Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 31, 2018, compared with the three months ended May 31, 2017. Amounts are in U.S. dollars unless stated otherwise.
Business context
Loop is a pre-revenue technology company developing a process to depolymerize waste PET plastic and polyester into building blocks for producing virgin-quality PET resin and polyester fiber. The company reported progress at its Terrebonne pilot plant and described plans to commercialize its technology, but had not begun commercial operations.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.07 million | $0.50 million |
| General and administrative expense | $2.36 million | $0.89 million |
| Total operating expenses / net loss | $3.53 million | $1.52 million |
| Basic and diluted loss per share | $0.11 | $0.05 |
| Cash used in operating activities | $2.17 million | $0.98 million |
| Cash used in investing activities | $0.59 million | $0.06 million |
- Cash declined to $5.36 million at May 31, 2018, from $8.15 million at February 28, 2018. The quarter’s net cash decrease was $2.79 million.
- Current assets were $5.94 million and current liabilities were $2.15 million. Total assets were $11.09 million; stockholders’ equity was $7.93 million.
- Total debt was $1.06 million, including $54,062 due within one year. The company reported compliance with its financial covenants.
- There was no revenue, so a revenue-based margin is not applicable. Operating results were entirely loss-making.
Material changes versus the prior comparable period
- Net loss increased by $2.01 million. R&D expense rose by $0.57 million, and general and administrative expense rose by $1.47 million.
- Management attributed higher R&D costs mainly to increased stock-based compensation and employee costs. Higher G&A reflected employee-related costs, legal fees, and consulting and accounting fees.
- Stock-based compensation expense was $1.19 million, compared with $0.22 million in the prior-year quarter.
- Investing outflows increased, primarily for pilot-plant expansion. The company had no financing proceeds in the quarter, unlike the prior-year period, when it raised approximately $5.9 million from common-stock sales.
Outlook, risks, and unusual items
- Management said it was evaluating plans to raise additional capital to fund commercialization and ongoing development. No quantified revenue, earnings, or cash-flow guidance was provided; future financing availability and terms were uncertain.
- The filing states that accumulated losses, the $3.5 million quarterly net loss, operating cash use, and the absence of recurring revenue raise substantial doubt about the company’s ability to continue as a going concern.
- Commercialization depends on developing and protecting the technology, securing customer contracts, and competing with virgin PET. The filing also identifies foreign-exchange, commodity-price, and raw-material availability and cost risks. The company reported no currency hedging at the time.
- Two individuals claim entitlement to two million common shares and seek damages, punitive damages, and attorneys’ fees. The company moved for summary judgment; the hearing was scheduled for August 13, 2018, with trial set for September 12, 2018. Management disputed the claim, but had not estimated potential loss; no provision was recorded.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to a previously disclosed material weakness involving stock-based compensation. Remediation work continued, but remediation testing was not performed during the quarter.
Important facts for investors to verify
- Cash use, remaining liquidity, and the timing, availability, and terms of any additional financing.
- Evidence of successful commercialization, including customer contracts, operating scale, and the economics of producing Loop-branded resin.
- Progress and outcomes in the two-million-share lawsuit, including any subsequent estimate or financial-statement treatment of potential exposure.
- Remediation and testing of the stock-based-compensation control weakness.
- Whether the pilot plant’s expansion and technology performance translate into commercial production and competitive costs.