Attached files
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM
10-K/A
Amendment
No. 2 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
|
or
☐ 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.
EXPLANATORY
NOTE
Loop Industries,
Inc. (the “Company,” “Loop,”
“we” or “us”) is filing this Amendment No.
2 on Form 10-K/A (“Amendment No. 2”) to its Annual
Report on Form 10-K for the fiscal year ended February 29, 2020,
which was originally filed with the Securities and Exchange
Commission (the “SEC”) on May 5, 2020 (“Original
Filing”) and as amended on May 6, 2020 (“Amendment No.
1”) to (i) remove certain additional information that was not
required to be included in the audit report
prepared in accordance with applicable U.S. securities law
and Public Company Accounting Oversight Board requirements that was
filed with the Securities and Exchange Commission as part of the
Original Filing and (ii) to replace Exhibit
23.1 and 23.2 by a revised Exhibit 23.1. The report of
our
Independent Registered Public Accounting Firm, as replaced
in this Amendment No. 2, does not modify the unqualified opinion
previously expressed in the Original Report.
Except
as described above, this Amendment No. 2 does not amend, modify or
update the information in, or exhibits to, the Original Form 10-K
and the Amendment No. 1, and we have not updated disclosures
included therein to reflect any subsequent events. Information not
affected by this Amendment No. 2 remains unchanged and reflects the
disclosures made at the time the Original Filing was made. This
Amendment No. 2 should be read in conjunction with the Original
Form 10-K, the Amendment No. 1 and our other filings made with the
SEC subsequent to the filing of the Original Form
10-K.
Additionally,
in accordance with Rule 12b-15 under the Securities Exchange Act of
1934, as amended, the Company is including with this Amendment No.
2 currently dated certifications as Exhibits 31.1, 31.2, 32.1 and
32.2 and Item 15 of Part IV of the Original 10-K is accordingly
replaced with the Item 15 included herein.
PART II
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Loop Industries, Inc.
February 29, 2020
Index to the Consolidated Financial Statements
Contents
|
Page(s)
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
balance sheets as at February 29, 2020 and February 28,
2019
|
F-3
|
|
|
Consolidated
statements of operations and comprehensive loss for the years ended
February 29, 2020, February 28, 2019 and February 28,
2018
|
F-4
|
|
|
Consolidated
statement of changes in stockholders’ equity for the years
ended February 29, 2020, February 28, 2019 and February 28,
2018
|
F-5
|
|
|
Consolidated
statement of cash flows for the years ended February 29, 2020,
February 28, 2019 and February 28, 2018
|
F-6
|
|
|
Notes
to the consolidated financial statements
|
F-7
|
F-1
F-2
Loop Industries, Inc.
Consolidated Balance Sheets
(in United States dollars)
|
As
at
|
|
|
February 29,
2020
|
February 28,
2019
|
|
|
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$33,717,671
|
$5,833,390
|
Sales tax, tax
credits and other receivables (Note 3)
|
664,544
|
599,000
|
Prepaid
expenses
|
141,226
|
226,521
|
Total current
assets
|
34,523,441
|
6,658,911
|
Investment in
joint venture
|
850,000
|
-
|
Property, plant
and equipment, net (Note 4)
|
7,260,254
|
5,371,263
|
Intangible assets,
net (Note 5)
|
202,863
|
127,672
|
Total
assets
|
$42,836,558
|
$12,157,846
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
Current
liabilities
|
|
|
Accounts payable
and accrued liabilities
|
$2,082,698
|
$2,670,233
|
Convertible notes
(Note 10)
|
-
|
5,636,172
|
Warrants (Note
10)
|
-
|
219,531
|
Current portion of
long-term debt (Note 9)
|
52,126
|
53,155
|
Total current
liabilities
|
2,134,824
|
8,579,091
|
Long-term debt
(Note 9)
|
2,238,026
|
952,363
|
Total
liabilities
|
4,372,850
|
9,531,454
|
|
|
|
Stockholders' Equity
|
|
|
Series A Preferred
stock par value $0.0001; 25,000,000 shares authorized; one share
issued and outstanding (Note 12)
|
-
|
-
|
Common stock par
value $0.0001; 250,000,000 shares authorized; 39,910,774 shares
issued and outstanding (2019 – 33,805,706) (Note
12)
|
3,992
|
3,381
|
Additional paid-in
capital (Note 13)
|
82,379,413
|
38,966,208
|
Additional paid-in
capital – Warrants (Note 10)
|
9,785,799
|
757,704
|
Additional paid-in
capital - Beneficial conversion feature (Note 10)
|
-
|
1.200,915
|
Common stock
issuable, nil shares (2019-1,000,000 shares) (Note 11)
|
-
|
800,000
|
Accumulated
deficit
|
(53,317,047)
|
(38,811,592)
|
Accumulated other
comprehensive loss
|
(388,449)
|
(290,224)
|
Total
stockholders' equity
|
38,463,708
|
2,626,392
|
Total liabilities
and stockholders' equity
|
$42,836,558
|
$12,157,846
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
F-3
Loop Industries, Inc.
Consolidated Statements of Operations and Comprehensive
Loss
(in United States dollars)
|
Years
Ended
|
||
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
Revenue
|
$-
|
$-
|
$-
|
|
|
|
|
Expenses
-
|
|
|
|
Research and
development (Notes 2 and 3)
|
4,717,175
|
3,448,547
|
6,694,778
|
General and
administrative
|
7,215,420
|
8,811,237
|
6,860,623
|
Legal settlement
(Note 18)
|
-
|
4,041,627
|
-
|
Depreciation and
amortization (Notes 4 and 5)
|
830,432
|
502,997
|
367,176
|
Impairment of
intangible assets (Note 5)
|
-
|
298,694
|
-
|
Interest and other
finance costs (Notes 9, 10 and 17)
|
2,223,304
|
467,082
|
5,125
|
Interest
income
|
(500,478)
|
-
|
-
|
Foreign exchange
loss (gain)
|
19,602
|
(33,773)
|
109,676
|
Total
expenses
|
14,505,455
|
17,536,411
|
14,037,378
|
|
|
|
|
Net
loss
|
(14,505,455)
|
(17,536,411)
|
(14,037,378)
|
|
|
|
|
Other
comprehensive loss -
|
|
|
|
Foreign currency
translation adjustment
|
(98,225)
|
(121,124)
|
(17,889)
|
Comprehensive
loss
|
$(14,603,680)
|
$(17,657,535)
|
$(14,055,267)
|
Loss per
share
|
|
|
|
Basic and
diluted
|
$(0.38)
|
$(0.52)
|
$(0.43)
|
Weighted average
common shares outstanding
|
|
|
|
Basic and
diluted
|
37,936,094
|
33,795,600
|
32,642,741
|
See accompanying notes to the consolidated financial
statements.
F-4
Loop Industries, Inc.
Consolidated Statement of Changes in Stockholders’
Equity
For the Years Ended February 29, 2020, February 28, 2019
and February 28, 2018
(in United States dollars)
|
Common Stock par
value $0.0001
|
Preferred stock
par value $0.0001
|
|
||||||||
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2017
|
31,451,973
|
$3,146
|
1
|
$-
|
$8,723,390
|
$-
|
$-
|
$800,000
|
$(7,237,803)
|
$(151,211)
|
$2,137,522
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash,
net of share issuance costs (Note 12)
|
1,829,061
|
183
|
-
|
-
|
14,052,298
|
-
|
-
|
-
|
-
|
-
|
14,052,481
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
6,281,319
|
-
|
-
|
-
|
-
|
-
|
6,281,319
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
265,994
|
-
|
-
|
-
|
-
|
-
|
265,994
|
Issuance of shares upon exercise of
warrants for cash (Note 13)
|
355,020
|
35
|
-
|
-
|
1,641,981
|
-
|
-
|
-
|
-
|
-
|
1,642,016
|
Issuance of shares upon cashless
exercise of warrants (Note 13)
|
115,034
|
12
|
-
|
-
|
(12)
|
-
|
-
|
-
|
-
|
-
|
-
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,889)
|
(17,889)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,037,378)
|
-
|
(14,037,378)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2018
|
33,751,088
|
$3,376
|
1
|
$-
|
$30,964,970
|
$-
|
$-
|
$800,000
|
$(21,275,181)
|
$(169,100)
|
$10,324,065
|
See accompanying notes to the consolidated financial
statements.
F-5
|
Common
stock
par value
$0.0001
|
Preferred
stock
par value
$0.0001
|
|
|
|
|
|
|
|
||
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in
Capital-Warrants
|
Additional
Paid-in
Capital-
Beneficial
Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2018
|
33,751,088
|
$3,376
|
1
|
$-
|
$30,964,970
|
$-
|
$-
|
$800,000
|
$(21,275,181)
|
$(169,100)
|
$10,324,065
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon cashless
exercise of warrants (Note 12)
|
18,821
|
2
|
-
|
-
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
Issuance of shares upon vesting of
restricted stock units (Note 12)
|
35,797
|
3
|
-
|
-
|
(3)
|
-
|
-
|
-
|
-
|
-
|
-
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
3,176,786
|
-
|
-
|
-
|
-
|
-
|
3,176,786
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
808,374
|
-
|
-
|
-
|
-
|
-
|
808,374
|
Legal settlement (Note
18)
|
-
|
-
|
-
|
-
|
4,041,627
|
-
|
-
|
-
|
-
|
-
|
4,041,627
|
Issuance of Convertible notes (Note
10)
|
-
|
-
|
-
|
-
|
(25,544)
|
757,704
|
1,200,915
|
-
|
-
|
-
|
1,933,075
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(121,124)
|
(121,124)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,536,411)
|
-
|
(17,536,411)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2019
|
33,805,706
|
$3,381
|
1
|
$-
|
$38,966,208
|
$757,704
|
$1,200,915
|
$800,000
|
$(38,811,592)
|
$(290,224)
|
$2,626,392
|
See accompanying notes to the consolidated financial
statements.
F-6
|
Common
stock
|
Preferred
stock
|
|
|
|
|
|
|
|
||
|
par value
$0.0001
|
par value
$0.0001
|
|
|
|
|
|
|
|
||
|
Number of
Shares
|
Amount
|
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Additional
Paid-in Capital
- Warrants
|
Additional
Paid-in Capital
– Beneficial Conversion Feature
|
Common Stock
Issuable
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2019
|
33,805,706
|
$3,381
|
1
|
$-
|
$38,966,208
|
$757,704
|
$1,200,915
|
$800,000
|
$(38,811,592)
|
$(290,224)
|
$2,626,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares for cash,
net of share issuance costs (Note 12)
|
4,693,567
|
469
|
-
|
-
|
30,408,410
|
8,663,769
|
-
|
-
|
-
|
-
|
39,072,648
|
Issuance of shares for legal
settlement (Note 18)
|
150,000
|
15
|
-
|
-
|
(15)
|
-
|
-
|
-
|
-
|
-
|
-
|
Issuance of shares upon conversion
of Convertible notes (Notes 10 and Note 12)
|
932,084
|
94
|
-
|
-
|
8,553,403
|
324,672
|
(1,200,915)
|
-
|
-
|
-
|
7,677,254
|
Issuance of shares upon the vesting
of restricted stock units (Note 12)
|
244,884
|
25
|
-
|
-
|
799,975
|
-
|
-
|
(800,000)
|
-
|
-
|
-
|
Issuance of shares upon the
cashless exercise of stock options (Note 12)
|
69,101
|
7
|
-
|
-
|
(7)
|
-
|
-
|
-
|
-
|
-
|
-
|
Issuance of shares upon exercise of
warrants (Notes 12 and 15)
|
15,432
|
1
|
-
|
-
|
182,048
|
(38,300)
|
-
|
-
|
-
|
-
|
143,749
|
Issuance of warrants for financing
facility (Notes 9 and 19)
|
-
|
-
|
-
|
-
|
-
|
77,954
|
-
|
-
|
-
|
-
|
77,954
|
Stock options issued for services
(Note 13)
|
-
|
-
|
-
|
-
|
2,178,948
|
-
|
-
|
-
|
-
|
-
|
2,178,948
|
Restricted stock units issued for
services (Note 13)
|
-
|
-
|
-
|
-
|
1,290,443
|
-
|
-
|
-
|
-
|
-
|
1,290,443
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(98,225)
|
(98,225)
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,505,455)
|
-
|
(14,505,455)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 29, 2020
|
39,910,774
|
$3,992
|
1
|
$-
|
$82,379,413
|
$9,785,799
|
$-
|
$-
|
$(53,317,047)
|
$(388,449)
|
$38,463,708
|
See accompanying notes to the consolidated financial
statements.
F-7
Loop Industries, Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
|
Years
Ended
|
||
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
Cash Flows from Operating Activities
|
|
|
|
Net
loss
|
$(14,505,455)
|
$(17,536,411)
|
$(14,037,378)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization (Notes 4 and 5)
|
830,432
|
502,997
|
367,176
|
Impairment of
intangible assets (Note 5)
|
-
|
298,694
|
-
|
Warrants issued
for legal settlement (Note 18)
|
-
|
2,271,627
|
-
|
Shares issued for
legal settlement (Note 18)
|
-
|
1,770,000
|
-
|
Stock-based
compensation (Note 13)
|
3,469,390
|
3,985,160
|
6,547,313
|
Accrued interest
(Note 10)
|
363,390
|
109,804
|
-
|
Loss on
revaluation of warrants (Note 10)
|
8,483
|
65,167
|
-
|
Convertible notes
debt discount amortization (Note 10)
|
1,892,185
|
185,505
|
-
|
Deferred financing
costs
|
96,155
|
47,123
|
-
|
Gain on conversion
of convertible notes (Note 10)
|
(232,565)
|
-
|
-
|
Fair value of
warrants issued (Note 9)
|
7,744
|
-
|
-
|
Loss on
revaluation of foreign exchange contracts
|
27,129
|
-
|
-
|
Changes in
operating assets and liabilities:
|
|
|
|
Valued added tax
and tax credits receivable
|
(77,294)
|
(234,366)
|
(218,560)
|
Prepaid
expenses
|
83,876
|
285,052
|
(511,573)
|
Accounts payable
and accrued liabilities
|
(1,056,019)
|
687,161
|
1,821,536
|
Advances from
controlling stockholder
|
-
|
-
|
(360,000)
|
Net cash used in
operating activities
|
(9,092,549)
|
(7,562,487)
|
(6,391,486)
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
Investment in
joint venture (Note 8)
|
(850,000)
|
-
|
-
|
Additions to
property, plant and equipment (Note 4)
|
(2,439,013)
|
(1,892,654)
|
(2,710,053)
|
Additions to
intangible assets (Note 5)
|
(99,972)
|
(153,465)
|
(88,319)
|
Net cash used in
investing activities
|
(3,388,985)
|
(2,046,119)
|
(2,798,372)
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
Proceeds from
sales of common shares and exercise of warrants, net of share
issuance costs (Note12)
|
39,216,399
|
(25,544)
|
15,694,497
|
Repayment of
advances from controlling stockholder (Note 11)
|
-
|
-
|
(278,472)
|
Proceeds from
issuance of long-term debt (Note 9)
|
1,645,122
|
-
|
-
|
Proceeds from
issuance of convertible notes (Note 10)
|
-
|
7,550,000
|
1,092,980
|
Deferred financing
costs
|
(34,254)
|
(143,277)
|
-
|
Payment of accrued
interest on convertible notes (Note 10)
|
(312,000)
|
-
|
-
|
Repayment of
long-term debt
|
(52,126)
|
(53,155)
|
(4,554)
|
Net cash provided
by financing activities
|
40,463,141
|
7,328,024
|
16,504,451
|
|
|
|
|
Effect of exchange
rate changes
|
(97,326)
|
(35,741)
|
(81,367)
|
Net change in
cash
|
27,884,281
|
(2,316,323)
|
7,233,226
|
Cash and cash
equivalents, beginning of year
|
5,833,390
|
8,149,713
|
916,487
|
Cash and cash
equivalents, end of year
|
$33,717,671
|
$5,833,390
|
$8,149,713
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Income tax
paid
|
$-
|
$-
|
$-
|
Interest
paid
|
$368,482
|
$54,040
|
$5,125
|
Interest
received
|
$500,478
|
$-
|
$-
|
See accompanying notes to the consolidated financial
statements.
F-8
Loop Industries, Inc.
February 29, 2020, February 28, 2019 and February 28,
2018
Notes to the Consolidated Financial Statements
(in United States dollars except where otherwise
indicated)
1. The Company and Basis of Presentation
The Company
Loop
Industries, Inc. (the “Company,” “Loop
Industries,” “we,” or “our”) is a
technology company that owns patented and proprietary technology
that depolymerizes no and low value waste PET plastic and polyester
fiber to its base building blocks (monomers). The monomers
are filtered, purified and polymerized to create virgin-quality
Loop™ branded PET resin and polyester fiber suitable for use
in food-grade packaging.
On
November 20, 2017, Loop Industries Inc. commenced trading on the
NASDAQ Global Market under its new trading symbol,
“LOOP.” From April 10, 2017 to November 19, 2017, our
common stock was quoted on the OTCQX tier of the OTC
Markets Group Inc. under the symbol
“LLPP.”
Basis of presentation
These
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
of America (“US GAAP”) and comprise the consolidated
financial position and results of operations of Loop Industries,
Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada
Inc. All subsidiaries are, either directly or indirectly,
wholly-owned subsidiaries of Loop Industries, Inc. (collectively,
the “Company”). The Company also owns, through Loop
Innovations, LLC, a 50% interest in a joint venture, Indorama Loop
Technologies, LLC, which is accounted for under the equity
method.
Intercompany
balances and transactions are eliminated on
consolidation.
2. Summary of Significant 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 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.
Fair value of financial instruments
The
Company applies Financial Accounting Standards Board
(“FASB”) Codification (“ASC”) 820,
Fair Value Measurement,
which defines fair value and establishes a framework for measuring
fair value and making disclosures about fair value measurements.
FASB ASC 820 establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring financial instruments at fair value. Market price
observability is impacted by a number of factors, including the
type of financial instruments and the characteristics specific to
them. Financial instruments with readily available quoted prices or
for which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair
value.
F-9
There
are three levels within the hierarchy that may be used to measure
fair value:
Level 1–
A quoted price in
an active market for identical assets or liabilities.
Level 2–
Significant pricing
inputs are observable inputs, which are inputs that reflect the
assumptions market participants would use in pricing the asset or
liability developed based on market data obtained from independent
sources.
Level
3–
Significant pricing
inputs are unobservable inputs, which are inputs that reflect the
Company’s own assumptions about the assumptions market
participants would use in pricing the asset or liability developed
based on the best information available in the
circumstances.
The
fair value measurements level of an asset or liability within the
fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques
used should maximize the use of observable inputs and minimize the
use of unobservable inputs.
The
valuation methodologies described above may produce a fair value
calculation that may not be indicative of future net realizable
value or reflective of future fair values.
The
fair value of cash and accounts payable and accrued liabilities
approximate their carrying values due to their short-term
maturity.
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.
●
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.
F-10
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 at is 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 recorded in income.
Government grants
US GAAP
for profit-oriented entities does not define government grants; nor
is there specific guidance applicable to government grants. Under
the Company’s accounting policy for government grants and
consistent with non-authoritative guidance, grants are recognized
on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which the grants are
intended to compensate.
Grants
that relate to the acquisition of an asset are recognized as a
reduction of the cost of the asset and in the statement of
operations and comprehensive loss as the asset is depreciated or
amortized.
A grant
that is compensation for expenses or losses already incurred, or
for which there are no future related costs, is recognized in the
statement of operations and comprehensive loss in the period in
which it becomes receivable.
Low-interest
loans or interest-free loans from a government are initially
measured at fair value and interest expense is recognized on the
loan subsequently under the effective interest method, with the
difference recognized as a government grant
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 related to the liability portion of
Convertible Notes 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. The Company currently has not engaged in any currency
hedging activities.
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.
F-11
Property, plant and equipment
Property,
plant and equipment are recorded at cost and are amortized over
their estimated useful lives, unless the useful life is indefinite,
using the straight-line method over the following
periods:
Building
|
30
years
|
Land
|
Indefinite
|
Office
equipment and furniture
|
8
years
|
Machinery
and equipment
|
3-8
years
|
Building
improvements
|
5
years
|
Costs
related to repairs and maintenance of property, plant and equipment
are expensed in the period in which they are incurred. Upon sale or
disposal, the Company writes off the cost of the asset and the
related amount of accumulated depreciation. The resulting gain or
loss is included in the consolidated statement of operations and
comprehensive loss.
Management
reviews the carrying values of its property, plant and equipment
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group might not be
recoverable. Assets are grouped at the lowest level for which
identifiable cash flows are largely independent when testing for,
and measuring for, impairment. In performing its review of
recoverability, the Company estimates the future cash flows
expected to result from the use of the asset or asset group and its
eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount of the asset or
asset group, an impairment loss is recognized in the consolidated
statements of operations. Measurement of the impairment loss is
based on the excess of the carrying amount of the asset or asset
group over the fair value calculated using discounted expected
future cash flows. As at February 29, 2020, and February 28, 2019
and 2018, the Company determined that there were no indicators of
impairment and therefore, did not recognize any impairment of its
property, plant and equipment.
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
The
Company periodically issues stock options and restricted stock
units to employees and directors as part of their compensation. The
Company accounts for stock options and restricted stock units
granted to employees and directors based on the authoritative
guidance provided by the 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 will been met. Forfeitures on share-based
payments are accounted for by recognizing forfeitures as they
occur.
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 the stock options granted are estimated using the
Black-Scholes-Merton Option Pricing (“Black-Scholes”)
model, which uses certain assumptions related to risk-free interest
rates, expected volatility, expected life of the stock options, and
future dividends. Stock-based compensation expense is recorded
based on the value derived from the Black-Scholes model and on
actual experience. The assumptions used in the Black-Scholes model
could materially affect stock-based compensation expense recorded
in the current and future periods.
F-12
Income taxes
The
Company calculates its provision for income tax on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset
and liability approach for financial accounting and reporting for
income taxes that allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future
deductibility is uncertain. The Company’s policy is to
recognize interest and/or penalties related to income tax matters
in income tax expense.
Research and development expenses
Research
and development expenses relate primarily to the development,
design, testing of preproduction samples, prototypes and models,
compensation, and consulting fees, and are expensed as incurred.
Total research and development costs recorded during the years
ended February 29, 2020, February 28, 2019 and February 28, 2018
amounted to $4.72 million,$3.45 million and $6.69 million,
respectively, and are net of government research and development
tax credits and government grants from the federal and provincial
taxation authorities accrued and recorded during the year based on
qualifying expenditures incurred during the fiscal
year.
Net loss per share
The
Company computes net loss per share in accordance with FASB ASC
260, Earnings Per Share.
Basic earnings (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted
average number of shares of common stock outstanding during the
year. The Company includes common stock issuable in its
calculation. Diluted earnings (loss) per share is computed by
dividing the net income (loss) applicable to common stockholders by
the weighted average number of common shares outstanding plus the
number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued, using the
treasury stock method. Potential common shares are excluded from
the computation if their effect is antidilutive.
For the
years ended February 29, 2020, February 28, 2019 and February 28,
2018, the calculations of basic and diluted loss per share are the
same because potential dilutive securities would have an
antidilutive effect. As at February 29, 2020, the potentially
dilutive securities consisted of 1,587,081 outstanding stock
options (2019 –1,962,400; 2018 – 2,374,581), 4,218,802
outstanding restricted stock units (2019 – 402,868;
2018– 34,102), 5,059,331 outstanding warrants (2019 –
802,469; 2018 – 140,667) and nil outstanding issuable common
stock (2019 – 1,000,000; 2018 –
1,000,000).
Recently adopted accounting pronouncements
In
February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which permits
entities to reclassify the disproportionate income tax effects of
the Tax Reform Act on items within accumulated other comprehensive
income (loss) ("AOCI") to retained earnings. These disproportionate
income tax effect items are referred to as "stranded tax effects."
Amendments in this update only relate to the reclassification of
the income tax effects of the Tax Reform Act. Other accounting
guidance that requires the effect of changes in tax laws or rates
to be included in net income from continuing operations is not
affected by this update. ASU 2018-02 should be applied either in
the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Reform Act is recognized. The Company adopted ASU
2018-02 on March 1, 2019 and include its effects in the current
fiscal year. The adoption of the standard had no impact on the
consolidated financial statements of the Company.
In June
2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment
Accounting. The amendments in this update expand the scope
of Topic 718 to include share-based payment transactions for
acquiring goods and services from nonemployees. An entity should
apply the requirements of Topic 718 to nonemployee awards except
for specific guidance on inputs to an option pricing model and the
attribution of cost (that is, the period of time over which
share-based payment awards vest and the pattern of cost recognition
over that period). The amendments specify that Topic 718 applies to
all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with
Customers. The amendments in this Update are effective for
public entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
F-13
In July
2018, the FASB issued ASU 2018-09, Codification Improvements, which
clarify certain amendments to guidance that may have been
incorrectly or inconsistently applied by certain entities and
includes Amendments to Subtopic 718-740, Compensation – Stock Compensation
– Income Taxes. The guidance in paragraph
718-740-35-2, as amended by the amendments in ASU 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting, is unclear on whether
an entity should recognize excess tax benefits (or tax
deficiencies) for compensation expense that is taken on the
entity’s tax return. The amendment to paragraph 718-740-35-2
in this Update clarifies that an entity should recognize excess tax
benefits in the period in which the amount of deduction is
determined. The amendments in this Update are effective for public
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
In
February 2016, the FASB issued ASU 2016-02, “Leases,”
amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted
Improvements,” and ASU 2018-20, “Narrow-Scope
Improvements for Lessors,” which requires lessees to
recognize leases on the balance sheet while continuing to recognize
expenses in the income statement in a manner similar to current
accounting standards. For lessors, the new standard modifies the
classification criteria and the accounting for sales-type and
direct financing leases. Enhanced disclosures will also be required
to give financial statement users the ability to assess the amount,
timing, and uncertainty of cash flows arising from leases. This ASU
may either be adopted on a modified retrospective approach at the
beginning of the earliest comparative period, or through a
cumulative-effect adjustment at the adoption date. This update is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company
adopted these standards effective March 1, 2019 through a
cumulative-effect adjustment at the adoption date. The adoption of
the standard had no impact on the consolidated financial statements
of the Company.
Recently issued accounting pronouncements not yet
adopted
In June
2016, the FASB issued ASU 2016-13, “Financial
Instruments—Credit Losses”. This ASU added a new
impairment model (known as the current expected credit loss
(“CECL”) model) that is based on expected losses rather
than incurred losses. Under the new guidance, an entity recognizes
an allowance for its estimate of expected credit losses and applies
to most debt instruments, trade receivables, lease receivables,
financial guarantee contracts, and other loan commitments. The CECL
model does not have a minimum threshold for recognition of
impairment losses and entities will need to measure expected credit
losses on assets that have a low risk of loss. This update is
effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years for smaller
reporting companies. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
In
August 2018, the FASB issued ASU 2018-15, “Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement that Is a Service Contract,” which aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). This update is
effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. We are still
evaluating the impact of this accounting guidance on our results of
operations and financial position.
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes”, which removes specific
exceptions to the general principles in ASC 740, “Income
Taxes,” and clarifies certain aspects of the existing
guidance. This update is effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years, with early adoption being permitted as of the beginning of
an interim or annual reporting period. All amendments to this ASU
must be adopted in the same period on a prospective basis, with
certain exceptions. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
3. Sales Tax, Tax Credits and Other Receivables
Sales
tax, research and development tax credits and other receivables as
at February 29, 2020 and February 28, 2019 were as
follows:
|
February 29,
2020
|
February 28,
2019
|
Sales
tax
|
$180,971
|
$82,992
|
Research and
development tax credits
|
447,843
|
410,997
|
Other
receivables
|
35,730
|
105,011
|
|
$664,544
|
$599,000
|
F-14
The
Company is registered for the Canadian federal and provincial goods
and services taxes. As such, the Company is obligated to collect
from third parties, and is entitled to claim sales taxes paid on
its expenses and capital expenditures incurred in
Canada.
In
addition, Loop Canada Inc. is entitled to receive government
assistance in the form of refundable and non-refundable research
and development tax credits from the federal and provincial
taxation authorities, based on qualifying expenditures incurred
during the fiscal year. The refundable credits are from the
provincial taxation authorities and are not dependent on its
ongoing tax status or tax position and accordingly are not
considered part of income taxes. The Company records refundable tax
credits as a reduction of research and development expenses when
the Company can reasonably estimate the amounts and it is more
likely than not, they will be received. During the year ended
February 29, 2020, the Company recorded $221,603, (2019 –
$305,592; 2018 – 221,202) as a reduction of research and
development expenses. During the year ended February 29,2020,
research and development tax credits received by the Company from
taxation authorities amounted to $175,929 (2019 – nil; 2018 -
nil).
Research
and development expenses are also presented net of eligible
government grants from the federal and provincial taxation
authorities. Government grants received during the year ended
February 29, 2020 amounted to nil (2019 - $73,581; 2018 –
$4,000) and government grants receivable at February 29, 2020
amounted to nil (2019 – nil; 2018 - $73,581).
The
Company is also eligible for non-refundable research and
development tax credits from the federal taxation authorities which
can be used as a reduction of income tax expense in any given year
to the extent the Company has taxable income. The Company has not
had taxable income since inception and has not been able to use
these non-refundable federal research and development tax credits.
During the year ended February 29, 2020, the Company was eligible
for non-cash research and development tax credits in the amount of
$251,019 (2019 - $255,975; 2018 - $248,690). These non-cash tax
credits, which have an unlimited carry forward period are not
recognized in the Company’s consolidated financial
statements.
4. Property, Plant and Equipment
|
As at February 29,
2020
|
||
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
Building
|
$1,846,070
|
$(128,911)
|
$1,717,159
|
Land
|
264,868
|
-
|
264,868
|
Building
Improvements
|
733,884
|
(214,068)
|
519,816
|
Machinery and
equipment
|
6,085,195
|
(1,426,465)
|
4,658,730
|
Office equipment
and furniture
|
162,466
|
(62,785)
|
99,681
|
|
$9,092,483
|
$(1,832,229)
|
$7,260,254
|
|
|
|
|
|
As at February 28,
2019
|
||
|
Cost
|
Accumulated
depreciation
|
Net book
value
|
Building
|
$1,882,665
|
$(68,596)
|
$1,814,069
|
Land
|
232,699
|
-
|
232,699
|
Building
Improvements
|
383,985
|
(119,889)
|
264,096
|
Machinery and
equipment
|
3,834,338
|
(841,236)
|
2,993,102
|
Office equipment
and furniture
|
117,088
|
(49,791)
|
67,297
|
|
$6,450,775
|
$(1,079,512)
|
$5,371,263
|
Depreciation
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$807,800 for the year ended February 29, 2020 (2019 - $443,146;
2018 - $303,597).
F-15
During
the year ended February 29, 2020, the Company recorded a government
grant in connection with the financing facility received from
Investissement Québec as a reduction in the cost of fixed
assets for a total of $179,522 (2019 – nil; 2018 –
nil). More details on the Investissement Québec financing
facility can be found in note 9, Long-Term Debt.
5. Intangible Assets
During
the year ending February 29, 2020, the Company finalized the
development of its next Generation II (“GEN II”)
technology and filed various patents in jurisdictions around the
world. On April 9, 2019, the first GEN II U.S. patent was issued.
The GEN II technology portfolio has an issued U.S. patent and a
pending U.S. application, all expected to expire, if granted, on or
around September 2037. Internationally, the GEN II technology
portfolio also has a PCT application, an allowed application in
Bangladesh, and pending non-PCT country applications in Argentina,
Bolivia, Bhutan, members of the Gulf Cooperation Council, Iraq,
Pakistan, Taiwan, Uruguay, and Venezuela, all expected to expire on
or around September 2038 if granted. Additional aspects of the GEN
II technology are claimed in a U.S. application, a PCT application,
and non-PCT country applications in Argentina, Bangladesh, Bolivia,
members of the Gulf Cooperation Council, Pakistan, Taiwan, and
Uruguay, all expected to expire on or around June 2039, if granted.
Additionally, we have two pending provisional applications directed
to further additional aspects of the GEN II technology. Any patents
that would ultimately grant from these provisional applications
would be expected to expire no earlier than 2040, if
granted.
Concurrent
with the GEN II development, in June 2018, the Company transitioned
to its newly constructed GEN II industrial pilot plant. The GEN II
technology forms the basis for the commercialization of the Company
into the future.
As a
result of the strategic shift away from the GEN I technology, and
the development of the GEN II technology during the year ended
February 28, 2019, the Company considered the carrying value of its
GEN I intangible asset to be impaired and wrote off the remaining
balance of its GEN I intangible asset, which amounted to
$298,694.
Amortization
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$22,631 for the year ended February 29, 2020 (2019 - $59,851; 2018
- $63,579).
|
As at February
29,
2020
|
As at February
28,
2019
|
|
|
|
Intangible assets,
at cost - beginning of
period
|
$127,672
|
$533,369
|
|
|
|
Intangible assets,
accumulated depreciation - beginning of
period
|
-
|
(200,629)
|
|
127,672
|
332,740
|
|
|
|
Add: Additions in
the year
|
99,972
|
153,477
|
Deduct:
Amortization of intangibles
|
(22,631)
|
(59,851)
|
Deduct: Impairment
of intangibles
|
-
|
(298,694)
|
Deduct: Foreign
exchange effect
|
(2,150)
|
-
|
|
$202,863
|
$127,672
|
F-16
6. Fair value of financial instruments
The
following table presents the fair value of the Company’s
financial liabilities and warrants at February 29, 2020 and
February 28, 2019:
|
Fair Value
Measurements as at February 29, 2020
|
||
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
Instruments
measured at fair value on a recurring basis:
|
$-
|
$-
|
-
|
|
|
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
Long-term
debt
|
956,932
|
956,932
|
Level 2
|
Investissement
Québec financing facility
|
$1,356,228
|
$1,357,185
|
Level 2
|
|
Fair Value
Measurements at February 28, 2019
|
||
|
Carrying Amount
|
Fair Value
|
Level in the
hierarchy
|
Financial
liabilities measured at fair value on a recurring
basis:
|
|
|
|
Warrants
(First Issuance)
|
$219,531
|
$219,531
|
Level
3
|
|
|
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
Long-term
debt
|
1,005,518
|
1,005,518
|
Level
2
|
Convertible
notes (First Issuance)
|
2,495,636
|
2,650,000
|
Level
2
|
Convertible
notes (Second Issuance)
|
$3,126,886
|
$3,150,000
|
Level
2
|
The
Warrants under the First Issuance of Convertible Notes represent a
Level 3 in the fair value hierarchy. The Warrants were valued using
a Monte Carlo simulation using a volatility of 71.5%. The Company
recorded a loss on revaluation from the date of issuance to
February 28, 2019 of $65,167.
7. Accounts Payable and
Accrued Liabilities
Accounts
payable and accrued liabilities as at February 29, 2020 and
February 28, 2019 were as follows:
|
February
29,
2020
|
February
28,
2019
|
Trade accounts
payable
|
$814,081
|
$1,784,362
|
Trade accrued
liabilities
|
593,789
|
330,805
|
Accrued employee
compensation
|
634,807
|
554,204
|
Other accrued
liabilities
|
40,021
|
862
|
|
$2,082,698
|
$2,670,233
|
F-17
8. Joint Venture
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP
(“Indorama”), an indirect subsidiary of Indorama
Ventures Public Company Limited, to retrofit their existing PET
manufacturing facilities. The joint venture is expected to
manufacture and commercialize sustainable LoopTM branded
PET resin and polyester fiber. The joint venture agreement
details the establishment of an initial 20,700 metric tons per year
facility. The joint venture agreed to double the capacity of the
facility to 40,000 metric tons per year thus increasing the
engineering work required. Each company has a 50/50 equity interest
in Indorama Loop Technologies, LLC (“ILT”), which was
specifically formed to operate and execute the joint venture.
Equity funding of the JV is also split on a 50/50
basis.
Under
the Agreement, Indorama is required to contribute manufacturing
knowledge and the Company is required to contribute its proprietary
science and technology. Specifically, the Company will contribute
an exclusive world-wide royalty-free license for ILT to use its
proprietary technology to produce 100% sustainably produced PET
resin and polyester fiber in addition to its cash
contributions.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There was no activity in
ILT from the date of inception of September 24, 2018 to February
28, 2019 and, as at February 28, 2019, the carrying value of the
equity investment was nil. On April 18, 2019 and October 21, 2019,
Loop Innovations, LLC, the Company’s wholly owned subsidiary,
and Indorama, each contributed cash of $850,000, respectively, to
ILT. As there were no other transactions during the year ended
February 29, 2020, the carrying value of the equity investment as
at February 28, 2019 was $850,000.
9. Long-Term Debt
Investissement Québec financing facility
On July
24, 2019, the Company signed an agreement with Investissement
Québec providing it 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). There is a
36-month moratorium on both capital and interest repayments
beginning 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%. The Company, under the loan
agreement, is required to pay fees representing 1% of the loan
amount, $34,254 (CDN$46,000), to IQ. The Company has also agreed to
issue to Investissement Québec warrants to purchase shares of
common stock of the Company 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 the Company without
penalty. On February 21, 2020, the Company received $1,645,122
(CDN$2,209,234) based on its first claim made with Investissement
Québec and issued a warrant to acquire 15,153 shares of common
stock at a strike price of $11.00 per share to Investissement
Québec in connection therewith. This was the first and only
disbursement of the financing facility received as at February 29,
2020.
The
financing facility is composed of three elements: the loan, the
warrants and the interest discount. Stock warrants are freestanding
instruments that provide the right to acquire/purchase a
company’s stock at some point in the future. Because warrants
are freestanding instruments (even if issued along with debt or
some other instruments), they must be recorded separately. The
warrants meet the requirements of the scope exemption in ASC
815-10-15-74 and are thus classified as equity upon issuance. The
Company determined the fair value of the warrants using the
Black-Scholes pricing formula. The fair value of the warrants was
determined to be $77,954.
The
Company believes that the terms of the debt on a stand-alone basis
are not representative of market given the risk-free interest rate
of the loan which was based on the rate of a 10-year Canadian Bond
at the time of the agreement. US GAAP for profit-oriented entities
does not define government grants; nor is there specific guidance
applicable to government grants. However, US practice may look to
other sources of non-authoritative guidance. Under the
Company’s accounting policy for government grants,
low-interest loans or interest-free loans from a government are
initially measured at fair value and interest expense is recognized
on the loan subsequently under the effective interest method, with
the difference recognized as a government grant and recognized on a
systematic basis over the periods in which the entity recognizes as
expenses the related costs for which the grants are intended to
compensate. The government grant portion of the first disbursement
was recorded as a reduction of fixed assets.
The
allocated fair values of the government grant and the warrants is
recorded in the financial statements as a debt discount from the
face amount of the loan and such discount is amortized over the
expected term of the convertible note and is charged to interest
expense.
F-18
The
company established the fair value of the loan for the portion
drawn on February 20, 2020 at $1,354,408 based on a discount rate
of 5.45%. The discount rate used was based on the external
financing from a Canadian bank.
Even if
ASC 470-20-25-2 specifies that the entity issues debt with
equity-classified stock purchase warrants, it uses the relative
fair value method at time of issuance to allocate the consideration
received to the debt and the warrants. Because the total fair value
of the debt and the warrants are less than the cash received, the
Company believes that the With and Without Method shall be used.
The debt and warrants that are separately valued are recorded at
their respective fair values and the excess of the total
transaction proceeds over the sum of those fair value amounts is
allocated to the remaining component, i.e. the government
grant.
The
financing facility is secured by a principal hypothec in the amount
of $3,425,423 (CDN$4,600,000) and an additional hypothec in the
amount of $685,085 (CDN$920,000) over the universality of its
present and future, tangible and intangible movable property,
excluding however all intellectual property. This hypothec is subordinate to all
other hypothecs published on June 21, 2019 except for any hypothecs
that the Company may have granted to a shareholder, a related
person or related company, an insurer, a tenant, or a
supplier.
The
aggregate value of the Investissement Québec financing
facility as shown on the consolidated balance sheet is broken down
as follows:
|
February 29,
2020
|
Issue Date
|
Investissement
Québec loan
|
$1,356,228
|
$1,354,408
|
|
|
|
Government grant -
assets
|
178,891
|
179,522
|
|
|
|
Warrants -
equity
|
$77,954
|
$77,954
|
The
Company recorded interest expense on the Investissement Québec
loan from the issue date to February 29, 2020 in the amount of $968
(2019 – nil; 2018 – nil) and an accretion expense of
$872 (2019 – nil; 2018 – nil).
Term loan
On
January 24, 2018, the Company obtained a credit facility,
consisting of a $37,233 (CDN$50,000) credit card facility and 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. Interest paid amounted to $56,482 during
the year ended February 29, 2020 (2019 - $54,040; 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 the Company to comply with certain financial
covenants. As at February 29, 2020 and February 28, 2019, the
Company was in compliance with its financial
covenants.
|
February
29,
2020
|
February
28,
2019
|
Instalment
loan
|
$933,924
|
$1,005,518
|
Less current
portion
|
52,126
|
53,155
|
Non-current
portion
|
$881,798
|
$952,363
|
F-19
Principal
repayments due on the Company’s long-term debt over the next
five years are as follows:
Years
ending
|
Amount
|
February 28,
2021
|
$52,126
|
February 28,
2022
|
52,126
|
February 28,
2023
|
52,126
|
February 29,
2024
|
287,140
|
February 28,
2025
|
287,140
|
Thereafter
|
1,848,388
|
Total
|
$2,579,046
|
10.
Convertible Notes
First Issuance
On
November 13, 2018, the Company issued convertible notes (the
“November 2018 Notes”), together with related warrants
to acquire an additional 50% of the shares issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrants”), for an aggregate purchase price of $2,450,000
(the “November 2018 Private Placement”). On January 3,
2019, the Company issued additional convertible notes from this
issuance (the “November 2018 Notes”), together with
related warrants to acquire an additional 50% of the shares issued
upon the conversion of the November 2018 Notes (the “November
2018 Warrants”), for an aggregate purchase price of $200,000
(the “November 2018 Private Placement”). The Company
used the net proceeds of the November 2018 Private Placement for
general corporate and working capital purposes. The November 2018
Notes were converted on April 5, 2019.
The
November 2018 Notes carried an interest rate of 8.00% per annum and
had initial maturity dates of May 13, 2019 and July 3, 2019 (the
“November 2018 Maturity Date”), respectively, upon
which date the outstanding principal amount of the November 2018
Notes and all accrued and unpaid interest shall automatically
convert into shares of the common stock of the Company at the price
per share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes (the “November 2018 Conversion
Price”). The total number of shares of Common Stock to be
issued upon automatic conversion shall equal the outstanding
principal amount of the November 2018 Notes and all accrued and
unpaid interest on the November 2018 Notes, divided by the November
2018 Conversion Price.
The
November 2018 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrant Shares”). The per share purchase price (the
“November 2018 Exercise Price”) for each of the
November 2018 Warrant Shares purchasable under the November 2018
Warrants shall be equal to the lesser of (i) $15.00 and (ii) the
average closing price of the Company’s Common Stock on the
Nasdaq stock market for the ten days preceding the day of the
conversion of the November 2018 Notes. The November 2018 Warrants
will be issued upon conversion of the November 2018 Notes. The
November 2018 Warrants expire eighteen (18) months from the date of
the conversion of the November 2018 Notes (the “November 2018
Expiration Date”). The Investors may exercise the November
2018 Warrants at any time prior to the November 2018 Expiration
Date.
Due to
the variable conversion price, the November 2018 Notes contain
characteristics of a variable share-forward sales contracts
(“VSF”) under the guidance of ASC 480-10. Management
has determined that for the purpose of the accounting for
the November 2018 Notes, it is more likely than not that the
November 2018 Conversion Price will be below $13.00, resulting in
the issuance of a variable number of shares, the November 2018
Notes are classified as a liability, and accounted for at amortized
cost.
Due to
the variable number of warrants to be issued and the variable
strike price of the November 2018 Warrants, these do not meet the
“fixed-for-fixed” criteria under ASC 815-40.
Accordingly, the November 2018 Warrants are classified as a
derivative liability, initially measured at fair value and
subsequently revalued at fair value through the income
statement. The fair value
was calculated using a Monte Carlo simulation.
F-20
The
aggregate value of the November 2018 Notes and November 2018
Warrants as shown on the consolidated balance sheet are broken down
as follows:
|
February 29,
2020
|
February 28,
2019
|
Issue Date
|
November 2018
Convertible Notes - Liability
|
-
|
$2,495,636
|
$2,495,636
|
Accrued interest
– Liability
|
-
|
60,793
|
-
|
Deferred financing
costs
|
-
|
(26,557)
|
(63,738)
|
|
-
|
2,529,872
|
2,431,898
|
|
|
|
|
November 2018
Warrants - Liability
|
-
|
$219,531
|
$154,364
|
The
transaction costs relating to this issuance were split pro-rata
between the November 2018 Notes and the November 2018 Warrants. The
portion relating to the November 2018 Notes were deferred and are
being amortized over the life of the convertible notes. The portion
relating to the November 2018 Warrants was immediately
expensed.
On
April 5, 2019, the Company and the Investors that purchased the
November 2018 Notes from the Company pursuant to the Note and
Warrant Purchase Agreement dated as of November 13, 2018 or January
3, 2019, executed an Amendment, Surrender and Conversion Agreement
(“Conversion Agreement”) whereby the parties agreed to
convert the November 2018 Notes, and all accrued and unpaid
interest, into shares of the common stock of the Company at a newly
agreed conversion price per share equal to $8.55 (the “New
Conversion Price”), replacing the previous formula which
converted the November 2018 Notes and accrued and unpaid interest
into shares of the common stock of the Company at the price per
share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes. The Conversion Agreement stipulates
that the interest on the November 2018 Notes would be paid up to
and including April 3, 2019. Pursuant to the 2018 Note Purchase
Agreement, the Investors also received related warrants to acquire
an additional 50% of the shares issued upon the conversion of the
November 2018 Notes. As part of the Conversion Agreement, the
exercise price of the November 2018 Warrants will also be the New
Conversion Price, replacing the previous formula which established
the conversion price for the November 2018 Warrants as the lesser
of (i) $15.00 and (ii) the average closing price of the
Company’s Common Stock on the Nasdaq stock market for the ten
days preceding the day of the conversion of the November 2018
Notes. As a result of the Conversion Agreement, the Company issued
319,326 shares of common stock of the Company and issued 159,663
warrants. The November 2018 Warrants expire eighteen (18) months
from the date of the conversion of the November 2018 Notes, on
October 5, 2020.
The
Company recorded an expense upon revaluation of the warrants for
the period from March 1, 2019 to April 5, 2019 in the amount of
$8,483 (2018 – nil) and is included in operating expenses.
The Company recorded accretion interest expense on the November
2018 Notes from March 1, 2019 to April 5, 2019 in the amount of
$154,364 and is included in operating expenses. The Company
recorded interest expense on the November 2018 Notes for the period
from March 1, 2019 to April 3, 2019 in the amount of $19,433 (2018
– nil). The value of the 159,633 warrants issued as part of
the conversion was determined using the Black-Scholes pricing
formula and amounted to $316,929 and is included in additional
paid-in capital – warrants. Also, the conversion of the
November 2018 Notes into common stock resulted in a gain of
$232,565 and has been offset against operating
expenses.
Second Issuance
On
January 15, 2019, the Company issued convertible notes (the
“January 2019 Notes”), together with related warrants
to acquire an additional 50% of the shares issuable upon the
conversion of the January 2019 Notes (the “January 2019
Warrants”), for an aggregate purchase price of $4,500,000
(the “January 2019 Private Placement”). On January 21,
2019, the Company issued additional convertible notes from this
issuance (the “January 2019 Notes”), together with
related warrants to acquire an additional 50% of the shares
issuable upon the conversion of the January 2019 Notes (the
“January 2019 Warrants”), for an aggregate purchase
price of $400,000 (the “January 2019 Private
Placement”). The Company used the net proceeds of the January
2019 Private Placement for general corporate and working capital
purposes.
The
January 2019 Notes carried an interest rate of 8.00% per annum and
had initial maturity dates of January 15, 2020 and January 21, 2020
(the “January 2020 Maturity Date”), respectively. At
the January 2020 Maturity Date, the outstanding principal amount of
the January 2019 Notes shall automatically convert into shares of
the common stock of the Company at the price per share equal to
$8.10 (the “January 2020 Conversion Price”). The
January 2020 Conversion Price may be adjusted in the event that the
Company issues common shares in a private sale or offering at a
lower price per share than $8.10 within 180 days of the closing
date. The lower price would become the new conversion price of the
January 2019 Notes, which would impact the number of shares that
would be issued. The total number of shares of Common Stock to be
issued upon automatic conversion shall equal the outstanding
principal amount of the January 2019 Notes divided by the January
2020 Conversion Price. The January 2019 Notes were converted at the
January 2020 Maturity Date with no adjustment to the January 2020
Conversion Price.
F-21
With
respect to accrued and unpaid interest at the January 2020 Maturity
Date, the Investors had the option of receiving cash or common
stock of the Company at that date. Upon the January 2020 Maturity
Date, where the Investor elects payment of accrued and unpaid
interest on the January 2019 Notes in common stock, the price per
share shall be equal to the trading price of the common stock at
the close of the market on the date immediately preceding the
January 2020 Maturity Date. On the January 2020 Maturity Date,
$312,000 in accrued interest was paid in cash and a value of
$80,000 was paid in common stock (7,820 shares).
The
January 2019 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issuable upon the
conversion of the January 2019 Notes (the “January 2019
Warrant Shares”). The per share purchase price (the
“January 2019 Exercise Price”) for each of the January
2019 Warrant Shares purchasable under the January 2019 Warrants
shall be equal to 115% of the January 2020 Conversion Price. The
January 2019 Warrants will be calculated and issued upon the
closing date of the January 2019 Notes, based upon the initial
$8.10 conversion price. As such, the Company issued 302,469
warrants at the closing dates of the January 2019 Notes. If the
Investor elected to take accrued and unpaid interest on the January
2019 Notes in common stock, additional warrants would be issued to
acquire 50% of the shares issued in connection with the accrued and
unpaid interest (also referred to as the “January 2019
Warrants”). Upon conversion, 3,911 additional warrants were
issued in connection with accrued interest paid in common stock.
The January 2019 Warrants expire twenty-four (24) months from the
date of their issuance (the “January 2019 Expiration
Date”). The Investors may exercise the January 2019 Warrants
at any time prior to the January 2019 Expiration Date.
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 at the issue date. With
the conversion feature on the January 2019 Notes being “in
the money”, the beneficial conversion feature is measured
using the intrinsic value method and is shown as a discount on the
carrying amount of the convertible note and is credited to
additional paid-in capital. The intrinsic value of the beneficial
conversion feature at the issue date of the January 2019 Notes was
determined to be $1,200,915.
In
connection with the January 2019 Warrants issued along with the
January 2019 Notes, they meet the requirements of the scope
exemptions in ASC 815-10-15-74 and are thus classified as equity
upon issuance. The Company determined the fair value of the
warrants using the Black-Scholes pricing formula and is shown as a
discount on the carrying amount of the convertible note and is
credited to additional paid-in capital. The fair value of the
warrants at the issue date was determined to be $757,704. The fair
value of the additional warrants issued in connection with accrued
interest paid in stock was also calculated using the Black-Scholes
and amounted to $7,744.
The
allocated fair values of the beneficial conversion feature and the
warrants is recorded in the financial statements as a debt discount
from the face amount of the convertible note and such discount is
amortized over the expected term of the convertible note and is
charged to interest expense.
The
aggregate values of the beneficial conversion feature, the January
2019 Warrants and the January 2019 Notes are broken down as
follows:
|
February 29,
2020
|
February 28,
2019
|
Issue Date
|
January 2019
Convertible Notes – Liability
|
$-
|
$3,126,886
|
$2,941,381
|
Accrued interest
– Liability
|
-
|
49,011
|
-
|
Deferred financing
costs
|
-
|
(69,597)
|
(79,539)
|
|
-
|
3,106,300
|
2,861,842
|
|
|
|
|
January 2019
Beneficial Conversion Option – Equity
|
-
|
1,200,915
|
1,200,915
|
|
|
|
|
January 2019
Warrants – Equity
|
$727,148
|
$757,704
|
$757,704
|
The
Company recorded accretion expense during the year ended February
29, 2020 of $1,773,114 (2019 – $185,505; 2018 - nil) and is
included in operating expenses. The Company recorded interest
expense on the January 2019 Notes for the year ended February 29,
2020 in the amount of $342,989 (2019 – $49,011; 2018 –
nil).
F-22
The
transaction costs relating to this issuance were split pro-rata
between the January 2019 Notes, the beneficial conversion feature
and the January 2019 Warrants. The portion relating to the January
2019 Notes were deferred and are being amortized over the life of
the convertible notes. The portion relating to the beneficial
conversion feature and January 2019 Warrants were recorded as share
issuance expenses and offset against paid-in capital. Upon
conversion of the notes, the liability portion and $80,000 in
accrued interest were reversed to equity (common stock $61,28 and
additional paid-in capital $4,979,939) and the BCF was reversed to
additional paid-in capital.
11. Related Party Transactions
Advances from controlling stockholder
Mr.
Daniel Solomita, the Company’s controlling stockholder and
CEO, and companies controlled by him, previously made advances to
the Company totaling $278,472 as at February 28, 2017. The advances
were unsecured, non-interest bearing with no formal terms of
repayment. Also, as at February 28, 2017, accrued compensation
totaling $360,000 was owed to Mr. Solomita. During the year ended
February 28, 2018, the Company paid to Mr. Solomita or companies
controlled by him, as applicable, an aggregate amount of $638,472.
As at February 29, 2020 and February 28, 2019, no amounts were owed
to Mr. Solomita or to companies controlled by him.
Employment Agreement
On June
29, 2015, the Company entered into an employment agreement with Mr.
Daniel Solomita, the Company’s President and Chief Executive
Officer (“CEO”). The employment agreement is for
an indefinite term.
On July
13, 2018, the Company and Mr. Solomita entered into an amendment
and restatement of the employment agreement. The amended and
restated employment agreement provides for an increase in Mr.
Solomita’s base salary and eligibility to participate in an
annual cash bonus subject to performance measures. Mr.
Solomita’s base salary and bonus opportunity are retroactive
effective to March 1, 2018.
In
addition, the employment agreement provided for a long-term
incentive grant of 4,000,000 shares of the Company’s common
stock, in tranches of one million shares each, upon the achievement
of four performance milestones. This was modified to provide a
grant of 4,000,000 restricted stock units covering 4,000,000 shares
of the Company’s common stock while the performance
milestones remained the same. The Company’s board of
directors approved the grant of the restricted stock units,
effective and contingent upon approval by the Company’s
shareholders at the Company’s 2019 annual meeting, of an
increase in the number of shares available for grant under the
Plan. Such approval was granted by the Company’s
shareholders at the Company’s 2019 annual meeting. The
restricted stock units vest upon the achievement of applicable
performance milestones, as follows:
i)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company’s securities are listed on an exchange or the OTCQX
tier of the OTC Markets;
ii)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company executes a contract for a minimum quantity of 25,000 M/T of
PTA/EG or a PET;
iii)
1,000,000 shares of
common stock shall be issued to Mr. Solomita when the
Company’s first full-scale production facility is in
commercial operation; and
iv)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company’s second full-scale production facility is in
commercial operation.
During
the year ended February 28, 2017, it became probable that the first
milestone would be met. Accordingly, 1,000,000 performance
incentive shares of common stock with a fair value of $800,000 were
earned and are issuable to Mr. Solomita. This amount was reflected
as stock-based compensation expense during the year ended February
28, 2017 based on the grant date fair value. The 1,000,000
performance incentive shares of common stock have been replaced by
restricted stock units and are issuable to Mr. Solomita, 200,000 of
which were settled in October 2019. During the years ended February
29, 2020, February 28, 2019 and February 28, 2018, no other
milestones became probable of being met and, accordingly, the
Company did not record any additional compensation
expense.
F-23
12. Stockholders’ Equity
Series A Preferred Stock
Mr.
Solomita’s amended employment agreement of February 15, 2016
provides that the Company shall issue to Mr. Solomita one share of
the Company’s Series A Preferred Stock in exchange for Mr.
Solomita agreeing not to terminate his employment with the Company
for a period of five years from the date of the agreement. The
agreement effectively provides Mr. Solomita with a “change of
control” provision over the Company in the event that his
ownership of the issued and outstanding shares of common stock of
the Company is diluted to less than a majority. In order to issue
Mr. Solomita his one share of Series A Preferred Stock under the
amendment, the Company created a “blank check”
preferred stock. Subsequently, the board of directors of the
Company approved a Certificate of Designation creating the Series A
Preferred Stock. Subsequently, the Company issued one share of
Series A Preferred Stock to Mr. Solomita.
The one
share of Series A Preferred Stock issued to Mr. Solomita holds
a majority of the total voting power so long as Mr.
Solomita holds not less than 7.5% of the issued and outstanding
shares of common stock of the Company, assuring Mr. Solomita of
control of the Company in the event that his ownership of the
issued and outstanding shares of common stock of the Company is
diluted to a level below a majority. Currently, Mr.
Solomita’s ownership of 18,800,000 shares of common stock and
1 share of Series A Preferred Stock provides him with 77.8% of the
voting control of the Company.
Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita
contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomita’s (or that of any
person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of
Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, voting as a
separate class:
(a)
amend the Articles
of Incorporation or, unless approved by the Board of Directors,
including by the Series A Director, amend the Company’s
By-laws;
(b)
change or modify
the rights, preferences or other terms of the Series A Preferred
Stock, or increase or decrease the number of authorized shares of
Series A Preferred Stock;
(c)
reclassify or
recapitalize any outstanding equity securities, or, unless approved
by the Board of Directors, including by the Series A Director,
authorize or issue, or undertake an obligation to authorize or
issue, any equity securities or any debt securities convertible
into or exercisable for any equity securities (other than the
issuance of stock-options or securities under any employee option
or benefit plan);
(d)
authorize or effect
any transaction constituting a Deemed Liquidation (as defined in
this subparagraph) under the Articles, or any other merger or
consolidation of the Company;
(e)
increase or
decrease the size of the Board of Directors as provided in the
By-laws of the Company or remove the Series A Director (unless
approved by the Board of Directors, including the Series A
Director);
(f)
declare or pay any
dividends or make any other distribution with respect to any class
or series of capital stock (unless approved by the Board of
Directors, including the Series A Director);
(g)
redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any outstanding shares of capital stock (other
than the repurchase of shares of common stock from employees,
consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the
option to repurchase such shares at no greater than original cost
upon the occurrence of certain events, such as the termination of
employment) (unless approved by the Board of Directors, including
the Series A Director);
(h)
create or amend any
stock option plan of the Company, if any (other than amendments
that do not require approval of the stockholders under the terms of
the plan or applicable law) or approve any new equity incentive
plan;
(i)
replace the
President and/or Chief Executive Officer of the Company (unless
approved by the Board of Directors, including the Series A
Director);
(j)
transfer assets to
any subsidiary or other affiliated entity (unless approved by the
Board of Directors, including the Series A Director);
(k)
issue, or cause any
subsidiary of the Company to issue, any indebtedness or debt
security, other than trade accounts payable and/or letters of
credit, performance bonds or other similar credit support incurred
in the ordinary course of business, or amend, renew, increase or
otherwise alter in any material respect the terms of any
indebtedness previously approved or required to be approved by the
holders of the Series A Preferred Stock (unless approved by the
Board of Directors, including the Series A Director);
(l)
modify or change
the nature of the Company’s business;
(m)
acquire, or cause a
Subsidiary of the Company to acquire, in any transaction or series
of related transactions, the stock or any material assets of
another person, or enter into any joint venture with any other
person (unless approved by the Board of Directors, including the
Series A Director); or
(n)
sell, transfer,
license, lease or otherwise dispose of, in any transaction or
series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless
approved by the Board of Directors, including the Series A
Director).
F-24
Common Stock
For
the year ended February 29, 2020
|
Number of
shares
|
Amount
|
Balance, February
28, 2019
|
33,805,706
|
$3,381
|
Issuance of shares
for cash
|
4,693,567
|
469
|
Issuance of shares
upon vesting of restricted stock units
|
244,884
|
25
|
Issuance of shares
upon the cashless exercise of stock options
|
69,101
|
7
|
Issuance of shares
upon the exercise of warrants
|
15,432
|
1
|
Issuance of shares
upon settlement of legal matter
|
150,000
|
15
|
Issuance of shares
upon conversion of convertible notes
|
932,084
|
94
|
Balance, February
29, 2020
|
39,910,774
|
$3,992
|
For
the year ended February 28, 2019
|
Number of
shares
|
Amount
|
Balance, February
28, 2018
|
33,751,088
|
$3,376
|
Cashless exercise
of stock options
|
18,821
|
2
|
Issuance of shares
upon vesting of restricted stock units
|
35,797
|
3
|
Balance, February
28, 2019
|
33,805,706
|
$3,381
|
During
the year ended February 29, 2020, the Company recorded the
following common stock transactions:
(i)
On
March 1, 2019, the Company sold 600,000 shares of its common stock
at an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $5,130,000;
(ii)
On
March 8, 2019 and March 11, 2019, the Company issued 150,000 shares
of its common stock in settlement of a legal matter;
(iii)
On
April 9, 2019, the Company converted convertible notes with a face
value of $2,650,000 plus accrued interest of $80,241 at a
conversion price of $8.55, into 319,326 common shares;
(iv)
On June
14, 2019, the Company sold 4,093,567 shares of its common stock at
an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $35,000,000;
(v)
On July
17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants;
(vi)
On
January 16, 2020 and January 21, 2020, the Company converted
convertible notes with a face value of $4,900,000 at a conversion
price of $8.10 plus $80,000 of accrued interest at a conversion
price of $10.23 into a total of 612,758 shares of common
stock;
(vii)
The
Company issued 244,884 shares of common stock, in aggregate, upon
the vesting of restricted stock units related to employees and
Directors; and
(viii)
The
Company issued 69,101 shares of common stock, in aggregate, upon
the cashless exercise of stock options related to
employees;
During
the year ended February 28, 2019, the Company recorded the
following common stock transactions:
(i)
the Company issued
18,821 shares of common stock upon the cashless exercise of stock
options related to employees; and
(ii)
the Company issued
35,797 shares of common stock upon the vesting of restricted stock
units related to employees and Directors.
F-25
13. Share-Based Payments
Stock Options
The
following tables summarizes the continuity of the Company’s
stock options during the years ended February 29, 2020 and February
28, 2019:
|
2020
|
2019
|
||
|
Number of stock
options
|
Weighted average
exercise price
|
Number of stock
options
|
Weighted average exercise
price
|
Outstanding,
beginning of year
|
1,962,400
|
$7.53
|
2,374,581
|
$7.99
|
Granted
|
-
|
-
|
39,902
|
9.67
|
Exercised
|
(75,000)
|
0.80
|
(20,000)
|
0.80
|
Forfeited
|
(39,902)
|
9.67
|
(369,583)
|
11.49
|
Expired
|
(260,417)
|
13.59
|
(62,500)
|
4.80
|
Outstanding, end of
year
|
1,587,081
|
$6.81
|
1,962,400
|
$7.53
|
Exercisable, end of
year
|
986,248
|
$6.89
|
1,126,664
|
$7.72
|
|
2020
|
2019
|
||
Exercise Price
|
Number of stock
options outstanding
|
Weighted average
remaining life
|
Number of stock options
outstanding
|
Weighted average remaining
life
|
$0.80
|
507,081
|
5.75
|
582,081
|
6.76
|
$5.25
|
380,000
|
7.49
|
380,000
|
8.50
|
$8.75
|
-
|
-
|
26,693
|
10.00
|
$11.52
|
-
|
-
|
13,209
|
9.36
|
$12.00
|
700,000
|
7.54
|
700,000
|
8.54
|
$13.49
|
-
|
-
|
193,750
|
0.17
|
$13.89
|
-
|
-
|
66,667
|
0.01
|
Outstanding, end of
year
|
1,587,081
|
6.96
|
1,962,400
|
6.91
|
Exercisable, end of
year
|
986,248
|
6.97
|
1,126,664
|
5.99
|
The
Company applies the fair value method of accounting for stock-based
compensation awards granted. Fair value is calculated based on a
Black-Scholes option pricing model. The principal components of the
pricing model were as follows:
|
2020
|
2019
|
2018
|
Exercise
price
|
$-
|
$8.75 to $11.52
|
$5.25 to $13.89
|
Risk-free interest
rate
|
-
|
2.70% to
2.82%
|
1.46% to
2.15%
|
Expected dividend
yield
|
-
|
0%
|
0%
|
Expected
volatility
|
-
|
78%
|
80%
to 94%
|
Expected
life
|
-
|
6.5
to 7 years
|
3 to
6 years
|
There
were no new issuances of stock options for the year ended February
29, 2020.
During
the year ended February 29, 2020, stock-based compensation expense
attributable to stock options amounted to $2,178,948 (2019 -
$3,176,786; 2018 - $6,281,319) and is included in operating
expenses.
F-26
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the years February 29, 2020 and
February 28, 2019:
|
2020
|
2019
|
||
|
Number of
units
|
Weighted average
fair value price
|
Number of units
|
Weighted average fair value
price
|
Outstanding,
beginning of year
|
402,868
|
$8.77
|
34,102
|
$13.00
|
Granted
|
4,114,567
|
1.06
|
406,188
|
8.80
|
Settled
|
(244,884)
|
2.54
|
(35,797)
|
13.06
|
Forfeited
|
(53,750)
|
9.82
|
(1,625)
|
12.31
|
Outstanding, end of
year
|
4,218,802
|
$1.60
|
402,868
|
$8.77
|
Outstanding vested,
end of year
|
831,684
|
$1.19
|
-
|
$-
|
The
Company applies the fair value method of accounting for awards
granted through the issuance of restricted stock units. Fair value
is calculated based on closing share price at grant date multiplied
by the number of restricted stock unit awards granted.
During
the year ended February 29, 2020, stock-based compensation
attributable to RSUs amounted to $1,290,443 (2019 - $808,374; 2018
–$265,994) and is included in operating
expenses.
14. Equity Incentive
Plan
On July
6, 2017, the Company adopted the 2017 Equity Incentive Plan (the
“Plan”). The Plan permits the granting of warrants,
stock options, stock appreciation rights and restricted stock units
to employees, directors and consultants of the Company. A total of
3,000,000 shares of common stock were initially reserved for
issuance under the Plan at July 6, 2017, with annual automatic
share reserve increases, as defined in the Plan, amounting to the
lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares
on the last day of the immediately preceding fiscal year, or (iii)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. A discretionary share reserve
increase of 500,000 shares was approved at the 2019 Annual Meeting
of Stockholders held on June 27, 2019. The Plan is administered by
the Board of Directors who designates eligible participants to be
included under the Plan, the number of awards granted, the share
price pursuant to the awards and the vesting conditions and period.
The awards, when granted, will have an exercise price of no less
than the estimated fair value of shares at the date of grant and a
life not exceeding 10 years from the grant date. However, where a
participant, at the time of the grant, owns stock representing more
than 10% of the voting power of the Company, the life of the
options shall not exceed 5 years.
The
following table summarizes the continuity of the Company’s
Equity Incentive Plan units during the years ended February 29,
2020 and February 28, 2019:
|
2020
|
2019
|
|
Number of
units
|
Number of units
|
Outstanding,
beginning of year
|
3,223,516
|
1,735,898
|
Share reserve
increase
|
2,000,000
|
1,500,000
|
Units
granted
|
(4,114,567)
|
(446,090)
|
Units
forfeited
|
93,652
|
371, 208
|
Units
expired
|
97,917
|
62,500
|
Outstanding, end of
year
|
1,300,518
|
3,223,516
|
F-27
15. Warrants
|
2020
|
2019
|
||
|
Number of
warrants
|
Weighted average
exercise price
|
Number of
warrants
|
Weighted average exercise
price
|
Outstanding,
beginning of year
|
802,469
|
$10.74
|
140,667
|
$12.00
|
Issued
|
4,272,294
|
10.91
|
802,469
|
10,74
|
Exercised
|
(15,432)
|
9.32
|
-
|
-
|
Expired
|
-
|
-
|
(140,667)
|
12.00
|
Outstanding, end of
year
|
5,059,331
|
$10.92
|
802,469
|
$10.74
|
The
expiration dates of the warrants outstanding as at February 29,
2020 are as follows:
|
2020
|
|
|
Number of
warrants
|
Weighted average
exercise price
|
August 25,
2020
|
200,000
|
$11.00
|
October 5,
2020
|
159,663
|
8.55
|
January 15,
2021
|
281,689
|
9.32
|
January 21,
2021
|
9,259
|
9.32
|
February 25,
2021
|
300,000
|
12.00
|
June 14,
2022
|
4,093,567
|
11.00
|
February 21,
2023
|
15,153
|
11.00
|
Outstanding, end of
year
|
5,059,331
|
$10.89
|
16. Income Taxes
The
components of the Company’s loss before taxes are summarized
below:
|
Years ended
February 28,
|
||
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
U.S.
operations
|
$(4,220,000)
|
$(8,948,305)
|
$(8,509,651)
|
Foreign
operations
|
(10,285,455)
|
(8,588,106)
|
(5,527,727)
|
Loss before
taxes
|
$(14,505,455)
|
$(17,536,411)
|
$(14,037,378)
|
F-28
A
reconciliation from the statutory U.S. income tax rate and the
Company’s effective income tax rate, as computed on loss
before taxes, is as follows:
|
Years
ended
|
||
|
February 29,
2020
|
February 28,
2019
|
February 28,
2018
|
Statutory Federal
rate
|
21%
|
21%
|
32.7%
|
|
|
|
|
Federal income tax
at statutory rate
|
$(3,046,145)
|
$(3,682,646)
|
$(4,585,497)
|
Effect of foreign
jurisdiction
|
(424,593)
|
(308,046)
|
320,769
|
Non-deductible
expenses
|
1,069,845
|
888,749
|
2,169,384
|
Tax credits
related to research and development expenditures
|
(446,967)
|
(387,326)
|
(146,757)
|
Impact of Tax Cuts
and Jobs Act Enactment
|
-
|
-
|
876,812
|
Unrecognized tax
benefit of net operating losses and other available
deductions
|
2,847,860
|
3,489,269
|
1,365,289
|
Effective income
tax expense
|
$-
|
$-
|
$-
|
Current
|
$-
|
$-
|
$-
|
Deferred
|
$-
|
$-
|
$-
|
On
December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act
(“U.S. tax reform”) that lowers the statutory tax rate
on U.S. earnings to 21%, taxes historic foreign earnings at a
reduced rate of tax, establishes a territorial tax system and
enacts new taxes associated with global operations.
The
impact of enactment of U.S. tax reform was recorded on a
provisional basis as the legislation provides for additional
guidance to be issued by the U.S. Treasury Department on several
provisions including the computation of the transition tax. The
Company’s Controlled Foreign Corporations
(“CFCs”) were deficit earnings & profits
corporations, as such no income was recognized by Loop Industries
during the year ended February 28, 2018. No further inclusions were
made thereafter based on guidance issued. Additional guidance may
be issued after February 29, 2020 and any resulting effects will be
recorded at that time.
Additionally,
as part of tax reform, the U.S. has enacted a minimum tax on
foreign earnings (“global intangible low-taxed
income”). The Company has not made an accrual for the
deferred tax aspects of this provision as Loop Industries’
CFCs have suffered net tested losses.
With
the enactment of U.S. tax reform, we recorded, for the year ended
February 28, 2018, tax expense of $876,812 to reflect the
revaluation of deferred taxes. For the years ended February 28,
2019 and February 29, 2020, we finalized our provisional estimate
of the enactment of U.S. tax reform without additional tax
expense.
On
March 27, the US government signed the Coronavirus Aid, Relief and
Economic Security (“CARES”) Act into law, a $2 trillion
relief package to provide support to individuals, businesses and
government organizations during the COVID-19 pandemic. The income
tax provisions contained in the CARES Act are not likely to have an
impact for the Company.
The
Company has net operating loss carry forwards of approximately 2020
- $16,074,873 (2019 - $14,473,810) for U.S. Federal income tax
purposes expiring between 2035 and 2037, post 2018 net operating
losses may be carried forward indefinitely. The Company has net
operating loss carry forwards for Canadian Federal and Québec
tax purposes of approximately 2020 - $14,670,709 (CDN$19,701,295)
and 2019 - $7,495,099 (CDN$10,065,169), expiring between 2037 and
2040. Realization of future tax assets is dependent on future
earnings, the timing and amount of which are uncertain.
Accordingly, the net future tax assets have been fully offset by a
valuation allowance. The valuation allowance increased by
$2,896,093 and $3,270,369, respectively, for the years ended
February 29, 2020 and 2019. The Company has provided a full
valuation allowance on the deferred tax assets as a result of the
uncertainty regarding the probability of its
realization.
F-29
The
Company has approximately $3,258,598 (CDN$4,375,971), 2019 -
$3,477,574 (CDN$4,670,034) of research and development expenditures
for Canadian Federal and Québec provincial purposes that are
available to reduce taxable income in future years and have an
unlimited carry forward period, the benefit of which has not been
reflected in these financial statements. Research and development
expenditures are subject to audit by the taxation authorities and
accordingly, these amounts may vary.
The
tax effect of temporary differences between US GAAP accounting and
federal income tax accounting creating deferred income tax assets
and liabilities were as follows:
|
As
at
|
|
|
February 29,
2020
|
February 28,
2019
|
Deferred tax
assets
|
|
|
Canada net
operating loss carry forward
|
$3,905,836
|
$2,026,984
|
U.S. net operating
loss carry forward
|
3,376,117
|
3,165,937
|
Accrual and
reserves
|
186,985
|
118,309
|
Intangibles
|
92,292
|
-
|
Property, plant
and equipment
|
140,538
|
-
|
Research and
development expenditures and credits
|
1,426,470
|
1,058,010
|
Other
|
126,362
|
38,418
|
Deferred tax assets
|
9,254,600
|
6,407,658
|
Deferred tax
liabilities
|
|
|
Property, plant
and equipment
|
-
|
(41,636)
|
Intangibles
|
(27,267)
|
(34,785)
|
Accrual and
reserves
|
-
|
-
|
Investment tax
credits
|
-
|
-
|
Unrealized foreign
exchange
|
-
|
-
|
Deferred tax liabilities
|
(27,267)
|
(76,421)
|
|
|
|
Deferred tax
assets, net
|
9,227,333
|
6,331,239
|
Valuation
allowance
|
(9,227,333)
|
(6,331,239)
|
Deferred tax assets, net
|
$-
|
$-
|
Assessment
of the amount of value assigned to the Company's deferred tax
assets under the applicable accounting
rules
is judgmental. The Company is required to consider all
available positive and negative evidence in evaluating the
likelihood that the Company will be able to realize the benefit of
its deferred tax assets in the future. Such evidence includes
scheduled reversals of deferred tax liabilities, projected future
taxable income, tax planning strategies and the results of recent
operations. Since this evaluation requires consideration of
events that may occur some years into the future, there is an
element of judgment involved. Realization of the Company's
deferred tax assets is dependent on generating sufficient taxable
income in future periods. Management does not believe that it
is more likely than not that future taxable income will be
sufficient to allow it to recover substantially all of the value
assigned to its deferred tax assets. Accordingly, the Company
has provided for a valuation allowance of the Company's deferred
tax asset.
The
tax years subject to examination by major tax jurisdiction include
the years 2016 and forward by the U.S. Internal Revenue Service and
most state jurisdictions, and the years 2016 and forward for the
Canadian jurisdiction.
F-30
17. Interest and Other Finance Costs
Interest
and other finance costs for the years ended February 29, 2020,
February 28, 2019 and February 28, 2018 are as
follows:
|
2020
|
2019
|
2018
|
Interest
on long-term debt
|
$57,450
|
$54,040
|
$5,125
|
Interest
on convertible notes
|
362,426
|
109,804
|
-
|
Accretion
expense
|
1,892,185
|
185,505
|
-
|
Amortization
of deferred finance costs
|
96,155
|
47,123
|
-
|
Revaluation
of warrants
|
8,483
|
65,167
|
-
|
Loss on
revaluation of foreign exchange contracts
|
27,129
|
-
|
-
|
Gain on
conversion of November 2018 Notes
|
(232,565)
|
-
|
-
|
Other
|
12,041
|
5,811
|
-
|
|
$2,223,304
|
$467,450
|
$5,125
|
18. Legal Settlement
On
January 27, 2017, two individuals (“Plaintiffs”), filed
a claim against the Company in the Los Angeles Superior Court
(“Court”), seeking damages for breach of implied
covenant of good faith and fair dealing, breach of contract, and
promissory fraud, asserting entitlement to shares of the
Company’s common stock. On February 25, 2019, the Company and
the Plaintiffs entered into a settlement agreement and release
(“Settlement Agreement”), which sets forth the
parties’ agreement in principle for settlement. Through the
Settlement Agreement, Plaintiffs, the Company and certain other
parties to the Settlement Agreement agreed to mutual releases of
any and all claims.
Pursuant
to the terms of the Settlement Agreement, without agreeing that any
of the Plaintiffs’ claims have merit, the Company agreed to
issue to the Plaintiffs 150,000 shares of the Company’s
common stock (“Plaintiff Common Shares”) and 500,000
warrants exercisable for shares of the Company’s common stock
(“Plaintiff Warrants”). The Plaintiff Common Shares
will be restricted upon issuance, but within 180 days following the
date of the Settlement Agreement, the Company has agreed to file
and use its reasonable best efforts to have declared effective a
registration statement to register the Plaintiff Common Shares and
the shares of the Company’s common stock underlying the
Plaintiff Warrants. The Company also agreed to maintain such
registration statement for 2 years from the date of effectiveness
unless the Plaintiffs sell or otherwise transfer the shares covered
by such registration statement prior to the two-year anniversary.
300,000 of the Plaintiff Warrants are exercisable for shares of the
Company’s common stock at an exercise price of $12.00 per
share for a period of 24 months following the date of the
Settlement Agreement. The remaining 200,000 Plaintiff Warrants are
exercisable for shares of the Company’s common stock at an
exercise price of $11.00 per share for a period of 24 months, but
in the event the Company’s 5-day average trading price during
any period in the first 18 months following the date of the
Settlement Agreement is above $11 per share, then the exercise term
of such warrants shall automatically be reduced to 18 months
instead of 24 months.
In
connection with the legal settlement, the Company recorded an
expense in the amount of $4,041,627, based on the fair value of the
Plaintiff Common Shares and Plaintiff Warrants that were issued on
February 25, 2019, under the terms of the Settlement
Agreement.
19. Commitments
The
Company has entered into multi-year supply agreements with PepsiCo,
Coca-Cola’s Cross Enterprise Procurement Group, Danone SA,
L’OCCITANE en Provence and L’Oréal that will
enable them to purchase Loop™ PET resin from the
Company’s joint venture facility with Indorama in the United
States.
F-31
20. Subsequent Event
Potential impact of the COVID-19 pandemic
The
Company announced on March 25, 2020, that 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 has since been extended
it to May 4. The order provides exemptions that allow the Company
to continue reduced operations at the pilot plant.
Capital contribution to the joint venture
On
March 13, 2020, Loop Innovations, LLC, a wholly-owned subsidiary of
Loop Industries, Inc. contributed $650,000 to Indorama Loop
Technologies, LLC, the joint venture with Indorama.
F-32
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.
for
Exhibit
Index
|
|
|
Incorporated
by Reference
|
|
|
Number
|
Description
|
Form
|
File
No.
|
Filing
Date
|
Exhibit
No.
|
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
|
|
Articles of
Incorporation, as amended to date
|
10-K
|
000-54768
|
May 30,
2017
|
3.1
|
|
By-laws, as amended
to date
|
8-K
|
000-54768
|
April 10,
2018
|
3.1
|
|
Description of
Securities
|
10-K
|
001-38301
|
May 8,
2019
|
4.1
|
|
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
|
|
Form of Amendment
to 2019 Warrant, dated April 4, 2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.2
|
|
Form of Amendment
and Conversion Agreement, dated April 5, 2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.3
|
|
Form of Amendment
to November 2018 Warrant, dated April 8, 2019.
|
8-K
|
001-38301
|
April 10,
2019
|
4.4
|
|
Form of Convertible
Promissory Note, dated January 15, 2019 (under Note and Warrant
Purchase Agreement).
|
8-K
|
001-38301
|
January 16,
2019
|
4.1
|
|
Form of Warrant,
dated January 15, 2019 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
January 16,
2019
|
4.2
|
|
Form of Note and
Warrant Purchase Agreement, dated November 13, 2018.
|
8-K
|
001-38301
|
November 13,
2018
|
4.1
|
|
Form of Note, dated
November 13, 2018 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-38301
|
November 13,
2018
|
4.2
|
|
Form of Warrant,
dated January 11, 2018
|
8-K
|
001-38301
|
January 18,
2018
|
4.1
|
|
Form of
Indenture
|
S-3
|
333-226789
|
August 10,
2018
|
4.1
|
|
2017 Equity
Incentive Plan
|
10-Q
|
000-54768
|
October 11,
2017
|
4.3
|
|
Form of Stock
Option Agreement
|
10-Q
|
000-54768
|
October 11,
2017
|
4.4
|
|
Form of Restricted
Stock Unit Agreement
|
10-Q
|
000-54768
|
October 11,
2017
|
4.5
|
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
|
|
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
|
|
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
|
|
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
|
|
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
|
|
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
|
|
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
|
|
Articles of Merger
of Loop Holdings, Inc. into Loop Industries, Inc.
|
10-K
|
000-54768
|
May 30,
2017
|
10.9
|
|
Form of
Indemnification Agreement
|
10-K
|
000-54768
|
May 30,
2017
|
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
|
|
Form of Note and
Warrant Purchase Agreement, dated January 15, 2019.
|
8-K
|
001-8301
|
January 16,
2019
|
10.1
|
|
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
|
|
Form of Warrant,
dated November 13, 2018 (under Note and Warrant Purchase
Agreement).
|
8-K
|
001-8301
|
November 13,
2018
|
10.1
|
|
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
|
|
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
|
|
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
|
|
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
|
|
Form of Common
Stock Subscription Agreement
|
8-K
|
001-8301
|
January 18,
2018
|
10.1
|
|
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
|
|
Employment
Agreement, dated December 19, 2018, by and between Loop Canada Inc.
and Nelson Gentiletti.
|
10-K
|
000-54768
|
May 8,
2019
|
10.35
|
|
Employment
Agreement May 28, 2019 by and between Loop Canada Inc. and Michel
Megelas
|
10-K
|
000-54768
|
May 4,
2020
|
10.21
|
|
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
|
2
________
† Portions of
this exhibit (indicated by asterisks) have been
omitted.
ITEM 16. FORM 10-K SUMMARY
None.
3
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:
September 20, 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:
September 20, 2020
|
By:
|
/s/ Daniel Solomita
|
|
|
Name:
|
Daniel
Solomita
|
|
|
Title:
|
Chief
Executive Officer, President, and Director
(principal
executive officer)
|
|
|
|
|
|
Date:
September 20, 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:
September 20, 2020
|
By:
|
/s/ Pete Kezios
|
|
|
Name:
|
Pete
Kezios
|
|
|
Title:
|
Director
|
|
|
|
|
|
Date:
September 20, 2020
|
By:
|
/s/ Jay Stubina
|
|
|
Name:
|
Jay
Stubina
|
|
|
Title:
|
Director
|
|
|
|
|
|
Date:
September 20, 2020
|
By:
|
/s/ Andrew Lapham
|
|
|
Name:
|
Andrew
Lapham
|
|
|
Title:
|
Director
|
|
|
|
|
|
Date:
September 20, 2020
|
By:
|
/s/ Laurence Sellyn
|
|
|
Name:
|
Laurence
Sellyn
|
|
|
Title:
|
Lead
Director
|
|
4