Loop Industries, Inc. — Q1 FY2020 Form 10-Q
Reporting period: Three months ended May 31, 2019; comparative period is the three months ended May 31, 2018. Financial statements are unaudited and presented in U.S. dollars. Loop develops technology to convert low-value PET plastic and polyester waste into virgin-quality recycled resin and fiber. It reported no revenue and described itself as a development-stage company.
Key financial metrics
| Metric | Q1 FY2020 | Prior period / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $3.55 million | $3.53 million loss; increased $25,020 |
| Comprehensive loss | $3.69 million | $3.58 million loss |
| Basic and diluted loss per share | $0.11 | $0.11 |
| Operating expenses | $3.55 million | $3.53 million |
| Operating cash used | $2.09 million | $2.17 million |
| Investing cash used | $1.00 million | $0.59 million |
| Cash at May 31 | Approximately $6.97 million | $5.83 million at February 28, 2019 |
| Total assets / liabilities | $14.54 million / $7.72 million | At May 31, 2019 |
| Current assets / current liabilities | $7.89 million / $6.81 million | Current ratio approximately 1.16 |
| Debt | $3.65 million convertible notes and $0.97 million long-term debt | Convertible-note balance declined from $5.64 million at February 28; long-term debt was $1.01 million |
No profit margin is meaningful because the company had no revenue. Reported finance costs rose to $502,000 from $13,000, principally reflecting convertible-note accretion, interest and financing costs, partly offset by a gain on conversion. R&D expense was $998,000, down $68,000; general and administrative expense was $1.90 million, down $453,000. Depreciation and amortization increased $63,000 to $164,000.
Material changes and financing
- Operating cash use was slightly lower year over year, while investing cash use rose, including a $500,000 joint-venture contribution and $471,000 of property and equipment additions.
- Financing activities generated $4.25 million net in the quarter. The company sold 600,000 shares for $5.13 million gross and incurred $863,000 in share issuance costs.
- In April, $2.65 million face value of November 2018 convertible notes plus accrued interest converted into 319,326 shares at $8.55 per share. The conversion agreement also resulted in 159,663 warrants at an $8.55 exercise price. January 2019 convertible notes remained outstanding and carried an 8% rate.
- Common shares outstanding were 34.88 million at May 31 and 39.01 million as of July 8, 2019. The latter reflects subsequent share issuance, including the June offering.
Outlook, commentary and risks
- Loop’s planned revenue sources are resin and fiber sales through its Indorama Ventures joint venture, licensing fees from Waste-to-Resin facilities, and development fees for facility sales and construction. The filing provides no revenue or earnings guidance.
- The 50/50 Indorama joint venture’s first U.S. facility was designed for 20,700 metric tonnes annually; production was anticipated in the second half of calendar 2020. The capacity was described as fully subscribed by customers including Danone, PepsiCo and Coca-Cola’s procurement group. The partners were evaluating a potential expansion to 40,000 tonnes. Loop estimated that an expansion could require an additional $15–20 million equity contribution.
- Loop reported a May 29 agreement for a registered offering that closed June 14: 4,093,567 shares at $8.55, with approximately $34.6 million net proceeds after estimated expenses. The purchaser also received options for up to 4,093,567 additional shares at $11, vesting December 15, 2019. Potential proceeds depend on option exercise.
- Management said it was working to secure feedstock agreements and expected to sign definitive agreements in the next 12–18 months. Other commercialization plans rely on partners, facility construction, permits, technology performance and customer demand. These remain forward-looking plans, not realized results.
- Risks include continued cash needs and ability to raise financing, commercialization and manufacturing execution, feedstock availability and cost, competition with virgin PET and crude-oil-related pricing, permitting and regulation, foreign-exchange exposure, and intellectual-property protection. The company said it had not hedged currency exposure. It reported compliance with its bank-loan financial covenants and no material change to previously disclosed risk factors.
- Governance is concentrated: one Series A preferred share held by CEO Daniel Solomita carries majority voting power while he holds at least 7.5% of common shares and has approval rights over specified company actions. A legal settlement required 150,000 common shares and 500,000 warrants; the common shares were issued during the quarter.
- Disclosure controls were assessed as effective at May 31, 2019. The supplied filing text does not provide a clear separate conclusion on going-concern uncertainty; it does state the company has no revenue and finances ongoing operations through equity and debt raises.
Important facts for investors to verify
- Whether the June 14 offering proceeds were received as expected, how they are being deployed, and whether the share-count and option terms are accurately reflected in subsequent filings.
- Whether the Indorama facility meets construction, commissioning and production milestones, and whether the stated customer commitments translate into binding purchases and revenue.
- Whether the proposed facility expansion proceeds and what additional funding Loop’s share would require.
- Progress on definitive long-term feedstock agreements, permits, technology performance, production costs and commercialization of the Waste-to-Resin licensing model.
- Future cash burn, financing requirements, convertible-note obligations and potential dilution from notes, warrants, options and equity awards.