Loop Industries, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Loop Industries, Inc. Three months ended May 31, 2022 Index to the Unaudited Interim Condensed Consolidated Financial Statements Contents Page(s) Condensed consolidated balance sheets as at May 31, 2022 and February 28, 2022 (Unaudited) F‑2 Condensed consolidated statements of operations and comprehensive loss for the three months ended May 31, 2022 and 2021 (Unaudited) F‑3 Condensed consolidated statement of changes in stockholders’ equity for the three months ended May 31, 2022 and 2021 (Unaudited) F‑4 Condensed consolidated statement of cash flows for the three months ended May 31, 2022 and 2021 (Unaudited) F‑5 Notes to the condensed consolidated financial statements (Unaudited) F‑6 F-1 Table of Contents Loop Industries, Inc. Condensed Consolidated Balance Sheets (Unaudited) As at May 31, 2022 February 28, 2022 Assets Current assets Cash and cash equivalents $ 32,400,737 $ 44,061,427 Sales tax, tax credits and other receivables (Note 3) 1,126,151 1,716,262 Prepaid expenses and deposits (Note 4) 3,773,125 2,965,646 Assets held for sale (Note 5) 3,402,677 3,389,279 Total current assets 40,702,690 52,132,614 Investment in joint venture 380,922 380,922 Property, plant and equipment, net (Note 6) 5,580,748 5,692,862 Intangible assets, net (Note 7) 1,067,398 1,013,801 Total assets $ 47,731,758 $ 59,220,199 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities (Note 9) $ 7,849,416 $ 9,846,815 Current portion of long-term debt (Note 10) 129,889 - Total current liabilities 7,979,305 9,846,815 Long-term debt (Note 10) 3,301,869 3,378,403 Total liabilities 11,281,174 13,225,218 Stockholders' Equity Series A Preferred stock par value $ 0.0001 ; 25,000,000 shares authorized; one share issued and outstanding - - Common stock par value $ 0.0001 ; 250,000,000 shares authorized; 47,400,709 shares issued and outstanding (February 28, 2022 – 47,388,056 ) (Note 12) 4,741 4,740 Additional paid-in capital 158,863,011 150,396,704 Additional paid-in capital – Warrants 30,272,496 30,272,496 Accumulated deficit ( 152,588,865 ) ( 134,582,926 ) Accumulated other comprehensive loss ( 100,799 ) ( 96,033 ) Total stockholders' equity 36,450,584 45,994,981 Total liabilities and stockholders' equity $ 47,731,758 $ 59,220,199 See accompanying notes to the condensed consolidated financial statements . F-2 Table of Contents Loop Industries, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Three Months Ended May 31, 2022 May 31, 2021 Revenue $ - $ - Expenses : Research and development (Note 13) 6,800,484 8,637,905 General and administrative (Notes 14) 11,036,641 3,160,571 Depreciation and amortization (Notes 6 and 7) 138,541 132,001 Interest and other financial expenses (Note 18) 41,329 30,588 Interest income ( 13,193 ) ( 9,761 ) Foreign exchange loss 2,137 206,060 Total expenses 18,005,939 12,157,364 Net loss ( 18,005,939 ) ( 12,157,364 ) Other comprehensive loss - Foreign currency translation adjustment ( 4,766 ) 206,815 Comprehensive loss $ ( 18,010,705 ) $ ( 11,950,549 ) Net Loss per share Basic and diluted $ ( 0.38 ) $ ( 0.29 ) Weighted average common shares outstanding Basic and diluted 47,400,571 42,433,107 See accompanying notes to the condensed consolidated financial statements. F-3 Table of Contents Loop Industries, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) Three months ended May 31, 2021 Common stock Preferred stock Additional Accumulated Other par value $0.0001 par value $0.0001 Additional Paid-in Comprehensive Total Number of Shares Amount Number of Shares Amount Paid-in Capital Capital – Warrants Accumulated Deficit Income (Loss) Stockholders’ Equity Balance, February 28, 2021 42,413,691 $ 4,242 1 $ - $ 113,662,677 $ 8,826,165 $ ( 89,661,970 ) $ ( 6,590 ) $ 32,824,524 Issuance of shares upon the vesting of restricted stock units (Note 15) 19,629 2 - - ( 2 ) - - - - Stock options issued for services (Note 15) - - - - 549,318 - - - 549,318 Restricted stock units issued (forfeited) for services (Note 15) - - - - ( 548,961 ) - - - ( 548,961 ) Foreign currency translation - - - - - - - 206,815 206,815 Net loss - - - - - - ( 12,157,364 ) - ( 12,157,364 ) Balance, May 31, 2021 42,433,320 $ 4,244 1 $ - $ 113,663,032 $ 8,826,165 $ ( 101,819,334 ) $ 200,225 $ 20,874,332 Three months ended May 31, 2022 Common stock Preferred stock Additional Accumulated Other par value $0.0001 par value $0.0001 Additional Paid-in Comprehensive Total Number of Shares Amount Number of Shares Amount Paid-in Capital Capital – Warrants Accumulated Deficit Income (Loss) Stockholders’ Equity Balance, February 28, 2022 47,388,056 $ 4,740 1 $ - $ 150,396,704 $ 30,272,496 $ ( 134,582,926 ) $ ( 96,033 ) $ 45,994,981 Issuance of shares upon the vesting of restricted stock units (Note 15) 12,653 1 - - ( 1 ) - - - - Stock options issued for services (Note 15) - - - - 317,140 - - - 317,140 Restricted stock units issued for services (Note 15) - - - - 8,149,168 - - - 8,149,168 Foreign currency translation - - - - - - - ( 4,766 ) ( 4,766 ) Net loss - - - - - - ( 18,005,939 ) - ( 18,005,939 ) Balance, May 31, 2022 47,400,709 $ 4,741 1 $ - $ 158,863,011 $ 30,272,496 $ ( 152,588,865 ) $ ( 100,799 ) $ 36,450,584 See accompanying notes to the condensed consolidated financial statements. F-4 Table of Contents Loop Industries, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended May 31, 2022 2021 Cash Flows from Operating Activities Net loss $ ( 18,005,939 ) $ ( 12,157,364 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization (Notes 6 and 7) 138,541 132,001 Stock-based compensation expense (Note 15) 8,466,307 15,357 Accretion and accrued interest expenses (Note 18) 39,794 21,408 Changes in operating assets and liabilities: Sales tax and tax credits receivable (Note 3) 593,931 287,116 Prepaid expenses (Note 4) ( 796,491 ) ( 1,326,519 ) Accounts payable and accrued liabilities (Note 9) ( 2,012,387 ) 622,443 Net cash used in operating activities ( 11,576,244 ) ( 12,405,558 ) Cash Flows from Investing Activities Additions to property, plant and equipment (Note 6) - ( 4,867,007 ) Additions to intangible assets (Note 7) ( 69,247 ) ( 52,319 ) Net cash used in investing activities ( 69,247 ) ( 4,919,326 ) Cash Flows from Financing Activities Repayment of long-term debt (Note 10) - ( 14,496 ) Net cash (used) provided by financing activities - ( 14,496 ) Effect of exchange rate changes ( 15,199 ) 154,491 Net decrease in cash ( 11,660,690 ) ( 17,184,889 ) Cash, beginning of period 44,061,427 35,221,951 Cash, end of period $ 32,400,737 $ 18,037,062 Supplemental Disclosure of Cash Flow Information: Income tax paid $ - $ - Interest paid $ - $ 9,178 Interest received $ 13,193 $ 9,761 See accompanying notes to the condensed consolidated financial statements. F-5 Table of Contents Loop Industries, Inc. Three Months Ended May 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. The Company and Basis of Presentation The Company Loop Industries, Inc. (the “Company,” “Loop,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber 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. The Company is currently in the development stage with no revenues. Basis of Presentation These unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2022, filed with the SEC on May 27, 2022. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50 % interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method. Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 28, 2022, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by US GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three months ended May 31, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter, for the fiscal year ending February 28, 2023, or for any other period. The consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the continuing of operations, the realization of assets and the settlement of liabilities in the normal course of business. 2. Summary of Significant Accounting Policies Liquidity Risk Assessment From inception to May 31, 2022, the Company has been in the development stage with no revenues, and with its ongoing operations and commercialization plans financed primarily by raising equity. The Company has incurred net losses and negative cash flow from operating activities since its inception and expects to incur additional net losses while it continues to develop and plan for commercialization. As at May 31, 2022, the Company has cash and cash equivalents of $ 32.40 million. Management actively monitors the Company’s cash resources against the Company’s short-term cash commitments to ensure the Company has sufficient liquidity to fund its costs for at least twelve months from the financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In preparing this liquidity assessment, management applies significant judgment in estimating future cash flow requirements of the Company based on budgets and forecasts, which includes developing assumptions related to: (i) estimation of amount and timing of future cash outflows and cash inflows and (ii) determining what future expenditures are committed and what could be considered discretionary. Based on this assessment, management believes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations as they become due for a period of no less than twelve months from the date of issuance of these consolidated financial statements. F-6 Table of Contents The company is currently evaluating financing options to move to the next stage of its strategic development and construct manufacturing plants in Canada, Europe and Asia. Our ability to successfully commercialize our business and generate future revenues depends on whether we can obtain the necessary financing through a combination of the issuance of debt, equity, and/or joint ventures and/or government incentive programs. We have committed a portion of our cash resources for certain long lead equipment in connection with the Bécancour project. We may enter into additional commitments to move the project ahead within our targeted construction timeframes. However, there is no assurance that the Company will be successful in attracting additional funding. Even if additional financing is available, it may not be available on terms favorable to us. Our failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on our current operation and on our ability to execute our business plan. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include the going concern assessment, estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of long-lived assets and intangible assets as well as the carrying value of our joint venture investment, assets held for sale, accruals for potential liabilities, assumptions made in calculating the fair value of stock-based compensation and other equity instruments, and the assessment of performance conditions for stock-based compensation awards. The COVID-19 pandemic, as well as supply chain and geo-political disruptions, have affected business operations and planning for future commercial facilities to varying degrees for us and our customers, suppliers, vendors and other parties with whom we do business, and such disruptions are expected to continue for an indefinite period of time. The uncertain duration of these conditions has had and may continue to have an effect on our development and commercialization efforts. Stock‑based compensation The Company periodically issues stock options, warrants and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing expenses. The Company accounts for stock options granted to employees based on the authoritative guidance provided by the FASB wherein the fair value of the award is measured on the grant date and recognized as compensation expense on the straight-line basis over the vesting period. When performance conditions exist, the Company recognizes compensation expense when it becomes probable that the performance condition will be met. Forfeitures on share-based payments are accounted for by recognizing forfeitures as they occur. The Company accounts for stock options and warrants granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance. The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant. The fair value of the stock options granted is estimated using the Black-Scholes-Merton Option Pricing (“Black-Scholes”) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options, and future dividends. Stock-based compensation expense is recorded based on the value derived from the Black-Scholes model and on actual experience. The assumptions used in the Black-Scholes model could materially affect stock-based compensation expenses recorded in the current and future periods. F-7 Table of Contents Research and development expenses Research and development costs are charged to expense as costs are incurred in performing research and development activities. Research and development expenses relate primarily to process development and design, testing of pre-production samples, machinery and equipment expenditures for use in the small-scale production facility in Terrebonne, Québec (the “Terrebonne Facility”), compensation, and consulting and engineering fees. Assets held for sale Assets are classified as held for sale when they met the criteria set out in ASC 360-10-45-9 Long-lived assets classified as held for sale : · Management, having the authority to approve the action, commits to a plan to sell the asset; · The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; · An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; · The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; · The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and · Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When the criteria are met, the assets are presented at the lesser of fair market value, net of selling costs, and cost in current assets. Foreign currency translations and transactions The accompanying consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income (loss) (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses. The Company currently is not engaged in any currency hedging activities. For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI. Net earnings (loss) per share The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share . Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive. For the three-month periods ended May 31, 2022 and 2021, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at May 31, 2022, the potentially dilutive securities consisted of 1,570,000 outstanding stock options (2021 – 1,587,081 ), 4,090,775 outstanding restricted stock units (2021 – 4,149,125 ), and 11,659,418 outstanding warrants (2021 – 4,133,720 ). F-8 Table of Contents Recently adopted accounting pronouncements In November 2021, the FASB issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance”. This ASU provided guidance to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Under the new guidance, an entity is required to provide the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item and, (3) significant terms and conditions of the transactions, including commitments and contingencies. This update is effective for fiscal years beginning after December 15, 2021. The adoption of this accounting guidance did not impact our Consolidated Financial Statements and disclosures. 3. Sales Tax, Tax Credits and Other Receivables Sales tax, research and development tax credits and other receivables as at May 31, 2022 and February 28, 2022 were as follows: May 31, 2022 February 28, 2022 Sales tax $ 679,490 $ 1,337,783 Research and development tax credits 431,688 313,599 Other receivables 14,973 64,880 $ 1,126,151 $ 1,716,262 4. Prepaid Expenses and Deposits Prepaid expenses and deposits as at May 31, 2022 and February 28, 2022 were as follows: May 31, 2022 February 28, 2022 Directors and officers insurance $ 904,699 $ - Deposits on machinery and equipment 2,728,910 2,801,680 Other 139,516 163,966 $ 3,773,125 $ 2,965,646 As at May 31, 2022, the Company had $ 2,728,910 (February 28, 2022 – $ 2,801,680 ) of non-refundable cash deposits on machinery and equipment. $ 593,602 (February 28, 2022 – $ 672,713 ) of the prepayments are on machinery and equipment that will be used in connection with the research and development activities at the Terrebonne Facility and will be expensed, and classified as research and development expenses in the period the equipment is received. The remainder of the prepayments of $ 2,135,308 (February 28, 2022 –$ 2,128,967 ) are non-refundable cash deposits on long-lead machinery and equipment that will be used in the planned Infinite Loop ™ manufacturing facility in Bécancour, Québec. 5. Asset held for sale On May 27, 2021, we acquired land in Bécancour, Québec for cash of $ 4.8 million (CDN $5.9 million) , for which a portion of the land is the site of our planned Infinite Loop ™ manufacturing facility. The excess land has been classified as an asset held for sale, on the basis that management is committed to a plan to dispose of the excess land and believes the sale is probable within one year. The total purchase cost of the land has been allocated between the portion of land held for sale and the land being used for the Infinite Loop ™ manufacturing facility based on surface area. Description Balance sheet line item Cost Land held for sale Asset held for sale $ 3,402,677 Infinite Loop ™ manufacturing facility Property, plant and equipment, net 1,407,400 $ 4,810,077 F-9 Table of Contents 6. Property, Plant and Equipment As at May 31, 2022 Cost Accumulated depreciation, write-down and impairment Net book value Building $ 1,960,062 $ ( 283,814 ) $ 1,676,248 Land 1,650,584 - 1,650,584 Building and Land Improvements 3,044,871 ( 959,879 ) 2,084,992 Office equipment and furniture 301,997 ( 133,073 ) 168,924 $ 6,957,514 $ ( 1,376,766 ) $ 5,580,748 As at February 28, 2022 Cost Accumulated depreciation, write-down and impairment Net book value Building $ 1,952,345 $ ( 266,434 ) $ 1,685,911 Land 1,644,084 - 1,644,084 Building and Land Improvements 3,049,892 ( 858,342 ) 2,191,550 Office equipment and furniture 298,141 ( 126,824 ) 171,317 $ 6,944,462 $ ( 1,251,600 ) $ 5,692,862 Depreciation expense for the three-month periods ended May 31, 2022 and 2021 amounted to $ 119,093 and $ 115,057 , respectively, and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss. During the three-month period ended May 31, 2021, the Company acquired a 19 million square foot parcel of land in Bécancour, Québec for $ 4.8 million (CDN $5.9 million). The Company intended use for the site is to construct a commercial facility to manufacture Loop™ branded PET resin using its Infinite Loop™ technology. 7. Intangible Assets Intangible assets as at May 31, 2022 and February 28, 2022 were $ 1,067,398 and $ 1,013,801 , respectively. During the three-month periods ended May 31, 2022 and 2021, we made additions to intangible assets of $ 69,247 and $ 52,319 , respectively. Amortization expense for the three-month periods ended May 31, 2022 and 2021 amounted to $ 19,539 and $ 16,944 , respectively, and is recorded as an operating expense in the unaudited condensed consolidated statements of operations and comprehensive loss. F-10 Table of Contents 8. Fair Value of Financial Instruments The following tables presents the fair value of the Company’s financial liabilities as at May 31, 2022 and February 28, 2022: Fair Value as at May 31, 2022 Carrying Amount Fair Value Level in the hierarchy Financial liabilities measured at amortized cost: Long-term debt 3,431,758 3,445,328 Level 2 Fair Value as at February 28, 2022 Carrying Amount Fair Value Level in the hierarchy Financial liabilities measured at amortized cost: Long-term debt $ 3,378,403 $ 3,392,600 Level 2 The fair value of cash, sales tax, tax credits and other receivables, and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. 9. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities as at May 31, 2022 and February 28, 2022 were as follows: May 31, 2022 February 28, 2021 Trade accounts payable $ 3,613,904 $ 4,397,499 Accrued loss contingency for legal settlement (Note 18) 2,230,759 2,519,220 Accrued employee compensation 1,030,097 1,254,685 Accrued engineering fees 354,491 774,423 Accrued professional fees 298,133 526,685 Other accrued liabilities 322,032 374,303 $ 7,849,416 $ 9,846,815 10. Long‑Term Debt Long-term debt as of May 31, 2022 and February 28, 2022, was comprised of the following: May 31, 2022 February 28, 2022 Investissement Québec financing facility : Principal amount $ 3,636,939 $ 3,622,618 Unamortized discount ( 335,753 ) ( 352,038 ) Accrued interest 130,572 107,823 Total Investissement Québec financing facility 3,431,758 3,378,403 Less: current portion of long-term debt ( 129,889 ) - Long-term debt, net of current portion $ 3,301,869 $ 3,378,403 Investissement Québec financing facility The Company recorded interest expense on the Investissement Québec loan for the three-month period ended May 31, 2022 in the amount of $ 22,208 (2021 – $ 10,882 ) and an accretion expense of $ 17,586 (2021 – $ 10,526 ). Principal repayments due on the Company’s bank indebtedness over the next five years are as follows: Years ending Amount February 28, 2023 $ - February 29, 2024 519,554 February 28, 2025 519,554 February 28, 2026 519,554 February 28, 2027 519,554 Thereafter 1,558,723 Total $ 3,636,939 F-11 Table of Contents 11. Related Party Transactions Employment Agreement On June 29, 2015, the Company entered into an employment agreement with Mr. Daniel Solomita, the Company’s President and Chief Executive Officer (“CEO”). The employment agreement is for an indefinite term. On July 13, 2018, the Company and Mr. Solomita entered into an amendment and restatement of the employment agreement which provided for a long-term incentive grant of 4,000,000 shares of the Company’s common stock, in tranches of one million shares each, upon the achievement of four performance milestones. This was modified to provide a grant of 4,000,000 restricted stock units (“RSUs”) covering 4,000,000 shares of the Company’s common stock while the performance milestones remained the same. The grant of the restricted stock units became effective upon approval by the Company’s shareholders at the Company’s 2019 annual meeting, of an increase in the number of shares available for grant under the Plan. Such approval was granted by the Company’s shareholders at the Company’s 2019 annual meeting. On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement. The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is far simpler to purify. When a milestone becomes probable, the corresponding expense will be valued based on the grant date fair value on April 30, 2020, the date of the last modification of Mr. Solomita’s employment agreement. The closing price of the Company’s common stock on the Nasdaq on April 30, 2020 was $ 7.74 per share. During the three-month period ended May 31, 2022, Mr. Solomita met a performance milestone in relation to the signature of a supply agreement with a customer. Accordingly, 1,000,000 performance incentive RSUs with a fair value of $ 7,740,000 were earned and issuable to Mr. Solomita. This amount was reflected as stock-based compensation expense during the three-month period ended May 31, 2022 based on the grant date fair value. The 1,000,000 vested RSU’s are to be settled annually on October 15 of each year in five equal tranches of 200,000 units. 12. Stockholders’ Equity Common Stock For the period ended May 31, 2022 Number of shares Amount Balance, February 28, 2022 47,388,056 $ 4,740 Issuance of shares upon settlement of restricted stock units 12,653 1 Balance, May 31, 2022 47,400,709 $ 4,741 For the period ended May 31, 2021 Number of shares Amount Balance, February 28, 2021 42,413,691 $ 4,242 Issuance of shares upon settlement of restricted stock units 19,629 2 Balance, May 31, 2021 42,433,320 $ 4,244 During the three months ended May 31, 2022, the Company recorded the following common stock transaction: (i) The Company issued 12,653 shares of the common stock to settle restricted stock units that vested in the period. During the three months ended May 31, 2021, the Company recorded the following common stock transaction: (i) The Company issued 19,629 shares of the common stock to settle restricted stock units that vested in the period. F-12 Table of Contents 13. Research and Development Expenses Research and development expenses for the three-month periods ended May 31, 2022 and 2021 were as follows: May 31, 2022 May 31, 2021 External engineering $ 1,595,614 $ 2,903,448 Employee compensation 2,287,341 2,086,128 Machinery and equipment expenditures 1,889,656 2,622,892 Plant and laboratory operating expenses 744,541 691,537 Other 283,332 333,900 $ 6,800,484 $ 8,637,905 14. General and Administrative Expenses General and administrative expenses for the three-month periods ended May 31, 2022 and 2021 were as follows: May 31, 2022 May 31, 2021 Professional fees $ 798,983 $ 1,631,451 Employee compensation (1) 8,784,553 461,405 Insurance 1,102,541 868,647 Other 350,564 199,068 $ 11,036,641 $ 3,160,571 _________________ (1) Includes stock-based compensation expense. During the three-month period ended May 31, 2022, the Company recorded a stock-based compensation expense of $ 7,740,000 related to the achievement of a performance milestone for 1,000,000 RSUs granted to the Company’s CEO, Daniel Solomita (Note 11). During the three-month period ended May 31, 2021, the Company accounted for RSU forfeitures for an amount of $ 935,837 as a reversal of stock-based compensation. 15. Share-based Payments Stock Options During the three-month period ended May 31, 2022, the Company granted no stock options (2021 – nil), no stock options were forfeited (2021 – nil) or exercised (2021 – nil) and no stock options expired (2021 – nil). The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. There were no new issuances of stock options for the three-month periods ended May 31, 2022 and 2021. The total number of stock options outstanding as at May 31, 2022 was 1,570,000 (2021 – 1,587,081 ) with a weighted average exercise price of $ 6.87 (2021 – $ 6.81 ), of which 1,336,667 were exercisable (2021 – 1,229,998 ) with a weighted average exercise price of $ 7.65 (2021 – $ 7.25 ). During the three-month periods ended May 31, 2022 and 2021, stock-based compensation expense attributable to stock options amounted to $ 317,140 and $ 549,318 , respectively, and is included in operating expenses. F-13 Table of Contents Restricted Stock Units During the three-month period ended May 31, 2022, the Company granted 84,861 restricted stock units (“RSUs”) (2021 – 253,758 ) with a weighted average fair value of $ 6.00 (2021 – $ 8.85 ), settled 12,653 RSUs (2021 – 19,629 ) with a weighted average fair value of $ 13.04 (2021 – $ 9.02 ) and no RSUs were forfeited (2021 – 295,524 with a weighted average fair value of $ 7.93 ). The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the closing share price at grant date multiplied by the number of restricted stock unit awards granted. The total number of RSUs outstanding as at May 31, 2022 was 4,090,775 (2021 – 4,149,125 ), of which 1,530,313 were vested (2021 – 696,327 ). During the three-month periods ended May 31, 2022 and 2021, stock-based compensation attributable to RSUs amounted to $ 8,149,168 and ($ 533,961 ), respectively, and is included in operating expenses. During the three-month period ended May 31, 2022, the Company recorded a stock-based compensation expense of $ 7,740,000 related to the achievement of a performance milestone for 1,000,000 RSUs granted to the Company’s CEO, Daniel Solomita (Note 11). The net reversal in expenses attributable to RSUs in the three-month period ended May 31, 2021 was due to forfeitures accounted for in the period for a total of $ 935,837 . Stock-Based Compensation Expense During the three-month periods ended May 31, 2022 and 2021, stock-based compensation included in research and development expenses amounted to $ 396,495 and $ 395,545 , respectively, and in general and administrative expenses amounted to $ 8,069,813 and ($ 380,188 ), respectively. The amount recorded in general and administrative expenses for the three-month period ended May 31, 2022 includes $ 7,740,000 related to the achievement of a performance milestone for 1,000,000 RSUs granted to the Company’s CEO, Daniel Solomita (Note 11). The net reversal in stock-based compensation included in general and administrative expenses in the three-month period ended May 31, 2021 was due to forfeitures accounted for in the period for a total of $935,837. 16. Equity Incentive Plan On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2022 and 2021, the Board of Directors opted to waive the annual share reserve increase. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10 % of the voting power of the Company, the life of the options shall not exceed 5 years. The following table summarizes the continuity of the Company’s Equity Incentive Plan units during the three-month periods ended May 31, 2022 and 2021: 2022 2021 Number of units Number of units Outstanding, beginning of period 1,043,705 1,083,412 Automatic share reserve increase - - Units granted ( 84,861 ) ( 253,758 ) Units forfeited - 295,524 Units expired - - Outstanding, end of period 958,844 1,125,178 17. Interest and Other Financial Expenses Interest and other financial expenses for the three-month periods ended May 31, 2022 and 2021 are as follows: 2022 2021 Interest on long-term debt $ 22,208 $ 20,059 Accretion expense 17,586 10,529 Other 1,535 - $ 41,329 $ 30,588 F-14 Table of Contents 18. Commitments and Contingencies Agreement to purchase of machinery and equipment In December 2021, the Company entered into an agreement for the purchase of long lead machinery and equipment in connection with the construction of our Infinite Loop ™ manufacturing facility in Bécancour, Québec for up to $ 8,546,000 over the next 9 months, subject to various terms and conditions. Pursuant to the agreement, the Company has paid a cash deposit of $ 2,136,500 . Contingencies On October 13, 2020, the Company and certain of its officers were named as defendants in a proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Olivier Tremblay, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti , Case No. 7:20-cv-0838-NSR (“Tremblay Class Action”). The complaint alleges that the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The complaint seeks unspecified damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020. On October 28, 2020, the Company and certain of its officers were named as defendants in a second proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Michelle Bazzini, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti , Case No. 7:20-cv-09031-NSR. The complaint allegations are similar in nature to those in the Tremblay Class Action. On January 4, 2021, the United States District Court for the Southern District of New York consolidated the two proposed class-action lawsuits as In re Loop Industries, Inc. Securities Litigation , Master File No. 7:20-cv-08538-NSR. Sakari Johansson and John Jay Cappa were appointed as Co-Lead Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP were appointed as Co-Lead Counsel for the class. Plaintiffs served a consolidated amended complaint on February 18, 2021, which alleges that the defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The consolidated amended complaint relies on the October 13, 2020 report published by a third party regarding the Company to support their allegations. Defendants served a motion to dismiss the consolidated amended complaint on April 27, 2021. Plaintiffs’ opposition to the motion to dismiss was served on May 27, 2021 and Defendants’ reply in support of the motion to dismiss was served on June 11, 2021. On March 1, 2022, the Company and the current and former officer defendants entered into an agreement for the settlement of the Tremblay Class Action, and, on March 4, 2022, advised the Court of the agreement to settle. The agreement, which is subject to certain conditions, including court approval, requires the Company to pay $ 3.1 million to the plaintiff class. The Company’s total cash contribution to the settlement and outstanding legal fees related to the lawsuit, combined, will be approximately $ 2.52 million. The remainder of the settlement will be paid by the Company’s D&O insurance carriers. As a result, the Company recorded a contingency loss of $ 2,519,220 which was included in accounts payable and accrued liabilities at February 28, 2022. As at May 31, 2022, the amount included in accounts payable and accrued liabilities related to the settlement was $ 2,230,759 . The accrued loss contingency for legal settlement was reduced by legal costs incurred in the three-month period ended May 31, 2022 of $ 288,461 . On May 24, 2022, Lead Plaintiffs filed their motion for preliminary approval of the proposed class action settlement. The motion is pending before the Court. The settlement agreement does not constitute an admission, concession, or finding of any fault, liability, or wrongdoing by the Company or any defendant. On October 13, 2020, the Company, Loop Canada Inc. and certain of their officers and directors were named as defendants in a proposed securities class action filed in the Superior Court of Québec (District of Terrebonne, Province of Québec, Canada), in file no. 700-06-000012-205. The Application for authorization of a class action and for authorization to bring an action pursuant to section 225.4 of the Québec Securities Act (“the Application”) was filed by an individual shareholder on behalf of himself and a class of buyers who purchased our securities during the “Class Period” (not defined). Plaintiff alleges that throughout the Class Period, the defendants allegedly made false and/or misleading statements and allegedly failed to disclose material adverse facts concerning the Company’s technology, business model, operations and prospects, thus causing the Company’s stock price to be artificially inflated and thereby causing plaintiff to suffer damages. Plaintiff seeks unspecified damages stemming from losses he claims to have suffered as a result of the foregoing. On December 13, 2020, the Application was amended in order to add allegations regarding specific misrepresentations. The authorization hearing was held on February 24, 2022 and the matter is currently under advisement. Management believes that this case lacks merit and intends to defend it vigorously. No amounts have been provided for in the consolidated financial statements with respect to this claim. Management has not yet determined what effect this lawsuit may have on its financial position or results of operations as it is still in the preliminary stages. F-15 Table of Contents