Business Context and Reporting Period
This Form 8-K, filed on January 10, 2018, by Loop Industries, Inc., discloses a material restatement of previously issued financial statements. The Board of Directors, upon the Audit Committee's recommendation, determined that the audited consolidated financial statements for the fiscal year ended February 28, 2017, and the unaudited statements for the quarters ended May 31, 2017, and August 31, 2017, must be restated. Consequently, investors are advised not to rely on these prior reports or the audit report issued by Weinberg & Company P.A. on May 30, 2017.
Key Financial Metrics and Restatement Impact
The restatement addresses an error in measuring stock-based compensation for a performance-based award granted to the CEO in June 2015. The company previously recognized $5,500,000 in expense in the fourth quarter of fiscal 2017, whereas the correct amount to recognize for fiscal 2017 is $800,000 based on the grant date fair value.
| Financial Metric (Year Ended Feb 28, 2017) | As Previously Reported | Adjustment | Restated |
|---|---|---|---|
| General and Administrative Expense | $6,980,281 | ($4,700,000) | $2,280,281 |
| Net Loss | ($8,814,001) | $4,700,000 | ($4,114,001) |
| Comprehensive Loss | ($8,971,143) | $4,700,000 | ($4,271,143) |
| Loss Per Share (Basic & Diluted) | ($0.28) | $0.15 | ($0.13) |
| Common Stock Issuable (Balance Sheet) | $5,500,000 | ($4,700,000) | $800,000 |
| Accumulated Deficit (Balance Sheet) | ($11,937,803) | $4,700,000 | ($7,237,803) |
The filing does not provide current revenue, cash flow, or debt figures for the period ending January 2018, as this report focuses solely on the correction of historical data.
Material Changes Versus Prior Period
- Expense Reduction: General and administrative expenses were reduced by $4,700,000 due to the reversal of the incorrectly recognized stock-based compensation.
- Loss Reduction: The net loss for the fiscal year ended February 28, 2017, was reduced by $4,700,000, improving the reported loss from $8.8 million to $4.1 million.
- Balance Sheet Adjustment: The "Common stock issuable" liability was reduced from $5.5 million to $800,000, and the accumulated deficit was improved by the same adjustment amount.
- Quarterly Impact: The balance sheet and equity statements for the quarters ended May 31, 2017, and August 31, 2017, were adjusted by the same amounts, though the statements of operations and cash flows for those specific quarters were not impacted.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The company expects to file amended reports (Form 10-K/A and Form 10-Q/A) for the affected periods as soon as practicable. The current quarterly report (Form 10-Q) for the period ended November 30, 2017, is scheduled to be filed on January 12, 2018.
Risks and Contingencies:
- Internal Controls: There is a risk that the reassessment of internal controls could lead to the conclusion that material weaknesses exist.
- Further Adjustments: Additional information arising from the internal review or the restatement process may require further adjustments to financial statements.
- Legal and Regulatory: Risks include potential legal proceedings, SEC comments, and adverse effects on business operations due to regulatory or media scrutiny.
- Costs: The company faces costs and expenses associated with the restatement process.
Key Facts for Investor Verification
- Verify the filing of the amended Form 10-K/A and Form 10-Q/A reports to confirm the restated financial figures.
- Review the company's subsequent filings for any disclosure regarding material weaknesses in internal controls over financial reporting.
- Monitor for any additional adjustments to financial statements resulting from the ongoing internal review.
- Confirm the status of the relationship with the previous auditor, Weinberg & Company P.A., and the engagement of any new independent registered public accounting firm.