Loop Industries, Inc. - 10-Q Summary (Period Ended Nov 30, 2015)
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Loop Industries, Inc., a Nevada corporation, for the period ended November 30, 2015. The Company is a development-stage entity focused on designing, prototyping, and building a closed-loop plastics recycling business using proprietary de-polymerization technology to convert PET plastic into purified terephthalic acid (PTA) and ethylene glycol (EG). On June 29, 2015, the Company completed a reverse acquisition of Loop Holdings, Inc., which was treated as a capital transaction for accounting purposes. The Company has generated no revenue to date.
Key Financial Metrics
| Metric | Nine Months Ended Nov 30, 2015 | Three Months Ended Nov 30, 2015 | Balance Sheet (Nov 30, 2015) |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(2,311,425) | $(1,038,188) | N/A |
| Total Operating Expenses | $2,309,305 | $1,038,188 | N/A |
| Cash and Cash Equivalents | N/A | N/A | $837,745 |
| Working Capital | N/A | N/A | $243,313 |
| Total Assets | N/A | N/A | $1,413,349 |
| Total Liabilities | N/A | N/A | $604,102 |
| Stockholders' Equity | N/A | N/A | $809,247 |
| Accumulated Deficit | N/A | N/A | $(2,567,024) |
Expense Breakdown (Nine Months): Research and development (related party) was $1,300,000; Consulting fees were $534,001; General and administrative expenses were $196,850; Professional fees were $135,289; and Research and development (non-related) was $143,165.
Material Changes vs. Prior Period
- Reverse Acquisition: The most significant change was the June 29, 2015 reverse acquisition of Loop Holdings, Inc., which fundamentally altered the Company's business focus from VOIP services to plastic recycling technology.
- Expense Surge: Operating expenses increased dramatically from $16,715 in the period from inception (Oct 2014) through Nov 30, 2014, to $2,309,305 for the nine months ended Nov 30, 2015. This is primarily due to the commencement of R&D activities and consulting fees associated with the new business plan.
- Related Party Transactions: Significant R&D expenses ($1,300,000 for nine months) were incurred with a related party (8198381 Canada Inc.), an entity controlled by the CEO.
- Restatements: The Company restated previously issued financial statements for periods ending May 31, 2015, and August 31, 2015, to correct the accounting treatment of consulting fees paid in stock (prepaid vs. immediate expense).
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The filing explicitly states that the Company's recurring losses and negative cash flows raise substantial doubt about its ability to continue as a going concern. The Company has no revenues and requires additional financing to fund its 12-month plan of operation.
- Plan of Operation: Management plans to build a pilot plant (estimated cost $700,000) to validate technology before constructing a full-scale commercial facility (estimated cost $15 million). No revenues are anticipated until financing is secured and the pilot plant is operational.
- Intellectual Property Obligations: The Company holds an agreement to pay up to CAD $1,300,000 for intellectual property, with milestone payments contingent on production volumes. No milestone payments have been made as of Nov 30, 2015.
- Controls and Procedures: Management concluded that disclosure controls and procedures were not effective as of November 30, 2015.
- Unusual Items: A significant portion of expenses ($1,300,000 for nine months) was paid to a related party for R&D services. Additionally, the Company issued shares for services, which required restatement of prior periods.
Investor Verification Checklist
- Capital Adequacy: Verify if the Company has secured the necessary equity financing to fund the $700,000 pilot plant and ongoing operations, given the "Going Concern" warning.
- Related Party Terms: Review the Master Services Agreement with 8198381 Canada Inc. to ensure R&D costs are reasonable and at arm's length.
- Technology Validation: Confirm the status of the pilot plant construction and whether the technology has successfully met the specifications required to trigger milestone payments or commercial sales.
- Restatement Impact: Understand the full impact of the financial restatements on the Company's historical loss position and equity structure.
- Intellectual Property Milestones: Assess the feasibility of meeting the production milestones (20 to 100 metric tons per day) required to trigger future royalty and milestone payments.