Loop Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 29, 2020; the filing also reports the fourth quarter ended February 29, 2020, compared with the quarter ended February 28, 2019. Amounts are in U.S. dollars unless noted.
Business context
Loop is a pre-commercial technology company developing a process to depolymerize low-value PET plastic and polyester waste and produce virgin-quality recycled PET resin and fiber. Its business models are a 50/50 joint venture with Indorama and planned “Infinite Loop” greenfield facilities. The company reported five customer agreements but no revenue to date.
Financial performance and liquidity
| Metric | FY ended Feb. 29, 2020 | Prior comparable period |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $14.51 million | $17.54 million |
| Basic and diluted loss per share | $0.38 | $0.52 |
| Operating cash used | $9.09 million | $7.56 million |
| Investing cash used | $3.39 million | $2.05 million |
| Financing cash provided | $40.46 million | $7.33 million |
- FY 2020 R&D expense was $4.72 million, up $1.27 million; general and administrative expense was $7.22 million, down $5.64 million.
- Net loss improved primarily because FY 2019 included a $4.04 million legal settlement expense and FY 2020 had lower other G&A costs. This was partly offset by higher R&D and $2.22 million of interest and other finance costs, versus $0.47 million in FY 2019; much of the increase reflected convertible-note accretion.
- Fourth-quarter net loss was $3.76 million, versus $7.55 million in the prior-year quarter, chiefly reflecting the absence of the prior-year legal settlement expense. Quarterly revenue was zero in both periods.
- Cash and cash equivalents were $33.72 million at year-end, versus $5.83 million a year earlier. Current assets were $34.52 million and current liabilities $2.13 million. Total liabilities were $4.37 million, including $2.29 million of long-term debt and current portion.
- Financing cash inflows included net proceeds from registered direct stock offerings and a $1.65 million Investissement Québec facility disbursement. Common shares outstanding increased from 33.81 million to 39.91 million during the fiscal year.
- The filing states that the $14.51 million annual loss, $9.10 million operating cash use, and $53.32 million accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern. Management cited year-end cash as a source of liquidity but said future financing is not assured.
Gross margin is not meaningful because the company had no revenue or commercial production. The filing provides no revenue-based profitability measure.
Material changes and business progress
- The planned Indorama Spartanburg facility was increased from 20,700 to 40,000 metric tons per year. Loop said the initial 20,700 metric tons of expected output were contracted for sale and it was still discussing contracts for additional capacity.
- Commissioning was expected in the third quarter of calendar 2021, subject to possible COVID-19-related delays. Loop had contributed $1.5 million to the joint venture by April 30, 2020; a further $650,000 contribution was made on March 13, 2020.
- Loop invested $2.44 million in its pilot plant during FY 2020. The GEN II process, which uses DMT rather than PTA as a PET monomer, is the basis of its planned commercialization; the company says it does not intend to commercialize GEN I.
- Five multi-year customer arrangements were identified: Danone, PepsiCo, Coca-Cola’s Cross Enterprise Procurement Group, L’Occitane, and L’Oréal. These arrangements support planned purchases or capacity, but had not generated reported revenue by fiscal year-end.
Outlook, risks, and unusual items
- Management’s FY 2021 priorities include protecting intellectual property, upgrading the pilot plant, securing feedstock, advancing Spartanburg engineering and construction, pursuing customer agreements, and developing the Infinite Loop model. No revenue or earnings guidance was provided.
- COVID-19 had reduced pilot-plant operations and led to furloughs; as of April 30, 2020, 31 of 53 employees were furloughed. Management said the project timetable was then unchanged but could be affected by the pandemic, partners’ operations, supply chains, permitting, or capital-market conditions.
- Key risks include continued losses and financing needs, inability to scale or commercialize the technology, construction and commissioning delays, feedstock availability and cost, competition from virgin and mechanically recycled PET, regulatory approvals, intellectual-property protection, foreign-exchange movements, and dilution from future financing.
- The Investissement Québec facility could provide up to $3.43 million, subject to eligible expenses. It carries a 36-month principal and interest moratorium, then 84 monthly installments, at 2.36%; warrants equal to 10% of each disbursement are also issued. A separate Canadian bank loan bears interest at prime plus 1.5% and is subject to renewal in January 2021.
- The FY 2019 legal settlement included 150,000 shares and 500,000 warrants and produced a $4.04 million expense. FY 2020 also included significant noncash convertible-note accretion expense; the notes converted into common shares during the year.
- Management reported effective disclosure controls and internal control over financial reporting as of February 29, 2020. No material legal proceedings were reported as pending.
Key facts for investors to verify
- Whether the Spartanburg facility reaches commissioning on schedule, achieves the planned 40,000-ton capacity, and operates at expected cost and quality.
- Whether customer agreements specify binding purchase volumes, pricing, conditions, and delivery timelines—and whether contracted output beyond the initial 20,700 tons is secured.
- Cash burn and available liquidity relative to remaining facility construction, joint-venture contributions, and future capital requirements; the company disclosed substantial going-concern doubt.
- Feedstock supply commitments, required permits, and the commercial-scale performance and economics of the GEN II process.
- Potential dilution from equity financing, warrants, options, and outstanding restricted stock units, as well as the controlling voting rights held by the CEO through Series A preferred stock.