# Loop Industries, Inc.: Form 10-Q for the period ended Aug 31, 2018

- Company: [Loop Industries, Inc.](/companies/loop.md) (CIK 1504678)
- Form: 10-Q
- Filed: 2018-10-10
- Accepted by EDGAR: Oct 10, 2018, 20:43 ET
- Period: 2018-08-31
- Accession: 0001477932-18-004789
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1504678/000147793218004789/loop_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1504678/000147793218004789/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-08-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2018-06-01 to 2018-08-31 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2018-03-01 to 2018-08-31 | $2.1m | us-gaap:ResearchAndDevelopmentExpense |
| Interest expense | 3 months, 2018-06-01 to 2018-08-31 | $13.3k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2018-03-01 to 2018-08-31 | $26.2k | us-gaap:InterestExpense |
| Net income | 3 months, 2018-06-01 to 2018-08-31 | −$3.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2018-03-01 to 2018-08-31 | −$7.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-06-01 to 2018-08-31 | −$0.10 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2018-03-01 to 2018-08-31 | −$0.21 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2018-03-01 to 2018-08-31 | −$3.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2018-03-01 to 2018-08-31 | $1.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-08-31 | $2.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-08-31 | $3.4m | us-gaap:AssetsCurrent |
| Total assets | at 2018-08-31 | $8.9m | us-gaap:Assets |
| Current liabilities | at 2018-08-31 | $2.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-08-31 | $3.6m | us-gaap:Liabilities |
| Long-term debt | at 2018-08-31 | $987.5k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-08-31 | $53.6k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-08-31 | $5.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,606 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) status of our relationships with partners, including with IVL, (iii) development and protection of our intellectual property and products, (iv) our need for and ability to obtain additional financing, (v) industry competition, (vi) regulatory and other legal compliance, (vii) 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, (viii) other factors over which we have little or no control, (ix) our ability to remedy our material weaknesses in internal control over financial reporting, (x) our ability to continue as a going concern and raise funds sufficiency to support our ongoing operations, (xi) 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, (xii) 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 (xiii) 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.

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.

Investors and others should note that we announce material financial information to our investors using our investor relations web site (http://www.loopindustries.com/en/investors/home), SEC filings, press releases, public conference calls and webcasts. We use these channels, as well as social media, to communicate with our members and the public about our company, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the United States ("U.S.") social media channels listed on our investor relations web site.

### 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.

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

The annual global demand for polyester is estimated at 70 million metric tons (approximately 154 billion pounds) and is expected to grow 4% annually in the near term. This represents a total addressable market of approximately $130 billion today, with near term attractive growth rates. We expect to help address this demand by commercializing our science and technology in collaboration with multinational supply chain management and manufacturing companies and to manufacture Loop™ branded PET resin.

During the last three years, we believe 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 and completed the expansion of our pilot plant to increase its capacity and demonstrate continuous operations.

In June 2018, we activated our breakthrough Generation II technology that we believe is significantly more streamlined and efficient with reduced energy use that eliminates water in the production of dimethyl terephthalate. We also engaged engineering partners to complete the design of the world’s first integrated waste-to-Loop™ PET resin manufacturing facility to upcycle waste PET and polyester fiber into virgin quality Loop PET resin and polyester fiber. These new world-class manufacturing facilities will use our Generation II technology and production processes and provide what we believe to be a fully integrated start-to-finish process to commercialize our innovative science and technology.

In September 2018, we reached a significant milestone in our global commercialization plan when we announced the creation of a joint-venture with Indorama Ventures Public Company Limited (IVL) to manufacture and commercialize sustainable polyester resin to meet the growing global demand from beverage and consumer packaged goods companies. This joint-venture brings together IVL’s world-class manufacturing footprint and our proprietary science and technology with a goal of becoming a reliable world leader in the circular economy for sustainable and recycled PET resin and polyester fiber. The 50:50 joint-venture has an exclusive world-wide license to use our technology to retrofit existing facilities to produce sustainably produced PET resin and polyester fiber with plans to begin commercial production in the first quarter of 2020. We expect that production from the facility will be fully subscribed by leading global consumer brands. This partnership is a key strategic step in our global commercialization plan and is focused on retrofitting existing Polyester and PET manufacturing facilities.

Our goal is to negotiate take-or-pay 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.

### Results of Operations

The following table summarizes our operating results for the three months ended August 31, 2018 and 2017.

|  | Three Months Ended August 31, 2018 | 2017 | $ Change |
| --- | ---: | ---: | ---: |
| **Revenues** | **$-** | $- | $- |
| **Operating expenses** |  |  |  |
| Research and development |  |  |  |
| Stock-based compensation | **250,242** | 208,450 | 41,792 |
| Other research and development | **816,050** | 742,325 | 73,725 |
| Total research and development | **1,066,292** | 950,775 | 115,517 |
| General and administrative |  |  |  |
| Stock-based compensation | **755,228** | 489,419 | 265,809 |
| Other general and administrative | **1,639,170** | 592,215 | 1,046,955 |
| Total general and administrative | **2,394,398** | 1,081,634 | 1,312,764 |
| Depreciation and amortization | **110,589** | 91,774 | 18,815 |
| Interest expense | **13,321** | - | 13,321 |
| Foreign exchange (gain) loss | **(46,190)** | 52,529 | (98,719) |
| **Total operating expenses** | **3,538,410** | 2,176,712 | 1,361,698 |
| **Net loss** | **$(3,538,410)** | $(2,176,712) | $(1,361,698) |

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Net loss for the three months ended August 31, 2018 increased $1.4 million to $3.5 million compared to the same period last year, primarily due to increased general and administrative expenses of $1.3 million.

Research and development expenses remained relatively stable and amounted to $1.1 million and $1.0 million for the three months ended August 31, 2018 and 2017, respectively.

General and administrative expenses for the three months ended August 31, 2018 increased $1.3 million to $2.4 million as compared to the same period last year. The increase was primarily due to higher employee related expenses of $0.8 million resulting from the increased number of employees as well as a retroactive compensation adjustment associated with the amended employment agreement of the Company’s CEO and higher non-cash stock-based compensation expense, in addition to higher legal fees related to commercialization efforts, and consulting and accounting fees of $0.5 million.

The following table summarizes our operating results for the six months ended August 31, 2018 and 2017.

|  | Six Months Ended August 31, 2018 | 2017 | $ Change |
| --- | ---: | ---: | ---: |
| **Revenues** | **$-** | $- | $- |
| **Operating expenses** |  |  |  |
| Research and development |  |  |  |
| Stock-based compensation | **660,455** | 222,085 | 438,370 |
| Other research and development | **1,471,916** | 1,225,224 | 246,692 |
| Total research and development | **2,132,371** | 1,447,309 | 685,062 |
| General and administrative |  |  |  |
| Stock-based compensation | **1,530,684** | 698,289 | 832,395 |
| Other general and administrative | **3,219,264** | 1,272,927 | 1,946,337 |
| Total general and administrative | **4,749,948** | 1,971,216 | 2,778,732 |
| Depreciation and amortization | **211,658** | 182,261 | 29,397 |
| Interest expense | **26,234** | - | 26,234 |
| Foreign exchange (gain) loss | **(52,271)** | 98,268 | (150,539) |
| **Total operating expenses** | **7,067,940** | 3,699,054 | 3,368,886 |
| **Net loss** | **$(7,067,940)** | $(3,699,054) | $(3,386,886) |

Net loss for the six months ended August 31, 2018 increased $3.4 million to $7.1 million compared to the same period last year, primarily due to increased research and development costs of $0.7 million as well as increased general and administrative expenses of $2.8 million.

Research and development expenses for the six months ended August 31, 2018 increased $0.7 million to $2.1 million compared to the same period last year. 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 $0.1 million resulting from the increased number of employees.

General and administrative expenses for the six months ended August 31, 2018 increased $2.8 million to $4.7 million as compared to the same period last year. The increase was primarily due to higher employee related expenses of $1.3 million, comprised mainly of non-cash stock-based compensation expense as well as higher compensation expense related to the increased number of employees and a retroactive compensation adjustment associated with the amended employment agreement of the Company’s CEO. Other elements explaining the increase include higher legal fees related to legal proceedings and commercialization efforts, and consulting, accounting and public company related fees of $1.3 million.

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### LIQUIDITY AND CAPITAL RESOURCES

### Liquidity and Going Concern Assumption

At the current stage of our development, we are a pre-revenue company, and our ongoing operations are being financed by raising new outside capital. As at August 31, 2018, we had cash on hand of $2.9 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.

As reflected in the accompanying consolidated financial statements, we have not yet begun commercial operations and do not yet have a recurring source of revenue. Since inception, we have accumulated a deficit of $28.3 million and during the six months ended August 31, 2018, we incurred a net loss of $7.1 million and used cash in operations of $3.9 million, which raises substantial doubt about our 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 us.

### Flow of Funds

#### Summary of Cash Flows

A summary of cash flows for the six months ended August 31, 2018 and 2017 was as follows:

|  | Six Months Ended August 31, 2018 | 2017 |
| --- | ---: | ---: |
| Net cash used in operating activities | **$(3,908,623)** | $(2,269,615) |
| Net cash used in investing activities | **(1,104,970)** | (168,002) |
| Net cash (used) provided by financing activities | **(26,808)** | 6,844,372 |
| Effect of exchange rate changes on cash | **(191,846)** | 60,409 |
| Net (decrease) increase in cash | **$(5,232,247)** | $4,467,164 |

#### Net Cash Used in Operating Activities

During the six months ended August 31, 2018, we used $3.9 million in operations compared to $2.3 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 six months ended August 31, 2018, the Company made capital asset investments of $1.1 million, primarily in connection with the expansion of our pilot plant.

#### Net Cash (Used) Provided by Financing Activities

During the six months ended August 31, 2018, we repaid $27 thousand of our long-term debt. During the six months ended August 31, 2017, we raised $6.8 million through the sale of additional common stock and the exercise of warrants.

### Off-Balance Sheet Arrangements

As at August 31, 2018, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

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## Market risk

As filed, 2,645 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.

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.

## Controls and procedures

As filed, 1,993 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.

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 effective as at August 31, 2018. During the quarter, we completed the remediation of our previously reported material weakness disclosed in our Annual Report on Form 10-K, filed on May 14, 2018, and in our Quarterly report on Form 10-Q, filed on July 3, 2018. The material weakness related to our accounting for stock-based compensation. Management has expanded its in-house expertise on accounting for stock-based compensation, as well as engaged an external advisor to advise on more complex stock-based compensation arrangements.

### 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.

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## Risk factors

As filed, 1,458 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 and below. Other than as set forth below, no material changes to such risk factors have occurred during the six months ended August 31, 2018.

Although our financial statements have been prepared on a going concern basis, we must raise additional capital to fund our operations in order to continue as a going concern.

Our consolidated financial statements for the quarter ended August 31, 2018 includes going concern disclosures, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.

In order to have sufficient cash to fund our operations, we will need to raise additional equity or debt capital in order to continue as a going concern and we cannot provide any assurance that we will be successful in doing so.

Filed Oct 10, 2018.
Source: SEC EDGAR, the filing index for accession 0001477932-18-004789. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.