Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended November 30, 2017; filed January 12, 2018. Financial statements are unaudited. Loop is developing a PET/polyester depolymerization and recycling technology and reported no revenue during the periods.
Financial results and liquidity
| Metric | Three months ended Nov. 30, 2017 | Nine months ended Nov. 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses / net loss | $6.70 million | $10.40 million | $0.75 million / $0.75 million loss; $2.54 million / $2.54 million loss |
| Research and development | $3.89 million | $5.34 million | $0.37 million; $1.22 million |
| General and administrative | $2.72 million | $4.69 million | $0.28 million; $1.03 million |
| Basic and diluted loss per share | $0.20 | $0.32 | $0.02; $0.08 |
Gross margin and operating margin are not meaningful because there was no revenue. Nine-month operating cash use was $4.18 million, versus $2.08 million in 2016; investing cash use was $0.27 million. Financing provided $7.02 million, primarily from share sales and warrant exercises. Cash was $3.40 million and restricted cash $38,795 at November 30; current liabilities were $1.24 million and stockholders’ equity was $4.29 million. The filing reports no material conventional debt; a CDN$50,000 credit-card facility was secured by a matching term deposit. A $72,880 advance from the majority stockholder remained payable.
Material changes and unusual items
- Nine-month operating expenses rose $7.86 million year over year. Management attributed much of the increase to share-based compensation, pilot-plant work, higher staffing, legal and accounting fees, and NASDAQ-related costs.
- Management reported $5.32 million of share-based compensation for the nine months, including $3.23 million characterized as one-time; its non-GAAP adjusted net loss was $5.08 million, compared with $2.43 million in 2016. For the quarter, adjusted net loss was $2.30 million versus $0.71 million. These adjusted figures exclude share-based compensation.
- Common shares outstanding increased to 32.81 million at November 30 from 31.45 million at February 28, 2017. Loop began trading on the NASDAQ Global Market under LOOP on November 20.
- On January 11, 2018, Loop reported selling 612,667 shares and issuing 104,167 warrants in a private placement for gross proceeds of $7.4 million. The Board had authorized up to 1.1 million shares at $12 per share. Management said the proceeds and available funds were expected to support operations for the next 12 months.
- In December 2017, the company agreed, subject to due diligence, to purchase land and a building for $2.15 million; $77,590 was deposited in escrow.
Outlook, risks, and controls
Management’s plan is to expand the Terrebonne pilot plant and commercialize through technology licensing and manufacturing partnerships, potentially with equity participation, while pursuing take-or-pay contracts with consumer-goods companies. The company was still in its test-pilot program; revenue and commercial viability were not established. Management may seek further financing, with no assurance it will be available on acceptable terms; equity financing could dilute shareholders and debt could restrict operations.
Key risks include commercialization and scale-up, financing needs, competition, intellectual-property protection and disputes, regulatory compliance, foreign-exchange exposure (the company reported no hedging), and control by CEO and majority stockholder Daniel Solomita. The company also disclosed a restatement of prior fiscal-year financial statements and concluded that disclosure controls and internal control over financial reporting were ineffective as of November 30, 2017. Remediation efforts had begun, but were ongoing.
The technology’s stated “FDA approved” status is a company description in the filing, not a reported financial result. Under the intellectual-property agreement, up to CDN$800,000 of milestone payments and royalties may become payable; no production milestones had been met and no royalties had been paid by November 30, 2017. No material pending legal proceedings were reported, although the company anticipated potential future costs to defend or assert intellectual-property rights.
Important facts for investors to verify
- Commercialization progress, pilot-plant capacity and performance, and whether customer or take-or-pay contracts have been secured.
- Cash burn and runway after the January 2018 placement, including the cost and status of the proposed property purchase and any additional financing.
- The restatement’s scope and any subsequent adjustments, plus progress in remediating material weaknesses in financial controls.
- Share-based compensation expense, outstanding warrants and potential dilution, including terms and vesting conditions.
- Evidence supporting technology, regulatory and intellectual-property claims, and any milestone or royalty obligations triggered by production or licensing.