# Loop Industries, Inc.: Form 10-K for the period ended Feb 29, 2016 - Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678) - Form: 10-K - Filed: 2016-06-15 - Accepted by EDGAR: Jun 15, 2016, 21:20 ET - Period: 2016-02-29 - Accession: 0001477932-16-010876 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793216010876/llpp_10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793216010876/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2016-02-29. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Research and development | 12 months, 2015-03-01 to 2016-02-29 | $801.7k | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 12 months, 2015-03-01 to 2016-02-29 | −$2.8m | us-gaap:OperatingIncomeLoss | | Net income | 12 months, 2015-03-01 to 2016-02-29 | −$2.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2015-03-01 to 2016-02-29 | −$0.10 | us-gaap:EarningsPerShareBasicAndDiluted | | Operating cash flow | 12 months, 2015-03-01 to 2016-02-29 | −$1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2015-03-01 to 2016-02-29 | $1.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2016-02-29 | $422.6k | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2016-02-29 | $711.8k | us-gaap:AssetsCurrent | | Total assets | at 2016-02-29 | $2.5m | us-gaap:Assets | | Current liabilities | at 2016-02-29 | $1.1m | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2016-02-29 | $1.4m | us-gaap:StockholdersEquity | ## Business As filed, 25,699 characters. ### DESCRIPTION OF BUSINESS ### DESCRIPTION OF BUSINESS ### Our Corporate History and Background Loop Holdings, Inc. 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 changed our name to our current name, "Loop Industries, Inc.", effective July 21, 2015. From our formation on March 11, 2010 until June 29, 2015, we were engaged in the development, sales and marketing of VoIP telephone services to enable end-users to place free phone calls over the Internet in return for viewing and listening to advertising. Mazen Kouta served as President, Treasurer and a director, and Zeeshan Sajid served as Secretary and a director of our company from April 27, 2010 until their resignation on June 29, 2015. Concurrent with their resignation, Messrs. Kouta and Sajid appointed Daniel Solomita, the President, Secretary, Treasurer and Chairman of the Board Directors of Loop Holdings. Upon his appointment as a director on June 29, 2015, Mr. Solomita appointed himself as President and Chief Executive Officer, Secretary and Treasurer, and appointed Don Danks as a director. ### Reverse Acquisition of Loop Holdings All references to shares of common stock in this Annual Report on Form 10-K give 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 June 29, 2015, Loop Industries, Inc., a Nevada corporation (the "Company"), entered into a Share Exchange Agreement, 2015 (the "Share Exchange Agreement"), by and among the Company, Loop Holdings, Inc., a Nevada corporation ("Loop Holdings"), and the holders of common stock of Loop Holdings. The holders of the common stock of Loop Holdings consisted of 40 stockholders. Closing of the transactions under the Share Exchange Agreement also took place on June 29, 2015. 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. Additionally, Daniel Solomita, the Company's new President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors, became the holder of 17,000,000 shares of common stock of the Company, or 57.1% of the outstanding common stock of the Company, on a fully diluted basis. Donald Danks, also a director of the Company, became the beneficial holder of 1,000,000 shares of common stock of the Company. 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 a result of the share exchange, Loop Holdings became a wholly-owned subsidiary of the Company. The share exchange transaction with Loop Holdings was treated as a reverse acquisition, with Loop Holdings as the acquiror and the Company as the acquired party. Unless the context suggests otherwise, when we refer in this Annual Report on Form 10-K to business and financial information for periods prior to the consummation of the reverse acquisition, we are referring to the business and financial information of Loop Holdings. 4 ### Issuance of One Share of Series A Preferred Stock to Daniel Solomita On February 15, 2016, the Company and Mr. Solomita entered into an Amendment No. 1 to Employment Agreement (the "Amendment No. 1"), which amends the Employment Agreement. Amendment No. 1 provides that the Company shall issue Mr. Solomita one share of the Company's Series A Preferred Stock for consideration of Mr. Solomita agreeing not to terminate his employment with the Company for a period of five years from the date of Amendment No. 1. The effect of Amendment No. 1 is to provide Mr. Solomita control of the Company in the event that his presently-held 57% of the issued and outstanding shares of common stock of the Company is diluted to less than a majority. In order to issue Mr. Solomita his one share of Series A Preferred Stock under Amendment No. 1, the Company created "blank check" preferred stock. Subsequently, the board of directors of the Company approved a Certificate of Designation creating the Series A Preferred Stock. Subsequently, the Company issued one share of Series A Preferred Stock to Mr. Solomita. The one share of Series A Preferred Stock issued to Mr. Solomita equals voting power equal to 65% of the voting power of the issued and outstanding shares of common stock of the Company so long a Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of common stock of the Company, assuring Mr. Solomita of control of the Company in the event that his presently-held 57% of the issued and outstanding shares of common stock of the Company is diluted to a level below a majority. Additionally, the one share of Series A Preferred Stock issued to Mr. Solomita contains protective provisions, which precludes the Company from taking the certain actions without Mr. Solomita's (or that of any person to whom the one share of Series A Preferred Stock is transferred) approval. More specifically, so long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class: (a) amend the Articles of Incorporation or, unless approved by the Board of Directors, including by the Series A Director, amend the Company's Bylaws; (b) change or modify the rights, preferences or other terms of the Series A Preferred Stock, or increase or decrease the number of authorized shares of Series A Preferred Stock; (c) reclassify or recapitalize any outstanding equity securities, or, unless approved by the Board of Directors, including by the Series A Director, authorize or issue, or undertake an obligation to authorize or issue, any equity securities or any debt securities convertible into or exercisable for any equity securities (other than the issuance of stock-options or securities under any employee option or benefit plan); (d) authorize or effect any transaction constituting a Deemed Liquidation (as defined in this subparagraph) under the Articles, or any other merger or consolidation of the Company; (e) increase or decrease the size of the Board of Directors as provided in the Bylaws of the Company or remove the Series A Director (unless approved by the Board of Directors, including the Series A Director); (f) declare or pay any dividends or make any other distribution with respect to any class or series of capital stock (unless approved by the Board of Directors, including the Series A Director); (g) redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares of capital stock (other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant to agreements approved by the Board of Directors under which the Company has the option to repurchase such shares at no greater than original cost upon the occurrence of certain events, such as the termination of employment) (unless approved by the Board of Directors, including the Series A Director); (h) create or amend any stock option plan of the Company, if any (other than amendments that do not require approval of the stockholders under the terms of the plan or applicable law) or approve any new equity incentive plan; (i) replace the President and/or Chief Executive Officer of the Company (unless approved by the Board of Directors, including the Series A Director); 5 (j) transfer assets to any subsidiary or other affiliated entity (unless approved by the Board of Directors, including the Series A Director); (k) issue, or cause any subsidiary of the Company to issue, any indebtedness or debt security, other than trade accounts payable and/or letters of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase or otherwise alter in any material respect the terms of any indebtedness previously approved or required to be approved by the holders of the Series A Preferred Stock (unless approved by the Board of Directors, including the Series A Director); (l) modify or change the nature of the Company's business; (m) acquire, or cause a Subsidiary of the Company to acquire, in any transaction or series of related transactions, the stock or any material assets of another person, or enter into any joint venture with any other person (unless approved by the Board of Directors, including the Series A Director); or (n) sell, transfer, license, lease or otherwise dispose of, in any transaction or series of related transactions, any material assets of the Company or any Subsidiary outside the ordinary course of business (unless approved by the Board of Directors, including the Series A Director). ### Overview of Loop Holdings Our wholly owned subsidiary, Loop Holdings was incorporated on October 23, 2014, in Nevada. The business of Loop Holdings is the principal business of the Company. Loop Holdings is in the business of depolymerizing waste plastics and converting them into valuable chemicals. We have never generated any revenues. The commercialization of our depolymerization technology is in its incipient stages must be scaled-up before we can commercialize the technology and generate any revenues. Commercialization will consist of selling depolymerized PET, and could, secondarily, the licensing of our depolymerization technology. In addition to $445,050 paid by the Company under the Intellectual Property Assignment Agreement on April 1, 2015, the agreement provides that the Company will make additional payments totaling CDN$800,000 to be paid 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 meeting the 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. 6 As of February 29, 2016, and as of June 8, 2016, none of the Milestones have been met, and accordingly no CDN$200,000 payment has been made. Additionally, the Company is obligated to make royalty payments of up to CDN$27,000,000, 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. As of February 29, 2016, and as of June 8, 2016, we have not made any royalty payments under the Intellectual Property Assignment Agreement. Closing of the transactions under the Intellectual Property Assignment Agreement occurred on October 27, 2014, when Mr. Essaddam and 9319-7218 Quebec Inc., an entity controlled by Mr. Essaddam, executed an Assignment and Moral Rights Waiver to Loop Holdings, assigning the depolymerization technology underlying the business of Loop Holdings to Loop Holdings. Loop Holdings has paid all consideration (except for possible future royalty payments) and met all closing conditions under the Intellectual Property Assignment Agreement. As of October 27, 2014, and as of the date of the filing of this Annual Report on Form 10-K, Loop Holdings has full and unconditional title to, and there are no restrictions to the use of, the depolymerization technology and any other intellectual property the subject of Intellectual Property Assignment Agreement. As used in this Annual Report on Form 10-K, the following two terms are being provided so investors can better understand our business. **PET** is an acronym for polyethylene terephthalate, which is a plastic resin and a type of polyester. PET is the material which is most commonly used as plastic bottles to contain beverages, containers for food and other consumer products, and is usually identified by a number 1, often inside an image of a triangle, on the packaging. **Depolymerization of PET** refers to any process used to chemically break down PET materials into a form so that they can be reused. Once the material is reused, such as for plastic beverage bottles, plastic food containers or fleece clothing, as only three of many examples, then the PET has been recycled. Our depolymerization of PET process is completed through a series of chemical reactions. Once PET is depolymerized, the result is two principal parts called "monomers." The two monomers are called "purified terephthalic acid and ethylene glycol. Our depolymerization process is summarized as follows: - PET bottles are shredded into 5 mm size pieces; - Shredded PET is put into a large reactor, where certain chemicals are added; - The PET molecular chain begins to be broken down in 20 minutes; - Purified terephthalic acid (solid) and ethylene glycol (liquid) and mother liquor are separated using a combination of centrifugation and distillation; - The mother liquor is returned to the reactor to be reused in the process; and - Purified terephthalic acid and ethylene glycol are processed and packaged. 7 Our principal administrative offices are located at 1999 Avenue of the Stars, Suite 2520, Los Angeles, California 90067. We operate from facilities near Montreal, Canada. Our website is www.loopindustries.com. ### Summary of our Business Our business focuses on depolymerizing waste plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin plastics. Our proprietary technology breaks down polyethylene yerephthalate ("PET") into its base chemicals, purified terephthalic acid ("PTA") and ethylene glycol ("EG"), at a recovery rate of 100%. Loop Holdings' technology uses waste PET plastics such as water bottles, soda bottles, consumer packaging, carpets and industrial waste as feedstock to process. These feedstock are readily available through municipal triage centers, industrial recycling and landfill reclamation projects. Purified terephthalic acid is a high-value chemical currently selling at approximately $1,000 per metric ton, used mainly in the production of PET plastic and polyester fiber. The resulting product appears as a crystalline substance, which is then filtered, purified, dried and stored. We believe that the demand for terephthalic acid is expected to hit an all-time high of 60 million metric tons (132 billion pounds) in 2015 and 72 million metric tons (158.4 billion pounds) by 2020. Ethylene glycol ("EG") is an organic compound primarily used as a raw material in the manufacture of polyester fibers and PET used in bottling. A small percentage is also used in industrial applications like antifreeze formulations and other industrial products. It is an odorless, colorless, syrupy, sweet-tasting liquid. Current selling price of EG is approximately $1,050 per metric ton. The global market volume for ethylene glycols was 16.5 million metric tons (36 billion pounds) in 2013 and is expected to reach 22.8 million metric tons (45 billion pounds) by 2020, growing at a CAGR of 4.7% from 2014 to 2020. ### Raw Material PET plastic is our source of feedstock. PET is a polyester showing excellent tensile and impact strength, chemical resistance, clarity, process ability and reasonable thermal stability. Although its main application by far is in the textile industry, tremendous quantities of this material are consumed in the manufacturing of soft-drink and water bottles, as well as in food packaging. PET does not create a direct hazard to the environment, but due to its substantial fraction volume in the plastic waste stream and its high resistance to atmospheric and biological agents, it could be considered as a noxious material. PET accounts for 8% by weight and 12% by volume of the world's solid waste. PET recycling represents one of the most successful and widespread examples of polymer recycling. The main driving force responsible for this extreme increase in recycling of post-consumer PET is its widespread use, particularly in the beverage and food industry. PET bottles are characterized by high strength, low weight and permeability of gases (mainly CO 2), as well as by their aesthetic appearance (good light transmittance, smooth surface). They do not have any side effect on the human organism. Many attempts are currently directed toward recycling of PET waste, because of the interests in environmental protection, energy preservation and economic benefits. Among the different recycling techniques (primary, mechanical, chemical and energy recovery), the acceptable one according to the principles of "sustainable development" is chemical recycling, since it leads to the formation of the raw materials from which the polymer is made, as well as of other secondary value-added products. Chemical recycling has been defined as the process leading to total Depolymerization of PET into monomers, or partial Depolymerization into oligomers and other chemical substances. 8 According to NAPCOR (National Association for PET Container Resources), in 2012 in the US: - PET bottles represented a total of 5.6 Billion lbs. of PET available to be recycled; - Only 1.72 Billion lbs. were collected; and - There was only a 30.8% PET bottle recycling rate. The NAPCOR United Kingdom Statistics for 2011 PET Recycling include: - 6.7 Billion plastic bottles were recycled in 2011; - 52% of household plastic bottles were recycled; and - Only 24% of plastic is recycled or recovered. Among the various methods of PET recycling the most common is mechanical recycling, which refers to operations that aim to recover plastics waste via mechanical processes (grinding, washing, separating, drying, re-granulating and compounding), thus producing recycled plastic that can be converted into new plastics products, often substituting for virgin plastics. The disadvantages to mechanical recycling of PET are that sorting is very labor intensive, and high energy costs are associated with the processing of material. Mechanical PET recycling is also limited to single stream PET with no contamination. Other challenges include quality degradation and color of the feedstock. ### Depolymerization Depolymerization presents two unique advantages in recycling resin-based products: (i) the ability to return a recovered resin 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 levels of contamination can compromise the performance of the resin. However, because Depolymerization breaks down plastics into monomer form, that contamination is removed. We have developed a proprietary process that enables us to depolymerize PET into its purest form of purified terephthalic acid ("PTA") and ethylene glycol ("EG"), under normal atmospheric pressure and at room temperature. Our unique Depolymerization process can bring even degraded, colored or heavily contaminated PET that is not recyclable back to life in the form of its base monomers, terephthalic acid and ethylene glycol. The resulting monomers (PTA & EG) will be sold to virgin PET manufacturers such as DuPont and Invista. We have had our depolymerized PET tested in third-party laboratory settings. Samples of PTA and EG have been sent to the University of Montreal, Canada, where purity testing has been conducted using a process known as high performance liquid chromatography ("HPLC-MS"), which tests for the level of impurities on a parts-per-million basis in the samples of PET and EG. We have also sent samples of PTA and EG to Uhde Inventa-Fischer, a division of ThyssenKrupp, which uses a testing process known as inductive coupled plasma atomic emission spectroscopy ("ICP-MS"), which tests for the level of presence of heavy metals and the presence of coloring on a parts-per-million basis. We have had this testing conducted to determine whether the PTA and EG meet certain levels of purity to be able to be used for making PET resin, and we have concluded that the PTA and EG are of industrial grade purity, or suitable for use in commercial beverage bottles. We are currently building a prototype model of our depolymerization plant. The demand for terephthalic acid is expected to hit an all-time high of 60 million metric tons (132 Billion Pounds) in 2015 and 72 million metric tons (158.4 billion pounds) by 2020. The global market volume for ethylene glycols was 16.5 million metric tons (36 billion pounds) in 2013 and is expected to reach 22.8 million metric tons (45 billion pounds) by 2020, growing at a CAGR of 4.7% from 2014 to 2020. 9 ### Prospective Future growth We believe that PET depolymerization expansion will drive near-term growth for Loop Holdings by opening strategically depolymerization plants close to large supplies of raw PET plastic. The largest cities in the world produce the most waste. By opening depolymerization plants close to municipal triage centers where plastic sorting and recycling occurs, Loop Holdings ensures a large supply of feed material to transform. Acquisitions in the plastic sorting sector are also possibilities to control the feedstock of raw material. Medium-term growth will occur with the production of virgin PET resin manufactured using our feedstock of recycled PTA and glycol. We will attempt to be the first company with the ability to market virgin PET resin made from 100% recycled material. Our long-term growth is tied to our ability to depolymerize other plastics, such as Nylon 6, Nylon 6/6, HIPS and PE. We are also currently working on the depolymerization of nylon, which will enable us to economically recycle billions of pounds of nylon waste (mostly carpet waste) that is buried in landfills across the globe. ### Intellectual Property We rely on a combination of trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our brand names, product designs and marks. On February 1, 2016, we received a Notice of Allowance for a U.S. patent application. (the "Patent"). The Notice of Allowance covers claims relating to the Company's proprietary technology for depolymerization of PET. Barring any unforeseen circumstances, the Company believes the Patent should be valid until July 2035, given that the Patent filing occurred in July 2015. ### Government Regulation and Approvals We are not aware of any governmental regulations or approvals for any of our products. We do not believe that we are subject to any government regulations relating to the conversion of waste into chemicals. We will be required to comply with regulations, rules and directives of governmental authorities and agencies applicable to the construction and operation of any facility in any jurisdiction which we would conduct activities. We do not believe that government regulation will have a material impact on the way we conduct our business, however, any government regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business and operating results. ### Employees As of the date hereof, we have 12 employees, our President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors Daniel Solomita, who works full-time for the Company. ### Research and Development Expenditures For the years ended February 29, 2016 and the period from October 24, 2014 to February 28, 2015, our research expenditures were $801,666 and $40,614, respectively. ### Bankruptcy or Similar Proceedings We have never been subject to bankruptcy, receivership or any similar proceeding. 10 ### Reorganizations, Purchase or Sale of Assets Other that the closing of the transactions under the Share Exchange Agreement on June 29, 2015, described above, there have been no material reclassifications, mergers, consolidations, or purchase or sale of a significant amount of assets not in the ordinary course of business. ## Risk factors As filed, 151 characters. 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. ## Properties As filed, 306 characters. We currently do not own any physical property or own any real property. Our executive offices are located at 1999 Avenue of the Stars, Suite 2520, Los Angeles, California 90067. Our operational facilities are located near Montreal, Quebec, Canada. We do not own any real estate or other physical properties ## Management's discussion and analysis As filed, 14,672 characters. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. All references to shares of common stock in this Annual Report on Form 10-K give 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. ### Recent Developments ### Reverse Acquisition of Loop Holdings On June 29, 2015, we completed a reverse acquisition transaction through a share exchange with Loop Holdings whereby we acquired all of the issued and outstanding shares of Loop Holdings in exchange for 23,257,500 shares of our common stock. Under the terms and conditions of the Share Exchange Agreement, First American Group issued 23,257,500 shares of its common stock for the acquisition of all of the issued and outstanding shares of Loop Holdings. The number of common shares issued represented approximately 78.1% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement and Stock Redemption Agreements. The board of directors and the members of the management of First American Group resigned and the board of directors and the member of the management of Loop Holdings became the board of directors and the member of the management of the combined entities upon consummation of the Share Exchange Agreement. As a result of the controlling financial interest of the former stockholders of Loop Holdings, Inc., for financial statement reporting purposes, the merger between First American Group and Loop Holdings was treated as a reverse acquisition, with Loop Holdings deemed the accounting acquirer and First American Group deemed the accounting acquiree under the acquisition method of accounting in accordance with the Section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction in substance whereas the assets and liabilities of Loop Holdings, Inc. (the accounting acquirer) are carried forward to First American Group (the legal acquirer and the reporting entity) at their carrying value before the combination and the equity structure (the number and type of equity interests issued) of Loop Holdings, Inc. is being retroactively restated using the exchange ratio established in the Share Exchange Agreement and Stock Redemption Agreements to reflect the number of shares of First American Group issued to effect the acquisition. The number of common shares issued and outstanding and the amount recognized as issued equity interests in the consolidated financial statements is determined by adding the number of common shares deemed issued and the issued equity interests of Loop Holdings, Inc. immediately prior to the business combination to the unredeemed shares and the fair valueof First American Group determined in accordance with the guidance in ASC Section 805-40-55 applicable to business combinations, i.e. the equity structure (the number and type of equity interests issued) in the consolidated financial statements immediately post combination reflects the equity structure of First American Group, including the equity interests the legal acquirer issued to effect the combination. Loop Holdings was incorporated on October 23, 2014, in Nevada. We are a development company and have never generated any revenues. The commercialization of our depolymerization technology is in its incipient stages and must be scaled-up before we can commercialize the technology and generate any revenues. The depolymerization technology underlying the business of Loop Holdings was originally developed by Hatem Essaddam, who sold the depolymerization technology to Loop Holdings for a purchase price of up to $445,050 and contingent consideration consistent in up to CDN$800,000 pursuant to an Intellectual Property Assignment Agreement dated October 27, 2014, by and among Hatem Essadam, Loop Holdings, and Daniel Solomita, our President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors. 13 Our depolymerization of polyethylene terephthalate (PET) process is completed through a series of chemical reactions is completed at room temperature and under normal atmospheric pressure. The resulting monomers of the depolymerization is purified terephthalic acid and ethylene glycol. Our depolymerization process is summarized as follows: - PET bottles are shredded into 5 mm size pieces; - Shredded PET is put into a large reactor, where certain chemicals are added; - The PET molecular chain begins to be broken down in 20 minutes; - Purified terephthalic acid (solid) and ethylene glycol (liquid) and mother liquor are separated using a combination of centrifugation and distillation; - The mother liquor is returned to the reactor to be reused in the process; and - Purified terephthalic acid and Ethylene Glycol are processed and packaged. ### PLAN OF OPERATION We have not yet generated or realized any revenues from our business. We are aiming to become an environmentally friendly manufacturer of purified terephthalic acid (PTA) and mono ethelyne glycol (MEG), these high purity specialty chemicals are mainly used in the production of Polyethylene terephthalate. We have completed the construction of our pilot plant facility which is capable of producing 5000 lbs. per day of high purity PTA and MEG, we are currently doing qualification testing of the resulting resin with potential costumers. We are currently refining our process to ensure an easy transition from pilot scale to full scale commercial manufacturing facility. We anticipate that this facility will have the initial capacity to process approximately 36,000,000 lbs. of PET plastic per year. Estimated costs for this facility are approximately $15 million dollars. ### Results of Operations ### For the year ended February 29, 2016 and the period from October 23, 2014 (Inception) to February 28, 2015 We recorded no revenues for the year ended February 29, 2016 and the period from October 23, 2014 (inception) to February 28, 2015. For the year ended February 29, 2016 and the period from October 23, 2014 (inception) to February 28, 2015, General and administrative expenses were $1,748,044, and $285,908, respectively. The increase of $1,462,136 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. In addition, the increase is due to the intensification of the Company's operations including rent of a corporate office in Montreal, increased head count and additional costs related to compliance and public company operations, including professional fees, filing fees, payroll and related expenses. The increase is also the result of a charge of $277,700 corresponding to the fair value of warrants granted to employees and the amortization of $534,000 prepaid stock compensation costs. For the year ended February 29, 2016 and the period from October 23, 2014 (inception) to February 28, 2015, Research and development expenses were $801,666, and $40,614, respectively. The increase of $761,052 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. In addition, the increase is due to the intensification of the Company's operations including the start-up of a pilot plant in Montreal and increased head count. The increase is also the result of a charge of $126,806 corresponding to the fair value of warrants granted to employees. 14 For the year ended February 29, 2016 and the period from October 23, 2014 (inception) to February 28, 2015, Depreciation of fixed assets and amortization of intangible assets were $211,845, and $11,377, respectively. The increase of $200,468 was due primarily to the short 2015 period which included 5 months only vs twelve months in the year 2016. In addition, the increase is due to the intensification of the Company's operations including the start-up of a pilot plant in Montreal and the acquisition of approximately $1.5 Million of machinery and equipment during 2016. ### Going Concern; Need for Additional Capital As reflected in the accompanying consolidated financial statements included elsewhere in this Form 10K, the Company has no recurring source of revenue and during the year ended February 29, 2016, the Company incurred a net loss of $2.8 Million and used $1.1 Million cash in operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company's ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Our auditor's report regarding our February 29, 2016, financial statements expresses an opinion that substantial doubt exists as to whether we can continue as an ongoing business There is no sufficient historical financial information about the Company upon which to base an evaluation of our performance. We have not generated any revenues from our business. We cannot guarantee we will be successful in our business plans. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in our research and/or development, and possible cost overruns due to price and cost increases in services. ### Liquidity and Capital Resources At February 29, 2016 we had a cash balance of $422,586 and a negative working capital balance of $(353,455). Such cash amount will not be sufficient to continue our next 12-month plan of operations and fund our ongoing operational expenses. Subsequent to February 29, 2016, and up to the filing date, the Company sold 857,335 shares and received total proceeds of $2,572,006, including 204,667 shares for which the Company had received advances of $614,001 as of February 29, 2016. We will need to raise additional funds to finance the transition from pilot scale to commercial manufacturing facility and we believe that additional funding will likely come from debt financing or equity financing from the sale of our common stock. If we are successful in completing equity financing, existing shareholders will experience dilution of their interest in our Company. We do not have any financing arranged and we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our next 12-month plan of operation and ongoing operational expenses. In the absence of such financing, our business will likely fail. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. ### Critical Accounting Policies #### Stock Based Compensation The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date. 15 The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods. ### Intangible Assets Management performs impairment tests of indefinite-lived intangible assets at least annually, or whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred. The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified. If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets. The Company's estimate of fair value is based on the best information available, in the absence of quoted market prices. The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach as described above. If the estimate of an intangible asset's remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. #### Recently Issued Accounting Pronouncements Please refer to footnote 2 of the accompanying financial statements for Management's discussion of recently issued, but not yet effective accounting pronouncements. ## Market risk As filed, 155 characters. 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. 16 ## Controls and procedures As filed, 5,134 characters. ### DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our principal executive officer and the principal 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 Securities Exchange Act of 1934, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our Securities and Exchange Commission ("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 February 29, 2016. ### MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING As of February 29, 2016, management assessed the effectiveness of our internal control over financial reporting. The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that: - Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; - Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and - Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement. 18 In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework. Based on that evaluation, completed only by Daniel Solomita, our President, Secretary, Treasurer and Director, who also serves as our principal financial officer and principal accounting officer, Mr. Solomita concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses. The matters involving internal controls and procedures that our management considered to be material weaknesses were: (i) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (ii) inadequate segregation of duties consistent with control objectives; and (iii) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by Mr. Solomita, our President, Secretary, Treasurer and Director, who also serves as our principal financial officer and principal accounting officer, in connection with the review of our financial statements as of February 29, 2016. Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods. ### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes in the Company's internal control over financial reporting that occurred during the fourth quarter of the year ended February 29, 2016 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting. Filed Jun 15, 2016. Source: SEC EDGAR, the filing index for accession 0001477932-16-010876. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.