PART I. Financial Information ITEM 1. Financial Statements This section presents Loop Industries' unaudited condensed consolidated financial statements, covering balance sheets, operations, equity, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets Total assets and stockholders' equity decreased, while total liabilities significantly increased, driven by reduced cash and new convertible notes | Metric | Nov 30, 2018 | Feb 28, 2018 | | :-------------------------------- | :----------- | :----------- | | Cash | $3,528,258 | $8,149,713 | | Total Assets | $9,428,530 | $13,395,563 | | Total Liabilities | $6,126,960 | $3,071,498 | | Convertible notes | $2,450,000 | - | | Total Stockholders' Equity | $3,301,570 | $10,324,065 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported no revenue, with net loss decreasing for both three and nine-month periods due to reduced research and development expenses | Metric | 3 Months Ended Nov 30, 2018 | 3 Months Ended Nov 30, 2017 | 9 Months Ended Nov 30, 2018 | 9 Months Ended Nov 30, 2017 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $ - | $ - | $ - | $ - | | Net Loss | $(2,913,761) | $(6,703,653) | $(9,981,702) | $(10,402,707) | | Research and development | $792,111 | $3,894,454 | $2,924,483 | $5,341,763 | | Loss per share (Basic and Diluted) | $(0.09) | $(0.20) | $(0.30) | $(0.32) | Condensed Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity significantly decreased due to net loss and foreign currency adjustments, partially offset by increases in additional paid-in capital from warrants and RSUs | Metric | Nov 30, 2018 | Feb 28, 2018 | | :------------------------- | :----------- | :----------- | | Total Stockholders' Equity | $3,301,570 | $10,324,065 | | Accumulated Deficit | $(31,256,883) | $(21,275,181) | | Additional Paid-in Capital | $34,127,010 | $30,964,970 | - Net loss for the nine months ended November 30, 2018, was $(9.98 million)14 Condensed Consolidated Statements of Cash Flows Net cash and restricted cash decreased, primarily due to significant cash usage in operating and investing activities, partially offset by financing activities from convertible debt sales | Cash Flow Activity | 9 Months Ended Nov 30, 2018 | 9 Months Ended Nov 30, 2017 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(5,455,317) | $(4,175,443) | | Net cash used in investing activities | $(1,523,353) | $(273,550) | | Net cash provided by financing activities | $2,510,529 | $7,022,801 | | Net change in cash and restricted cash | $(4,521,455) | $2,523,281 | | Cash and restricted cash, end of period | $3,628,258 | $3,439,768 | Notes to the Condensed Consolidated Financial Statements These notes detail the company's nature, accounting policies, financial instruments, and significant transactions, including going concern status, recent pronouncements, and specific financial items Note 1. Nature of the Company, Basis of Presentation and Going Concern This note describes Loop Industries' business of depolymerizing waste plastic, its pre-revenue status, accumulated deficit, and going concern risks due to significant cash usage - Loop Industries is a technology company focused on depolymerizing waste polyester plastic into virgin-quality plastic for food-grade packaging21 - The company is pre-revenue with an accumulated deficit of $31.3 million, incurred a $10.0 million net loss, and used $5.5 million cash in operations, raising substantial doubt about its going concern ability24 - As of November 30, 2018, the company had $3.5 million cash on hand and relies on new equity capital for operations and commercialization, with no assurance of future financing2526 Note 2. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, including its reporting currency, research and development expense recognition, and the impact of recent accounting pronouncements - The company's financial statements are presented in U.S. dollars, its reporting currency29 | Expense Category | 3 Months Ended Nov 30, 2018 | 3 Months Ended Nov 30, 2017 | 9 Months Ended Nov 30, 2018 | 9 Months Ended Nov 30, 2017 | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $0.8 million | $3.9 million | $2.9 million | $5.3 million | - Recently adopted accounting pronouncements (ASU 2014-09, ASU 2016-01, ASU 2017-09) had no material impact, and recently issued pronouncements (ASU 2018-02, ASU 2018-07, ASU 2018-09) are not expected to have a material impact353640414243 Note 3. Property, Plant and Equipment, Net This note details the company's property, plant, and equipment, including machinery and equipment values and associated depreciation expenses | Asset Category | Nov 30, 2018 | Feb 28, 2018 | | :----------------------------- | :----------- | :----------- | | Property, plant and equipment, net | $5,033,774 | $4,036,903 | | Machinery and equipment | $3,380,317 | $2,189,195 | | Depreciation expense (9 months) | $309,000 | $233,000 | Note 4. Intangible Assets, Net This note provides information on the company's intangible assets and their associated amortization expenses | Asset Category | Nov 30, 2018 | Feb 28, 2018 | | :--------------------- | :----------- | :----------- | | Intangible assets, net | $404,667 | $332,740 | | Amortization expense (9 months) | $58,000 | $48,000 | Note 5. Long-Term Debt This note details the non-current portion of the company's long-term debt and interest paid during the period | Debt Category | Nov 30, 2018 | Feb 28, 2018 | | :-------------------- | :----------- | :----------- | | Non-current portion | $956,069 | $1,033,777 | | Interest paid (9 months) | $41,117 | $0 | Note 6. Related Party Transactions This note describes related party transactions, including the CEO's compensation expense and a long-term incentive grant of restricted stock units - The CEO's compensation expense for the nine months ended November 30, 2018, increased to $522,000 from $135,000 in the prior year due to an amended employment agreement49 - A long-term incentive grant of 4 million restricted stock units (RSUs) was provided to the CEO, with one of four performance milestones met, but no compensation expense was recorded as vesting was not probable50 Note 7. Stockholders' Equity This note details changes in common stock outstanding, shares issued from warrant exercises and RSU vesting, and capital raised from stock sales | Metric | Nov 30, 2018 | Feb 28, 2018 | | :-------------------------------- | :----------- | :----------- | | Common Stock Outstanding (shares) | 33,805,706 | 33,751,088 | | Shares issued upon cashless exercise of warrants (9 months 2018) | 18,821 | - | | Shares issued upon vesting of restricted stock units (9 months 2018) | 35,797 | - | - During the nine months ended November 30, 2017, the company raised $7.28 million from common stock sales through private placements and warrant exercises52 Note 8. Stock-based Compensation Plans This note outlines shares available under the equity incentive plan, and details outstanding warrants, RSUs, and their associated expenses - As of November 30, 2018, 3,271,496 shares were available for issuance under the 2017 Equity Incentive Plan54 | Metric | Nov 30, 2018 | Nov 30, 2017 | | :-------------------------------- | :----------- | :----------- | | Warrants Outstanding | 2,345,957 | 2,684,582 | | Weighted average exercise price | $8.44 | $7.16 | | Warrant expense (9 months) | $2.6 million | $5.2 million | | Restricted Stock Units (RSUs) Outstanding | 99,498 | 34,102 | | RSU expense (9 months) | $0.6 million | $0.1 million | Note 9. Convertible notes This note details the issuance of $2.45 million in convertible promissory notes, their conversion terms, and classification as a liability and derivative liability - On November 13, 2018, the company issued $2.45 million in convertible promissory notes with an 8.00% annual interest rate, maturing on May 13, 20195859 - The notes automatically convert into common stock at the lesser of $13.00 or the 10-day average closing price, with related warrants issued to acquire an additional 50% of converted shares at a variable exercise price5960 - Due to variable conversion terms, the notes are classified as a liability at amortized cost, and the warrants as a derivative liability measured at fair value6162 Note 10. Joint venture This note details the formation of Indorama Loop Technologies, LLC, a 50:50 joint venture with Indorama Holdings LP, and agreements with PepsiCo for Loop™ PET resin supply - Loop Industries formed a 50:50 joint venture, Indorama Loop Technologies, LLC (ILT), with Indorama Holdings LP, USA, on September 24, 2018, to manufacture Loop branded polyester resin6566 - The company committed an initial capital contribution of $0.5 million and contributed an exclusive worldwide royalty-free license for its proprietary technology to ILT66 - In October 2018, PepsiCo entered a multi-year agreement to purchase production capacity from the ILT facility and incorporate Loop™ PET resin into its product packaging by early 202067 Note 11. Contingencies This note addresses a legal claim seeking 2 million shares of common stock and punitive damages, with management believing the case lacks merit - The company is defending a legal claim seeking 2 million shares of common stock, punitive damages, and attorneys' fees for alleged breach of contract and promissory fraud, with trial delayed to May 8, 201968 - Management believes the case lacks merit and has not provided for any amounts, but an unfavorable outcome could lead to significant share dilution and legal fee reimbursement68 Note 12. Subsequent events This note reports the issuance of an additional $0.2 million in convertible promissory notes and related warrants in January 2019 - On January 3, 2019, the company issued an additional $0.2 million in convertible promissory notes and related warrants with identical characteristics to those described in Note 969 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, highlighting its pre-revenue status, net losses, cash usage, going concern doubts, and strategic developments like Generation II technology and joint ventures CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties, including commercialization, financing, and going concern, advising against undue reliance - Forward-looking statements cover market opportunity, strategies, capabilities, competition, expected activities, cash resources, regulatory compliance, future growth, market size, trends, and internal control effectiveness72 - Risks include technology commercialization, partner relationships, intellectual property, financing needs, competition, regulatory compliance, CEO control, internal control weaknesses, and going concern ability72 - Readers are cautioned not to place undue reliance on forward-looking statements, and the company disclaims any obligation to revise them for future events or circumstances75 Introduction and Prospective Future Growth Loop Industries aims to accelerate sustainable plastic production, targeting a $130 billion global polyester market, with key developments including Generation II technology, a joint venture with IVL, and agreements with PepsiCo and Coca-Cola - Loop Industries aims to decouple plastic from fossil fuels by depolymerizing waste polyester into virgin-quality plastic for food-grade packaging78 - The global polyester market is estimated at 70 million metric tons (approximately $130 billion) and is expected to grow 4% annually79 - The company activated its Generation II technology in June 2018, which is more streamlined, energy-efficient, and eliminates water in dimethyl terephthalate production81 - A 50:50 joint venture with Indorama Ventures Public Company Limited (IVL) was formed in September 2018 for sustainable polyester resin, with commercial production planned for Q1 202082 - Multi-year agreements were secured with PepsiCo (October 2018) and Coca-Cola (November 2018) to supply Loop™ PET resin for product packaging by early 20208485 Results of Operations The company reported no revenue, with net loss decreasing for both periods due to reduced R&D expenses, while G&A expenses showed mixed trends due to employee costs and legal fees | Metric | 3 Months Ended Nov 30, 2018 | 3 Months Ended Nov 30, 2017 | 9 Months Ended Nov 30, 2018 | 9 Months Ended Nov 30, 2017 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $ - | $ - | $ - | $ - | | Net Loss | $(2,913,761) | $(6,703,653) | $(9,981,702) | $(10,402,707) | | Research and development expenses | $792,111 | $3,894,454 | $2,924,483 | $5,341,763 | | General and administrative expenses | $1,971,847 | $2,720,078 | $6,721,796 | $4,691,294 | - The decrease in research and development expenses was primarily due to lower non-cash stock-based compensation and reduced engineering fees9396 - The increase in general and administrative expenses for the nine-month period was mainly driven by higher employee-related costs, legal fees, and consulting/accounting fees97 LIQUIDITY AND CAPITAL RESOURCES As a pre-revenue company, Loop Industries had $3.5 million cash on hand, with significant cash usage in operations and investing, necessitating further financing due to going concern doubts - As of November 30, 2018, the company had $3.5 million cash on hand98 | Cash Flow Activity | 9 Months Ended Nov 30, 2018 | 9 Months Ended Nov 30, 2017 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(5,455,317) | $(4,175,443) | | Net cash used in investing activities | $(1,523,353) | $(273,550) | | Net cash provided by financing activities | $2,510,529 | $7,022,801 | - The company's pre-revenue status, $31.3 million accumulated deficit, and significant cash usage in operations raise substantial doubt about its going concern ability, requiring additional financing101 Off-Balance Sheet Arrangements As of November 30, 2018, the company had no off-balance sheet arrangements - The company did not have any off-balance sheet arrangements as of November 30, 2018106 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from foreign currency fluctuations between USD and CAD, which could adversely affect financial results and stock price, despite potential hedging activities Foreign Currency Exchange Risk Loop Industries faces foreign currency exchange risk due to USD financing and CAD operational costs, where fluctuations could materially impact financial results, cash, and funding, despite potential hedging - The company is exposed to foreign exchange risk due to U.S. dollar financing and significant Canadian dollar operational costs of its subsidiary, Loop Canada Inc109 - Significant fluctuations in USD to CAD exchange rates could materially affect the company's results, cash position, funding requirements, and stock price110 - The company may engage in exchange rate hedging activities, such as foreign exchange forward contracts, but these involve costs and risks, and their effectiveness is not assured111 ITEM 4. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective, with the material weakness in stock-based compensation accounting remediated, and no other material changes occurred Management's Evaluation of our Disclosure Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective, and the material weakness in stock-based compensation accounting was remediated - The principal executive officer and principal financial officer concluded that disclosure controls and procedures and internal controls over financial reporting were effective as of November 30, 2018113 - The previously reported material weakness in stock-based compensation accounting was remediated by expanding in-house expertise and engaging an external advisor113 Changes in Internal Control over Financial Reporting No other material changes in internal control over financial reporting occurred during the most recent quarter - No other changes in internal control over financial reporting occurred during the most recent quarter that materially affected, or were reasonably likely to materially affect, the company's internal control over financial reporting114 PART II. Other Information ITEM 1. Legal Proceedings The company is defending a legal claim seeking 2 million shares, punitive damages, and attorneys' fees for alleged breach of contract, with trial set for May 8, 2019 - A claim was filed against the company seeking damages for breach of contract and promissory fraud, asserting entitlement to 2 million shares of common stock116 - The trial date has been delayed to May 8, 2019, in the Los Angeles Superior Court116 - Management believes the case lacks merit, but an unfavorable outcome could lead to the issuance of 2 million additional shares, causing dilution and legal fee reimbursement116 ITEM 1A. Risk Factors The primary risk factor is the company's going concern status, as current liquidity raises substantial doubt about its ability to continue operations without additional capital, potentially leading to investor losses - The company's consolidated financial statements include going concern disclosures, indicating substantial doubt about its ability to continue as a going concern due to current liquidity120121 - To fund operations and continue as a going concern, the company must raise additional equity or debt capital, with no assurance of success122 - The financial statements do not include adjustments that might result if the company is unable to continue as a going concern, which could cause investors to suffer substantial losses121 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds to report123 ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities to report124 ITEM 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable125 ITEM 5. Other Information No other information is reported under this item - No other information to report126 ITEM 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate documents, various agreements, and principal officer certifications - Exhibits include Articles of Incorporation, By-laws, employment agreements, joint venture agreements, license agreements, marketing agreements, and certifications (302 and 906)129 Signatures The report was signed on January 9, 2019, by Daniel Solomita (CEO, President, Director) and Nelson Gentiletti (COO, CFO) - The report was signed on January 9, 2019, by Daniel Solomita (Chief Executive Officer, President, and Director) and Nelson Gentiletti (Chief Operating Officer and Chief Financial Officer)132
Loop Industries(LOOP) - 2019 Q3 - Quarterly Report