Loop Industries, Inc. - FORM 10-K/A

Attached files

file	filename
EX-32.2 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Loop Industries, Inc.	lp_ex322.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Loop Industries, Inc.	lp_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Loop Industries, Inc.	lp_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Loop Industries, Inc.	lp_ex311.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1 to Form 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended February 29, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission File No. 000-54768

Loop Industries, Inc.

(Exact name of Registrant as specified in its charter)

Nevada		27-2094706
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

480 Fernand-Poitras Terrebonne, Québec, Canada J6Y 1Y4

(Address of principal executive offices zip code)

Registrant’s telephone number, including area code (450) 951-8555

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LOOP	Nasdaq Global Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As at August 31, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common stock held by non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $230,397,389. As at April 30, 2020, there were 39,916,905 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.

Documents incorporated by reference:

Items 10, 11, 12 (as to security ownership of certain beneficial owners and management), 13 and 14 of Part III shall be incorporated by reference information from the registrant's proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant's 2020 Annual Meeting of Stockholders.

EXPLANATORY NOTE

Loop Industries, Inc. (the “Company,” “Loop,” “we” or “us”) is filing this Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to its Annual Report on Form 10-K for the fiscal year ended February 29, 2020, originally filed with the Securities and Exchange Commission (the “SEC”) on May 4, 2020 (“Original Filing”), to correct an inadvertent reference to going concern included in the Liquidity Section of Item 7, which was included in error (the “Error”). Management believes that the Company has sufficient financial resources to fund planned operating and capital expenditures and other working capital needs for at least, but not limited to, the 12-month period from the date of issuance of the February 29, 2020 consolidated financial statements.

Items Amended in this Form 10-K/A

Only the following items from the Original Filing have been amended and included below to correct the Error described above. Otherwise the remainder of the Original Filing remains unchanged.

A. Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, solely to delete the Error as described above.

B. Part III, Item 15. Exhibits and Financial Statement Schedules, solely to update the requisite certifications required by sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from our Chief Executive Officer and Chief Financial Officer, dated as of the filing date of this Form 10-K/A

This Amendment continues to speak as of the filing date of the Original Filing, does not reflect events that may have occurred subsequent to that date, and does not modify or update any related disclosures made in the Original Filing.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Industries is a technology company whose mission is to accelerate the world's shift toward sustainable PET plastic and polyester fiber and away from our dependence on fossil fuels. Loop Industries owns patented and proprietary technology that depolymerizes no- and low-value waste PET plastic and polyester fiber, including bottles, packaging, carpets, and other textiles of any color, transparency or condition, including waste PET plastic recovered from the ocean that has been degraded by the sun and salt, to its base building blocks (monomers). The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging, and polyester fiber, thus enabling our customers to meet their sustainability objectives. Loop Industries is contributing to the global movement towards a circular economy by preventing plastic waste and recovering waste plastic for a more sustainable future for all.

Plan of Operation

We plan to continue 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, Québec, Canada will continue to push forward the development of our technology. We are investing in building a strong management team to integrate best in class processes and practices while maintaining our entrepreneurial culture.

During the year ended February 29, 2020, we continued executing our corporate strategy where Loop Industries focused on developing distinct business models for the commercialization of Loop™ PET resin and polyester fiber to customers: 1) from our joint venture with Indorama, and 2) from our Infinite Loop™ greenfield facilities. We are continuing to develop the engineering of the Infinite Loop™ platform and we have increased our focus on the development of Infinite Loop™ projects in Europe and in North America.

In September of 2018, in connection with one of our business models, we announced a joint venture with Indorama to retrofit their existing PET manufacturing facilities. The joint venture was formed to manufacture and commercialize sustainable Loop™ PET resin and polyester fiber to meet the growing global demand from beverage and consumer packaged goods companies. The joint venture agreement details the establishment of an initial 20,700 metric tons per year facility in Spartanburg, South Carolina.

Following the decision of the joint venture with Indorama to double the capacity of the planned Spartanburg plant due to customer demand to 40,000 metric tons per year as disclosed in our 10-Q for the period ended August 31, 2019, we identified a number of enhancements to the plant design to improve the operability and lower the total construction cost of the plant. We have currently contracted for the sale of the initial 20,700 metric tons expected output of the Spartanburg facility and we continue discussions to contract the additional volume up to its planned increased capacity of 40,000 metric tons.

As part of the joint venture agreement to establish the facility to produce 40,000 metric tons, we are committed to contribute its equity share for the costs under the joint venture agreement to construct the facility. As at April 30, 2020, we have contributed $1,500,000 to the joint venture.

On March 25, 2020, due to the COVID-19 pandemic, the Québec provincial government issued an order that all non-essential business and commercial activity in the province is required to shut down until April 13 and the order provides exemptions that allow us to continue reduced operations at the pilot plant and we have been continuing work with our joint venture partner, Indorama, and our engineering partner, to oversee the engineering for the Spartanburg joint venture facility and pursue our plans for the commercialization of our technology. We have made arrangements for certain employees to work remotely to support these engineering activities. The government has recently announced that we can re-start complete operations on May 11.

The Québec provincial government order has not significantly impacted our ability to work to advance this project to date and the commercialization plan for commissioning of the planned Spartanburg facility is currently unchanged. However, the planned timing may potentially be affected by the COVID-19 pandemic. We are monitoring the potential impact of the pandemic on the global economy and capital markets, as well as on the operations of our partners who are critical to achieving the anticipated commissioning date of the facility scheduled for the third quarter of the calendar year 2021. Both Loop Industries and our partners are fully committed to the joint venture and are working diligently on the commercialization plan.

We, through our wholly-owned subsidiary Loop Innovations, LLC, a Delaware limited liability company, entered into a Joint Venture Agreement (the “Agreement”), as stated above, with Indorama, to manufacture and commercialize sustainable PET resin and polyester fiber to meet the growing global demand from beverage and consumer packaged goods companies. Each company has 50/50 equity interest in Indorama Loop Technologies, LLC (“ILT”), which was specifically formed to operate and execute the joint venture.

This partnership brings together Indorama’s manufacturing footprint and Loop Industries’ proprietary science and technology to become a supplier in the ‘circular’ economy for 100% sustainable and recycled PET resin and polyester fiber.

We are contributing to the 50/50 joint venture an exclusive world-wide royalty-free license to use its proprietary technology to produce 100% sustainably produced PET resin and polyester fiber in addition to its equity cash contribution.

To drive our Infinite Loop™ business model, which is a key pillar of our commercialization blueprint, we intend to partner with PET polymerization technology providers and EPC companies (Engineering, Procurement, Construction). As Loop Industries’ technology is agnostic to PET polymerization technology, we are also exploring other partners that provide PET polymerization technology to help us commercialize our Infinite Loop™ solution—a fully integrated and reimagined manufacturing facility for sustainable Loop™ PET resin and polyester fiber.

We believe the Infinite Loop™ solution will result in a highly scalable model to supply the global demand for 100% sustainable Loop™ PET resin and polyester fiber, allowing us to rapidly penetrate and transform the plastic market and fully capitalize on our disruptive potential to be the leader in the circular economy for PET plastic. This also fundamentally changes where and how PET resin production occurs—no longer does PET resin production need to be bound to fossil fuels and fossil fuel infrastructure. Infinite Loop™ facilities could be located near large urban centers where feedstock is located, and transportation and logistics costs could be significantly reduced as the distance between feedstock, manufacturing and customer use is collapsed.

We believe the proposition for those seeking a turnkey solution to manufacture Loop™ PET resin and polyester fiber, such as chemical companies, waste managers, existing recyclers and even consumer good companies around the world is compelling. We further believe that once the first facilities are operational it may create the possibility of licensing the technology to create a recurring revenue stream for us while expanding the capacity of Loop™ PET resin and polyester fiber in the marketplace to meet the substantial demand from consumer goods companies.

Consumer brands are seeking a solution to their plastic challenge, and they are taking bold action. In the past year, we have seen major brands make significant commitments to close the loop on their plastic packaging in two ways, by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging. We believe Loop™ PET resin and polyester fiber provides the ideal solution for these brands because Loop™ PET resin and polyester fiber contains 100% recycled PET and polyester fiber content. The Loop™ PET resin and polyester fiber is virgin quality suitable for use in food-grade packaging. That means consumer packaged goods companies can now market packaging made from a 100% Loop™ branded PET resin and polyester fiber.

Loop Industries believes that due to the commitments by large global consumer brands to incorporate more recycled content into their product packaging, the regulatory requirements for minimum recycled content in packaging imposed by governments, the virgin-like quality of Loop™ branded PET and the marketability of Loop™ PET to extoll the sustainability credentials of consumer brands that incorporate Loop™ PET, it will be able to sell its Loop™ branded PET at a premium price relative to virgin and mechanically recycled PET.

Results of Operations

Fourth Quarter Ended February 29, 2020

The following table summarizes our operating results for the three-month periods ended February 29, 2020 and February 28, 2019, in U.S. Dollars.

	Three Months Ended
	February 29, 2020	February 28, 2019	$ Change
Revenues	$-	$	$-

Expenses
Research and development
Stock-based compensation	311,253	250,251	61,002
Other research and development	1,159,676	273,815	885,861
Total research and development	1,470,929	524,066	946,863

General and administrative
Stock-based compensation	547,327	575,240	(27,913)
Legal settlement	-	4,041,627	(4,041,627)
Other general and administrative	1,221,037	1,514,203	(293,166)
Total general and administrative	1,768,364	6,131,070	(4,362,706)

Depreciation and amortization	245,065	136,285	108,780
Impairment of intangible assets	-	298,694	(298,694)
Interest and other finance costs	406,215	425,964	(19,749)
Interest income	(136,913)	-	(136,913)
Foreign exchange loss (gain)	4,303	38,632	(34,329)
Total expenses	3,757,963	7,554,711	(3,796,748)
Net loss	$(3,757,963)	(7,554,711)	$3,796,748

The net loss for the three-month period ended February 29, 2020 decreased $3.80 million to $3.76 million, as compared to the net loss for the three-month period ended February 28, 2019 which was $7.55 million. The decrease is primarily due to decreased general and administrative expenses of $4.36 million, a decrease in impairment of intangible assets of $0.30 million, an increase in interest income of $0.14 million, partially offset by higher research and development expenses of $0.95 million and by higher depreciation and amortization of $0.11 million.

Research and development expenses for the three-month period ended February 29, 2020 amounted to $1.47 million compared to $0.52 million for the three-month period ended February 28, 2019, representing an increase of $0.95 million, or $0.89 million excluding stock-based compensation. The increase of $0.89 million was primarily attributable to higher employee related expenses of $0.63 million, higher spending for purchases and consumables of $0.15 million and higher professional fees of $0.06 million. The increase in non-cash stock-based compensation expense of $0.06 million is mainly attributable to the timing of certain stock awards provided to employees.

General and administrative expenses for the three-month period ended February 29, 2020 amounted to $1.77 million compared to $6.13 million for the three-month period ended February 28, 2019, representing a decrease of $4.36 million, or $0.29 million excluding stock-based compensation and the legal settlement. The decrease of $4.36 million was primarily due to a legal settlement expense which amounted to $4.04 million for the three-month period ended February 28, 2019 compared to nil for the three-month period ended February 29, 2020. Other variances were attributable to lower employee related expenses of $0.23 million, lower legal, accounting and other professional fees of $0.41 million offset by higher Directors’ and Officers’ insurance expenses of $0.24 million. Stock-based compensation expense for the three-month period ended February 29, 2020 amounted to $0.55 million compared to $0.58 million for the three-month period ended February 28, 2019, representing a decrease of $0.03 million. The decrease was mainly attributable to lower stock awards provided to executives.

Depreciation and amortization for the three-month period ended February 29, 2020 totaled $0.25 million compared to $0.14 million for the three-month period ended February 28, 2019, representing an increase of $0.11 million. The increase is mainly attributable to an increase in the amount of fixed assets held at our pilot plant and corporate offices. Impairment of intangible assets for the three-month period ended February 29, 2020 was nil compared to $0.30 million for the three-month period ended February 28, 2019, representing a decrease of $0.30 million. The increase is entirely attributable to the write-off of the remaining intangible asset balance of the GEN I technology of $0.30 million in the three-month period ended February 28, 2019.

Interest and other finance costs for the three-month period ended February 29, 2020 totaled $0.41 million compared to $0.43 for the three-month period ended February 28, 2019, representing a decrease of $0.02 million. The decrease is mainly attributable to a decrease in interest expense relating to the convertible notes converted during the year in the amount of $0.06 million offset by an increase in accretion expense also relating to the convertible notes converted during the year in the amount of $0.04 million.

Fiscal Year Ended February 29, 2020

The following table summarizes our operating results for the years ended February 29, 2020 and February 28, 2019, in U.S. Dollars.

	Years Ended
	February 29, 2020	February 28, 2019	$ Change
Revenues	$-	$-	$-

Expenses
Research and development
Stock-based compensation	1,252,394	1,160,254	92,140
Other research and development	3,464,781	2,288,293	1,176,488
Total research and development	4,717,175	3,448,547	1,268,628

General and administrative
Stock-based compensation	2,216,997	2,824,902	(607,905)
Legal settlement	-	4,041,627	(4,041,627)
Other general and administrative	4,998,423	5,986,336	(987,913)
Total general and administrative	7,215,420	12,852,865	(5,637,445)

Depreciation and amortization	830,432	502,996	327,436
Impairment of intangible assets	-	298,694	(298,694)
Interest and other finance costs	2,223,304	467,082	1,756,222
Interest income	(500,478)	-	(500,478)
Foreign exchange loss (gain)	19,602	(33,773)	53,375
Total expenses	14,505,455	17,536,411	(3,030,956)
Net loss	$(14,505,455)	(17,536,411)	3,030,956

The net loss for the year ended February 29, 2020 decreased by $3.03 million, to $14.51 million, as compared to the net loss for the year ended February 28, 2019 which was $17.54 million. The decrease is primarily explained by lower general and administrative expenses of $5.64 million, an increase in interest income of $0.50 million and a decrease of impairment of intangible assets of $0.30 million offset by an increase in research and development expenses of $1.27 million, an increase in interest and other finance costs of $1.76 million, an increase in depreciation and amortization of $0.33 million and an increase in foreign exchange of $0.05 million.

Research and development expenses for year ended February 29, 2020 amounted to $4.72 million compared to $3.45 million for the year ended February 28, 2019, representing an increase of $1.27 million, or $1.18 million excluding stock-based compensation. The increase of $1.18 million was primarily attributable to higher employee related expenses of $1.01 million, increased purchases and consumables of $0.21 million, higher travel costs of $0.06 and higher facilities costs of $0.05 offset by lower professional fees of $0.30 million. The increase in non-cash stock-based compensation expense of $0.09 million was attributable to the timing of certain stock awards provided to employees.

General and administrative expenses for the year ended February 29, 2020 totaled $7.22 million compared to $12.85 million for the year ended February 28, 2019, representing a decrease of $5.64 million, or $0.99 million excluding stock-based compensation and the legal settlement. The decrease of $5.64 million was primarily attributable to a legal settlement expense which amounted to nil for the year ended February 29, 2020 compared to $4.04 million for the year ended February 28, 2019. Other variances were attributable to lower legal fees of $2.04 million offset by higher Directors’ and Officers’ insurance expenses of $0.4 million, higher employee related expenses of $0.27 million as well as higher accounting and other professional fees of $0.27 million. Stock-based compensation expense for the year ended February 29, 2020 amounted to $2.22 million compared to $2.82 million for the year ended February 28, 2019, representing a decrease of $0.61 million. The decrease was mainly attributable to lower stock awards provided to executives.

Depreciation and amortization for the year ended February 29, 2020 totaled $0.83 million compared to $0.50 million for the year ended February 28, 2019, representing an increase of $0.33 million. The increase is mainly attributable to an increase in the amount of fixed assets held at our pilot plant and corporate offices. Impairment of intangible assets for the year ended February 29, 2020 was nil compared to $0.30 million for the year ended February 28, 2019, representing a decrease of $0.3 million. The decrease is mainly attributable to the write-off of the remaining intangible asset balance of the GEN I technology of $0.3 in the year ended February 28, 2019.

Interest and other finance costs for the year ended February 29, 2020 totaled $2.22 million compared to $0.47 million for the year ended February 28, 2019, representing an increase of $1.76 million. The increase is mainly attributable to an increase in accretion expense related to convertible notes of $1.76 million and increased interest expense also relating to the convertible notes issued during the year of $0.26 million offset by a gain on conversion related to the convertible notes of $0.23 million and a decreased expense for revaluation of financial instruments of $0.03 million.

LIQUIDITY AND CAPITAL RESOURCES

We are a development stage company with no revenues, and our ongoing operations and commercialization plans are being financed by raising new equity and debt capital. To date, we have been successful in raising capital to finance our ongoing operations, reflecting the potential for commercializing our branded resin and the progress made to date in implementing our business plans. As at February 29, 2020, we had cash and cash equivalents on hand of $33.72 million.

Although we continue to be in a good liquidity position with cash and cash equivalents on hand of $33.72 million, in light of the current global COVID-19 pandemic, our liquidity position may change, including the inability to raise new equity and debt, disruption in completing repayments or disbursements to our creditors. Management continues to be positive about our growth strategy and is evaluating our financing plans to continue to raise capital to finance the start-up of commercial operations and continue to fund the further development of our ongoing operations.

As reflected in the accompanying consolidated financial statements, we are a development stage company, we have not yet begun commercial operations and we do not have any sources of revenue. Management believes that the Company has sufficient financial resources to fund planned operating and capital expenditures and other working capital needs for at least, but not limited to, the 12-month period from the date of issuance of the February 29, 2020 consolidated financial statements. 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.

As at February 29, 2020, we have a long-term debt obligation to a Canadian bank in connection with the purchase, in the year ended February 28, 2018, of the land and building where our pilot plant and corporate offices are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the Company obtained a $1,042,520 (CDN$1,400,000) 20-year term instalment loan (the “Loan”), from a Canadian bank. The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of $4,344 (CDN$5,833) plus interest, until January 2021, at which time it will be subject to renewal. It includes an option allowing for the prepayment of the Loan without penalty.

We also have a long-term debt obligation to Investissement Québec in connection with a financing facility equal to 63.45% of all eligible expenses incurred for the expansion of its Pilot Plant up to a maximum of $3,425,423 (CDN$4,600,000). We received the first disbursement in the amount of $ 1,645,122 (CDN$2,209,234) on February 21, 2020. There is a 36-month moratorium on both capital and interest repayments as of the first disbursement date. At the end of the 36-month moratorium, capital and interest will be repayable in 84 monthly installments. The loan bears interest at 2.36%. We have also agreed to issue to Investissement Québec warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $342,542 (CDN$460,000). The warrants will be issued at a price per share equal to the higher of (i) $11.00 per share and (ii) the ten-day weighted average closing price of Loop Industries shares of common stock on the Nasdaq stock market for the 10 days prior to the issue of the warrants. The warrants can be exercised immediately upon grant and will have a term of three years from the date of issuance. The loan can be repaid at any time by us without penalty. On February 21, 2020, upon the receipt of the first disbursement under this facility, we issued a warrant to purchase 15,153 shares of common stock at a price of $11.00 to Investissement Québec.

Flow of Funds

Summary of Cash Flows

A summary of cash flows for the years ended February 29, 2020, and February 28, 2019 and 2018 was as follows:

	Years Ended
	February 29, 2020	February 28, 2019	February 28, 2018
Net cash used in operating activities	$(9,092,549)	$(7,562,487)	$(6,391,486)
Net cash used in investing activities	(3,388,985)	(2,046,119)	(2,798,372)
Net cash provided by financing activities	40,463,141	7,328,024	16,504,451
Effect of exchange rate changes on cash	(97,326)	(35,741)	(81,367)
Net change in cash	$27,884,281	$(2,316,323)	$7,233,226

Net Cash Used in Operating Activities

During the year ended February 29, 2020, we used $9.10 million in operations compared to $7.56 million during the year ended February 28, 2019 and $6.39 million during the year ended February 28, 2018. The increase over each year is mainly due to increased operating expenses as we move to the next phase of commercialization.

Net Cash Used in Investing Activities

During the year ended February 29, 2020, we used $3.39 million in investing activities. We made capital asset investments of $2.54 million of which $2.44 million was mainly attributable to the expansion and additions to our pilot plant and executive offices in Terrebonne, Canada. We also invested $0.1 million in our intellectual property as we developed, during the year ended February 29, 2020, our next generation GEN II technology and filed various patents in various jurisdictions around the world which await approval. During the year ended February 29, 2020 we made capital contributions to our joint venture with Indorama for a total of $0.85 million.

Net Cash Provided by Financing Activities

During the year ended February 29, 2020, we raised $40.46 million mainly through two separate registered direct offerings of common stock, in the net amounts of $34.60 million and $4.20 million, respectively. We also made payments totaling $0.05 million against our long-term debt, representing the loan agreement we entered into during the year ended February 28, 2018 to purchase the land and building of our pilot plant and executive offices. During the year ended February 28, 2019, we raised $7.38 million through the issuance of convertible debt and $15.69 million through the sale of additional common stock and the exercise of warrants in the year ended February 28, 2018.

During the year ended February 29, 2020, we paid a total of $312,000 in interest in connection with convertible notes (2019 – nil; 2018 – nil) that were converted during the year.

On February 21, 2020, we received $1,645,122 (CDN$2,209,234) in connection with the credit facility from Investissement Québec to finance capital expenses incurred for the expansion of our pilot plant. There is a 36-month moratorium on both capital and interest repayments beginning on the date of receipt of the funds.

On January 24, 2018, in connection with the purchase of land and the building, we obtained a credit facility from a Canadian bank in the amount of $1,042,520 (CDN$1,400,000). The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of $4,344 (CDN $5,833) plus interest, until January 2021, at which time it will be subject be renewal. It includes an option allowing for the prepayment of the Loan without penalty. Interest paid amounted to $56,482 during the year ended February 29, 2020 (2019 - $50,040; 2018 – 5,125). The credit facility is secured by a first ranking hypothec of Loop Canada Inc.’s bank accounts, receivables, inventory, incorporeal rights and property, plant and equipment. In addition, Loop Industries, Inc., Loop Canada Inc.’s parent company, has guaranteed the credit facility and has provided a postponement of any payments that may be made on intercompany loan amounts owed by Loop Canada Inc. to Loop Industries, Inc. The terms of the credit facility require that we comply with certain financial covenants. As at February 29, 2020 and February 28, 2019, we were in compliance with its financial covenants.

OFF-BALANCE SHEET ARRANGEMENTS

As at February 29, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

As at February 29, 2020, we did not have any significant lease obligations to third parties.

OUTLOOK

In connection with the upcoming fiscal year ending February 28, 2021, we will continue to monitor the potential impacts of COVID-19 on our business. We intend to continue to execute our corporate strategy. We believe we must execute on several areas of our operational strategic plan, namely:

●

Protecting our intellectual property;

●

Continuing to upgrade our pilot plant to ensure the highest quality of sustainable Loop™ PET resin and polyester fiber is produced at the facility;

●

Identifying and securing feedstock to ensure our facilities can operate continuously and efficiently;

●

With our joint venture with Indorama, complete the engineering work associated with the Spartanburg facility and proceed with construction;

●

Continuing to execute brand and other partnerships and/or commercial agreements with customers; and

●

Continuing to drive the development of our Infinite Loop™ solution, which we believe is a key pillar of our ambition to sell our technology to potential commercial partners.

Risks that may affect our ability to execute on this strategy include, but are not limited to, those listed under “Risk Factors” elsewhere in this Annual Report.

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 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 long-lived assets and intangibles, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and the fair value of convertible notes and related warrants.

Intangible assets

Intangible assets are recorded at cost and are amortized over their estimated useful lives, unless the useful life is indefinite, using the straight-line method over 7 years.

The Company reviews the carrying value of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of an intangible asset might not be recoverable, or a change in the remaining useful life of an intangible asset. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified. If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets. The Company’s estimate of fair value is based on the best information available, in the absence of quoted market prices. The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset. If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

Stock-Based Compensation

We periodically issue stock options and restricted stock units to employees and directors as part of their compensation. We account for stock options and restricted stock units granted to employees and directors 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 no 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.

The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant.

The fair value of our stock option 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.

Convertible notes

Distinguishing Liabilities from Equity Instruments Issued

The Company applies the guidance in ASC Topic 480 to determine the classification of financial instruments issued. The Company first determines if the instruments should be classified as liabilities under this guidance based on the redemption features, if mandatorily redeemable or not, and the method of redemption, if in cash, a variable number of shares or a fixed number of shares.

If the terms proved that an instrument is mandatorily redeemable in cash, or the holder can compel a settlement in cash, or will be settled in a variable number of shares predominantly based on a fixed monetary amount, the instrument is generally classified as a liability. Instruments that are settled by issuing a fixed number of shares are generally classified as equity instruments.

In some cases, the instruments issued contain settlement features that differ depending upon the prevailing price of the Company’s shares at the date of settlement. Depending on the share price, the instrument will be settled either in a manner consistent with ASC Topic 480 liability treatment, by issuing a variable number of shares based on a fixed monetary amount, or in a manner consistent with ASC Topic 480 treatment for an equity instrument, by issuing a fixed number of shares if the share price is above or below certain levels. In these cases, the Company assesses the likelihood of the various possible settlement outcomes at the inception of the instrument. The classification of the instrument is based on the outcome that is more likely than not to occur. Factors that the Company considers in evaluating the likelihood of the outcomes include:

●

The terms of the instrument, including its maturity date and the formula for adjustments to the range;

●

The volatility of the Company’s stock;

●

The relationship between the price of the Company’s stock on the inception date and fixed prices or ranges the low and high end of the original range; and

●

Historical and expected dividend levels.

When warrants or similar instruments are issued, the Company applies the guidance in ASC Topic 815 to determine if the warrants should be classified as equity instruments or as derivative instruments. Generally, warrants that are both indexed to the Company’s own stock and that would be classified as equity instruments are not classified as derivative instruments under this guidance. A key element to consider in determining if a warrant would be considered indexed to the Company’s own stock is if the warrants settlement amount is equal to the difference between the fair value of a fixed number of equity shares and a fixed monetary amount. This criterion is sometimes known as the “fixed-for fixed” criteria. In cases where the fixed for fixed criteria are not met, the warrants are classified as derivative instruments.

Convertible liabilities are also assessed to determine if they contain a beneficial conversion feature. A beneficial conversion feature (“BCF”) of a convertible note is normally characterized as the convertible portion feature that provides a rate of conversion that is below market value or “in-the-money” when issued. A BCF related to the issuance of a convertible note is recorded as equity at its intrinsic value at the issue date.

Initial measurement

Instruments are initially measured at fair value. If multiple instruments are issued together, the aggregate proceeds are allocated first to derivative instruments or any instrument that will be subsequently accounted for at fair value and the remainder is allocated to the various instruments based on their relative fair value.

Subsequent measurement

Instruments initially classified as liabilities are subsequently measured at the present value of the amount to be paid, either in cash or by issuing a variable number of shares based on a fixed monetary amount, and at settlement, accruing interest cost using the rate implicit at inception.

Derivative instruments are recorded at fair value at each reporting period and the variations in fair value are recorded in the consolidated statements of operations and comprehensive loss.

Deferred financing costs and other transaction costs

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These fees are amortized as a component of interest expense over the terms of the respective financing agreements, including convertible notes, on a straight-line basis. Unamortized deferred financing fees are expensed in full when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not be successful. Deferred financing fees are deducted from their related liabilities on the balance sheet.

Transaction costs associated with the equity portion of convertible notes are reflected as a charge to deficit or as a reduction of accumulated paid-in-capital. The cost of issuing equity is reflected as a reduction of accumulated paid-in-capital.

Foreign Currency Translations and Transactions

The accompanying consolidated financial statements are presented in U.S. dollars, the functional currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income and loss (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses.

For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI.

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.

The following table summarizes the exchange rates used:

	Years Ended
	February 29, 2020	February 28, 2019	February 28, 2018
Period end Canadian $: US Dollar exchange rate	$0.74	$0.76	$0.78
Average period Canadian $: US Dollar exchange rate	$0.75	$0.76	$0.78

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.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(1) Financial Statements

The response to this portion of Item 15 is set forth under Item 8 above.

(2) Financial Statement Schedules.

All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto set forth under Item 8 above.

(3) Exhibits.

The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.

Exhibit Index

			Incorporated by Reference
Number	Description	Form	File No.	Filing Date	Exhibit No.
2.1	Share Exchange Agreement, dated June 29, 2015, by and among First American Group Inc., Loop Holdings, Inc., and the stockholders of Loop Holdings, Inc.	8-K	000-54768	June 30, 2015	2.1
3.1	Articles of Incorporation, as amended to date	10-K	000-54768	May 30, 2017	3.1
3.2	By-laws, as amended to date	8-K	000-54768	April 10, 2018	3.1
4.1	Description of Securities	10-K	001-38301	May 8, 2019	4.1
4.2	Form of Amendment No. 1 to the January 15, 2019 Note Purchase Agreement, dated April 4, 2019.	8-K	001-38301	April 10, 2019	4.1
4.3	Form of Amendment to 2019 Warrant, dated April 4, 2019.	8-K	001-38301	April 10, 2019	4.2
4.4	Form of Amendment and Conversion Agreement, dated April 5, 2019.	8-K	001-38301	April 10, 2019	4.3
4.5	Form of Amendment to November 2018 Warrant, dated April 8, 2019.	8-K	001-38301	April 10, 2019	4.4
4.6	Form of Convertible Promissory Note, dated January 15, 2019 (under Note and Warrant Purchase Agreement).	8-K	001-38301	January 16, 2019	4.1
4.7	Form of Warrant, dated January 15, 2019 (under Note and Warrant Purchase Agreement).	8-K	001-38301	January 16, 2019	4.2
4.8	Form of Note and Warrant Purchase Agreement, dated November 13, 2018.	8-K	001-38301	November 13, 2018	4.1
4.9	Form of Note, dated November 13, 2018 (under Note and Warrant Purchase Agreement).	8-K	001-38301	November 13, 2018	4.2
4.10	Form of Warrant, dated January 11, 2018	8-K	001-38301	January 18, 2018	4.1
4.11	Form of Indenture	S-3	333-226789	August 10, 2018	4.1
4.12	2017 Equity Incentive Plan	10-Q	000-54768	October 11, 2017	4.3
4.13	Form of Stock Option Agreement	10-Q	000-54768	October 11, 2017	4.4
4.14	Form of Restricted Stock Unit Agreement	10-Q	000-54768	October 11, 2017	4.5

10.1	Intellectual Property Assignment Agreement dated October 27, 2014, as supplemented April 10, 2015, by and among Hatem Essaddam, Loop Holdings, Inc. and Daniel Solomita.	10-K	000-54768	May 30, 2017	10.1
10.2	Subscription Agreement, dated May 22, 2015, by and between 9121820 Canada Inc. and Loop Holdings, Inc.	10-K	000-54768	May 30, 2017	10.2
10.3	Technology Transfer Agreement, dated June 22, 2015 by and between 8198381 Canada Inc. and Loop Holdings, Inc.	8-K	000-54768	June 30, 2015	10.7
10.4	Amended and Restated Employment Agreement, dated July 13, 2018, by and between Loop Industries, Inc. and Daniel Solomita.	8-K	001-38301	July 13, 2018	10.12
10.5	Master Services Agreement, dated September 1, 2015, by and between 8198381 Canada Inc. and Loop Holdings, Inc.	10-K	000-54768	May 30, 2017	10.5
10.6	Purchase and Sale Agreement, by and between 8198381 Canada Inc. and Loop Canada Inc. (formerly 9449507 Canada Inc.)	10-K	000-54786	May 30, 2017	10.7
10.7†	Agreement for Services, dated February 28, 2017, by and between Loop Industries, Inc. and Drinkfinity USA, Inc.	10-K	000-54768	May 30, 2017	10.8
10.8	Articles of Merger of Loop Holdings, Inc. into Loop Industries, Inc.	10-K	000-54768	May 30, 2017	10.9
10.9	Form of Indemnification Agreement	10-K	000-54768	May 30, 2017	10.10
10.10	Securities Purchase Agreement, dated February 27, 2019, by and between Loop Industries, Inc. and the purchaser identified therein.	8-K	001-8301	February 28, 2019	10.1
10.11	Form of Note and Warrant Purchase Agreement, dated January 15, 2019.	8-K	001-8301	January 16, 2019	10.1
10.12	Master Term and Conditions Supply Agreement, dated November 23, 2018, by and between Loop Industries, Inc. and Coca-Cola Cross Enterprise Procurement Group.	8-K	001-8301	November 29, 2018	10.1
10.13	Form of Warrant, dated November 13, 2018 (under Note and Warrant Purchase Agreement).	8-K	001-8301	November 13, 2018	10.1
10.14	Terms and Conditions Agreement, dated October 9, 2018, by and between Loop Industries, Inc. and Pepsi-Cola Advertising and Marketing, Inc.	8-K	001-8301	October 15, 2018	10.1
10.15	Limited Liability Company Agreement, dated September 24, 2018, by and between Loop Industries, Inc. and Indorama Loop Technologies, LLC.	8-K	001-8301	September 28, 2018	10.1
10.16	License Agreement, dated September 24, 2018 by and between Loop Industries, Inc. and Indorama Loop Technologies, LLC.	8-K	001-8301	September 28, 2018	10.2
10.17	Marketing Agreement, dated September 24, 2018, by and between Loop Industries, Inc. and Indorama Loop Technologies, LLC.	8-K	001-8301	September 28, 2018	10.3
10.18	Form of Common Stock Subscription Agreement	8-K	001-8301	January 18, 2018	10.1
10.19	Employment Agreement, dated April 10, 2018, by and between Loop Canada Inc. and Nelson Switzer	10-Q/A	000-54768	July 11, 2018	10.12
10.20	Employment Agreement, dated December 19, 2018, by and between Loop Canada Inc. and Nelson Gentiletti.	10-K	000-54768	May 8, 2019	10.35
10.21	Employment Agreement May 28, 2019 by and between Loop Canada Inc. and Michel Megelas	10-K	000-54768	May 4, 2020	10.21
10.22	Amendment No. 1, dated April 30, 2020, to the Amended and Restated Employment Agreement by and between Loop Industries, Inc. and Daniel Solomita, dated July 13, 2018.	10-K	000-54768	May 4, 2020	20.22

14	Code of Ethics	8-K	000-54768	Jan 31, 2017	14.1
21.1	Subsidiaries of Registrant	10-K	000-54768	May 30, 2017	21.1
23.1	Consent of PricewaterhouseCoopers LLP regarding the registration on form S-3 filed with the SEC on October 8, 2019	10-K	000-54768	May 4, 2020	23.1
23.2	Consent of PricewaterhouseCoopers LLP regarding the registration on form S-8 files with the SEC on July 10, 201	10-K	000-54768	May 4, 2020	23.2
24.1	Power of Attorney (contained on signature page to the previously filed Annual Report on Form 10-K)	10-K	000-54768	May 30, 2017	24.1
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			Filed herewith
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			Filed herewith
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			Furnished herewith
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			Furnished herewith

________

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been submitted separately to the SEC.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LOOP INDUSTRIES, INC.

Date: May 5, 2020	By:	/s/ Daniel Solomita
	Name:	Daniel Solomita
	Title:	Chief Executive Officer, President, and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Date: May 5, 2020	By:	/s/ Daniel Solomita
	Name:	Daniel Solomita
	Title:	Chief Executive Officer, President, and Director (principal executive officer)

Date: May 5, 2020	By:	/s/ Nelson Gentiletti
	Name:	Nelson Gentiletti
	Title:	Chief Operating Officer and Chief Financial Officer (principal accounting officer and principal financial officer), Secretary and Treasurer

Date: May 5, 2020	By:	/s/ Sidney Horn
	Name:	Sidney Horn
	Title:	Director

Date: May 5, 2020	By:	/s/ Jay Stubina
	Name:	Jay Stubina
	Title:	Director

Date: May 5, 2020	By:	/s/ Andrew Lapham
	Name:	Andrew Lapham
	Title:	Director

Date: May 5, 2020	By:	/s/ Laurence Sellyn
	Name:	Laurence Sellyn
	Title:	Lead Director

Loop Industries, Inc. - FORM 10-K/A - May 5, 2020

Attached files

Loop Industries, Inc. Reports