# Loop Industries, Inc.: Form 10-Q for the period ended May 31, 2018 - Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678) - Form: 10-Q - Filed: 2018-07-03 - Accepted by EDGAR: Jul 3, 2018, 12:01 ET - Period: 2018-05-31 - Accession: 0001477932-18-003324 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793218003324/llpp_10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793218003324/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2018-05-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Research and development | 3 months, 2018-03-01 to 2018-05-31 | $1.1m | us-gaap:ResearchAndDevelopmentExpense | | Interest expense | 3 months, 2018-03-01 to 2018-05-31 | $12.9k | us-gaap:InterestExpense | | Net income | 3 months, 2018-03-01 to 2018-05-31 | −$3.5m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2018-03-01 to 2018-05-31 | −$0.11 | us-gaap:EarningsPerShareBasicAndDiluted | | Operating cash flow | 3 months, 2018-03-01 to 2018-05-31 | −$2.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2018-03-01 to 2018-05-31 | $586.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2018-05-31 | $5.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2018-05-31 | $5.9m | us-gaap:AssetsCurrent | | Total assets | at 2018-05-31 | $11.1m | us-gaap:Assets | | Current liabilities | at 2018-05-31 | $2.2m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2018-05-31 | $3.2m | us-gaap:Liabilities | | Long-term debt | at 2018-05-31 | $1.0m | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2018-05-31 | $54.1k | us-gaap:LongTermDebtCurrent | | Shareholders' equity | at 2018-05-31 | $7.9m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 12,886 characters. *The following information and any forward-looking statements should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, including those risks identified in the “Risk Factors” section of our most recent Annual Report on Form 10-K.* ### CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company”, “we”, “Loop” or “our”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, ability to improve and expand our capabilities, competition, expected activities and expenditures as we pursue our business plan, the adequacy of our available cash resources, regulatory compliance, plans for future growth and future operations, the size of our addressable market, market trends, and the effectiveness of the Company’s internal control over financial reporting. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) commercialization of our technology and products, (ii) development and protection of our intellectual property and products, (iii) our need for and ability to obtain additional financing, (iv) industry competition, (v) regulatory and other legal compliance, (vi) the exercise of the control over us by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, (vii) other factors over which we have little or no control, (viii) our ability to remedy our material weaknesses in internal control over financial reporting, (ix) our ability to continue as a going concern, (x) whether the reassessment of our internal controls over financial reporting could lead us to conclude that there were deficiencies in its internal control over financial reporting that constitute material weaknesses, (xi) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting issues and practices, rumors or otherwise and (xii) other factors discussed in our subsequent filings with the SEC. Management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. 4 #### Table of Contents In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as at the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as at the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. ### Introduction Loop Industries, Inc. (“Loop”, “our”) 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. ### 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 completed the expansion of our pilot plant to increase its capacity and demonstrate continuous operations and we also announced the successful activation of our breakthrough Generation II and the world’s first integrated waste to Loop™ PET resin manufacturing technology concept as we move into 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. 5 #### Table of Contents ### Results of Operations The following table summarizes our operating results for the three months ended May 31, 2018 and 2017. | | Three Months Ended May 31, 2018 | 2017 | $ Change | | --- | ---: | ---: | ---: | | **Revenues** | **$-** | $- | $- | | **Operating expenses** | | | | | Research and development | | | | | Stock-based compensation | **410,213** | 13,635 | 396,578 | | Other research and development | **655,866** | 482,903 | 172,963 | | Total research and development | **1,066,079** | 496,538 | 569,541 | | General and administrative | | | | | Stock-based compensation | **775,456** | 208,870 | 566,586 | | Other general and administrative | **1,580,094** | 680,710 | 899,384 | | Total general and administrative | **2,355,550** | 889,580 | 1,465,970 | | Depreciation and amortization | **101,069** | 90,487 | 10,582 | | Interest expense | **12,913** | - | 12,913 | | Foreign exchange (gain) loss | **(6,081)** | 46,485 | (52,566) | | **Total operating expenses** | **3,529,530** | 1,523,090 | 2,006,440 | | **Net loss** | **$(3,529,530)** | $(1,523,090) | $(2,006,440) | ### First Quarter Ended May 31, 2018 Net loss for the three months ended May 31, 2018 increased $2.0 million to $3.5 million compared to the same period last year, primarily due to increased research and development costs of $0.6 million as well as increased general and administrative expenses of $1.5 million. Research and development expenses for the three months ended May 31, 2018 amounted to $1.1 million, representing an increase of $0.6 million compared to the same period in fiscal 2017. The increase in research and development expenses was driven primarily by higher non-cash stock-based compensation expense of $0.4 million and higher compensation expense of $0.2 million resulting from the increased number of employees. General and administrative expenses for the three months ended May 31, 2018 increased $1.5 million to $2.4 million as compared to the same period in fiscal 2017. The increase was primarily due to higher employee related expenses of $0.6 million, comprised mainly of non-cash stock-based compensation expense, in addition to higher legal fees related to legal proceedings and commercialization efforts, and consulting and accounting fees of $0.8 million. ### LIQUIDITY AND CAPITAL RESOURCES ### Liquidity and Going Concern Assumption At the current stage of its development, Loop is a pre-revenue company, and its ongoing operations are 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 May 31, 2018, the Company had cash on hand of $5.4 million. 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. 6 #### Table of Contents 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. Since inception, the Company has accumulated a deficit of $24.8 million and during the three months ended May 31, 2018, the Company incurred a net loss of $3.5 million and used cash in operations of $2.2 million, which raises substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. ### Flow of Funds #### Summary of Cash Flows A summary of cash flows for the three months ended May 31, 2018 and 2017 was as follows: | | Three Months Ended May 31, 2018 | 2017 | | --- | ---: | ---: | | Net cash used in operating activities | **$(2,171,061)** | $(983,769) | | Net cash used in investing activities | **(592,316)** | (55,453) | | Net cash (used) provided by financing activities | **(13,514)** | 5,618,716 | | Effect of exchange rate changes on cash | **(17,807)** | 39,039 | | Net (decrease) increase in cash | **$(2,794,698)** | $4,618,533 | #### Net Cash Used in Operating Activities During the three months ended May 31, 2018, we used $2.2 million in operations compared to $1.0 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 three months ended May 31, 2018, the Company made capital asset investments of $0.6 million, primarily in connection with the expansion of our pilot plant. #### Net Cash (Used) Provided by Financing Activities During the three months ended May 31, 2018, we repaid $14 thousand of our long-term debt. During the three months ended May 31, 2017, we raised $5.9 million through the sale of additional common stock and the exercise of warrants. ### Off-Balance Sheet Arrangements As at May 31, 2018, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. ## Market risk As filed, 4,703 characters. We are subject to risks associated with currency fluctuations and changes in foreign currency exchange rates as well as fluctuations in the supply and price of raw materials and commodity prices. ### Foreign Currency Exchange Risk 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. 7 #### Table of Contents 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. ### Commodity Price Risk 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. 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. ### Raw Material Price Risk 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. ## Controls and procedures As filed, 1,816 characters. ### Management’s Evaluation of our Disclosure Controls and Procedures ### A. Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. As a result of the material weakness disclosed in our Annual Report on Form 10-K, filed on May 14, 2018 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 and internal controls over financial reporting were not effective as at May 31, 2018. During the quarter, we continued to work on our remediation plan, however we could not perform remediation testing as that there were no warrants granted during the period. ### B. Changes in Internal Control over Financial Reporting There were no other changes in our internal control over financial reporting during our most recent quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting. 8 #### Table of Contents ## Risk factors As filed, 300 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, filed on May 14, 2018. No material changes to such risk factors have occurred during the three months ended May 31, 2018. Filed Jul 3, 2018. Source: SEC EDGAR, the filing index for accession 0001477932-18-003324. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.