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Item 7. Management’s Discussion and Analysis

2025-05-29 compared with 2024-05-29 · 242 added, 148 removed, 113 unchanged (78% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information and any forward-looking statements should be read in conjunction with “Risk Factors” discussed elsewhere in this Annual Report on Form 10-K.

Please refer to the Cautionary Note Regarding Forward-Looking Statements on page 4.

Loop is a technology company whose mission is to accelerate the world’s shift towards sustainable PET plastic and polyester fiber and away from the dependence on fossil fuels.

Loop owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber (“Infinite Loop ™ Technology”), 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, as well as other specialty polymers, thus enabling our customers to meet their sustainability objectives.

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

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

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

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

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

The following discussion and any forward-looking statements should be read in conjunction with the “Cautionary Statements Regarding Forward-Looking Statements” in this Annual Report on Form 10-K and the Risk Factors section included in Part I, Item 1A of this Annual Report on Form 10-K .

Loop Industries 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.

Loop Industries owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber, including plastic bottles, packaging, and textiles such as carpets and clothing, into its base building block monomers, DMT and MEG.

The monomers are separated, 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™ PET plastic and polyester fiber can be recycled infinitely without degradation of quality, helping to close the plastic loop.

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

Loop plans to commercialize the Infinite Loop™ technology through a combination of direct investments with strategic partners to own and operate commercial facilities and the licensing of its technology.

As the initial phase of our plan for the commercialization of future Infinite Loop™ manufacturing facilities, we constructed and have successfully operated our Terrebonne, Québec depolymerization production facility (the “Terrebonne Facility”) for the past five years, demonstrating the effectiveness of our technology and supplying Loop PET resin and polyester fiber to customers.

The facility is also used for research and development activities.

Loop is currently executing on its commercialization strategy through two key strategic partnerships.

The Company is advancing towards the construction of an Infinite Loop™ manufacturing facility in India through its 50/50 joint venture in India with Ester Industries Ltd.

The facility’s planned production capacity is 70,000 tons per year of Loop branded PET resin and polyester fiber.

In addition, the Company sold its first technology license to Reed Societe Generale Group for one Infinite Loop™ manufacturing facility in Europe for an initial down payment of €10 million with additional milestone payments to be received by Loop as the project advances.

Infinite Loop Europe, an entity to be owned 10% by Loop and 90% by Reed Societe Generale Group was formed with the purpose of developing Infinite Loop™ manufacturing facilities in Europe.

These initiatives represent key steps in implementing the Company's plan to deploy its proprietary depolymerization technology in global markets.

Commercialization Plan and Progress

Our objective is to achieve global expansion of the Infinite Loop ™ 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 DMT, MEG, PET resin, polyester fiber or other specialty polymers, 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.

The Infinite Loop ™ 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 ™ 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 can be sold directly to chemical companies, used in the production of specialty polymers, or 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 rDMT and 23,000 M/T of rMEG, or 70,000 M/T of PET resin output per year.

Permitting, site and regulatory considerations may impact plant capacity.

On May 1, 2024, we announced our strategic partnership with Ester to build and operate an Infinite Loop ™ manufacturing facility in India which will produce a unique product offering of lower carbon footprint rDMT, rMEG and specialty polymers, using the Infinite Loop ™ Technology.

Loop has a well-established working relationship with Ester, which has nearly 40 years of specialized polymer production, operational proficiency, and local expertise, including sourcing of PET plastic and polyester fiber waste feedstocks.

The rDMT and rMEG product offerings expected to be manufactured at the Infinite Loop ™ India facility represent a strategic product expansion in a low-cost manufacturing environment which complements Loop's existing PET plastic and polyester fiber manufacturing business and will fuel growth by addressing the large and growing demand in the market.

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 this year.

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.

Loop will receive 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.

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 planned Asian manufacturing facility in Ulsan, South Korea.

The planned Infinite Loop ™ commercial manufacturing facility in Ulsan, South Korea, is expected to have an annual capacity to supply up to 70,000 metric tons per year of Loop ™ PET resin for packaging and polyester fiber applications, and was planned to break ground in the first half of 2024.

The timing of the facility is currently under review by the partners while they evaluate opportunities to reduce capital costs and carry out discussions with the Korean government for subsidies related to the facility.

Loop and SKGC are also evaluating the opportunity to build a monomer facility in order to capitalize on the large and growing market and attractive economics for DMT and MEG, including lower capital investment requirements for such a facility.

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.

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.

Our commercialization strategy to achieve global expansion of the Infinite Loop™ Technology is founded on a combination of direct investments with strategic partners to own and operate commercial facilities and the licensing of our technology.

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

As countries around the globe continue to impose sustainability targets and recycled content mandates, we observe that companies are increasingly seeking to incorporate sustainably produced materials into their products.

Our market strategy is to assist global consumer goods and apparel companies in meeting these requirements as well as their own stated sustainability commitments by offering co-branded packaging or polyester fibers that are made with Loop 100% recycled, virgin-quality PET.

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.

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.

The Infinite Loop™ Technology is the key pillar of our commercialization strategy.

We believe our technology is well positioned to respond to 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 polyester that would otherwise typically be destined for landfill or incineration, rather than relying on fossil-based resources.

We have completed our process design package for the Infinite Loop™ full-scale manufacturing facilities to be used as the base engineering platform for all future facilities.

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 tons of rDMT and 23,000 tons of rMEG, or 70,000 tons of Loop PET and polyester fiber output per year, subject to applicable site-specific permitting, site and regulatory considerations.

We are focused on direct investments in Infinite Loop™ commercial facilities located in low-cost manufacturing regions.

By strategically selecting cost-efficient locations, we aim to optimize production costs and improve overall financial performance, while limiting our capital contributions.

This direct investment approach also includes leveraging partnerships to integrate Loop’s proprietary technology and sales and marketing expertise with the operational and construction capabilities of experienced partners.

We believe this combination of complementary skill sets allows for more efficient project execution, accelerated market adoption, and scalable growth.

We expect that revenue generation from direct investments in commercial facilities will be driven by two key streams:

(i) profits from the operation of commercial facilities, and (ii) royalties paid to Loop for licensing its technology and exclusive responsibility of sales and marketing.

We believe these income sources will support long-term financial sustainability and growth.

This approach is currently being deployed through the Company’s 50/50 joint venture in India with Ester, which is advancing towards the construction of an Infinite Loop™ manufacturing facility.

The facility’s planned production capacity is 70,000 tons per year of Loop branded PET resin and polyester fiber.

The India JV intends to leverage the complementary skill sets of each partner by combining Loop’s innovative technology and global customer relationships with Ester’s nearly 40 years of specialized polymer production, operational proficiency, and local expertise, including sourcing of PET plastic and polyester fiber waste feedstocks.

Loop will grant a royalty-bearing license to the India JV and will be the exclusive seller and marketing agent of the India JV’s products.

We also aim to accelerate the roll-out of the Infinite Loop™ technology through the sale of technology licenses for commercial facilities in which Loop may take limited or no ownership.

We expect licensee-owned facilities to allow us to scale our technology efficiently, without requiring significant capital investment from Loop.

Revenue generation through technology licensing is expected to come from a combination of up-front and recurring royalties.

This approach focused on licensing is currently being deployed in our European partnership with Reed Societe Generale Group.

The Company sold its first technology license to Reed Societe Generale Group for one Infinite Loop™ manufacturing facility in Europe for an initial down payment of €10 million with additional milestone payments to be received by Loop as the project advances.

Infinite Loop Europe was formed with the purpose of developing Infinite Loop™ manufacturing facilities in Europe to be owned 10% by Loop and 90% by Reed Societe Generale Group.

Additionally, we aim to generate income by providing engineering services throughout all phases of project development, construction, and startup for all Infinite Loop™ commercial facilities, supporting efficient project execution and creating a steady revenue stream prior to the startup of the facility.

Loop has entered into an engineering services agreement with the India JV to provide engineering services and support the completion of the engineering for the planned Infinite Loop™ manufacturing facility in India.

This has resulted in Loop generating engineering services revenue of $0.4 million in the quarter ended February 28, 2025.

We are also in the process of implementing a modular construction strategy, in order to reduce overall capital expenditures and operating expenses, while improving project timelines and ensuring standardized design and quality, and providing a scalable solution for global expansion.

This strategy envisages that we would manufacture plant modules in a low-cost country to be transported and assembled on site at global locations, and would potentially provide an additional income stream alongside returns from owned facilities and royalties.

The Company’s ability to move to the next stage of its strategic development, including the construction of manufacturing plants and the commercialization of its technology and products at scale, is dependent on, among other factors, its ability to obtain the necessary financing through a combination of the issuance of equity, project debt, and/or government incentive programs.

Key Commercial Developments

Agreements with Reed Societe Generale Group

On December 12, 2024, the Company entered into an Amended and Restated Share Purchase Agreement (the “Amended Agreement”) with Reed Societe Generale Group, a European investment firm focused on high impact and technology-enabled infrastructure majority-owned by the bank Societe Generale.

The Amended Agreement amends the original Share Purchase Agreement dated May 30, 2024 previously reported by the Company in a current report on Form 8-K filed on June 4, 2024.

A joint entity, which under French Law is referred to as a simplified joint-stock company, was incorporated (“Infinite Loop Europe”), to be owned 90% by Reed Societe Generale Group and 10% by Loop, with the purpose of developing Infinite Loop™ manufacturing facilities in Europe.

Pursuant to the Amended Agreement, the Company will enter into a Securityholders Agreement with RCE to establish the framework for the governance, ownership, and operations of Infinite Loop Europe.

On December 23, 2024, the Company received total cash proceeds of $20.8 million (€20.0 million) upon closing of the financing and licensing transactions contemplated by the Amended Agreement.

The Company entered into a license agreement with RCE, acting on behalf of Infinite Loop Europe, granting a license to use Loop’s proprietary depolymerization technology for one facility within Europe.

Pursuant to the terms of the license agreement, the Company received an initial upfront royalty payment of $10.4 million (€10.0 million), with additional milestone-based payments from Reed Societe Generale Group to follow.

Additionally, the Company issued and sold 1,044,430 shares of Series B Convertible Preferred Stock (“Series B CPS”) at $10.00 per share to Reed Circular Economy (“RCE”), an affiliate of Reed Societe Generale Group for cash proceeds of $10.4 million (€10.0 million).

Key terms of the Series B CPS include:

13% PIK dividend rate

Convertible to Loop common stock at $4.75 per share or redeemable in cash

We believe the licensing and financing transactions mark a pivotal step in Loop’s commercialization strategy, enabling the deployment of its patented recycling technology across Europe and supporting capital investment in cost-effective manufacturing regions, including its joint venture in India with strategic partner Ester.

Proceeds from these transactions are being used to fund the India JV project and Loop’s operational cash flow needs.

We further believe the sale of our first license underscores the commercial readiness of Loop’s technology, which has been validated by five years of operations at its Terrebonne facility.

Under the agreed terms of the partnership with Reed Societe Generale Group, Loop retains the right to increase its equity stake in the European manufacturing facility, as well as potential future facilities, to a maximum of 50% for each facility.

As the license is to build one Infinite Loop™ manufacturing facility in Europe, future facilities under this partnership would require the purchase of additional technology licenses from Loop.

Loop and Reed Societe Generale Group are actively assessing opportunities for the first Infinite Loop™ facility in Europe.

Current activities include evaluating potential project locations, engaging with local and national governments to assess the availability of subsidies and incentives, and identifying potential strategic partners to support the execution of the project.

In parallel, Loop is in the process of implementing a modular construction strategy, including the development of a standardized facility design and pre-fabrication approach aimed at reducing construction costs and timelines, with the objective of improving scalability for future projects across Europe and other regions with high construction costs.

Joint Venture with Ester

On May 1, 2024 Loop entered into an agreement with Ester, one of India’s leading manufacturers of polyester films and specialty polymers, to form a 50/50 India joint venture (“India JV”).

The purpose of the India JV is to build and operate an Infinite Loop™ manufacturing facility in India which will produce 100% recycled Loop™ PET resin, using the Infinite Loop™ Technology, in order to meet growing demand from leading global brands in different sectors, including strong demand for textile-to-textile polyester fiber to enable circular fashion for apparel brands, a trend we have observed and anticipate to continue.

Loop and Ester have a well-established working relationship, with Ester producing Loop™ PET using monomers produced at Loop’s Terrebonne Facility for global brand companies over the last five years.

The India facility will leverage the Infinite Loop™ Technology and existing engineering package which should accelerate the lead-time towards groundbreaking.

The planned production capacity of the Infinite Loop™ India facility is 70,000 tons per year of Loop branded PET resin and polyester fiber.

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

Loop and Ester made the decision to incorporate a continuous polymerization line at the Infinite Loop™ India facility.

By integrating polymerization assets within the Infinite Loop™ India facility, we expect improved efficiency and lower operating costs with a minimal impact on overall project cost.

Loop and Ester anticipate that the total funding required for the India JV for the purposes of construction, development and operationalization of the project, including the initial working capital requirements, will be financed by a combination of debt and equity capital.

Ester and Loop are each contributing 50% of the equity capital of the India JV.

As of February 28, 2025, Loop and Ester had each made total equity contributions of $1.9 million in cash to the India JV.

The funds injected in the India JV are being used for preliminary project costs, which are mainly engineering fees.

Subject to the terms of the relevant governing documents, Ester will be the exclusive producer of specialty polymers for the India JV, and Loop will be the exclusive seller and marketing agent of the India JV’s products.

Ester and Loop are working in collaboration on all financing activities for the India JV pursuant to the terms of the agreement.

The India JV will also enter into (i) a technology license agreement with Loop (the “Loop Technology License Agreement”), (ii) a service agreement with Ester, and (iii) a sales and marketing agreement with Loop, each on terms mutually agreed upon by the parties.

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 set forth in the Loop Technology License Agreement.

Loop has entered into an engineering services agreement with the India JV to provide engineering services and support the local engineering firm.

This has resulted in Loop generating engineering services revenue of $0.4 million in the quarter ended February 28, 2025.

The development of the Infinite Loop™ India facility continues to progress towards groundbreaking.

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 CO2 emissions and proximity to waste PET and polyester feedstocks.

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

Two globally recognized firms are currently executing two key mandates for the India JV.

A leading global advisory firm is leading the debt syndication process, while a globally renowned engineering firm is performing the local engineering work, supported by Loop’s engineering team.

Based on the engineering study completed in May 2025, the estimated total investment cost for the facility, including continuous polymerization, financing costs during construction and initial working capital requirements, is expected to be approximately $176 million.

Groundbreaking for the Infinite Loop™ India facility is now expected to occur in the second half of calendar 2025, with commercial operations projected to commence in calendar 2027.

RESULTS OF OPERATIONS

All monetary amounts are in thousands of U.S.

dollars unless otherwise specified.

Fourth Quarter Ended February 28, 2025

The following table summarizes our operating results for the three-month periods ended February 29, 2024 and February 28, 2023, in U.S.

The following table summarizes our operating results for the three-month periods ended February 28, 2025 and February 29, 2024, in thousands of U.S.

Three months ended

February 29, 2024

February 28, 2023

favorable / (unfavorable)

Research and development

External engineering

Employee compensation

1 unchanged sentence

Plant and laboratory operating expenses

External engineering

Machinery and equipment expenditures

5 unchanged sentences

Total general and administrative

Gain on disposition of land

Loss on equity accounted investment

Depreciation and amortization

5 unchanged sentences

Revenues for the three-month period ended February 28, 2025 increased $10,764 to $10,809 as compared to $45 for the same period in 2024.

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

The revenues for the three-month period ended February 28, 2025 resulted from $10,395 in licensing revenue from the up-front royalty received from Reed Societe Generale Group, $368 in engineering fees and $46 from sales of Loop ™ PET resin produced using monomers manufactured at the Terrebonne Facility.

The revenues of $45 for the three-month period ended February 29, 2024 resulted from sales of Loop ™ PET resin.

Research and Development

Research and development expenses for the three-month period ended February 29, 2024 increased $805 to $3,018, as compared to $2,213 for the same period in 2023.

The increase was primarily attributable to a $866 increase in plant and laboratory operating expenses, which included an inventory write-down of $817 in the three-month period ended February 29, 2024 on finished goods and work in process inventories related to inventory volumes not expected to be sold in the next twelve months, and a $427 increase in external engineering expenses which included $504 related to the Infinite Loop ™ Europe project in the three-month period ended February 29, 2024.

These increases were partially offset by a $309 decrease in employee compensation expenses, and a $101 decrease in stock-based compensation expenses.

Research and development expenses for the three-month period ended February 28, 2025 decreased $1,712 to $1,306, as compared to $3,018 for the same period in 2024.

The decrease was primarily attributable to a $888 decrease in plant and laboratory operating expenses, which included an inventory write-down of $817 on finished goods and work in process inventories in the three-month period ended February 29, 2024, a $657 decrease in external engineering expenses, and a $310 decrease in employee compensation expenses.

General and administrative expenses

General and administrative expenses for the three-month period ended February 29, 2024 increased $22 to $2,221, as compared to $2,199 for the same period in 2023.

The increase was primarily attributable to an increase of $266 in stock-based compensation expenses which was primarily attributable to restricted stock unit (“RSU”) forfeitures in the three-month period ended February 28, 2023.

This increase was partially offset by a $100 decrease in employee compensation expenses.

The net loss for the three-month period ended February 29, 2024 increased $10,514 to $5,091 in the period, as compared to a net income of $5,423 for the same period in 2023.

The increase was primarily due to a gain on disposition of assets of $9,980 related to the Company’s sale of land in Bécancour, Québec in the three-month period ended February 28, 2023, and the increase of $805 in research and development expenses.

General and administrative expenses for the three-month period ended February 28, 2025 decreased $647 to $1,574, as compared to $2,221 for the same period in 2024.

The decrease was primarily attributable to a decrease of $342 in employee compensation expenses including stock-based compensation, a decrease of $173 in insurance expenses, and a decrease of $107 in professional fees.

Loss on equity accounted investment

Loss on equity accounted investment increased by $687 for the three-month period ended February 28, 2025.

This loss relates to the Company’s 50% portion of the loss incurred by the India JV for the three-month period ended February 28, 2025, during which the India JV incurred preliminary project costs for the planned Infinite Loop™ facility in India, which are mainly engineering fees.

The net income for the three-month period ended February 28, 2025 increased $11,973 to $6,882 in the period, as compared to a net loss of $5,091 for the same period in 2024.

The increase was primarily due to the increase of $10,764 in revenues, the decrease of $1,712 in research and development expenses, and the decrease of $647 in general and administrative expenses, which were partially offset by an increase in $687 in loss on equity accounted investment and an increase in $511 in interest and other financial expenses.

Fiscal Year Ended February 28, 2025

The following table summarizes our operating results for the years ended February 29, 2024 and February 28, 2023, in U.S.

February 29, 2024

The following table summarizes our operating results for the years ended February 28, 2025 and February 29, 2024, in thousands of U.S.

favorable / (unfavorable)

Research and development

External engineering

Employee compensation

Stock-based compensation

External engineering

Plant and laboratory operating expenses

6 unchanged sentences

Total general and administrative

Gain on disposition of land

Impairment of equipment

Loss on equity accounted investment

Depreciation and amortization

Interest and other financial expenses

Interest and other financial expenses (income)

Interest income

1 unchanged sentence

Total expenses

Revenues for the year ended February 29, 2024 decreased $20 to $153, as compared to $173 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.

Revenues for the year ended February 28, 2025 increased $10,736 to $10,889, as compared to $153 for the same period in 2024.

The revenues for the year ended February 28, 2025 resulted from $10,395 in licensing revenue from the up-front royalty received from Reed Societe Generale Group, $368 in engineering fees and $126 from sales of Loop ™ PET resin produced using monomers manufactured at the Terrebonne Facility.

The revenues of $153 for the year ended February 29, 2024 resulted from sales of Loop ™ PET resin.

Research and Development

Research and development expenses for the year ended February 29, 2024 decreased $5,967 to $11,379, as compared to $17,346 for the same period in 2023.

The decrease was primarily attributable to a $3,074 decrease in purchases of machinery and equipment for the Terrebonne Facility, a $2,672 decrease in employee compensation expenses including stock-based compensation, and a $920 decrease in external engineering costs for design work for our Infinite Loop ™ manufacturing process.

These decreases were partially offset by a decrease in tax credits accounted for as a reduction of research and development expenses of $881.

Research and development expenses for the year ended February 28, 2025 decreased significantly by $4,515 to $6,864, as compared to $11,379 for the same period in 2024 as we believe we have established to our satisfaction that Loop’s technology can be successfully scaled up, and are now focusing on the development of large-scale commercial manufacturing facilities.

The decrease was primarily attributable to a $1,448 decrease in plant and laboratory operating expenses, which included an inventory write-down of $817 on finished goods and work in process inventories in the year ended February 29, 2024, a $1,345 decrease in employee compensation expenses including stock-based compensation, a $1,078 decrease in purchases of machinery and equipment for the Terrebonne Facility, and a $860 decrease in external engineering expenses.

General and administrative expenses

General and administrative expenses for the year ended February 28, 2025 decreased $760 to $9,228, as compared to $9,988 for the same period in 2024.

The decrease was primarily attributable to a $7,869 decrease in stock-based compensation which is mostly related to a $7,740 expense recorded in relation to the achievement of a performance milestone for 1,000,000 RSUs in the year ended February 28, 2023, a $1,360 decrease in professional fees, and a $914 decrease in insurance costs.

The decrease was primarily attributable to a $809 decrease in insurance expenses, and a decrease of $401 in employee compensation expenses, which were partially offset by a $500 increase in professional fees.

Impairment of equipment

Impairment of equipment expense increased by $8,460 for the year ended February 28, 2025, reflecting an impairment loss for equipment of $8,460.

This impairment was due to the termination of the joint venture agreement between the Company and SKGC under which they had intended to construct and operate an Infinite Loop™ manufacturing facility in Ulsan, South Korea.

While the Company plans to utilize the equipment in a future commercial production facility, the deployment plans for the use of this equipment are not fully developed at this time, therefore the recoverability of the carrying value of the equipment was tested for impairment, resulting in an impairment loss of $8,460 being recognized in the year ended February 28, 2025.

Loss on equity accounted investment

Loss on equity accounted investment increased by $687 for the year ended February 28, 2025.

This loss relates to the Company’s 50% portion of the loss incurred by the India JV for the year ended February 28, 2025, during which the India JV incurred preliminary project costs for the planned Infinite Loop™ facility in India, which are mainly engineering fees.

The net loss for the year ended February 28, 2025 decreased $6,030 to $15,057, as compared to $21,087 for the same period in 2024.

The decrease was primarily due to the $10,441 decrease in general and administrative expenses, and the $5,967 decrease in research and development expenses, as well as an increase in interest income of $517.

The decrease in net loss was partially offset by a gain on disposition of assets of $16,683 recorded in the year ended February 28, 2023 related to the Company’s sale of land in Bécancour, Québec.

The decrease was primarily due to the $10,736 increase in revenues, the $4,515 decrease in research and development expenses, and the $760 decrease in general and administrative expenses.

The decrease in net loss was partially offset by the impairment of equipment of $8,460, an increase in $687 in loss on equity accounted investment, and an increase in $659 in interest and other financial expenses.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has been in the pre-commercialization stage with no material revenues, and its ongoing operations and commercialization plans have been financed primarily by raising equity.

Therefore, 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.

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 $6,958 at February 29, 2024 and an undrawn senior loan facility from a Canadian bank of $2,579.

All monetary amounts are in thousands of U.S.

dollars unless otherwise specified.

Since its inception, the Company has been in the pre-commercialization stage with its ongoing operations and commercialization plans 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 advance its commercialization efforts.

As at February 28, 2025, the Company had cash and cash equivalents of $12,973.

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

Management continuously monitors the Company’s cash resources against its short-term cash commitments to ensure there is 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 its ability to continue as a going concern.

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.

However, there is no assurance that the Company will be successful in attracting additional funding.

It evaluates the Company’s liquidity to determine if there is substantial doubt about its 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) the 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 current available liquidity will be sufficient to meet the Company’s obligations, commitments and budgeted expenditures for at least twelve months from the issuance date of the consolidated financial statements.

The Company’s ability to move to the next stage of its strategic development and construct manufacturing facilities is dependent on, among other factors, whether the Company can obtain the necessary financing through a combination of further technology licensing arrangements, government incentive programs, and/or the issuance of debt and/or equity.

In particular, the Company will require capital sufficient to fund its equity contributions to the India JV for the construction of the planned Infinite Loop™ facility in India, as well as its ongoing cash requirements until Loop begins receiving returns from the India JV.

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.

The Company is seeking to finalize the negotiation of previously announced financing initiatives on acceptable terms, although there is no assurance it will succeed.

In December 2021, the Company entered into an agreement for the purchase of long-lead equipment for up to $8,546 which can be used in any Infinite Loop ™ manufacturing facility.

As of February 29, 2024, the Company has paid an aggregate of $8,460 and has taken ownership of the long-lead equipment.

This amount, along with engineering and development costs that have been and may continue to be incurred, is currently expected to be recovered from the JV Company when construction begins on the Infinite Loop ™ Ulsan facility.

However, given that the construction of the Infinite Loop facility has not commenced, the total amounts incurred to date may not be reimbursed, therefore an amount of estimated recoverable amount of $16,000 has not been recognized in the financial statements included in this Annual Report on Form 10-K.

Sale and issuance of Series B CPS

On December 23, 2024 (the “Issuance Date”), the Company issued and sold 1,044,430 shares of Series B CPS at $10.00 per share to Reed Circular Economy (the “Holder”), an affiliate of Reed Societe Generale Group, for cash proceeds of $10,395 (€10,000).

The main features of the Series B CPS are as follows:

Automatic conversion of the stated value ($10,395 on the Issuance Date) on the fifth anniversary of the Issuance Date into shares of the Company’s common stock at a conversion price of $4.75 per share;

Accrues a cumulative fixed annual PIK dividend at a rate of 13% of the stated value, which is added to the stated value of the Series B CPS on September 30 of each year;

Redeemable in cash at any time, starting after the third anniversary of the Issuance Date by the Company (issuer call option);

Redeemable in cash on the fifth anniversary of the Issuance Date at the option of the Holder (put feature);

Voting rights equal to the number of whole shares of the Company’s common stock (rounded to the nearest whole share) into which the stated value of Series B CPS would be convertible on a given date.

Investissement Québec financing facility

We have a long-term debt obligation to Investissement Québec in connection with a financing facility (the “Financing Facility”) for the expansion of the Terrebonne Facility up to a maximum of $3,390.

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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 “Financing Facility Amendment”).

As per the Financing Facility Amendment, a total of $37 of the principal amount was repaid in monthly installments in the fiscal year ended February 29, 2024 and the remainder of the principal amount is repayable in 72 monthly installments.

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

On February 28, 2024, the Company and Investissement Québec entered into an agreement to amend the existing Financing Facility which modified the repayments of the principal amount (the “Second Financing Facility Amendment”).

As per the Second Financing Facility Amendment, a total of $74 of the principal amount is repayable in monthly installments in the fiscal year ending February 28, 2025, with the remainder of the principal amount being repayable in 60 monthly installments.

As per the Financing Facility Amendment, a total of $37 (CDN $50) of the principal amount was repayable in monthly installments in the fiscal year ended February 29, 2024, with the remainder of the principal amount being repayable in 72 monthly installments.

On February 28, 2024, the Company and Investissement Québec entered into an agreement to amend the existing Financing Facility which modifies the repayments of the principal amount (the “Second Financing Facility Amendment”).

As per the Second Financing Facility Amendment, a total of $74 (CDN $100) of the principal amount was repayable in monthly installments in the fiscal year ended February 28, 2025, with the remainder of the principal amount being repayable in 60 monthly installments.

Pursuant to the Second Financing Facility Amendment the interest rate of the Financing Facility was increased from 2.36% to 3.36%.

The Second Financing Facility Amendment did not modify the repayment terms of accrued interest or any of the other terms of the Financing Facility that are not mentioned above.

On February 5, 2025, the Company and Investissement Québec entered into an agreement to amend the existing Financing Facility which modifies the repayments of the principal amount (the “Third Financing Facility Amendment”).

As per the Second Financing Facility Amendment, total annual principal repayments in monthly installments are of $287 (CDN $414) for the fiscal year ending February 28, 2026 and $495 (CDN $714) for the fiscal year ending February 28, 2027, with the remainder of the principal amount being repayable in 36 monthly installments.

Pursuant to the Third Financing Facility Amendment the interest rate of the Financing Facility was increased from 3.36% to 4.36%.

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

The amendments do not modify the repayment terms of accrued interest or any of the other terms of the Financing Facility that are not mentioned above.

The amendments did not meet the criteria of ASC 470, Debt for an extinguishment of debt as the amendments did not substantially modify the terms of the Financing Facility.

The Company therefore applied modification accounting and no immediate gain or loss was recognized related to the amendments.

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.

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 $2,579 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.

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

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

As at February 29, 2024, the Credit Facility was undrawn.

The Credit Facility allows for borrowings of up to $2,424 (CDN $3,500) in aggregate principal amount.

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 not in compliance as at February 28, 2025.

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

As at February 28, 2025, the $2,424 (CDN $3,500) Credit Facility was available and undrawn.

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

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We do not enter into these contracts for trading purposes or speculation, and our management believes all such contracts are entered into as hedges of underlying transactions.

Due to customer

In October 2022, the Company received a cash deposit from a customer of $1,000 in relation to an executed capacity reservation agreement.

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The amount bears no interest.

The cause of the termination is related to the customer’s decision to abandon its plans to incorporate rPET in its products for technical reasons.

The cause of the termination is related to the customer’s decision to abandon its plans to incorporate recycled PET in its products for technical reasons.

The following table summarizes the exchange rates used:

February 29, 2024

February 28, 2023

Period end Canadian $:

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dollars was as follows:

February 29, 2024

February 28, 2023

Net cash used in operating activities

Net cash (used in) provided by investing activities

Net cash (used in) provided by financing activities

Net cash (used in) investing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

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During the year ended February 28, 2025, we used $2,121 in operations compared to $18,046 during the year ended February 28, 2025.

As discussed above in the Results of Operations, the year-over-year decrease was 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, in addition to decreased general and administrative expenses.

As discussed above in the Results of Operations, the year-over-year decrease was mainly due to increased revenues and 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, in addition to decreased general and administrative expenses.

Net Cash Used in Investing Activities

During the year ended February 29, 2024, we used $5,644 in investing activities compared to cash provided from investing activities of $21,279 during the year ended February 28, 2023.

During the year ended February 29, 2024, cash used for the purchase of long-lead equipment amounted to $5,065, as compared to $594 during the year ended February 28, 2023.

During the year ended February 29, 2024, we made investments in intangible assets of $482, as compared to $360 during the year ended February 28, 2023, particularly in our patent technology in the United States and around the world.

During the year ended February 28, 2023, we sold land in Bécancour, Québec for cash proceeds of $22,314.

During the year ended February 28, 2025, we used $2,036 in investing activities compared to $5,644 during the year ended February 29, 2024.

During the year ended February 28, 2025, we invested $1,954 in our joint venture in India and received a distribution of $368 from our joint venture with Indorama.

During the year ended February 29, 2024, cash used for the purchase of long-lead equipment amounted to $5,065.

During the year ended February 28, 2025, we made investments in intangible assets of $450, as compared to $482 during the year ended February 29, 2024, particularly to file patents for the Infinite Loop™ technology in the United States and around the world.

Net Cash Used in Financing Activities

During the year ended February 28, 2023, we received a customer deposit of $1,000 in relation to an executed capacity reservation agreement which was terminated on January 18, 2024.

The customer and the Company agreed for the deposit to be refunded in full on July 1, 2027, with no restriction on the Company’s use of the funds.

The amount bears no interest.

The cause for the termination is related to the customer’s decision to abandon its plans to incorporate rPET in its products for technical reasons.

In the year ended February 29, 2024, we made repayments of long-term debt of $63 as compared to nil in the year ended February 28, 2023.

During the year ended February 28, 2025, we received cash proceeds of $10,395 for the sale and issuance of Series B CPS.

In the year ended February 28, 2025, we made repayments of long-term debt of $77 as compared to $63 in the year ended February 29, 2024.

In connection with the upcoming fiscal year ending February 28, 2026, we intend to continue to execute our corporate strategy.

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

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

Continuing to drive the commercialization of our Infinite Loop ™ Technology.

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

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

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

Continuing to identify and secure feedstock to ensure planned commercial facilities can operate continuously and efficiently;

Completing the engineering design and executing on the project plan for the planned Infinite Loop ™ manufacturing facility in India;

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

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

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

Protecting our intellectual property;

Limiting expenses for our current operations at our head office and facilities in Terrebonne, Quebec to optimize our liquidity position.

Risks that may affect our ability to execute on this strategy include, but are not limited to, those listed under “Risk Factors” elsewhere in this Annual Report on Form 10-K.

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We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Going Concern

These consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and settlement of liabilities in the normal course of business as they come due.

In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the date of issuance of these consolidated financial statements.

Since its inception, the Company has been in the pre-commercialization stage with no material revenues from customers, and its ongoing operations and commercialization plans have been financed primarily by raising equity.

As at February 29, 2024, the Company’s available liquidity was $9,537, consisting of cash and cash equivalents of $6,958 and an undrawn senior loan facility from a Canadian bank of $2,579.

Management evaluates the Company’s liquidity to determine if there is substantial doubt about its ability to continue as a going concern.

However, there is no assurance that the Company will be successful in attracting additional funding.

Liquidity Assessment

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

As at February 28, 2025, the Company had cash and cash equivalents of $12,973.

It evaluates the Company’s liquidity to determine if there is substantial doubt about its ability to continue as a going concern.

(i) the 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.

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.

The Company is seeking to finalize the negotiation of previously announced financing initiatives on acceptable terms.

These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations.

Such adjustments could be material.

Revenue recognition

The Company recognizes revenue with customers in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”).

This standard applies to all contracts with customers, except for contracts with customers that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company enters into contracts with customers to sell Loop ™ PET resin.

These contracts include a single performance obligation, which is the delivery of Loop ™ PET resin, and the transaction price is a fixed rate per delivered volume.

Revenue is recognized when control of the product transfers to the customer, which is when product is delivered to the customer location.

Shipping and handling costs are accounted for as a fulfillment cost.

The Company enters into licensing agreements with customers, or licensees, for the use of the Company’s proprietary technology.

Licensing agreements may include various types of payments, including upfront fees, milestone payments, and royalties.

Upfront licensing fees are generally recognized at a point in time, when the license is made available for the customer’s benefit and the customer can benefit from the technology independently.

Milestone payments are recognized when the milestone is achieved and the payment is no longer subject to reversal.

Royalties are recognized when the underlying transactions occur.

The Company also enters into agreements to provide engineering services for Infinite Loop™ facilities.

Engineering fees are recognized over time, as services are performed.

Stock-Based Compensation

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The assumptions used in the Black-Scholes model could materially affect stock-based compensation expenses recorded in the current and future periods.

Inventories are stated at the lower of cost or net realizable value using the average cost method.

Inventory cost includes direct labor, cost of raw materials and production overhead.

The Company separates its inventories into three main categories:

raw materials, work in process, and finished goods.

The raw materials category includes goods used in the production process that have not yet entered the production process at the balance sheet date and mainly comprises chemicals and other process consumables.

The work in process category includes goods that are in the production process at the balance sheet date and mainly comprises recycled monomers that have not yet been polymerized into Loop™ branded PET resin.

The finished goods category includes goods that have completed the production process at the balance sheet date and mainly comprises Loop™ branded PET resin.

The Company is still within the pre-commercialization phase and as such, the cost of producing inventory currently exceeds its net realizable value.

In determining the net realizable value of inventory, management applies significant judgements about the future selling price, expected costs to be incurred in the sale of the finished goods, and expected volumes to be sold.

Convertible Preferred Stock

The accounting for convertible preferred stock involves significant management judgment and estimation, particularly when determining the appropriate classification and measurement under applicable U.S.

GAAP, including ASC 480, Distinguishing Liabilities from Equity, ASC 470, Debt, and ASC 815, Derivatives and Hedging.

These instruments may exhibit characteristics of both debt and equity, and the assessment of classification and subsequent measurement depends on contractual terms such as redemption rights, dividend features, and conversion mechanisms.

Convertible preferred stock is classified as a liability when it contains features such as mandatory redemption provisions or holder-initiated redemption rights that are outside the Company’s control.

These features create an obligation that may require settlement in cash or other financial assets, regardless of whether the instrument ultimately converts into equity securities.

Instruments classified as liabilities are initially recorded at fair value, net of issuance costs, and subsequently measured at amortized cost using the effective interest method.

Periodic accretion of the carrying value, including the impact of any fixed paid-in-kind (PIK) dividends, is recognized as interest expense in the consolidated statements of operations.

In addition, the Company evaluates all convertible instruments to determine whether they contain embedded features requiring separate accounting as derivatives under ASC 815.

This evaluation involves assessing the economic characteristics and risks of the embedded terms relative to the host instrument.

If bifurcation is required, the embedded derivative is measured at fair value with subsequent changes in value recognized through earnings.

The determination of whether bifurcation is required and the valuation of embedded derivatives, if present, require the use of complex valuation models and significant judgment regarding assumptions such as volatility, discount rates, and the probability of various settlement outcomes.

Because of the complexity and subjectivity involved in evaluating classification, estimating fair value, and determining accretion and derivative valuation, accounting for convertible preferred stock is considered a critical accounting estimate.

Changes in assumptions or interpretations could have a material impact on the Company’s financial statements.

Impairment of Property, Plant and Equipment

The Company reviews its property, plant and equipment (“PP&E”) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

This analysis requires significant management judgment and is therefore considered a critical accounting estimate.

Indicators of potential impairment may include, but are not limited to, significant adverse changes in the business climate, legal or regulatory environment, technological developments, business strategy or operating performance compared to expectations.

If such indicators are identified, the Company performs a recoverability test by comparing the carrying value of the asset group to the estimated undiscounted future cash flows expected to be generated over the asset group’s remaining useful life.

If the carrying amount of the asset group exceeds the estimated undiscounted future cash flows, an impairment loss is recognized equal to the amount by which the carrying value exceeds the fair value.

Fair value is typically determined using either a discounted cash flow analysis or market-based approaches, both of which require management to make estimates and assumptions regarding future revenue, operating costs, useful lives, discount rates, and residual values.

These estimates are inherently uncertain and may change over time based on evolving market conditions, operational results, and technological developments.

Due to the significance of the assumptions involved and the potential material impact on the financial statements, the assessment of impairment for PP&E is considered a critical accounting estimate.

Actual results may differ materially from those assumed in the Company’s impairment analysis, which could result in future impairments or changes in depreciation expense.

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-K

Item 7. Management’s Discussion and Analysis