The following information and any forward-looking statements should be read in
conjunction with the unaudited financial information and the notes thereto
included in this Quarterly Report on Form 10-Q, including those risks identified
in the "Risk Factors" section of our most recent Annual Report on Form 10-K.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada
corporation (the "Company," "Loop Industries," "we," or "our"), contains
"forward-looking statements," as defined in the United States Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. These forward-looking statements include, without limitation,
statements about our market opportunity, our strategies, ability to improve and
expand our capabilities, competition, expected activities and expenditures as we
pursue our business plan, the adequacy of our available cash resources,
regulatory compliance, plans for future growth and future operations, the size
of our addressable market, market trends, and the effectiveness of the Company's
internal control over financial reporting. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Actual results may differ materially from the predictions
discussed in these forward-looking statements. The economic environment within
which we operate could materially affect our actual results. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. These risks and other factors include, but
are not limited to, those listed under "Risk Factors." Additional factors that
could materially affect these forward-looking statements and/or predictions
include, among other things: (i) commercialization of our technology and
products, (ii) our status of relationship with partners, (iii) development and
protection of our intellectual property and products, (iv) industry competition,
(v) our need for and ability to obtain additional funding, (vi) building our
manufacturing facility, (vii) our ability to sell our products in order to
generate revenues, (viii) our proposed business model and our ability to execute
thereon, (ix) adverse effects on the Company's business and operations as a
result of increased regulatory, media or financial reporting issues and
practices, rumors or otherwise, (x) disease epidemics and health related
concerns, such as the current outbreak of a novel strain of coronavirus
(COVID-19), which could result in (and, in the case of the COVID-19 outbreak,
has resulted in some of the following) reduced access to capital markets, supply
chain disruptions and scrutiny or embargoing of goods produced in affected
areas, government-imposed mandatory business closures and resulting furloughs of
our employees, travel restrictions or the like to prevent the spread of disease,
and market or other changes that could result in noncash impairments of our
intangible assets, and property, plant and equipment, and (xi) other factors
discussed in our subsequent filings with the SEC.
Management has included projections and estimates in this Form 10-Q, which are
based primarily on management's experience in the industry, assessments of our
results of operations, discussions and negotiations with third parties and a
review of information filed by our competitors with the SEC or otherwise
publicly available.
In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as at the date of this Form 10-Q, and while we
believe such information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should not be read
to indicate that we have conducted an exhaustive inquiry into, or review of, all
potentially available relevant information. These statements are inherently
uncertain, and investors are cautioned not to unduly rely upon these statements.
We caution readers not to place undue reliance on any such forward-looking
statements, which speak only as at the date made. We disclaim any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
4
Introduction
Loop Industries is a technology company whose mission is to accelerate the
world's shift toward sustainable PET plastic and polyester fiber and away from
our dependence on fossil fuels. Loop Industries owns patented and proprietary
technology that depolymerizes no- and low-value waste PET plastic and polyester
fiber, including bottles, packaging, carpets, and other textiles of any color,
transparency or condition, including waste PET plastic recovered from the ocean
that has been degraded by the sun and salt, to its base building blocks
(monomers). The monomers are filtered, purified, and polymerized to create
virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging,
and polyester fiber, thus enabling our customers to meet their sustainability
objectives. Loop Industries is contributing to the global movement towards a
circular economy by preventing plastic waste and recovering waste plastic for a
more sustainable future for all.
Industry Background
We believe there is an increasing demand for action to address the global
plastic crisis, which has been characterized by facts provided by leading
academic and not-for profit organizations. For example, the University of
Georgia reports eight million metric tons of plastic waste flows into our shared
oceans every year, and, according to The New Plastics Economy, by 2050 more
plastic waste is expected to be present in the ocean than fish (by mass). Couple
this information with the global annual market demand for PET plastic and
polyester fiber at nearly $130 billion, and the current growth projections from
the 2018 IHS Polymer Market Report indicating this will exceed $160 billion by
2022, and the need for governments and consumer brands to take decisive action
to stem this global plastic crisis becomes readily apparent.
In the last few years, there are numerous examples of governments in North
America and Europe proposing laws and regulations mandating the use of minimum
recycled content in packaging underlying the strength of this issue in the
marketplace. Plastic pollution continues to be one of the most persistently
covered environmental issues by media and local and global environmental
non-governmental organizations.
Also, global consumer goods companies have made significant commitments to make
the transition to a circular plastic economy, namely:
i.
In January 2018, Danone's evian® brand bottled spring water committed to a 100%
recycled content package by 2025;
ii.
In 2018, Coca-Cola committed to an average recycled content of 50% across its
packaging by 2030;
iii.
In October 2018, PepsiCo committed to use an average of 25% recycled plastic in
its packaging by 2025; PepsiCo is also aiming to use 50% recycled plastic in its
bottles across the European Union by 2030;
iv.
In 2018, L'OCCITANE en Provence committed to a 100% recycled content package by
2025; and
v.
In March 2019, the L'Oréal Group, a global manufacturer and retailer of natural
cosmetics, committed to using 50% recycled or bio-sourced plastic in their
packaging by 2025 and in 2020, they committed to using 100% recycled or biobased
plastic in their packaging by 2030.
We believe these trends indicate that the transformation from a linear to a
circular plastic economy is inevitable and underway. This transition is leading
to a substantial demand for sustainable products such as Loop™ PET resin and
polyester fiber.
Proprietary Technology and Intellectual Property
The power of our technology lies in its ability to use as feedstock what is
currently considered waste PET plastic and polyester fiber from landfills,
rivers, oceans and natural areas to create new, sustainable, infinitely
recyclable Loop™ PET resin and polyester fiber. We believe our technology can
deliver a cost-effective and profitable virgin quality PET resin suitable for
use in food-grade packaging.
Our Generation I ("GEN I") technology process yielded purified terephthalic acid
("PTA") and monoethylene glycol ("MEG"), two common monomers of PET, through
depolymerization. While the monomers were of excellent purity and strong yield,
we continued to challenge ourselves to drive down costs and eliminate inputs. It
was during this process that we realized we could simplify our process and
increase yields at a lower cost, namely by eliminating water and chlorinated
solvents from the depolymerization process and reducing the number of reagents
from five to two, if we shifted from the production of PTA to the production of
dimethyl terephthalate ("DMT"), another proven monomer of PET that is far
simpler to purify. Since June 2018, when we transitioned to this Generation II
("GEN II") technology and our newly built industrial pilot plant, we continue to
see consistently high monomer yields, excellent purity, and improved conversion
costs.
This shift, from producing the monomer PTA to the monomer DMT, was a pivotal
moment for Loop Industries. We believe that the GEN II technology requires less
energy and fewer resource inputs than conventional PET production processes. We
also believe it is one of the most environmentally sustainable methods for
producing virgin quality food-grade PET plastic in the world.
In connection with the continuing development of our GEN II technology, we
continued to invest in our industrial pilot plant. We made capital investments
in the pilot plant of $394,403 during the quarter ended May 31, 2020.
To protect our technology, we rely on a combination of patents, trademarks,
trade secrets, confidentiality agreements and provisions as well as other
contractual provisions to protect our proprietary rights, which are primarily
our patents, brand names, product designs and marks.
5
We have two patent families, referred to as GEN I technology and the GEN II
technology, with claims relating to our technology for depolymerizing PET.
?
The GEN I portfolio has three issued U.S. patents, all expected to expire on or
around July 2035. Internationally, we also have issued patents in Australia,
Israel, Taiwan, South Africa, Eurasia and in the members of the Gulf Cooperation
Council, and pending patent applications in Argentina, Brazil, Canada, China,
Europe, Hong Kong, India, Japan, Korea, Mexico, and the Philippines, all
expected to expire, if granted, on or around July 2036.
?
The GEN II technology portfolio currently consists of four patent families:
o
The first has an issued U.S. patent and an allowed U.S. application, all
expected to expire on or around September 2037. Internationally, we also have a
an allowed application in Bangladesh, and pending applications in Argentina,
Australia, Bolivia, Bhutan, Brazil, Canada, China, Euroasia, Europe, members of
the Gulf Cooperation Council, India, Iraq, Israel, Japan, Korea, Mexico
Pakistan, Philippines, South Africa, Taiwan, Uruguay, and Venezuela, all
expected to expire on or around September 2038, if granted.
o
An additional aspect of the GEN II technology is claimed in a U.S. application,
a PCT application, and non-PCT country applications in Argentina, Bangladesh,
Bolivia, members of the Gulf Cooperation Council, Pakistan, Taiwan, and Uruguay,
all expected to expire on or around June 2039,not including any patent term
extension.
o
A further additional aspect of the GEN II technology is the subject of a U.S.
application and a PCT application. Any patents that would ultimately grant from
these applications would be expected to expire on or around March 2040, not
including any patent term extension.
o
Another further additional aspect of the GEN II technology is the subject of a
U.S. application, a PCT application, and non-PCT country applications in
Argentina, Bolivia, Bangladesh, members of the Gulf Cooperation Council,
Pakistan, Taiwan, and Uruguay. Any patents that would ultimately grant from
these applications would be expected to expire on or around March 2040, not
including any patent term extension.
Government Regulation and Approvals
As we seek to further develop and commercialize our business, we will be subject
to extensive and frequently developing federal, state, provincial and local laws
and regulations. Compliance with current and future regulations could increase
our operational costs.
Our operations require various governmental permits and approvals. We are in the
process of obtaining all necessary permits and approvals for the operation of
our business; however, any of these permits or approvals may be subject to
denial, revocation or modification under various circumstances. Additionally,
due to the impact of the COVID-19 pandemic, we may experience delays in
obtaining such permits or approvals. Failure to obtain or comply with the
conditions of permits and approvals or to have the necessary approvals in place
may adversely affect our operations and may subject us to penalties.
The use of mechanically recycled PET for food-grade applications in certain
countries is highly inadvisable for a variety of reasons including the
perception of contamination from mechanically recycled sources. We believe that
means that Loop™ PET resin has a distinct advantage in these markets. Since our
product is not mechanically recycled PET, we expect that demand from PET
manufacturers and global consumer goods companies in these regions for 100%
Loop™ branded PET resin will be a significant part of our strategy going
forward.
Supply Agreements with Global Consumer Brands
Consumer brands are seeking a solution to their plastic challenge and they are
taking bold action. In the past years we have seen major brands make significant
commitments to close the loop on their plastic packaging in two ways, by
transitioning their packaging to recyclable materials and by incorporating more
recycled content into their packaging. We believe Loop™ PET resin and polyester
fiber provides the ideal solution for these brands because Loop™ PET resin and
polyester fiber is recyclable and is made from 100% recycled PET and polyester
fiber with virgin-quality suitable for use in food-grade packaging.
Loop Industries believes that due to the commitments by large global consumer
brands to incorporate more recycled content into their product packaging, the
regulatory requirements for minimum recycled content in packaging imposed by
governments, the virgin-quality of Loop™ branded PET and the marketability of
Loop™ PET to extoll the sustainability credentials of consumer brands that
incorporate Loop™ PET, it will be able to sell its Loop™ branded PET at a
premium price relative to virgin and mechanically recycled PET.
6
In the last two years, we have made a significant number of announcements with
some of the world's leading brands to be supplied from our planned first
commercial facility from our joint venture with Indorama Ventures Holdings LP
("Indorama") in Spartanburg, South Carolina, including:
?
Multi-year supply agreement with Danone SA, one of the world's leading global
food and beverage companies. Danone will purchase 100% sustainable and upcycled
Loop™ branded PET for use in brands across its portfolio including evian®,
Danone's iconic natural spring water;
?
Multi-year supply agreement with PepsiCo, one of the largest purchasers of
recycled PET plastic, enabling PepsiCo to purchase production capacity and
incorporate Loop™ PET resin into its product packaging;
?
Multi-year supply framework with the Coca-Cola system's Cross Enterprise
Procurement Group to supply 100% recycled and sustainable Loop™ PET resin to
authorized Coca-Cola bottlers who enter into supply agreements with us;
?
Multi-year supply agreement with L'OCCITANE en Provence to supply 100% recycled
and sustainable Loop™ PET resin and incorporate Loop™ PET resin into its product
packaging; and
?
Multi-year supply agreement with L'Oréal Group, the global leader in the beauty
industry, enabling L'Oréal Group to purchase production capacity and incorporate
Loop™ PET resin into its product packaging.
Turning Waste into Feedstock
We use waste PET plastic and polyester fiber as feedstock; these materials are
introduced into our GEN II depolymerization technology to yield PET monomers DMT
and MEG. Our technology can use PET plastic bottles and packaging of any color,
transparency or condition, carpet, clothing and other polyester textiles that
may contain colors, dyes or additives, and even PET plastics that have been
recovered from the ocean and degraded by exposure to sun and salt. This is yet
another advantage of Loop™ PET over mechanically recycled PET, our ability to
use many materials that mechanical recyclers cannot use. This also means we are
creating a new market for materials that have persistently been leaking out of
the waste management system and into our shared rivers, oceans and natural
areas.
We are identifying the availability of feedstock to ensure each facility can
operate continuously at planned scale. We have identified the sources required
for our first joint venture facility with Indorama and are now focusing on
signing supply agreements to secure this feedstock for the long term.
We are also studying certain markets in the United States, Canada, European
Union and Asia to help us evaluate the size and location of our next facilities.
The approach includes a fulsome inventory of PET materials introduced into a
region, the materials collected (or recycled) in the region and the material
loss, or the difference between the material introduced and the material
collected. This allows us to identify not only the material traditionally
available for recycling, but how material can be effectively diverted from
landfills, rivers, oceans and natural areas by providing a new outlet for what
was formerly considered waste.
Commercialization Progress
During the quarter ended May 31, 2020, we continued executing our corporate
strategy where Loop Industries focused on developing two distinct business
models for the commercialization of Loop™ PET resin and polyester fiber to
customers: 1) from our joint venture with Indorama, and 2) from Infinite LoopTM,
our state of the art manufacturing technology. We continue to develop the
engineering of the Infinite LoopTMtechnology, and we are actively engaged in
planning our first Infinite LoopTMmanufacturing complex in Europe with a
strategic partner.
In September 2018, in connection with one of our business models, we announced a
joint venture with Indorama to retrofit their existing PET manufacturing
facilities. The joint venture was formed with the objective to manufacture and
commercialize sustainable Loop™ PET resin and polyester fiber to meet the
growing global demand from beverage and consumer packaged goods companies. This
partnership brings together Indorama's manufacturing footprint and Loop
Industries' proprietary technology to become a supplier in the 'circular'
economy for 100% sustainable and recycled PET resin and polyester fiber.
We entered into a joint venture Agreement (the "Joint Venture Agreement") with
Indorama through our wholly-owned subsidiary Loop Innovations, LLC, a Delaware
limited liability company. Each company has 50/50 equity interest in Indorama
Loop Technologies, LLC ("ILT"), which was specifically formed to operate and
execute the joint venture. We are contributing to the 50/50 joint venture an
exclusive world-wide royalty-free license to use its proprietary technology to
produce 100% sustainably produced PET resin and polyester fiber in addition to
our equity cash contribution. The Joint Venture Agreement details the
establishment of an initial 20,700 metric tons per year facility in Spartanburg,
South Carolina, in the southeastern United States.
As disclosed in our 10-Q for the period ended August 31, 2019, the joint venture
with Indorama decided to double the capacity of the planned Spartanburg plant
due to customer demand to 40,000 metric tons per year. Following that decision,
we identified a number of enhancements to the plant design to improve the
operability and optimize the total construction cost of the plant and expected
the commissioning of the plant to occur in the third quarter of calendar 2021.
7
We have currently contracted for the sale of the initial 20,700 metric tons
expected output of the Spartanburg facility and we continue discussions to
contract the additional volume up to its planned increased capacity of 40,000
metric tons. As part of the Joint Venture Agreement to establish the facility to
produce 40,000 metric tons, we are committed to contribute our equity share for
the costs under the joint venture agreement to construct the facility. During
the three-month period ended May 31, 2020 we made a contribution of $650,000 and
as at May 31, 2020, we have contributed a total of $1,500,000 to the joint
venture.
On March 25, 2020, due to the COVID-19 pandemic, the Québec provincial
government issued an order that all non-essential business and commercial
activity in the province shut down. The order provided exemptions that allowed
us to continue reduced operations at our pilot plant and we continued working
remotely to support the engineering activities with our joint venture partner,
Indorama, and our engineering partner, for the Spartanburg joint venture
facility and pursue our plans for the commercialization of our technology. On
May 11, the government announced that we could re-start complete operations. We
have implemented all the necessary measures required by the Québec provincial
government to ensure a safe work environment for our employees and we are
operating at full capacity.
Over the period, our team in Canada continued to optimize our technology and
make engineering design improvements which have reduced both capital and
operating costs and further enhanced the projected return on investment for the
project. These improvements were achieved together with Worley, a leading global
engineering, procurement and construction company which we are engaging to
provide a fixed-price construction contract for Spartanburg and work on Loop
Industries engineering and construction plans.
In order to move forward expeditiously with the Spartanburg facility and its
overall commercialization plans, and in light of the continuing improvements
which have been achieved, we have expressed our desire to and are exploring
joint venture structures and financing alternatives to increase our equity
participation in the project. Indorama has reiterated to the joint venture its
commitment to maintaining an investment in the Spartanburg project, which is
strategically important to support the sustainability objectives of its
customers. Discussions on the joint venture structure and financing are
on-going.
In our 10-K which was filed on May 5, 2020 and amended on May 6, 2020 we
indicated that we were monitoring the COVID-19 pandemic and the possible impacts
it could have on the expected commissioning date. Unfortunately, despite the
continued progress in Canada, the situation in the United States and the
continued border closures and quarantine requirements between Canada and the US
have caused some disruptions in our timetable. As a result, we now expect a
delay in the anticipated commissioning date of the facility of approximately
three to six months but that assumes no further delays, which we cannot ensure
will be the case in light of the COVID-19 pandemic. The discussions regarding
the structure and financing of the joint venture are not expected to further
delay this timetable.
The Infinite LoopTMmanufacturing technology is the key pillar of our
commercialization blueprint. We believe our technology is at the forefront of
the global transition away from fossil fuels and petrochemicals and into the
circular economy, where PET plastic and polyester fiber are produced from 100%
recycled content. The Infinite Loop™ technology is engineered to support the
commitment of global consumer brands to achieve a high level of recycled content
in packaging. Our technology allows for waste plastic currently not able to be
recycled to now become fully circular and upcycled into the highest purity PET
plastic and polyester fiber. Infinite Loop™ facilities could be located near
large urban centers where more plastic is being consumed and therefore more
waste plastic feedstock is available.
Our objective is to achieve global expansion of the technology through a mix of
fully owned facilities, partnerships, and licensing agreements. We believe that
industrial companies, which today are not in the business of manufacturing PET
and polyester fiber, will view our Infinite Loop™ manufacturing technology as a
growth opportunity for the future, which offers attractive economic returns
either as Loop manufacturing partners or as licensees of Loop technology.
We plan to continue to allocate available capital to strengthen our intellectual
property portfolio, build a core competency in managing strategic relationships
and continue enhancing our brand value. Our research and development innovation
hub in Terrebonne, Québec, Canada will continue to push forward the development
of our technology. We are investing in building a strong management team to
integrate best in class processes and practices while maintaining our
entrepreneurial culture. On March 9, 2020, we hired Mr. Stephen Champagne as
Chief Technology Officer. Mr. Champagne has over 25 years of industrial
experience having participated in all project phases from laboratory development
through engineering, procurement, and construction, all the way to plant
commissioning.
8
Results of Operations
The following table summarizes our operating results for the three-month periods
ended May 31, 2020 and 2019, in U.S. Dollars.
Three Months Ended May 31,
2020 2019 $ Change
Revenues $- $- $-
Operating expenses
Research and development
Stock-based compensation 352,007 312,435 39,572
Other research and development 1,128,581 685,426 443,155
Total research and development 1,480,588 997,861 482,727
General and administrative
Stock-based compensation 659,817 618,255 41,562
Other general and administrative 1,293,264 1,284,375 8,889
Total general and administrative 1,953,081 1,902,630 50,451
Depreciation and amortization 255,974 164,336 91,638
Interest and other financial expenses 126,776 501,849 (375,073)
Interest income (40,346) - (40,346)
Foreign exchange (gain) loss
76,641 (12,126) 88,767
Total operating expenses 3,852,714 3,554,550 298,164
Net loss $(3,852,714) $(3,554,550) $(298,164)First Quarter Ended May 31, 2020
The net loss for the three-month period ended May 31, 2020 increased $0.30
million to $3.85 million, as compared to the net loss for the three-month period
ended May 31, 2019 which was $3.55 million. The increase is primarily due to
increased research and development expenses of $0.48 million, an increase in
depreciation and amortization of $0.09 million, an increase in foreign exchange
loss of $0.09 million and an increase in general and administration expenses of
$0.05 million, offset by lower interest and other financial expenses of $0.38
million and by higher interest income of $0.04 million.
Research and development expenses for the three-month period ended May 31, 2020
amounted to $1.48 million compared to $1.00 million for the three-month period
ended May 31, 2019, representing an increase of $0.48 million, or representing
an increase of $0.44 million excluding stock-based compensation. The increase of
$0.44 million was primarily attributable to higher employee-related expenses of
$0.19 million and lower research and development tax credits of $0.36 million.
During the three-month period ended May 31, 2020, the Company recorded a
decrease in refundable research and development tax credits receivable,
increasing research and development expenses by $0.24 million which was
partially offset by a COVID-19 related government wage subsidy of $0.10 million.
The increase in non-cash stock-based compensation expense of $0.04 million is
mainly attributable to the timing of stock awards provided to certain employees.
General and administrative expenses for the three-month period ended May 31,
2020 amounted to $1.95 million compared to $1.90 million for the three-month
period ended May 31, 2019, representing an increase of $0.05 million, or $0.01
million excluding stock-based compensation. The increase of $0.01 million was
mainly attributable to higher insurance expenses of $0.36 million, offset by
lower professional fees of $0.21 million and lower employee-related expenses of
$0.08 million. During the three-month period ended May 31, 2020, the Company
recorded a COVID-19 related government wage subsidy of $0.04 million in general
and administrative expenses. Stock-based compensation expense for the
three-month period ended May 31, 2020 amounted to $0.66 million compared to
$0.62 million for the three-month period ended May 31, 2019, representing an
increase of $0.04 million, which was mainly attributable higher stock awards
provided to executives.
9
Depreciation and amortization for the three-month period ended May 31, 2020
totaled $0.26 million compared to $0.16 million for the three-month period ended
May 31, 2019, representing an increase of $0.09 million. This increase is mainly
attributable to the addition of fixed assets at the Company's pilot plant and
corporate offices.
Interest and other financial expenses for the three-month period ended May 31,
2020 totaled $0.13 million compared to $0.50 million the three-month period
ended May 31, 2019, representing an increase of $0.38 million. This decrease is
attributable to the non-cash accretion expense relating to the convertible notes
issued during the 2019 Fiscal year in the amount of $0.51 million, the interest
expense relating to the convertible notes issued during the 2019 Fiscal year in
the amount of $0.12 million, offset by the gain on conversion of the November
2018 Notes in the amount of $0.27 million in the three-months ended May 31, 2019
and a loss on foreign exchange contracts of $0.10 million during the
three-months ended May 31, 2020. During the three months ended May 31, 2020,
there were no convertible notes outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We are a development stage company with no revenues, and our ongoing operations
and commercialization plans are being financed by raising new equity and debt
capital. To date, we have been successful in raising capital to finance our
ongoing operations, reflecting the potential for commercializing our branded
resin and the progress made to date in implementing our business plans. As at
February 29, 2020, we had cash and cash equivalents on hand of $27.51 million.
Management continues to be positive about our growth strategy and is evaluating
our financing plans to continue to raise capital to finance the start-up of
commercial operations and continue to fund the further development of our
ongoing operations. Although we continue to be in a good liquidity position with
cash and cash equivalents on hand of $27.51 million, in light of the current
global COVID-19 pandemic and its impacts on the global capital markets, our
liquidity position may change, including the inability to raise new equity and
debt, disruption in completing repayments or disbursements to our creditors.
As reflected in the accompanying interim unaudited condensed consolidated
financial statements, we are a development stage company, we have not yet begun
commercial operations and we do not have any sources of revenue. Management
believes that the Company has sufficient financial resources to fund planned
operating and capital expenditures and other working capital needs for at least,
but not limited to, the 12-month period from the date of issuance of the May 31,
2020 interim condensed consolidated financial statements. There can be no
assurance that any future financing will be available or, if available, that it
will be on terms that are satisfactory to us.
As at May 31, 2020, we have a long-term debt obligation to a Canadian bank in
connection with the purchase, in the year ended February 28, 2018, of the land
and building where our pilot plant and corporate offices are located at 480
Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the
Company obtained a $1,015,449 (CDN$1,400,000) 20-year term instalment loan (the
"Loan"), from a Canadian bank. The Loan bears interest at the bank's Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of
$4,231 (CDN$5,833) plus interest, until January 2021, at which time it will be
subject to renewal. It includes an option allowing for the prepayment of the
Loan without penalty.
We also have a long-term debt obligation to Investissement Québec in connection
with a financing facility equal to 63.45% of all eligible expenses incurred for
the expansion of its Pilot Plant up to a maximum of $3,336,476 (CDN$4,600,000).
We received the first disbursement in the amount of $1,602,404 (CDN$2,209,234)
on February 21, 2020. There is a 36-month moratorium on both capital and
interest repayments as of the first disbursement date. At the end of the
36-month moratorium, capital and interest will be repayable in 84 monthly
installments. The loan bears interest at 2.36%. We have also agreed to issue to
Investissement Québec warrants to purchase shares of our common stock in an
amount equal to 10% of each disbursement up to a maximum aggregate amount of
$333,647 (CDN$460,000). The warrants will be issued at a price per share equal
to the higher of (i) $11.00 per share and (ii) the ten-day weighted average
closing price of Loop Industries shares of common stock on the Nasdaq stock
market for the 10 days prior to the issue of the warrants. The warrants can be
exercised immediately upon grant and will have a term of three years from the
date of issuance. The loan can be repaid at any time by us without penalty. On
February 21, 2020, upon the receipt of the first disbursement under this
facility, we issued a warrant to purchase 15,153 shares of common stock at a
price of $11.00 to Investissement Québec.
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