Loop Industries, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended August 31, 2016. Financial statements are unaudited; amounts are in U.S. dollars unless noted.
Business context
Loop is a development-stage company seeking to commercialize PET depolymerization technology to produce purified terephthalic acid (PTA) and ethylene glycol (MEG). It reported no revenue in the quarter or six-month period. The company said its Montreal pilot plant had a capacity of 2.5 metric tons per day and was conducting product qualification testing while working to scale the process.
Financial results and liquidity
| Metric | Three months ended Aug. 31, 2016 | Six months ended Aug. 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $825,166 | $1,789,717 | $727,809; $1,065,917 |
| Net loss | $825,166 | $1,789,717 | $727,809; $1,065,917 |
| Basic and diluted loss per share | $0.03 | $0.06 | $0.03; $0.04 |
| Operating cash used | Not provided separately | $1,728,733 | $780,331 |
For the six-month period, cash used in investing was $247,861, while financing provided $3,826,016 from common-stock sales. Cash increased by $1,773,574 to $2,196,160. At August 31, current assets were $2,555,017 and current liabilities were $934,024, yielding working capital of approximately $1.62 million. Total assets were $4,437,150 and stockholders’ equity was $3,503,126.
No conventional interest-bearing debt is reported. Current liabilities included $405,365 of unsecured, non-interest-bearing advances from the CEO/majority shareholder, with no formal repayment terms, and $300,000 of accrued officer compensation. The filing does not provide a meaningful operating margin because the company had no revenue.
Changes versus prior comparable periods
- Six-month net loss increased to $1.79 million from $1.07 million; operating cash use increased to $1.73 million from $780,331.
- Six-month research and development expense rose to $849,198 from $259,838, reflecting pilot-plant activity, staffing, equipment, materials, contractors, and patent-related costs.
- Six-month general and administrative expense was $756,056, up from $718,286. The prior period included $356,000 of stock-compensation amortization, partially offsetting increased current-period operating and public-company costs.
- Six-month depreciation and amortization increased to $188,152 from $26,209, primarily as pilot-plant assets entered service.
- Cash increased from $422,586 at February 29, 2016, mainly due to equity financing. The company issued 1,275,340 common shares and received $3,826,016 in the six-month period.
Outlook, risks, and unusual items
- Going concern: Management stated that available funds were insufficient to support operations through the next 12 months and to complete the transition to commercial manufacturing. The filing says substantial doubt exists about the company’s ability to continue as a going concern; additional financing is needed, with no financing arranged and no assurance it can be obtained.
- Funding plans and dilution: Management expected to seek additional capital, primarily through debt or equity, and described equity financing as the likely source for its plan. It estimated approximately $3 million and 10 months to expand the pilot plant to 3,000 metric tons per year. A first full-scale facility was estimated to cost approximately $50 million, with planned initial capacity of about 60,000 tons of PTA and 20,000 tons of MEG annually. These are estimates, not commitments.
- Commercialization risks: Technology scale-up, customer qualification and purchases, intellectual-property protection, competition, and access to capital could affect the business plan. The filing cautions that actual results may differ materially from forward-looking statements.
- Contingent technology payments: 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 August 31, 2016.
- Related-party matters: The CEO had $300,000 of accrued compensation and held one Series A preferred share. The filing also describes a conditional bonus of 4 million common shares tied to specified milestones; none had been met by quarter-end.
- Controls and other items: Management concluded disclosure controls and procedures were not effective as of August 31, 2016. No material litigation or subsequent events were reported in the respective sections; separately, the notes state the company received a CAD$295,623 (US$225,383) VAT reimbursement on September 16, 2016.
Important facts for investors to verify
- Current cash runway, anticipated operating costs, and whether financing has been secured since the filing.
- Progress and independently verifiable performance of pilot-plant testing, product qualification, and scale-up plans.
- Customer commitments or supply contracts, and the assumptions supporting the stated pilot expansion and commercial-facility costs and capacities.
- Terms and potential dilution from equity, warrants, and any future financing; common shares outstanding were 31,390,807 at October 14, 2016.
- Related-party advances, accrued CEO compensation, contingent share awards, and the planned transfer of pilot-plant assets to a company owned by the CEO.
- Remediation of ineffective disclosure controls and the company’s ability to meet its going-concern funding needs.