Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended November 30, 2018 (fiscal third quarter). The company is developing technology to convert waste polyester plastic and fiber into recycled, food-grade-quality PET resin. It had not begun commercial operations and reported no revenue.
Financial performance and position
| Metric | Three months ended Nov. 30, 2018 | Nine months ended Nov. 30, 2018 | Prior comparable period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in 2017 |
| Net loss | $2.9 million | $10.0 million | $6.7 million and $10.4 million, respectively |
| Operating expenses | $2.9 million | $10.0 million | $6.7 million and $10.4 million, respectively |
| Basic and diluted loss per share | $0.09 | $0.30 | $0.20 and $0.32, respectively |
| Cash used in operating activities | $5.5 million for nine months | $4.2 million | |
| Cash used in investing activities | $1.5 million for nine months | $0.3 million |
At November 30, 2018, cash was $3.5 million and restricted cash was $0.1 million, versus $8.1 million cash at February 28, 2018. Current assets were $4.0 million and current liabilities $5.2 million, a working-capital deficit of approximately $1.2 million. Total liabilities were $6.1 million, including $2.45 million of convertible notes and $1.01 million of installment debt. Stockholders’ equity was $3.3 million. Profit margins are not meaningful because the company had no revenue.
Changes and notable items
- Third-quarter net loss decreased by $3.8 million year over year, primarily as research and development expense fell $3.1 million, including lower stock-based compensation and engineering fees.
- Nine-month net loss narrowed by $0.4 million. Research and development expense decreased $2.4 million, while general and administrative expense increased $2.0 million, partly due to compensation, legal, consulting, accounting and public-company costs.
- Operating cash use increased to $5.5 million from $4.2 million; capital investment rose to $1.5 million, primarily for pilot-plant expansion. Financing provided $2.5 million, mainly from convertible debt, compared with $7.0 million in the prior period, mainly from equity and warrant proceeds.
- In November 2018, Loop issued $2.45 million of 8% convertible notes, due May 13, 2019, with conversion pricing tied to the share price and related warrants. The company also had $0.1 million in subscriptions for additional convertible debt. A further $0.2 million of similar notes and warrants was issued on January 3, 2019.
Outlook, risks and contingencies
- Loop formed a 50:50 joint venture with Indorama Ventures, with intended commercial production in the first quarter of 2020. Loop committed an initial $0.5 million contribution by January 22, 2019; it had contributed an exclusive technology license, and the venture had no other activity by quarter-end.
- PepsiCo agreed to purchase capacity from the U.S. joint-venture facility and incorporate Loop PET resin into packaging by early 2020. A multi-year supply framework with certain Coca-Cola procurement-group members was also announced. These arrangements depend on commercialization and production capacity; the filing provides no revenue forecast or quantified production guidance.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern: it had a $31.3 million accumulated deficit, $10.0 million nine-month loss, no recurring revenue and $5.5 million of operating cash use. It expects to seek additional financing, but availability and terms are uncertain. Failure to raise funds could impair covenant compliance and trigger cross-default provisions.
- A lawsuit seeks, among other relief, two million shares and attorneys’ fees. Trial was rescheduled to May 8, 2019. Management considers the claim meritless and has recorded no provision; potential loss is not estimable in the filing.
- The company identified currency-exchange and raw-material/commodity-price exposure and reported no currency hedging activity. It said it was in compliance with long-term-debt financial covenants at November 30, 2018.
- Management said disclosure controls and internal control over financial reporting were effective at quarter-end and that it had remediated a previously reported stock-based-compensation material weakness.
Investor facts to verify
- Cash runway, planned financing needs and the terms and timing of any subsequent capital raises.
- Whether the joint venture reaches commercial production on schedule, and the conditions and enforceability of the PepsiCo and Coca-Cola arrangements.
- Convertible-note conversion, warrant dilution and any effects on debt covenants or cross-default risk.
- Progress and potential exposure in the two-million-share lawsuit.
- Commercial-scale performance, costs and customer demand for the recycling technology; the filing does not provide a clear quantified commercialization forecast.