UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31,November 30, 2017
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 Number: 000-54768
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, Quebec, Canada J6Y 1Y4 | ||
(Address of principal executive offices, including zip code) | ||
| ||
(450) 951-8555 | ||
(Registrant's telephone number, including area code) |
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x 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 | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x |
| 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 Securities Exchange Act). Yes ¨ No x
As of October 5, 2017,January 9, 2018, the registrant had 32,807,137 shares of common stock, $0.0001 par value per share, outstanding.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED November 30August 31,, 2017
Index |
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| F-1 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company,” “we,” “Loop” 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, and the size of our addressable market and market trends.trends, and our prior restatement’s quantitative effects and the effectiveness of our 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" and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Amended Annual Report on Form 10-K10-K/A filed with the U.S. Securities and Exchange Commission (the “SEC”) on January 12, 2018 and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q, as amended to date, or subsequent filings with the SEC. 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) development and protection of our intellectual property and products, (iii) our need for and ability to obtain additional financing, (iv) industry competition, (v) regulatory and other legal compliance, (vi) the exercise of the control over us by Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, (vii) other factors over which we have little or no control, (viii) the development of our manufacturing facility, (ix) the risk that additional information may arise from our and (ix)our audit committee’s internal review following the restatement, (x) the risk that the process of preparing and auditing the restated financial statements or other subsequent events would require us to make additional adjustments and the time and effort required to complete the restatement of its financial statements, (xi) whether the reassessment of our internal controls over financial reporting could lead us to conclude that there were deficiencies in its internal control over financial reporting that constitute material weaknesses, (xii) our responses to potential comments from the Securities and Exchange Commission (“SEC”), (xiii) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting issues and practices, rumors or otherwise and (xiv) other factors discussed in our filings with the SEC.
Our 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 of 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 of 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.
3 |
Table of Contents |
SixThree and threenine months ended August 31,November 30, 2017
Index to the Condensed Consolidated Financial Statements
Contents | Page(s) | ||
F-2 | |||
F-3 | |||
F-4 | |||
F-5 | |||
F-6 |
F-1 |
Table of Contents |
Condensed Consolidated Balance Sheets
(Unaudited)
|
| As at |
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| As at |
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| August 31, |
| February 28, |
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| November 30, |
| February 28, |
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| 2017 |
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| 2017 |
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| 2017 |
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| 2017 |
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Assets |
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Current Assets |
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Cash |
| $ | 5,383,651 |
| $ | 916,487 |
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| $ | 3,400,973 |
| $ | 916,487 |
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Restricted cash |
| 38,795 |
| - |
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Valued added tax and other receivables |
| 100,741 |
| 259,297 |
|
| 148,905 |
| 259,297 |
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Prepayments and other current assets |
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| 15,954 |
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| - |
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Prepayments |
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| 15,518 |
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| - |
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Total current assets |
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| 5,500,346 |
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| 1,175,784 |
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| 3,604,191 |
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| 1,175,784 |
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Property and Equipment, net of accumulated depreciation of $661,414 and $497,244, respectively |
| 1,681,513 |
| 1,566,969 |
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Property and Equipment, net of accumulated depreciation of $734,699 and $497,244, respectively |
| 1,659,781 |
| 1,566,969 |
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Intellectual Property, net of accumulated amortization of $168,839 and $137,050, respectively |
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| 276,211 |
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| 308,000 |
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Intellectual Property, net of accumulated amortization of $184,734 and $137,050, respectively |
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| 260,316 |
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| 308,000 |
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Total assets |
| $ | 7,458,070 |
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| $ | 3,050,753 |
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| $ | 5,524,288 |
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| $ | 3,050,753 |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable and accrued liabilities |
| $ | 818,963 |
| $ | 161,536 |
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| $ | 1,162,216 |
| $ | 161,536 |
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Accrued officer compensation |
| - |
| 360,000 |
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| - |
| 360,000 |
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Advances from majority stockholder |
| 28,710 |
| 391,695 |
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Stock subscriptions |
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| 54,780 |
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| - |
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Advance from majority stockholder |
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| 72,880 |
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| 391,695 |
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Total current liabilities |
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| 902,453 |
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| 913,231 |
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| 1,235,096 |
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| 913,231 |
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Commitments and Contingencies |
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Stockholders' Equity |
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Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding |
| - |
| - |
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| - |
| - |
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Common stock par value $0.0001: 250,000,000 shares authorized; 32,789,009 and 31,451,973 shares issued and outstanding, respectively |
| 3,279 |
| 3,146 |
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Common stock par value $0.0001: 250,000,000 shares authorized; 32,807,137 and 31,451,973 shares issued and outstanding, respectively |
| 3,281 |
| 3,146 |
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Additional paid-in capital |
| 16,682,984 |
| 8,723,390 |
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| 21,275,564 |
| 8,723,390 |
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Common stock issuable, 1,000,000 shares at August 31 and February 28, 2017 |
| 5,500,000 |
| 5,500,000 |
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Common stock issuable, 1,000,000 shares at November 30 and February 28, 2017 |
| 800,000 |
| 800,000 |
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Accumulated deficit |
| (15,636,857 | ) |
| (11,937,803 | ) |
| (17,640,510 | ) |
| (7,237,803 | ) | ||||
Accumulated other comprehensive (loss) gain |
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| 6,211 |
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| (151,211 | ) | ||||||||
Accumulated other comprehensive loss |
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| (149,143 | ) |
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| (151,211 | ) | ||||||||
Total stockholders' equity |
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| 6,555,617 |
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| 2,137,522 |
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| 4,289,192 |
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| 2,137,522 |
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Total liabilities and stockholders' equity |
| $ | 7,458,070 |
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| $ | 3,050,753 |
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| $ | 5,524,288 |
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| $ | 3,050,753 |
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See accompanying notes to the condensed consolidated financial statements.
F-2 |
Table of Contents |
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
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| Three months ended |
| Six months ended |
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| Three months ended |
| Nine months ended |
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| August 31, |
| August 31, |
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| November 30, |
| November 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Revenue | Revenue |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
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| $ | - |
| $ | - |
| $ | - |
| $ | - |
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Operating Expenses - | Operating Expenses - |
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Research and development |
| 3,894,454 |
| 368,403 |
| 5,341,763 |
| 1,217,600 |
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General and administrative | General and administrative |
| 1,081,634 |
| 316,310 |
| 1,971,216 |
| 756,056 |
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| 2,720,078 |
| 277,951 |
| 4,691,294 |
| 1,034,007 |
| |||||||||||||||
Research and development |
| 950,775 |
| 433,629 |
| 1,447,309 |
| 849,198 |
| |||||||||||||||||||||||||
Depreciation and amortization | Depreciation and amortization |
| 91,774 |
| 75,128 |
| 182,261 |
| 188,152 |
|
| 98,755 |
| 102,244 |
| 281,016 |
| 290,396 |
| |||||||||||||||
Foreign exchange loss (gain) | Foreign exchange loss (gain) |
|
| 52,529 |
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| 99 |
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| 98,268 |
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| (3,689 | ) |
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| (9,634 | ) |
|
| 809 |
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| 88,634 |
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| (2,880 | ) | |
Total operating expenses | Total operating expenses |
|
| 2,176,712 |
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| 825,166 |
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| 3,699,054 |
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| 1,789,717 |
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| 6,703,653 |
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| 749,407 |
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| 10,402,707 |
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| 2,539,123 |
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Net Loss | Net Loss |
| (2,176,712 | ) |
| (825,166 | ) |
| (3,699,054 | ) |
| (1,789,717 | ) |
| (6,703,653 | ) |
| (749,407 | ) |
| (10,402,707 | ) |
| (2,539,123 | ) | |||||||||
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Other comprehensive loss - |
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Other comprehensive gain (loss) - |
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Foreign currency translation adjustment | Foreign currency translation adjustment |
|
| (167,398 | ) |
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| (3,865 | ) |
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| (157,422 | ) |
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| (24,358 | ) |
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| 155,354 |
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| (18,488 | ) |
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| (2,068 | ) |
|
| (42,846 | ) | |
Comprehensive Loss | Comprehensive Loss |
| $ | (2,344,110 | ) |
| $ | (829,031 | ) |
| $ | (3,856,476 | ) |
| $ | (1,814,075 | ) |
| $ | (6,548,299 | ) |
| $ | (767,895 | ) |
| $ | (10,404,775 | ) |
| $ | (2,581,969 | ) | |
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Loss per share | Loss per share |
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| - Basic and Diluted |
| $ | (0.07 | ) |
| $ | (0.03 | ) |
| $ | (0.11 | ) |
| $ | (0.06 | ) | |||||||||||||||||
- Basic and Diluted |
| $ | (0.20 | ) |
| $ | (0.02 | ) |
| $ | (0.32 | ) |
| $ | (0.08 | ) | ||||||||||||||||||
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Weighted average common shares outstanding | Weighted average common shares outstanding |
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| - Basic and Diluted |
|
| 32,625,928 |
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| 31,176,269 |
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| 31,830,628 |
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| 30,809,266 |
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- Basic and Diluted |
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| 32,793,181 |
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| 31,390,807 |
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| 32,183,343 |
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|
| 31,001,702 |
|
See accompanying notes to the condensed consolidated financial statements.
F-3 |
Table of Contents |
Condensed Consolidated Statement of Changes in Stockholders’ Equity
SixNine months ended August 31,November 30, 2017
(Unaudited)
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| Accumulated |
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| Accumulated |
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| Common stock |
| Preferred stock |
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| Other |
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| Common stock |
| Preferred stock |
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| Other |
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| par value $0.0001 |
| par value $0.0001 |
| Additional |
| Common |
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| Comprehensive |
| Total |
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| par value $0.0001 |
| par value $0.0001 |
| Additional |
| Common |
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| Comprehensive |
| Total |
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| Number of Shares |
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| Amount |
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| Number of shares |
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| Amount |
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| Paid-in Capital |
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| Stock Issuable |
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| Accumulated Deficit |
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| Income (Loss) |
| Stockholders' Equity |
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| Number of |
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| Number of |
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| Paid-in |
| Stock |
| Accumulated |
| Income |
| Stockholders' |
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| Shares |
| Amount |
| shares |
| Amount |
| Capital |
| Issuable |
| Deficit |
| (Loss) |
| Equity |
| ||||||||||||||||||||||||||||||||||
Balance, February 29, 2016 |
| 29,910,800 |
| $ | 2,992 |
| 1 |
| $ | - |
| $ | 3,918,356 |
| $ | 614,001 |
| $ | (3,123,802 | ) |
| $ | 5,931 |
| $ | 1,417,478 |
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Issuance of common shares for cash |
| 1,275,340 |
| 128 |
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| 3,825,888 |
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| 3,826,016 |
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Reclass. of common shares issuable to shares outstanding |
| 204,667 |
| 20 |
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|
|
| 613,981 |
| (614,001 | ) |
|
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|
|
| - |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of Warrants issued for services |
|
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| 135,673 |
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| 135,673 |
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Cancellation of shares issued for services and as a settlement |
| (200,000 | ) |
| (20 | ) |
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|
| 20 |
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|
|
|
|
| - |
| |||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of warrants for cash |
| 200,000 |
| 20 |
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|
|
|
| 159,980 |
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|
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| 160,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares for services |
| 23,166 |
| 2 |
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| 69,496 |
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| 69,498 |
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Issuance of shares upon cash-less exercise of warrants |
| 38,000 |
| 4 |
|
|
|
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| (4 | ) |
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|
|
| - |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of issuable shares for services-officer |
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|
|
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|
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|
|
| 800,000 |
|
|
|
|
| 800,000 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
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| (157,142 | ) |
| (157,142 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss |
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|
| (4,114,001 | ) |
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| (4,114,001 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, February 28, 2017 |
| 31,451,973 |
| $ | 3,146 |
| 1 |
| $ | - |
| $ | 8,723,390 |
| $ | 5,500,000 |
| $ | (11,937,803 | ) |
| $ | (151,211 | ) |
| 2,137,522 |
|
| 31,451,973 |
| 3,146 |
| 1 |
| - |
| 8,723,390 |
| 800,000 |
| (7,237,803 | ) |
| (151,211 | ) |
| 2,137,522 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Issuance of common shares for cash |
| 1,123,266 |
| 112 |
|
|
|
|
| 5,897,076 |
|
|
|
|
|
|
| 5,897,188 |
|
| 1,141,394 |
| 114 |
|
|
|
|
| 6,114,610 |
|
|
|
|
|
|
| 6,114,724 |
| ||||||||||||||||||||||||||||||||||
Fair value of warrants issued for services |
|
|
|
|
|
|
|
|
| 920,373 |
|
|
|
|
|
|
| 920,373 |
|
|
|
|
|
|
|
|
|
| 5,235,253 |
|
|
|
|
|
|
| 5,235,253 |
| ||||||||||||||||||||||||||||||||||
Fair value of restricted stock units issued for services |
|
|
|
|
|
|
|
|
| 88,664 |
|
|
|
|
|
|
| 88,664 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares upon exercise of warrants for cash |
| 193,770 |
| 19 |
|
|
|
|
| 1,162,997 |
|
|
|
|
|
|
| 1,163,016 |
|
| 193,770 |
| 19 |
|
|
|
|
| 1,162,997 |
|
|
|
|
|
|
| 1,163,016 |
| ||||||||||||||||||||||||||||||||||
Issuance of shares upon cash-less exercise of warrants |
| 20,000 |
| 2 |
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
| - |
|
| 20,000 |
| 2 |
|
|
|
|
| (2 | ) |
|
|
|
|
|
|
| - |
| ||||||||||||||||||||||||||||||||
Share issuance costs |
|
|
|
|
|
|
|
|
| (20,850 | ) |
|
|
|
|
|
|
| (20,850 | ) |
|
|
|
|
|
|
|
|
| (49,348 | ) |
|
|
|
|
|
|
| (49,348 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 157,422 |
| 157,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,068 |
| 2,068 |
| ||||||||||||||||||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,699,054 | ) |
|
|
|
|
|
| (3,699,054 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (10,402,707 | ) |
|
|
|
|
|
| (10,402,707 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance, August 31, 2017 |
|
| 32,789,009 |
|
| $ | 3,279 |
|
|
| 1 |
|
| $ | - |
|
| $ | 16,682,984 |
|
| $ | 5,500,000 |
|
| $ | (15,636,857 | ) |
| $ | 6,211 |
|
|
| 6,555,617 |
| ||||||||||||||||||||||||||||||||||||
Balance, November 30, 2017 |
|
| 32,807,137 |
|
| $ | 3,281 |
|
|
| 1 |
|
| $ | - |
|
| $ | 21,275,564 |
|
| $ | 800,000 |
|
| $ | (17,640,510 | ) |
| $ | (149,143 | ) |
| $ | 4,289,192 |
|
See accompanying notes to the condensed consolidated financial statements.
F-4 |
Table of Contents |
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| Six months ended August 31, |
|
| Nine months ended November 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
| $ | (3,699,054 | ) |
| $ | (1,789,717 | ) |
| $ | (10,402,707 | ) |
| $ | (2,539,123 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation expense |
| 150,472 |
| 156,363 |
|
| 233,332 |
| 242,712 |
| ||||||
Amortization expense |
| 31,789 |
| 31,789 |
|
| 47,684 |
| 47,684 |
| ||||||
Fair value of warrants issued for services |
| 920,373 |
| 73,707 |
|
| 5,235,253 |
| 106,053 |
| ||||||
Fair value of restricted stock units issued for services |
| 88,664 |
| - |
| |||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Valued added tax and other receivables |
| 45,333 |
| (105,816 | ) |
| (2,831 | ) |
| 89,427 |
| |||||
Prepayments and other current assets |
| (15,954 | ) |
| 36,129 |
| ||||||||||
Prepayments |
| (15,518 | ) |
| 36,129 |
| ||||||||||
Accounts payable and accrued liabilities |
| 657,426 |
| (134,424 | ) |
| 1,000,680 |
| (196,813 | ) | ||||||
Accrued officer compensation |
|
| (360,000 | ) |
|
| 90,000 |
|
|
| (360,000 | ) |
|
| 135,000 |
|
Net Cash Used in Operating Activities |
|
| (2,269,615 | ) |
|
| (1,641,969 | ) |
|
| (4,175,443 | ) |
|
| (2,078,931 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
| ||||||
Purchases of property and equipment |
|
| (168,002 | ) |
|
| (247,861 | ) |
|
| (273,550 | ) |
|
| (412,921 | ) |
Net Cash Used in Investing Activities |
| (168,002 | ) |
| (247,861 | ) |
| (273,550 | ) |
| (412,921 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from sales of common shares and exercise of warrants, net of share issuance costs |
| 7,039,354 |
| 3,826,016 |
| |||||||||||
Proceeds from sales of common shares and exercise of warrants, net of share issuance costs (note 7) |
| 7,228,393 |
| 3,826,016 |
| |||||||||||
Repayment of advances from majority stockholder |
| (249,762 | ) |
| (86,764 | ) |
|
| (205,592 | ) |
|
| (132,044 | ) | ||
Stock subscriptions |
|
| 54,780 |
|
|
| - |
| ||||||||
Net Cash Provided by Financing Activities |
| 6,844,372 |
|
| 3,739,252 |
|
| 7,022,801 |
|
| 3,693,972 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Effect of exchange rate changes |
|
| 60,409 |
|
|
| (75,848 | ) |
|
| (50,527 | ) |
|
| (26,307 | ) |
Net Change in Cash |
| 4,467,164 |
|
| 1,773,574 |
| ||||||||||
Net Change in Cash and Restricted Cash |
| 2,523,281 |
|
| 1,175,813 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash - beginning of period |
|
| 916,487 |
|
|
| 422,586 |
| ||||||||
Cash and Restricted Cash - beginning of period |
|
| 916,487 |
|
|
| 422,586 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash - end of period |
| $ | 5,383,651 |
|
|
| 2,196,160 |
| ||||||||
Cash and Restricted Cash - end of period |
| $ | 3,439,768 |
|
|
| 1,598,399 |
| ||||||||
Comprises of: |
|
|
|
|
| |||||||||||
Cash |
| 3,400,973 |
| 1,598,399 |
| |||||||||||
Restricted cash |
|
| 38,795 |
|
|
| - |
| ||||||||
|
|
| 3,439,768 |
|
|
| 1,598,399 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
| ||||||
Income tax paid |
| $ | - |
| $ | - |
|
| $ | - |
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non Cash Financing and Investing Activities |
|
|
|
|
|
|
|
|
|
| ||||||
Reclass of value added tax and other receivables to advances from majority stockholder |
| $ | 113,223 |
|
| $ | - |
|
| $ | 113,223 |
|
| $ | - |
|
See accompanying notes to the condensed consolidated financial statements.
F-5 |
Table of Contents |
Three and SixNine months ended August 31,November 30, 2017 and 2016
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1 – The Company and basisBasis of Presentation
The Company
Loop Holdings,Industries, Inc. (the Company) was incorporated on March 11, 2010 under the laws of the State of Nevada, under the name “Radikal Phones Inc.” We changed our name to “First American Group Inc.” on October 7, 2010, and then we subsequently changed our name to, , “Loop Industries, Inc.”, effective July 21, 2015.
On June 29, 2015, Loop Industries, Inc. (the Company)the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”), by and among the Company, and the holders of common stock of Loop Holdings, Inc. (“Loop Holdings”). Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 23,257,500 shares of common stock in consideration for all the issued and outstanding shares in Loop Holdings. The effect of the issuance was that Loop Holdings shareholders held approximately 78.1% of the issued and outstanding shares of common stock of the Company upon consummation of the Share Exchange Agreement.
Pursuant to a Stock Redemption Agreement dated June 29, 2015 entered into commensurate with the share exchange, the Company redeemed 25,000,000 shares of First American Group common stock from two stockholders’ for an aggregate redemption price of $16,000.
As the former owners and management of Loop Industriesthe Company had voting and operating control of the Company after the share exchange, the transaction has been accounted for as a recapitalization with Loop Holdings deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. No step-up in basis or intangible assets or goodwill was recorded and the aggregate cost of $60,571 representing the net liabilities assumed of $35,243, $16,000 cost of the redeemed shares and closing costs of $9,328 has been reflected as a cost of the transaction. The consolidated financial statements reflect the historical results of Loop Industriesthe Company prior to the Share Exchange, and that of the combined company following the Share Exchange.
The Company engages in the designing, prototyping and building a closed loop plastics recycling business that leverages a proprietary de-polymerization technology.
All references to shares of common stock in this Report on Form 10-Q give retroactive effect to a one-for-four (1:4) reverse split of the Company’s issued and outstanding shares of common stock, which reverse split took effect on the OTCQB on September 21, 2015.
On May 24, 2016, 9449507 Canada Inc. was incorporated to carry on the Company’s depolymerization business. On November 11, 2016, the shares of 9449507 Canada Inc., which waswere wholly owned by Mr. Solomita, were transferred to Loop Industries, Inc. On December 23, 2016, 9449507 Canada Inc. changed its legal name to Loop Canada Inc. On December 31, 2016, all employees, assets, liabilities, and operations pertaining to the Company’s depolymerization business, were transferred to Loop Canada Inc. from 8198381 Canada Inc., a company wholly owned by Mr. Solomita.
On March 9, 2017, Loop Holdings, a wholly-owned subsidiary of the Company, merged with and into the Company, with the Company being the surviving entity as a result of the merger.
On September 1, 2017, 9449710 Canada Inc. was incorporated, to assist in the depolymerisation business, and is a wholly-owned subsidiary of Loop Canada Inc.
On November 20, 2017, Loop Industries Inc. commenced trading on the NASDAQ Global Market under its new trading symbol, “LOOP”.
F-6 |
Table of Contents |
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Loop Industries, Inc. and its wholly-owned subsidiary Loop Canada Inc.subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financialbalance sheet information as of August 31, 2016February 28, 2017 is derived from the Company’s audited consolidated financial statements and related notes for the fiscal year ended February 28, 2017, which is included in Item 8 of the Company’s 2017 Amended Annual Report on Form 10-K10-K/A filed with the Securities and Exchange Commission (SEC) on May 30, 2017.January 12, 2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with those consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three and sixnine months ended August 31,November 30, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.
Intercompany balances and transactions have been eliminated in consolidation.
Liquidity
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has no recurring source of revenue and during the sixnine months ended August 31,November 30, 2017, the Company incurred a net loss of $3,699,054$10,402,707 and used cash in operations of $2,269,615.$4,175,443. As of August 31,November 30, 2017, the Company had cash on hand of $5,383,651$3,400,973 and stockholders’ equity of $6,555,617.$4,289,192.
ManagementSubsequent to November 30, 2017 and as more fully explained in note 8 – Subsequent Events, the Board approved the issuance of up to 1,100,000 shares of the common stock of the Company at $12.00 per share. At January 11, 2018, the Company had sold 612,667shares for aggregate gross proceeds of $7.4 million. As a result, management estimates that the current funds on hand will be sufficient to continue operations throughfor the next twelve months. However, the Company will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. Management may consider seeking additional funds, primarily through the issuance of debt and equity securities for cash and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property and equipment, analysis of impairments of recorded intellectual property, accruals for potential liabilities and assumptions made in calculating the fair value of certain stock instruments.
Foreign Currency Translations and Transactions
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenses are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
F-7 |
Table of Contents |
The following table summarizes the exchange rates used:
|
| Nine Months Ended November 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Period end Canadian $: US Dollar exchange rate |
| $ | 0.78 |
|
| $ | 0.74 |
|
Average period Canadian $: US Dollar exchange rate |
| $ | 0.77 |
|
| $ | 0.77 |
|
Six Months Ended August 31, 2017 2016 Period end Canadian $: US Dollar exchange rate Average period Canadian $: US Dollar exchange rate $ 0.80 $ 0.76 $ 0.76 $ 0.77
Restricted cash
Expenditures are translated atIn December 2016, the average exchange rateFASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash which requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance must be applied retrospectively to all periods presented. Management adopted this ASU beginning March 1, 2017. All prior periods have been adjusted to conform to the current period presentation, which resulted in no changes to the statement of cash flows for the period presented.nine months ended November 30, 2016.
As at November 30, 2017, the Company’s restricted cash consists of term deposits, held as collateral for the revolving credit facility (Note 5).
Value added tax, tax credits and other receivables
The Company is registered for the Canadian Federal and Provincial Goods and Services Taxes. As a registrant, the company is obligated to collect, and is entitled to claim sale taxes paid on its expenses and capital expenditures incurred in Canada. As at the Balance Sheet date of August 31November 30 and February 28, 2017, the computed net recoverable sale taxes amounted to $79,723$128,905 and $198,830, respectively.
Research and Development Costs
Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded amounted to $950,775$3,894,454 and $433,629$368,403 for the three months ended August 31,November 30, 2017 and 2016, respectively, and to $1,447,309$5,341,763 and $849,198$1,217,600 for the sixnine months ended August 31,November 30, 2017 and 2016, respectively. Research and development costs are net of $4,472 of grants received and research and development tax credit of $127,713 claimed during the period ended August 31,November 30, 2017.
Net Loss per Share
The Company computes net loss per share in accordance with FASB ASC 260 Earnings per share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.
For the three and sixnine months ended August 31,November 30, 2017 and 2016, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. The potentially dilutive securities consisted of 1,000,000 common shares issuable, and 2,004,5822,684,582 outstanding warrants and 34,102 outstanding restricted stock units as of August 31,November 30, 2017 and 2,035,004 outstanding warrants as of August 31,November 30, 2016.
F-8 |
Table of Contents |
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation (Topic 718), which is intended to simplify accounting for share-based payment transactions. The ASU changed several aspects of the accounting for share-based payment award transactions, including accounting for income taxes, forfeitures and minimum statutory tax withholding requirements. Management adopted this ASU beginning March 1, 2017, with an immaterial impact to the Company's consolidated net loss and cash flows.
The Company accounts for stock compensation in accordance with ASC Subtopic 718-10. Stock compensation expense for a given warrant is recognized over the requisite service period. The Company accounts for forfeitures on share-based payments by recognizing forfeiture awards as they occur
The Company determines the fair value of restricted stock units awarded to employees and directors based on the closing market price of the Company's common stock on the date of grant.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. On August 12, 2015, FASB delayed the required implementation to fiscal years beginning after December 15, 2017 but now permitted organizations such the Company to adopt earlier. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. As the Company does not currently have any revenues from contracts with customers, the adoption of ASU 2014-09 on March 1, 2018 will not to have an impact, on transition.
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Note 3 – Property and Equipment
|
| Estimated |
|
|
|
|
|
| Estimated |
|
|
|
|
| ||||||||||
|
| Useful |
| August 31, |
| February 28, |
|
| Useful |
| November 30, |
| February 28, |
| ||||||||||
|
| Life |
| 2017 |
| 2017 |
|
| Life |
|
| 2017 |
|
| 2017 |
| ||||||||
|
| (years) |
|
|
|
|
|
| (years) |
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Machinery and Equipment |
| 5 - 7 |
| $ | 1,796,015 |
| $ | 1,590,187 |
|
| 5 - 7 |
| $ | 1,845,256 |
| $ | 1,590,187 |
| ||||||
Office equipment and furniture |
| 5 - 8 |
| 158,242 |
| 131,607 |
|
| 5 - 8 |
| 166,877 |
| 131,607 |
| ||||||||||
Leasehold improvements |
| 3 |
|
| 388,670 |
|
|
| 342,419 |
|
| 3 |
|
| 382,347 |
|
|
| 342,419 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
| 2,342,927 |
| 2,064,213 |
|
|
|
| 2,394,480 |
| 2,064,213 |
| ||||||||||
Less: accumulated depreciation |
|
|
|
| (661,414 | ) |
|
| (497,244 | ) |
|
|
|
| (734,699 | ) |
|
| (497,244 | ) | ||||
Property and equipment, net |
|
|
| $ | 1,681,513 |
|
| $ | 1,566,969 |
|
|
|
| $ | 1,659,781 |
|
| $ | 1,566,969 |
|
Depreciation expense amounted to $75,880$82,859 and $65,596$86,349 for the three months ended August 31,November 30, 2017 and 2016, respectively and to $150,472$233,332 and $156,363$242,712 for the sixnine months ended August 31,November 30, 2017 and 2016, respectively.
F-9 |
Table of Contents |
Note 4 – Intellectual Property
On October 27, 2014, the Company entered into an intellectual property agreement with Mr. Hatem Essaddam wherein the Company purchased for cash of $445,050, a certain technique and method for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure. The Company is using such intellectual property as part of their research and development activities. The technology is being amortized using the straight-line method over the 7 years estimated useful life of the patents.
In addition to the $445,050 paid by the Company under the Intellectual Property Assignment Agreement, the Company is required to make additional payments totaling CDN$800,000 to Mr. Essaddam within sixty (60) days of each of the following milestones (the “Milestones”) having been met, as follows:
(i) | CDN$200,000 when an average of twenty (20) metric tons per day of terephthalic acid is produced by the Company for twenty (20) operating days; | |
| (ii) | CDN$200,000 when an average of thirty (30) metric tons per day of terephthalic acid is produced by the Company for thirty (30) operating days; |
| (iii) | CDN$200,000 when an average of sixty (60) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days; and |
| (iv) | CDN$200,000 when an average of one hundred (100) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days. |
As of August 31,November 30, 2017, the Company is still in its test pilot program, none of the Milestones have been met, and accordingly no additional payments have been made.
Additionally, the Company is obligated to make royalty payments to Mr. Essaddam of up to CDN$25,700,000, payable as follows:
(a) | 10% of gross profits on the sale of all products derived by the Company from the technology assigned to the Company under the agreement; | |
(b) | 10% of any license fee paid to the Company in respect of any licensing or other right to use the technology assigned to the Company and granted to a third party by the Assignee; | |
(c) | 5% of any royalty or other similar payment made to the Company by a third party to whom a license or other right to use the technology assigned to the Company has been granted by the Company; and | |
(d) | 5% of any royalty or other similar payment made to the Company by a third party in respect of a sub-license or other right to use the technology assigned to the Company granted by the third party. |
Table of Contents |
As of August 31,November 30, 2017, the Company has not made any royalty payments under the Intellectual Property Assignment Agreement.
Amortization expense amounted to $15,895 and $9,532$15,895 for the three months ended August 31,November 30, 2017 and 2016, respectively and to $31,789$47,684 and $31,789$47,684 for the sixnine months ended August 31,November 30, 2017 and 2016, respectively.
Note 5 – Credit facility
On September 12, 2017, the Company entered into a credit facility consisting of a CDN$50,000 credit card facility, secured by a CDN$50,000 Guaranteed Investment Certificate bearing interest at 0.45%, annually, maturing on October 1, 2018.
Note 56 – Related Party Transactions
Advances from Major Shareholder
Mr. Daniel Solomita, the Company’s major stockholder and CEO, or companies controlled by him, previously made advances to the Company. The advances were unsecured, non-interest bearing with no formal terms of repayment. During the period ended August 31,November 30, 2017, the Company repaid to Mr. Solomita or companies controlled by him, as applicable, an aggregate amount of $249,762 and netted against the advances an aggregate amount of $113,223 representing value added taxes and other receivables owing.owed to Mr. Solomita. The amounts due to these entities as of February 28, 2017 were $391,695.
Employment Agreement and Accrued Compensation due to Major Shareholder
The Company entered into an employment agreement with Daniel Solomita, the Company’s President and Chief Executive Officer for an indefinite term. During the term, the officer shall receive monthly salary of $15,000. Compensation expense under this agreement for the nine month period ended November 30, 2017 and 2016 amounted to $45,000.$135,000. As at February 28, 2017, accrued compensation $360,000 was due to Mr. Solomita. As at August 31,November 30, 2017, the total accrued compensation due to Mr. Solomita was paid.
In addition, as previously disclosed, the Company agreed to grant the officerMr. Solomita 4 million shares of the Company’s common stock, form of equity to be determined, if certain milestones were met.
Effective April 10, 2017, the Company achieved the first milestone by becoming qualified to trade on the OTCQX and began trading thethat same date. Accordingly, asTherefore, management determined it was probable that the first performance condition would be achieved at August 31,February 28, 2017 and the officer’s entitlement to 1,000,000 shares with a fair value of $5,500,000,$800,000, in aggregate, havehad vested. The milestonesperformance conditions for the remaining 3,000,000 shares of common stock haveare not yetconsidered probable therefore the stock based compensation expense associated with the grant has not been met.recognized.
F-11 |
Table of Contents |
Note 67 – Stockholders’ Equity
Common Stock
During the six months ended August 31,On May 4, 2017, the Company soldBoard of Directors approved the issuance and sale of 1,123,266 common shares of itsthe Company’s common stock, par value $0.0001 per share at an offering price of $5.25 per share, resulting in netfor gross proceeds toof $5,897,188.
On September 7, 2017, the Board of Directors approved the issuance and sale of 18,128 common shares of the Company’s common stock, par value $0.0001 per share at an offering price of $12.00 per share, for gross proceeds of $217,536. In addition, the Company reclassified the stock subscriptions in the amount of $5,897,188.$54,780, in aggregate, to common stock and paid-in capital.
The shares issued to investors were not registered under the Securities Act of 1933, as amended (the “Act”), in reliance upon the private offering safe harbor provision of Rule 506 Regulation D.
Equity Incentive Plan
On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of options, stock appreciation rights, restricted stock and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were reserved for issuance under the Plan with an automatic share reserve increase, as defined in the Plan, effective commencing March 1, 2018. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of stock optionsawards granted, the share price pursuant to the stock optionsawards and the vesting conditions and period. The options,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 option will not exceed 5 years.
DuringStock Options
On October 19, 2017, the period ended August 31,Company’s former Chief Financial Officer, terminated her employment and pursuant to the separation agreement of October 25, 2017, forfeited all vested and unvested warrants, being 100,000 vested and 450,000 unvested warrants. All requisite services were rendered for stock compensation costs recognized, amounting to $505,986, until the date of termination. The warrants were originally granted on April 3, 2017 with an exercise price of $5.25 and had an aggregate fair value of $2,524,995, as determined by a Black-Scholes option pricing model.
On November 8, 2017, the Company issued to its new Chief Financial Officer, Mr. Frank Zitella, under the Plan, a warrant to purchase up to 400,000200,000 shares of our common stock at an exercise price of $5.25$13.89 per share, which vests quarterly in equal amounts1/3 increments over 24 months beginninga period of three years, commencing on April 3, 2017,November 8, 2018, and havehaving a contractual life of 10 years. This warrant has a grant date fair value of $1,836,360$1,928,840 as determined by a Black Scholes option pricing model and will be amortized over the vesting period. In addition, the Company issued to its Chief Financial Officer a warrant to purchase up to 150,00080,000 additional shares of our common stock at an exercise price of $5.25 per share$13.89 that will vest when certain milestones are achieved. This warrant has a grantgrand date fair value of $688,635$771,536 as determined by a Black Scholes option pricing model and amortization will commence when it is probable that the milestones will be achieved.
The warrants grant date fair value were determined by a Black Scholes option pricing model with the following assumptions:
Risk-free interest rate | 2.10% |
Expected dividend yield | 0% |
Expected volatility | 80% |
Expected life | 6 years |
Table of Contents |
During the periodthree months ended August 31, 2017, the Company issued three warrants to two employees, not covered under the Plan, to purchase up to 530,000 shares of our common stock, in aggregate, at an exercise price of $5.25 per share. The warrants to purchase up to an aggregate of 100,000 and 380,000 shares of our common stock, respectively, each vest quarterly in equal amounts over 24 and 48 months, respectively, beginning on July 24, 2017 and June 13, 2017, respectively, and each have a contractual life of 10 years. These warrants collectively have a grant date fair value of $4,786,142 as determined by a Black Scholes option pricing model and will be amortized over the vesting period. In addition, a warrant to purchase up to 50,000 additional shares of our common stock will vest when certain milestones are achieved. This warrant had a grant date fair value of $479,885 as determined by a Black Scholes option pricing model and amortization will commence when it is probable that the milestones will be achieved.
The warrants grant date fair value were determined by a Black Scholes option pricing model with the following assumptions:
Risk-free interest rate |
|
Expected dividend yield | 0% |
Expected volatility | 82 to |
Expected life |
|
During the three months ended November 30, 2017, the Company issued three warrants to three employees, under the Plan, to purchase up to 950,000 shares of common stock, in aggregate, at exercise prices ranging from $12.00 to $13.49 per share. The warrants to purchase up to an aggregate of 950,000 shares of common stock vest 200,000 and 100,000 warrants immediately, respectively, and, the balance, monthly in equal amounts over 60 and 24 months, respectively, beginning September 14, 2017 and October 16, 2017, respectively, and each have a contractual life of 10 years. These warrants collectively have a grant date fair value of $10,412,575, in aggregate, as determined by a Black Scholes option pricing model and will be amortized over the vesting period.
The warrants grant date fair value were determined by a Black Scholes option pricing model with the following assumptions:
Risk-free interest rate | 1.50 to 2.15% |
Expected dividend yield | 0% |
Expected volatility | 80 to 94% |
Expected life | 3 to 6 years |
During the period ended August 31, 2017, the Company amended the terms of warrants to purchase up to 702,452702,081 shares of our common stock which were originally issued on December 1, 2015 to three employees. The amendment extended the expiry date of the warrants to November 30, 2025 from November 30, 2017. As a result of the modification, we recognized additional compensation expense of $63,677.
Amortization of these costs amounted to $697,869$4,314,880 and $32,348 for the three months period ended August 31,November 30, 2017 and 2016, respectively, and to $920,373$5,235,253 and $73,707$106,053 for the sixnine months period ended August 31,November 30, 2017 and 2016, respectively, and are included in operating expenses. As of August 31,November 30, 2017 and 2016, the unamortized balance of these costs was $7,637,197$15,844,331 and $456,488.$424,142. The aggregate intrinsic value of the warrants outstanding as of August 31,November 30, 2017 was $22,529,036$20,251,990 calculated as the difference between the closing market price of $14.45$14.70 and the exercise price of the Company’s warrants as of August 31,November 30, 2017.
Table of Contents |
The table below summarizes the Company’s warrant activities:
|
| Number of Warrant Shares |
| Exercise Price Range Per Share |
|
| Weighted Average Exercise Price |
|
| Number of Warrant Shares |
|
| Exercise Price Range Per Share |
| Weighted Average Exercise Price |
| |||||
Balance, February 28, 2017 |
| 1,647,670 |
| $0.80 to $6.00 |
| $ | 2.91 |
|
| 1,647,670 |
| $0.80 to $6.00 |
| $ | 2.91 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Granted |
| 1,080,000 |
| $5.25 |
| $ | 5.25 |
|
| 2,310,000 |
| $5.25 to $13.89 |
| $ | 9.23 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Forfeited |
| (65,418 | ) |
| $0.80 to $3.00 |
| $ | 2.90 |
|
| (515,418 | ) |
| $0.80 to $5.25 |
| $ | 4.95 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Exercised |
| (213,770 | ) |
| $0.80 to $6.00 |
| $ | 5.52 |
|
| (213,770 | ) |
| $0.80 to $6.00 |
| $ | 5.52 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expired |
|
| (443,900 | ) |
| $6.00 |
|
| $ | 6.00 |
|
|
| (543,900 | ) |
| $5.25 to $6.00 |
| $ | 5.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance, August 31, 2017 |
| 2,004,582 |
| $0.80 to $5.25 |
| $ | 3.21 |
| |||||||||||||
Balance, November 30, 2017 |
| 2,684,582 |
| $0.80 to $13.89 |
| $ | 7.16 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earned and exercisable, August 31, 2017 |
|
| 616,457 |
|
| $0.80 to $5.25 |
|
| $ | 1.19 |
| ||||||||||
Earned and exercisable, November 30, 2017 |
|
| 966,250 |
|
| $0.80 to $13.49 |
| $ | 4.90 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Unvested, August 31, 2017 |
|
| 1,388,125 |
|
| $0.80 to $5.25 |
|
| $ | 4.11 |
| ||||||||||
Unvested, November 30, 2017 |
|
| 1,718,332 |
|
| $0.80 to $13.89 |
| $ | 8.42 |
|
As at August 31,November 30, 2017, 20,000 shares of the Company’s common stock were issued as a result of a cashless exercise of 22,919 warrants with an exercise price of $0.80 and a fair value of $0.55. In addition, the Company issued 193,770 shares of its common stock upon the exercise of warrants at an offering price of $6.00 per share, resulting in proceeds of $1,163,016.
The following table summarizes information concerning outstanding and exercisable warrants as of August 31,November 30, 2017:
Warrants Outstanding Warrants Exercisable Range of Exercise Prices Number Outstanding Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 0.80 912,082 6.50 $ 0.80 557,082 6.48 $ 0.80 $ 3.00 12,500 0.76 $ 3.00 9,375 0.76 $ 3.00 $ 5.25 1,080,000 9.93 $ 5.25 50,000 9.73 $ 5.25
Note 7 – Geographic Information
As of August 31, 2017 and 2016, the Company had two reportable diverse geographical concentrations (and therefore, two reportable segments), the United States and Canada. Information related to these operating segments, net of eliminations, consists of the following for the periods below:
As at August 31, 2017 United States Canada Elimination Total Current Assets Property and equipment, net Intangible assets, net Loan receivable, parent company Total assets Current liabilities Loan payable, subsidiairy company Equity Total liabilities and equity $ 3,442,854 $ 2,057,492 $ 5,500,346 141,535 1,539,978 1,681,513 276,211 - 276,211 - 5,767,440 (5,767,440 ) - $ 3,860,600 $ 9,364,910 (5,767,440 ) $ 7,458,070 $ 255,716 $ 646,737 $ 902,453 5,767,440 - (5,767,440 ) - 9,372,397 (2,816,780 ) 6,555,617 $ 15,395,553 $ (2,170,043 ) (5,767,440 ) $ 7,458,070
Six months ended August 31, 2017 United States Canada Total Revenue Cost of revenue General and administrative Research and development Depreciation and amortization Foreign exchange loss (gain) Loss from operations $ - $ - $ - - - - 1,238,284 732,932 1,971,216 295,400 1,151,909 1,447,309 47,648 134,613 182,261 - 98,268 98,268 $ (1,581,332 ) $ (2,117,722 ) $ (3,699,054 )
Three months ended August 31, 2017 United States Canada Total Revenue Cost of revenue General and administrative Research and development Depreciation and amortization Foreign exchange loss (gain) Loss from operations $ - $ - $ - $ - $ - - $ 755,827 $ 325,807 1,081,634 $ 237,636 $ 713,139 950,775 $ 21,687 $ 70,087 91,774 $ - $ 52,529 52,529 $ (1,015,150 ) $ (1,161,562 ) $ (2,176,712 )
Six months ended August 31, 2016 United States Canada Total Revenue Cost of revenue General and administrative Research and development Depreciation and amortization Foreign exchange loss (gain) Loss from operations $ - $ - $ - - - - 403,614 352,442 756,056 303,682 545,516 849,198 48,652 139,500 188,152 - (3,689 ) (3,689 ) $ 755,948 $ 1,033,769 $ 1,789,717
Three months ended August 31, 2016 United States Canada Total Revenue Cost of revenue General and administrative Research and development Depreciation and amortization Foreign exchange loss (gain) Loss from operations $ - $ - $ - $ - $ - - $ 171,817 $ 144,493 316,310 $ 154,008 $ 279,621 433,629 $ 14,728 $ 60,400 75,128 $ - $ 99 99 $ (340,553 ) $ (484,613 ) $ (825,166 )
As at February 28, 2017 United States Canada Total Current assets Property and equipment, net Intangible assets, net Total assets Current liabilities Equity Total liabilities and equity $ 687,899 $ 487,885 $ 1,175,784 157,394 1,409,575 1,566,969 308,000 308,000 $ 1,153,293 $ 1,897,460 $ 3,050,753 $ 428,714 $ 484,517 $ 913,231 2,994,003 (856,481 ) 2,137,522 $ 3,422,717 $ (371,964 ) $ 3,050,753
|
|
| Warrants Outstanding |
|
| Warrants Exercisable |
| |||||||||||||||||||
Range of Exercise Prices |
|
| Number Outstanding |
|
| Average Remaining Contractual Life (in years) |
|
| Weighted Average Exercise Price |
|
| Number Exercisable |
|
| Average Remaining Contractual Life (in years) |
|
| Weighted Average Exercise Price |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
$ | 0.80 |
|
|
| 912,082 |
|
|
| 6.21 |
|
| $ | 0.80 |
|
|
| 594,582 |
|
|
| 6.32 |
|
| $ | 0.80 |
|
$ | 3.00 |
|
|
| 12,500 |
|
|
| 0.50 |
|
| $ | 3.00 |
|
|
| 12,500 |
|
|
| 0.50 |
|
| $ | 3.00 |
|
$ | 5.25 |
|
|
| 530,000 |
|
|
| 9.74 |
|
| $ | 5.25 |
|
|
| 36,250 |
|
|
| 9.74 |
|
| $ | 5.25 |
|
$ | 12.00 |
|
|
| 700,000 |
|
|
| 9.79 |
|
| $ | 12.00 |
|
|
| 216,668 |
|
|
| 9.79 |
|
| $ | 12.00 |
|
$ | 13.49 |
|
|
| 250,000 |
|
|
| 9.88 |
|
| $ | 13.49 |
|
|
| 106,250 |
|
|
| 9.88 |
|
| $ | 13.49 |
|
$ | 13.89 |
|
|
| 280,000 |
|
|
| 9.94 |
|
| $ | 13.89 |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Total |
|
|
| 2,684,582 |
|
|
|
|
|
|
|
|
|
|
| 966,250 |
|
|
|
|
|
|
|
|
|
F-14 |
Table of Contents |
Restricted Stock Units
During the period ended November 30, 2017, the Company issued, under the Plan, four restricted stock unit awards to directors of the Company to purchase up to 34,102 shares of common stock, in aggregate. The restricted stock units vest upon completion of services, on May 31, 2018. These restricted stock units have a grant date fair value of $443,326, based on the closing market price of the Company's common stock on the date of grant, reduced by the present value of the estimated future dividends during the vesting period in which the restricted stock rights holder will not participate. The weighted average grant date fair value of the restricted stock units is $13.00 and no dividends are expected during the vesting period.
Amortization of these costs amounted to $88,665 for the three months period ended November 30, 2017, and are included in operating expenses. As of November 30, 2017, the unamortized balance of these costs was $354,661.
Note 8 – Subsequent Events
Issuance of common sharesCommon Stock
On September 7, 2017,January 9, 2018, the Board of Directors approved the issuanceplans to issue and sale of 18,128 commonsell in a private placement up to 1,100,000 shares of the Company’s common stock, par value $0.0001 per share, of the Company (the “Shares”) at an offering price of $12.00 per share and to issue warrants to investors to purchase up to a number of shares of Common Stock equal to 25% of the Shares purchased (the “Private Placement”).
At January 11, 2018, the Company had sold 612,667 Shares and 104,167 warrants for gross proceeds of $217,536. $7.4 million.
In addition,connection with the Private Placement, the Company reclassifiedagreed to file a registration statement to register the stock subscriptionsShares (the “Resale Registration Statement”). The warrants will only vest if the Company does not file the Resale Registration Statement covering the shares sold in the amountPrivate Placement within 60 days of $54,780,the closing of the Private Placement. The Company also granted holders of the Shares piggyback registration rights for certain registration statements. Additionally, for a period of 90 days following the closing of the Private Placement, in aggregate, to common stock. As at the filing date,event the Company had receivedissues shares of common stock or any securities of the Company that would entitle the holder thereof to acquire common stock for a consideration per share less than $12.00 per share (subject to certain customary exceptions, including but not limited to issuances pursuant to existing equity incentive plans and strategic partnerships or relationships), certain investors would be entitled to additional shares of common stock equal to the quotient of the aggregate price paid by the investor for the total proceeds which will be usednumber of shares purchased divided by the price per share that was issued for working capital and general corporate purpose principally.consideration per share less than $12.00 per share less the number of shares purchased by such investor in the Private Placement.
The shares issued to investorsShares and warrants were not registered under the Securities Act of 1933, as amended (the “Act”), in reliance upon the private offering safe harbor provision of Rule 506 Regulation D.D, Section 4(a)(2) of the Act or Regulation S.
Credit FacilityPromise to Purchase a Land and Building
On September 12, 2017, the Company entered into a credit facility consisting of a $50,000 CDN credit card facility, secured by a $50,000 CDN Guaranteed Investment Certificate (“GIC”) bearing interest at 0.45% maturing on October 1, 2018.
Forward Foreign Exchange Contracts
On September 12, 2017, the Company entered into a conditional forward foreign exchange contract to sell $250,000 USD with a term of September 12, 2017 to November 14, 2017, with an interim strike date on October 12, 2017 based on the following conditions:
As security for the conditional forward foreign exchange contract the Company has pledged a $50,000 GIC bearing interest at 0.45% maturing on December 29, 2017 in favor of the Company’s derivative dealer.
In addition to the amount above, the Company entered into two $500,000 USD dual currency contracts, requiring the value of the contract to be deposited in a GIC, having terms of 30 days and 63 days, respectively. For the 30 day contract if the spot rate is less than or equal to 1.23 CDN per USD, then the GIC matures at $500,000 USD plus interest at 4.55% per annum. If the spot rate is greater than 1.23 CDN per USD, then the GIC matures at $615,000 CDN plus interest of 4.55%. For the 63 day contract if the spot rate is less than or equal to 1.23 CDN per USD, then the GIC matures at $500,000 USD plus interest of 4.8% per annum. If the spot rate is greater than 1.23 CDN per USD, then the GIC matures at $615,000 CDN plus interest of 4.8%.
Equity Incentive Plan
On September 14, 2017, the Company issued stock options, to two employees, under the Plan to purchase up to 700,000 shares of our common stock in aggregate, of which 200,000 vest immediately and 500,000 vest in equal monthly installments over 60 months beginning on September 14, 2017, at an exercise price of $12.00 per share. The warrants have a grant date fair value of $8,173,550 as determined by a Black Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
Purchase of land
On September 27,11, 2017, the Company entered into a promise to purchase land building and equipmentbuilding for consideration of $957,240,$2,153,123, in aggregate. An amount of $95,724$77,590, was deposited in escrow on the date of the agreement. We have 60 days following the acceptance of the promiseSubject to purchase to complete oursatisfactory due diligence, andin its sole discretion, the Company has until February 9, 2018 to proceed to the execution of the deed of sale.
F-15 |
Table of Contents |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following information should be read in conjunction with the unaudited condensed interim consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the notes thereto included in our most recent Amended Annual Report on Form 10-K,10-K/A, which was filed with the Securities and Exchange Commission, or the SEC, on May 30, 2017.January 12, 2018.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified in the “Risk Factors” section of our most recent Amended Annual Report on Form 10-K.10-K/A and refer to the Cautionary Note Regarding Forward-Looking Statements on page 1.
OverviewIntroduction
Loop Industries, Inc. (the “Company”, “Loop”) is an innovative technology company focused on sustainability. Our business develops technologymission is to accelerate the world’s shift toward sustainable plastic and processes to promote the regeneration and reuse of materials to sustainaway from its dependence on fossil fuels, essentially enabling a truly circular economy.
Currently, the focus of our business is on the depolymerization ofOur patented, FDA approved technology decouples plastic from fossil fuels, depolymerizing waste Poly Ethylene Terephthalate (PET) plasticsPET plastic and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PETpolyester fiber into its base chemicals, Purified Terephthalic Acid (PTA)building blocks; purified terephthalic acid and Mono Ethylene Glycol (MEG), at a recovery rate of over 90%mono ethylene glycol. The resulting monomers are then polymerized into virgin-quality PET plastic used in food-grade plastic packaging such as water and under normal atmospheric pressuresoda bottles and at room temperature.polyester fiber for textile applications.
Depolymerization presents two unique advantagesLoop’s technology allows for low value and no value waste PET plastic and polyester fibers such as carpets and clothing to be upcycled into high value PET/Polyester packaging for consumer goods companies. Our zero energy depolymerization technology specifically targets PET/Polyester allowing for the removal of all waste impurities, such as colors/dyes, labels and non-PET plastic waste.
Plan of Operation
During the last three years we have positioned Loop to be a leader in recycling resin-based products: (i)sustainability and the abilitycircular economy. We built our pilot plant in Terrebonne, Canada to return a recovered resinoptimize and showcase our proprietary depolymerization technology. We are currently expanding our pilot plant to virgin-resin-like quality, and (ii) the potential to recover a valuable feedstock from products that are economically challenging to recycle. When plastic is mechanically recycled, even small levelsincrease capacity as we begin our next phase of contamination can compromise the performance of the resin. However, because our depolymerization process breaks down plastics into monomer form, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable.commercialization.
We are focused on commercialization of our technology through a development-stage company and have not generated any revenues fromhybrid revenue model consisting of licensing our technology. Our depolymerization technology must be scaled-up before we can commercialize it and generate any revenues. We intend to sell LOOP™-brandedworld class multinational supply chain management companies to manufacture Loop™ branded PET resin, and we may also participate with an equity interest in the manufacturing partnerships and/or joint-ventures. We believe this model will position Loop to sustainably focused customers. During January 2016, we announcedramp up commercial operations more rapidly in order to satisfy demand for sustainable plastics from global consumer brands and achieve meaningful substitution of oil based PET resins. We believe this model will also allow us to partner with others and ramp up capital intensive manufacturing operations to commercialize our technology without having to raise significant new capital and incur resulting significant equity dilution.
The company plans to negotiate take or pay contracts with global consumer goods companies for the successful completionsale of Loop™ PET resin. Loop will continue to create brand value for Loop™ PET resin, by leveraging the global consumer goods company’s marketing and branding initiatives.
We plan to allocate capital to strengthen our intellectual property portfolio, build a pilot plant facilitycore competency in managing strategic relationships and continue enhancing our Loop brand value. Our research and development innovation hub in Terrebonne, Canada withwill continue optimizing our current technology as well as innovate into new areas of sustainability. We are investing in building a production capacity of 2.5 metric tons per day of high purity PTAstrong management team to integrate best in class processes and MEG.practices while maintaining our entrepreneurial culture.
We have applied to listOn November 20, 2017, our common stocksecurities began trading on The NASDAQ Global Market, under the trading symbol “LLPP.”
Plan of Operation
We are planning“LOOP”, which we believe will provide the Company heightened exposure with a global audience and greater access to and have begun taking steps to build a commercial scale facility with an installed capacity of approximately 20,000 metric tons (MT) per annum to supply our potential customers with LOOP™ branded PET resin of at least 50% recycled content. We are planning to finance any new facilities through additional sales of our common stock, government assistance, including grants and low-interest loans and debt financing.
We are conducting qualification testing of our LOOP™ branded PET resin and negotiating long term supply contracts with potential customers. In addition, we are optimizing our manufacturing process to ensure a smooth transition from pilot scale to full scale commercial manufacturing facility.
Our plan of operation also includes the development of the LOOP™ branded PET resin, by establishing co-marketing and co-branding initiatives with potential customers. LOOP™ branded PET resin will primarily focus on educating consumers on the importance of the circular economy and the Loop technology that can play a pivotal role in this new economy.capital.
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Results of Operations
For the three months ended August 31, 2017 and August 31, 2016The following tables summarize our operating results.
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| 2017 vs 2016 |
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Revenue |
| $ | - |
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| $ | - |
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| $ | - |
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| - |
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Operating Expenses - |
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Research and development |
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| 3,894,454 |
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| 368,403 |
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| 3,526,051 |
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| 957 | % |
General and administrative |
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| 2,720,078 |
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| 277,951 |
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| 2,442,127 |
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| 879 | % |
Depreciation and amortization |
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| 98,755 |
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| 102,244 |
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| (3,490 | ) |
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| -3 | % |
Foreign exchange loss (gain) |
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| (9,634 | ) |
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| 809 |
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| (10,443 | ) |
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| -1291 | % |
Total operating expenses |
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| 6,703,653 |
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| 749,407 |
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| 5,954,246 |
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| 795 | % |
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Net Loss, before the undernoted |
| $ | (6,703,653 | ) |
| $ | (749,407 | ) |
| $ | (5,954,246 | ) |
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| 795 | % |
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Adjusted for Share Based Compensation: |
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Non-recurring |
| $ | 3,230,910 |
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| $ | - |
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| $ | 3,230,910 |
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| - |
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Ongoing |
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| 1,172,635 |
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| 40,149 |
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| 1,132,486 |
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| 2821 | % |
Total Share Based Compensation |
| $ | 4,403,545 |
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| $ | 40,149 |
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| $ | 4,363,396 |
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| 10868 | % |
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Adjusted Net Loss |
| $ | (2,300,108 | ) |
| $ | (709,258 | ) |
| $ | (1,590,850 | ) |
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| 224 | % |
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Adjusted Operating Expenses |
| $ | 2,300,108 |
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| $ | 709,258 |
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| $ | 1,590,850 |
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| 224 | % |
Adjusted Operating Expenses exclude Share Based Compensation amounts.
We recorded no revenues
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Nine months ended November 30, 2017 2016 % Revenue Operating Expenses - Research and development General and administrative Depreciation and amortization % Foreign exchange loss (gain) % Total operating expenses Net Loss, before the undernoted Adjusted for Share Based Compensation: One-time Ongoing Total Share Based Compensation Adjusted Net Loss Adjusted Operating Expenses Change 2017 vs 2016 $ $ - $ - $ - - 5,341,763 1,217,600 4,124,163 339 % 4,691,294 1,034,007 3,657,287 354 % 281,016 290,396 (9,380 ) -3 88,634 (2,880 ) 91,514 -3178 10,402,707 2,539,123 7,863,584 310 % $ (10,402,707 ) $ (2,539,123 ) $ (7,863,584 ) 310 % $ 3,230,910 $ - $ 3,230,910 - 2,093,007 106,053 1,986,954 1874 % $ 5,323,917 $ 106,053 $ 5,217,864 4920 % $ (5,078,790 ) $ (2,433,070 ) $ (2,645,720 ) 109 % $ 5,078,790 $ 2,433,070 $ 2,645,720 109 %
Adjusted Operating Expenses exclude Share Based Compensation amounts.
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We realized a net loss of $2.2 millionResearch and development expenses for the three monthsand nine month period ended August 31,November 30, 2017 compared to a net loss of $0.8were $3.9 million for the three months ended August 31, 2016. This net loss is mainly due toand $5.3 million, respectively, representing an increase in generalof $3.5 million and administrative expenses of $1.1$4.1 million, for the three months ended August 31, 2017 compared to $0.3 million for the three months ended August 31, 2016. In addition, we incurred $1.0 millionrespectively.
The increase in research and development expenses for the three month period ended August 31, 2017 compared to $0.4 million for the period ended August 31, 2016 as we continue to scale our technology.
For the six months ended August 31, 2017 and August 31, 2016
We recorded no revenues for the six months ended August 31, 2017 and August 31, 2016.
We realized a net loss of $3.7 million for the six months ended August 31, 2017 compared to a net loss of $1.8 million for the six months ended August 31, 2016. This net loss is mainly duewas primarily attributable to an increase in generalnon-cash stock compensation of $2.9 million, design and administrative expensesplanning costs of $2.0$0.4 million forincurred in connection with our Terrebonne Pilot Plant, and an increase in staff costs of $0.1 million. Of the period$2.9 million stock compensation increase, $2.3 million was recorded in the quarter ended August 31,November 30, 2017 compared to $0.8as the stock options were fully vested on grant date and the remaining amount, $0.6 million, forrepresents amounts recorded over the period ended August 31, 2016. In addition, we incurred $1.4 millionrequisite vesting service period.
The increase in research and development expenses for the nine month period ended August 31,November 30, 2017 comparedwas primarily due to an increase in non-cash stock compensation of $3.1 million, costs incurred to enhance our Terrebonne Pilot Plant of $0.9 million, and an increase in staff costs of $0.4 million. Of the $3.1 million stock compensation increase, $2.3 million was recorded in the nine month period ended November 30, 2017 as the stock options were fully vested on grant date and the remaining amount, $0.8 million, forrepresents amounts recorded over the period ended August 31, 2016 as we continue to scale our technology.requisite vesting service period.
ActivityGeneral and administrative expenses for the three and nine month period ended November 30, 2017 were $2.7 million and $4.7 million, respectively, an increase of $2.4 million and $3.7 million, respectively.
The increase in general and administrative expenses for the three month period was primarily attributable to an increase in non-cash stock compensation of $1.5 million, an increase in legal and accounting fees of $0.4 million, an increase in staff costs of $0.3 million and NASDAQ initial filing fees of $0.1 million. Of the $1.5 million stock compensation increase, $0.9 million was recorded in the six monthsquarter ended August 31,November 30, 2017 continuesas the stock options were fully vested on grant date and the remaining amount, $0.6 million, represents amounts recorded over the requisite vesting service period.
The increase in general and administrative expenses for the nine month period ended November 30, 2017 was primarily due to focus onan increase in non-cash time-based stock compensation of $2.1 million which includes $0.5 million stock compensation for the developmentformer CFO, an increase in legal and accounting fees of plans for a commercial facility, continued testing$0.6 million, an increase in staff costs of $0.6 million, and improvementNASDAQ initial filing fees of our depolymerization process as well as testing of various feedstocks used$0.2 million. Of the $2.1 million stock compensation increase, $0.9 million was recorded in the depolymerization process.
Onnine month period ended November 30, 2017 as the commercial side, we have undertaken various marketing initiatives to raise awareness ofstock options were fully vested on grant date and the Loop depolymerization process. In addition, we have been working with potential future customers and other key stakeholders to ensure thatremaining amount, $1.2 million, represents amounts recorded over the Loop™ branded PET resin meets customers’ needs and specifications once commercial production begins.requisite vesting service period.
Liquidity and Capital Resources
As reflected in the accompanying unaudited interim condensed consolidated financial statements, we have no recurring source of revenue and during the sixnine months ended August 31,November 30, 2017, we incurred a net loss of $3.7$10.4 million and used cash in operations of $2.3$4.2 million. As of August 31,November 30, 2017, we had cash on hand of $5.4$3.4 million and stockholders’ equity of $6.6$4.3 million.
We estimateOn January 9, 2018, the Board approved the issuance of up to 1,100,000 common shares at an offering price of $12.00. At January 11, 2018, the Company had sold 612,667 shares for gross aggregate proceeds of $7.4 million. As a result, management estimates that the current funds on hand will be sufficient to continue operations throughduring the next twelve months. However, we will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. We are currently
Management may consider seeking additional funds in the future, primarily through the issuance of debt and equity securities for cash and estimate that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.
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Table of Contents |
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us.the Company. Even if wethe Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Off-Balance Sheet Arrangements
As of August 31,November 30, 2017, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
Management’s Evaluation of our Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal quarter covered by this report. Disclosure controls and procedures means that the material information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of August 31,November 30, 2017.
Changes in Internal Control over Financial Reporting
As described under “Material Weakness DiscussionIn light of the restatement to our fiscal 2017 consolidated financial statements, our Chief Executive Officer and Remediation” in our most recent Annual Report on Form 10-K, filed on May 30, 2017, weChief Financial Officer have undertaken a broad range of remedial procedures to address the weaknesses inre-evaluated our internal control over financial reporting.reporting and its disclosure controls and procedures and concluded that they were not effective at February 28, 2017. Furthermore, the CEO and CFO have determined that at May 31, 2017, August 31, 2017 and November 30, 2017, our internal control over financial reporting were not effective. The material weakness that existed on those dates are described in Part II, Item 9A – Controls and Procedures in our most recent Amended Annual Report on Form 10-K/A, filed on January 12, 2018. We are committed to remediating our material weaknesses as promptly as possible. Implementation of our remediation plans has commenced and is being overseen by the Audit Committee.
In particular, weWe have engaged third party Sarbanes-Oxley consultants and we continuetaken steps to improve and documentenhance our internal controlscontrol over financial reporting and processes. We plan to testtake additional steps to remediate the effectiveness of these controls over the next two quarters to enable us to be compliant with the requirements under SOX 302 and 404.material weaknesses. Specifically:
Other remediation procedures include: i)
· | We appointed additional independent members with public company board experience to our board of directors, | |
· | We established an audit committee | |
· | We engaged a third-party Sarbanes-Oxley consultant to assist in addressing controls and process gaps | |
· | We added staff to our finance team, and outsourced to third party the assessment of certain complex transactions under US GAAP | |
· | We developed and communicated a series of corporate policies, including the Whistle-Blower Policy, Insider Trading Policy, Global Anti-Corruption Policy and Related Party Transaction policy | |
· | On October 8, 2017, we hired a General Counsel to the management team, and | |
· | On November 8, 2017, we hired a Chief Financial Officer with public company experience |
We believe that the formation of an audit committee, with the appointment of an audit committee chair;measures described above will strengthen our internal control over financial reporting. We expect that our efforts, including design, implementation and ii) the development and communication of corporate policies, including the Whistle-Blower Policy, Insider Trading Policy, Global Anti-Corruption Policy and Related Party Transaction policy.testing will continue throughout fiscal year 2018.
Table of Contents |
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. As of August 31,November 30, 2017, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
We anticipate that we will expend significant financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. We also anticipate that we will expend significant financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.
We are subject to various risks and uncertainties in the course of our business. Risk factors relating to us are set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended February 28, 2017, filed on May 30, 2017. In addition to those Risk Factors, the following risk should also be noted. You should consider this risk factor together with the other risk factors and other matters described in our Annual Report2017, as amended by Amendment No. 1 thereto on Form 10-K, in this10-K/A, filed on January 12, 2018, and our Quarterly Report on Form 10-Q for the quarter ended August 31, 2017, filed on October 11, 2017, as amended by Amendment No.1 thereto on Form 10-Q/A filed on January 12, 2018, and in our other filings with the SEC.
We are subject to risks associated with currency fluctuations, and changes in foreign currency exchange rates could impact our results of operations.
We operated mainly through two entities, our company, Loop Industries, Inc., which is a Nevada corporation and has a U.S. dollar functional currency, and our wholly-owned subsidiary Loop Canada Inc. (“Loop Canada”), which is based in Terrebonne, Quebec, Canada and has a Canadian dollar functional currency. Our reporting currency is the U.S. dollar.
We mainly finance our operations through the sale and issuance of shares of common stock of Loop Industries, Inc. in U.S. dollars while our operations are concentrated in our wholly-owned subsidiary, Loop Canada. Accordingly, we are exposed to foreign exchange risk as we maintain bank accounts in U.S. dollars and a significant portion of our operational costs (including payroll, site costs, costs of locally sourced supplies and income taxes) are denominated in the Canadian dollar.
Significant fluctuations in U.S. dollar to Canadian dollar exchange rates could materially affect our result of operations, cash position and funding requirements. To the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.
From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. As part of our risk management program, we enter into foreign exchange forward contracts to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of our operating costs and future cash flows denominated in currencies that differs from our functional currencies. We do not enter into these contracts for trading purposes or speculation, and our management believes all such contracts are entered into as hedges of underlying transactions. Nonetheless, these instruments involve costs and risks of their own in the form of transaction costs, credit requirements and counterparty risk. If our hedging program is not successful, or if we change our hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates. Any hedging technique we implement may fail to be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the trading price of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ExerciseOn September 7, 2017, we sold to accredited investors an aggregate of Warrants18,128 shares of its common stock, par value $0.0001 per share (the "Shares") for an aggregate purchase price of approximately $0.2 million in a private placement offering (the "Private Placement").
We issued 193,970 shares of our common stock upon the exercise of warrants with an exercise price of $6.00 per share. The shares and the warrants were issued pursuant to Section 4(a)(2)net proceeds of the Securities ActPrivate Placement are expected to be used as general working capital of 1933,the Company.
For these unregistered sales, we relied on the private offering safe harbor provision of Rule 506 of Regulation D promulgated thereunder based on the following factors: (i) the number of offerees or purchasers, as amended.applicable, (ii) the absence of general solicitation, (iii) representations obtained from the purchasers relative to their accreditation and/or sophistication and/or their relationship to the company (directors and officers), (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities coupled with investment representations obtained from the purchasers.
A copy of the form of Common Stock Subscription Agreement is attached as Exhibit 10.4 to this report and is incorporated herein by reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
None.
Table of Contents |
The following Exhibits, as required by Item 601 of Regulation S-K, are attached or incorporated by reference, as stated below.
Incorporated by Reference Number Description Form File No. Filing Date Exhibit No. 10-K 000-54768 May 30, 2017 3.1 S-1 333-171091 Dec 10, 2010 3.2 8-K 000-54768 May 5, 2017 10.1 10-Q 000-54768 July 14, 2017 4.2 Filed herewith Filed herewith Filed herewith Filed herewith Filed herewith Furnished herewith Furnished herewith 101.INS XBRL Instance Document Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith
Incorporated by Reference Number Description Form File No. Filing Date Exhibit No. 10-K 000-54768 May 30, 2017 3.1 S-1 333-171091 Dec 10, 2010 3.2 Filed herewith Filed herewith Filed herewith 10-Q 000-54768 July 14, 2017 10.2 8-K 000-54768 October 25, 2017 10.1 Employment Agreement, dated October 20, 2017 by and between Frank Zitella and Loop Canada, Inc. Filed herewith Filed herewith Filed herewith Filed herewith Furnished herewith Furnished herewith 101.INS XBRL Instance Document Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith* Compensatory plan or arrangement
Table of Contents |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LOOP INDUSTRIES, INC. | ||
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Date: | By: | /s/ Daniel Solomita | |
| Name: | Daniel Solomita | |
| Title: | President and Chief Executive Officer (principal executive officer) |
Date: | By: | /s/ | |
| Name: |
| |
| Title: | Chief Financial Officer (principal accounting officer and principal financial officer) |
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