What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-15 compared with 2024-07-15 · 89 added, 55 removed, 202 unchanged (42% of the section changed)

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company,” “Loop,” “we,” or “our”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995.

This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company,” “Loop,” “we,” or “our”), contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and as defined in the United States Private Securities Litigation Reform Act of 1995.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology.

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These risks and other factors include, but are not limited to, those listed under “Risk Factors.” Additional factors that could materially affect these forward-looking statements and/or projections 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) the ability to obtain the necessary approvals or satisfy any closing conditions in respect of any of our proposed partnerships, (x) our joint venture projects and our ability to recover certain expenditures in connection therewith, (xi) adverse effects on the Company’s business and operations as a result of increased regulatory, media, or financial reporting scrutiny, practices, rumors, or otherwise, (xii) 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, (xiii) the effect of the continuing worldwide macroeconomic uncertainty and its impacts, including inflation, market volatility and fluctuations in foreign currency exchange and interest rates, (xiv) the outcome of any SEC investigations or class action litigation filed against us, (xv) our ability to hire and/or retain qualified employees and consultants, (xvi) other events or circumstances over which we have little or no control, and (xvii) other factors discussed in our subsequent filings with the Securities and Exchange Commission (the “SEC”).

(i) our ability to commercialize our technology and products, (ii) the status of our relationships with our 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) our ability to continue as a going concern, (vii) engineering, contracting, and building our manufacturing facilities, (viii) our ability to scale, manufacture, and sell our products in order to generate revenues, (ix) our proposed business model and our ability to execute it, (x) our ability to obtain the necessary approvals or satisfy any closing conditions in respect of any of our proposed partnerships, (xi) our joint venture projects and our ability to recover certain expenditures in connection them, (xii) adverse effects on the Company’s business and operations as a result of increased regulatory, media, or financial reporting scrutiny, practices, rumors, or otherwise, (xiii) public health issues, such as disease epidemics, which may lead to reduced access to capital markets, supply chain disruptions, and government-imposed business closures, (xiv) war, regional tensions, and economic or other conflicts that could impact market stability and our business;

(xv) the effect of the continuing worldwide macroeconomic uncertainty and its impacts, including inflation, market volatility and fluctuations in foreign currency exchange and interest rates, (xvi) the outcome of any SEC investigations or class action litigation filed against us, (xvii) our ability to hire and/or retain qualified employees and consultants, (xviii) other events or circumstances over which we have little or no control, and (xix) other factors discussed in our subsequent filings with the Securities and Exchange Commission (the “SEC”).

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

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We caution readers not to place undue reliance on any such forward-looking statements, which speak only as at the date made.

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.

Except as required by law, 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.

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

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

Currently, the DMT market is largely dominated by few key players, leaving limited options for customers and high market concentration.

Currently, the DMT market is largely dominated by a few key players, leaving limited options for customers and high market concentration.

Additionally, the market is experiencing a global shortage of DMT, amplifying market challenges and creating a pressing need for alternative sources.

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Loop’s rMEG has the potential to address a gap in the market and help fulfill customers’ needs by offering a lower carbon footprint recycled alternative to the current market options for MEG.

Agreement with Reed Management SAS (“Reed”)

On May 30, 2024, the Company and Reed, a European investment firm focused on high impact and technology-enabled infrastructure, entered into definitive binding agreements, subject to certain closing conditions, for an investment of €35 million from Reed to fund the global commercialization of the Infinite Loop™ Technology and have agreed to form a 50/50 joint venture for the European deployment of Loop’s technology.

Under the terms of the agreement, which was signed following the completion by Reed of extensive operational, technical, ESG, and legal due diligence, Reed is to provide capital as follows:

€10M investment in a Convertible Preferred Security (“CPS”) to be issued by Loop, bearing a 13% PIK dividend rate and 5-year term;

€25M loan to Loop in two equal tranches – first tranche to support global deployment opportunities paid at closing and second tranche to support European deployment opportunities paid in the following 12 months with both tranches having a 13% PIK interest rate and 3-year term;

The closing of the transaction is subject to the fulfillment of certain closing conditions, principally the conditions that (i) Reed shall have successfully completed its first capital raising for its fund;

and (ii) Loop shall have received a binding financing commitment from a governmental agency.

On July 31, 2024, Reed and Societe Generale announced that Societe Generale has agreed to acquire 75% of Reed and provide funding for Reed initially amounting to €250 million, which can be further increased to €350 million.

This transaction, which is subject to customary closing conditions including regulatory approval, would secure Reed’s funding for its planned investments, including the financing package for Loop.

We are expecting that the remaining closing conditions will have been addressed, and that the financing will be completed in November 2024.

This is expected to provide the initial tranche of €10 million, with further amounts at future dates.

Although the Company anticipates its current liquidity position to be sufficient to cover expenses until the end of November 2024, in order to secure the Company’s liquidity in the event of timing delays in funding, certain insiders have committed to provide bridge financing of $2,000 if necessary.

Strategic partnership with Ester Industries Ltd.

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We believe this expansion will enable the Infinite Loop ™ Technology to reach new markets and cater to a broader range of customers across multiple industries including electronics, automotive, textile, cosmetics and packaging.

The India facility will leverage the Infinite Loop ™ Technology and existing engineering package which should accelerate the lead-time towards groundbreaking, expected to occur by end of 2024.

Feedstock sourcing for the facility, in which there is abundant supply from textile waste in India, is well advanced and the partners have engaged an external firm to source and secure the land for the facility.

Construction is expected to be completed by the end of 2026, with commercial operations commencing in early 2027.

We believe the India JV offers attractive projected economic returns without the need for substantial sustainability-linked premium pricing.

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Pursuant to the Loop Technology License Agreement, the India JV will be granted an exclusive, subject to certain exceptions, license to exploit the Infinite Loop ™ Technology in India at a royalty rate to be set forth in the Loop Technology License Agreement.

The India facility will leverage the Infinite Loop ™ Technology and existing engineering package which should accelerate the lead-time towards groundbreaking, expected to occur by the end of the current fiscal year.

Feedstock sourcing for the facility, in which there is abundant supply from textile waste in India, is well advanced.

Additionally, following the completion of a detailed land study by an external engineering firm, the India JV partners have identified the Gujarat province of India as the optimal location for the facility based on several key requirements such as infrastructure, proximity to a seaport for exports, renewable energy for a reduction in CO 2 emissions and close proximity to waste PET and polyester feedstocks.

Construction is expected to be completed by the end of 2026, with commercial operations commencing in early 2027.

Strategic Partnership with SK Geo Centric (“SKGC”)

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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.

The planned Infinite Loop ™ facility is designed 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.

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.

Agreement with Reed Management SAS (“Reed”)

Under the terms of the agreement, which has been signed following the completion by Reed of extensive operational, technical, ESG, and legal due diligence, Reed will provide capital as follows:

€10M investment in a Convertible Preferred Security to be issued by Loop, which contains a 13% PIK dividend rate and 5-year term;

and (ii) Loop shall have received a binding financing commitment from a governmental agency.

The Company understands that Reed’s funding negotiations are progressing well.

The Company also believes that its process to obtain the government funding is advancing positively.

While there can be no assurance that the abovementioned closing conditions will be met, the Company currently anticipates that the transaction should close by the end of the second quarter of the current fiscal year.

Due to its current liquidity position, the Company is reviewing contingency plans for bridge financing in the event that the closing extends beyond the end of the second quarter.

Product activations

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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 rDMT and 23,000 M/T of rMEG, or 70,000 M/T of PET resin output per year.

The basic design package has a capacity of up to 70,000 M/T of rDMT and 23,000 M/T of rMEG, or 70,000 M/T of PET resin output per year, or a combination thereof.

Permitting, site and regulatory considerations may impact plant capacity.

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The India facility will leverage the Infinite Loop ™ Technology and existing engineering package which should accelerate the lead-time towards groundbreaking, expected to occur by end of 2024.

Construction is expected to be completed by the end of 2026, with commercial operations commencing in early 2027.

Loop will receive an annual technology license fee from the Infinite Loop ™ manufacturing facility in India.

Loop anticipates receiving an annual technology license fee from the Infinite Loop ™ manufacturing facility in India.

We are also focused on our planned joint venture projects with SKGC in Asia and Europe to build and operate Infinite Loop ™ manufacturing facilities producing and selling Loop ™ PET resin and polyester fiber.

These projects leverage SKGC’s engineering and operational infrastructure.

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

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

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

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The global expansion plan for our technology will allow our customers, mostly comprised of CPG brand companies, apparel companies, and chemical companies, to integrate Loop ™ PET resin, polyester fiber, rDMT and rMEG into their products and packaging.

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.

We believe as countries around the globe continue to increase sustainability targets and recycled content mandates, our customers will increase the use of sustainably produced materials into their products.

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 MEG, DMT, PET or polyester fibers.

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Human Capital

As of May 31, 2024, we had 54 employees of which 20 work in research and development, 21 in engineering and operations, and 13 in administrative functions.

As of August 31, 2024, we had 50 employees of which 18 work in research and development, 20 in engineering and operations, and 12 in administrative functions.

Results of Operations

The following table summarizes our operating results for the three-month periods ended May 31, 2024 and 2023, in thousands of U.S.

Three months ended May 31,

The following table summarizes our operating results for the three-month periods ended August 31, 2024 and 2023, in thousands of U.S.

Three months ended August 31,

favorable / (unfavorable)

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Research and development

Machinery and equipment expenditures

External engineering

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Interest income

Foreign exchange gain

Foreign exchange loss (gain)

Total expenses

First Quarter Ended May 31, 2024

Revenues for the three-month period ended May 31, 2024 decreased $21 to $6, as compared to $27 for the same period in 2023.

Second Quarter Ended August 31, 2024

Revenues for the three-month period ended August 31, 2024 decreased $31 to $23, as compared to $54 for the same period in 2023.

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 May 31, 2024 decreased $2,253 to $2,237, as compared to $4,490 for the same period in 2023.

The decrease was primarily attributable to a $1,233 decrease in purchases of machinery and equipment used at the Terrebonne Facility, a $527 decrease in external engineering costs for design work for our Infinite Loop ™ manufacturing process, a $271 decrease in employee compensation expenses, and a $199 decrease in plant and laboratory expenses at our Terrebonne Facility.

Research and development expense for the three-month period ended August 31, 2024 decreased $93 to $1,945, as compared to $2,038 for the same period in 2023.

The decrease was primarily attributable to a $356 decrease in employee compensation, and a $250 decrease in plant and laboratory expenses at our Terrebonne Facility.

These decreases were partially offset by a $510 increase in external engineering costs for design work for our Infinite Loop ™ manufacturing process.

General and administrative expenses

General and administrative expenses for the three-month period ended May 31, 2024 increased $446 to $2,911, as compared to $2,465 for the same period in 2023.

The increase was primarily attributable to a $636 increase in professional fees which is mainly attributable to legal costs related to our partnerships with Reed and Ester.

This increase was partially offset by a $211 decrease in insurance costs.

The net loss for the three-month period ended May 31, 2024 decreased $1,812 to $5,189, as compared to $7,001 for the same period in 2023.

The decrease was primarily due to the decrease of $2,253 in research and development expenses and partially offset by increased general and administrative expenses of $446.

General and administrative expenses for the three-month period ended August 31, 2024 decreased $248 to $2,595, as compared to $2,843 for the same period in 2023.

The decrease was primarily attributable to a $233 decrease in insurance expenses which is mainly attributable to a favourable renewal of D&O insurance.

The net loss for the three-month period ended August 31, 2024 increased $88 to $4,839, as compared to $4,750 for the same period in 2023.

The increase is primarily due to the $213 decrease in interest income and the $119 increase in foreign exchange, partially offset by the $248 decrease in general and administrative expenses.

Six Months Ended August 31, 2024

The following table summarizes our operating results for the six-month periods ended August 31, 2024 and 2023, in thousands of U.S.

Six months ended August 31,

Revenue from contracts with customers

Research and development

External engineering

Employee compensation

Machinery and equipment expenditures

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

Depreciation and amortization

Interest and other financial expenses

Interest income

Foreign exchange loss (gain)

Total expenses

Revenues for the six-month period ended August 31, 2024 decreased $52 to $29, as compared to $81 for the same period in 2023.

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 six-month period ended August 31, 2024 decreased $2,346 to $4,182, as compared to $6,528 for the same period in 2023.

The decrease was primarily attributable to a $1,223 decrease in purchases of machinery and equipment for the Terrebonne Facility, a $681 decrease in employee compensation expenses, including stock-based compensation, and a $449 decrease in plant and laboratory expenses to operate our Terrebonne Facility.

General and administrative expenses

General and administrative expenses for the six-month period ended August 31, 2024 increased $198 to $5,506, as compared to $5,308 for the same period in 2023.

The increase was primarily attributable to a $731 increase in professional fees, partially offset by a decrease in insurance expenses of $444.

The net loss for the six-month period ended August 31, 2024 decreased $1,723 to $10,028, as compared to $11,751 for the same period in 2023.

The decrease is primarily due to the decrease in research and development expenses of $2,346, partially offset by $198 increase in research and development expenses, a $186 decrease in interest income, and a $108 increase in foreign exchange.

LIQUIDITY AND CAPITAL RESOURCES

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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 $5,291 at May 31, 2024.

Our liquidity position consists of cash and cash equivalents on hand of $1,395 and an undrawn senior loan facility from a Canadian bank of $1,008 at August 31, 2024.

Also, current liabilities exceeded current assets by $2,510 as at August 31, 2024.

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 2024 Annual Report on Form 10-K.

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In preparing this going concern 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 the estimation of amount and timing of future cash outflows and inflows.

Based on its assessment, management estimates that current available liquidity and forecasted net cash flows will not be sufficient to meet the Company’s obligations, commitments and budgeted expenditures the next twelve months from the consolidated financial statements issuance date.

These events and conditions are material uncertainties that raise substantial doubt upon the Company’s ability to continue as a going concern and accordingly, the appropriateness of the use of accounting principles applicable to a going concern.

Based on this assessment, it is estimated that the Company has sufficient liquidity to cover expected cash outflows until end of November 2024, by which time management believes the financing with Reed will be completed, and that the remaining closing conditions will have been addressed.

This is expected to provide an initial amount of $11,080 (€10,000), with further amounts at future dates.

To secure the Company’s liquidity in the event of timing delays in funding, certain insiders have committed to provide bridge financing of $2,000 if necessary.

Notwithstanding, these events and conditions are material uncertainties that raise substantial doubt upon the Company’s ability to continue as a going concern and accordingly, the appropriateness of the use of accounting principles applicable to a going concern.

The Company’s ability to move to the next stage of its strategic development and construct manufacturing plants is dependent on, among other factors, 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.

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Under the terms of the Financing Facility, Investissement Québec was also issued warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $339.

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.

The warrants can be exercised immediately upon grant and have a term of three years from the date of issuance.

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.

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 $2,594 in aggregate principal amount and provides for a two-year term on amounts drawn.

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 May 31, 2024.

All borrowings under the Credit Facility bear interest at an annual rate equal to the bank’s Canadian prime rate plus 1.0%.

As at May 31, 2024, the Company borrowed $2,517 under the Credit Facility.

As at August 31, 2024, the Company borrowed $1,587 under the Credit Facility.

Flow of Funds

Summary of Cash Flows

A summary of cash flows for the three months ended May 31, 2024 and 2023 was as follows, in thousands of U.S.

Three Months Ended May 31,

A summary of cash flows for the six months ended August 31, 2024 and 2023 was as follows, in thousands of U.S.

Six Months Ended August 31,

Net cash used in operating activities

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Net Cash Used in Operating Activities

During the three-month period ended May 31, 2024, we used $3,915 in operations compared to $5,504 during the three-month period ended May 31, 2023.

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, partially offset by increased legal costs related to our partnerships with Reed and Ester.

During the six-month period ended August 31, 2024, we used $6,775 in operations compared to $11,017 during the six-month period ended August 31, 2023.

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, partially offset by increased legal costs related to our partnerships with Reed and Ester.

Net Cash Used in Investing Activities

During the three months ended May 31, 2024, we used $176 in investing activities compared to $2,122 during the three-month period ended May 31, 2023.

During the three months ended May 31, 2024, we made investments in intangible assets of $176, particularly in our patent technology in the United States and around the world.

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.

During the six months ended August 31, 2024, we used $325 in investing activities compared to $5,290 during the six-month period ended August 31, 2023.

During the three-month period ended August 31, 2023, we made $5,065 in deposits on long-lead equipment for use in a commercial project.

During the six-month period ended August 31, 2024, we made investments in intangible assets of $325, as compared to $225 for the same period in 2023, particularly in our patent technology in the United States and around the world.

Net Cash Provided by (Used in) Financing Activities

During the three months ended May 31, 2024, we borrowed $2,517 under the Credit Facility and we repaid $25 of long-term debt.

During the three months ended May 31, 2023, we repaid $16 of long-term debt.

During the six months ended August 31, 2024, we borrowed $1,587 under the Credit Facility and we repaid $50 of long-term debt.

During the six months ended August 31, 2023, we repaid $32 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