What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-05-18 compared with 2022-05-27 · 92 added, 96 removed, 146 unchanged (56% of the section changed)

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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).

The monomers are filtered, purified and polymerized to create virgin-quality Loop ™ branded PET resin and polyester fiber suitable for use in food-grade packaging, thus enabling our customers to meet their sustainability objectives.

Loop is contributing to the global movement towards a circular economy by preventing plastic waste and recovering waste plastic for a more sustainable future for all.

The Company is in the planning stages of pursuing the construction of Infinite Loop™ commercial scale facilities in Québec, Canada, and with strategic partners in Europe and South Korea.

Additionally, the Company has a joint venture to pursue the retrofitting of existing fossil fuel PET polymerization facilities with its recycling technology.

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

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

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

The monomers are filtered, purified and polymerized to create virgin-quality Loop ™ branded PET resin suitable for use in food-grade packaging and polyester fiber, thus enabling our customers to meet their sustainability objectives.

Loop is contributing to the global movement towards a circular economy by reducing and recovering plastic waste for a sustainable future.

The Company is presently in the planning stages of pursuing the construction of Infinite Loop™ commercial scale facilities.

Loop is currently engaged in discussions to secure financing for its investments in the various planned manufacturing facilities and the sequencing of the manufacturing facilities will be determined in conjunction with the outcome of the Company’s financing discussions and discussions with our partners.

In the past years, we have seen major consumer brands make significant commitments to close the loop on their plastic use by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging.

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

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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 three regions:

North America, Europe and Asia.

On December 22, 2022, we announced a shift in our commercialization strategy and will now focus on our planned joint venture projects with SK Geo Centric Co., Ltd (“SKGC”) in Asia and Europe.

These projects have a lower requirement for Loop equity investment and higher expected return on capital, and leverage SKGC’s engineering and operational infrastructure.

In addition, the joint venture projects will provide Loop with an annual technology licensing fee.

SKGC is committed to commercializing Loop’s technology as the underpinning of its sustainable plastics strategy.

Loop is working collaboratively with SKGC to put in place a financing plan for the rollout of large-scale manufacturing in Asia and Europe, including the first Asian manufacturing facility in Ulsan, South Korea, which is anticipated to break ground in 2023 and to have construction completed by the end of 2025.

The global expansion plan for our technology will allow our customers, mostly comprised of CPG brand companies and apparel companies, to expand the use of Loop ™ PET resin and polyester fiber into their packaging and clothing.

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

We have completed our basic design package for the Infinite Loop ™ full-scale manufacturing facilities with our engineering partners Worley, BBA and Chemtex, all leading global engineering and construction companies.

We have completed our basic design package for the Infinite Loop ™ full-scale manufacturing facilities.

The engineering philosophy we have adopted is “design one, build many.” This approach allows for the basic design package 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.

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

The basic design package has a capacity of up to 70,000 M/T of PET resin output per year.

Permitting, site and regulatory considerations may impact plant capacity.

Our engineering partners 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.

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Total general and administrative

Gain on disposition of land

Contingency loss for legal settlement

Loss from equity investment

Loss from equity-accounted investment

Depreciation and amortization

1 unchanged sentence

Interest income

Foreign exchange loss

Foreign exchange loss (gain)

Total expenses

(19,684,036 )

Net income (loss)

$ (14,272,932 )

The net loss for the three-month period ended February 28, 2022 increased $1.08 million to $14.27 million, as compared to the net loss for the three-month period ended February 28, 2021 which was $13.19 million.

The increase is primarily due to a contingency loss for legal settlement of $2.52 million and a loss from equity investment of $1.12 million, partially offset by decreased general and administrative expenses of $1.39 million and decreased research and development expenses of $1.20 million.

The contingency loss for legal settlement of $2.52 million is related to the agreement for the settlement of the consolidated class action lawsuit filed in the Southern District of New York described in “Item 3.

Revenues for the three-month period ended February 28, 2023 were $0.01 million.

For the same period in 2022, there were no revenues.

The revenues resulted from the delivery of initial volumes to customers of Loop™ PET resin produced using monomers manufactured at the Terrebonne Facility.

Research and Development

Research and development expenses for the three-month period ended February 28, 2023 decreased $4.77 million to $2.21 million, as compared to $6.98 million for the same period in 2022.

The decrease was primarily attributable to a $1.91 million decrease in external engineering costs for ongoing design work for our Infinite Loop ™ manufacturing process, a $1.76 million decrease in purchases of machinery and equipment used at the Terrebonne facility, and a $0.37 million decrease in operating expenses at the Terrebonne facility plant and laboratories.

General and administrative expenses

General and administrative expenses for the three-month period ended February 28, 2023 decreased $1.23 million to $2.20 million, as compared to $3.42 million for the same period in 2022.

The decrease was primarily attributable to a $0.44 million decrease in insurance costs, a $0.40 million decrease in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Item 3.

Legal Proceedings” and the Company’s commercialization plans, and a $0.37 million decrease in stock-based compensation expenses which is mainly due to RSU forfeitures in the three-month period ended February 28, 2023, accounted for as a reversal of stock-based compensation expense.

The net loss for the three-month period ended February 28, 2023 decreased $19.70 million with a net income of $5.42 million in the period, as compared to a net loss of $14.27 million for the same period in 2022.

The decrease is primarily due to a gain on disposition of land of $9.98 million related to the Company’s sale of land in Bécancour, Québec, decreased research and development expenses of $4.77 million, decreased general and administrative expenses of $1.23 million, as well as the contingency loss for legal settlement of $2.52 million and loss from equity-accounted investment of $1.12 million both recorded in the year ended February 28, 2022.

The contingency loss for legal settlement of $2.52 million in the year ended February 28, 2022 is related to the agreement for the settlement of the consolidated class action lawsuit filed in the Southern District of New York described in “Item 3.

Legal Proceedings” entered into by the Company and the current and former officer defendants on March 1, 2022.

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.

The recognition of a loss from equity investment of $1.12 million in the three-month period ended February 28, 2022 is related to management’s determination that the capitalized costs in our joint venture with Indorama, Indorama Loop Technologies (“ILT”) were no longer recoverable.

The recognition of a loss from equity-accounted investment of $1.12 million in the three-month period ended February 28, 2022 is related to management’s determination that the capitalized costs in our joint venture with Indorama, Indorama Loop Technologies (“ILT”) were no longer recoverable.

The joint venture had made a decision during 2020 that it would temporarily delay work on the project, largely due to factors related to the COVID-19 pandemic.

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This amount represents the Company’s 50% portion of the engineering design costs capitalized in ILT.

The $1.39 million decrease in general and administrative expenses for the three-month period ended February 28, 2022 was primarily attributable to the following:

$1.70 million decrease in expenses for legal and professional fees due to costs principally associated with the ongoing SEC investigation and class action suits described in “Item 3.

Legal Proceedings”;

$0.22 million decrease in employee stock-based compensation;

$0.14 million decrease in employee compensation expenses.

These decreases were partially offset by a $0.53 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance upon extension of the Company’s policy and a $0.14 million increase in other general and administrative expenses.

The $1.20 million decrease in research and development for the three-month period ended February 28, 2022 was primarily attributable to the following:

$1.98 million decrease in purchases of machinery and equipment at the Company’s Terrebonne Facility;

$0.15 million decrease in external engineering expenses for ongoing design work for our Infinite Loop ™ manufacturing process.

These decreases were partially offset by a $0.51 million increase in employee compensation expenses related to increased headcount to support the Company’s commercialization efforts, a $0.15 million increase in plant and laboratory operating expenses and a $0.28 million increase in other research and development expenses.

Fiscal Year Ended February 28, 2023

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Total research and development

(10,390,461 )

General and administrative

3 unchanged sentences

Total general and administrative

Gain on disposition of land

(16,683,492 )

Contingency loss for legal settlement

Loss from equity investment

Impairment of assets

Loss from equity-accounted investment

Depreciation and amortization

1 unchanged sentence

Interest income

Foreign exchange loss

Foreign exchange loss (gain)

Total expenses

1 unchanged sentence

$ (21,300,565 )

The net loss for the year ended February 28, 2022 increased $8.58 million to $44.92 million, as compared to the net loss for the year ended February 28, 2021 which was $36.34 million.

The increase is primarily due to increased research and development expenses of $9.05 million, a contingency loss for legal settlement of $2.52 million, increased general and administrative expenses of $1.25 million and a loss from equity investment of $1.12 million, partially offset by decreased impairment of assets of $5.04 million, lower depreciation and amortization expenses of $0.23 million and a decreased foreign exchange loss of $0.20 million.

The $9.05 million increase in research and development for the year ended February 28, 2022 was primarily attributable to the following:

$3.40 million increase in purchases of machinery and equipment at the Company’s Terrebonne Facility;

$2.68 million increase in employee compensation expenses related to increased headcount to support the Company’s commercialization efforts and increased activity at the Terrebonne Facility;

$1.65 million increase in external engineering expenses for ongoing design work for our Infinite Loop ™ manufacturing process;

$0.80 million increase in plant and laboratory operating expenses;

$0.12 million increase in employee stock-based compensation expenses;

$0.40 million increase in other research and development expenses.

The $1.25 million increase in general and administrative expenses for the year ended February 28, 2022 was primarily attributable to the following:

$2.20 million increase in insurance expenses mainly due to D&O insurance renewal costs;

$0.64 million increase in employee compensation expenses;

$0.51 million increase in other general and administrative expenses.

These increases were partially offset by lower stock-based compensation expenses of $1.73 million which are mainly due to forfeitures of RSUs for $0.94 million and a $0.37 million decrease in expenses for legal and professional fees due to costs principally associated with the SEC investigation and class action suits described in “Item 3.

Legal Proceedings”.

The recognition of a loss from equity investment of $1.12 million in the year ended February 28, 2022 is related to its investment in ILT as discussed in the fourth quarter results above.

The $5.04 million decrease in write-down and impairment of assets 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, and 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 $0.23 million decrease in depreciation and amortization expenses for year ended February 28, 2022 is mainly attributable to the write-down of machinery and equipment described above.

$ (44,920,956 )

Revenues for the year ended February 28, 2023 were $0.17 million.

For the same period in 2022, there were no revenues.

The revenues resulted from the delivery of initial volumes to customers of Loop™ PET resin produced using monomers manufactured at the Terrebonne Facility.

Research and Development

Research and development expenses for the year ended February 28, 2023 decreased $10.39 million to $17.35 million, as compared to $27.74 million for the same period in 2022.

The decrease was primarily attributable to a $5.33 million decrease in purchases of machinery and equipment used at the Terrebonne facility, a $4.03 million decrease in external engineering expenses for ongoing design work for our Infinite Loop ™ manufacturing process, and a $1.11 million increase in tax credits recorded as a reduction of research and development expenses.

These decreases were partially offset by a $0.75 million increase in employee compensation expenses related to increased headcount in our in-house engineering and commercial project teams.

General and administrative expenses

General and administrative expenses for the year ended February 28, 2023 increased $7.64 million to $20.43 million, as compared to $12.79 million for the same period in 2022.

The increase was primarily attributable to an increased stock-based compensation expense of $8.22 million, of which $7.74 million was related to the achievement of a performance milestone for 1,000,000 RSUs following the execution of a supply agreement with a customer and $0.94 million was attributable to RSU forfeitures in the same period in 2022, which were accounted for as a reversal of stock-based compensation.

The increase was partially offset by decreased insurance costs of $0.67 million, and a $0.30 million decrease in employee compensation costs.

The net loss for the year ended February 28, 2023 decreased $23.62 million to $21.30 million, as compared to $44.92 million for the same period in 2022.

The decrease is primarily due to a gain on disposition of land of $16.68 million related to the Company’s sale of land in Bécancour, Québec, decreased research and development expenses of $10.39 million, as well as the contingency loss for legal settlement of $2.52 million and loss from equity-accounted investment of $1.12 million both recorded in the year ended February 28, 2022.

The decrease in net loss was partially offset by increased general and administrative expenses of $7.64 million.

Legal Proceedings” entered into by the Company and the current and former officer defendants on March 1, 2022.

The recognition of a loss from equity-accounted investment of $1.12 million in the year ended February 28, 2022 is related to the Company’s investment in ILT as discussed in the fourth quarter results above.

LIQUIDITY AND CAPITAL RESOURCES

From inception to February 28, 2022, the Company has been in the development stage with no revenues, with its ongoing operations and commercialization plans financed primarily by raising equity.

Since its inception, the Company has been in the pre-commercialization stage with limited revenues, with its ongoing operations and commercialization plans financed primarily by raising equity.

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

Although our liquidity position consists of cash and cash equivalents on hand of $44.06 million at February 28, 2022, our liquidity position is subject to risks and uncertainties, including those discussed under “Cautionary Statements Regarding Forward-Looking Statements” in this Annual Report on Form 10-K and the Risk Factors section included in Part I, Item 1A of this Annual Report on Form 10-K.

Our liquidity position consists of cash and cash equivalents on hand of $29.59 million at February 28, 2023 and an undrawn senior loan facility from a Canadian bank of $2.57 million.

Our liquidity position is subject to risks and uncertainties, including those discussed under “Cautionary Statements Regarding Forward-Looking Statements” in this Annual Report on Form 10-K and the Risk Factors section included in Part I, Item 1A of this Annual Report on Form 10-K.

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.

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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.

We will require a significant amount of capital to fund our growth as we invest in the planned construction of our Infinite Loop™ manufacturing facility in Bécancour, Québec and our planned commercial facilities in Europe, Asia and Spartanburg, South Carolina, as well as additional research and development.

We will require a significant amount of capital to fund our growth as we invest in our planned commercial facilities in Europe, Asia and North America, as well as additional research and development.

In addition to our cash on hand, we may also raise additional capital through equity offerings or debt financings, government incentives, as well as through collaborations or strategic alliances to execute our growth strategy.

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If we are unable to raise additional capital when required, our business, financial condition and results of operations would be adversely affected.

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

In December 2021, the Company entered into an agreement for the purchase of long lead machinery and equipment in connection with the planned construction of our Infinite Loop™ manufacturing facility in Bécancour, Québec for up to $8.55 million over the next 9 months, based on certain milestones subject to various terms and conditions, including securing financing for our Infinite Loop™ manufacturing facility in Bécancour, Québec.

In December 2021, the Company entered into an agreement for the purchase of long lead machinery and equipment for up to $8.55 million which can be used in any Infinite Loop™ manufacturing facility.

The payment of these amounts is based on certain milestones subject to various terms and conditions, including fabrication timelines, and equipment inspection.

Pursuant to the agreement, the Company has paid a cash deposit of $3.40 million.

As part of our strategic partnership with SKGC, SKGC purchased 4,714,813 new treasury common shares of Loop at a price of $12 per share, for total consideration of $56.5 million.

The strategic equity investment closed on July 29, 2021.

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.

We 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 $3.38 million (CDN$4.60 million).

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At the end of the 36-month moratorium, capital and interest will be repayable in 84 monthly installments.

The loan bears interest at 2.36%.

The loan bears interest at a rate of 2.36%.

We have also agreed to issue to Investissement Québec warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $0.36 million (CDN$0.46 million).

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The loan can be repaid at any time by us without penalty.

On February 21, 2020, upon the receipt of the first disbursement under this facility, we issued a warrant to purchase 15,153 shares of common stock at a price of $11.00 to Investissement Québec.

On February 21, 2020, upon the receipt of the first disbursement under this facility, we issued a warrant to purchase 15,153 shares of common stock at a price of $11.00 to Investissement Québec, which expired in February 2023.

On August 26, 2021, upon the receipt of the second disbursement under this facility, we issued a warrant to purchase 17,180 shares of common stock at a price of $11.00 to Investissement Québec.

There is no remaining amount available under the financing facility after the second disbursement.

On November 21, 2022, the Company and Investissement Québec entered into an agreement to amend the existing Financing Facility which modifies the repayments of the principal amount (the “the Financing Facility Amendment”).

As per the Financing Facility Amendment, $0.04 million (CDN $0.05 million) of the principal amount is repayable in monthly installments in the fiscal year ending February 29, 2024 and the remainder of the principal amount is repayable in 72 monthly installments.

Under the original terms of the Financing Facility, the principal amount was repayable in 84 monthly installments beginning in March of 2023.

The Financing Facility Amendment does not modify the interest rates, the repayment terms of accrued interest or any other terms of the Financing Facility.

On July 26, 2022, Loop Canada, Inc., a wholly-owned subsidiary of the Company, entered into an Operating Credit Facility (the “Credit Facility”) with a Canadian bank.

The Credit Facility allows for borrowings of up to $2.57 million (CDN $3.50 million) in aggregate principal amount and provides for a two-year term.

The Credit Facility is secured by the Company’s Terrebonne, Québec property and is subject to a minimum equity covenant, tested quarterly.

All borrowings under the Credit Facility will bear interest at an annual rate equal to the bank’s Canadian prime rate (as defined in the Credit Facility) plus 1.0%.

The Company is subject to a guarantee of the liabilities of Loop Canada Inc.

As at February 28, 2023, the Credit Facility was undrawn.

From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations.

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$ (40,562,661

Net cash used in investing activities

Net cash provided (used) in investing activities

Net cash provided by financing activities

1 unchanged sentence

Net change in cash

$ (13,470,741 )

Net Cash Used in Operating Activities

During the year ended February 28, 2023, we used $34.89 million in operations compared to $40.56 million during the year ended February 28, 2022.

The increase over each year is mainly due to increased operating expenses as we move forward on our commercialization plan and to complete the upgrade of the Terrebonne Facility.

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

As discussed above in the Results of Operations, the year-over-year decrease is mainly due to decreased operating expenses as we have completed the upgrade of the Terrebonne Facility and our basic design package for the Infinite Loop™ full-scale manufacturing facilities.

Net Cash Used in Investing Activities

During the year ended February 28, 2022, we used $5.11 million in investing activities.

We made investments of $4.82 million in property, plant and equipment as compared to $1.74 million for the year ended February 28, 2021, primarily in connection with the purchase for $4.80 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.

We also invested $0.29 million in our intellectual property as we developed, during the year ended February 28, 2022, our GEN II technology and filed various patents in various jurisdictions around the world which await approval.

During the year ended February 28, 2021, we used $2.98 million in investing activities.

We made capital asset investments of $1.74 million of which was mainly attributable to the expansion and additions to the Terrebonne Facility and executive offices.

We also invested $0.59 million in our intellectual property as we developed, during the year ended February 28, 2021, our GEN II technology and filed various patents in various jurisdictions around the world which await approval.

During the year ended February 28, 2021 we made capital contributions to our joint venture with Indorama for a total of $0.65 million.

During the year ended February 28, 2023, net cash provided from investing activities was $21.28 million.

We made investments of $0.08 million in property, plant and equipment as compared to $4.82 million for the year ended February 28, 2022.

The investments in the year ended February 28, 2022 were primarily in connection with the purchase for $4.80 million of a parcel of land in Bécancour, Québec with the initial intention of constructing an Infinite Loop™ manufacturing facility.

In the year ended February 28, 2023, we sold the land for net proceeds of $22.31 following the decision to focus our commercialization strategy on our planned projects with SKGC in Asia and Europe.

During the year ended February 28, 2023, we also invested $0.36 million in intangible assets, as compared to $0.29 million for the year ended February 28, 2022, as we developed our GEN II technology and filed various patents in various jurisdictions around the world which await approval in certain jurisdictions.

Net Cash Provided by Financing Activities

During the year ended February 28, 2022, we raised $56.5 million through a private offering of common stock, together with warrants, in the net amount of $56.05 million.

During the year ended February 28, 2022, we raised a net amount of $56.05 million through a private offering of common stock, together with warrants.

We also repaid the remaining balance of a term loan from a Canadian bank in January 2022 included in payments made against our long-term debt totaling $0.94 million.

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

During the year ended February 28, 2021, we raised $26.65 million through a registered direct offering of common stock, in the net amount of $25.00 million and through warrants exercised for $1.65 million.

We also made payments totaling $0.05 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 Terrebonne Facility and executive offices.

In connection with the upcoming fiscal year ending February 28, 2024, we intend to continue to execute our corporate strategy.

We believe we must execute on several areas of our operational strategic plan, namely:

Securing financing to fund our operations, including our planned commercial projects and continued growth;

Protecting our intellectual property;

Continuing to drive the commercialization of our Infinite Loop™ solution, which we believe is a key pillar of our ambition to sell our technology to potential commercial partners;

Working with our external engineering partners in their process design for the Québec and European and Asian project evaluations;

Executing on the project plan for the planned Québec Infinite Loop™ commercial facility;

Continuing to drive the commercialization of our Infinite Loop™ solution, which we believe is a key pillar of our ambition to commercialize our technology.

This entails the continuation of executing partnerships and/or commercial agreements with customers, including product activations using product manufactured at the Terrebonne Facility and multi-year offtake agreements for the planned commercial facilities;

Continuing to identify and secure feedstock to ensure our current Terrebonne Facility and potential commercial facilities can operate continuously and efficiently;

Continuing to execute brand and other partnerships and/or commercial agreements with customers and secure multi-year offtake agreements for the planned commercial facilities;

Identifying and evaluating financial options and incentives including various forms of debt, equity, strategic partnership, incentive and financing programs supported by, or in partnership with, governments to fund the commercial projects;

Working with our external engineering partners in their process design for the Asian and European project evaluations and executing on the project plan for the planned Ulsan, South Korea Infinite Loop™ commercial facility;

Securing financing to fund our operations, including our planned commercial projects and continued growth;

Identifying and pursuing additional strategic partners and regions for new Infinite Loop™ projects;

Advance planning of our joint venture with Indorama for the planned Spartanburg facility.

Protecting our intellectual property.

Risks that may affect our ability to execute on this strategy include, but are not limited to, those listed under “Risk Factors” elsewhere in this Annual Report.

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Liquidity Assessment

From inception to February 28, 2022, the Company has been in the development stage with no revenues, with its ongoing operations and commercialization plans financed primarily by raising equity.

Since its inception, the Company has been in the pre-commercialization stage with limited revenues from customers, and its ongoing operations and commercialization plans have been 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 February 28, 2022, the Company has cash and cash equivalents of $44.06 million.

As at February 28, 2023, the Company’s available liquidity was $32.16 million, consisting of cash and cash equivalents of $29.59 million and an undrawn senior loan facility from a Canadian bank of $2.57 million (CDN $3.50 million).

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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 the next 12 months from the date of issuance of the annual consolidated financial statements.

(i) estimation of amount and timing of future cash outflows and 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 the annual consolidated financial statements.

Stock-Based Compensation

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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.

Forfeitures on share-based payments are recognized 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.

The fair value of the stock options granted is estimated using the 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.

Research and development expenses

Research and development expenses relate primarily to process development and design, testing of preproduction samples, purchases of machinery and equipment for the Terrebonne Facility, compensation, and consulting and engineering fees, and are expensed as incurred.

See Notes to the consolidated financial statements included elsewhere in this Form 10-K for management’s discussion of recently issued accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Item 7. Management’s Discussion and Analysis