Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 31, 2020. Loop Industries is a development-stage technology company seeking to convert waste PET plastic and polyester fiber into virgin-quality recycled PET resin. It reported no revenue and had not begun commercial operations.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $3.85 million | $3.55 million |
| Loss per share, basic and diluted | $0.10 | $0.11 |
| Operating cash used | $4.98 million | $2.09 million |
| Investing cash used | $1.19 million | $0.96 million |
- Cash and cash equivalents were $27.51 million at May 31, 2020, down from $33.72 million at February 29, 2020. The filing’s MD&A also refers to $27.51 million as cash “as at February 29, 2020,” which conflicts with the balance sheet; the balance-sheet date and figure are clear.
- Total assets were $39.10 million; total liabilities were $3.65 million. Debt was approximately $2.24 million net of the current portion, plus $0.05 million current debt.
- Current assets were $30.02 million and current liabilities were $1.46 million. The resulting current ratio was approximately 20.5.
- Gross margin and operating margin are not meaningful because the company had no revenue. Research and development expense rose 48% to $1.48 million; general and administrative expense rose 3% to $1.95 million.
- Management said available resources were expected to fund planned operating and capital expenditures and working capital for at least 12 months from issuance of the financial statements, while cautioning that future financing availability and terms were uncertain.
Changes versus the prior-year quarter
- Net loss increased $0.30 million, mainly from higher R&D, depreciation and amortization, foreign-exchange loss, and G&A expense. Lower financial expenses and interest income partly offset those increases.
- Operating cash use increased by about $2.89 million. The company cited $1.87 million of prepaid expenses, including an upfront annual directors’ and officers’ insurance payment, and lower accounts payable and accrued liabilities.
- Cash declined $6.21 million during the quarter, compared with a $1.14 million increase in Q1 2019. The prior-year quarter included equity proceeds; Q1 2020 had no share-sale proceeds.
- Stock-based compensation was $1.01 million. The weighted-average share count increased to 39.92 million from 34.71 million, while reported loss per share improved to $0.10 from $0.11.
Business developments, outlook and risks
- The company continued developing its Generation II process, which produces dimethyl terephthalate (DMT) and monoethylene glycol from waste PET. It reported pilot-plant capital investment of $0.39 million in the quarter and described ongoing process and engineering improvements, but provided no operating revenue or commercial production results.
- The 50/50 Indorama joint venture had no operations through May 31, 2020. Loop had contributed $1.50 million in total, including $0.65 million during the quarter. The planned Spartanburg facility’s capacity was increased from 20,700 to 40,000 metric tons per year; the company said the initial 20,700 metric tons of expected output was contracted for sale and it was discussing contracts for additional capacity.
- Commissioning, previously expected in Q3 2021, was delayed by approximately three to six months because of COVID-19-related disruptions, including border closures and quarantine requirements. The filing gave no revised specific commissioning date and warned that further delays were possible.
- Loop was exploring joint-venture structures and financing alternatives to increase its equity participation in the Spartanburg project. Indorama reiterated its commitment to maintain an investment, but discussions were ongoing.
- The company was also planning its first Infinite Loop manufacturing complex in Europe with a strategic partner; the filing provided no firm schedule or financing terms.
- COVID-19 temporarily reduced Quebec operations from March 25; the company said full operations resumed May 11 with safety measures. It reported no significant financial-statement impact from the pandemic for the quarter, but cited potential effects on project timing, capital access, permits, supply chains and raw materials.
- Other material risks include commercialization and construction execution, obtaining additional funding and permits, securing feedstock, competition and PET/crude-oil pricing, foreign-exchange exposure, and protecting intellectual property. The company reported a $76,641 foreign-exchange loss and a $98,502 loss on revaluation of foreign-exchange contracts.
- The Investissement Québec facility had a 36-month payment moratorium and up to $1.73 million remained available for future disbursement, subject to the facility terms. The company was in compliance with its Canadian bank loan covenants. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether the Spartanburg project’s revised commissioning schedule, construction cost, financing structure and Loop’s required equity contribution are finalized.
- The terms, enforceability and production-volume conditions of the stated customer supply agreements, and whether additional capacity can be contracted.
- Whether the remaining Investissement Québec funding is drawn and whether the company can secure sufficient additional capital without significant dilution or unfavorable terms.
- Whether the company can achieve commercial-scale production, secure long-term feedstock and generate revenue; reported results remain pre-commercial.
- The cash balance and runway, particularly given the filing’s conflicting reference to the date associated with the $27.51 million cash figure and elevated operating cash use.