Loop Industries, Inc. — Form 10-Q summary
Business context and reporting period
For the quarter and six months ended August 31, 2017 (fiscal Q2), Loop was a development-stage company pursuing PET-plastics depolymerization and recycling. It reported no revenue. Its technology was still in pilot testing, and the company was working toward commercial-scale manufacturing.
Financial performance and position
| Metric | Three months ended Aug. 31, 2017 | Six months ended Aug. 31, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.18 million | $3.70 million |
| Net loss | $2.18 million | $3.70 million |
| Loss per share, basic and diluted | $0.07 | $0.11 |
| Operating cash used | Not provided for the quarter | $2.27 million |
With no revenue, gross margin and other revenue-based margins are not meaningful. At August 31, cash was $5.38 million, current assets were $5.50 million, current liabilities were $0.90 million, and stockholders’ equity was $6.56 million. Total assets were $7.46 million. The filing reports no conventional interest-bearing debt; current liabilities included $28,710 in advances from the majority stockholder and $818,963 in accounts payable and accrued liabilities.
Changes versus prior comparable periods
Quarterly net loss increased from $0.83 million in 2016 to $2.18 million in 2017; six-month net loss increased from $1.79 million to $3.70 million. For the six months, general and administrative expense rose to $1.97 million from $0.76 million, while research and development expense rose to $1.45 million from $0.85 million. The company attributed increased spending to scaling and development work. Cash increased from $0.92 million at February 28, 2017, supported principally by $7.04 million of net proceeds from common-share sales and warrant exercises during the six months.
Outlook, risks, and unusual items
- Management estimated existing funds would support operations for the next 12 months, but said substantial additional financing would be needed to complete the transition to commercial-scale manufacturing. Financing availability and terms were uncertain, with potential debt restrictions or equity dilution.
- The company planned a facility with installed capacity of approximately 20,000 metric tons annually, was conducting resin qualification testing, and was negotiating potential long-term supply contracts. These were plans, not reported commercial results or firm guidance.
- Management described pilot-plant capacity as 2.5 metric tons per day and claimed recovery of over 90% of PET into base chemicals. Commercial scale-up and customer qualification remained unproven.
- Share-based compensation was a significant expense: $920,373 of warrant value for services was recognized in the six months. At August 31, 1,000,000 shares issuable to the CEO upon a milestone had vested, with a stated fair value of $5.5 million; 3,000,000 additional shares remained subject to milestones. Related-party advances were unsecured, non-interest-bearing, and had no formal repayment terms; $249,762 was repaid during the period.
- Subsequent events included a September land, building, and equipment purchase agreement for $957,240, subject to due diligence; a $50,000 Canadian-dollar credit-card facility secured by a GIC; and foreign-exchange contracts involving GIC deposits. The company also issued 700,000 employee stock options after quarter-end. These events may affect liquidity, foreign-exchange exposure, and dilution.
- Foreign-exchange exposure was identified as a risk because the company raised funds mainly in U.S. dollars while many operating costs were Canadian-dollar denominated. Management said disclosure controls were effective, while remediation of previously identified internal-control weaknesses continued.
Important facts for investors to verify
- Whether available cash and subsequent restricted GIC deposits leave sufficient usable liquidity, and the timing and amount of additional financing required.
- Progress toward commercial-scale operations, including facility development, technology performance, customer qualification, and any binding supply contracts.
- Potential dilution and compensation costs from warrants, CEO milestone shares, and post-quarter stock options.
- The terms, collateral requirements, and realized effects of the post-quarter foreign-exchange contracts and facility-related commitments.
- The status of internal-control remediation and whether testing confirms the controls are operating effectively.