# Loop Industries, Inc.: Form 10-Q for the period ended Aug 31, 2016

- Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678)
- Form: 10-Q
- Filed: 2016-10-14
- Accepted by EDGAR: Oct 14, 2016, 16:30 ET
- Period: 2016-08-31
- Accession: 0001477932-16-012935
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793216012935/llpp_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793216012935/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-08-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2016-06-01 to 2016-08-31 | $433.6k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2016-03-01 to 2016-08-31 | $849.2k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 6 months, 2016-03-01 to 2016-08-31 | −$1.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2016-06-01 to 2016-08-31 | −$825.2k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-03-01 to 2016-08-31 | −$1.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-06-01 to 2016-08-31 | −$0.03 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2016-03-01 to 2016-08-31 | −$0.06 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2016-03-01 to 2016-08-31 | −$1.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-03-01 to 2016-08-31 | $247.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-08-31 | $2.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-08-31 | $2.6m | us-gaap:AssetsCurrent |
| Total assets | at 2016-08-31 | $4.4m | us-gaap:Assets |
| Current liabilities | at 2016-08-31 | $934.0k | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-08-31 | $3.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 18,297 characters.

The following information should be read in conjunction with (i) the condensed consolidated financial statements of Loop Industries, Inc., a Nevada corporation, and the notes thereto appearing elsewhere in this Form 10-Q together with (ii) the more detailed business information and the February 29, 2016 audited financial statements and related notes included in the Company’s Annual Report on Form 10-K (File No. 000-54768), as filed with the SEC on June 15, 2016. Statements in this section and elsewhere in this Form 10-Q that are not statements of historical or current fact constitute “forward-looking” statements

### OVERVIEW

Loop Industries, Inc., (formerly First American Group) a Nevada corporation (the “Company”), was incorporated in the State of Nevada on March 11, 2010, and has a fiscal year end of the last day of the month of February.

### 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. 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 value of First American Group.

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 of 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.

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Our depolymerization of polyethylene terephthalate (PET) process is completed through a series of chemical reactions 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.

### GOING CONCERN; NEED FOR ADDITIONAL CAPITAL

As reflected in the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the Company has no recurring source of revenue and during the six months ended August 31, 2016, the Company incurred a net loss of $1.8 Million and used $1.7 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, contained in the Company’s Annual Report on Form 10-K (File No. 000-54768), as filed with the SEC on June 15, 2016 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.

### CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the policies below as critical to our business operations and to the understanding of our financial results:

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### SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company reports revenues and expenses using the accrual method of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”) for financial and tax reporting purposes.

#### 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.

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.

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### 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 (PET). During January 2016, we announced the successful completion of a pilot plant facility in Montreal, Canada, with a production capacity of 2.5 metric tons per day of high purity PTA and MEG. We are planning to expand the pilot plant capacity to 3,000 metric tones per year which will allow us to further prove the scalability of our technology and provide increasing volumes of our products to potential clients for special lunch events. We estimate that the expansion of our pilot plant facility will require approximately $3 Million and around 10 months to be completed. We are planning to finance the expansion through additional sales of our common stock.

Currently, we are conducting qualification testing of our resin and exploring the possibility of negotiating long term supply contracts with potential clients. In addition, we are optimizing our manufacturing process to ensure an smooth transition from pilot scale to full scale commercial manufacturing facility. We anticipate that our first full scale production facility will have the initial capacity to process approximately 60,000 tons of PTA and 20,000 tons of MEG per year. We estimate that construction costs for this facility should be around $50 Million.

Our plan of operation also includes the development of the Loop™ branded PET resin, by establishing co-marketing, co-branding agreements with potential clients. Loop™ branded PET resin will primarily focus on educating consumers on the importance of recycling.

### RESULTS OF OPERATIONS

### Three months ended August 31, 2016 and August 31, 2015

We recorded no revenues for the three months ended August 31, 2016 and August 31, 2015.

For the three months ended August 31, 2016 and August 31, 2015, general and administrative expenses were $316,310, and $398,282, respectively. The decrease of $81,972 was due primarily to the amortization of $178,000 stock compensation costs during the three months ended August 31, 2015. This decrease was partially offset by additional expenses related to the intensification of the Company's operations including the rent of a corporate office in Montreal, increased head count, payroll and recruitment fees, and additional costs related to public company compliance such as professional fees, filing fees, directors and officer’s insurance and other expenses. The decrease was also partially offset by a charge of $14,622 corresponding to the fair value of warrants granted to employees.

For the three months ended August 31, 2016 and August 31, 2015, research and development expenses were $433,629, and $248,250, respectively. The increase of $185,379 was due primarily to the intensification of the Company's operations including the start-up of a pilot plant in Montreal, increased head count, rent of equipment, purchase of materials and hiring contractors. The increase is also the result of additional expenses in connection with patent applications, patent maintenance and legal fees, and a charge of $17,726 corresponding to the fair value of warrants granted to employees.

For the three months ended August 31, 2016 and August 31, 2015, depreciation of fixed assets and amortization of intangible assets were $75,128, and $16,414, respectively. The increase of $58,714 was due primarily to the intensification of the Company’s operations including the start-up of a pilot plant in Montreal and the increase in fixed assets of approximately $1.7 Million.

### Six months ended August 31, 2016 and August 31, 2015

We recorded no revenues for the six months ended August 31, 2016 and August 31, 2015.

For the six months ended August 31, 2016 and August 31, 2015, general and administrative expenses were $756,056, and $718,286, respectively. The increase of $37,770 was due primarily to additional expenses related to the intensification of the Company's operations including the rent of a corporate office in Montreal, increased head count, payroll and recruitment fees, and additional costs related to public company compliance such as professional fees, filing fees, directors and officer’s insurance and other expenses. The increase is also the result of a charge of $44,164 corresponding to the fair value of warrants granted to employees. The increase was partially offset by the amortization of $356,000 stock compensation costs during the six months ended August 31, 2015.

For the six months ended August 31, 2016 and August 31, 2015, research and development expenses were $849,198, and $259,838, respectively. The increase of $589,360 was due primarily to the intensification of the Company's operations including the start-up of a pilot plant in Montreal, increased head count, rent of equipment, purchase of materials and hiring contractors. The increase is also the result of additional expenses in connection with patent applications, patent maintenance and legal fees, and a charge of $29,543 corresponding to the fair value of warrants granted to employees.

For the six months ended August 31, 2016 and August 31, 2015, depreciation of fixed assets and amortization of intangible assets were $188,152, and $26,209, respectively. The increase of $161,943 was due primarily to the intensification of the Company’s operations including the start-up of a pilot plant in Montreal and the increase in fixed assets of approximately $1.7 Million.

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### LIQUIDITY AND CAPITAL RESOURCES

At August 31, 2016, we had a cash balance of $2.2 Million and a working capital balance of $1.6 Million. During the six months ended August 31, 2016, the Company used $1.7 cash in operations. Our cash at hand is not sufficient to fully finance our annual plan of operations. We will need to raise additional funds and we believe that additional funding will likely come from 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 annual plan of operations 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.

### SUBSEQUENT EVENTS

None.

## Market risk

As filed, 152 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 3.

## Controls and procedures

As filed, 1,401 characters.

### DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, our principal executive officer and our principal financial officer are responsible for conducting an evaluation of the effectiveness of the design and operation of our disclosure 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 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 our principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as of August 31, 2016.

There were no changes in the Company’s internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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## Risk factors

As filed, 153 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 1A.

Filed Oct 14, 2016.
Source: SEC EDGAR, the filing index for accession 0001477932-16-012935. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.