Loop Industries(LOOP) - 2021 Q4 - Annual Report

PART I Item 1. Business Loop Industries accelerates sustainable PET plastic and polyester fiber production by depolymerizing waste into virgin-quality monomers using proprietary GEN II technology - Loop Industries' mission is to accelerate the world's shift toward sustainable PET plastic and polyester fiber, reducing dependence on fossil fuels by depolymerizing waste PET plastic and polyester fiber into virgin-quality Loop™ branded PET resin[27] - The global annual market demand for PET plastic and polyester fiber is nearly $130 billion, projected to exceed $160 billion by 2022, driven by increasing consumer and regulatory demand for recycled content[28][29][30] - Loop's Generation II (GEN II) technology is a methanolysis-based depolymerization process operating below 90 °C, offering lower energy usage, avoidance of side reactions, ability to process diverse low-quality feedstocks, and minimal water usage without halogenated solvents[36][37][39] - Loop Industries has received a no-objection letter (NOL) from the US FDA (March 1, 2021) and REACH registration from the European Chemicals Agency for its DMT and MEG monomers (November/December 2020), confirming their suitability for food-contact applications[44][45] - The company has multi-year supply agreements with global brands like Danone, PepsiCo, L'OCCITANE en Provence, and L'Oréal Group for Loop™ branded PET resin, anticipating premium pricing due to its 100% recycled, virgin-quality nature[47][48][50] - Commercialization efforts include engineering full-scale facilities with Worley, adopting a 'design one, build many' approach, and pursuing global expansion through fully owned facilities (Québec Project), strategic partnerships (Suez in Europe), and joint ventures (Indorama in Spartanburg, SC)[51][53][55][57][61][62] - The joint venture with Indorama for a Spartanburg, SC facility (initially 20,700 MT/year, increased to 40,000 MT/year) has contracted approximately 40% of its planned capacity but experienced delays due to the COVID-19 pandemic[63][64][65] - Loop is converting its Terrebonne, Québec pilot plant into an Infinite Loop™ demonstration and training facility, with significant investments in depolymerization reactors in FY2021, aiming for completion by late 2021 and product delivery by 2022[66][68] Item 1A. Risk Factors Loop Industries faces significant risks including persistent net losses, uncertain commercialization, COVID-19 impacts, ongoing legal proceedings, and funding challenges - Loop Industries has incurred net losses since inception, with a net loss of $36.34 million for the year ended February 28, 2021, and has not generated revenue, expecting continued losses for the foreseeable future[86] - The company's limited operating history (business started in October 2014) makes it difficult to evaluate future success and viability, as it has not yet demonstrated commercial-scale manufacturing or sales and marketing capabilities[87][88] - Additional funding through debt, equity, joint ventures, or government programs is likely required for profitable operations, and the inability to secure such financing on favorable terms could adversely affect the business[89] - The COVID-19 pandemic has disrupted business operations, caused delays in the Indorama joint venture, and may continue to impact access to capital markets, supply chains, manufacturing, and asset values[90][91][92][93][94][95] - The company is a defendant in putative shareholder class-action lawsuits and subject to an SEC investigation, which could lead to significant legal costs, diversion of management attention, civil penalties, and reputational damage[108][109] - Commercialization of Loop's technology may not be successful due to funding issues, regulatory approvals, competition, or collaborators' decisions, and failure to scale manufacturing processes could prevent meeting customer demand[96][97][100] - Reliance on strategic partners (e.g., Indorama, Suez, Chemtex, Worley) carries risks, including potential termination of agreements if milestones are not met, as exemplified by Coca-Cola's termination of a supply agreement[98][99] - The plastics manufacturing industry is price-competitive, and if the cost to manufacture recycled PET is not competitive with virgin PET (especially with declining crude oil prices), market penetration and profitability could be adversely affected[103] - Mr. Daniel Solomita, CEO and Chairman, beneficially owns 77.0% of the voting control (as of May 27, 2021) through common stock and Series A Preferred Stock, giving him control over stockholder matters and business decisions, potentially hindering changes in management or discouraging takeovers[130][131][133][134] Item 2. Properties Loop Industries owns its Terrebonne pilot plant and corporate offices, and acquired a 19 million sq ft parcel in Bécancour, Québec, for a planned manufacturing facility - Loop Industries owns a 31.9 thousand square foot facility in Terrebonne, Québec, housing its pilot plant and corporate offices[142] - On May 27, 2021, the company acquired a 19 million square foot parcel of land in Bécancour, Québec, for approximately $4.8 million (CDN $5.9 million) for a planned Infinite Loop™ manufacturing facility[143] - The new Bécancour site offers attractive logistics, access to rail, and lower environmental impact by recycling an industrial site, reducing construction costs and permitting time[57][143] Item 3. Legal Proceedings Loop Industries faces an SEC investigation and multiple shareholder class-action lawsuits in New York and Québec, alleging false/misleading statements - Loop Industries received an SEC subpoena on October 15, 2020, requesting information regarding its GEN I and GEN II technologies, testing results, and partnerships[144] - The company is a defendant in consolidated shareholder class-action lawsuits (In re Loop Industries, Inc. Securities Litigation) in the Southern District of New York, alleging violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934[145][146][148][149] - A separate proposed securities class action was filed in the Superior Court of Québec, making similar allegations of false/misleading statements and failure to disclose material adverse facts concerning the company's technology and business model[150] - Management believes these lawsuits lack merit and intends to defend them vigorously; no amounts have been provided in the financial statements for these claims[151][376] Item 4. Mine Safety Disclosures This item is not applicable to Loop Industries, Inc PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Loop Industries' common stock trades on Nasdaq, with 42.43 million shares outstanding, no dividends planned, and no equity repurchases in FY2021 - Loop Industries' common stock is traded on the Nasdaq Global Market under the symbol "LOOP"[157] Common Stock Outstanding and Holders (as of May 27, 2021) | Metric | Value | | :--------------------------------- | :------------------- | | Shares of Common Stock Outstanding | 42,433,320 | | Stockholders of Record | Approximately 52 | - The company has not declared any dividends and does not plan to in the foreseeable future, intending to retain future earnings for business development[159][140] - On May 12, 2020, a warrant to acquire 25,000 shares of common stock at a strike price of $9.43 per share was issued[159] - No equity securities were purchased by the registrant or affiliated purchasers during the fiscal year ended February 28, 2021[160] Item 6. Selected Financial Data As a "smaller reporting company," Loop Industries is not required to provide selected financial data - As a "smaller reporting company," Loop Industries is not required to provide selected financial data[161][225] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Loop Industries, a development-stage company with no revenues, focuses on commercializing its PET depolymerization technology, reporting increased net losses and maintaining liquidity Introduction Loop Industries advances sustainable PET plastic and polyester fiber production by depolymerizing waste into virgin-quality monomers, supporting a circular plastic economy - Loop Industries' core mission is to accelerate the shift to sustainable PET plastic and polyester fiber by depolymerizing waste into virgin-quality Loop™ branded PET resin[164] - The company's technology provides a solution for global brands to meet commitments for recyclable packaging and increased recycled content, contributing to a circular economy[165] Commercialization Plan and Progress Loop Industries executes its Infinite Loop™ commercialization strategy, progressing engineering for global facilities through owned projects, partnerships, and a joint venture - Loop Industries is focused on commercializing its Infinite Loop™ manufacturing technology, which aims to produce PET plastic and polyester fiber from recycled content, supporting global brands' sustainability targets[166][167] - The commercialization strategy includes global expansion through fully owned facilities, strategic partnerships, and licensing agreements, with an engineering philosophy of 'design one, build many' for rapid execution and modular construction[166][168] - On September 2, 2020, Loop entered an agreement with Chemtex Global Corporation to license INVISTA's PET resin and polyester fiber manufacturing know-how for polymerization of DMT and MEG monomers[169] - The company is targeting an initial capacity of up to 70,000 metric tons/year for Infinite Loop™ engineering design, integrating its depolymerization technology with INVISTA's polymerization technology[171] - Loop expects Infinite Loop™ recycled PET resin and polyester fiber to command premium pricing over virgin, petroleum-based PET, targeting multi-year take-or-pay offtake agreements[172] - For the Québec Project, Loop acquired a 19 million sq ft land parcel in Bécancour on May 27, 2021, for $4.8 million (CDN $5.9 million), chosen for its logistics and reduced environmental impact, and is exploring financing options[173][174] - In Europe, a strategic partnership with SUEZ GROUP was announced on September 10, 2020, to build the first Infinite Loop™ manufacturing facility, with site selection targeted for summer 2021[176] - The joint venture with Indorama (formed September 2018) aims to manufacture and commercialize Loop™ PET resin, with a planned Spartanburg, SC facility capacity increased to 40,000 metric tons per year, though work was temporarily delayed in summer 2020 due to COVID-19[177][179][181] - The Terrebonne, Québec pilot plant is being converted into an Infinite Loop™ demonstration and training facility, with significant investments in two new depolymerization reactors in FY2021, expected to be largely completed by late 2021 and deliver product by 2022[182][183] Results of Operations Loop Industries reported no revenues, with net loss significantly increasing to $36.34 million in FY2021, driven by higher R&D and G&A expenses, including legal fees and D&O insurance Operating Results (Three Months Ended February 28, 2021 vs. February 29, 2020) | Metric | Feb 28, 2021 (USD) | Feb 29, 2020 (USD) | Change (USD) | | :---------------------------------- | :------------------ | :------------------ | :------------- | | Revenues | $ - | $ - | $ - | | Total expenses | $ 13,193,503 | $ 3,757,963 | $ 9,435,540 | | Net loss | $ (13,193,503) | $ (3,757,963) | $ (9,435,540) | | Research and development expenses | $ 8,182,921 | $ 1,470,929 | $ 6,711,992 | | General and administrative expenses | $ 4,814,002 | $ 1,768,364 | $ 3,045,638 | - The $6.71 million increase in Q4 research and development expenses was primarily due to a $3.82 million increase in machinery and equipment expenditures (expensed due to dedication of pilot plant to R&D), and a $2.35 million increase in external engineering for Infinite Loop™ design[189] - The $3.05 million increase in Q4 general and administrative expenses was mainly driven by a $2.53 million rise in legal and professional fees related to the SEC investigation and class action suits, and a $0.27 million increase in D&O insurance costs[191] Operating Results (Fiscal Year Ended February 28, 2021 vs. February 29, 2020) | Metric | Feb 28, 2021 (USD) | Feb 29, 2020 (USD) | Change (USD) | | :--------------------------------------- | :------------------ | :------------------ | :------------- | | Revenues | $ - | $ - | $ - | | Total expenses | $ 36,344,923 | $ 14,505,455 | $ 21,839,468 | | Net loss | $ (36,344,923) | $ (14,505,455) | $ (21,839,468) | | Research and development expenses | $ 18,687,014 | $ 4,717,175 | $ 13,969,839 | | General and administrative expenses | $ 11,540,340 | $ 7,215,420 | $ 4,324,920 | | Impairment of property, plant & equipment| $ 5,043,119 | $ 22,985 | $ 5,020,134 | - The $13.97 million increase in FY2021 research and development expenses was primarily due to a $6.15 million increase in machinery and equipment expenditures (expensed due to R&D dedication) and a $5.51 million increase in external engineering for Infinite Loop™ design[194] - The $4.32 million increase in FY2021 general and administrative expenses was mainly due to a $3.42 million rise in legal and professional fees and a $1.31 million increase in D&O insurance costs[194] - A $5.04 million impairment expense for property, plant, and equipment was recognized in FY2021 due to the decision to dedicate the pilot plant exclusively to research and development, foregoing alternative future use of its assets[194][290] LIQUIDITY AND CAPITAL RESOURCES Loop Industries, a development-stage company, relies on equity and debt financing, holding $35.22 million in cash as of FY2021, with management believing resources are sufficient for 12 months - Loop Industries is a development-stage company with no revenues, financing operations and commercialization through new equity and debt capital[196][200] Cash and Cash Equivalents | Date | Amount (USD) | | :---------------- | :------------- | | Feb 28, 2021 | $35,221,951 | | Feb 29, 2020 | $33,717,671 | - In September 2020, a registered direct offering of common stock generated $25.00 million in net proceeds[198] - Accounts payable and accrued liabilities totaled $9.06 million as of February 28, 2021, including legal fees, engineering, and professional fees related to the SEC investigation, class action lawsuits, and commercialization design[201][296] - The company has a short-term debt obligation to a Canadian bank for its Terrebonne property and a long-term financing facility from Investissement Québec (maximum $3.63 million, with $1.74 million received), with remaining funds available for disbursement[202][203][303][305][306] - Management believes the company has sufficient financial resources to fund committed operating and capital expenditures for at least the next 12 months, but acknowledges potential impacts from the COVID-19 pandemic[197][200] Flow of Funds Loop Industries saw net cash used in operating activities increase to $22.49 million in FY2021, while cash from financing decreased to $26.60 million, resulting in a $1.50 million net cash increase in FY2021 Summary of Cash Flows (Years Ended February 28, 2021 and February 29, 2020) | Cash Flow Activity | Feb 28, 2021 (USD) | Feb 29, 2020 (USD) | | :-------------------------------- | :------------------ | :------------------ | | Net cash used in operating activities | $ (22,490,636) | $ (9,092,549) | | Net cash used in investing activities | $ (2,977,364) | $ (3,388,985) | | Net cash provided by financing activities | $ 26,598,668 | $ 40,463,141 | | Net change in cash | $ 1,504,280 | $ 27,884,281 | - The increase in net cash used in operating activities in FY2021 was mainly due to increased operating expenses, including engineering fees, R&D machinery and equipment, and legal fees, as commercialization activities progressed[207] - Net cash used in investing activities in FY2021 included $1.74 million for capital asset investments (pilot plant, executive offices), $0.59 million for intellectual property development (GEN II technology patents), and $0.65 million in contributions to the Indorama joint venture[208] - Net cash provided by financing activities in FY2021 primarily came from a registered direct offering of common stock ($25.00 million net) and warrant exercises ($1.65 million)[210] OUTLOOK Loop Industries' FY2022 outlook focuses on IP protection, pilot plant upgrade, and commercialization of Infinite Loop™ through engineering, site selection, financing, and strategic partnerships - Loop Industries' strategic outlook for FY2022 includes[214] - Protecting intellectual property[215] - Upgrading the pilot plant into a demonstration and training facility for Loop™ PET resin[215] - Driving commercialization of the Infinite Loop™ solution, including Class IV pre-feasibility engineering for Québec and European projects[215] - Identifying and evaluating specific site locations and securing feedstock for commercial operations in Québec and Europe[215] - Exploring financial options, incentives, and strategic partnerships to fund commercial projects[215] - Completing engineering work and proceeding with construction for the Indorama joint venture's Spartanburg facility[215] - Continuing to execute brand and other commercial agreements with customers[215] - The company will continue to monitor the potential impacts of COVID-19 on its business[214] CRITICAL ACCOUNTING POLICIES Loop Industries' critical accounting policies involve significant management estimates, with ongoing COVID-19 uncertainty impacting development, and R&D costs (including dedicated pilot plant machinery) expensed as incurred - The preparation of financial statements requires management to make estimates and assumptions, including depreciable lives of assets, impairment analyses, joint venture carrying value, accruals for liabilities, and fair value of stock-based compensation[216][249] - The COVID-19 pandemic continues to disrupt business operations and development efforts, particularly for the Indorama joint venture, making it difficult to forecast its impact on results of operations and cash flows[217][218][250][251] - Stock-based compensation for employees is measured at grant date fair value and recognized over the vesting period; for non-employees, it's based on the earlier of commitment or performance completion date. Fair value of stock options is estimated using the Black-Scholes-Merton Option Pricing model[219][220][221][222][271][272][273][274] - Research and development expenses, including machinery and equipment purchases for the pilot plant dedicated solely to R&D activities (since Q3 FY2021), are expensed as incurred[223][268] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Loop Industries is not required to provide market risk disclosures - As a "smaller reporting company," Loop Industries is not required to provide quantitative and qualitative disclosures about market risk[225] Item 8. Financial Statements and Supplementary Data This section presents Loop Industries' consolidated financial statements, prepared under US GAAP, detailing financial position, operations, equity changes, and cash flows, with a $36.34 million net loss in FY2021 Index to the Consolidated Financial Statements This index lists the primary consolidated financial statements, including balance sheets, statements of operations, equity changes, cash flows, and accompanying notes - The index lists the consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity, statements of cash flows, and accompanying notes[227] Consolidated Balance Sheets The consolidated balance sheets show total assets increased to $43.40 million in FY2021, liabilities rose to $10.58 million, and stockholders' equity decreased to $32.82 million Consolidated Balance Sheet Summary (USD) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :---------------------------------- | :------------ | :------------ | | Assets | | | | Cash and cash equivalents | $35,221,951 | $33,717,671 | | Total current assets | $37,595,568 | $34,523,441 | | Investment in joint venture | $1,500,000 | $850,000 | | Property, plant and equipment, net | $3,513,051 | $7,260,254 | | Intangible assets, net | $794,894 | $202,863 | | Total assets | $43,403,513 | $42,836,558 | | Liabilities | | | | Accounts payable and accrued liabilities | $8,124,865 | $2,082,698 | | Total current liabilities | $9,062,081 | $2,134,824 | | Long-term debt | $1,516,008 | $2,238,026 | | Total liabilities | $10,578,989 | $4,372,850 | | Stockholders' Equity | | | | Total stockholders' equity | $32,824,524 | $38,463,708 | | Total liabilities and stockholders' equity | $43,403,513 | $42,836,558 | Consolidated Statements of Operations and Comprehensive Loss The consolidated statements of operations show no revenue, with net loss significantly increasing to $36.34 million in FY2021, driven by higher R&D and G&A expenses and asset impairment Consolidated Statements of Operations and Comprehensive Loss (USD) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :--------------------------------------- | :------------ | :------------ | | Revenue | $ - | $ - | | Research and development expenses | $18,687,014 | $4,717,175 | | General and administrative expenses | $11,540,340 | $7,215,420 | | Write-down and impairment of property, plant and equipment | $5,043,119 | $22,985 | | Depreciation and amortization | $775,675 | $807,447 | | Interest and other financial expenses | $81,996 | $2,223,304 | | Interest income | $(93,043) | $(500,478) | | Foreign exchange loss (gain) | $309,822 | $19,602 | | Total expenses | $36,344,923 | $14,505,455 | | Net loss | $(36,344,923) | $(14,505,455) | | Comprehensive loss | $(35,963,064) | $(14,603,680) | | Basic and diluted loss per share | $(0.89) | $(0.38) | | Weighted average common shares outstanding | 40,983,752 | 37,936,094 | Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity decreased to $32.82 million in FY2021, primarily due to a $36.34 million net loss, partially offset by common stock issuances and warrant exercises Changes in Stockholders' Equity (FY2021 vs. FY2020, USD) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :--------------------------------------- | :------------ | :------------ | | Balance, beginning of year | $38,463,708 | $2,626,392 | | Issuance of common shares for cash, net | $24,996,628 | $39,072,648 | | Issuance of shares upon exercise of warrants | $1,652,626 | $143,749 | | Stock options granted for services | $2,212,078 | $2,178,948 | | Restricted stock units granted for services | $1,378,106 | $1,290,443 | | Net loss | $(36,344,923) | $(14,505,455) | | Foreign currency translation adjustment | $381,859 | $(98,225) | | Balance, end of year | $32,824,524 | $38,463,708 | - As of February 28, 2021, 42,413,691 shares of common stock were issued and outstanding, up from 39,910,774 in the prior year[232][339] - The CEO, Daniel Solomita, holds one share of Series A Preferred Stock, granting him majority voting power (77.0% as of May 27, 2021) and protective provisions over certain company actions[336][337][338] Consolidated Statements of Cash Flows Cash flows show $22.49 million used in operations and $2.98 million in investing, offset by $26.60 million from financing, resulting in a $1.50 million net cash increase in FY2021 Consolidated Statements of Cash Flows (USD) | Cash Flow Activity | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(22,490,636) | $(9,092,549) | | Net cash used in investing activities | $(2,977,364) | $(3,388,985) | | Net cash provided by financing activities | $26,598,668 | $40,463,141 | | Effect of exchange rate changes | $373,612 | $(97,326) | | Net change in cash | $1,504,280 | $27,884,281 | | Cash and cash equivalents, beginning of year | $33,717,671 | $5,833,390 | | Cash and cash equivalents, end of year | $35,221,951 | $33,717,671 | - Cash used in operating activities increased due to higher operating expenses, including engineering fees, R&D machinery, and legal fees[207][243] - Cash used in investing activities included $1.74 million for property, plant, and equipment additions, $0.59 million for intangible assets, and $0.65 million for joint venture investments in FY2021[208][243] - Cash provided by financing activities in FY2021 primarily stemmed from $26.65 million in proceeds from common stock sales and warrant exercises[210][243] Notes to the Consolidated Financial Statements The notes detail Loop Industries' accounting policies, financial items, and significant estimates, covering assets, liabilities, equity, expenses, legal matters, and subsequent events 1. The Company and Basis of Presentation Loop Industries is a technology company focused on depolymerizing waste PET plastic, with consolidated financial statements prepared under US GAAP, including subsidiaries and a joint venture - Loop Industries is a technology company focused on depolymerizing waste PET plastic and polyester fiber into virgin-quality Loop™ branded PET resin[246] - The consolidated financial statements are prepared under US GAAP and include wholly-owned subsidiaries and a 50% equity-method accounted joint venture (Indorama Loop Technologies, LLC)[247] 2. Summary of Significant Accounting Policies This section outlines Loop Industries' significant accounting policies, emphasizing management estimates, COVID-19 uncertainty, fair value measurement, government grants, asset depreciation, R&D expensing, stock-based compensation, and income taxes - Financial statements rely on management estimates for depreciable lives, asset impairment, joint venture carrying value, liabilities, and fair value of stock-based compensation[249] - The COVID-19 pandemic continues to cause disruptions and uncertainty, potentially impacting development and commercialization efforts, particularly for the Indorama joint venture[250][251] - Fair value measurements are categorized into a three-level hierarchy (Level 1: quoted prices, Level 2: observable inputs, Level 3: unobservable inputs)[253][254][255][260] - Government grants are recognized systematically over periods matching related expenses or as a reduction of asset cost; low-interest loans are initially measured at fair value with interest expense recognized under the effective interest method[257][258][259] - Property, plant, and equipment are recorded at cost and amortized using the straight-line method over estimated useful lives (e.g., building 30 years, machinery 3-8 years); carrying values are reviewed for impairment[265][267] - Research and development expenses, including machinery and equipment for the dedicated pilot plant (since Q3 FY2021), are expensed as incurred[268] - Intangible assets are recorded at cost and amortized over 7 years, with carrying values reviewed for impairment[269][270] - Stock-based compensation for employees and non-employees is measured at fair value (Black-Scholes model for options) and recognized as expense over vesting periods or upon performance completion[271][272][273][274] - Income taxes are accounted for using the asset and liability approach, with a full valuation allowance provided for deferred tax assets due to uncertainty of realization[276][364] - Basic and diluted loss per share calculations are the same due to the antidilutive effect of potential dilutive securities (stock options, restricted stock units, warrants)[277][278] 3. Sales Tax, Tax Credits and Other Receivables Loop Industries' receivables totaled $1.76 million in FY2021, primarily from sales tax and R&D tax credits, with $259,273 in COVID-19 wage subsidies also received Sales Tax, Tax Credits and Other Receivables (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Sales tax | $1,155,504 | $180,971 | | Research and development tax credits | $435,467 | $447,843 | | Other receivables | $172,864 | $35,730 | | Total | $1,763,835 | $664,544 | - Loop Canada Inc. is entitled to refundable and non-refundable R&D tax credits; refundable credits reduce R&D expenses, while non-refundable federal credits (totaling $272,206 in FY2021) are not recognized due to the company's lack of taxable income[285][287] - In FY2021, the company received $259,273 in wage subsidies from the Canadian federal government as part of a COVID-19 relief program[286] 4. Property, Plant and Equipment Net property, plant, and equipment decreased to $3.51 million in FY2021, primarily due to a $5.04 million impairment write-down of machinery and equipment for the dedicated R&D pilot plant Property, Plant and Equipment, Net Book Value (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------- | :------------ | :------------ | | Building | $1,752,756 | $1,717,159 | | Land | $241,578 | $264,868 | | Building Improvements | $1,330,758 | $519,816 | | Machinery and equipment | $0 | $4,658,730 | | Office equipment and furniture | $187,959 | $99,681 | | Total Net Book Value | $3,513,051 | $7,260,254 | - A write-down and impairment expense of $5,043,119 was recorded in FY2021 for machinery and equipment, following the decision to dedicate the pilot plant exclusively to R&D, rendering its assets without alternative future use[290] - Depreciation expense for the year ended February 28, 2021, was $733,831[289] 5. Intangible Assets Loop Industries' net intangible assets, primarily GEN II technology patents, increased to $794,894 in FY2021, reflecting continued global patent development and filings Intangible Assets, Net (USD) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Patents, net – beginning of period | $202,864 | $127,672 | | Additions in the year – patents | $623,811 | $99,972 | | Amortization of patents | $(41,844) | $(22,631) | | Foreign exchange effect | $10,063 | $(2,150) | | Patents, net – end of period | $794,894 | $202,863 | - The company continued to develop its GEN II technology, filing various patents globally, with two issued U.S. patents and numerous pending international applications, expected to expire between September 2037 and March 2040[292] - Amortization expense for intangible assets was $41,844 for the year ended February 28, 2021[293] 6. Fair value of financial instruments Loop Industries' long-term debt had a carrying amount of $2.45 million and fair value of $2.46 million in FY2021, classified as Level 2 fair value measurements Fair Value Measurements of Financial Liabilities (USD) | Financial Liability | Carrying Amount (Feb 28, 2021) | Fair Value (Feb 28, 2021) | Level in the hierarchy | | :-------------------------------- | :------------------------------ | :------------------------- | :--------------------- | | Long-term debt | $2,454,123 | $2,464,540 | Level 2 | - The fair value of cash and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity[256] 7. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities significantly increased to $8.12 million in FY2021, driven by higher trade payables, professional fees, and engineering fees Accounts Payable and Accrued Liabilities (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :--------------------------------------- | :------------ | :------------ | | Trade accounts payable | $5,082,736 | $814,081 | | Accrued engineering fees | $535,359 | $ - | | Accrued employee compensation and payroll taxes | $970,154 | $873,242 | | Accrued professional fees | $1,270,628 | $133,038 | | Other accrued liabilities | $265,988 | $262,337 | | Total | $8,124,865 | $2,082,698 | 8. Joint Venture Loop Industries holds a 50% equity interest in Indorama Loop Technologies, LLC, a joint venture for sustainable polyester resin, with $1.50 million contributed by FY2021, despite COVID-19 delays - Loop Industries has a 50/50 equity interest in Indorama Loop Technologies, LLC (ILT), a joint venture with Indorama Ventures Holdings LP, formed in September 2018[297] - Loop contributes an exclusive world-wide royalty-free license for its proprietary technology to ILT, in addition to cash contributions[298] - As of February 28, 2021, the carrying value of Loop's equity investment in ILT was $1.50 million, with $650,000 contributed in FY2021[299] - The joint venture temporarily delayed work in July 2020 due to the COVID-19 pandemic, with no expenditures incurred since then, but both partners remain committed[300] 9. Long-term Debt Loop Industries' long-term debt, net of current portion, was $1.52 million in FY2021, including a $1.74 million Investissement Québec facility and a Canadian bank term loan Long-term Debt (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Investissement Québec financing facility | $1,516,008 | $1,356,228 | | Term loan, net of current portion | $ - | $881,798 | | Long-term debt, net of current portion | $1,516,008 | $2,238,026 | - The Investissement Québec financing facility provided $1.74 million (CDN**$2.21 million**) in February 2020, bearing 2.36% interest with a 36-month moratorium on capital and interest repayments[303] - The company issued a warrant to Investissement Québec to purchase 15,153 shares of common stock at $11.00 per share in connection with the first disbursement of the financing facility[304] - A term loan from a Canadian bank for $1.10 million (CDN**$1.40 million**) obtained in January 2018, with a principal balance of $938,116 as of February 28, 2021, is repayable monthly until January 2022[306] Principal Repayments on Bank Indebtedness (USD) | Years ending | Amount | | :---------------- | :------- | | February 28, 2022 | $938,116 | | February 28, 2023 | $ - | | February 28, 2024 | $248,798 | | February 29, 2025 | $248,798 | | February 28, 2026 | $248,794 | | Thereafter | $995,222 | | Total | $2,679,728 | 10. Convertible Notes Loop Industries' November 2018 and January 2019 convertible notes were fully converted into common stock in FY2020, with all associated warrants either exercised or expired by FY2021 - The November 2018 Notes, initially classified as a liability due to a variable conversion price, were converted on April 5, 2019, into 319,326 common shares at $8.55 per share, along with 159,663 warrants[308][311][315] - The January 2019 Notes, with an 8.00% interest rate, were converted at their January 2020 maturity date into 612,758 common shares at $8.10 per share; $312,000 in accrued interest was paid in cash, and $80,000 was paid in common stock[317][319][320][341] - A beneficial conversion feature of $1,200,915 and warrants valued at $757,704 were recognized at the issue date of the January 2019 Notes, recorded as a debt discount and credited to additional paid-in capital[322][323] - All November 2018 Warrants were exercised by November 30, 2020, and the remaining January 2019 Warrants expired on January 15, 2021[315][321] 11. Related Party Transactions Loop Industries' CEO, Daniel Solomita, has an employment agreement with 4 million RSUs tied to performance milestones, with 3.6 million outstanding and 600,000 vested as of FY2021 - Mr. Daniel Solomita, President and CEO, has an employment agreement with a long-term incentive grant of 4,000,000 restricted stock units (RSUs) tied to four performance milestones[328][329][330] - Milestones include: company securities listed on an exchange, contract for 25,000 M/T of DMT/MEG or PET, first full-scale production facility in commercial operation, and second full-scale production facility in commercial operation[331] - As of February 28, 2021, 3,600,000 of Mr. Solomita's RSUs were outstanding, with 600,000 vested (settled annually in 200,000 unit tranches)[334] - No additional compensation expense was recorded in FY2021 as no outstanding milestones were probable of being met[334] 12. Stockholders' Equity Stockholders' equity details common stock and Series A Preferred Stock, with CEO Daniel Solomita holding 77.0% voting power, and common shares outstanding increasing to 42.41 million in FY2021 - Mr. Daniel Solomita holds one share of Series A Preferred Stock, which provides him with a majority of the total voting power (77.0% as of May 27, 2021) and control over the company[335][336] - The Series A Preferred Stock includes protective provisions requiring Mr. Solomita's approval for actions such as amending articles of incorporation, changing preferred stock rights, increasing/decreasing the board size, or replacing the CEO[337][338][339] Common Stock Transactions (FY2021) | Transaction | Number of shares | | :--------------------------------------- | :---------------- | | Balance, February 29, 2020 | 39,910,774 | | Issuance of shares for cash | 2,087,000 | | Issuance of shares upon the exercise of warrants | 190,529 | | Issuance of shares upon settlement of restricted stock units | 225,388 | | Balance, February 28, 2021 | 42,413,691 | - In FY2021, the company sold 2,087,000 shares of common stock in a registered direct offering for gross proceeds of $26,609,250[341] 13. Research and development expenses R&D expenses significantly increased to $18.69 million in FY2021, driven by higher external engineering costs and expensed machinery and equipment for the dedicated R&D pilot plant Research and Development Expenses (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | External engineering | $5,655,997 | $149,333 | | Employee compensation | $4,457,125 | $3,531,973 | | Machinery and equipment expenditures | $6,149,075 | $ - | | Demonstration plant operating expenses | $1,852,615 | $901,687 | | Other | $572,202 | $134,182 | | Total | $18,687,014 | $4,717,175 | - The significant increase in R&D expenses was largely due to a $5.51 million rise in external engineering for Infinite Loop™ design and a $6.15 million increase in expensed machinery and equipment for the dedicated R&D pilot plant[194][342] 14. General and administrative expenses G&A expenses increased to $11.54 million in FY2021, primarily due to higher professional fees related to legal matters and increased D&O insurance costs General and Administrative Expenses (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Professional fees | $4,613,717 | $1,193,884 | | Employee compensation | $4,389,219 | $4,516,171 | | Directors and officers insurance | $2,072,647 | $761,876 | | Other | $464,757 | $743,489 | | Total | $11,540,340 | $7,215,420 | - The increase in G&A expenses was mainly due to a $3.42 million rise in legal and professional fees related to the SEC investigation and class-action suits, and a $1.31 million increase in D&O insurance costs[194][343] 15. Share-Based Payments Stock-based compensation expense totaled $3.59 million in FY2021, with 1.59 million stock options and 4.21 million RSUs outstanding as of year-end Stock Options Continuity (FY2021 vs. FY2020) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------- | :------------ | :------------ | | Outstanding, beginning of year | 1,587,081 | 1,962,400 | | Granted | - | - | | Exercised | - | (75,000) | | Forfeited | - | (39,902) | | Expired | - | (260,417) | | Outstanding, end of year | 1,587,081 | 1,587,081 | | Weighted average exercise price | $6.81 | $6.81 | | Exercisable, end of year | 1,181,248 | 986,248 | - Stock-based compensation expense from stock options amounted to $2,212,078 in FY2021[346] Restricted Stock Units (RSUs) Continuity (FY2021 vs. FY2020) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------- | :------------ | :------------ | | Outstanding, beginning of year | 4,218,802 | 402,868 | | Granted | 239,611 | 4,114,567 | | Settled | (225,388) | (244,884) | | Forfeited | (22,505) | (53,750) | | Outstanding, end of year | 4,210,520 | 4,218,802 | | Weighted average fair value price | $1.98 | $1.60 | | Outstanding vested, end of year | 691,327 | 831,684 | - Stock-based compensation attributable to RSUs amounted to $1,378,106 in FY2021[348] 16. Equity Incentive Plan The 2017 Equity Incentive Plan allows for granting various equity awards, with 1.08 million units outstanding as of FY2021, after the Board waived the annual share reserve increase - The 2017 Equity Incentive Plan permits granting warrants, stock options, stock appreciation rights, and restricted stock units to employees, directors, and consultants[349] - Initially, 3,000,000 shares were reserved, with annual automatic increases, but the Board waived the increase for FY2021[349] Equity Incentive Plan Units Continuity (FY2021 vs. FY2020) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------- | :------------ | :------------ | | Outstanding, beginning of year | 1,300,518 | 3,223,516 | | Share reserve increase | - | 2,000,000 | | Units granted | (239,611) | (4,114,567) | | Units forfeited | 22,505 | 93,652 | | Units expired | - | 97,917 | | Outstanding, end of year | 1,083,412 | 1,300,518 | 17. Warrants Loop Industries had 4.13 million warrants outstanding as of FY2021, with a weighted average exercise price of $10.99, and most expiring in June 2022 Warrants Continuity (FY2021 vs. FY2020) | Metric | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------- | :------------ | :------------ | | Outstanding, beginning of year | 5,059,331 | 802,469 | | Issued | 25,000 | 4,272,294 | | Exercised | (190,529) | (15,432) | | Expired | (760,082) | - | | Outstanding, end of year | 4,133,720 | 5,059,331 | | Weighted average exercise price | $10.99 | $10.89 | Warrants Outstanding by Expiration Date (Feb 28, 2021) | Expiration Date | Number of warrants | Weighted average exercise price | | :---------------- | :----------------- | :------------------------------ | | May 12, 2022 | 25,000 | $9.43 | | June 14, 2022 | 4,093,567 | $11.00 | | February 21, 2023 | 15,153 | $11.00 | | Total | 4,133,720 | $10.99 | 18. Interest and Other Finance Costs Interest and other finance costs significantly decreased to $81,996 in FY2021 from $2.22 million in FY2020, primarily due to the conversion of convertible notes Interest and Other Finance Costs (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :-------------------------------- | :------------ | :------------ | | Interest on long-term debt | $77,756 | $57,450 | | Interest on convertible notes | $ - | $362,426 | | Accretion expense | $36,847 | $1,892,185 | | Amortization of deferred finance costs | $ - | $96,155 | | Revaluation of warrants | $ - | $8,483 | | Gain on conversion of November 2018 Notes | $ - | $(232,565) | | Other | $(32,607) | $39,170 | | Total | $81,996 | $2,223,304 | - The significant decrease in finance costs was mainly due to the conversion of convertible notes in FY2020, eliminating associated interest and accretion expenses[195][353] 19. Income Taxes Loop Industries reported a $36.34 million loss before taxes in FY2021, with no effective tax expense due to a full valuation allowance on deferred tax assets and significant NOL carryforwards Loss Before Taxes (USD) | Category | Feb 28, 2021 | Feb 29, 2020 | | :---------------- | :------------ | :------------ | | U.S. operations | $(7,126,988) | $(4,220,000) | | Foreign operations | $(29,217,935) | $(10,285,455) | | Loss before taxes | $(36,344,923) | $(14,505,455) | - The company had no effective income tax expense in FY2021 due to a full valuation allowance on deferred tax assets[356] - Net operating loss (NOL) carryforwards include approximately $22.04 million for U.S. Federal purposes (post-2018 NOLs carry forward indefinitely) and $34.72 million (CDN**$43.95 million**) for Canadian Federal and Québec tax purposes (expiring between 2037 and 2041)[361] - Approximately $3.68 million (CDN**$4.66 million**) in R&D expenditures are available to reduce future taxable income, with an unlimited carry forward period[363] - The valuation allowance on deferred tax assets increased by $8.86 million in FY2021, reflecting management's assessment of uncertainty regarding future taxable income[361][364] 20. Legal Settlement Loop Industries settled a 2017 legal claim in 2019 by issuing 150,000 common shares and 500,000 warrants, resulting in a $4.04 million expense, with all warrants expired by FY2021 - In February 2019, Loop Industries settled a legal claim by issuing 150,000 common shares and 500,000 warrants to plaintiffs[366][367] - An expense of $4,041,627 was recorded in connection with the settlement, based on the fair value of the issued shares and warrants[368] - All Plaintiff Warrants expired during the year ended February 28, 2021[368] 21. Commitments and Contingencies Loop Industries has commercial commitments, faces an SEC investigation and class-action lawsuits, and experienced a supply agreement termination by Coca-Cola due to unmet production milestones - Loop Industries entered a $4.3 million know-how and engineering agreement with Chemtex Global Corporation on September 2, 2020, for the design of two Infinite Loop™ facilities, with $900,000 paid in FY2021[369] - Coca-Cola Cross Enterprise Procurement Group terminated its supply agreement with Loop Industries in October 2020 due to the company's failure to satisfy its first production milestone by July 2020[370] - The company is defending against consolidated shareholder class-action lawsuits in New York and a proposed securities class action in Québec, alleging false/misleading statements and failure to disclose material adverse facts[371][372][373][374][375] - Management believes these legal cases lack merit and intends to defend them vigorously; no amounts have been provided in the consolidated financial statements for these claims[376] 22. Subsequent Events On May 27, 2021, Loop Industries acquired a 19 million sq ft land parcel in Bécancour, Québec, for $4.8 million for a planned Infinite Loop™ manufacturing facility - On May 27, 2021, Loop Industries acquired a 19 million square foot parcel of land in Bécancour, Québec, for $4.8 million (CDN $5.9 million) for a planned Infinite Loop™ manufacturing facility[377] - The new site offers attractive logistics, proximity to industrial infrastructure, and lower environmental impact, leading the company to forgo a previously identified 2 million square foot site[377] Item 9. Changes in and Disagreements with Accountants on Financial Disclosure No changes in or disagreements with accountants on financial disclosure were reported - There were no changes in or disagreements with accountants on financial disclosure[378] Item 9A. Controls and Procedures Management assessed disclosure controls and internal control over financial reporting as effective as of FY2021, with no material changes, and no attestation report required for a smaller reporting company - Management, including the CEO and CFO, determined that the company's disclosure controls and procedures were effective as of February 28, 2021[379] - Management also determined that the company's internal control over financial reporting was effective as of February 28, 2021, based on the COSO framework[380] - An attestation report from the registered public accounting firm was not included, as permitted for smaller reporting companies[381] - No material changes in internal control over financial reporting occurred during the most recent fiscal year[382] - The effectiveness of internal controls is subject to inherent limitations, providing reasonable, not absolute, assurances[383] Item 9B. Other Information No other information is reported under this item - No other information is reported under this item[384] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement, including the Code of Ethics - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[388] - The Board of Directors adopted a Code of Ethics on January 25, 2017, available on the company's website, with no waivers granted to date[389] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the 2021 Proxy Statement, including an amendment to CEO Daniel Solomita's employment agreement - Information on executive compensation is incorporated by reference from the 2021 Proxy Statement[390] - An amendment to CEO Daniel Solomita's employment agreement on April 30, 2020, clarified milestones consistent with the company's shift to dimethyl terephthalate production[391] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2021 Proxy Statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the 2021 Proxy Statement[392] Item 13. Certain Relationships and Related Transactions, and Director Independence Related party transactions require Audit Committee approval, with additional information on director independence incorporated by reference from the 2021 Proxy Statement - All related party transactions are subject to approval by the Audit Committee, which reviews material facts and ensures terms are no less favorable than those with unaffiliated third parties[393] - Additional information on director independence and related party transactions is incorporated by reference from the 2021 Proxy Statement[394] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement's section on the ratification of the independent registered public accounting firm[395] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements and exhibits filed as part of the Form 10-K, with financial statement schedules omitted and a comprehensive exhibit index provided - Financial statements are provided under Item 8, and all financial statement schedules are omitted as not required or information is provided elsewhere[397] - The exhibit index includes various corporate documents, agreements (e.g., Share Exchange, Intellectual Property Assignment, Employment, Joint Venture, Chemtex), and certifications (e.g., Sarbanes-Oxley Act)[398][400][401][402] Item 16. Form 10-K Summary No Form 10-K Summary is provided - No Form 10-K Summary is provided[403] Signatures The Form 10-K is duly signed by the CEO, CFO, and other directors on May 28, 2021, confirming compliance with the Securities Exchange Act of 1934 - The report is signed by Daniel Solomita (CEO, President, and Director) and Drew Hickey (CFO), along with other directors, on May 28, 2021[408][410]