What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-11 compared with 2021-10-15 · 130 added, 126 removed, 262 unchanged (49% of the section changed)

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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 scale, manufacture and 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 scrutiny, 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, government employment subsidy programs, 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, (xi) the outcome of the current SEC investigation or recent class action litigation filed against us, (xii) our ability to hire and/or retain qualified employees and consultants and (xiii) other factors discussed in our subsequent filings with the SEC.

(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 relative to our financial commitments, (vi) engineering, contracting and building our manufacturing facilities, (vii) our ability to scale, manufacture and 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 scrutiny, practices, rumors, or otherwise, (x) disease epidemics and health-related concerns, such as the current outbreak of additional variants 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, government employment subsidy programs, 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, (xi) the outcome of the current SEC investigation or recent class action litigation filed against us, (xii) our ability to hire and/or retain qualified employees and consultants and (xiii) 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.

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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.

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 is a technology company whose mission is to accelerate the world’s shift towards sustainable PET plastic and polyester fiber and away from our dependence on fossil fuels.

Loop owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber, including plastic bottles and packaging, carpets and textiles of any color, transparency or condition and even ocean plastics that have been degraded by the sun and salt, to its base building blocks (monomers).

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The global annual market demand for PET plastic and polyester fiber will exceed $160 billion by 2022 as projected in the 2018 IHS Polymer Market Report.

We believe, plastic pollution continues to be one of the most persistently covered environmental issues by media and local and global environmental non-governmental organizations.

Some of the main concerns associated with PET are the emissions associated with its production from non-renewable hydrocarbons and the length of time it persists in landfills and the natural environment.

We believe plastic pollution and climate change continue to be the most persistently covered environmental issues by media and local and global environmental non-governmental organizations.

Some of the main concerns associated with PET are the greenhouse gas (“GHG”) emissions associated with its production from non-renewable hydrocarbons and the length of time it persists in landfills and the natural environment.

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.

In the last few years, governments in North America and Europe have been enacting and proposing laws and regulations mandating the use of minimum recycled content in packaging underlying the strength of this issue in the marketplace.

In the last few years, governments in North America, Europe and Asia have been enacting and proposing laws and regulations mandating the use of minimum recycled content in packaging underlying the strength of this issue in the marketplace.

Consumer brands are seeking a solution to their plastic challenge, and they are taking action.

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In 2018, Coca-Cola committed to an average recycled content of 50% across its packaging by 2030;

In 2021, PepsiCo committed to 11 European markets moving key Pepsi-branded products to 100% rPET bottles by 2022, and in the U.S., all Pepsi-branded products will be converted to 100% rPET bottles by 2030;

In September 2021, PepsiCo stated 11 European markets are moving key Pepsi-branded products to 100% rPET bottles by 2022, and in the U.S., all Pepsi-branded products will be converted to 100% rPET bottles by 2030.;

In 2020, L’OCCITANE en Provence committed to 100% recycled content plastic in their bottles by 2025;

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H&M is aiming to ensure that at least 25% of the plastic they use is from post-consumer recycled materials.

Walmart has an objective to use at least 17% post-consumer recycled content globally in their private brand plastic packaging and is taking action to eliminate problematic or unnecessary plastic packaging and move from single-use toward reuse models where relevant by 2025;

Ikea’s ambition is, that by 2030, all plastic used in their products will be based on renewable or recycled material.

There is a growing regulatory and policy environment to encourage a reduction in the production of virgin fossil fuel-based plastic and for minimum recycled content in packaging imposed by various governments:

For example, on July 21 2020, the European Union announced a new tax on plastic waste starting January 1, 2021.

This tax will have a rate of €800/ton on non-recycled plastic packaging.

In the UK, a new £200/ton tax will apply to plastic packaging produced or imported into the UK that does not contain at least 30% recycled plastic, effective 2022.

In North America:

Canada has announced a zero-plastic waste by 2030 goal and is targeting all plastic packaging contain 50% recycled content by 2030.

A California law enacted on September 24, 2020 requires that plastic bottles contain at least 15% post-consumer resin by 2022, 25% by 2025 and 50% by 2030.

The growing regulatory environment is expected to increase the demand for recycled PET plastic further.

As explained by the International Bottled Water Association, currently, mechanical recycled PET (rPET) plastic is produced principally through the conversion of bales of PET bottles.

starting January 2021, the European Union introduced a new tax of €800/ton on non-recycled plastic packaging.

Effective 2022, a new £200/ton tax will apply in the UK to plastic packaging produced or imported into the UK that does not contain at least 30% recycled plastic.

France has a stated goals of 100% plastics recycled by 2025 and 77% of beverage bottles to be collected.

South Korea targets reducing plastic waste by 20% and increase recycling rates from 54% to 70% by 2025 and 30% renewable plastic by 2030.

The growing regulatory environment combined with global consumer goods companies, apparel manufacturers, and retail brand commitments for 2025 and 2030 are expected to increase the demand for recycled PET (“rPET”)plastic further.

As explained by the International Bottled Water Association, currently, mechanical recycled PET plastic is produced principally through the conversion of bales of PET bottles.

The materials have been collected and transported to a materials recovery facility (“MRF”), where they are sorted from other materials, baled, and sent to specific PET recycling facilities.

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The Loop™ PET resin and polyester fiber is virgin-quality suitable for use in food-grade packaging.

That means consumer packaged goods companies will be able to choose to market packaging made from a 100% Loop™ branded PET resin and polyester fiber.

That means consumer packaged goods companies will be able to choose to market packaging made from a 100% recycled Loop™ branded PET resin and polyester fiber.

Proprietary Technology and Intellectual Property

We believe the power of our technology lies in its ability to use post-industrial and post-consumer waste PET plastic and polyester fiber feedstocks, which could end up in landfills, rivers, oceans and natural areas, to create Loop™ PET resin.

We believe our technology can deliver high-purity profitable virgin-quality PET resin suitable for use in food-grade packaging and polyester fiber.

We believe our technology can deliver high-purity profitable virgin-quality, 100% recycled PET resin suitable for use in food-grade packaging and polyester fiber.

Our Generation I technology (“GEN I”) is a hydrolysis-based depolymerization technology which yielded purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET.

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The low temperature offers several key advantages which the company believes will improve its ability to commercialize the GEN II technology, including;

Lower energy usage during depolymerization and therefore reduced processing cost relative to higher temperature processes;

Lower energy usage during depolymerization and therefore reduced processing cost and lower GHG emissions relative to higher temperature processes;

Avoidance of side reactions with non-PET waste, which are inherent in waste PET feedstock streams, during depolymerization which may occur during higher temperature and higher pressure depolymerization processes.

This allows for a simplified distillation purification process resulting in less, and more effective, steps to isolate the desired high purity DMT and MEG monomers suitable to produce virgin-quality PET required to meet food contact regulations as well as the quality and clarity requirements of global consumer product companies;

This allows for a simplified distillation purification process resulting in fewer, and more effective, steps to isolate the desired high purity DMT and MEG monomers suitable to produce virgin-quality PET required to meet food contact regulations as well as the quality and clarity requirements of global consumer product companies;

Allowing the depolymerization of less costly and low-quality feedstocks, which cannot be effectively recycled today, such as carpet fiber, clothing and mixed plastics, and upcycling them into high-quality PET that can be used in food contact use;

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The complete Kemitek report was filed with the SEC by the Company on December 14, 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, we have two technology areas, referred to as GEN I technology and the GEN II technology, with patent claims relating to our technology for depolymerizing PET.

We have two technology areas, referred to as GEN I technology and the GEN II technology, with patent claims relating to our technology for depolymerizing PET.

The GEN I technology portfolio has three issued U.S.

patents, all expected to expire on or around July 2035.

Internationally, we also have issued patents in China, the Eurasian Patent Organization, Europe, Japan, the Gulf Cooperation Council, and various other countries, an allowed patent application in the Philippines, and pending patent applications in Canada, India, Japan, South Korea, and various other countries all expected to expire, if granted, on or around July 2036, not including any patent term extension.

Internationally, we also have issued patents in China, the Eurasian Patent Organization, Europe, Japan, India, the Gulf Cooperation Council, and various other countries, and pending patent applications in Canada, Japan, South Korea, and various other countries all expected to expire, if granted, on or around July 2036, not including any patent term extension.

The GEN II technology portfolio currently consists of four patent families:

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A further additional aspect of the GEN II technology is the subject of a pending U.S.

Internationally, we also have pending applications in Brazil and South Africa.

Any patents that would ultimately grant from this application would be expected to expire on or around March 2040, not including any patent term extension.

Another further additional aspect of the GEN II technology is the subject of a pending U.S.

application, a pending International application, and pending applications in Canada, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries.

Another further additional aspect of the GEN II technology is the subject of an allowed U.S.

application, a granted Bangladesh application, a pending U.S.

application, a pending International application, and pending applications in Canada, China, Korea, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries.

Any patents that would ultimately grant from these applications would be expected to expire on or around March 2040, if granted and not including any patent term extension.

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The NOL confirms Loop’s monomers can produce rPET of a purity suitable for food-contact use, provided it meets the applicable requirements of Title 21 of the Code of Federal Regulations.

The monomers used in the PET resin submitted for testing were produced at Loop’s small-scale production facility in Terrebonne, Quebec.

The monomers used in the PET resin submitted for testing were produced at Loop’s small-scale production facility in Terrebonne, Québec (the “Terrebonne Facility”).

We have received from the European Chemicals Agency a confirmation of registration for our MEG on November 17, 2020, and for our DMT on December 7, 2020.

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On August 31, 2021, Loop also received a NOL from Health Canada, which states that the PET produced by Loop’s recycling process is suitable for use in the manufacture of water bottles and articles for contact with all food types under all conditions of use.

In this letter, Health Canada confirms it sees no reason to object to the use of Loop’s recycling process, provided it is technically suitable for the intended end-uses.

Supply Agreements with Global Consumer Brands

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In the past years, we have seen major brands make significant commitments to close the loop on their plastic use in two ways;

by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging.

by transitioning their packaging to recyclable materials, like PET, and by incorporating more recycled content into their packaging.

We believe Loop™ PET resin provides the ideal solution for these brands because it is recyclable and is made from 100% recycled PET waste and polyester fiber, while being virgin-quality and suitable for use in food-grade packaging and polyester fiber.

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 resin and its marketability to extoll the sustainability credentials of consumer brands that incorporate it, we believe we will be able to sell Loop™ branded PET resin at a premium price relative to virgin and mechanically recycled PET resin.

We are pursuing supply agreements with customers that are located in North America, Europe, and Asia.

We currently have agreements with some of the world’s leading brands to be supplied from our planned commercial facility from our joint venture with Indorama Ventures Holdings LP (“Indorama”) in Spartanburg, South Carolina, including:

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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.

We are pursuing amended supply agreements with existing customers and new agreements with additional customers that are located in North America, Europe, and Asia to sell the production volumes of our planned Infinite Loop™ commercial facilities.

Turning PET Waste into Feedstock

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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.

Commercialization Plan and Progress

During the six-month period ended August 31, 2021, we continued executing our corporate strategy with a focus on the commercialization of our technology.

We are progressing on the engineering of our full-scale commercial facilities with our engineering partner Worley, a leading global engineering, procurement and construction company.

The engineering philosophy we have adopted is “design one, build many.” This approach allows for the process design package, which has been completed, to be used as the base engineering platform for all future geographical expansion.

We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction.

The Infinite Loop™ manufacturing 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 recycled content.

The Infinite Loop™ technology is being engineered to support the commitment of global consumer brands to achieve a high level of recycled content in packaging.

Infinite Loop™ facilities could be located near large urban centers where more plastic is being consumed and therefore more waste plastic feedstock is likely available.

Commercialization Strategy

Our objective is to achieve global expansion of the technology through a mix of fully owned facilities, strategic partnerships, and licensing agreements.

We believe that industrial companies, some of which today may not be in the business of manufacturing PET resin or polyester fiber, will view involvement in Infinite Loop™ projects as a growth opportunity, which may offer attractive economic returns either as Loop manufacturing partners or as licensees of the technology.

We believe that industrial companies, some of which today may not be in the business of manufacturing PET resin or polyester fiber, will view involvement in Infinite Loop™ projects as a significant growth opportunity, which may offer attractive economic returns either as Loop manufacturing partners or as licensees of the technology.

We are currently pursuing projects for future commercial production facilities in four regions:

Canada, Europe, Asia and the U.S.

On September 2, 2020, we entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET resin and polyester fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”).

The INVISTA know how will be used for the polymerization of DMT and MEG monomer output from Loop’s depolymerization technology, the result of which is Loop TM PET resin or polyester fiber made from 100% recycled content.

The Infinite Loop ™ greenfield manufacturing technology is the key pillar of our commercialization blueprint.

The Infinite Loop™ technology is being engineered to support the commitment of global consumer brands to achieve a high level of recycled content in packaging.

Infinite Loop™ facilities could be located near large urban centers, where more plastic is being consumed and therefore more waste plastic feedstock is likely available.

We are progressing on the engineering of our full-scale commercial facilities with our engineering partner Worley, a leading global engineering, procurement and construction company.

We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction.

We entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET resin and polyester fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”).

The INVISTA know-how will be used for the polymerization of DMT and MEG monomer output from Loop’s depolymerization technology, the result of which is Loop ™ PET resin or polyester fiber made from 100% recycled content.

The INVISTA polymerization process and the associated designs are historically proven in the commercial production of PET resin and polyester fiber.

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Worley has completed the pre-feasibility engineering as part of the planning phase for an Infinite Loop ™ manufacturing facility in the province of Québec.

We expect that Worley may also play a role in the feasibility phase of engineering and the future design of larger capacity facilities.

Worley are proceeding with the feasibility phase of engineering and may also play a role in the future design of larger capacity facilities.

Our market strategy is to assist global consumer goods brands in meeting their public sustainability commitments by offering packaging or polyester fibers that are made with Loop co-branded, 100% recycled, virgin-quality PET or polyester fibers.

We believe that Infinite Loop™ recycled PET resin and polyester fiber could command premium pricing over virgin, petroleum-based PET resin and provide attractive economic returns.

We believe that Loop ™ recycled PET resin and polyester fiber could command premium pricing over virgin, petroleum-based PET resin and provide attractive economic returns.

We are targeting multi-year take or pay offtake agreements for planned Infinite Loop ™ production.

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SKGC was also granted warrants to acquire an additional 461,298 common shares at $11 per share within the next 12 months, 4,714,813 common shares at a price of $15 per share, within the next 3 years, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility.

SKGC was granted one seat on Loop’s Board of Directors and as such is expected to provide valued input into the continuing development of Loop’s global commercialization strategy.

SKGC now owns approximately 10% of Loop’s common shares.

SKGC owns approximately 10% of Loop’s common shares.

In conjunction with the equity investment, Mr.

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This appointment reflects SKGC’s strategic view of the importance of its investment in Loop, as part of its “Green for Better Life” global strategic vision.

As reported on July 8, 2021 SKGC signed a memorandum of understanding (“MOU”) with the city of Ulsan, South Korea to develop an industrial complex which would be planned to include the first Infinite Loop™ manufacturing facility in Asia.

As reported on July 8, 2021 SKGC signed a memorandum of understanding (“MOU”) with the city of Ulsan, South Korea to develop an industrial complex which is planned to include the first Infinite Loop™ manufacturing facility in Asia.

SK global chemical unveiled on August 31, 2021 its rebrand as SK geo centric, aligning with the company’s goal of transforming into a green company and focusing on eco-friendly products such as recyclable plastics.

These announcements further reinforce Loop’s alignment as an important strategic partner for SK geocentric, as we move to commercialize our technology in Asia.

These announcements further reinforce Loop’s alignment as an important strategic partner for SK geo centric, as we move to commercialize our technology in Asia.

Unveiling of New evian Loop Bottle

On September 20, 2021, Loop, in partnership with iconic global beverage brand evian, unveiled a new “evian Loop” prototype virgin-quality water bottle made from 100 percent recycled content.

The monomers used to produce the evian Loop bottles were made at Loop’s small-scale production facility in Terrebonne, Quebec.

Evian plans to begin selling water bottles made from Loop™ PET initially in South Korea next year, and subsequently in other global markets.

The monomers used to produce the evian Loop bottles were made at the Terrebonne Facility.

Evian plans to begin selling water bottles made from Loop™ PET initially in South Korea during 2022, and subsequently in other global markets.

The waste plastic used to produce these bottles include polyester fibers from carpets and clothing which are considered unrecyclable and destined for landfill and other natural environments.

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Infinite Loop ™ Bécancour, Québec

We are in the planning phase for an Infinite Loop™ manufacturing facility in the province of Québec (the “Québec Project”).

On May 27, 2021, we acquired a 19 million square foot parcel of land in Bécancour, Québec for $4.8 million (CDN $5.9 million).

Our Infinite Loop™ Québec project is aligned with the Government of Canada’s announced zero plastic waste goal by 2030.

We believe the project could be critical infrastructure for customers to meet their 2025 and 2030 sustainability commitments and will assist the Government of Canada with achieving its Canada-wide zero plastic waste target and any proposed additional requirements, such as the requirement that all plastic packaging in Canada containing at least 50% recycled content by 2030.

The Québec Project is currently contemplated as wholly-owned and operated by Loop Industries which allows us to commercialize near our innovation and engineering teams located in Terrebonne, Québec and avoid various COVID-19 restrictions on international travel.

We acquired the project site in Bécancour, Québec in May of 2021.

During the quarter ended November 30, 2021, we initiated site preparation on the Bécancour, Québec project land for the planned Infinite Loop™ manufacturing facility.

During the quarter, the Company invested $0.90 million in civil construction costs which included building access roads, landscaping and drainage to ready the site for full construction.

We are currently in the process of negotiating and entering into commercial contracts for the acquisition and fabrication of long lead item equipment to develop the project.

We have committed up to approximately $8.55 million in capital expenditures over the next 13 months for certain long lead item equipment to develop the Bécancour project, and expect to enter into additional commitments to move the project ahead within our targeted construction time frames.

We continue to work with existing and additional customers to sign definitive multi-year contracts for the Québec facility’s commercial output.

We are exploring financing options to fully fund the project.

Alternatives under exploration include incentive and financing programs supported by, or in partnership with, various levels of government.

The site offers attractive logistics being located on the St-Lawrence river and access to rail.

The site size exceeds our project needs and we plan to sell a portion of the land to offset part of our project commitment.

To fund the project and enhance our target returns, we are exploring financing options.

Alternatives under exploration include incentive and financing programs supported by, or in partnership with, various levels of government.

The Québec Project would allow the Company to proceed with Infinite Loop™ commercialization in a more expeditious manner without being impacted by COVID-19 restrictions on international travel.

Infinite Loop ™ Europe

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With the combination of the Infinite Loop ™ technology and the resource management expertise of Suez, this partnership seeks to respond to growth in demand in Europe from global beverage and consumer goods brand companies for virgin quality PET resin made from 100 percent recycled content.

Together with Suez, we have initiated the work to enable us to make a final investment decision for the project with the current priorities being site selection, feedstock sourcing and customer contracts.

We continue to work with our partner on finalizing the details of the site selection.

Joint Venture with Indorama

Together with Suez, we are advancing the project with the priorities being site selection, feedstock sourcing and customer contracts.

We are working with our partner on alignment of government support and finalizing the details of our site selection in Normandy, France in the near term.

Joint Venture with Indorama for Retrofit

In September 2018 we announced a joint venture with Indorama to retrofit certain PET manufacturing facilities.

We entered into a Limited Liability Company Agreement between (the “LLC Agreement”), a Marketing Agreement (the “Marketing Agreement”) and a License Agreement (the “License Agreement”), each dated September 24, 2018, with Indorama through our wholly-owned subsidiary Loop Innovations, LLC (“Loop Innovations”), a Delaware limited liability company.

We entered into a Limited Liability Company Agreement between (the “LLC Agreement”), a Marketing Agreement (the “Marketing Agreement”) and a License Agreement (the “License Agreement”), with Indorama through our wholly-owned subsidiary Loop Innovations, LLC (“Loop Innovations”).

Each company has 50/50 equity interest in the joint venture.

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In 2019, the joint venture decided to increase the capacity of the planned Spartanburg, South Carolina plant due to customer demand to 40,000 metric tons per year from the initially planned 20,700 metric tons per year.

We have currently contracted for the sale of approximately 40% of the planned capacity, of the expected output of the Spartanburg facility and we will resume discussions for the remaining volume once we have more visibility on the commissioning date of the facility, although we have had and may continue to experience delays due to the COVID-19 pandemic (see “The global COVID-19 pandemic” as noted under “Risk Factors”).

As part of the Joint Venture Agreement, we are committed to contribute our equity share for the costs under the joint venture agreement to construct the facility.

During the year ended February 28, 2021, we made a contribution of $650,000 and as at August 31, 2021, we have contributed a total of $1,500,000 to the joint venture.

The joint venture made a decision over the summer of 2020 that due to the COVID-19 pandemic it would temporarily delay work on the project.

Since then, no expenditures have been incurred by the joint venture.

While both joint venture partners currently remain committed to the project, we continue to monitor the COVID-19 implications on the project timetable.

Both joint venture partners currently remain committed to the project and we continue to discuss the project timetable.

In conjunction with the SK strategic partnership mentioned above, on June 18, 2021, the Company, Loop Innovations, Indorama and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended (i) the LLC Agreement, (ii) the Marketing Agreement and (iii) the License Agreement (collectively such amendments, the “Indorama Joint Venture Amendments”).

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limit the scope of the Indorama Joint Venture Company’s permitted marketing rights under the Marketing Agreement to North America and Europe.

The foregoing description of the Indorama Joint Venture Amendments does not purport to be complete and is qualified in its entirety by reference to the Indorama Joint Venture Amendments, a copy of which was filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended May 31, 2021 and incorporated therein by reference.

Small-scale Production Facility and Innovation Center in Terrebonne, Québec

As part of our plan for the commercialization of future Infinite Loop™ manufacturing facilities, we decided to convert our Terrebonne, Québec pilot plant to an Infinite Loop™ small-scale production facility.

This facility will be used to showcase the Infinite Loop™ end to end technology and deliver initial production volumes to support co-branded market launch campaigns with partners and customers, and train operational teams in advance of the commissioning of the Infinite Loop™ full-scale commercial plants.

We made significant investments in the small-scale production facility during the six-month period ended August 31, 2021.

Terrebonne Facility

As part of our plan for the commercialization of future Infinite Loop ™ manufacturing facilities, we enhanced our Terrebonne, Québec pilot plant to become an Infinite Loop ™ small-scale production facility.

This facility is used to deliver initial production volumes to support co-branded market launch campaigns with partners and customers and will also be used to showcase the Infinite Loop ™ end-to-end technology and train operational teams in advance of the commissioning of the Infinite Loop™ full-scale commercial facilities.

We made significant investments in the Terrebonne Facility during the nine-month period ended November 30, 2021.

In particular, we installed and began operation of new distillation columns in this period.

We also advanced testing and production on the two installed depolymerization reactors which substantially increase our small-scale production facility’s depolymerization capacity and confirm the design and scale-up factor for the feasibility engineering of the planned commercial-scale facilities.

We anticipate the Infinite Loop™ small-scale production facility depolymerization upgrades to be largely completed by late in calendar 2021.

We have also previously entered into an agreement to acquire PET polymerization equipment from Chemtex to manufacture of Loop™ branded PET resin at our small-scale production facility and deliver Loop™ branded PET resin to customers in calendar 2022.

In addition to the capital requirements for our commercialization, we continue to invest in strengthening our intellectual property portfolio, building a core competency in managing strategic relationships and continue enhancing our brand value with activities such as the September 20, 2021 co-branded marketing launch of an evian Loop bottle for the South Korean market in 2022.

Our research and development innovation center in Terrebonne, Québec will continue to push forward the development of our technology.

We also advanced testing and production on the two installed depolymerization reactors which substantially increase Terrebonne Facility’s depolymerization capacity and confirm the design and scale-up factor for the feasibility engineering of the planned commercial-scale facilities.

Materials for the launch of the evian loop bottle to be introduced in South Korea in 2022 were produced at the Terrebonne Facility.

We have also previously entered into an agreement to acquire PET polymerization equipment from Chemtex to manufacture of Loop™ branded PET resin from the recycled monomers produced at the Terrebonne Facility and deliver Loop™ branded PET resin to customers.

In addition to the capital requirements for our commercialization, we continue to invest in strengthening our intellectual property portfolio, building a core competency in managing strategic relationships and continue enhancing our brand value with activities such as the co-branded marketing launch of an evian Loop bottle.

Our research and development innovation center in Terrebonne, Québec will continue to push forward the continuous improvement of our technology.

Human Capital

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We provided emergency leave for employees to take care of a child or parent due to COVID-19 disruptions.

As of August 31, 2021, we had 79 employees of which 32 work in research and development and 34 in engineering and operations.

As of November 30, 2021, we had 84 employees of which 33 work in research and development and 37 in engineering and operations.

Results of Operations

The following table summarizes our operating results for the three-month periods ended August 31, 2021 and 2020, in U.S.

Three months ended August 31,

The following table summarizes our operating results for the three-month periods ended November 30, 2021 and 2020, in U.S.

Three months ended November 30,

Research and development

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Employee compensation

Directors and officers insurance

Total general and administrative

Write-down and impairment of property, plant and equipment

Depreciation and amortization

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$ (14,170,993 )

$ (3,264,692 )

Second Quarter Ended August 31, 2021

The net loss for the three-month period ended August 31, 2021 increased $3.26 million to $8.39 million, as compared to the net loss for the three-month period ended August 31, 2020 which was $5.13 million.

The increase is primarily due to increased research and development expenses of $2.54 million and increased general and administrative expenses of $1.07 million, offset by a lower foreign exchange loss of $0.28 million and a decrease in depreciation and amortization expenses of $0.16 million.

The $2.54 million increase in research and development for the three-month period ended August 31, 2021 was primarily attributable to the following:

$2.49 million increase in purchases of research and development machinery and equipment.

Starting in Q3 of fiscal 2021, the Company expensed machinery and equipment in accordance with ASC 730, Research and Development Costs, and no longer capitalized these costs.

The timing of this accounting treatment is related to management’s decision to convert our pilot plant to a small-scale production facility for brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities;

$0.39 million increase in employee compensation expenses;

Third Quarter Ended November 30, 2021

The net loss for the three-month period ended November 30, 2021 decreased $4.07 million to $10.10 million, as compared to the net loss for the three-month period ended November 30, 2020 which was $14.17 million.

The decrease is primarily due to lower write-down and impairment of property, plant and equipment (“PP&E”) expenses of $5.03 million, offset by increased research and development expenses of $0.56 million and increased general and administrative expenses of $0.37 million.

The $5.03 million decrease in write-down and impairment of PP&E is related to the decision in the third quarter of fiscal 2021 to dedicate the Terrebonne Facility to brand activation, initial customer volumes and Infinite Loop ™ demonstration, research and development activities.

Although the machinery and equipment will continue to be utilized at the Terrebonne Facility as it is an integral part of supporting the commercialization of our technology, application of ASC 730, Research and Development Costs requires machinery and equipment assets to be written off and all future costs associated with the Terrebonne Facility to be recognized as a research and development expense in the consolidated statements of operations and comprehensive loss.

The $0.56 million increase in research and development for the three-month period ended November 30, 2021 was primarily attributable to the following:

$0.56 million increase in employee compensation expenses related to increased headcount to support the Company’s commercialization efforts;

$0.27 million increase in purchases of research and development machinery and equipment at the Company’s small-scale production plant;

$0.15 million increase in plant and laboratory operating expenses.

These increases are offset by a $0.39 million decrease in external engineering expenses as a larger proportion of ongoing design work for our Infinite Loop™ manufacturing process was performed by our in-house engineering team during the three months ended August 31, 2021.

The $1.07 million increase in general and administrative expenses for the three-month period ended August 31, 2021 was primarily attributable to the following:

$0.56 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance renewal costs;

$0.44 million increase in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Part II, Item 1.

Legal Proceedings”.

The $0.16 million decrease in depreciation and amortization expenses for the three-month period ended August 31, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the small-scale production facility to brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities.

Although the machinery and equipment will continue to be utilized at our small-scale production facility as it is an integral part of supporting the commercialization of our technology, application of ASC 730, Research and Development Costs requires machinery and equipment assets to be written off and all future costs associated with the small-scale production facility to be recognized as a research and development expense in the consolidated statements of operations and comprehensive loss.

Six Months Ended August 31, 2021

The following table summarizes our operating results for the six-month periods ended August 31, 2021 and 2020, in U.S.

Six months ended August 31,

These increases were partially offset by a $0.64 million decrease in external engineering expenses as a larger proportion of ongoing design work for our Infinite Loop ™ manufacturing process was performed by our in-house engineering team before the start of the feasibility study phase of the engineering design by external engineering.

The $0.37 million increase in general and administrative expenses for the three-month period ended November 30, 2021 was primarily attributable to the following:

$0.71 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance upon extension of the Company’s policy;

$0.35 million increase in employee compensation expenses.

These increases were partially offset by a $0.51 million decrease in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Part II, Item 1.

Legal Proceedings” and a $0.27 million decrease in stock-based compensation expenses.

Nine Months Ended November 30, 2021

The following table summarizes our operating results for the nine-month periods ended November 30, 2021 and 2020, in U.S.

Nine months ended November 30,

Research and development

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Employee compensation

Directors and officers insurance

Total general and administrative

Write-down and impairment of property, plant and equipment

Depreciation and amortization

6 unchanged sentences

$ (7,496,592 )

The net loss for the six-month period ended August 31, 2021 increased $11.57 million to $20.55 million, as compared to the net loss for the six-month period ended August 31, 2020 which was $8.98 million.

The increase is primarily due to increased research and development expenses of $9.69 million and increased general and administrative expenses of $2.27 million, offset by lower depreciation and amortization expenses of $0.29 million and a decrease in foreign exchange loss of $0.15 million.

The $9.69 million increase in research and development for the six-month period ended August 31, 2021 was primarily attributable to the following:

The net loss for the nine-month period ended November 30, 2021 increased $7.50 million to $30.65 million, as compared to the net loss for the nine-month period ended November 30, 2020 which was $23.15 million.

The increase is primarily due to increased research and development expenses of $10.25 million and increased general and administrative expenses of $2.64 million, offset by lower write-down and impairment of property, plant and equipment (“PP&E”) expenses of $5.04 million, lower depreciation and amortization expenses of $0.25 million and a decrease in foreign exchange loss of $0.23 million.

The $10.25 million increase in research and development for the nine-month period ended November 30, 2021 was primarily attributable to the following:

$5.38 million increase in purchases of research and development machinery and equipment.

Starting in Q3 of fiscal 2021, the Company expensed research and development machinery and equipment in accordance with ASC 730, Research and Development Costs, and no longer capitalized these costs.

The timing of this accounting treatment is related to management’s decision to dedicate the Terrebonne Facility to brand activation, initial customer volumes and Infinite Loop ™ demonstration, research and development activities;

$2.17 million increase in employee compensation expenses related to increased headcount to support the Company’s commercialization efforts;

$1.80 million increase in external engineering expenses for ongoing design work for our Infinite Loop ™ manufacturing process;

$1.61 million increase in employee compensation expenses;

$0.68 million increase in plant and laboratory operating expenses.

The $2.27 million increase in general and administrative expenses for the six-month period ended August 31, 2021 was primarily attributable to the following:

The $2.64 million increase in general and administrative expenses for the nine-month period ended November 30, 2021 was primarily attributable to the following:

$1.67 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance upon extension of the Company’s policy;

$1.33 million increase in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Part II, Item 1.

Legal Proceedings”;

$0.95 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance renewal costs;

$0.78 million increase in employee compensation expenses.

The listed increases in general and administrative expenses were partially offset by lower stock-based compensation expenses of $1.04 million which are mainly due to forfeitures of RSUs recorded in the six-month period ended August 31, 2021 for a total of $0.94 million.

The $0.29 million decrease in depreciation and amortization expenses for the six-month period ended August 31, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the small-scale production facility to brand activation, initial customer volumes and Infinite Loop™ demonstration, research and development activities.

These increases were partially offset by lower stock-based compensation expenses of $1.51 million which are mainly due to forfeitures of RSUs recorded in the nine-month period ended November 30, 2021 for a total of $0.94 million.

The $0.25 million decrease in depreciation and amortization expenses for the nine-month period ended November 30, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the the Terrebonne Facility to brand activation, initial customer volumes and Infinite Loop ™ demonstration, research and development activities.

LIQUIDITY AND CAPITAL RESOURCES

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To date, we have been successful in raising capital to finance our ongoing operations.

As at August 31, 2021, we had cash and cash equivalents on hand of $65.56 million.

As at November 30, 2021, we had cash and cash equivalents on hand of $54.86 million.

Management actively monitors the Company’s cash balance and short term cash commitments to ensure current operations are funded.

2 unchanged sentences

SKGC was also granted options to acquire an additional 461,298 common shares at $11 per share within the next 12 months, 4,714,813 common shares at a price of $15 per share, within the next 3 years, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility.

The company has outstanding warrants to purchase 4,554,865 shares of our common stock in aggregate at $11 per share that expire on June 14, 2022.

If fully exercised, the warrant proceeds would provide the company with $50.10 million of additional liquidity.

There is no assurance that these warrants will be exercised before their expiration.

Management continues to pursue 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 our ongoing operations.

Although our liquidity position consists of cash and cash equivalents on hand of $65.56 million, our liquidity position may change and is subject to risks and uncertainties, including those discussed under “Cautionary Statements Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and the Risk Factors section included in Part I, Item 1A of our 2021 Annual Report on Form 10-K.

Although our liquidity position consists of cash and cash equivalents on hand of $54.86 million, our liquidity position is subject to risks and uncertainties, including those discussed under “Cautionary Statements Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and the Risk Factors section included in Part I, Item 1A of our 2021 Annual Report on Form 10-K.

As reflected in the accompanying 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 committed 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 August 31, 2021 consolidated financial statements.

As the Company pursues its commercialization strategy and invests in the Bécancour, Québec project site and other project sites, certain project site improvements and long lead item capital commitments are being incurred and we expect to enter into additional commitments in the future.

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.

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The Loan bears interest at the bank’s Canadian prime rate plus 1.5%.

By agreement, the Loan is repayable in monthly payments of $4,623 (CDN$5,833) plus interest, until January 2022, at which time it will be subject to renewal.

By agreement, the Loan is repayable in monthly payments of $4,560 (CDN$5,833) plus interest, maturing in January 2022.

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 small-scale production facility up to a maximum of $3,645,875 (CDN$4,600,000).

We also have a long-term debt obligation to Investissement Québec in connection with a financing facility for the expansion of the Terrebonne Facility up to a maximum of $3,595,997 (CDN$4,600,000).

We received the first disbursement in the amount of $1,727,043 (CDN$2,209,234) on February 21, 2020 and the second disbursement in the amount of $1,868,954 (CDN$2,390,766) on August 26, 2021.

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Summary of Cash Flows

A summary of cash flows for the six months ended August 31, 2021 and 2020 was as follows:

Six Months Ended August 31,

A summary of cash flows for the nine months ended November 30, 2021 and 2020 was as follows:

Nine Months Ended November 30,

Net cash used in operating activities

2 unchanged sentences

Net cash used in investing activities

Net cash from (used by) financing activities

Net cash from financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash

$ (10,589,428 )

Net increase in cash

Net Cash Used in Operating Activities

During the six-month period ended August 31, 2021, we used $22.4 million in operations compared to $7.46 million during the six-month period ended August 31, 2020.

The increase over each year is mainly due to increased spending on upgrades to the small-scale production facility, engineering and operating expenses as we advance on commercialization activities of Loop’s technology and D&O insurance payments in the amount of $1.9 million.

During the nine-month period ended November 30, 2021, we used $32.83 million in operations compared to $14.54 million during the nine-month period ended November 30, 2020.

The increase over each year is mainly due to increased spending on upgrades to the Terrebonne Facility, engineering and operating expenses as we advance on commercialization activities of Loop’s technology, the reduction of accounts payable and accrued liabilities of $3.59 compared to an increase of $1.69 in the nine-month period ended November 30, 2021 and D&O insurance payments in the amount of $3.77 million compared to $1.43 in the nine-month period ended November 30, 2020.

As discussed above in the Results of Operations, the main increases in expenses were engineering fees, research and development machinery and equipment, employee compensation and professional fees.

Net Cash Used in Investing Activities

During the six months ended August 31, 2021, the Company made investments of $5.10 million in property, plant and equipment as compared to $2.32 million for the six months ended August 31, 2020, primarily in connection with the purchase for $4.82 million of a parcel of Land in Bécancour, Québec for the construction of our first Infinite Loop™ manufacturing facility.

During the nine months ended November 30, 2021, the Company made investments of $5.02 million in property, plant and equipment as compared to $1.58 million for the nine months ended November 30, 2020, primarily in connection with the purchase for $4.82 million of a parcel of Land in Bécancour, Québec for the construction of our first Infinite Loop™ manufacturing facility.

The size of this parcel of land exceeds that needed for the construction of the Infinite Loop™ manufacturing facility and a portion of the land is therefore available for sale.

For additional information on the land held for sale, please refer to Note 5 of the attached condensed consolidated financial statements.

During the six months ended August 31, 2021, the Company made investments in intangible assets of $0.1 million, particularly in its patent technology in the United States and around the world.

During the six months ended August 31, 2020, the Company made investments of $1.12 million in property, plant and equipment as compared to $1.20 million for the six months ended August 31, 2019, primarily in connection with the upgrade of its small-scale production facility.

Additionally, the Company made deposits on equipment of $1.31 million as at August 31, 2020.

During the six months ended August 31, 2020, the Company made investments in intangible assets of $0.16 million as compared to $0.08 million for the six months ended August 31, 2019, particularly in its GEN II patent technology in the United States and around the world.

During the six months ended August 31, 2020, the Company also made an additional contribution of $0.65 million to Indorama Loop Technologies, LLC, the joint venture with Indorama Ventures Holdings LP, USA.

Net Cash (Used) Provided by Financing Activities

During the quarter ended August 31, 2021, we raised $56.5 million through a private offering of common stock, together with warrants, in the net amount of $56.1 million.

We also made payments totaling $0.03 million against our long-term debt, representing the loan agreement we entered into during the year ended February 28, 2018 to purchase the land and building of our small-scale production facility, research and development center and executive offices.

On August 26, 2021, we received $1,894,877 (CDN$2,390,766) in connection with the credit facility from Investissement Québec to finance capital expenses incurred for the expansion of our pilot plant.

For additional information on the land held for sale, please refer to Note 5 of the attached interim condensed consolidated financial statements.

During the nine months ended November 30, 2021, the Company made investments in intangible assets of $0.35 million as compared to $0.16 million for the nine months ended November 30, 2020, particularly in its GEN II patent technology in the United States and around the world.

During the nine months ended November 30, 2020, the Company also made an additional contribution of $0.65 million to Indorama Loop Technologies, LLC, the joint venture with Indorama Ventures Holdings LP, USA.

Net Cash Provided by Financing Activities

During the nine months ended November 30, 2021, we raised $56.5 million through a private offering of common stock, together with warrants, in the net amount of $56.1 million.

We also made payments totaling $0.04 million against our long-term debt.

On August 26, 2021, we received $1.87 million (CDN$2.40 million) in connection with the credit facility from Investissement Québec to finance capital expenses incurred for the expansion of the Terrebonne Facility.

There is a moratorium on both capital and interest repayments until February 2023.

During the six months ended August 31, 2020, we repaid $0.03 million of long-term debt.

During the nine months ended November 30, 2020, the Company sold 2,087,000 shares of its common stock in an underwritten offering at an offering price of $12.75 for total net proceeds of $25.00 million.

In the same period, the Company also received net proceeds of $1.65 million upon the exercise of warrants for 190,529 shares of its common stock.

During the nine months ended November 30, 2020, we repaid $0.03 million of long-term debt.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis