# Loop Industries, Inc.: Form 10-Q for the period ended Nov 30, 2017

- Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678)
- Form: 10-Q
- Filed: 2018-01-12
- Accepted by EDGAR: Jan 12, 2018, 22:25 ET
- Period: 2017-11-30
- Accession: 0001477932-18-000198
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793218000198/llpp_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793218000198/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-11-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2017-09-01 to 2017-11-30 | $3.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2017-03-01 to 2017-11-30 | $5.3m | us-gaap:ResearchAndDevelopmentExpense |
| Net income | 3 months, 2017-09-01 to 2017-11-30 | −$6.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-03-01 to 2017-11-30 | −$10.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-09-01 to 2017-11-30 | −$0.20 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2017-03-01 to 2017-11-30 | −$0.32 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2017-03-01 to 2017-11-30 | −$4.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2017-03-01 to 2017-11-30 | $273.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-11-30 | $3.4m | us-gaap:Cash |
| Current assets | at 2017-11-30 | $3.6m | us-gaap:AssetsCurrent |
| Total assets | at 2017-11-30 | $5.5m | us-gaap:Assets |
| Current liabilities | at 2017-11-30 | $1.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2017-11-30 | $4.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 11,238 characters.

*The following information should be read in conjunction with the unaudited condensed interim consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the notes thereto included in our most recent Amended Annual Report on Form 10-K/A, which was filed with the Securities and Exchange Commission, or the SEC, on January 12, 2018.*

*The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified in the “Risk Factors” section of our most recent Amended Annual Report on Form 10-K/A and refer to the Cautionary Note Regarding Forward-Looking Statements on page 1.*

### Introduction

Loop Industries, Inc. (the “Company”, “Loop”) is an innovative technology company focused on sustainability. Our mission is to accelerate the world’s shift toward sustainable plastic and away from its dependence on fossil fuels, essentially enabling a truly circular economy.

Our patented, FDA approved technology decouples plastic from fossil fuels, depolymerizing waste PET plastic and polyester fiber into its base building blocks; purified terephthalic acid and mono ethylene glycol. The resulting monomers are then polymerized into virgin-quality PET plastic used in food-grade plastic packaging such as water and soda bottles and polyester fiber for textile applications.

Loop’s technology allows for low value and no value waste PET plastic and polyester fibers such as carpets and clothing to be upcycled into high value PET/Polyester packaging for consumer goods companies. Our zero energy depolymerization technology specifically targets PET/Polyester allowing for the removal of all waste impurities, such as colors/dyes, labels and non-PET plastic waste.

### Plan of Operation

During the last three years we have positioned Loop to be a leader in sustainability and the circular economy. We built our pilot plant in Terrebonne, Canada to optimize and showcase our proprietary depolymerization technology. We are currently expanding our pilot plant to increase capacity as we begin our next phase of commercialization.

We are focused on commercialization of our technology through a hybrid revenue model consisting of licensing our technology to world class multinational supply chain management companies to manufacture Loop™ branded PET resin, and we may also participate with an equity interest in the manufacturing partnerships and/or joint-ventures. We believe this model will position Loop ‎ to ramp up commercial operations more rapidly in order to satisfy demand for sustainable plastics from global consumer brands and achieve meaningful substitution of oil based PET resins. We believe this model will also allow us to partner with others and ramp up capital intensive manufacturing operations to commercialize our technology without having to raise significant new capital and incur resulting significant equity dilution.

The company plans to negotiate take or pay contracts with global consumer goods companies for the sale of Loop™ PET resin. Loop will continue to create brand value for Loop™ PET resin, by leveraging the global consumer goods company’s marketing and branding initiatives.

We plan to allocate capital to strengthen our intellectual property portfolio, build a core competency in managing strategic relationships and continue enhancing our Loop brand value. Our research and development innovation hub in Terrebonne, Canada will continue optimizing our current technology as well as innovate into new areas of sustainability. We are investing in building a strong management team to integrate best in class processes and practices while maintaining our entrepreneurial culture.

On November 20, 2017, our securities began trading on The NASDAQ Global Market, under the trading symbol “LOOP”, which we believe will provide the Company heightened exposure with a global audience and greater access to capital.

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### Results of Operations

The following tables summarize our operating results.

|  | Three months ended November 30, 2017 | 2016 | Change 2017 vs 2016 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $- | $- | $- | - |
| Operating Expenses - |  |  |  |  |
| Research and development | 3,894,454 | 368,403 | 3,526,051 | 957% |
| General and administrative | 2,720,078 | 277,951 | 2,442,127 | 879% |
| Depreciation and amortization | 98,755 | 102,244 | (3,490) | -3% |
| Foreign exchange loss (gain) | (9,634) | 809 | (10,443) | -1291% |
| Total operating expenses | 6,703,653 | 749,407 | 5,954,246 | 795% |
| Net Loss, before the undernoted | $(6,703,653) | $(749,407) | $(5,954,246) | 795% |
| Adjusted for Share Based Compensation: |  |  |  |  |
| Non-recurring | $3,230,910 | $- | $3,230,910 | - |
| Ongoing | 1,172,635 | 40,149 | 1,132,486 | 2821% |
| Total Share Based Compensation | $4,403,545 | $40,149 | $4,363,396 | 10868% |
| Adjusted Net Loss | $(2,300,108) | $(709,258) | $(1,590,850) | 224% |
| Adjusted Operating Expenses | $2,300,108 | $709,258 | $1,590,850 | 224% |

Adjusted Operating Expenses exclude Share Based Compensation amounts.

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|  | Nine months ended November 30, 2017 | 2016 | Change 2017 vs 2016 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $- | $- | $- | - |
| Operating Expenses - |  |  |  |  |
| Research and development | 5,341,763 | 1,217,600 | 4,124,163 | 339% |
| General and administrative | 4,691,294 | 1,034,007 | 3,657,287 | 354% |
| Depreciation and amortization | 281,016 | 290,396 | (9,380) | -3% |
| Foreign exchange loss (gain) | 88,634 | (2,880) | 91,514 | -3178% |
| Total operating expenses | 10,402,707 | 2,539,123 | 7,863,584 | 310% |
| Net Loss, before the undernoted | $(10,402,707) | $(2,539,123) | $(7,863,584) | 310% |
| Adjusted for Share Based Compensation: |  |  |  |  |
| One-time | $3,230,910 | $- | $3,230,910 | - |
| Ongoing | 2,093,007 | 106,053 | 1,986,954 | 1874% |
| Total Share Based Compensation | $5,323,917 | $106,053 | $5,217,864 | 4920% |
| Adjusted Net Loss | $(5,078,790) | $(2,433,070) | $(2,645,720) | 109% |
| Adjusted Operating Expenses | $5,078,790 | $2,433,070 | $2,645,720 | 109% |

Adjusted Operating Expenses exclude Share Based Compensation amounts.

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Operating expenses for the three and nine month period ended November 30, 2017 were $6.7 million and $10.4 million, respectively, an increase of $6.0 million and $7.9 million, compared to the same periods in 2016. Increases in both the three and nine month periods over the prior year is partially attributable to non-cash stock compensation of $4.4 million and $5.2 million, respectively.

Research and development expenses for the three and nine month period ended November 30, 2017 were $3.9 million and $5.3 million, respectively, representing an increase of $3.5 million and $4.1 million, respectively.

The increase in research and development expenses for the three month period was primarily attributable to an increase in non-cash stock compensation of $2.9 million, design and planning costs of $0.4 million incurred in connection with our Terrebonne Pilot Plant, and an increase in staff costs of $0.1 million. Of the $2.9 million stock compensation increase, $2.3 million was recorded in the quarter ended November 30, 2017 as the stock options were fully vested on grant date and the remaining amount, $0.6 million, represents amounts recorded over the requisite vesting service period.

The increase in research and development expenses for the nine month period ended November 30, 2017 was primarily due to an increase in non-cash stock compensation of $3.1 million, costs incurred to enhance our Terrebonne Pilot Plant of $0.9 million, and an increase in staff costs of $0.4 million. Of the $3.1 million stock compensation increase, $2.3 million was recorded in the nine month period ended November 30, 2017 as the stock options were fully vested on grant date and the remaining amount, $0.8 million, represents amounts recorded over the requisite vesting service period.

General and administrative expenses for the three and nine month period ended November 30, 2017 were $2.7 million and $4.7 million, respectively, an increase of $2.4 million and $3.7 million, respectively.

The increase in general and administrative expenses for the three month period was primarily attributable to an increase in non-cash stock compensation of $1.5 million, an increase in legal and accounting fees of $0.4 million, an increase in staff costs of $0.3 million and NASDAQ initial filing fees of $0.1 million. Of the $1.5 million stock compensation increase, $0.9 million was recorded in the quarter ended November 30, 2017 as the stock options were fully vested on grant date and the remaining amount, $0.6 million, represents amounts recorded over the requisite vesting service period.

The increase in general and administrative expenses for the nine month period ended November 30, 2017 was primarily due to an increase in non-cash time-based stock compensation of $2.1 million which includes $0.5 million stock compensation for the former CFO, an increase in legal and accounting fees of $0.6 million, an increase in staff costs of $0.6 million, and NASDAQ initial filing fees of $0.2 million. Of the $2.1 million stock compensation increase, $0.9 million was recorded in the nine month period ended November 30, 2017 as the stock options were fully vested on grant date and the remaining amount, $1.2 million, represents amounts recorded over the requisite vesting service period.

### Liquidity and Capital Resources

As reflected in the accompanying unaudited interim condensed consolidated financial statements, we have no recurring source of revenue and during the nine months ended November 30, 2017, we incurred a net loss of $10.4 million and used cash in operations of $4.2 million. As of November 30, 2017, we had cash on hand of $3.4 million and stockholders’ equity of $4.3 million.

On January 9, 2018, the Board approved the issuance of up to 1,100,000 common shares at an offering price of $12.00. At January 11, 2018, the Company had sold 612,667 shares for gross aggregate proceeds of $7.4 million. As a result, management estimates that funds on hand will be sufficient to continue operations during the next twelve months.

Management may consider seeking additional funds in the future, primarily through the issuance of debt and equity securities for cash to advance the development of our projects to the point at which they will become commercially viable.

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No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

### Off-Balance Sheet Arrangements

As of November 30, 2017, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

## Market risk

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.

## Controls and procedures

As filed, 3,164 characters.

### Management’s Evaluation of our 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 quarter 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 not effective as of November 30, 2017.

### Changes in Internal Control over Financial Reporting

In light of the restatement to our fiscal 2017 consolidated financial statements, our Chief Executive Officer and Chief Financial Officer have re-evaluated our internal control over financial reporting and its disclosure controls and procedures and concluded that they were not effective at February 28, 2017. Furthermore, the CEO and CFO have determined that at May 31, 2017, August 31, 2017 and November 30, 2017, our internal control over financial reporting were not effective. The material weakness that existed on those dates are described in Part II, Item 9A – Controls and Procedures in our most recent Amended Annual Report on Form 10-K/A, filed on January 12, 2018. We are committed to remediating our material weaknesses as promptly as possible. Implementation of our remediation plans has commenced and is being overseen by the Audit Committee.

We have taken steps to enhance our internal control over financial reporting and plan to take additional steps to remediate the material weaknesses. Specifically:

- We appointed additional independent members with public company board experience to our board of directors,
- We established an audit committee
- We engaged a third-party Sarbanes-Oxley consultant to assist in addressing controls and process gaps
- We added staff to our finance team, and outsourced to third party the assessment of certain complex transactions under US GAAP
- We developed and communicated a series of corporate policies, including the Whistle-Blower Policy, Insider Trading Policy, Global Anti-Corruption Policy and Related Party Transaction policy
- On October 8, 2017, we hired a General Counsel to the management team, and
- On November 8, 2017, we hired a Chief Financial Officer with public company experience

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.

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## Risk factors

As filed, 541 characters.

We are subject to various risks and uncertainties in the course of our business. Risk factors relating to us are set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended February 28, 2017, filed on May 30, 2017, as amended by Amendment No. 1 thereto on Form 10-K/A, filed on January 12, 2018, and our Quarterly Report on Form 10-Q for the quarter ended August 31, 2017, filed on October 11, 2017, as amended by Amendment No.1 thereto on Form 10-Q/A filed on January 12, 2018, and in our other filings with the SEC.

Filed Jan 12, 2018.
Source: SEC EDGAR, the filing index for accession 0001477932-18-000198. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.