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Item 2. Management’s Discussion and Analysis

2023-07-12 compared with 2023-01-12 · 246 added, 258 removed, 115 unchanged (81% of the section changed)

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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Actual results may differ materially from the predictions discussed in these forward-looking statements.

Actual results may differ materially from the projections discussed in these forward-looking statements.

The economic environment within which we operate could materially affect our actual results.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified.

These risks and other factors include, but are not limited to, those listed under “Risk Factors.” Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things:

(i) commercialization of our technology and products, (ii) our status of relationship with partners, (iii) development and protection of our intellectual property and products, (iv) industry competition, (v) our need for and ability to obtain additional funding relative to our current and future 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 ongoing SEC investigation or the 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 current and future 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 other health-related concerns and crises, which could result in reduced access to capital markets, supply chain disruptions and scrutiny, embargoing of goods produced in affected areas, government-imposed mandatory business closures and any resulting furloughs of our employees, government employment subsidy programs, travel restrictions or the like to prevent the spread of disease, or market or other changes that could result in non-cash impairments of our intangible assets, and property, plant and equipment, (xi) the effect of the continuing worldwide macroeconomic uncertainty and its impacts, including inflation, market volatility and fluctuations in foreign currency exchange and interest rates, (xii) the outcome of any SEC investigations or class action litigation filed against us, (xiii) our ability to hire and/or retain qualified employees and consultants, (xiv) other events or circumstances over which we have little or no control, and (xv) other factors discussed in our subsequent filings with the SEC.

Management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties, and a review of information filed by our competitors with the SEC or otherwise publicly available.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as at the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are based upon information available to us as at the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

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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 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.

As used in this Quarterly Report on Form 10-Q, the following terms are being provided so investors can better understand our business:

Depolymerization refers to the chemical process of breaking down a polymer molecule into its constituent monomers or smaller subunits.

Depolymerization is the opposite of polymerization.

DMT is an acronym for dimethyl terephthalate, which is a monomer used in the production of polyethylene terephthalate (“PET”).

MEG is an acronym for monoethylene glycol, which is a monomer used in the production of PET.

Polymerization refers to a process of reacting monomer molecules together in a chemical reaction to form polymer chains or three-dimensional networks.

PET is an acronym for polyethylene terephthalate, which is a resin and a type of polyester showing excellent tensile and impact strength, chemical resistance, clarity, and processability, and reasonable thermal stability.

PET is the material which is most commonly used for the production of polyester fiber and plastic packaging, including plastic bottles for water and carbonated soft drinks, containers for food and other consumer products;

it is commonly identified by the number “1”, often inside an image of a triangle, on the packaging.

PET is also used as a polyester fiber for a variety of applications including textiles, clothing and apparel.

rPET is an acronym for recycled polyethylene terephthalate.

All monetary amounts in this Quarterly Report on Form 10-Q are in thousands of U.S.

dollars unless otherwise specified, except for per share data.

Loop 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).

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

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

The Company is 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.

Industry Background and Market Opportunity

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

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.

Industry Background

We believe Loop's depolymerization technology offers a complementary solution to mechanical recycling by enabling the use of a wider variety of PET feedstock, including complex and degraded plastics as well as polyester fiber, to produce virgin quality rPET with no degradation through continued recycling.

Mechanically 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, where they are sorted from other materials, baled, and sent to specific PET recycling facilities.

The bales are broken and sorted to remove any non-PET materials.

The PET is then ground and put through a separation process which separates the PET from the bottle cap and label materials.

Clean PET flake is then further processed depending on its intended end market.

It may become more highly refined PET pellets for new bottles or extruded into PET sheet for clamshells, trays, and cups.

Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.

We believe mechanically recycled PET faces a number of challenges in meeting the quality specifications and growing volume requirements implied by commitments from major brands, mainly due to the cost and variety of acceptable PET feedstock.

Some mechanical recycling processes involve remelting the PET flake which reduces the quality of the rPET output each time it is recycled relative to the specifications of virgin PET produced from fossil fuels.

Each time PET plastic is mechanically recycled, its quality and clarity are reduced.

Therefore, mechanically recycled PET may need to be mixed with virgin PET from fossil fuels to maintain quality.

Lower quality mechanically recycled PET is often downcycled to alternate uses such as polyester fibers which may be dyed and used in carpets or clothing.

Additionally, mechanically recycled PET manufactured for use in clear bottles or food containers requires predominantly clear and clean PET flakes separated from waste bales, and cannot accommodate colored or opaque PET flakes, lower quality fiber feedstock, or materially contaminated feedstock, which may be cheaper.

Depolymerization is a process in which plastics are broken down into their constituent molecules through chemical reactions, rather than being physically melted down and reprocessed as in mechanical recycling.

This approach, which we utilize, has several advantages over mechanical recycling, which can have limitations due to the complexity and diversity of plastics.

One of the main limitations of mechanical recycling is that it is difficult to recycle plastics that have been contaminated or degraded.

For example, if a plastic container has been exposed to heat or sunlight, it may become brittle and prone to breaking during the recycling process.

Another limitation of mechanical recycling is that it is difficult to recycle certain types of plastics, such as multi-layered or composite plastics.

These plastics are often used in food packaging or other products that require specialized properties like barrier protection or insulation.

Depolymerization, however, can break down these degraded or complex plastics into their constituent molecules, which can then be purified and used to create new products.

Loop’s depolymerization technology has the potential to create a closed-loop system for plastic waste, whereby plastics can be recycled an infinite number of times without degrading the quality of the material.

This is because the constituent molecules can be broken down and reassembled without losing their original properties, which can reduce the need for new plastics to be produced.

We believe Loop’s depolymerization technology offers a promising solution to the limitations of mechanical recycling by enabling the recirculation of more diverse and complex plastics, reducing waste and pollution, and creating a closed-loop system for plastic waste.

Our depolymerization technology breaks down waste PET into DMT and MEG.

The monomers are purified and then recombined into virgin quality PET plastic and polyester fiber.

We use low value PET plastic and polyester fiber waste as feedstock.

Our technology can process PET plastic bottles and packaging of any color, transparency or condition, carpet, clothing and other polyester textiles that may contain colors, dyes or additives, and even PET plastics that have been recovered from the ocean and degraded by exposure to sun and salt.

We believe that our ability to use many materials that mechanical recyclers cannot process is an important advantage of Loop ™ PET resin and further expands the range of PET waste streams that may be recycled.

This also means we are creating a new market for materials that have persistently been leaking out of the waste management system and into shared rivers, oceans and natural areas.

Supply Agreements with Global Consumer Brands

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 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 enhance 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 currently have agreements with some of the world’s leading brands to be supplied from our planned commercial facilities, including:

Multi-year supply agreement with Danone SA (“Danone”), one of the world’s leading global food and beverage companies, enabling Danone to purchase 100% sustainable and upcycled Loop ™ branded PET for use in brands across its portfolio including evian®, Danone’s iconic natural spring water;

Multi-year supply agreement with L’OCCITANE en Provence (“L’OCCITANE”) to supply 100% recycled and sustainable Loop ™ PET resin and incorporate Loop ™ PET resin into its product packaging;

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 also have a signed letter of intent with On AG, a sportswear brand and subsidiary of On Holding AG, to secure volumes of Loop™ PET resin from the Asian Infinite Loop™ manufacturing facility in Ulsan, South Korea, which Loop is planning to construct with its strategic partner SK Geo Centric.

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.

Strategic Partnership with SK Geo Centric

In June 2021, Loop and SK Geo Centric (“SKGC”) concluded a definitive agreement for SKGC to become a strategic investor in Loop, with SKGC acquiring a 10% stake in Loop at $12.00 per share for a total of $56.5 million.

The transaction, which closed in July 2021, also included warrants for SKGC to purchase Loop common stock at $15.00 and $20.00 per share.

Concurrent with the strategic investment, Loop and SKGC entered into a memorandum of understanding (“MOU”) to form a joint venture with exclusivity to build sustainable PET plastic and polyester fiber manufacturing facilities throughout Asia.

SKGC is a global chemical company and member of the SK Group, one of South Korea’s largest conglomerates.

SKGC is a general energy and chemical leader in the global market and is growing into a technology-based global chemical company through continuous R&D efforts.

SKGC aims to achieve its “Green for Better Life” vision by establishing a plastics based circular economy through collaboration with various partners and stakeholders, such as Loop.

Asia represents approximately 60% of the world’s population and 70% of global PET consumption and is the main hub for the polyester fiber supply chain for textiles.

The Asian market represents a prime opportunity for Loop’s growth and commercialization of its technology.

SKGC is well established with a deep understanding of the Asian market, and vast expertise in building and operating large-scale petrochemical facilities, making them a uniquely well-suited partner for Loop in helping to ensure the successful commercialization of Loop’s technology in this market.

On April 27, 2023, Loop and SKGC entered into a joint venture agreement (the “JV Agreement”) to deploy Loop’s depolymerization technology in the Asian market through multiple commercial manufacturing facilities.

Pursuant to the JV Agreement, Loop and SKGC agreed to form a new company (the “JV Company”), which will be headquartered in Singapore.

SKGC will contribute 51% and Loop will contribute 49% of the initial equity capital of the JV Company.

The JV Agreement outlines that the JV Company will have exclusive rights to commercialize Loop’s technology in the Asian market and Loop will receive an annual royalty fee for each of the commercial plants.

The first planned commercial manufacturing facility with Infinite Loop™ technology, located in Ulsan, South Korea, will have an annual capacity to supply 70,000 metric tons per year of Loop™ PET resin for packaging and polyester fiber applications, and is anticipated to break ground in 2023 and to have construction completed by the end of 2025.

In addition to Infinite Loop™ Ulsan, the two partners have outlined plans which target a minimum of three additional commercial manufacturing facilities to be constructed throughout Asia by 2030.

Loop and SKGC have partnered with SK ecoengineering, a subsidiary of the SK Group that brings considerable experience and proficiency as an EPC contractor, for the engineering and construction of the commercial manufacturing facilities.

Infinite Loop ™ Europe

We announced on September 10, 2020 a strategic partnership with SUEZ Group (“Suez”), with the objective to build the first Infinite Loop ™ manufacturing facility in Europe.

On June 16, 2022, Loop, together with Suez and SKGC, announced that the three companies will become equal participants in the strategic partnership.

The expanded partnership intends to combine SKGC's petrochemical manufacturing experience with Suez's resource management expertise and Loop’s breakthrough proprietary technology to supply up to 70,000 M/T of virgin quality, 100% recycled PET plastic and polyester fiber to the European market.

The planned Infinite Loop™ facility will offer a solution to consumer goods companies which have committed to goals for significantly increased use of recycled content in their products and/or packaging and help to meet the growing demand for recycled PET resin and polyester fiber.

On February 16, 2023, the three companies announced that the Chemesis industrial platform in Saint-Avold, located in the Grand Est region of France, has been selected as the site for their planned manufacturing facility in Europe.

We are working with our partners Suez and SKGC on acquiring the project site, alignment of various levels of government support and additional steps for the project which include advancing permitting, site specific engineering, customer offtake contracts, feedstock and financing.

Product activations with evian, L’Occitane, On AG, and Garnier

Loop has collaborated with multiple customers in recent and upcoming launches for products and product packaging incorporating Loop™ PET manufactured from monomers produced at the Terrebonne Facility.

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

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

Evian began selling water bottles made from Loop ™ PET in South Korea in October 2022.

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

This initiative reflects evian’s commitment to its stated goal for circularity and 100% recycled content by 2025.

On October 11, 2022, Loop and L’OCCITANE, a global manufacturer and retailer of sustainable beauty and wellness products, unveiled a new bottle for the brand’s Almond Shower Oil that was manufactured with 100% recycled Loop™ PET resin produced using monomers from Loop’s Terrebonne Facility.

Loop has partnered with L’OCCITANE to help meet the brand’s sustainability goal of using 100% recycled PET in its bottles by 2025.

In partnership with the brand, a pilot project was executed where the bottle (excluding cap and label) was produced using 100% recycled Loop™ PET resin and was successfully carried out on L’OCCITANE production lines.

This initiative marks a significant step forward in the partnership between the two companies and sets the pathway to implement Loop’s technology across other products in the brand’s assortment.

As part of this partnership with L’OCCITANE, Loop’s branding is featured prominently on the front of the packaging, with additional details speaking to Loop’s technology on the back label.

We also entered into an agreement in May 2022 with On AG to supply Loop ™ PET to be utilized in polyester fiber by the brand, pursuant to which Loop ™ PET resin was delivered in the year ended February 28, 2023.

On April 19, 2023, Loop and Garnier, one of the world’s largest mass market beauty brands, launched the brand’s first Micellar Cleansing Water All-In-1 bottle made of Loop™ PET produced using monomers from Loop’s Terrebonne Facility (excluding cap and label).

The Loop logo, featured on the front of this packaging innovation, serves as an anchor to highlight Loop’s technology, the quality of materials and the bottle’s recyclability.

The inclusion of Loop branding on the packaging strongly supports Garnier's sustainability goals by promoting the infinitely recyclable potential of the product and brings awareness to PET plastic circularity.

This packaging innovation will first be distributed in Garnier’s largest market, the US, and the brand’s home market of France.

Loop continues to pursue opportunities for new activations and marketing campaigns with additional consumer goods brand companies.

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 a small-scale PET depolymerization production facility, incorporating all key pieces of depolymerization equipment that will be used in the full-scale commercial facilities.

In addition to our research and development activities, 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.

On December 22, 2022, we announced that we had reduced hours of operation at the Terrebonne Facility in order to reduce operating costs and preserve liquidity.

The primary purpose of the Terrebonne Facility was to demonstrate that Loop’s breakthrough depolymerization technology was scalable, and also to produce commercial quantities of virgin quality PET resin and polyester fiber for global brands.

We believe the Terrebonne Facility has achieved this objective.

We will continue to fulfill existing commitments related to ongoing sales contracts.

In the three-month period ended May 31, 2023, 2023, Loop reported revenues of $27 from the sale of Loop™ PET resin produced from monomers manufactured at the Terrebonne Facility to several global consumer brands, including those with whom Loop is collaborating on product launches.

In addition to supplying customers with initial volumes of Loop ™ PET, the Terrebonne Facility continues to support our customers and partners with R&D and analytical capabilities.

Market Opportunity

The estimated global annual market demand for PET plastic and polyester fiber is approximately $180 billion.

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.

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There is an increasing demand for action to address the global plastic crisis, as evidenced by the March 2022 endorsement by 175 nations of a historic resolution at the UN Environmental Assembly to end plastic pollution and forge an international legally binding agreement by the end of 2024.

In the last few years, governments in North America, Europe and Asia have been proposing and enacting 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, which underlies the strength of this issue in the marketplace.

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

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

Global consumer packaged goods companies (“CPG companies”), apparel manufacturers, and retail brands have announced significant public commitments and targets to make the transition to a circular plastic economy, namely:

In January 2018, Danone’s evian® brand bottled spring water committed to a 100% recycled content package by 2025;

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

In September 2021, PepsiCo stated 10 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;

In 2020, L’Oréal Group committed to using 100% recycled or biobased plastic in their packaging by 2030;

By 2025, Unilever targets increasing the use of post-consumer recycled plastic material in their packaging to at least 25%;

Colgate-Palmolive states a 2025 goal of using at least 25% post-consumer recycled plastic in packaging;

Nestlé aims to increase the amount of recycled PET used across their brands globally to 50% by 2025;

Adidas Group aims to replace all virgin polyester with recycled polyester in all adidas and Reebok products where a solution exists by 2024;

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 towards 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;

Puma is aiming to increase the amount of recycled materials in its apparel and accessories products and have announced a 2025 goal of having at least 75% of the polyester used in Puma products be from recycled sources;

Adidas Group aims to replace all virgin polyester with recycled polyester in all of its Adidas products by 2024;

Danone, the provider of evian® brand bottled water, committed to a goal of using 100% recycled content packaging by 2025;

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

PepsiCo stated 10 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 committed to implementing 100% recycled content plastic in their bottles by 2025;

Nike has announced a 2025 target of diverting 100% of its waste from landfills, with at least 80% recycled back into its products and goods;

L’Oréal Group committed to using 100% recycled or biobased plastic in their packaging by 2030;

Ikea maintains its goal that, by 2030, all plastic used in its products will be based on renewable or recycled material;

By 2025, Lululemon aims to achieve at least 75% sustainable materials for their products, including fibers that are recycled, renewable, regenerative, sourced responsibly and are manufactured using low-resource processes.

Nike has set a 2025 target of diverting 100% of its waste from landfills with at least 80% recycled back into their products and goods.

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:

In North America:

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

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

North America:

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

California law requires that plastic bottles contain at least 25% post-consumer resin by 2025, and at least 50% by 2030.

As of January 2021, the European Union introduced a new tax of €800/ton on non-recycled plastic packaging based on the amount of plastic packaging placed on each member state’s market.

Spain imposed a tax of €450 per ton on non-reusable plastic packaging, effective January 1, 2023.

Italy introduced a tax in January 2023 of €450 per ton on virgin plastic used in manufacture or importation of single use plastic.

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

Italy is introducing a tax of €450 per ton on virgin plastic used in manufacture or importation of single use plastic which is expected in January 2023.

Spain has also proposed a tax of €450 per ton on non-reusable plastic packaging with an anticipated start date of January 2023.

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.

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.

The bales are broken and sorted to remove any non-PET materials.

The PET is then ground and put through a separation process which separates the PET from non-PET materials such as bottle caps and labels.

Clean PET flake is then further processed depending on its intended end market.

It may become more highly refined PET pellet for new bottles or extruded into PET sheet for clamshells, trays, and cups.

Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.

We believe mechanically recycled PET has a number of challenges in meeting the quality specifications and growing volume requirements implied by commitments from major brands, mainly due to the cost and variety of acceptable PET feedstock.

Each time the PET plastic is mechanically recycled, its quality and clarity are reduced.

Therefore, mechanically recycled PET may need to be mixed with virgin PET from fossil fuels to maintain quality.

Lower quality mechanically recycled PET is often downcycled to alternate uses such as polyester fibers which may be dyed and used in carpets or clothing.

Additionally, mechanically recycled PET manufactured for use in clear bottles or food containers requires predominantly clear and clean PET flakes separated from waste bales, and cannot accommodate darkly colored PET flakes, lower quality fiber feedstock, or materially contaminated feedstock, which may be cheaper.

France maintains its goal of having 100% plastics recycled by 2025 and 77% of beverage bottles to be collected.

South Korea continues to target reduction of plastic waste by 20%, an increase in recycling rates from 54% to 70% by 2025, and utilization of 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 further increase the demand for rPET.

Closed-loop circularity and keeping materials within their own cycle (bottle-to-bottle and fiber-to-fiber) is gaining increasing attention as the focus on sustainability intensifies.

Governments and regulators have considered or enacted heightened standards for recycled materials that discourage downcycling of bottles into polyester fiber.

Additionally, it is becoming increasingly difficult to secure inventory of post-consumer bottles due to the increased demand from the bottle industry as they strive to achieve their own sustainability goals.

A fiber-to-fiber recycling strategy addresses these problems and allows fashion brands and companies to secure volume and support the increasing demand of recycled polyester fiber in the textile industry.

We believe the commercialization plans of Loop ™ PET resin and polyester fiber may provide the ideal solution for global brands because Loop ™ PET resin and polyester fiber contains 100% recycled PET and polyester fiber content.

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% recycled Loop ™ branded PET resin and polyester fiber.

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

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

Commercialization Strategy

Our objective is to achieve global expansion of Loop’s technology through a mix of fully owned manufacturing 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 with 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.

On December 22, 2022, we announced a shift in our commercialization strategy which now focuses on our planned joint venture projects with 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.

As countries around the globe continue to increase sustainability targets and recycled content mandates, our customers are increasing the use of sustainably produced materials into their products.

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 by recycling waste plastic rather than depleting finite resources.

The Infinite Loop ™ manufacturing technology allows for waste PET plastic and polyester fiber to be broken down into its base building blocks, monomers DMT and MEG, using Loop’s patented technology.

Once the monomers are purified, they are then repolymerized into PET plastic or polyester fiber using INVISTA know how, which Loop licenses, and Chemtex Global Corporation’s engineering.

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.

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

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.

Factors under consideration in determining project economics include the feasibility design engineering and cost estimate work, timing and permitting of a facility, customer offtake demand, commitment terms, and feedstock sources, quality, availability, PET bale index pricing, logistics, and ramp up, among others.

Recent developments

Signature of Venture Agreement with SKGC

Pursuant to the JV Agreement, Loop and SKGC agreed to form a new company (the “JV Company”), which will be headquartered in Singapore.

SKGC will contribute 51% and Loop will contribute 49% of the initial equity capital of the JV Company.

In addition to Infinite Loop™ Ulsan, the two partners have outlined plans which target a minimum of three additional commercial manufacturing facilities to be constructed throughout Asia by 2030.

Loop and SKGC have partnered with SK ecoengineering, a subsidiary of the SK Group who brings considerable experience and proficiency as an EPC contractor, for the engineering and construction of the commercial manufacturing facilities.

Successful completion of SKGC technical due diligence

On March 28, 2023, Loop and SKGC announced the successful completion of a technical due diligence conducted by SKGC.

The technical due diligence marks the next phase in Loop and SKGC's long-standing partnership to commercialize Loop’s technology through Infinite Loop™ manufacturing facilities in the Asian market.

SKGC executed a comprehensive due diligence to validate Loop’s technology and its production facility in Terrebonne, Quebec.

The scope of the technical due diligence included the depolymerization of low value PET waste into its base monomers of DMT and MEG, the purification of the monomers, as well as the polymerization into virgin-quality Loop™ PET resin and polyester fiber.

Key parameters of Loop’s technology that were validated were the production yields, operational stability, quality of the output monomers and overall performance of the production facility.

The technical due diligence validated that the PET resin and polyester fiber produced using Loop’s technology is of virgin quality.

The technical due diligence report, signed by both parties, confirms Loop’s innovative technology.

Customer product activations

On April 19, 2023, Loop and Garnier, launched the brand’s first Micellar Cleansing Water All-In-1 bottle made of Loop™ PET, which was produced using monomers from Loop’s Terrebonne Facility (excluding cap and label).

The Loop logo, featured on the front of this packaging innovation, serves as an anchor to highlight Loop’s technology, the quality of materials and the bottle’s recyclability.

Proprietary Technology and Intellectual Property

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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 yields purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET.

As the Company evaluated the transition of the GEN I technology from pilot scale to commercial scale, several challenges involving PTA and MEG purification were identified.

To overcome the GEN I technology challenges, we embarked on the development of a second generation of our technology.

Our Generation II technology (“GEN II”) is a methanolysis-based depolymerization technology that uses temperatures below 90 °C to depolymerize waste PET and polyester fiber.

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The GEN II technology uses only trace amounts of water, eliminates the need for a halogenated solvent and uses a catalyst at low concentration.

This shift, from producing the monomer PTA to the monomer DMT, was a pivotal moment for Loop.

We believe that GEN II requires less energy and fewer resource inputs than conventional PET production processes.

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The complete Kemitek report was filed with the SEC by the Company on December 14, 2020.

Additionally, Loop’s strategic partners, Suez and Danone, among others, collectively engaged an independent, globally recognized third-party engineering firm to execute a thorough due diligence and technology validation report.

We believe the final report, which was communicated in May 2022, validated and reinforced the quality, effectiveness, and scalability of our technology.

Our technology was further validated in March 2023, when Loop and SKGC announced the successful completion of the technical due diligence conducted by SKGC.

Key parameters of Loop’s technology that were validated through SKGC’s comprehensive due diligence include the production yields, operational stability, quality of the output monomers and overall performance of Loop’s Terrebonne Facility.

The technical due diligence validated that the PET resin and polyester fiber produced using Loop’s technology is of virgin quality.

To protect our technology and intellectual property rights, 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.

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

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

Internationally, the GEN I technology portfolio includes 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, Mexico, South Korea, and various other countries all expected to expire, if granted, on or around July 2036, not including any patent term extensions.

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

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application, all expected to expire on or around September 2037.

Internationally, this patent family has issued patents in Bangladesh and in Argentina, and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around September 2038, if granted, not including any patent term extensions.

Internationally, this patent family has four issued or allowed patents in foreign jurisdictions, Bangladesh, Argentina, Taiwan and Brazil, and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around September 2038, if granted, not including any patent term extensions.

An additional aspect of the GEN II technology, as claimed in two issued U.S.

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application, all expected to expire on or around June 2039.

Internationally, this patent family includes issued or allowed patents in Morocco, Algeria, and Bangladesh, and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around June 2039, if granted, not including any patent term extensions.

Internationally, this patent family includes five issued or allowed patents in foreign jurisdictions, including Morocco, Algeria, Indonesia and Bangladesh, and pending applications in Canada, China, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, South Korea, and various other countries, all expected to expire on or around June 2039, if granted, not including any patent term extensions.

Another aspect of the GEN II technology, which is the subject of an issued U.S.

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Internationally, this patent family includes pending applications in Canada, Europe, India, Singapore, Papua New Guinea, 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 extensions.

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

Another aspect of the GEN II technology, which is the subject of an issued U.S.

1 unchanged sentence

application, both expected to expire on or around March 2040.

Internationally, this patent family includes an allowed application in Bangladesh and pending applications in Canada, China, Korea, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries, all expected to expire on or around March 2040, if granted, not including any patent term extensions.

Internationally, this patent family includes two issued patents in foreign jurisdictions, Bangladesh and South Africa, and pending applications in Canada, China, Korea, the Eurasian Patent Organization, Europe, the Gulf Cooperation Council, India, Japan, Mexico, and various other countries, all expected to expire on or around March 2040, if granted, not including any patent term extensions.

Loop owns registrations for its trademarks in Cambodia, Canada, the European Union, Taiwan, the United Kingdom, and the U.S.

Loop also has pending applications in Canada, Japan, South Korea, the U.S., and Vietnam.

Supply Agreements with Global Consumer Brands

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

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

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

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 currently have agreements with some of the world’s leading brands to be supplied from our planned commercial facilities, including:

Multi-year supply agreement with PepsiCo, one of the largest purchasers of recycled PET plastic, enabling PepsiCo to purchase production capacity and incorporate Loop ™ PET resin into its product packaging;

Multi-year supply agreement with L’OCCITANE en Provence to supply 100% recycled and sustainable Loop ™ PET resin and incorporate Loop ™ PET resin into its product packaging;

Turning PET Waste into Feedstock

We use waste PET plastic and polyester fiber as feedstock.

Our technology can use PET plastic bottles and packaging of any color, transparency or condition, carpet, clothing and other polyester textiles that may contain colors, dyes or additives, and even PET plastics that have been recovered from the ocean and degraded by exposure to sun and salt.

We believe that our ability to use many materials that mechanical recyclers cannot use is both an important advantage of Loop ™ PET resin over mechanically recycled PET resin and is additive to the number of PET waste streams that may be recycled.

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 Strategy

Our objective is to achieve global expansion of Loop’s technology through a mix of fully owned manufacturing 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 significant growth opportunity, which may offer attractive economic returns either as Loop manufacturing partners or as licensees of the technology.

On December 22, 2022, we announced that we will for now focus our commercialization strategy 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 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.

As countries around the globe continue to increase sustainability targets and recycled content mandates, our customers are increasing the use of sustainably produced materials into their products.

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

Once the monomers are purified, they are then repolymerized into PET plastic or polyester fiber using INVISTA know how, which Loop licenses, and Chemtex Global Corporation’s engineering.

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.

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.

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 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 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.

Strategic Partnership with SK geo centric

Loop and SKGC intend to form a joint venture with exclusivity to build sustainable PET plastic and polyester fiber manufacturing facilities throughout Asia, which accounts for approximately 60% of the world’s population and an estimated 70% of global PET consumption making it the largest market in terms of plastic manufacturing, consumption and waste.

Under the terms of the Memorandum of Understanding (“MOU”) for the proposed joint venture, which was entered into in July, 2021, SKGC will own 51 percent of the joint venture and Loop will own 49 percent.

Loop will also receive a recurring annual royalty fee as a percentage of revenue from each facility for the use of its technology.

As of the date of the filing on this Quarterly Report on Form 10-Q, final joint venture agreements have not been entered into.

In addition, on June 22, 2021, Loop and SKGC concluded a definitive agreement for SKGC to become a strategic investor in Loop.

Under this agreement, 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 equity investment transaction closed on July 29, 2021.

SKGC was also granted warrants to acquire an additional 461,298 common shares at $11 per share with an expiration date of June 14, 2022, 4,714,813 common shares at a price of $15 per share with an expiration date of July 29, 2024, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility.

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

In conjunction with the equity investment, Mr.

Jonghyuk Lee, Vice President of SKGC’s Green Business Division, was appointed to Loop’s Board of Directors.

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 is planned to include the first Infinite Loop ™ manufacturing facility in Asia.

Discussions have been initiated regarding planning for the second facility in Asia as part of the objective of the two companies to build four Infinite Loop™ manufacturing facilities in Asia by 2030.

SKGC 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 geo centric, as we move to commercialize our technology in Asia.

Loop and SKGC are collaborating closely with SK ecoengineering (“SKEE”), a subsidiary of SK group, on providing the engineering related to the construction of the planned Infinite Loop ™ manufacturing facility in Ulsan, South Korea.

SKEE is an experienced EPC contractor with a proven track record in the construction of large scale projects internationally.

Infinite Loop ™ Europe

We announced on September 10, 2020 a strategic partnership with SUEZ GROUP (“Suez”), with the objective to build the first Infinite Loop ™ manufacturing facility in Europe.

On June 16, 2022, Loop, together with Suez and SKGC, announced that SKGC will become an equal partner in the strategic partnership.

The expanded partnership intends to combine SKGC’s petrochemical manufacturing experience with SUEZ’s resource management expertise and Loop’s breakthrough proprietary technology to supply up to 70,000 M/T of virgin quality, 100% recycled PET plastic and polyester fiber to the European market.

The planned Infinite Loop™ facility is contemplated to offer a solution to consumer goods companies which have committed to goals for significantly increased use of recycled content in their products and/or packaging and help to meet the growing demand for recycled PET resin and polyester fiber.

The three companies are re-evaluating the optimal location for the planned European Infinite Loop™ manufacturing facility.

We are working with our partners Suez and SKGC on acquiring the preferred project site, alignment of various levels of government support and additional steps for the project which include advancing permitting, site specific engineering, customer offtake contracts, feedstock and financing.

Infinite Loop ™ Québec

We acquired a project site in Bécancour, Québec in May of 2021 for $4.4 million (CDN $5.9 million), a portion of which was sold on September 15, 2022 for net proceeds of $8.56 million (CDN $11.4 million).

On December 22, 2022, we announced that our commercialization strategy will now focus on our planned projects with SKGC in Asia and Europe and that we had entered into an agreement to sell all of our remaining property in Bécancour, Quebec for $13.70 million (CDN $18.5 million).

The sale transaction is expected to close on February 24, 2023, subject to final due diligence and fulfillment of certain customary closing conditions.

Although the company is currently focusing on developing the planned joint venture facilities in Asia and Europe, a future facility in Quebec remains an option at the appropriate time, and possible alternative locations for such a facility are available.

We are continuing to explore 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.

A future facility in Quebec would be aligned with the Government of Canada’s announced zero plastic waste goal by 2030.

Technology Due Diligence Report

Loop’s strategic partners, Suez and Danone, among others, collectively engaged an independent, globally recognized third-party engineering firm to execute a thorough due diligence and technology validation report.

We believe the final report, which was communicated in May 2022, validated and reinforced the quality, effectiveness, and scalability of Loop Industries’ technology.

Unveiling of L’OCCITANE en Provence Almond Shower Oil Bottle

On October 11, 2022, Loop and L’OCCITANE en Provence (“L’OCCITANE”), a global manufacturer and retailer of sustainable beauty and wellness products, unveiled a new bottle for the brand’s Almond Shower Oil that was manufactured with 100% recycled Loop ™ PET resin produced using monomers from Loop’s Terrebonne Facility.

Loop has partnered with L’OCCITANE to help meet the brand’s sustainability goal of using 100% recycled PET in its bottles by 2025.

In partnership with the brand, a pilot project was executed where the bottle (excluding cap and label) was produced using 100% recycled Loop ™ PET resin and was successfully carried out on L’OCCITANE production lines.

This initiative marks a significant step forward in the partnership between the two companies and sets the pathway to implement Loop’s technology across other products in the brand’s assortment.

As part of this partnership with L’OCCITANE, Loop’s branding is featured prominently on the front of the packaging, with additional details speaking to Loop’s technology on the back label.

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% recycled content.

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

Evian began selling water bottles made from Loop ™ PET in South Korea in October 2022.

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.

This initiative reflects evian’s commitment to its stated 2025 goals for circularity and 100% recycled content.

Loop continues to work toward new brand and market introductions with additional consumer goods brand companies.

Terrebonne Facility

We completed the planned upgrades at the Terrebonne Facility which have given us the opportunity to support product campaigns with customers, such as the evian Loop bottle.

In completing the upgrade of the Terrebonne facility to incorporate all key pieces of depolymerization equipment that will be used in the full-scale commercial facilities, we achieved a key milestone in proving the effectiveness of our process.

In the nine-month period ended November 30, 2022 Loop reported first revenues of $0.16 million from the sale of Loop™ PET resin produced from monomers manufactured at the Terrebonne Facility to several global consumer brands, which included On AG.

We previously entered into an agreement with On AG to supply Loop ™ PET to be utilized in polyester fiber by the brand, pursuant to which Loop ™ PET resin was delivered in the nine-month period ended November 30, 2022.

In addition to supplying customers with initial volumes of Loop ™ PET, the Terrebonne Facility continues to support our customers and partners with R&D and analytical capabilities.

On December 22, 2022, we announced that we have reduced hours of operation at the Terrebonne Facility in order to reduce operating costs and conserve liquidity.

The primary purpose of the Terrebonne Facility was to demonstrate that Loop’s breakthrough depolymerization technology was scalable and to produce commercial quantities of virgin quality PET resin and polyester fiber for global brands.

We believe the Terrebonne Facility has achieved this objective.

We will continue to fulfill existing sales contracts.

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 (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.

We are contributing to the 50/50 joint venture an exclusive worldwide royalty-free license to use our proprietary technology to produce 100% sustainably produced PET resin in addition to our equity cash contribution.

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.

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.

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

Government Regulation and Approvals

As we seek to further develop and commercialize our technology, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations.

Compliance with current and future regulations, including food packaging regulations, could increase our operational costs.

Our operations require various governmental permits and approvals.

We are in the process of obtaining all necessary permits and approvals for the operation of our business;

however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances.

Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.

See “Risk Factors” below for additional information.

We believe that if we are successful in addressing food packaging regulations in various countries and economic regions, the regulatory environment may provide Loop ™ PET resin a competitive advantage relative to mechanically recycled alternative resins and virgin PET.

Loop’s PET resin was subjected to independent testing by an external and certified laboratory, which confirmed the PET complies with FDA Regulation 21 CFR § 177.1630 on August 26, 2021, as well as EU Commission Regulation No 10/2011 on July 27, 2021.

These results attest that Loop’s PET is safe for use in food-contact applications, including but not limited to bottled water, carbonated drinks and food trays.

Demonstration of compliance with food-contact requirements follows the No Objection Letter (“NOL”) from the FDA previously granted to Loop in March 2021.

The NOL confirms that 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, 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.

The registration under the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) Regulation (EC 1907/2006) confirms that our monomers are of a purity equal to what is currently recognized within Europe and entitles us to manufacture/import the monomers into Europe.

It should be noted that MEG and DMT are on the positive list for plastic materials, which means that the two monomers can be used as food contact materials.

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.

Human Capital

As of November 30, 2022, we had 81 employees of which 28 work in research and development, 38 in engineering and operations, and 15 in administrative functions.

As of May 31, 2023, we had 73 employees of which 24 work in research and development, 35 in engineering and operations, and 14 in administrative functions.

Results of Operations

The following table summarizes our operating results for the three-month periods ended November 30, 2022 and 2021, in U.S.

Three months ended November 30,

Research and development

Machinery and equipment expenditures

External engineering

Employee compensation

Stock-based compensation

Plant and laboratory operating expenses

Total research and development

General and administrative

Professional fees

Employee compensation

Stock-based compensation

Total general and administrative

Gain on disposition of assets

Depreciation and amortization

Interest and other financial expenses

Interest income

Foreign exchange loss (gain)

Total expenses

$ (1,013,073 )

$ (10,098,243 )

Three Months Ended November 30, 2022 and 2021

Revenues for the three-month period ended November 30, 2022 were $0.02 million.

For the same period in 2021, 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 expense for the three-month period ended November 30, 2022 decreased $2.25 million to $4.58 million, as compared to $6.84 million for the same period in 2021.

The decrease was primarily attributable to a $1.54 million decrease in purchases of machinery and equipment used at the Terrebonne facility, a $0.88 million decrease in external engineering costs for ongoing design work for our Infinite Loop ™ manufacturing process, and a $0.40 million increase in tax credits recorded as a reduction of research and development expenses.

General and administrative expenses

General and administrative expenses for the three-month period ended November 30, 2022 increased $0.09 million to $3.18 million, as compared to $3.09 million for the same period in 2021.

The increase was primarily attributable to a $0.63 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” of our 10-Q and the Company’s commercialization plans, and a $0.14 million increase in stock-based compensation expenses.

These increases were partially offset by a $0.48 million decrease in insurance costs, and a $0.26 million decrease in employee compensation costs.

The net loss for the three-month period ended November 30, 2022 decreased $9.09 million to $1.01 million, as compared to $10.10 million for the same period in 2021.

The decrease is primarily due to a gain on disposition of assets of $6.70 million recorded in the three-month period ended November 30, 2022 related to the Company’s sale of land in Bécancour, Québec, and the decreased research and development expenses of $2.25 million, partially offset by the increased general and administrative expenses of $0.09 million.

Nine Months Ended November 30, 2022 and 2021

The following table summarizes our operating results for the nine-month periods ended November 30, 2022 and 2021, in U.S.

Nine months ended November 30,

The following table summarizes our operating results for the three-month periods ended May 31, 2023 and 2022, in thousands of U.S.

Three months ended May 31,

Revenue from contracts with customers

Research and development

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Total general and administrative

Gain on disposition of assets

Depreciation and amortization

1 unchanged sentence

Interest income

Foreign exchange loss (gain)

Foreign exchange loss

Total expenses

$ (26,724,178 )

$ (30,648,023 )

Revenues for the nine-month period ended November 30, 2022 were $0.16 million.

First Quarter Ended May 31, 2023

Revenues for the three-month period ended May 31, 2023 were $27.

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

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Research and Development

Research and development expense for the nine-month period ended November 30, 2022 decreased $5.62 million to $15.13 million, as compared to $20.76 million for the same period in 2021.

The decrease was primarily attributable to a $3.58 million decrease in purchases of machinery and equipment used at the Terrebonne facility, a $2.13 million decrease in external engineering expenses for ongoing design work for our Infinite Loop ™ manufacturing process, and a $1.15 million increase in tax credits recorded as a reduction of research and development expenses.

These decreases were partially offset by a $0.97 million increase in employee compensation expenses related increased headcount in our in-house engineering and commercial project teams.

Research and development expense for the three-month period ended May 31, 2023 decreased $2,310 to $4,490, as compared to $6,800 for the same period in 2022.

The decrease was primarily attributable to a $654 decrease in purchases of machinery and equipment used at the Terrebonne Facility, a $605 decrease in employee compensation expenses, a $441 decrease in external engineering costs for design work for our Infinite Loop ™ manufacturing process, a $397 decrease in plant and laboratory expenses to operate our Terrebonne Facility, and a $236 decrease in stock-based compensation expenses.

General and administrative expenses

General and administrative expenses for the nine-month period ended November 30, 2022 increased $8.86 to $18.23 million, as compared to $9.37 million for the same period in 2021.

The increase was primarily attributable to an increased stock-based compensation expense of $8.59 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 2021 accounted for as a reversal of stock-based compensation, and increased professional fees of $0.70 million, mainly related to legal fees principally associated with the SEC investigation and class action suits described in “Part II, Item 1.

Legal Proceedings” of our 10-Q and the Company’s commercialization plans.

These increases were partially offset by decreased insurance costs of $0.24 million, and a $0.22 million decrease in employee compensation costs.

The net loss for the nine-month period ended November 30, 2022 decreased $3.92 million to $26.72 million, as compared to $30.65 million for the same period in 2021.

The decrease is primarily due to a gain on disposition of assets of $6.70 million recorded in the nine-month period ended November 30, 2022 related to the Company’s sale of land in Bécancour, Québec, and the decreased research and development expenses of $5.62 million, partially offset by the increased general and administrative expenses of $8.86 million.

General and administrative expenses for the three-month period ended May 31, 2023 decreased $8,572 to $2,465, as compared to $11,037 for the same period in 2022.

The decrease was primarily attributable to a $7,874 decrease in stock-based compensation which is mainly attributable to a $7,740 expense recorded in relation to the achievement of a performance milestone for 1,000,000 RSUs in the three-month period ended May 31, 2022, and a $400 decrease in insurance costs.

The net loss for the three-month period ended May 31, 2023 decreased $11,005 to $7,001, as compared to $18,006 for the same period in 2022.

The decrease is primarily due to the decrease in general and administrative expenses of $8,572, and the $2,310 decrease in research and development expenses.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has been in the development stage with limited 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.

Our liquidity position consists of cash and cash equivalents on hand of $25.62 million at November 30, 2022 and an undrawn senior loan facility from a Canadian bank of $2.59 million.

Additionally, the Company entered into an agreement on December 21, 2022 to sell its land in Bécancour, Québec for $13.70 million (CDN $18.50 million) on or before February 24, 2023.

Our liquidity position consists of cash and cash equivalents on hand of $21,970 at May 31, 2023 and an undrawn senior loan facility from a Canadian bank of $2,573.

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 2023 Annual Report on Form 10-K.

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(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.

Management prepared the Company’s consolidated financial statements on a going concern basis in accordance with ASC 205-40, as 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 12 months from the date of issuance of these consolidated financial statements.

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.

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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.

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.

In December 2021, the Company entered into an agreement for the purchase of long lead machinery and equipment for up to $8,546 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.

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 $3.41 million (CDN $4.60 million).

We received the first disbursement in the amount of $1.64 million (CDN $2.21 million) on February 21, 2020 and the second disbursement in the amount of $1.77 million (CDN $2.39 million) on August 26, 2021.

Pursuant to the agreement, the Company has paid a cash deposit of $5,430.

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 $3,382.

We received the first disbursement in the amount of $1,624 on February 21, 2020 and the second disbursement in the amount of $1,758 on August 26, 2021.

There is a 36-month moratorium on both capital and interest repayments as of the first disbursement date.

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

The loan bears interest at 2.36%.

We have also agreed to issue to Investissement Québec warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $0.34 million (CDN $0.46 million).

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 $338.

The warrants were issued at a price per share equal to the higher of (i) $11.00 per share and (ii) the ten-day weighted average closing price of Loop Industries shares of common stock on the Nasdaq stock market for the 10 days prior to the issue of the warrants.

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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 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.

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, which remains outstanding.

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, $37,015 (CDN $50,000) 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.

As per the Financing Facility Amendment, a total of $37 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.

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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 $2,669,514 (CDN $3,500,000) in aggregate principal amount and provides for a two-year term.

The Credit Facility allows for borrowings of up to $2,573 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.

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

As at November 30, 2022 the Credit Facility was undrawn.

As at May 31, 2023, the Credit Facility was undrawn.

Flow of Funds

Summary of Cash Flows

A summary of cash flows for the nine-month periods ended November 30, 2022 and 2021 was as follows:

Nine Months Ended November 30,

A summary of cash flows for the three months ended May 31, 2023 and 2022 was as follows, in thousands of U.S.

Three Months Ended May 31,

Net cash used in operating activities

$ (26,283,203 )

$ (32,829,956 )

Net cash from (used in) investing activities

Net cash from financing activities

Net cash used in investing activities

Net cash used by financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash

$ (18,436,434 )

Net Cash Used in Operating Activities

During the nine-month period ended November 30, 2022, we used $26.28 million in operations compared to $32.83 million during the nine-month period ended November 30, 2021.

During the three-month period ended May 31, 2023, we used $5,504 in operations compared to $11,649 during the three-month period ended May 31, 2022.

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) Provided in Investing Activities

During the nine-month period ended November 30, 2022, the Company made investments of $0.07 million in property, plant and equipment as compared to $5.02 million for the nine-month period ended November 30, 2021.

The amount of $5.02 was primarily in connection with the purchase for $4.82 million of a parcel of land in Bécancour, Québec.

During the nine-month period ended November 30, 2022, the Company made investments in intangible assets of $0.23 million as compared to $0.35 million for the nine-month period ended November 30, 2021, particularly in its patent technology in the United States and around the world.

Net Cash Used in Investing Activities

During the three months ended May 31, 2023, we used $2,122 in investing activities compared to $4 during the three-month period ended May 31, 2022.

During the three months ended May 31, 2023 we made $2,023 in deposits on machinery and equipment for use in a commercial project, and we made investments in intangible assets of $99, particularly in our patent technology in the United States and around the world.

Net Cash (Used) Provided by Financing Activities

During the nine-month period 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, 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, which was fully repaid in January 2022.

On August 26, 2021, we received $1.87 million (CDN $2.39 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 three months ended May 31, 2023, we repaid $16 of long-term debt.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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