,540

 

Employee compensation

 

 

1,786,765

 

 

 

1,214,434

 

External engineering

 

 

1,585,512

 

 

 

2,224,910

 

Plant and laboratory operating expenses

 

 

665,893

 

 

 

515,395

 

Other

 

 

197,376

 

 

 

(5,996)

 

 

$6,835,304

 

 

$6,274,283

 

 

Research and development expenses for the nine-month periods ended November 30, 2021 and 2020 were as follows:

 

 

 

November 30,

2021

 

 

November 30,

2020

 

Machinery and equipment expenditures

 

$7,707,882

 

 

$2,325,540

 

Employee compensation

 

 

5,365,581

 

 

 

3,094,151

 

External engineering

 

 

5,040,342

 

 

 

3,241,959

 

Plant and laboratory operating expenses

 

 

2,064,403

 

 

 

1,385,892

 

Other

 

 

579,729

 

 

 

456,551

 

 

 

$20,757,937

 

 

$10,504,093

 

 

During the nine-month period ended November 30, 2021, we recorded reimbursable research and development tax credits of $54,911 as a reduction of research and development expenses and an expense of $151,379 in the nine-month period ended November 30, 2020. The expense in the nine-month period ended November 30, 2020 was due to a revision of research and development tax credits by Canadian tax authorities. During the nine-month period ended November 30, 2021, we recorded no government grants as a reduction of research and development expenses (2020 – $200,738).

 

15. General and Administrative Expenses

 

General and administrative expenses for the three-month periods ended November 30, 2021 and 2020 were as follows:

 

 

 

November 30,

2021

 

 

November 30,

2020

 

Professional fees

 

$650,164

 

 

$1,164,004

 

Employee compensation

 

 

1,028,242

 

 

 

945,889

 

Insurance

 

 

1,193,554

 

 

 

480,013

 

Other

 

 

219,295

 

 

 

134,110

 

 

 

$3,091,255

 

 

$2,724,016

 

 

 
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General and administrative expenses for the nine-month periods ended November 30, 2021 and 2020 were as follows:

 

 

 

November 30,

2021

 

 

November 30,

2020

 

Professional fees

 

$3,138,611

 

 

$1,806,134

 

Employee compensation(1)

 

 

2,357,769

 

 

 

3,091,214

 

Insurance

 

 

3,121,353

 

 

 

1,455,954

 

Other

 

 

750,319

 

 

 

373,037

 

 

 

$9,368,052

 

 

$6,726,339

 

 

(1)

Includes stock-based compensation expense. In the nine-month period ended November 30, 2021, the Company recorded RSU forfeitures for an amount of $935,837 (2020 – $4,005) as a net reversal of stock-based compensation.

 

16.  Share-based Payments

 

Stock Options

 

During the three-month period ended November 30, 2021, the Company granted no stock options (2020 – nil), 17,081 options were exercised with a weighted average exercise price of $0.80 (2020 – nil), no stock options were forfeited (2020 – nil) and no stock options expired (2020 – nil).

 

During the nine-month period ended November 30, 2021, the Company granted no stock options (2020 – nil), 17,081 options were exercised with a weighted average exercise price of $0.80 (2020 – nil), no stock options were forfeited (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- and nine-month periods ended November 30, 2021 and 2020.

 

The total number of stock options outstanding as at November 30, 2021 was 1,570,000 (2020 – 1,587,081) with a weighted average exercise price of $6.87 (2020 - $6.81), of which 1,286,667 were exercisable (2020 – 986,248) with a weighted average exercise price of $7.48 (2020 – $8.18).

 

During the three-month periods ended November 30, 2021 and 2020, stock-based compensation expense attributable to stock options amounted to $311,004 and $551,720, respectively, and is included in operating expenses.

 

During the nine-month periods ended November 30, 2021 and 2020, stock-based compensation expense attributable to stock options amounted to $1,203,975 and $1,662,155, respectively, and is included in operating expenses.

 

Restricted Stock Units

 

During the three-month period ended November 30, 2021, the Company granted 62,638 restricted stock units (“RSUs”) (2020 – 57,859) with a weighted average fair value of $13.64 (2020 – $12.96), settled 200,000 RSUs (2020 – 200,000) with a weighted average fair value of $0.80 (2020 – $0.80) and 17,988 RSUs were forfeited (2020 – nil) with a weighted average fair value of $8.73 (2020 – nil).

 

During the nine-month period ended November 30, 2021, the Company granted 349,580 restricted stock units (“RSUs”) (2020 – 180,232) with a weighted average fair value of $10.16 (2020 – $10.18), settled 231,660 RSUs (2020 – 224,436) with a weighted average fair value of $1.90 (2020 – $1.78) and 313,512 RSUs were forfeited (2020 – 2,989) with a weighted average fair value of $7.97 (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.

 

 
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The total number of RSUs outstanding as at November 30, 2021 was 4,014,928 (2020 – 4,171,609), of which 525,313 were vested (2020 – 691,327).

 

During the three-month periods ended November 30, 2021 and 2020, stock-based compensation attributable to RSUs amounted to $331,005 and $345,274, respectively, and is included in operating expenses.

 

During the nine-month periods ended November 30, 2021 and 2020, stock-based compensation attributable to RSUs amounted to $157,769 and $1,028,152, respectively, and is included in operating expenses. During the nine-month period ended November 30, 2021, the Company recorded a reversal of expenses for forfeitures for a total of $963,022 (2020 – $4,005).

 

Stock-Based Compensation Expenses

 

During the three-month periods ended November 30, 2021 and 2020, stock-based compensation included in research and development expenses amounted to $362,435 and $350,393, respectively, and in general and administrative expenses amounted to $279,574 and $546,601, respectively.

 

During the nine-month periods ended November 30, 2021 and 2020, stock-based compensation included in research and development expenses amounted to $1,152,506 and $1,054,682, respectively, and in general and administrative expenses amounted to $209,236 and $1,720,067, respectively. Stock-based compensation included in general and administrative expenses in the nine-month period ended November 30, 2021 includes reversal of expenses for forfeitures for a total of $935,837 (2020 – $4,005).

 

17. 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 nine-month periods ended November 30, 2021 and 2020:

 

 

 

2021

 

 

2020

 

 

 

Number of units

 

 

Number of units

 

Outstanding, beginning of period

 

 

1,083,412

 

 

 

1,300,518

 

Share reserve increase

 

 

-

 

 

 

-

 

Units granted

 

 

(349,580)

 

 

(183,621)

Units forfeited

 

 

313,512

 

 

 

2,989

 

Units expired

 

 

-

 

 

 

-

 

Outstanding, end of period

 

 

1,047,344

 

 

 

1,119,886

 

 

 
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18. Warrants

 

During the nine-month period ended November 30, 2021, the Company issued warrants to purchase 7,550,698 shares of our common stock. 25,000 warrants were exercised with a weighted average exercise price of $9.43 and no warrants were forfeited, nor expired in the nine-month period ended November 30, 2021. The table below summarizes the warrants granted during the nine-month period ended November 30, 2021:

 

Number of warrants

 

Exercise Price

 

Expiration date

4,714,813

 

$

15.00

 

July 29, 2024

2,357,407

 

 

20.00

 

(1)

461,298

 

 

11.00

 

June 14, 2022

17,180

 

$

11.00

 

August 26, 2024

 

(1)

Expiration date is 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 BDP Date (as defined in the Second Tranche Warrants), provided that the First Plant Milestone has not occurred as of such date.

 

During the nine-month period ended November 30, 2020, the Company issued, in exchange for consulting services, a warrant to purchase 25,000 shares of our common stock at the price of $9.43 per share expiring May 12, 2022 and warrants to issue 200,000 shares of our common stock with an exercise price of $11.00 expired. During the nine-month periods ended November 30, 2020, 159,664 warrants were exercised at the price of $8.55 per share and 30,864 warrants were exercised at the price of $9.32 per share. No warrants were forfeited in the nine-month period ended November 30, 2020.

 

19. Interest and Other Finance Costs

 

Interest and other finance costs for the three-month periods ended November 30, 2021 and 2020 are as follows:

 

 

 

2021

 

 

2020

 

Interest on long-term debt

 

$32,718

 

 

$19,185

 

Accretion expense

 

 

16,937

 

 

 

9,387

 

Loss (gain) on revaluation of foreign exchange contracts

 

 

-

 

 

 

(70,427)

 

 

$49,655

 

 

$(41,855)

 

Interest and other finance costs for the nine-month periods ended November 30, 2021 and 2020 are as follows:

 

 

 

2021

 

 

2020

 

Interest on long-term debt

 

$74,832

 

 

$57,917

 

Accretion expense

 

 

38,512

 

 

 

27,044

 

Loss (gain) on revaluation of foreign exchange contracts

 

 

-

 

 

 

(58,945)

 

 

$113,344

 

 

$26,016

 

 

There were no foreign exchange contracts outstanding as of November 30, 2021.

 

20. Commitments and Contingencies

 

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.

 

 
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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. The authorization hearing is scheduled on February 24, 2022.

 

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.

 

21. Subsequent event

 

Commitment to purchase of machinery and equipment

 

In December 2021, the Company entered into an agreement for the purchase of long lead machinery and equipment in connection with the construction of our Infinite Loop™ manufacturing facility in Bécancour, Québec for up to $8,546,000 over the next 13 months, subject to various terms and conditions. Pursuant to the agreement, the Company has paid a cash deposit of $2,136,500.

 

 
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ITEM 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 relative to our financial commitments, (vi) engineering, contracting and building our manufacturing facilities, (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 additional variants 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.

 

 
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Introduction

 

Loop Industries is a technology company whose mission is to accelerate the world’s shift towards sustainable PET plastic and polyester fiber and away from our dependence on fossil fuels. Loop owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber, including plastic bottles and packaging, carpets and textiles of any color, transparency or condition and even ocean plastics that have been degraded by the sun and salt, to its base building blocks (monomers). The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin and polyester fiber suitable for use in food-grade packaging, thus enabling our customers to meet their sustainability objectives. Loop Industries is contributing to the global movement towards a circular economy by preventing plastic waste and recovering waste plastic for a more sustainable future for all.

 

Industry Background and Market Opportunity

 

The global annual market demand for PET plastic and polyester fiber will exceed $160 billion by 2022 as projected in the 2018 IHS Polymer Market Report.

 

We believe plastic pollution and climate change continue to be 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 greenhouse gas (“GHG”) 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, Europe and Asia 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 September 2021, PepsiCo stated 11 European markets are moving key Pepsi-branded products to 100% rPET bottles by 2022, and in the U.S., all Pepsi-branded products will be converted to 100% rPET bottles 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 using at least 25% post-consumer recycled plastic in packaging;

 

 

 

 

·

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 towards reuse models where relevant by 2025; and

 

 

 

 

·

Ikea’s ambition is, that by 2030, all plastic used in their products will be based on renewable or recycled material.

 

 
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There is a growing regulatory and policy environment to encourage a reduction in the production of virgin fossil fuel-based plastic and for minimum recycled content in packaging imposed by various governments:

 

 

·

In North America: Canada has announced a zero-plastic waste by 2030 goal and is targeting all plastic packaging contain 50% recycled content by 2030. A California law enacted on September 24, 2020 requires that plastic bottles contain at least 15% post-consumer resin by 2022, 25% by 2025 and 50% by 2030.

 

 

 

 

·

In Europe: starting January 2021, the European Union introduced a new tax of €800/ton on non-recycled plastic packaging. Effective 2022, a new £200/ton tax will apply in the UK to plastic packaging produced or imported into the UK that does not contain at least 30% recycled plastic. France has a stated goals of 100% plastics recycled by 2025 and 77% of beverage bottles to be collected.

 

 

 

 

·

In Asia: South Korea targets reducing plastic waste by 20% and increase recycling rates from 54% to 70% by 2025 and 30% renewable plastic by 2030.

 

The growing regulatory environment combined with global consumer goods companies, apparel manufacturers, and retail brand commitments for 2025 and 2030 are expected to increase the demand for recycled PET (“rPET”)plastic further.

 

As explained by the International Bottled Water Association, currently, mechanical recycled PET plastic is produced principally through the conversion of bales of PET bottles. The materials have been collected and transported to a materials recovery facility (“MRF”), where they are sorted from other materials, baled, and sent to specific PET recycling facilities. The bales are broken and sorted to remove any non-PET materials. The PET is then ground and put through a separation process which separates the PET from the bottle cap and label materials. Clean PET flake is then further processed depending on its intended end market. It may become more highly refined PET pellet for new bottles or extruded into PET sheet for clamshells, trays, and cups. Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.

 

We believe mechanically recycled PET has a number of challenges in meeting the quality specifications and growing volume requirements implied by commitments from major brands, mainly due to the cost and variety of acceptable PET feedstock. Some mechanical recycling processes involve remelting the PET flake which reduces the quality of the rPET output each time it is recycled relative to the specifications of virgin PET produced from fossil fuels. Each time the PET plastic is mechanically recycled, its quality and clarity are reduced. Therefore, mechanically recycled PET may need to be mixed with virgin PET from fossil fuels to maintain quality. Lower quality mechanically recycled PET is often downcycled to alternate uses such as polyester fibers which may be dyed and used in carpets or clothing. Additionally, mechanically recycled PET manufactured for use in clear bottles or food containers requires 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% recycled 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, 100% recycled PET resin suitable for use in food-grade packaging and polyester fiber.

 

 
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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 and lower GHG emissions 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 fewer, 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.

 

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 China, the Eurasian Patent Organization, Europe, Japan, India, the Gulf Cooperation Council, and various other countries, and pending patent applications in Canada, Japan, South Korea, and various other countries 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 Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, 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, all expected to expire on or around June 2039. Internationally, we also have an allowed patent application in Bangladesh and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, 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 pending U.S. application. Internationally, we also have pending applications in Brazil and South Africa. Any patents that would ultimately grant from this application 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 an allowed U.S. application, a granted Bangladesh application, a pending U.S. application, a pending International application, and pending applications in Canada, China, Korea, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries. Any patents that would ultimately grant from these applications would be expected to expire on or around March 2040, if granted and 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.

 

 
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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.

 

Loop’s PET resin was subjected to independent testing by an external and certified laboratory, which confirmed the PET complies with FDA Regulation 21 CFR § 177.1630 on August 26, 2021, as well as EU Commission Regulation No 10/2011 on July 27, 2021. These results attest that Loop’s PET is safe for use in food-contact applications, including but not limited to bottled water, carbonated drinks and food trays. Demonstration of compliance with food-contact requirements follows the No Objection Letter (“NOL”) from the FDA previously granted to Loop in March 2021. The NOL confirms Loop’s monomers can produce rPET of a purity suitable for food-contact use, provided it meets the applicable requirements of Title 21 of the Code of Federal Regulations. The monomers used in the PET resin submitted for testing were produced at Loop’s small-scale production facility in Terrebonne, Québec (the “Terrebonne Facility”).

 

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.

 

On August 31, 2021, Loop also received a NOL from Health Canada, which states that the PET produced by Loop’s recycling process is suitable for use in the manufacture of water bottles and articles for contact with all food types under all conditions of use.

 

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, like PET, 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.

 

 
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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.

 

We are pursuing amended supply agreements with existing customers and new agreements with additional customers that are located in North America, Europe, and Asia to sell the production volumes of our planned Infinite Loop™ commercial facilities.

 

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.

 

Commercialization Strategy

 

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 significant 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.

 

The Infinite Loop greenfield 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.

 

We are progressing on the engineering of our full-scale commercial facilities with our engineering partner Worley, a leading global engineering, procurement and construction company. The engineering philosophy we have adopted is “design one, build many.” This approach allows for the process design package, which has been completed, to be used as the base engineering platform for all future geographical expansion. We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction.

  

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 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.

   

 
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We continue to focus on the completion of the Infinite Loopengineering 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. 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 facilities in various regions. Worley has completed the pre-feasibility engineering as part of the planning phase for an Infinite Loopmanufacturing facility in the province of Québec. Worley are proceeding with the feasibility phase of engineering and may also play a role in the future design of larger capacity facilities.

 

Our market strategy is to assist global consumer goods brands in meeting their public sustainability commitments by offering packaging or polyester fibers that are made with Loop co-branded, 100% recycled, virgin-quality PET or polyester fibers. We believe that Loop 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 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 geo centric

 

Loop and SK geo centric Co., Ltd. (formerly known as 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 and an estimated 70% of global PET consumption making it the largest 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 Loop will own 49 percent. Loop will also receive a recurring annual royalty fee as a percentage of revenue from each facility for the use of its technology.

 

In addition, Loop and SKGC have concluded a definitive agreement for SKGC to become a strategic investor in Loop. SKGC purchased 4,714,813 new treasury common shares of Loop at a price of $12 per share, for total consideration of $56.5 million. The equity investment transaction closed on July 29, 2021. SKGC was also granted warrants 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 owns approximately 10% of Loop’s common shares. In conjunction with the equity investment, Mr. Jonghyuk Lee, Vice President of SKGC’s Green Business Division, has been appointed to Loop’s Board of Directors. This appointment reflects SKGC’s strategic view of the importance of its investment in Loop, as part of its “Green for Better Life” global strategic vision.

 

As reported on July 8, 2021 SKGC signed a memorandum of understanding (“MOU”) with the city of Ulsan, South Korea to develop an industrial complex which is planned to include the first Infinite Loop™ manufacturing facility in Asia.

 

SK global chemical unveiled on August 31, 2021 its rebrand as SK geo centric, aligning with the company’s goal of transforming into a green company and focusing on eco-friendly products such as recyclable plastics. These announcements further reinforce  Loop’s alignment as an important strategic partner for SK geo centric, as we move to commercialize our technology in Asia.

 

Unveiling of New evian Loop Bottle

 

On September 20, 2021, Loop, in partnership with iconic global beverage brand evian, unveiled a new “evian Loop” prototype virgin-quality water bottle made from 100 percent recycled content. The monomers used to produce the evian Loop bottles were made at the Terrebonne Facility. Evian plans to begin selling water bottles made from Loop™ PET initially in South Korea during 2022, and subsequently in other global markets. The waste plastic used to produce these bottles include polyester fibers from carpets and clothing which are considered unrecyclable and destined for landfill and other natural environments. This initiative reflects evian’s commitment to its stated 2025 goals for circularity and 100% recycled content.

 

Loop continues to work toward new brand and market introductions with additional consumer goods brand companies.

 

 
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Infinite Loop Bécancour, Québec

 

Our Infinite Loop™ Québec project is aligned with the Government of Canada’s announced zero plastic waste goal by 2030. We believe the project could be critical infrastructure for customers to meet their 2025 and 2030 sustainability commitments and will assist the Government of Canada with achieving its Canada-wide zero plastic waste target and any proposed additional requirements, such as the requirement that all plastic packaging in Canada containing at least 50% recycled content by 2030.

 

The Québec Project is currently contemplated as wholly-owned and operated by Loop Industries which allows us to commercialize near our innovation and engineering teams located in Terrebonne, Québec and avoid various COVID-19 restrictions on international travel.

 

We acquired the project site in Bécancour, Québec in May of 2021. During the quarter ended November 30, 2021, we initiated site preparation on the Bécancour, Québec project land for the planned Infinite Loop™ manufacturing facility. During the quarter, the Company invested $0.90 million in civil construction costs which included building access roads, landscaping and drainage to ready the site for full construction. We are currently in the process of negotiating and entering into commercial contracts for the acquisition and fabrication of long lead item equipment to develop the project. We have committed up to approximately $8.55 million in capital expenditures over the next 13 months for certain long lead item equipment to develop the Bécancour project, and expect to enter into additional commitments to move the project ahead within our targeted construction time frames.

 

We continue to work with existing and additional customers to sign definitive multi-year contracts for the Québec facility’s commercial output. We are exploring financing options to fully fund the project. Alternatives under exploration include incentive and financing programs supported by, or in partnership with, various levels of government.

 

The site offers attractive logistics being located on the St-Lawrence river and access to rail. The site size exceeds our project needs and we plan to sell a portion of the land to offset part of our project commitment.

 

Infinite Loop 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 Looptechnology 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 for virgin quality PET resin made from 100 percent recycled content. Together with Suez, we are advancing the project with the priorities being site selection, feedstock sourcing and customer contracts. We are working with our partner on alignment of government support and finalizing the details of our site selection in Normandy, France in the near term.

 

Joint Venture with Indorama for Retrofit

 

In September 2018 we announced a joint venture with Indorama to retrofit certain PET manufacturing facilities. 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”), with Indorama through our wholly-owned subsidiary Loop Innovations, LLC (“Loop Innovations”). 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. In 2019, the joint venture decided to increase the capacity of the planned Spartanburg, South Carolina plant due to customer demand to 40,000 metric tons per year from the initially planned 20,700 metric tons per year.

 

 
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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. Both joint venture partners currently remain committed to the project and we continue to discuss the project timetable.

 

In conjunction with the SK strategic partnership mentioned above, on June 18, 2021, the Company, Loop Innovations, Indorama and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended (i) the LLC Agreement, (ii) the Marketing Agreement and (iii) the License Agreement (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.

 

Terrebonne Facility

 

As part of our plan for the commercialization of future Infinite Loop manufacturing facilities, we enhanced our Terrebonne, Québec pilot plant to become an Infinite Loop small-scale production facility. This facility is used to deliver initial production volumes to support co-branded market launch campaigns with partners and customers and will also be used to showcase the Infinite Loop end-to-end technology and train operational teams in advance of the commissioning of the Infinite Loop™ full-scale commercial facilities.

 

We made significant investments in the Terrebonne Facility during the nine-month period ended November 30, 2021. In particular, we installed and began operation of new distillation columns in this period. We also advanced testing and production on the two installed depolymerization reactors which substantially increase Terrebonne Facility’s depolymerization capacity and confirm the design and scale-up factor for the feasibility engineering of the planned commercial-scale facilities. Materials for the launch of the evian loop bottle to be introduced in South Korea in 2022 were produced at the Terrebonne Facility. We have also previously entered into an agreement to acquire PET polymerization equipment from Chemtex to manufacture of Loop™ branded PET resin from the recycled monomers produced at the Terrebonne Facility and deliver Loop™ branded PET resin to customers.

 

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 with activities such as the co-branded marketing launch of an evian Loop bottle. Our research and development innovation center in Terrebonne, Québec will continue to push forward the continuous improvement 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.

 

 
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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 November 30, 2021, we had 84 employees of which 33 work in research and development and 37 in engineering and operations. 

 

Results of Operations

 

The following table summarizes our operating results for the three-month periods ended November 30, 2021 and 2020, in U.S. Dollars.

 

 

 

Three months ended November 30,

 

 

 

2021

 

 

2020

 

 

Change

 

Revenues

 

$-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

362,435

 

 

 

350,393

 

 

 

12,042

 

External engineering

 

 

1,585,512

 

 

 

2,224,910

 

 

 

(639,398)

Employee compensation

 

 

1,424,330

 

 

 

864,041

 

 

 

560,289

 

Machinery and equipment expenditures

 

 

2,599,758

 

 

 

2,325,540

 

 

 

274,218

 

Plant and laboratory operating expenses

 

 

665,893

 

 

 

515,395

 

 

 

150,498

 

Other

 

 

197,376

 

 

 

(5,996)

 

 

203,372

 

Total research and development

 

 

6,835,304

 

 

 

6,274,283

 

 

 

561,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

279,574

 

 

 

546,601

 

 

 

(267,027)

Professional fees

 

 

650,164

 

 

 

1,164,004

 

 

 

(513,840)

Employee compensation

 

 

748,668

 

 

 

399,288