Loop Industries, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Loop Industries, Inc. Three and Six months ended August 31, 2023 Index to the Unaudited Interim Condensed Consolidated Financial Statements Contents Page(s) Condensed consolidated balance sheets as at August 31, 2023 (Unaudited) and February 28, 2023 F‑2 Condensed consolidated statements of operations and comprehensive loss for the three and six months ended August 31, 2023 and 2022 (Unaudited) F‑3 Condensed consolidated statements of changes in stockholders’ equity for the three and six months ended August 31, 2023 and 2022 (Unaudited) F‑4 Condensed consolidated statements of cash flows for the six months ended August 31, 2023 and 2022 (Unaudited) F‑6 Notes to the condensed consolidated financial statements (Unaudited) F‑7 F-1 Table of Contents Loop Industries, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands of U.S. dollars, except per share data) As at August 31, 2023 February 28, 2023 Assets Current assets Cash and cash equivalents $ 13,365 $ 29,591 Restricted cash 1,000 1,000 Sales tax, tax credits and other receivables (Note 3) 1,195 1,075 Inventories (Note 4) 905 727 Deposits on equipment (Note 5) 8,460 3,395 Prepaid expenses and other deposits (Note 5) 115 636 Total current assets 25,040 36,424 Investment in joint venture 381 381 Property, plant and equipment, net (Note 6) 2,360 2,545 Intangible assets, net (Note 7) 1,375 1,210 Total assets $ 29,156 $ 40,560 Liabilities and Stockholders’ Equity Current liabilities Accounts payable and accrued liabilities (Note 9) $ 1,998 $ 2,510 Customer deposits 1,000 1,012 Current portion of long-term debt (Note 10) 356 62 Total current liabilities 3,354 3,584 Long-term debt (Note 10) 2,970 3,240 Total liabilities 6,324 6,824 Stockholders’ Equity Series A Preferred stock par value $ 0.0001 ; 25,000,000 shares authorized; one share issued and outstanding - - Common stock par value $ 0.0001 ; 250,000,000 shares authorized; 47,521,187 shares issued and outstanding (February 28, 2023 – 47,469,224 ) (Note 12) 5 5 Additional paid-in capital 171,113 170,370 Additional paid-in capital – Warrants 20,385 20,385 Accumulated deficit ( 167,634 ) ( 155,883 ) Accumulated other comprehensive loss ( 1,037 ) ( 1,141 ) Total stockholders’ equity 22,832 33,736 Total liabilities and stockholders’ equity $ 29,156 $ 40,560 Commitments (Note 18) See accompanying notes to the condensed consolidated financial statements . F-2 Table of Contents Loop Industries, Inc. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands of U.S. dollars, except per share data) Three Months Ended Six Months Ended August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022 Revenue from contracts with customers $ 54 $ 135 $ 81 $ 135 Expenses : Research and development (Note 13) 2,038 3,751 6,528 10,552 General and administrative (Note 14) 2,843 4,011 5,308 15,047 Depreciation and amortization (Notes 6 and 7) 136 138 268 277 Total expenses 5,017 7,900 12,104 25,876 Other (income) loss : Interest and other financial expenses 44 43 98 84 Interest income ( 219 ) ( 10 ) ( 318 ) ( 23 ) Foreign exchange gain ( 38 ) ( 93 ) ( 52 ) ( 91 ) Total other (income) loss ( 213 ) ( 60 ) ( 272 ) ( 30 ) Net loss ( 4,750 ) ( 7,705 ) ( 11,751 ) ( 25,711 ) Other comprehensive loss - Foreign currency translation adjustment 84 ( 412 ) 104 ( 417 ) Comprehensive loss $ ( 4,666 ) $ ( 8,117 ) $ ( 11,647 ) $ ( 26,128 ) Net loss per share Basic and diluted $ ( 0.10 ) $ ( 0.16 ) $ ( 0.25 ) $ ( 0.54 ) Weighted average common shares outstanding Basic and diluted 47,521,187 47,400,709 47,518,645 47,400,640 See accompanying notes to the condensed consolidated financial statements. F-3 Table of Contents Loop Industries, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) Three Months Ended August 31, 2022 Common stock Series A preferred stock Additional Accumulated par value $0.0001 par value $0.0001 Additional Paid-in Other Total Number of Number of Paid-in Capital - Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Capital Warrants Deficit (Loss) Equity Balance, May 31, 2022 47,400,709 $ 5 1 $ - $ 158,863 $ 30,272 $ ( 152,589 ) $ ( 101 ) $ 36,450 Expiration of warrants (Note 17) - - - - 9,809 ( 9,809 ) - - - Stock options issued for services (Note 15) - - - - 313 - - - 313 Restricted stock units issued for services (Note 15) - - - - 316 - - - 316 Foreign currency translation - - - - - - - ( 412 ) ( 412 ) Net loss - - - - - - ( 7,705 ) - ( 7,705 ) Balance, August 31, 2022 47,400,709 $ 5 1 $ - $ 169,301 $ 20,463 $ ( 160,294 ) $ ( 513 ) $ 28,962 (in thousands of U.S. dollars, except for share data) Three months ended August 31, 2023 Common stock Preferred stock Additional Accumulated par value $0.0001 par value $0.0001 Additional Paid-in Other Total Number of Number of Paid-in Capital - Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Capital Warrants Deficit Income (Loss) Equity Balance, May 31, 2023 47,521,187 $ 5 1 $ - $ 170,725 $ 20,385 $ ( 162,884 ) $ ( 1,121 ) $ 27,110 Stock options issued for services (Note 15) - - - - 172 - - - 172 Restricted stock units issued for services (Note 15) - - - - 216 - - - 216 Foreign currency translation - - - - - - - 84 84 Net loss - - - - - - ( 4,750 ) - ( 4,750 ) Balance, August 31, 2023 47,521,187 $ 5 1 $ - $ 171,113 $ 20,385 $ ( 167,634 ) $ ( 1,037 ) $ 22,832 See accompanying notes to the condensed consolidated financial statements. F-4 Table of Contents Loop Industries, Inc. Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) Six Months Ended August 31, 2022 Common stock Series A preferred stock Additional Accumulated par value $0.0001 par value $0.0001 Additional Paid-in Other Total Number of Number of Paid-in Capital - Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Capital Warrants Deficit (Loss) Equity Balance, February 28, 2022 47,388,056 $ 5 1 $ - $ 150,397 $ 30,272 $ ( 134,583 ) $ ( 96 ) $ 45,995 Issuance of shares upon the vesting of restricted stock units (Note 15) 12,653 - - - - - - - - Expiration of warrants (Note 17) - - - - 9,809 ( 9,809 ) - - - Stock options issued for services (Note 15) - - - - 630 - - - 630 Restricted stock units issued for services (Note 15) - - - - 8,465 - - - 8,465 Foreign currency translation - - - - - - - ( 417 ) ( 417 ) Net loss - - - - - - ( 25,711 ) - ( 25,711 ) Balance, August 31, 2022 47,400,709 $ 5 1 $ - $ 169,301 $ 20,463 $ ( 160,294 ) $ ( 513 ) $ 28,962 (in thousands of U.S. dollars, except for share data) Six months ended August 31, 2023 Common stock Preferred stock Additional Accumulated par value $0.0001 par value $0.0001 Additional Paid-in Other Total Number of Number of Paid-in Capital - Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Capital Warrants Deficit Income (Loss) Equity Balance, February 28, 2023 47,469,224 $ 5 1 $ - $ 170,370 $ 20,385 $ ( 155,883 ) $ ( 1,141 ) $ 33,736 Issuance of shares upon the vesting of restricted stock units (Note 15) 51,963 - - - - - - - - Stock options issued for services (Note 15) - - - - 333 - - - 333 Restricted stock units issued for services (Note 15) - - - - 410 - - - 410 Foreign currency translation - - - - - - - 104 104 Net loss - - - - - - ( 11,751 ) - ( 11,751 ) Balance, August 31, 2023 47,521,187 $ 5 1 $ - $ 171,113 $ 20,385 $ ( 167,634 ) $ ( 1,037 ) $ 22,832 See accompanying notes to the condensed consolidated financial statements. F-5 Table of Contents Loop Industries, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands of U.S. dollars) Six Months Ended August 31, 2023 2022 Cash Flows from Operating Activities Net loss $ ( 11,751 ) $ ( 25,711 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization (Notes 6 and 7) 268 277 Stock-based compensation expense (Note 15) 743 9,095 Accretion and accrued interest expenses (Note 10) 36 79 Changes in operating assets and liabilities: Sales tax and tax credits receivable (Note 3) ( 114 ) ( 143 ) Inventories (Note 4) ( 175 ) ( 330 ) Prepaid expenses (Note 5) 510 124 Accounts payable and accrued liabilities (Note 9) ( 522 ) ( 2,799 ) Customer deposits ( 12 ) - Net cash used in operating activities ( 11,017 ) ( 19,408 ) Cash Flows from Investing Activities Deposits on equipment (Note 5) ( 5,065 ) ( 1,271 ) Additions to property, plant and equipment (Note 6) - ( 58 ) Additions to intangible assets (Note 7) ( 225 ) ( 141 ) Net cash used in investing activities ( 5,290 ) ( 1,470 ) Cash Flows from Financing Activities Repayment of long-term debt (Note 10) ( 32 ) - Net cash (used) provided by financing activities ( 32 ) - Effect of exchange rate changes 113 ( 183 ) Net decrease in cash ( 16,226 ) ( 21,061 ) Cash, cash equivalents and restricted cash, beginning of period 30,591 44,061 Cash, cash equivalents and restricted cash, end of period $ 14,365 $ 23,000 Supplemental Disclosure of Cash Flow Information: Income tax paid $ - $ - Interest paid $ 43 $ - Interest received $ 213 $ 23 See accompanying notes to the condensed consolidated financial statements. F-6 Table of Contents Loop Industries, Inc. Three and Six Months Ended August 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements (Unaudited) 1. The Company and Basis of Presentation The Company Loop Industries, Inc. (the “Company,” “Loop,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste polyethylene terephthalate (“PET”) plastic and polyester fiber to its base building blocks (monomers). The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging and polyester fiber. The Company is currently in the pre-commercialization stage with limited revenues. Basis of Presentation These unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023, filed with the SEC on May 18, 2023. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50 % interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method. Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 28, 2023, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by US GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three- and six-month periods ended August 31, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, for the fiscal year ending February 29, 2024, or for any other period. The consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the continuing of operations, the realization of assets and the settlement of liabilities in the normal course of business. All monetary amounts in these notes to the condensed consolidated financial statements are in thousands of U.S. dollars unless otherwise specified, except for per share data. 2. Summary of Significant Accounting Policies Liquidity Risk Assessment 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 and investing activities since its inception and expects to incur additional net losses while it continues to develop and plan for commercialization. As at August 31, 2023, the Company’s available liquidity was $ 15,952 , consisting of cash and cash equivalents of $ 13,365 and an undrawn senior loan facility from a Canadian bank of $ 2,587 . Management actively monitors the Company’s cash resources against the Company’s short-term cash commitments to ensure the Company has sufficient liquidity to fund its costs for at least twelve months from the financial statement issuance date. Management evaluates the Company’s liquidity to determine if there is substantial doubt about the Company’s ability to continue as a going concern. In preparing this liquidity assessment, management applies significant judgment in estimating future cash flow requirements of the Company based on budgets and forecasts, which includes developing assumptions related to: (i) estimation of amount and timing of future cash outflows and inflows and (ii) determining what future expenditures are committed and what could be considered discretionary. Based on this assessment, management believes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations as they become due for a period of no less than twelve months from the date of issuance of these unaudited interim condensed consolidated financial statements. F-7 Table of Contents The Company’s ability to move to the next stage of its strategic development and construct manufacturing plants is dependent on whether the Company can obtain the necessary financing through a combination of the issuance of debt, equity, and/or joint ventures, and/or government incentive programs, and/or customers. However, there is no assurance that the Company will be successful in attracting additional funding. Even if additional financing is available, it may not be available on terms favorable to the Company. Failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on the Company’s financial position and on its ability to execute its business plan. Use of estimates The preparation of financial statements in conformity with US GAAP requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include the going concern assessment, estimates for depreciable lives of property, plant and equipment and intangible assets, recoverability of tax credits receivable, assumptions made in calculating the fair value of stock-based compensation and other equity instruments, and the assessment of performance conditions for stock-based compensation awards. Net earnings (loss) per share The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share . Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive. For the three- and six-month periods ended August 31, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at August 31, 2023, the potentially dilutive securities consisted of 2,782,000 outstanding stock options (2022 – 1,570,000 ), 4,417,688 outstanding restricted stock units (2022 – 4,128,718 ), and 7,089,400 outstanding warrants (2022 – 7,104,553 ). 3. Sales Tax, Tax Credits and Other Receivables Sales tax, research and development tax credits and other receivables as at August 31, 2023 and February 28, 2023 were as follows: August 31, 2023 February 28, 2023 Sales tax $ 148 $ 170 Investment tax credits 461 461 Research and development tax credits 454 402 Other receivables 132 42 $ 1,195 $ 1,075 F-8 Table of Contents 4. Inventories Inventories as at August 31, 2023 and February 28, 2023 were as follows: August 31, 2023 February 28, 2023 Finished goods $ 561 $ 242 Work in process 305 467 Raw materials 39 18 $ 905 $ 727 As at August 31 and February 28, 2023, inventories included finished goods, work in process and raw materials. Finished goods inventories consist of bottle grade and fiber grade Loop ™ PET resin which is intended to be sold to customers. Work in process inventories consist of monomers (dimethyl terephthalate and monoethylene glycol), either purified or yet to be purified, resulting from the depolymerization of PET feedstock. These monomers shall be polymerized into Loop ™ PET resin in the future. Raw materials inventories consist of chemicals which are used as inputs in the PET depolymerization process. 5. Deposits and Prepaid Expenses As at August 31, 2023, the Company had $ 8,460 (February 28, 2023 – $ 3,395 ) of non-refundable cash deposits on long-lead equipment that are intended to be used in the first planned Infinite Loop ™ manufacturing facility. Prepaid expenses and other deposits as at August 31, 2023 were $ 115 and $ 636 as at February 28, 2023. 6. Property, Plant and Equipment As at August 31, 2023 Cost Accumulated depreciation, write- down and impairment Net book value Building $ 1,832 $ ( 341 ) $ 1,491 Land 226 - 226 Building and Land Improvements 1,850 ( 1,331 ) 519 Office equipment and furniture 276 ( 152 ) 124 $ 4,184 $ ( 1,824 ) $ 2,360 As at February 28, 2023 Cost Accumulated depreciation, write- down and impairment Net book value Building $ 1,822 $ ( 309 ) $ 1,513 Land 225 - 225 Building and Land Improvements 1,839 ( 1,166 ) 673 Office equipment and furniture 274 ( 140 ) 134 $ 4,160 $ ( 1,615 ) $ 2,545 Depreciation expense for the three- and six-month periods ended August 31, 2023 amounted to $ 101 and $ 201 , respectively (2022 – $ 117 and $ 237 ). 7. Intangible Assets Intangible assets as at August 31, 2023 and February 28, 2023 were $ 1,375 and $ 1,210 , respectively. During the six-month periods ended August 31, 2023 and 2022, we made additions relating to patent application costs to intangible assets of $ 225 and $ 141 , respectively. Amortization expense for the three- and six-month periods ended August 31, 2023 amounted to $ 35 and $ 67 , respectively (2022 – $ 21 and $ 40 ). F-9 Table of Contents 8. Fair Value of Financial Instruments The following tables presents the fair value of the Company’s financial liabilities as at August 31, 2023 and February 28, 2023: Fair Value as at August 31, 2023 Carrying Amount Fair Value Level in the hierarchy Financial liabilities measured at amortized cost: Long-term debt $ 3,326 $ 3,301 Level 2 Fair Value as at February 28, 2023 Carrying Amount Fair Value Level in the hierarchy Financial liabilities measured at amortized cost: Long-term debt $ 3,302 $ 3,280 Level 2 The fair value of cash and cash equivalents, restricted cash, customer deposits, other receivables, and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. 9. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities as at August 31, 2023 and February 28, 2023 were as follows: August 31, 2023 February 28, 2023 Trade accounts payable $ 283 $ 1,020 Accrued employee compensation 863 712 Accrued professional fees 556 410 Accrued insurance premiums 171 70 Accrued engineering fees 20 96 Other accrued liabilities 105 202 $ 1,998 $ 2,510 10. Long‑Term Debt Long-term debt as of August 31, 2023 and February 28, 2023, was comprised of the following: August 31, 2023 February 28, 2023 Investissement Québec financing facility: Principal amount $ 3,381 $ 3,380 Unamortized discount ( 227 ) ( 261 ) Accrued interest 172 183 Total Investissement Québec financing facility 3,326 3,302 Less: current portion of long-term debt ( 356 ) ( 62 ) Long-term debt, net of current portion $ 2,970 $ 3,240 Investissement Québec financing facility The Company recorded interest expense on the Investissement Québec loan for the three- and six-month periods ended August 31, 2023 in the amount of $ 22 and $ 43 , respectively (2022 – $ 22 and $ 44 ) and an accretion expense of $ 18 and $ 36 , respectively (2022 – $ 18 and $ 35 ). During the six-month period ended August 31, 2023, the Company made repayments of $ 32 (2022 – nil) on the Investissement Québec loan. F-10 Table of Contents Total repayments due on the Company’s indebtedness over the next five years are as follows: Years ending Amount February 29, 2024 $ 32 February 28, 2025 587 February 28, 2026 587 February 28, 2027 587 February 29, 2028 587 Thereafter 1,173 Total $ 3,553 Credit facility from a Canadian bank 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 $ 2,587 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 with which the Company was in compliance as at August 31, 2023. All borrowings under the Credit Facility will bear interest at an annual rate equal to the bank’s Canadian prime rate plus 1.0 %. The Company is subject to a guarantee of the liabilities of Loop Canada Inc. As at August 31, 2023, the Credit Facility was available and undrawn. 11. Related Party Transactions Employment Agreement On June 29, 2015, the Company entered into an employment agreement with Mr. Daniel Solomita, the Company’s President and Chief Executive Officer (“CEO”). The employment agreement is for an indefinite term. On July 13, 2018, the Company and Mr. Solomita entered into an amendment and restatement of the employment agreement which provided for a long-term incentive grant of 4,000,000 shares of the Company’s common stock, in tranches of one million shares each, upon the achievement of four performance milestones. This was modified to provide a grant of 4,000,000 restricted stock units (“RSUs”) covering 4,000,000 shares of the Company’s common stock while the performance milestones remained the same. The grant of the restricted stock units became effective upon approval by the Company’s shareholders at the Company’s 2019 annual meeting, of an increase in the number of shares available for grant under the Plan. Such approval was granted by the Company’s shareholders at the Company’s 2019 annual meeting. On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement. The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is simpler to purify. When a milestone becomes probable, the corresponding expense will be valued based on the grant date fair value on April 30, 2020, the date of the last modification of Mr. Solomita’s employment agreement. The closing price of the Company’s common stock on the Nasdaq on April 30, 2020 was $ 7.74 per share. During the six-month period ended August 31, 2022, Mr. Solomita met a performance milestone in relation to the signature of a supply agreement with a customer. Accordingly, 1,000,000 performance incentive RSUs with a fair value of $ 7,740 were earned and issuable to Mr. Solomita. This amount was reflected as stock-based compensation expense during the six-month period ended August 31, 2022. During the six-month period ended August 31, 2023, no outstanding performance milestones were probable of being achieved and, accordingly, the Company did not record any additional stock-based compensation expense. F-11 Table of Contents 12. Stockholders’ Equity Common Stock For the period ended August 31, 2023 Number of shares Amount Balance, February 28, 2023 47,469,224 $ 5 Issuance of shares upon settlement of restricted stock units 51,963 - Balance, August 31, 2023 47,521,187 $ 5 For the period ended August 31, 2022 Number of shares Amount Balance, February 28, 2022 47,388,056 $ 5 Issuance of shares upon settlement of restricted stock units 12,653 - Balance, August 31, 2022 47,400,709 $ 5 During the six months ended August 31, 2023, the Company recorded the following common stock transaction: (i) The Company issued 51,963 shares of the common stock to settle restricted stock units that vested in the period. During the six months ended August 31, 2022, the Company recorded the following common stock transaction: (i) The Company issued 12,653 shares of the common stock to settle restricted stock units that vested in the period. 13. Research and Development Expenses Research and development expenses for the three-month periods ended August 31, 2023 and 2022 were as follows: August 31, 2023 August 31, 2022 Employee compensation $ 1,373 $ 2,068 Machinery and equipment expenditures - 1,184 External engineering 141 611 Plant and laboratory operating expenses 447 584 Tax credits ( 22 ) ( 839 ) Other 99 143 $ 2,038 $ 3,751 Research and development expenses for the six-month periods ended August 31, 2023 and 2022 were as follows: August 31, 2023 August 31, 2022 Employee compensation $ 2,819 $ 4,355 Machinery and equipment expenditures 1,236 3,073 External engineering 1,297 2,206 Plant and laboratory operating expenses 916 1,450 Tax credits ( 47 ) ( 908 ) Other 307 376 $ 6,528 $ 10,552 14. General and Administrative Expenses General and administrative expenses for the three-month periods ended August 31, 2023 and 2022 were as follows: August 31, 2023 August 31, 2022 Employee compensation $ 880 $ 1,032 Professional fees 912 1,476 Insurance 709 1,071 Other 342 432 $ 2,843 $ 4,011 F-12 Table of Contents General and administrative expenses for the six-month periods ended August 31, 2023 and 2022 were as follows: August 31, 2023 August 31, 2022 Employee compensation (1) $ 1,713 $ 9,817 Professional fees 1,531 2,275 Insurance 1,412 2,173 Other 652 782 $ 5,308 $ 15,047 (1) Includes stock-based compensation expense. During the six-month period ended August 31, 2022, the Company recorded a stock-based compensation expense of $ 7,740 related to the achievement of a performance milestone for 1,000,000 RSUs (Note 11). 15. Share-based Payments Stock Options The following tables summarizes the continuity of the Company’s stock options during the three-month periods ended August 31, 2023 and 2022: 2023 2022 Number of stock options Weighted average exercise price Number of stock options Weighted average exercise price Outstanding, beginning of period 2,782,000 $ 5.08 1,570,000 $ 6.87 Granted - - - - Exercised - - - - Forfeited - - - - Expired - - - - Outstanding, end of period 2,782,000 $ 5.08 1,570,000 $ 6.87 Exercisable, end of period 1,670,000 $ 6.84 1,361,667 $ 7.73 The following tables summarizes the continuity of the Company’s stock options during the six-month periods ended August 31, 2023 and 2022: 2023 2022 Number of stock options Weighted average exercise price Number of stock options Weighted average exercise price Outstanding, beginning of period 2,542,000 $ 5.27 1,570,000 $ 6.87 Granted 240,000 3.11 - - Exercised - - - - Forfeited - - - - Expired - - - - Outstanding, end of period 2,782,000 $ 5.08 1,570,000 $ 6.87 Exercisable, end of period 1,670,000 $ 6.84 1,361,667 $ 7.73 The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. There were no new issuances of stock options for the three-month period ended August 31, 2022. The principal components of the pricing model for the stock options granted in the six-month period ended August 31, 2023 were as follows: Exercise price $ 3.11 Risk-free interest rate 3.84 % Expected dividend yield 0 % Expected volatility 79 % Expected life 3 years F-13 Table of Contents During the three-month periods ended August 31, 2023 and 2022, stock-based compensation expense attributable to stock options amounted to $ 172 and $ 313 , respectively. During the six-month periods ended August 31, 2023 and 2022, stock-based compensation expense attributable to stock options amounted to $ 333 and $ 630 , respectively. Restricted Stock Units The following table summarizes the continuity of the restricted stock units during the three-month periods ended August 31, 2023 and 2022: 2023 2022 Number of units Weighted average fair value price Number of units Weighted average fair value price Outstanding, beginning of period 4,306,655 $ 6.61 4,090,775 $ 7.37 Granted 115,364 3.17 66,744 4.05 Settled - - - - Forfeited ( 4,331 ) 8.21 ( 28,801 ) 8.68 Outstanding, end of period 4,417,688 $ 6.52 4,128,718 $ 7.31 Outstanding vested, end of period 1,635,241 $ 6.22 1,563,497 $ 6.29 The following table summarizes the continuity of the restricted stock units during the six-month periods ended August 31, 2023 and 2022: 2023 2022 Number of units Weighted average fair value price Number of units Weighted average fair value price Outstanding, beginning of period 3,888,618 $ 7.09 4,018,567 $ 7.42 Granted 585,364 2.93 151,605 5.14 Settled ( 51,963 ) 8.66 ( 12,653 ) 13.04 Forfeited ( 4,331 ) 8.21 ( 28,801 ) 8.68 Outstanding, end of period 4,417,688 $ 6.52 4,128,718 $ 7.31 Outstanding vested, end of period 1,635,241 $ 6.22 1,563,497 $ 6.29 The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the intrinsic value at grant date multiplied by the number of restricted stock unit awards granted. During the three-month periods ended August 31, 2023 and 2022, stock-based compensation attributable to RSUs amounted to $ 216 and $ 316 , respectively. During the six-month periods ended August 31, 2023 and 2022, stock-based compensation attributable to RSUs amounted to $ 410 and $ 8,465 , respectively. During the six-month period ended August 31, 2022, the Company recorded a stock-based compensation expense of $ 7,740 related to the achievement of a performance milestone for 1,000,000 RSUs (Note 11). Stock-Based Compensation Expense During the three-month periods ended August 31, 2023 and 2022, stock-based compensation included in research and development expenses amounted to $ 155 and $ 319 , respectively, and in general and administrative expenses amounted to $ 233 and $ 310 , respectively. During the six-month periods ended August 31, 2023 and 2022, stock-based compensation included in research and development expenses amounted to $ 315 and $ 716 , respectively, and in general and administrative expenses amounted to $ 428 and $ 8,379 , respectively. The amount recorded in general and administrative expenses for the six-month period ended August 31, 2022 includes $ 7,740 related to the achievement of a performance milestone for 1,000,000 RSUs (Note 11). F-14 Table of Contents 16. Equity Incentive Plan On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2023, the share reserve was increased by 1,500,000 shares. On March 1, 2022, the Board of Directors opted to waive the annual share reserve increase. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10 % of the voting power of the Company, the life of the options shall not exceed 5 years. The following table summarizes the continuity of the Company’s Equity Incentive Plan units that were authorized for issuance as at and during the six-month periods ended August 31, 2023 and 2022: 2023 2022 Number of units* Number of units* Authorized, beginning of period 120,486 1,043,705 Automatic share reserve increase 1,500,000 - Units granted ( 825,364 ) ( 151,605 ) Units forfeited 4,331 28,801 Units expired - - Authorized, end of period 799,453 920,901 *The use of the term “units” in the table above describes a combination of stock options and RSUs. 17. Warrants During the six-month period ended August 31, 2022, warrants to purchase 4,554,865 shares of our common stock in aggregate with an exercise price of $ 11.00 expired. 18. Commitments Agreement for purchase of equipment In December 2021, the Company entered into an agreement for the purchase of long-lead equipment in connection with the construction of our first Infinite Loop ™ manufacturing facility for up to $ 8,546 , subject to various terms and conditions, including fabrication timelines and equipment inspection. Pursuant to the agreement, the Company has paid cash deposits of $ 8,460 (Note 5). The balance is expected to be paid by the end of this fiscal year. Agreement with SK Geo Centric Co. Ltd. (“SKGC”) On April 27, 2023, the Company and SKGC entered into an agreement to build Infinite Loop manufacturing facilities in Asia. Pursuant to the agreement, the Company and SKGC agreed to form a new entity, which will be headquartered in Singapore. SKGC will contribute 51 % and Loop will contribute the remaining 49 % of the initial equity capital of the new entity. The Company’s investment in the new entity will be accounted for under the equity method and initially recognized at cost. To date, no amounts have been contributed by the Company to the new entity. F-15 Table of Contents