Loop Industries(US:LOOP)2021-10-15 10:06PART I. Financial Information Item 1. Financial Statements The development-stage company reported zero revenue and a significantly widened net loss of $20.55 million for the six-month period Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | August 31, 2021 | February 28, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $65,561,362 | $35,221,951 | | Total current assets | $71,287,965 | $37,595,568 | | Total assets | $78,477,043 | $43,403,513 | | Liabilities & Equity | | | | Total current liabilities | $6,149,799 | $9,062,981 | | Total liabilities | $9,472,395 | $10,578,989 | | Total stockholders' equity | $69,004,648 | $32,824,524 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended Aug 31, 2021 | Three Months Ended Aug 31, 2020 | Six Months Ended Aug 31, 2021 | Six Months Ended Aug 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $0 | | Research and development | $5,284,797 | $2,749,222 | $13,922,632 | $4,229,810 | | General and administrative | $3,116,226 | $2,049,241 | $6,276,797 | $4,002,323 | | Net Loss | ($8,392,416) | ($5,127,724) | ($20,549,780) | ($8,980,438) | | Loss per share (Basic & Diluted) | ($0.19) | ($0.13) | ($0.47) | ($0.22) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended Aug 31, 2021 | Six Months Ended Aug 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($22,400,420) | ($7,455,787) | | Net cash used in investing activities | ($5,101,573) | ($3,232,238) | | Net cash provided by (used in) financing activities | $57,954,883 | ($26,836) | | Net increase (decrease) in cash | $30,339,411 | ($10,589,428) | - The company owns patented technology to depolymerize low-value waste PET plastic and polyester fiber into its base monomers, which are then purified and re-polymerized to create virgin-quality Loop™ branded PET resin24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its commercialization strategy, increased net loss from higher R&D and G&A costs, and improved liquidity from a strategic investment Business Overview and Strategy The company is commercializing its proprietary PET recycling technology through strategic partnerships and has secured key regulatory approvals - The company's mission is to accelerate the world's shift toward sustainable PET plastic and polyester fiber, targeting a global market projected to exceed $160 billion by 2022115116 - Loop's Generation II (GEN II) technology is a low-temperature methanolysis process that depolymerizes waste PET into high-purity monomers, which has been independently validated by Kemitek124127 - The company has received key regulatory approvals for its PET resin, including a No Objection Letter (NOL) from the FDA and Health Canada, confirming its suitability for food-contact applications134135136 - Key strategic partnerships for commercialization include a joint venture with SK geo centric for Asia, a partnership with SUEZ for Europe, and a joint venture with Indorama for North America148158159 Results of Operations The net loss widened significantly due to increased R&D expenses for a new facility and higher G&A costs from legal fees and insurance Comparison of Operating Results (Three Months Ended August 31) | Expense Category | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total research and development | $5,284,797 | $2,749,222 | $2,535,575 | | Total general and administrative | $3,116,226 | $2,049,241 | $1,066,985 | | Net loss | ($8,392,416) | ($5,127,724) | ($3,264,692) | Comparison of Operating Results (Six Months Ended August 31) | Expense Category | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total research and development | $13,922,632 | $4,229,810 | $9,692,822 | | Total general and administrative | $6,276,797 | $4,002,323 | $2,274,474 | | Net loss | ($20,549,780) | ($8,980,438) | ($11,569,342) | - The six-month increase in R&D expenses was primarily driven by a $5.11 million increase in machinery and equipment purchases and a $2.44 million increase in external engineering fees186 - The six-month increase in G&A expenses was mainly due to a $1.85 million rise in legal and professional fees associated with the SEC investigation and class action suits, and a $0.95 million increase in D&O insurance costs184 Liquidity and Capital Resources The company's liquidity was substantially improved by a $56.5 million strategic investment, ensuring sufficient funding for the next 12 months - As of August 31, 2021, the company had cash and cash equivalents of $65.56 million187 - On July 29, 2021, the company closed a strategic equity investment from SK geo centric (SKGC) for total consideration of $56.5 million188 Summary of Cash Flows (Six Months Ended August 31) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($22,400,420) | ($7,455,787) | | Net cash used in investing activities | ($5,101,573) | ($2,232,238) | | Net cash from (used by) financing activities | $57,954,883 | ($26,836) | - Management believes the company has sufficient financial resources to fund committed operating and capital expenditures for at least the next 12 months from the issuance date of the financial statements190 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency exchange, commodity price fluctuations, and raw material price volatility - The company is exposed to foreign exchange risk as its Canadian subsidiary's operational costs are denominated in Canadian dollars, while financing is primarily in U.S. dollars202204 - Commodity price risk exists as the demand for recycled PET can be negatively affected if crude oil prices decline, making virgin PET comparatively cheaper to produce207 - The business faces raw material price risk from fluctuations in the price and availability of waste PET plastic and polyester fiber feedstock208 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of August 31, 2021211 - No changes in internal control over financial reporting occurred during the three-month period ended August 31, 2021, that materially affected, or were reasonably likely to materially affect, internal controls212 PART II. Other Information Item 1. Legal Proceedings The company is defending against an ongoing SEC investigation and multiple class-action lawsuits related to its technology and disclosures - The company received a subpoena from the SEC on October 15, 2020, initiating an investigation into its GEN I and GEN II technologies and certain partnerships which is ongoing213 - The company and certain officers are defendants in consolidated class-action lawsuits in the Southern District of New York and a separate class action in Québec, alleging misleading statements214216218 - Defendants served a motion to dismiss the consolidated U.S. complaint on April 27, 2021217 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K were reported - No material changes to the risk factors set forth in the company's Annual Report on Form 10-K occurred during the six months ended August 31, 2021221 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company disclosed several unregistered sales of equity securities, including a significant issuance to strategic partner SK geo centric - On July 29, 2021, the company issued 4,714,813 shares of common stock and warrants to purchase 7,533,518 shares to SK geo centric Co., Ltd222 - On August 26, 2021, the company issued a warrant to purchase 17,180 shares of common stock to Investissement Québec in connection with its financing facility223 Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None225 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable226 Item 5. Other Information The company did not report any other information for this item - None227 Item 6. Exhibits This section indexes exhibits filed with the report, including agreements, certifications, and XBRL data files - The report includes an index of exhibits filed, such as the Amendment to Joint Venture Agreements, the Securities Purchase Agreement with SK Global Chemical, and certifications from the Principal Executive Officer and Principal Financial Officer228232