# Loop Industries, Inc.: Form 10-K for the period ended Feb 28, 2018

- Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678)
- Form: 10-K
- Filed: 2018-05-14
- Accepted by EDGAR: May 14, 2018, 21:13 ET
- Period: 2018-02-28
- Accession: 0001477932-18-002417
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793218002417/llpp_10k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793218002417/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 12 months, 2017-03-01 to 2018-02-28 | $6.7m | us-gaap:ResearchAndDevelopmentExpense |
| Net income | 12 months, 2017-03-01 to 2018-02-28 | −$14.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2017-03-01 to 2018-02-28 | −$0.43 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 12 months, 2017-03-01 to 2018-02-28 | −$6.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2017-03-01 to 2018-02-28 | $2.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-02-28 | $8.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-02-28 | $9.0m | us-gaap:AssetsCurrent |
| Total assets | at 2018-02-28 | $13.4m | us-gaap:Assets |
| Current liabilities | at 2018-02-28 | $2.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-02-28 | $3.1m | us-gaap:Liabilities |
| Current portion of debt | at 2018-02-28 | $54.6k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-02-28 | $10.3m | us-gaap:StockholdersEquity |

## Business

As filed, 7,568 characters.

### Overview

Loop Industries, Inc. (“we”, “us”, “our”, the “Company” or “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.

Loop’s patented technology decouples the production of PET/Polyester plastic from fossil fuels by depolymerizing waste PET plastic and polyester fiber into its base building blocks. The monomers are then re-polymerized into virgin-quality PET plastic that meets FDA requirements for use in food-grade plastic packaging such as water and soda bottles. Our monomers can also be re-polymerized to produce polyester fiber for textile applications.

Our technology uses waste PET plastics such as water bottles, soda bottles, consumer packaging, carpets, polyester textiles and industrial waste as feedstock to process. These feedstocks are available through municipal triage centers, industrial recycling and landfill reclamation projects.

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

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### Prospective Future Growth

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 have completed the expansion of our pilot plant to increase its capacity and demonstrate continuous operations as we begin our next phase of commercialization.

We are developing plans to commercialize our technology in collaboration with multinational supply chain management companies and to manufacture Loop™ branded PET resin.

Our goal is to negotiate contracts with global consumer goods companies for the sale of Loop™ branded resin, and enable them to achieve their timeline and stated goals for sustainability.

We are continuing to invest in further optimizing our technology and developing our organizational strength and depth. Our research and development innovation hub in Terrebonne, Canada will continue optimizing our current technology as well as innovating into new areas of sustainability.

### 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 two patent groups with claims relating to our proprietary technology for depolymerization of PET.

- The first group has an issued U.S. patent and a pending U.S. application expected to expire on or around July 2035. Internationally, the first group has an issued patent in Taiwan and pending patent applications in Argentina, members of the Gulf Cooperation Council, Australia, Brazil, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, Mexico, the Philippines, and South Africa, all expected to expire on or around July 2036 if granted.
- The second group has a pending U.S. application expected to expire on or around September 2037 if granted.

### 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.

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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 at May 4, 2018, we have 28 employees, all located in Terrebonne, Canada. 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 History

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 June 29, 2015, we completed a reverse acquisition of Loop Holdings, Inc. (“Loop Holdings”) whereby we acquired all of Loop Holdings’ issued and outstanding shares of common stock in a share exchange for approximately 78.1% of the capital stock of our Company at the time. The depolymerization business of Loop Holdings 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 the last day of February. On July 21, 2015, we changed our name to Loop Industries, Inc.

Loop Holdings 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 an Intellectual Property Assignment Agreement dated October 27, 2014, by and among Hatem Essaddam, Loop Holdings, and Daniel Solomita.

On May 24, 2016, 9449507 Canada Inc. was organized under the federal laws of Canada and on November 11, 2016 became a wholly-owned subsidiary of Loop Industries, Inc. following the transfer by Mr. Solomita of all of the issued and outstanding shares of common stock of 9449507 Canada Inc. to Loop Industries, Inc. On 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, a wholly-owned subsidiary of the Company, merged with and into Loop Industries, Inc., with Loop Industries, Inc. being the surviving entity as a result of the merger.

On September 1, 2017, 9449710 Canada Inc. was incorporated, to assist in the depolymerization business, and is a wholly-owned subsidiary of Loop Canada Inc.

On November 20, 2017, Loop Industries, Inc. commenced trading on the NASDAQ Global Market under its new trading symbol, “LOOP.” From April 10, 2017 to November 19, 2017, our common stock was quoted on the OTCQX tier of the OTC Markets Group Inc. under the symbol “LLPP.” From October 29, 2015 through April 7, 2017, our common stock was quoted on the OTCQB tier of the OTC Markets Group Inc. under the stock symbol “LLPP.” From September 26, 2012 to October 28, 2015, our common stock was quoted on the OTCQB tier of the OTC Markets Group Inc. under the stock symbol “FAMG.”

### Corporate Information

Our principal executive offices are located at 480 Fernand Poitras Street, Terrebonne, Québec, Canada J6Y 1Y4. Our telephone number is (450) 951-8555. Our website address is 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.

## Risk factors

As filed, 34,740 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.*

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### RISKS RELATING TO OUR COMPANY

**We have incurred net losses since inception. We expect to continue 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, 2018 was $14.0 million. We have one customer and we have earned no 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 building 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 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 business was started in October 2014 with the incorporation of Loop Holdings, Inc. and the acquisition of intellectual property from Hatem Essaddam who sold the technology and related intellectual property rights to Loop Holdings in October 2014, pursuant to an Intellectual Property Assignment Agreement dated October 27, 2014, by and among Hatem Essaddam, Loop Holdings, and Daniel Solomita. 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 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 we are unable to attract investors to invest in our business, we may not be able to acquire additional financing through debt 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.

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### Our technology may not be successful in developing commercial products.

We and our potential future collaborators may spend many years and dedicate significant financial and other resources developing our technology that may never be commercialized. Our technology may never become commercialized for any of the following reasons:

- we may not be able to secure sufficient funding to progress our technology through development and commercial validation;
- we or our future collaborators may be unable to obtain the requisite regulatory approvals for our technology;
- competitors may launch competing or more effective technology;
- our technology may not be commercially successful;
- future collaborators may be unable to fully develop and commercialize products containing our technology or may decide, for whatever reason, not to commercialize such products; and
- we may not be successful in securing adequate patent protection in the necessary jurisdictions.

If any of these things were to occur, it could have a material adverse effect on our business and our results of operations.

**If we 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 plan, 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.

**Decreases in our ability to develop or apply new technology and know-how may affect our competitiveness.**

Our success depends partially on our ability to improve production processes and services. We must also introduce new products and services to meet changing customer needs. If we are unable to implement better production processes or to develop new products through research and development or licensing of new technology, we may not be able to remain competitive with other manufacturers. As a result, our business, financial condition or results of operations could be adversely affected.

**Disruption at, damage to or destruction of our pilot plant or facilities could impede our ability to continue innovating and refining our technological process, which would harm our business, financial condition and operating results.**

Our research and development activities are performed from a single location in Terrebonne, Quebec. Our continued innovation activities rely on uninterrupted and fully functioning pilot plant. Interruptions in operations at this location could result in our inability to provide the most efficient and effective technological solution to 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. Any disruption that impedes our ability to optimize our process 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.

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### We are vulnerable to fluctuations in the supply and price of raw materials.

We purchase raw materials and packaging supplies from several sources. While all such materials are available from independent suppliers, raw materials are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other industries for the same raw materials and the availability of complementary and substitute materials. The profitability of our business also depends on the availability and proximity of these raw materials to our factories. The choice of raw materials to be used at our facility is determined primarily by the price and availability, the yield loss of lower quality raw materials, and the capabilities of the producer’s production facility. Additionally, the high cost of transportation could favor suppliers located in close proximity to our factories. If the quality of these raw materials is lower, the quality of our product may suffer. Economic and financial factors could impact our suppliers, thereby causing supply shortages. Increases in raw material costs could have a material adverse effect on our business, financial condition or results of operations. Our hedging procedures may be insufficient and our results could be materially impacted if costs of materials increase.

**The loss of the services of Mr. 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 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 Mr. 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 continues to be modernized 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, and as our business evolves, we, directly or indirectly through our partners or other related parties, may be subject to additional government regulations. 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, confidentiality, 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.

**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 forth by 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 costs 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.

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**We rely in part on trade secrets to protect our technology, and our failure to obtain or maintain trade secret protection could harm our business.**

We rely on trade secrets to protect some of our technology and proprietary information, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. Litigating a claim that a third party had illegally obtained and used our trade secrets would be expensive and time consuming, and the outcome would be unpredictable. Moreover, if our competitors independently develop similar knowledge, methods and know-how, it will be difficult for us to enforce our rights and our business could be harmed.

**We have identified material weaknesses in our internal control over financial reporting and, if our remediation of these material weaknesses is not effective, or if we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and the price of our common stock.**

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 at 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.

As at February 28, 2017, we concluded that there were few formalized procedures around financial reporting within the Company. In the third quarter of fiscal 2018, we identified a material weakness pertaining to the accounting for stock-based compensation, which contributed to the restatement of previously issued 2017 annual consolidated financial statements and of our first and second quarter financial statements for fiscal 2018.

We have taken steps to remediate the issues that contributed to the material weaknesses and while we believe that these efforts will improve our internal control over financial reporting, the implementation of remedial measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. If the steps we have taken and continue to take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal controls over financial reporting. Accordingly, there continues to be a reasonable possibility that these deficiencies or others could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.

The process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act will be time consuming, costly and complicated. If during the evaluation and testing process, we identify one or more other material weaknesses in our internal control over financial reporting or determine that existing material weaknesses have not been remediated, our management will be unable to assert that our internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. If we are unable to assert that our internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

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**We are subject to risks associated with currency fluctuations, and changes in foreign currency exchange rates could impact our results of operations.**

We operate mainly through two entities, Loop Industries, Inc., which is a Nevada corporation and has a U.S. dollar functional currency, and our wholly-owned subsidiary, Loop Canada Inc. (“Loop Canada”), which is based in Terrebonne, Québec, Canada and has a Canadian dollar functional currency. Our reporting currency is the U.S. dollar.

We mainly finance our operations through the sale and issuance of shares of common stock of Loop Industries, Inc. in U.S. dollars while our operations are concentrated in our wholly-owned subsidiary, Loop Canada. Accordingly, we are exposed to foreign exchange risk as we maintain bank accounts in U.S. dollars and a significant portion of our operational costs (including payroll, site costs, costs of locally sourced supplies and income taxes) are denominated in Canadian dollars.

Significant fluctuations in U.S. dollar to Canadian dollar exchange rates could materially affect our result of operations, cash position and funding requirements. To the extent that fluctuations in currency exchange rates cause our results of operations to differ materially from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.

From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. As part of our risk management program, we may enter into foreign exchange forward contracts to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of our operating costs and future cash flows denominated in currencies that differs from our functional currencies. We do not enter into these contracts for trading purposes or speculation, and our management believes all such contracts are entered into as hedges of underlying transactions. Nonetheless, these instruments involve costs and have risks of their own in the form of transaction costs, credit requirements and counterparty risk. If our hedging program is not successful, or if we change our hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates. Any hedging technique we implement may fail to be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the trading price of our common stock.

**We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business.**

We cannot predict with certainty the cost of defense, of prosecution or of the ultimate outcome of litigation and other proceedings filed by or against us, including penalties or other civil or criminal sanctions, or remedies or damage awards, and adverse results in any litigation and other proceedings may materially harm our business. Litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, international trade, commercial arrangements, product liability, environmental, health and safety, joint venture agreements, labor and employment or other harms resulting from the actions of individuals or entities outside of our control. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that are subject to third-party patents or other third-party intellectual property rights.

### RISKS ASSOCIATED WITH OUR SECURITIES

**Raising additional funds may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.**

If we raise additional funds through equity offerings or offerings of equity-linked securities, including warrants or convertible debt securities, our existing stockholders may experience significant dilution, and the terms of such securities may include liquidation or other preferences that may adversely affect the rights of our stockholders. Debt financings, if available, may subject us to restrictive covenants that could limit our flexibility in conducting future business activities, including covenants limiting or restricting our ability to incur additional debt, dispose of assets or incur capital expenditures. We may also incur ongoing interest expense and be required to grant a security interest in our assets in connection with any debt issuance. If we raise additional funds through strategic partnerships or licensing agreements with third parties, we may have to relinquish valuable rights to our technologies or grant licenses on terms that are not favorable to us.

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**Trading volume in our stock can fluctuate and an active trading market for our common stock may not be available on a consistent basis to provide stockholders with adequate liquidity. Our stock price may be volatile and our stockholders could incur significant investment losses.**

The trading price for our common stock will be affected by a number of factors, including:

- any change in the status of our Nasdaq listing;
- the need for near-term financing to continue operations;
- reported progress in our efforts to develop and commercialize our technology, relative to investor expectations;
- general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors;
- future issuances and/or sales of our securities;
- announcements or the absence of announcements by us, or our competitors, regarding collaborations, new products, significant contracts, commercial relationships or capital commitments;
- commencement of, or involvement in, litigation;
- any major change in our board of directors or management;
- changes in governmental regulations or in the status of our regulatory approvals;
- announcements related to patents issued to us or our competitors and to litigation involving our intellectual property;
- a lack of, or limited, or negative industry or security analyst coverage;
- uncertainty regarding our ability to secure additional cash resources with which to operate our business;
- short-selling or similar activities by third parties; and
- other factors described elsewhere in these Risk Factors.

As a result of these factors, our stockholders may not be able to resell their shares at, or above, their purchase price. In addition, the stock prices of many technology companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. Any negative change in the public’s perception of the prospects of companies in our industry could depress our stock price regardless of our results of operations. These factors may have a material adverse effect on the market price and liquidity of our common stock and affect our ability to obtain required financing.

**Our President and Chief Executive Officer and Chairman of the Board of Directors, Mr. Daniel Solomita, beneficially owns a majority of our capital stock, and accordingly, has control over stockholder matters, our business and management.**

As at May 4, 2018, Mr. 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 55% 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 55% 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.

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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 in the future 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.

**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.

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**The recently passed comprehensive tax reform bill could adversely affect our business and financial results.**

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a "worldwide" system of taxation to a territorial system. We continue to examine the impact this tax reform legislation may have on our business and we urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.

## Properties

As filed, 416 characters.

On January 26, 2018, we completed the purchase of the land and building housing our pilot plant and corporate offices located at 480 Fernand Poitras, Terrebonne, Québec, Canada J6Y 1Y4. The 22,042 square foot facility includes 4,080 square feet for our executive offices and 17,962 square feet for our innovation and operational activities. We believe that our existing facilities are adequate for our current needs.

## Legal proceedings

As filed, 2,183 characters.

In January 2017, a claim was filed against us by two individuals, in the Los Angeles Superior Court, seeking damages for breach of contract, breach of implied covenant of good faith and fair dealing, and promissory fraud, asserting entitlement to two million shares of our common stock in connection with an alleged oral agreement for consulting services. The Company will be filing a motion for summary judgement by May 25, 2018 to dismiss all claims, which motion will be heard on August 13, 2018. The case is currently set for trial on September 12, 2018 in the Los Angeles Superior Court. Although the plaintiffs are seeking two million shares of the Company’s common stock, punitive damages and attorneys’ fees, the Company is currently unable to estimate the amount or dollar range of potential loss or recovery, if any, which might result if the final determination of this matter is favorable or unfavorable. We believe that this case lacks merit and intend to continue to defend it vigorously. We have not yet determined what effect this lawsuit will have on our financial position or results of operations as it is still in its preliminary stages.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as noted above, we are not presently a party to any legal proceedings, government actions, administrative actions, investigations or claims that 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.

It is possible that we may expend financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. It is also possible that we may expend 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, 15,858 characters.

*The following information and any forward-looking statements should be read in conjunction with “Risk Factors” discussed elsewhere in this Report. Please refer to the Cautionary Note Regarding Forward-Looking Statements on page 4.*

### Introduction

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 technology decouples the production of plastic from fossil fuels by depolymerizing waste PET plastic and polyester fiber into its base building blocks. The resulting monomers are then re-polymerized into virgin-quality PET plastic that meets FDA requirements for use 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 plastics to be upcycled into high value PET packaging for consumer goods companies. Our low energy depolymerization technology specifically targets PET/Polyester plastic allowing for the removal of all impurities, such as colors/dyes, labels and all organic and inorganic waste.

### Plan of Operation

During the last three years, we believe we have positioned Loop to be a leader in sustainability and the circular economy. We expanded and upgraded our pilot plant in Terrebonne, Canada to optimize and showcase our proprietary depolymerization technology.

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 and minimize the need to raise significant new capital and incur resulting significant equity dilution.

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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 available 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.

### Results of Operations

The following table summarizes our operating results for the three-month periods ended February 28, 2018 and 2017.

|  | Three Months Ended February 28, 2018 | 2017 | $ Change |
| --- | ---: | ---: | ---: |
| **Revenues** | **$-** | $- | $- |
| **Operating expenses** |  |  |  |
| Research and development |  |  |  |
| Stock-based compensation | **479,816** | 15,000 | 464,816 |
| Other research and development | **873,199** | 221,840 | 651,359 |
| Total research and development | **1,353,015** | 236,840 | 1,116,175 |
| General and administrative |  |  |  |
| Stock-based compensation | **743,580** | 814,620 | (71,040) |
| Other general and administrative | **1,430,874** | 431,654 | 999,220 |
| Total general and administrative | **2,174,454** | 1,246,274 | 928,180 |
| Depreciation and amortization | **86,160** | 107,049 | (20,889) |
| Foreign exchange loss (gain) | **21,042** | (15,285) | 36,327 |
| **Total operating expenses** | **3,634,671** | 1,574,878 | 2,059,793 |
| **Net loss** | **$(3,634,671)** | $(1,574,878) | $(2,059,793) |

### Fourth Quarter Ended February 28, 2018

Net loss for the three-month period ended February 28, 2018 increased $2.0 million to $3.6 million for the same period last year. The increase is primarily due to increased research and development costs of $1.1 million as well as increased general and administrative expenses of $0.9 million.

Research and development expenses for the three-month period ended February 28, 2018 amounted to $1.3 million, representing an increase of $1.1 million compared to the same period in fiscal 2017. The increase in research and development expenses was driven primarily by higher employee related expenses of $0.6 million, including $0.5 million of non-cash stock-based compensation expense, and $0.5 million of design, planning and engineering costs related to the expansion of our Terrebonne pilot plant.

General and administrative expenses for the three-month period ended February 28, 2018 increased $0.9 million to $2.1 million as compared to the same period in fiscal 2017. The increase was primarily due to higher employee related expenses of $0.9 million associated with the increased number of employees, and includes $0.7 million of non-cash stock-based compensation expense, offset by compensation expense of $0.8 million in the fourth quarter of 2017 related to the vesting of a performance-based award, as well as higher legal, consulting and accounting fees of $0.7 million related to the next phase of our commercialization, including listing fees on Nasdaq and costs associated with the Company’s compliance with Sarbanes-Oxley.

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The following table summarizes our operating results for the years ended February 28, 2018 and 2017.

|  | Years Ended February 28, 2018 | 2017 | $ Change |
| --- | ---: | ---: | ---: |
| **Revenues** | **$-** | $- | $- |
| **Operating expenses** |  |  |  |
| Research and development |  |  |  |
| Stock-based compensation | **3,601,336** | 62,269 | 3,539,067 |
| Other research and development | **3,093,442** | 1,392,171 | 1,701,271 |
| Total research and development | **6,694,778** | 1,454,440 | 5,240,338 |
| General and administrative |  |  |  |
| Stock-based compensation | **2,945,978** | 873,404 | 2,072,574 |
| Other general and administrative | **3,919,770** | 1,406,877 | 2,512,893 |
| Total general and administrative | **6,865,748** | 2,280,281 | 4,585,467 |
| Depreciation and amortization | **367,176** | 397,445 | (30,269) |
| Foreign exchange loss (gain) | **109,676** | (18,165) | 127,841 |
| **Total operating expenses** | **14,037,378** | 4,114,001 | 9,923,377 |
| **Net loss** | **$(14,037,378)** | $(4,114,001) | $(9,923,377) |

### Fiscal Year Ended February 28, 2018

Net loss for the year ended February 28, 2018 increased $9.9 million to $14.0 million for the same period in fiscal 2017. The increase is primarily explained by higher research and development expenses of $5.3 million and increased general and administrative expenses of $4.6 million.

Research and development expenses for year ended February 28, 2018 amounted to $6.7 million compared to $1.5 million for the same period last year, representing an increase of $5.2 million, or $1.7 million excluding stock-based compensation. The increase of $1.7 million was primarily driven by higher employee related expenses of $0.4 million as well as $1.2 million of design, planning and engineering costs related to the expansion of our Terrebonne Pilot Plant. The increase in non-cash stock-based compensation expense of $3.5 million included a non-recurring charge of $2.4 million corresponding to stock options that fully vested in the third quarter of 2018 as well as an increased expense of $1.1 million associated with grants which are expensed over the requisite vesting service period and relating to the additional number of employees.

General and administrative expenses for the year ended February 28, 2018 totaled $6.9 million compared to $2.3 million for the same period in fiscal 2017, representing an increase of $4.6 million, or $2.5 million excluding stock-based compensation. The increase of $2.5 million was primarily attributable to higher employee related expenses of $0.8 million as well as higher legal and accounting fees of $1.6 million related to the next phase of our commercialization, including listing fees on Nasdaq and costs associated with the Company’s compliance with Sarbanes-Oxley. The increase in non-cash stock-based compensation expense of $2.1 million was comprised of an expense of $0.9 million corresponding to stock options that fully vested in the third quarter of 2018 as well as non-cash stock-based compensation expense of $0.5 million for rendered services of the Company’s former CFO, and an increased expense of $1.5 million associated with grants which are expensed over the requisite vesting service period, partially offset by stock-based compensation expense of $0.8 million related to the vesting of a performance-based award in the fourth quarter of 2017.

### LIQUIDITY AND CAPITAL RESOURCES

At the current stage of its development, Loop is a pre-revenue company, and its ongoing operations being financed by raising new equity capital. To date, the Company has been successful in raising capital to finance its ongoing operations at successively higher valuations, reflecting investors’ belief in the potential for commercializing the Company’s branded resin and the progress made to date in implementing its business plans. As at February 28, 2018, the Company had cash on hand of $8.1 million.

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Management continues to be positive about its growth strategy and is evaluating its financing plans to continue to raise capital to finance the start-up of commercial operations and continue to fund the further development of its ongoing operations.

As reflected in the accompanying consolidated financial statements, the Company has not yet begun commercial operations and does not yet have a recurring source of revenue. During the year ended February 28, 2018, the Company incurred a net loss of $14.0 million and used cash in operations of $6.4 million, which raises substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.

### Flow of Funds

#### Summary of Cash Flows

A summary of cash flows for the years ended February 28, 2018 and 2017 was as follows:

|  | Years Ended February 28 2018 | 2017 |
| --- | ---: | ---: |
| Net cash used in operating activities | **$(6,391,486)** | $(2,833,490) |
| Net cash used in investing activities | **(2,798,372)** | (513,022) |
| Net cash provided by financing activities | **16,504,451** | 3,986,016 |
| Effect of exchange rate changes on cash | **(81,367)** | (145,603) |
| Net increase in cash | **$7,233,226** | $493,901 |

#### Net Cash Used in Operating Activities

During the year ended February 28, 2018, we used $6.4 million in operations compared to $2.8 million, the year prior. The increase is mainly due to increased operating expenses previously itemized as we move to the next phase of commercialization.

#### Net Cash Used in Investing Activities

During the year ended February 28, 2018, the Company made capital asset investments of $2.7 million, of which $2.2 million was related to the purchase of the land and building housing the Company’s pilot plant and executive offices in Terrebonne, Canada and $0.5 million in connection with the expansion of our pilot plant. We also invested $0.1 million in our intellectual property.

#### Net Cash Provided by Financing Activities

During the year ended February 28, 2018, we raised $15.7 million through the sale of additional common stock and the exercise of warrants. We also entered into a loan agreement with a bank for the purchase of land and the building amounting to $1.1 million.

### OFF-BALANCE SHEET ARRANGEMENTS

As at February 28, 2018, 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 US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent 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. Those estimates and assumptions include estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of recorded intangible assets, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and other stock instruments.

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#### Stock-Based Compensation

We periodically issue warrants to employees and non-employees in non-capital raising transactions for services and financing costs. We account for warrants granted to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) wherein the fair value of the award is measured on the grant date and where there are not performance conditions, recognized as compensation expense on the straight-line basis over the vesting period and where performance conditions exist, recognize compensation expense when it becomes probable that the performance condition has been met.

We account for warrants granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock-based compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance.

The fair value of our warrant grants is determined 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.

#### Foreign Currency Translations and Transactions

The accompanying consolidated financial statements are presented in U.S. dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into U.S. dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. As a result, foreign currency exchange fluctuations may impact revenue and operating expenses. The Company currently has not engaged in any currency hedging activities.

The following table summarizes the exchange rates used:

|  | Years Ended February 28, 2018 | 2017 |
| --- | ---: | ---: |
| Period end Canadian $: US Dollar exchange rate | **$0.78** | $0.75 |
| Average period Canadian $: US Dollar exchange rate | **$0.78** | $0.76 |

Expenditures are translated at the average exchange rate for the period presented.

See Notes to the consolidated financial statements included elsewhere in this Form 10-K for management’s discussion of recently issued accounting pronouncements.

## Market risk

As filed, 299 characters.

Pursuant to SEC Release No. 33-8876, we are permitted to use the scaled disclosure requirements applicable to a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, and therefore, we are not required to provide the information called for by this Item.

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## Controls and procedures

As filed, 8,237 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 at 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.

As a result of the material weakness described below in connection with stock-based compensation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not effective as at February 28, 2018.

### Management’s Annual Report on 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, 2018.

In connection with our prior year assessment of the effectiveness of internal control over financial reporting as at February 28, 2017, we concluded that there were material weaknesses associated with financial reporting within the Company. These material weaknesses related primarily to the lack of formalized processes and procedures, as well as technical expertise, around financial reporting under US GAAP.

In light of this, during the past year, management has taken steps to towards remediating a number of the issues that contributed to these material weaknesses, including the following:

- appointed additional independent members with public company board experience to our board of directors;
- established an audit committee;
- outsourced to third party consultants the resolution of more complex US GAAP accounting matters;
- hired a General Counsel to the management team;
- hired a Chief Financial Officer with public company experience;
- added staff to our finance team;
- engaged a third-party Sarbanes-Oxley consultant to assist in addressing internal control and process gaps;
- designed, documented and tested the operating effectiveness of internal controls over the key processes within financial reporting; and
- developed, implemented and communicated a series of corporate policies, including the Whistle-Blower Policy, Insider Trading Policy, Global Anti-Corruption Policy and Related Party Transaction Policy.

As a result of the actions noted above, the material weaknesses identified as part of our fiscal 2017 assessment had largely been remediated.

However, in the third quarter of fiscal 2018, we identified an error relating to the accounting for stock-based compensation, which resulted in the restatement of our previously issued 2017 audited consolidated financial statements and a restatement of our first and second quarter of fiscal 2018. As a result of these restatements, we concluded that, despite our significant remediation efforts, we continue to have a material weakness pertaining specifically to the accounting for stock-based compensation.

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We have developed and our executing on our plan to remediate our material weakness in connection with the accounting for stock-based compensation, by expanding our in-house expertise on accounting for stock-based compensation, as well as continuing to consult with external third parties on more complex stock-based compensation arrangements. This process commenced during the fourth quarter.

As at February 28, 2018, management assessed the effectiveness of our internal control over financial reporting. As a result of the material weakness in connection with the accounting for stock-based compensation, our principal executive officer and principal financial officer concluded that the Company did not maintain effective internal controls over financial reporting as at February 28, 2018. Notwithstanding this material weakness in our internal controls over financial reporting as at February 28, 2018, management has concluded that the consolidated financial statements and notes to the consolidated financial statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

### Changes in Internal Control over Financial Reporting

Changes in internal controls over financial reporting have been reported in the section “Management’s Annual Report on Internal Control Over Financial Reporting” and include the implementation and formalization of certain controls in respect of financial reporting, as well as adding individuals with experience in public company financial reporting to management and our Board of Directors, and the establishment of an Audit Committee. These changes were made in response to the material weaknesses in internal control over financial reporting described above.

With the exception of the material weakness identified, there were no other changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

### 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 14, 2018.
Source: SEC EDGAR, the filing index for accession 0001477932-18-002417. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.