# Loop Industries, Inc.: Form 10-K for the period ended Feb 28, 2017 - Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678) - Form: 10-K - Filed: 2017-05-30 - Accepted by EDGAR: May 30, 2017, 20:06 ET - Period: 2017-02-28 - Accession: 0001477932-17-002605 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793217002605/llpp_10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793217002605/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2017-02-28. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Research and development | 12 months, 2016-03-01 to 2017-02-28 | $1.5m | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 12 months, 2016-03-01 to 2017-02-28 | −$8.8m | us-gaap:OperatingIncomeLoss | | Net income | 12 months, 2016-03-01 to 2017-02-28 | −$8.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2016-03-01 to 2017-02-28 | −$0.28 | us-gaap:EarningsPerShareBasicAndDiluted | | Operating cash flow | 12 months, 2016-03-01 to 2017-02-28 | −$2.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2016-03-01 to 2017-02-28 | $513.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2017-02-28 | $916.5k | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2017-02-28 | $1.2m | us-gaap:AssetsCurrent | | Total assets | at 2017-02-28 | $3.1m | us-gaap:Assets | | Current liabilities | at 2017-02-28 | $913.2k | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2017-02-28 | $2.1m | us-gaap:StockholdersEquity | ## Business As filed, 14,002 characters. ### Overview Our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy. Currently, the focus of our business is on depolymerizing waste PET plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PET into its base chemicals, PTA and MEG, at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature. 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, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable. We are a development-stage company and have not yet generated any revenues. Our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues. We intend to commercialize our technology by selling depolymerized LOOP™-branded PET resin to sustainably focused customers. 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. In February 2017, we also announced the entry into an agreement for services with DrinkFinity, an affiliate of PepsiCo, effective as of January 1, 2017, pursuant to which, we will participate in a mail back recycling program, whereby PepsiCo and its affiliates, divisions and subsidiaries, will be provided custom-made bags for consumers to mail certain specified recyclable products to us and we will process the returned items through our proprietary technology. A copy of this agreement is filed as an exhibit to this Annual Report on Form 10-K. ### Raw Material Our technology uses waste PET plastics such as water bottles, soda bottles, consumer packaging, carpets and industrial waste as feedstock to process. These feedstocks are available through municipal triage centers, industrial recycling and landfill reclamation projects. 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 bottles are characterized by high strength, low weight and permeability of gases (mainly CO2), as well as by their aesthetic appearance (good light transmittance, smooth surface) and do not have any known adverse side effects on humans. 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), chemical recycling the most acceptable, according to the principles of “sustainable development” , 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 the total depolymerization of PET into monomers, or partial depolymerization into oligomers and other chemical substances. According to NAPCOR (National Association for PET Container Resources), in 2015 in the United States: - PET bottles represented a total of 5.9 billion lbs. of PET available to be recycled; - Only 1.79 billion lbs. were collected; and - There was only a 30.1% PET bottle recycling rate. 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). The disadvantages of mechanical recycling of PET are that sorting is very labor intensive, and high energy costs are required to process the material. Mechanical PET recycling is also limited to single stream PET with no contamination. Other challenges include quality degradation and loss of clarity in the resulting recycled PET. 4 #### Table of Contents ### Depolymerization We have developed a proprietary process that enables us to depolymerize PET into its purest form of PTA and MEG 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. The resulting monomers (PTA & MEG) can be repolymerized to produce virgin quality PET. Our PET depolymerization process is completed through a series of chemical reactions: - Post-consumer (i.e. waste) PET are shredded into approximately 5 mm size pieces; - Shredded PET is put into a large reactor, where certain chemicals are added; - The PET molecular chain is broken down ; - PTA (solid) and MEG (liquid) and mother liquor (the solution that remains after crystallization, containing the original solute as well as other impurities that were not filtered out) are separated using a combination of centrifugation and distillation; - The mother liquor is returned to the reactor to be reused in the process; and - PTA and MEG are processed and used to produce PET. Our depolymerized PET has been tested in third-party laboratory settings. This testing was conducted to determine whether the PTA and MEG meet certain levels of purity to be able to be used for making PET resin, and we have concluded that the PTA and MEG are of industrial grade purity, meaning they are suitable for use in commercial beverage bottles. ### Prospective Future Growth We believe that the production of PET plastic resin using PTA and MEG that has been produced through our proprietary depolymerization technology will become a new standard in plastic manufacturing. With the dual benefits of plastic waste control and reduction in the use of fossil fuels we believe that the adoption of Loop’s PET manufacturing process will be widespread. In the medium term, we plan to establish depolymerization and PET manufacturing facilities in strategically located sites based on the availability of post-consumer PET for feedstocks in North America and Europe. Our long-term growth plans include the development of other technology and processes that will support and promote the circular economy using other types of material, such as other forms of plastic or nylon. ### Intellectual Property We rely on a combination of patent and trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our patents, brand names, product designs and marks. We have an issued U.S. patent with claims relating to our proprietary technology for depolymerization of PET. We expect the patent to expire on or around July 2035. Additionally, we have patent filings covering the same proprietary technology with jurisdictions that are parties to the Patent Cooperation Treaty, Argentina, members of the Gulf Cooperation Council and Taiwan. If patents are ultimately granted from these jurisdictions, we expect these patents to also expire on or around July 2035. We also have a pending U.S. trademark application protecting the trademark name LOOP. ### Essaddam Assignment The depolymerization technology underlying our business was originally developed by Hatem Essaddam, who sold the depolymerization technology to Loop Holdings, Inc. (“Loop Holdings”) pursuant to an Intellectual Property Assignment Agreement dated October 27, 2014, by and among Hatem Essaddam, Loop Holdings, and Daniel Solomita, as supplemented by that certain Addendum to the Intellectual Property Assignment Agreement signed on October 27, 2014, by and among such parties. Pursuant to the Intellectual Property Assignment Agreement, we made an initial payment of $0.4 million for the intellectual property and will make such additional payments of CDN$0.2 million (up to an aggregate of CDN$0.8 million) to Mr. Essaddam within sixty (60) days of each of the following milestones having been met, as follows: (i) an average of twenty (20) metric tons of PTA is produced per day by us for twenty (20) operating days; (ii) an average of thirty (30) metric tons of PTA is produced per day by us for thirty (30) operating days; (iii) an average of sixty (60) metric tons per day of PTA is produced per day by us for sixty (60) operating days; and (iv) an average of one hundred (100) metric tons of PTA is produced per day by us for sixty (60) operating days. 5 #### Table of Contents Additionally, we are obligated to make royalty payments of up to CDN$25.7 million, payable as follows: (a) 10% of gross profits on the sale of all products derived by us from the technology assigned to us under the agreement; (b) 10% of any license fee paid to us in respect of any licensing or other right to use the technology assigned to us and granted to a third party by Essaddam; (c) 5% of any royalty or other similar payment made to us by a third party to whom a license or other right to use the technology assigned to us has been granted by us; and (d) 5% of any royalty or other similar payment made to us by a third party in respect of a sub-license or other right to use the technology assigned to us granted by the third party. As of May 11, 2017, none of the above listed milestones have been met and we have not made any milestone or royalty payments. ### Government Regulation and Approvals As we seek to further develop and commercialize our business, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations could increase our operational costs. Our operations require various governmental permits and approvals. We are in the process of obtaining all necessary permits and approvals for the operation of our business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties. ### Employees As of May 11, 2017, we have 21 employees, all located at our office in Terrebonne, Canada. 19 employees are full-time, of which 7 are in general and administration, 8 in research and development and 4 for the operation of our pilot plant and technical development for future commercialization facilities. We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We consider our relations with our employees to be good. ### Corporate Information We were originally incorporated in Nevada in March 2010 under the name Radikal Phones Inc., which was changed to First American Group Inc. in October 2010. On July 29, 2015, we completed a reverse acquisition of Loop Holdings, Inc., whereby we acquired all of its issued and outstanding common shares in a share exchange for approximately 78.1% of the capital stock of our company at the time. The depolymerization business of Loop Holdings, Inc. became our sole operating business. On June 22, 2015, our board of directors approved a change in the fiscal year end date from September 30 to last day of February. On July 21, 2015 we changed our name to Loop Industries, Inc. Loop Holdings, Inc. was originally incorporated in Nevada on October 23, 2014. The depolymerization technology underlying our business was originally developed by Hatem Essaddam who sold the technology and related intellectual property rights to Loop Holdings in October 2014, pursuant to the license agreement described above in the section “—Intellectual Property– Essaddam Assignment” and 8198381 Canada Inc., a corporation organized under the federal laws of Canada and wholly-owned by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder. 8198381 Canada Inc. later sold the depolymerization technology and related intellectual property rights it held to Loop Holdings in June 2015 pursuant to a technology transfer agreement, which we filed as an exhibit to our Current Report on Form 8-K on June 30, 2015. On May 24, 2016, 9449507 Canada Inc. was organized under the federal laws of Canada and on November 11, 2016, and became a wholly-owned subsidiary of Loop Industries, Inc. following the transfer by Mr. Solomita of all of the issued and outstanding common shares of 9449507 Canada Inc. to Loop Industries, Inc. In December 23, 2016, 9449507 Canada Inc. changed its legal name to Loop Canada Inc. On December 31, 2016, 8198381 Canada Inc. entered into a purchase and sale agreement to transfer to Loop Canada Inc., all assets and liabilities it held pertaining to our business of depolymerizing plastics, including employees and operations. On March 9, 2017, Loop Holdings, Inc. merged with and into us. As a result of the foregoing merger, Loop Canada Inc. is our sole remaining subsidiary. Our principal executive offices are located at 480 Fernand Poitras Street, Terrebonne, QC J6Y 1Y4 Canada. Our telephone number is (450) 951-8555. Our website address is http://www.loopindustries.com. The information contained on, or that can be accessed through, our website is not a part of this Annual Report on Form 10-K. 6 #### Table of Contents ## Risk factors As filed, 23,662 characters. *You should carefully consider the risks described below together with all of the other information included in this Form 10-K before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.* ### RISKS RELATING TO OUR COMPANY **We have incurred net losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. We have never generated revenue and may never be profitable.** Since our inception in 2010, we have incurred net losses. Our net loss for the year ended February 28, 2017 was $8.8 million. We have only one customer, and have not earned any revenues to date. We have financed our operations primarily through private placements of our common stock and have devoted substantially all of our efforts to research and development, as well as to building out our team. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. Although we believe that our business plan has significant profit potential, we may not attain profitable operations and our management may not succeed in realizing our business objectives. Our ability to generate revenue depends on our ability to successfully complete the development of our products, obtain the regulatory approvals necessary to commercialize our products and attract additional customers. We may not generate revenues from product sales for the next several years, if ever. If we are not able to develop our business as anticipated, we may not be able to generate revenues or achieve profitability. **Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.** Our depolymerization business was started in October 2014 with the incorporation of Loop Holdings, Inc. and acquisition of intellectual property from Hatem Essaddam and 8198381 Canada Inc., a corporation organized under the federal laws of Canada and wholly-owned by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder. Our operations to date have been primarily limited to organizing and staffing our company, business planning, raising capital and developing our technology. We have not yet demonstrated the ability to manufacture a commercial-scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research focus to a company that is also capable of supporting commercial activities. We may not be successful in such a transition. **We expect to suffer losses in the immediate future that may cause us to curtail or discontinue our operations.** We expect to incur operating losses in future periods. These losses will occur because we do not yet have any revenues to offset the expenses associated with the development of our PET depolymerization business and our business operations, generally. We cannot guarantee that we will ever be successful in generating revenues in the future. We recognize that if we are unable to generate revenues, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will almost certainly fail. **We may not be able to execute our business plan or stay in business without additional funding.** Our ability to generate future operating revenues depends in part on whether we can obtain the financing necessary to implement our business plan. We will likely require additional financing through the issuance of debt and/or equity in order to establish profitable operations, and such financing may not be forthcoming. If there is no investor appetite to finance our specific business, we may not be able to acquire additional financing through credit markets or equity markets. Even if additional financing is available, it may not be available on terms favorable to us. Our failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on our ability to remain in business. **If are unable to successfully scale our manufacturing processes, we may not meet customer demand.** To be successful, we will have to successfully scale our manufacturing processes while maintaining high product quality and reliability. If we cannot maintain high product quality on a large scale, our business will be adversely affected. We may encounter difficulties in scaling up production, including problems with the supply of key components. Even if we are successful in developing our manufacturing capability, we do not know whether we will do so in time to satisfy the requirements of our customers. The current manufacturing facility is a pilot plant with limited production capacity. In order to fully implement our business plans, we will need to move the operations to a larger facility, develop strategic partnerships or find other means to produce greater volumes of finished product. 7 #### Table of Contents **Disruption at, damage to or destruction of our pilot plant or facilities could impede our ability to process the PET and make PTA and MEG, which would harm our business, financial condition and operating results.** We currently rely on our manufacturing facilities at a single location in Montreal. Any interruption in manufacturing operations at this location could result in our inability to satisfy the product demands of our customers. A number of factors could cause interruptions, including, but not limited to, equipment malfunctions or failures, technology malfunctions, work stoppages or slow-downs, damage to or destruction of the facility or regional power shortages. As our equipment ages, it will need to be replaced. Replacement of equipment has the potential to introduce variations in the manufacturing process that may result in lot failures or manufacturing shut-down, delay in the release of lots, product recalls, spoilage or regulatory action. Any disruption that impedes our ability to process PET in a timely manner could reduce our revenues and materially harm our business. **The plastics manufacturing industry is extremely price competitive because of the commodity like nature of PET resin and its correlation to the price of crude oil. If our cost to manufacture recycled PET is not competitive with virgin PET or if the price of oil reduces significantly, it may adversely impact our ability to penetrate the market or be profitable.** The demand for recycled PET has fluctuated with the price of crude oil. If crude oil prices decline the cost to manufacture recycled PET may become comparatively higher than the cost to manufacture virgin PET. Our ability to penetrate the market will depend in part on the cost of manufacturing virgin PET and if we do not successfully distinguish our product from those of virgin PET manufacturers our entry into the market and our ability to secure customer contracts can be adversely affected. **The loss of the services of Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our business.** The development of our PET materials depolymerization business and the marketing of our prospective products will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers who are developing our business, and on our ability to identify and retain competent consultants and employees with the skills required to execute our business objectives. The loss of the services of Daniel Solomita or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our business which could adversely affect our financial results and impair our growth. **Our pilot plant was completed early this year and we have not yet fully implemented all policies, procedures, and controls for the operation of a chemical manufacturing facility as required under various federal, provincial and local regulations and codes.** We are subject to health and safety as well as environmental, zoning and any other regulatory requirements to operate our pilot plant. Any failure to comply with ongoing regulatory requirements, as well as discovery of previously unknown problems, may result in, among other things, costly regulatory inspections, fines or remediation plans. If regulatory issues arise, the value of our business and our operating results may be adversely affected. Additionally, applicable regulations may change, and additional government regulations may be enacted that could impact our business. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, are slow or unable to adopt new requirements or policies, or effect changes to existing requirements, our business may be adversely affected. **Our failure to protect our intellectual property and proprietary technology may significantly impair our competitive advantage.** Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trademark and trade secret protection, nondisclosure and nonuse agreements to protect our proprietary rights. The steps we have taken may not be sufficient to prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. The patent and trademark law and trade secret protection may not be adequate to deter third party infringement or misappropriation of our patents, trademarks and similar proprietary rights. 8 #### Table of Contents In addition, patents issued to us may be challenged, invalidated or circumvented. Our rights granted under those patents may not provide competitive advantages to us, and the claims under our patent applications may not be allowed. We may be subject to or may initiate interference proceedings in the United States Patent and Trademark Office, which can demand significant financial and management resources. The process of seeking patent protection can be time consuming and expensive and patents may not be issued from currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us. We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights in order to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors. These claims could result in costly litigation and the diversion of our technical and management personnel. **We may face costly intellectual property infringement claims, the result of which would decrease the amount of cash we would require to operate and complete our business plan.** We anticipate that from time to time we will receive communications from third parties asserting that we are infringing certain patents and other intellectual property rights of others or seeking indemnification against alleged infringement. If anticipated claims arise, we will evaluate their merits. Any claims of infringement brought of third parties could result in protracted and costly litigation, damages for infringement, and the necessity of obtaining a license relating to one or more of our products or current or future technologies, which may not be available on commercially reasonable terms or at all. Litigation, which could result in substantial cost to us and diversion of our resources, may be necessary to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others. Any intellectual property litigation and the failure to obtain necessary licenses or other rights could have a material adverse effect on our business, financial condition and results of operations. **We may be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.** As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). Section 404 requires us to include an internal control report with our Annual Report on Form 10-K. This report must include management's assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. No assurance can be given that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management's assessment or conclude that our internal control over financial reporting is operating effectively. ### RISKS ASSOCIATED WITH OUR SECURITIES **We may, in the future, issue additional common shares, which would reduce investors' percent of ownership and may dilute our share value.** Our Articles of Incorporation authorize the issuance of 250,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of May 11, 2017, we had 32,595,173 shares of common stock issued and outstanding and one share of preferred stock issued and outstanding. The future issuance of common stock and/or preferred stock will result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock. 9 #### Table of Contents **Our President and Chief Executive Officer and Chairman of the Board of Directors, Daniel Solomita, beneficially owns a majority of our capital stock, and accordingly, has control over stockholder matters, our business and management.** As of May 11, 2017, Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, beneficially owns 18,600,000 shares of common stock, or 57% of our issued and outstanding shares of common stock and also holds one share of Series A Preferred Stock. The one share of Series A Preferred Stock issued to Mr. Solomita holds a majority of the total voting power so long as Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of our common stock, assuring that Mr. Solomita retains control even if his presently-held 57% of the issued and outstanding shares of our common stock 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 us from taking 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, we are not permitted to take certain actions 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, including for example and without limitation, amending our articles of incorporation, changing or modifying the rights of the Series A Preferred Stock, including increasing or decreasing the number of authorized shares of Series A Preferred Stock, increasing or decreasing the size of the board of directors or remove the director appointed by the holders of our Series A Preferred Stock and declaring or paying any dividend or other distribution. Moreover, because of the significant ownership position held by our insiders, new investors may not be able to effect a change in our business or management, and therefore, stockholders would have no recourse as a result of decisions made by management. In addition, sales of significant amounts of shares held by Mr. Solomita, or the prospect of these sales, could adversely affect the market price of our common stock. Management's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price. **Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of our company.** Though not now, we may be or in the future we may become subject to Nevada's control share law. A corporation is subject to Nevada's control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a "controlling interest" which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the company in the election of directors: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others. The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the company, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law. If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder's shares. In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and "interested stockholders" for three years after the "interested stockholder" first becomes an "interested stockholder," unless the company's board of directors approves the combination in advance. For purposes of Nevada law, an "interested stockholder" is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the company, or (ii) an affiliate or associate of the company and at any time within the two previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the company. The definition of the term "combination" is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the company's assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the company and its other stockholders. The effect of Nevada's business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our board of directors. 10 #### Table of Contents **Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.** We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. Stockholders may not be able to sell shares when desired. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. ## Properties As filed, 670 characters. We currently do not own any physical or real property. Our executive offices and operational facilities are located at 480 Fernand Poitras, Terrebonne, Quebec, Canada J6Y 1Y4. We initially entered into a lease with 6316123 Canada Inc. for approximately 9,607 square feet of industrial premises on the first floor of 480 Fernand Poitras on February 23, 2015 and entered into an additional secondary lease for the 3,460 square feet of industrial premises on the second floor on February 1, 2016. Both leases expire April 30, 2018, unless we elect to renew for an additional period of three years. We believe that our existing facilities are adequate for our current needs. ## Legal proceedings As filed, 1,012 characters. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. As of February 28, 2017, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We anticipate that we will expend significant financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. We also anticipate that we will expend significant financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties. ## Management's discussion and analysis As filed, 9,464 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.* Our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy. Currently, the focus of our business is on the depolymerizing waste PET plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PET into its base chemicals, PTA and MEG, at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature. 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, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable. We are a development-stage company and have never generated any revenues. Our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues. We intend to sell depolymerized LOOP™-branded PET resin to sustainably focused customers. 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. 13 #### Table of Contents ### PLAN OF OPERATION We are planning to and have begun taking steps to build a commercial scale facility with an installed capacity of a minimum of 10,000 metric tons (MT) per annum to supply our potential customers with LOOP™ branded PET resin of up to 50% recycled content. We are planning to finance any new facilities through additional sales of our common stock, government assistance, including grants and low-interest loans and traditional bank financing. We are conducting qualification testing of our LOOP™ branded PET resin and negotiating long term supply contracts with potential customers. In addition, we are optimizing our manufacturing process to ensure a smooth transition from pilot scale to full scale commercial manufacturing facility. Our plan of operation also includes the development of the LOOP™ branded PET resin, by establishing co-marketing and co-branding initiatives with potential customers. LOOP™ branded PET resin will primarily focus on educating consumers on the importance of the circular economy and the Loop technology that can play a pivotal role in this new economy. ### RESULTS OF OPERATIONS ### For the years ended February 28, 2017 and February 29, 2016 We recorded no revenues for the years ended February 28, 2017 and February 29, 2016. We realized a net loss from operations of $8.8 million for the 12 months ended February 28, 2017 compared to a net loss of $1.7 million for the year ended February 29, 2016. This increase in net loss from operations is mainly due to a $5.5 million charge for the year ended February 28, 2017 relating to the fair value of 1,000,000 shares of common stock issuable to the majority stockholder for services. The remaining increase in expenses of $1.6 million can be attributed to the following items: - An increase in payroll and salaries cost of $0.4 million mainly because the payroll expense for the period ended February 29, 2016 does not reflect a full year of salaries expense as employees were hired throughout the year. Actual head count increased by only 1 from February 29, 2016 to February 28, 2017. - An increase of $0.7 million in research and development expenses, net of research and development tax credits received in the year of $150,426. - An increase of $0.2 million in depreciation and amortization charges arising from an increase in equipment purchases for the pilot plant. - The remaining $0.3 million increase is an overall increase among other operating expenses as employees and activity increased. Activity in the past year focused on the build out of the pilot plant, continued testing and improvement of our depolymerization process as well as testing of various feedstocks used in the depolymerization process. On the commercial side, we have undertaken various marketing initiatives to raise awareness of the Loop depolymerization process. In addition, we have been working with future customers and other key stakeholders to ensure that the Loop™ branded PET resin meets customers’ needs and specifications once commercial production begins. 14 #### Table of Contents ### LIQUIDITY AND CAPITAL RESOURCES At February 28, 2017, we had a cash balance of $0.9 million and a working capital balance of $0.3 million. During the year ended February 28, 2017, we used $2.9 million in operations and purchased capital equipment of $0.5 million. We raised funds of $4.0 million through the sale of additional common stock and exercise of warrants for a net increase in its cash position of $0.6 million. Subsequent to February 28, 2017, we raised an additional $5.9 million from the sale of our common stock. We believe we have sufficient funds to continue our operations at least through the end of fiscal year 2018; however, we will require additional financing through either debt or equity to transition from pilot scale to full scale commercial manufacturing. ### OFF-BALANCE SHEET ARRANGEMENTS As of February 28, 2017, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. ### Critical Accounting Policies #### Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We have used estimates to determine the depreciable life of property and equipment which affects our depreciation and amortization charge for the year. We have also used estimates in determining the useful life of our intangible assets as well as whether there was any impairment to the carrying value of the intangible assets. Finally, we have also used estimates in recording the fair value of certain stock instruments. #### Foreign Currency Translations and Transactions We present our consolidated financial statements in U.S. Dollars, the functional currency of our company, but most of our operating costs, incurred by our Canadian operations are in Canadian dollars. Capital accounts of our Canadian operations are translated into U.S. Dollars at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact the costs of our operations. We currently do not engage in any currency hedging activities. 15 #### Table of Contents The following table summarizes the exchange rates used: | | Year Ended , February 28, 2017 | February 29, 2016 | | --- | ---: | ---: | | Period end Canadian $: US Dollar exchange rate | $0.75 | $0.74 | | Average period Canadian $: US Dollar exchange rate | $0.76 | $0.77 | Expenditures are translated at the average exchange rate for the period presented. #### Stock Based Compensation We periodically issue warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for 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. We account for 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. The fair value of our 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 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. #### Recently Issued Accounting Pronouncements See Notes to Financial Statements included elsewhere in this Form 10-K for management’s discussion of recently accounting pronouncements. ## Market risk As filed, 177 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 #### Table of Contents ## Controls and procedures As filed, 6,427 characters. ### Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief 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 Exchange Act, 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 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 effective as of February 28, 2017. ### Management’s Annual Report on Internal Control Over Financial Reporting As of February 28, 2017, management assessed the effectiveness of our internal control over financial reporting. Our 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 Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our 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. Our Chief Executive Officer and Chief Financial Officer have performed an evaluation of our internal control over financial reporting under the framework in *Internal Control-Integrated Framework (2013)*, issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective at February 28, 2017. Based on the results of its assessment, our management concluded that although there were few formalized procedures around financial reporting, given the small size of the company and the relatively simple nature of the transactions in the absence of any revenues, it believes that there were sufficient controls in the form of oversight by the Chief Executive Officer, the Chief Financial Officer and the board of directors to address these risks. Additionally, many improvements were made during the year as additional resources were engaged to ensure that internal control over financial reporting was generally effective. 18 #### Table of Contents ### Material Weakness Discussion and Remediation We believe that the consolidated financial statements included in this Annual Report on Form 10-K for the year ended February 28, 2017, fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. Remediation efforts were initiated during the fiscal year ended February 28, 2017, including the appointment of additional independent members to our board of directors and the establishment of an audit committee, redesigning our internal controls and procedures, improving our financial statement closing process, as well as the hiring of a new Chief Financial Officer. We intend to continue to take steps to make necessary improvements to our internal control over financial reporting, including: - Continuing to update the documentation and communication of our internal control processes, including implementing formal risk assessment processes; and - Engaging third party Sarbanes-Oxley consultants to assist us in addressing any other controls and process gaps, in particular ensuring our processes anticipate and provide for increased complexity and needs as we grow. We believe that the measures described above will strengthen our internal control over financial reporting. We expect that our efforts, including design, implementation and testing will continue throughout fiscal year 2018. ### Changes in Internal Control over Financial Reporting As described above under “*Material Weakness Discussion and Remediation,”* we have undertaken a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting. These remedial procedures continued throughout the reporting period and through May 11, 2017. ### Inherent Limitation on the Effectiveness of Internal Controls The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting. Filed May 30, 2017. Source: SEC EDGAR, the filing index for accession 0001477932-17-002605. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.