Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended November 30, 2016; interim financial statements are unaudited. Loop is a development-stage plastics recycling company pursuing PET depolymerization technology. It reported no revenue in either the three- or nine-month periods.
Financial performance and liquidity
| Metric | Three months ended Nov. 30, 2016 | Nine months ended Nov. 30, 2016 | Prior comparable period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 in 2015 |
| Operating expenses | $749,407 | $2,539,123 | $743,839 and $1,809,756, respectively |
| Net loss | $749,407 | $2,539,123 | $743,839 and $1,809,756, respectively |
| Basic and diluted loss per share | $0.02 | $0.08 | $0.02 and $0.07, respectively |
| Cash used in operations | $2,078,931 for nine months | $1,037,721 for nine months |
For the nine months, R&D expense increased to $1.22 million from $0.50 million, primarily reflecting pilot-plant operations, staffing, equipment, materials, contractors, and patent-related costs. G&A fell to $1.03 million from $1.13 million, mainly because the prior-year period included $534,000 of stock-compensation amortization. Depreciation and amortization rose to $290,396 from $104,822. No meaningful operating margin is available because the company had no revenue.
At November 30, cash was $1.60 million, versus $422,586 at February 29, 2016. Current assets were $1.76 million and current liabilities $871,354, yielding working capital of approximately $891,000. Total assets were $3.64 million and stockholders’ equity $2.77 million. Liabilities were current; they included $360,084 in unsecured, non-interest-bearing advances from the CEO/majority shareholder and $345,000 in accrued officer compensation. The filing does not identify conventional interest-bearing debt.
Financing cash flow included $3.83 million from common-stock sales, partly offset by $132,044 of net repayments of majority-stockholder advances. The company issued 1,275,340 shares and 637,670 investor warrants during the nine months. Shares outstanding were 31,390,807 at November 30, 2016; 2,035,004 warrants were outstanding.
Business progress, outlook, and material risks
- The company said its Montreal pilot plant, completed in January 2016, has capacity of 2.5 metric tons per day. It was conducting product qualification testing, negotiating potential long-term supply contracts, and optimizing the process for commercial scale.
- Management planned a commercial facility with minimum installed capacity of 10 KTA and was finalizing engineering and construction estimates. The proposed financing sources included equity sales and government assistance; no financing was arranged, and no assurance was given that funds would be available.
- Management stated that cash on hand would not fund the next 12 months of operations or complete the transition to commercial-scale manufacturing. The filing cites substantial doubt about the company’s ability to continue as a going concern; additional capital is necessary, and absent financing the business could fail. Equity financing could dilute shareholders; debt could impose restrictions.
- Research-and-development scale-up, successful commercialization and customer adoption, technology and intellectual-property protection, competition, and reliance on additional financing are key risks. The CEO/majority shareholder exercises voting control.
- The IP agreement provides for up to CDN$800,000 in milestone payments and royalties of up to CDN$27 million under specified terms. No production milestones had been met and no royalties had been paid as of November 30, 2016.
- Disclosure controls and procedures were reported as ineffective as of November 30, 2016. Management reported no material change in internal control over financial reporting during the quarter. The company reported no pending material legal proceedings.
Important facts for investors to verify
- Whether Loop can secure sufficient financing, on acceptable terms, to fund operations and commercial-scale construction.
- Whether pilot-scale production, product qualification, and prospective customer negotiations translate into commercial output and binding supply contracts.
- The timing, cost, and funding plan for the planned 10-KTA facility and the transfer of pilot-plant assets and liabilities described in the filing.
- The potential dilution from outstanding warrants, future equity financing, and the CEO’s milestone-based share awards.
- How management will address ineffective disclosure controls and the going-concern uncertainty.