Loop Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 28, 2018, including the fourth quarter ended that date. The filing was signed May 14, 2018. The company develops technology to depolymerize waste PET and polyester into building blocks for recycled, virgin-quality resin. It had expanded its Terrebonne pilot plant but had not begun commercial operations.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses and net loss | $14.04 million | $4.11 million |
| Research and development | $6.69 million | $1.45 million |
| General and administrative | $6.87 million | $2.28 million |
| Operating cash used | $6.39 million | $2.83 million |
| Investing cash used | $2.80 million | $0.51 million |
| Financing cash provided | $16.50 million | $3.99 million |
- Fourth-quarter revenue was $0; net loss was $3.63 million, compared with $1.57 million in the prior-year quarter. Fourth-quarter R&D was $1.35 million and G&A was $2.17 million.
- FY 2018 basic and diluted loss per share was $0.43, versus $0.13 in FY 2017. No operating margin is meaningful because the company had no revenue.
- At year-end, cash was $8.15 million, total current assets $9.03 million, current liabilities $2.04 million, total assets $13.40 million, and total liabilities $3.07 million. Stockholders’ equity was $10.32 million.
- Debt totaled approximately $1.09 million: $54,649 current and $1.03 million long term. The bank loan is secured by subsidiary assets, bears interest at Canadian prime plus 1.5%, and requires monthly principal payments; the company reported covenant compliance.
- Financing cash included $15.7 million net proceeds from share sales and warrant exercises and approximately $1.09 million of loan proceeds. Investing included $2.2 million for the pilot-plant property and building.
Changes, outlook, and material matters
- Annual net loss increased $9.92 million year over year, principally from higher R&D and G&A as the company expanded the pilot plant and prepared for commercialization. Stock-based compensation and other warrant/service-related charges were significant; management cited a non-recurring $2.4 million stock-option vesting charge in R&D.
- Management plans to commercialize through technology licensing and manufacturing partnerships, potentially with equity interests, and to negotiate take-or-pay resin contracts with global consumer goods companies. The filing provides no quantified revenue, production, or earnings guidance and no assurance that contracts or financing will be obtained.
- The company was pre-revenue, incurred recurring losses, and used $6.39 million of operating cash in FY 2018. Management and the auditor said these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management was evaluating further financing; availability and terms were uncertain.
- The auditor gave an unqualified opinion on the financial statements but concluded internal control over financial reporting was ineffective because of a material weakness in stock-based compensation accounting. The weakness led to restatements of previously issued FY 2017 and FY 2018 interim financial statements; remediation was ongoing.
- A lawsuit seeks two million common shares, punitive damages, and attorneys’ fees over an alleged consulting agreement. The company disputes the claim, intends to defend it, and could not estimate a potential loss; no amount was accrued.
- CEO Daniel Solomita beneficially owned 55% of common shares and held one Series A preferred share with majority voting power, subject to the disclosed ownership condition. The company reported 33,751,088 common shares outstanding at year-end and approximately 33.77 million as of May 4, 2018.
- The company bought its Terrebonne pilot-plant and office property in January 2018. It had no off-balance-sheet arrangements and did not expect to pay dividends in the foreseeable future.
Key facts for investors to verify
- Whether the technology can operate continuously at commercial scale, meet quality and cost targets, and secure required permits and customer contracts.
- Cash needs and financing runway relative to operating cash use, planned commercialization spending, and the going-concern uncertainty.
- Progress in remediating the stock-based compensation control weakness and whether future filings require further restatements.
- Potential dilution from equity financing, warrants, equity awards, and the CEO’s performance-based share arrangements.
- Developments and potential exposure in the two-million-share lawsuit, and the terms and obligations attached to the IP assignment and bank loan.