Loop Industries, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly period ended August 31, 2015; the company’s fiscal year ends in February. The filing reports the three and six months ended August 31, 2015. Loop is a development-stage PET recycling company seeking to commercialize technology that depolymerizes PET into purified terephthalic acid and ethylene glycol. It had not generated revenue. On June 29, 2015, the former First American Group acquired Loop Holdings in a reverse acquisition; Loop Holdings is treated as the accounting acquirer. The filing does not provide prior-year comparable income-statement or cash-flow figures.
Financial results and position
- Revenue: $0 for both the three- and six-month periods.
- Net loss: $652,607 for the three months and $917,239 for the six months. Six-month loss per share was $0.04; quarterly loss per share was $0.06.
- Operating expenses: $652,607 for the quarter and $915,119 for six months. Six-month costs included $600,000 of related-party R&D, $117,044 of other R&D, $100,344 of professional fees, and $97,731 of general and administrative expenses.
- Margins: Not meaningful because the company reported no revenue.
- Cash flow: Six-month operating cash use was $971,006; investing cash use was $9,801; financing provided $2,228,719, primarily from $2,237,000 of share sales. Cash increased by $1,247,912 to $1,430,404.
- Liquidity and liabilities: Current assets were $1,436,857 and current liabilities $197,220 at August 31. Liabilities consisted principally of $144,452 accounts payable and $52,768 related-party advances. The filing reports no conventional borrowings.
- Equity: Total assets were $1,866,652, stockholders’ equity $1,669,432, and accumulated deficit $1,706,839. There were 29,810,800 common shares outstanding at August 31.
Changes, outlook, and risks
- The reverse acquisition and related share issuance materially changed the corporate structure and ownership. The company also completed a 1-for-4 reverse stock split and changed its name from First American Group, Inc. to Loop Industries, Inc.
- Management estimated approximately $700,000 to construct and assess a large-scale pilot plant. If results meet expectations and prospective buyers accept product quality, it planned a commercial facility estimated to cost approximately $15 million. The filing gives no timeline or assurance of financing, successful scale-up, customer purchases, or commercialization.
- Management said the $1.43 million cash balance was insufficient to fund its 12-month operating plan and that no financing was arranged. It warned that failure to raise sufficient funds could prevent execution of the plan and cause the business to fail. The financial statements disclose substantial doubt about the company’s ability to continue as a going concern.
- The technology assignment carries potential milestone payments and royalties; no milestone payments had been earned by August 31. Royalties could reach an aggregate CAD $25.7 million, subject to the agreement’s terms.
- Related-party dealings warrant attention: an entity controlled by the CEO provided R&D services, and the CEO provided office space at no cost. The CEO’s employment agreement provides a $15,000 monthly base salary and up to four conditional 1-million-share awards.
- Disclosure controls and procedures were concluded to be ineffective as of August 31. Management reported no material change in internal control over financial reporting during the quarter.
- The filing identifies no pending material legal proceedings. It also flags risks from financing needs, technology scale-up, customer demand, CEO voting control, reverse-split effects, and penny-stock trading restrictions.
Most important facts for investors to verify
- Whether the company obtained adequate financing after the filing and how long available cash could fund operations.
- Pilot-plant construction progress, actual technical performance, required additional funding, and evidence of prospective customer qualification or purchase commitments.
- The status and accounting treatment of related-party R&D charges, the intellectual-property agreement’s milestone and royalty obligations, and the disclosed tentative $30,000 settlement relating to shares mistakenly issued to a former consultant.
- Remediation of ineffective disclosure controls and the basis for the filing’s shell-company classification despite the reverse acquisition and stated operating plan.