Loop Industries, Inc. — Form 10-Q summary
Business context and period. This report covers the three months ended May 31, 2017, Loop’s first fiscal quarter of 2018. The development-stage company is working to commercialize technology that depolymerizes waste PET into reusable chemical feedstocks. Its Montreal pilot plant has stated capacity of 2.5 metric tons per day; the company was planning a commercial facility with at least 10,000 metric tons of annual capacity. It had not generated revenue.
Key financial results
| Metric | Three months ended May 31, 2017 | Prior-year period |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $889,580 | $439,746 |
| Research and development expense | $496,538 | $415,568 |
| Total operating expenses and net loss | $1,523,090 | $964,549 |
| Basic and diluted loss per share | $0.05 | $0.03 |
| Cash used in operating activities | $983,769 | $846,936 |
| Cash used in investing activities | $55,453 | $79,759 |
| Cash provided by financing activities | $5,618,716 | $1,988,003 |
There was no revenue, so a revenue-based margin is not meaningful. At May 31, 2017, cash was $5,535,020, total assets were $7,409,074, current liabilities were $664,974, and stockholders’ equity was $6,744,100. No borrowings were reported on the balance sheet. The current ratio was approximately 8.4x. Cash increased from $916,487 at February 28, 2017, primarily reflecting a $5,897,188 net common-stock sale.
Changes versus the prior period
- Net loss increased about 58% year over year, principally as G&A expense roughly doubled; R&D expense rose about 20% as development and scaling work continued.
- Operating cash use increased about 16%. The quarter’s financing proceeds materially increased cash, while the company also repaid $278,472 of shareholder advances.
- On May 4, the company sold 1,123,266 common shares for net proceeds of $5.9 million. Common shares outstanding were 32,595,239 at quarter-end.
Outlook, risks and unusual items
- Management estimated existing funds would support operations for the next 12 months, but said substantial additional financing would be needed to move from pilot to commercial-scale manufacturing. Future debt or equity financing is not assured and could impose restrictions or dilute shareholders.
- Management reported ongoing process optimization, feedstock and product qualification testing, commercial-facility planning, and discussions with potential customers about long-term supply contracts. These are plans and negotiations, not reported commercial sales or completed contracts.
- The company stated its technology recovered more than 90% of PET into PTA and MEG; this was a company-reported process claim, and the technology remained at the test-pilot stage. None of the output milestones under its IP agreement had been achieved. Milestones could trigger up to CDN$800,000 in payments; the agreement also provides for royalties of up to CDN$25.7 million under specified terms.
- Related-party items included repayment of shareholder advances and payment on May 5 of $360,000 accrued compensation to CEO Daniel Solomita. One million shares valued at $5.5 million tied to an officer milestone had vested; 3 million additional milestone shares had not.
- The company issued its CFO warrants for up to 550,000 shares at $5.25 per share. The reported grant-date fair value totaled approximately $3.2 million; $220,504 was amortized in the quarter, with $3.38 million unamortized at May 31.
- No material pending legal proceeding was identified, and the company reported no material change to its previously disclosed risk factors. It warned of commercialization, financing, competition, regulatory, IP and key-stockholder-control risks. Management said disclosure controls were effective; remediation of previously identified internal-control weaknesses was underway, with effectiveness testing planned for future quarters.
Important facts for investors to verify
- Whether the pilot process, recovery-rate claim, product qualification and commercial-scale transition can be validated and achieved on schedule.
- Whether customer discussions produce binding supply agreements and whether planned commercial capacity can be funded and built.
- Cash burn, the 12-month liquidity estimate, and the availability, terms and dilution effects of future financing.
- The status and potential cost of IP milestone payments and royalties, and the valuation, vesting and dilution implications of officer shares and warrants.
- Progress in testing remediation of the previously disclosed internal-control weaknesses and the extent of CEO and majority-stockholder influence.