Loop Industries, Inc. quarterly report, Q1 FY2022

Business context and reporting period

Loop Industries, Inc. filed this unaudited Form 10-Q for the three months ended May 31, 2021, its first quarter of fiscal 2022. The company is developing technology to convert low-value PET plastic and polyester waste into virgin-quality recycled PET resin and had not begun commercial operations or generated revenue.

Loop reported that its technology uses methanolysis to produce DMT and MEG monomers. It cited an FDA no-objection letter received March 1, 2021, and European REACH registrations for its monomers. These regulatory milestones do not establish commercial-scale performance.

Financial results and liquidity

Comprehensive loss was $11.95 million, including a $0.21 million favorable currency translation adjustment. Revenue and gross margin were not applicable because no revenue was reported.

Cash and cash equivalents were $18.04 million at May 31, 2021, down from $35.22 million at February 28, 2021. Total assets were $32.52 million and total liabilities were $11.64 million. Current assets of $21.57 million exceeded current liabilities of $10.03 million by approximately $11.54 million. Debt was approximately $2.59 million, including $0.97 million classified as current.

Capital spending included $4.87 million of property and equipment additions, principally the $4.9 million purchase of a 19-million-square-foot site in Bécancour, Québec, for a planned commercial facility. The filing says management believed available resources were sufficient for at least the 12 months from issuance to fund committed operating and capital expenditures, while noting that future financing was not assured.

Material changes versus the prior comparable period

• Net loss increased by $8.30 million, principally reflecting a $7.16 million increase in R&D and a $1.21 million increase in G&A.
• R&D spending rose with engineering design, demonstration-plant equipment and activity, and increased hiring. The company began expensing certain R&D machinery and equipment rather than capitalizing it following its decision to dedicate the pilot plant to demonstration and training use.
• G&A increased mainly from legal and professional fees associated principally with the SEC investigation and securities litigation, higher directors’ and officers’ insurance costs, and hiring. RSU forfeitures produced a net reversal of stock-based compensation expense, partially offsetting the increases.
• Operating cash use rose by $7.43 million. Investing cash use increased primarily because of the Bécancour land purchase. Cash declined by $17.18 million during the quarter.

Outlook, risks, contingencies, and unusual items

• Commercialization plans: Loop was engineering facilities with Worley and described a planned design capacity of up to 70,000 metric tons per year. The company reported that the planned Spartanburg facility had been increased to 40,000 metric tons per year and that approximately 40% of planned capacity was contracted. The joint venture had temporarily delayed work during the pandemic, and cross-border travel restrictions continued to affect the timetable.
• Demonstration facility: Loop expected the Terrebonne demonstration and training project to be largely complete by late 2021 and anticipated delivering Loop-branded resin to customers in 2022. These are targets, not guaranteed outcomes.
• Post-quarter financing and partnership: On June 22, 2021, Loop agreed to sell SK global chemical 4,714,813 shares for approximately $56.5 million, or $12 per share, together with warrants. The filing described closing as expected within 90 days of the June announcement; the proceeds should not be treated as quarter-end cash. The parties also outlined a potential Asia joint venture in a non-binding MOU. Exercise of warrants could further dilute shareholders.
• Indorama agreement changes: Amendments dated June 18, 2021 limited the Indorama joint venture’s relevant exclusivity, IP and marketing scope to North America and Europe and terminated Indorama’s right of first refusal over certain facilities.
• Legal and regulatory matters: The SEC investigation, initiated following an October 2020 subpoena, remained unresolved. U.S. securities class actions had been consolidated and a motion to dismiss was pending; a proposed Québec securities class action was also ongoing. Management said it intended to defend the cases and had not recorded a provision because their effects could not yet be determined. Legal proceedings and investigation expenses were elevated.
• Key execution risks: The company cited commercialization and scale-up, construction and permitting, customer offtake, feedstock availability and cost, access to additional financing, competition with virgin PET, foreign-exchange exposure, and continuing COVID-19 disruption. Management said disclosure controls were effective as of May 31, 2021 and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

1. Whether the SK investment closed, how much cash Loop received, and the resulting share count and potential warrant dilution.
2. Progress, funding, permitting and commissioning timelines for the Bécancour, Spartanburg and other planned facilities, including whether stated capacity and offtake commitments are achieved.
3. Whether the demonstration plant delivers commercial-quality resin on the stated timetable and whether the process performs reliably at scale and at competitive cost.
4. Actual cash burn, remaining financing capacity, and the basis for management’s statement that resources would cover at least 12 months of needs.
5. Developments and potential financial consequences of the SEC investigation and U.S. and Québec securities litigation.
6. Whether supply agreements, regulatory clearances and feedstock access translate into recurring sales; the filing reports no revenue for the quarter.