United States
Securities and Exchange Commission
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended May 31, 2020
 
or
 
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
  For the transition period from ___________ to __________
 
Commission File No. 000-54768
 
 
 
Loop Industries, Inc.
(Exact name of Registrant as specified in its charter)
 
Nevada
 
27-2094706
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
480 Fernand-Poitras Terrebonne, Québec, Canada J6Y 1Y4
(Address of principal executive offices zip code)
 
Registrant’s telephone number, including area code (450) 951-8555
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
LOOP
Nasdaq Global Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐  No ☒
 
As at July 14, 2020, there were 39,935,210 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.
 
 

 
 
 
LOOP INDUSTRIES, INC.
 
TABLE OF CONTENTS
 
 
 
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  2
 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Loop Industries, Inc.
Three months ended May 31, 2020
Index to the Unaudited Interim Condensed Consolidated Financial Statements
 
Contents
Page(s)
 
 
F-1
 
 
F-2
 
 
F-3
 
 
F-5
 
 
F-6
 
 
 
 
 
 
 
 
 3
 
 
Loop Industries, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
May 31,
2020
 
 
February 29,
2020
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 $27,508,755 
 $33,717,671 
Sales tax, tax credits and other receivables (Note 3)
  570,214 
  664,544 
Prepaid expenses (Note 4)
  1,937,039 
  141,226 
Total current assets
  30,016,008 
  34,523,441 
Investment in joint venture (Note 9)
  1,500,000 
  850,000 
Property, plant and equipment, net (Note 5)
  7,250,045 
  7,260,254 
Intangible assets, net (Note 6)
  334,046 
  202,863 
Total assets
 $39,100,099 
 $42,836,558 
 
    
    
Liabilities and Stockholders' Equity
    
    
Current liabilities
    
    
Accounts payable and accrued liabilities (Note 8)
 $1,411,472 
 $2,082,698 
Current portion of long-term debt (Note 10)
  50,772 
  52,126 
Total current liabilities
  1,462,244 
  2,134,824 
Long-term debt (Note 10)
  2,185,449 
  2,238,026 
Total liabilities
  3,647,693 
  4,372,850 
 
    
    
Stockholders' Equity
    
    
Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding (Note 12)
  - 
  - 
Common stock par value $0.0001: 250,000,000 shares authorized; 39,916,905 shares issued and outstanding (February 28, 2019 – 39,910,774) (Note 12)
  3,993 
  3,992 
Additional paid-in capital
  83,306,794 
  82,379,413 
Additional paid-in capital – Warrants
  9,870,241 
  9,785,799 
Accumulated deficit
  (57,169,761)
  (53,317,047)
Accumulated other comprehensive loss
  (558,861)
  (388,449)
Total stockholders' equity
  35,452,406 
  38,463,708 
Total liabilities and stockholders' equity
 $39,100,099 
 $42,836,558 
 
    
    
 
    
    
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-1
 
Loop Industries, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 
 
 
 
Three Months Ended May 31,
 
 
 
2020
 
 
2019
 
Revenue
 $- 
 $- 
 
    
    
Expenses
    
    
Research and development (Note 13)
  1,480,588 
  997,861 
General and administrative (Note 13)
  1,953,081 
  1,902,630 
Depreciation and amortization (Notes 5 and 6)
  255,974 
  164,336 
Interest and other financial expenses (Note 16)
  126,776 
  501,849 
Interest income
  (40,346)
  - 
Foreign exchange loss (gain)
  76,641 
  (12,126)
Total expenses
  3,852,714 
  3,554,550 
 
    
    
Net loss
  (3,852,714)
  (3,554,550)
 
    
    
Other comprehensive loss
    
    
Foreign currency translation adjustment
  (170,412)
  (140,142)
Comprehensive loss
 $(4,023,126)
 $(3,694,692)
Loss per share
    
    
Basic and diluted
 $(0.10)
 $(0.11)
Weighted average common shares outstanding
    
    
Basic and diluted
  39,916,838 
  34,714,510 
 
 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-2
 
Loop Industries, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)
 
 
 
Three Months Ended May 31, 2019
 
 
 
   
Common stock par value $0.0001
 
 
   
Preferred stock par value $0.0001
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares 
 
 
Amount 
 
 
Number of Shares 
 
 
Amount 
 
 
Additional Paid-in Capital 
 
 
 
Additional Paid-in Capital - Warrants 
 
 
  Additional Paid-in Capital – Beneficial conversion Feature
 
 
Common Stock Issuable 
 
 
Accumulated Deficit 
 
 
Accumulated Other Comprehensive Income (Loss) 
 
 
Total Stockholders' Equity 
 
Balance, February 28, 2019
  33,805,706 
 $3,381 
  1 
 $- 
 $38,966,208 
 $757,704 
 $1,200,915 
 $800,000 
 $(38,811,592)
 $(290,224)
 $2,626,392 
 
    
    
    
    
    
    
    
    
    
    
    
Issuance of common shares for cash, net of share issuance expenses (Note 12)
  600,000 
  60 
  - 
  - 
  4,266,725 
  - 
  - 
  - 
  - 
  - 
  4,266,785 
Issuance of shares for legal settlement
  150,000 
  15 
  - 
  - 
  (15)
  - 
  - 
  - 
  - 
  - 
  - 
Issuance of shares upon conversion of convertible notes
  319,326 
  32 
  - 
  - 
  2,372,549 
  316,929 
  - 
  - 
  - 
  - 
  2,689,510 
Stock options issued for services (Note 13)
  - 
  - 
  - 
  - 
  575,513 
  - 
  - 
  - 
  - 
  - 
  575,513 
Restricted stock units issued for services (Note 13)
  - 
  - 
  - 
  - 
  355,177 
  - 
  - 
  - 
  - 
  - 
  355,177 
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (140,142)
  (140,142)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,554,550)
  - 
  (3,554,550)
Balance, May 31, 2019
  34,875,032 
 $3,488 
  1 
 $- 
 $46,536,157 
 $1,074,633 
 $1,200,915 
 $800,000 
 $(42,366,142)
 $(430,366)
 $6,818,685 
 
 
F-3
 
 
 
 
Three Months Ended May 31, 2020
 
 
 
    Common stock  par value $0.0001
 
 
    Preferred stock par value $0.0001
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Shares 
 
 
Amount 
 
 
Number of Shares 
 
 
Amount 
 
 
Additional Paid-in Capital 
 
 
Additional Paid-in Capital – Warrants 
 
 
Additional Paid-in Capital – Beneficial conversion Feature 
 
 
Common Stock Issuable 
 
 
Accumulated Deficit 
 
 
Accumulated Other Comprehensive (Loss) 
 
 
Total Stockholders’ Equity 
 
Balance, February 29, 2020
  39,910,774 
 $3,992 
  1 
 $- 
 $82,379,413 
 $9,785,799 
 $- 
 $- 
 $(53,317,047)
 $(388,449)
 $38,463,708 
 
    
    
    
    
    
    
    
    
    
    
    
Issuance of shares upon the vesting of restricted stock units (Note 13)
  6,131 
  1 
  - 
  - 
  (1)
  - 
  - 
  - 
  - 
  - 
  - 
Warrant issued for services (Note 15)
  - 
  - 
  - 
  - 
  - 
  84,442 
  - 
  - 
  - 
  - 
  84,442 
Stock options issued for services (Note 13)
  - 
  - 
  - 
  - 
  556,895 
  - 
  - 
  - 
  - 
  - 
  556,895 
Restricted stock units issued for services (Note 13)
  - 
  - 
  - 
  - 
  370,487 
  - 
  - 
  - 
  - 
  - 
  370,487 
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (170,412)
  (170,412)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (3,852,714)
  - 
  (3,852,714)
Balance, May 31, 2020
  39,916,905 
 $3,993 
  1 
 $- 
 $83,306,794 
 $9,870,241 
 $- 
 $- 
 $(57,169,761)
 $(558,861)
 $35,452,406 
 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-4
 
Loop Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Three Months Ended May 31,
 
 
 
2020
 
 
2019
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
 $(3,852,714)
 $(3,554,550)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization (Notes 5 and 6)
  256,090 
  164,336 
Stock-based compensation expense (Note 13)
  1,011,824 
  930,690 
Accrued interest expenses (Note 10)
  9,416 
  117,433 
Loss on revaluation of warrants
  - 
  8,483 
Debt accretion (Note 10)
  8,547 
  583,727 
Deferred financing expenses
  - 
  46,442 
Gain on conversion of convertible notes
  - 
  (268,730)
Loss on revaluation of foreign exchange contracts
  98,502 
  - 
Changes in operating assets and liabilities:
    
    
Sales tax and tax credits receivable (Note 3)
  76,410 
  (158,954)
Prepaid expenses (Note 4)
  (1,865,216)
  49,136 
Accounts payable and accrued liabilities (Note 8)
  (720,759)
  (5,366)
Net cash used in operating activities
  (4,977,900)
  (2,087,353)
 
    
    
Cash Flows from Investing Activities
    
    
Investment in joint venture (Note 9)
  (650,000)
  (500,000)
Additions to property, plant and equipment (Note 5)
  (394,403)
  (470,545)
Additions to intangible assets (Note 6)
  (144,386)
  (24,811)
Net cash used in investing activities
  (1,188,789)
  (955,356)
 
    
    
Cash Flows from Financing Activities
    
    
Proceeds from sale of common shares
  - 
  5,130,000 
Share issuance costs
  - 
  (863,216)
Repayment of long-term debt (Note 10)
  (12,693)
  (13,057)
Net cash (used) provided by financing activities
  (12,693)
  (4,253,727)
 
    
    
Effect of exchange rate changes
  (29,534)
  (32,796)
Net decrease in cash
  (6,208,916)
  1,138,222 
Cash, beginning of period
  33,717,671 
  5,833,390 
Cash, end of period
 $27,508,755 
 $6,971,612 
 
    
    
Supplemental Disclosure of Cash Flow Information:
    
    
Income tax paid
 $- 
 $- 
Interest paid
 $10,311 
 $14,488 
Interest received
 $40,346 
 $- 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-5
 
Loop Industries, Inc.
Three Months Ended May 31, 2020 and 2019
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
 
1. The Company, Basis of Presentation and Going Concern
 
The Company
 
Loop Industries, Inc. (the “Company,” “Loop Industries,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber to its base building blocks (monomers).  The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin for use in food-grade packaging and polyester fiber.
 
On November 20, 2017, Loop Industries Inc. commenced trading on the NASDAQ Global Market under its new trading symbol, “LOOP.” From April 10, 2017 to November 19, 2017, our common stock was quoted on the OTCQX tier of the OTC Markets Group Inc. under the symbol “LLPP.”
 
Basis of presentation
 
The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2020, filed with the SEC on May 5, 2020 and amended on May 6, 2020. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50% interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method.
 
Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 29, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three months ended May 31, 2020 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending February 28, 2021, or any other period.
 
2. Summary of Significant Accounting Policies
 
Use of estimates
 
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of long-lived assets and intangible assets, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and other equity instruments.
 
The uncertainties around the COVID-19 pandemic required the use of estimates and assumptions that resulted in no significant impact to our unaudited condensed consolidated financial statements as of and for the three-month period ended May 31, 2020.
 
Foreign currency translations and transactions
 
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income (loss) (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses. The Company currently has not engaged in any currency hedging activities.
 
For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI. 
 
 
F-6
 
  
Stock-based compensation
 
Loop Industries, Inc. periodically issues stock options, warrants and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing expenses. The Company accounts for stock options granted to employees based on the authoritative guidance provided by the FASB wherein the fair value of the award is measured on the grant date and where there are no performance conditions, recognized as compensation expense on the straight-line basis over the vesting period and where performance conditions exist, recognize compensation expense when it becomes probable that the performance condition will be met. Forfeitures on share-based payments are accounted for by recognizing forfeitures as they occur.
 
The Company accounts for stock options and warrants granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance.
 
The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant.
 
The fair value of the stock options granted are estimated using the Black-Scholes-Merton Option Pricing (“Black-Scholes”) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options, and future dividends. Stock-based compensation expense is recorded based on the value derived from the Black-Scholes model and on actual experience. The assumptions used in the Black-Scholes model could materially affect stock-based compensation expense recorded in the current and future periods.
 
Income taxes
 
The Company calculates its provision for income tax on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
 
Research and development expenses
 
Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development expenses recorded during the three-month periods ended May 31, 2020 and 2019 amounted to $1,480,588 and $997,861, respectively, and are net of government research and development tax credits and government grants from the federal and provincial taxation authorities accrued and recorded based on qualifying expenditures incurred during the fiscal periods.
 
Net earnings (loss) per share
 
The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.
 
For the three-month periods ended May 31, 2020 and 2019, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at May 31, 2020, the potentially dilutive securities consisted of 1,590,470 outstanding stock options (May 31, 2019 – 1,691,973), 4,302,527 outstanding restricted stock units (May 31, 2019 – 403,767), 5,084,331 outstanding warrants (May 31, 2019 – 962,132) and nil outstanding issuable common stock (May 31, 2019 – 1,000,000).
 
Recently adopted accounting pronouncements
 
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the standard had no impact on the consolidated financial statements of the Company.
 
 
F-7
 
  
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Reform Act on items within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." Amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is not affected by this update. ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable beginning March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company.
 
In February 2016, the FASB issued ASU 2016-02, “Leases,” amended in July by ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Targeted Improvements,” and ASU 2018-20, “Narrow-Scope Improvements for Lessors,” which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases. This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted these standards effective March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company. The Company elected to apply the package of practical expedients that allows us not to reassess whether expired or existing contracts contain leases, the classification of these leases and whether previously capitalized initial direct costs would qualify for capitalization under Accounting Standards Codification (or “ASC”) 842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of the right-of-use assets.
 
Recently issued accounting pronouncements not yet adopted
 
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which removes specific exceptions to the general principles in ASC 740, “Income Taxes,” and clarifies certain aspects of the existing guidance. This update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption being permitted as of the beginning of an interim or annual reporting period. All amendments to this ASU must be adopted in the same period on a prospective basis, with certain exceptions. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.
 
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.
 
3. Sales Tax, Tax Credits and Other Receivables
 
Sales tax, research and development tax credits and other receivables as at May 31, 2020 and February 29, 2020 were as follows:
 
 
 
May 31,
2020
 
 
February 29,
2020
 
Sales tax
 $122,419 
 $180 971 
Research and development tax credits
  216,458 
  447,843 
Other receivables
  231,337 
  35,730 
 
 $570,214 
 $664,544 
 
4. Prepaid Expenses
 
Prepaid expenses as at May 31, 2020 and February 29, 2020 were as follows:
 
 
 
May 31,
2020
 
 
February 29,
2020
 
Insurance
 $1,144,500 
 $61,891 
Machinery and equipment
  644,000 
  - 
Other prepaid expenses
  148,539 
  79,335 
 
 $1,937,039 
 $141,226 
 
 
F-8
 
  
5. Property, Plant and Equipment
 
 
 
As at May 31, 2020
 
 
 
Cost
 
 
Accumulated depreciation
 
 
Net book value
 
Building
 $1,798,134 
 $(140,542)
 $1,657,592 
Land
  222,268 
  - 
  222,268 
Building and land improvements
  900,479 
  (235,634)
  664,845 
Machinery and equipment
  6,207,312 
  (1,598,626)
  4,608,686 
Office equipment and furniture
  162,388 
  (65,734)
  96,654 
Balances, end of period
 $9,290,581 
 $(2,040,536)
 $7,250,045 
 
    
    
    
 
 
 
As at February 29, 2020
 
 
 
Cost
 
 
Accumulated depreciation
 
 
Net book value
 
Building
 $1,846,070 
 $(128,911)
 $1,717,159 
Land
  264,868 
  - 
  264,868 
Building and land improvements
  733,884 
  (214,068)
  519,816 
Machinery and equipment
  6,085,195 
  (1,426,465)
  4,658,730 
Office equipment and furniture
  162,466 
  (62,785)
  99,681 
Balances, end of period
 $9,092,483 
 $(1,832,229)
 $7,260,254 
 
Depreciation expense for the three-month periods ended May 31, 2020 and 2019 amounted to $248,199 and $161,321, respectively, and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss.
 
6. Intangible Assets
 
 
 
As at May 31,
 
 
As at February 29,
 
 
 
2020
 
 
2020
 
 
 
 
 
 
 
 
Intangible assets, at cost - beginning of period
 $225,174 
 $127,672 
Intangible assets, accumulated depreciation – beginning of period
  (22,311)
  - 
 
  202,863 
  127,672 
 
    
    
Add: Additions in the period
  144,386 
  99,972 
Deduct: Amortization of intangibles
  (7,891)
  (22,631)
Deduct: Impairment of intangibles
  - 
  - 
Add (deduct): Foreign exchange effect
  (5,312)
  (2,150)
 
 $334,046 
 $202,863 
 
Amortization expense for the three-month periods ended May 31, 2020 and 2019 amounted to $7,891 and $3,015, respectively, and is recorded as an operating expense in the unaudited condensed consolidated statements of operations and comprehensive loss.
 
7. Fair value of financial instruments
 
The following tables presents the fair value of the Company’s financial liabilities as at May 31, 2020 and February 29, 2020:
 
 
 
Fair Value Measurements as at May 31, 2020
 
 
 
Carrying Amount
 
 
Fair Value
 
 
Level in the hierarchy
 
Instruments measured at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 $125,951 
 $125,951 
  Level 1 
 
    
    
    
Instruments measured at amortized cost:
    
    
    
  Long-term debt
 $2,236,221 
 $2,246,745 
  Level 2 
 
 
F-9
 
 
 
 
Fair Value Measurements at February 29, 2020
 
 
 
Carrying Amount
 
 
Fair Value
 
 
Level in the hierarchy
 
Instruments measured at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 $26,840 
 $26,840 
  Level 1 
 
    
    
    
Instruments measured at amortized cost:
    
    
    
  Long-term debt
 $2,290,152 
 $2,291,109 
  Level 2 
 
8. Accounts Payable and Accrued Liabilities
 
Accounts payable and accrued liabilities as at May 31, 2020 and February 29, 2020 were as follows:
 
 
 
May 31,
2020
 
 
February 29,
2020
 
Trade accounts payable
 $648,670 
 $814,081 
Trade accrued liabilities
  99,587 
  593,789 
Accrued employee compensation
  496,630 
  634,807 
Foreign exchange contracts
  125,951 
  26,840 
Other accrued liabilities
  40,634 
  13,181 
 
 $1,411,472 
 $2,082,698 
 
9.
Joint Venture
 
On September 15, 2018, the Company, through its wholly-owned subsidiary Loop Innovations, LLC, a Delaware limited liability company, entered into a Joint Venture Agreement (the “Agreement”) with Indorama Ventures Holdings LP, USA, an indirect subsidiary of Indorama Ventures Public Company Limited, to manufacture and commercialize sustainable polyester resin. Each company has a 50/50 equity interest in Indorama Loop Technologies, LLC (“ILT”), which was specifically formed to operate and execute the joint venture.
 
Under the Agreement, Indorama Venture is contributing manufacturing knowledge and Loop Industries is required to contribute its proprietary science and technology.
 
Specifically, the Company is contributing an exclusive world-wide royalty-free license to ILT to use its proprietary technology to produce 100% sustainably produced PET resin and polyester fiber.
 
ILT meets the accounting definition of a joint venture where neither party has control of the joint venture entity and both parties have joint control over the decision-making process in ILT. As such, the Company uses the equity method of accounting to account for its share of the investment in Indorama Loop Technologies, LLC. There were no operations in ILT from the date of inception of September 24, 2018 to May 31, 2020 and, as at May 31, 2020, the carrying value of the equity investment was $1,500,000, which is the total of the cash contributions we have made to ILT. During the three-month periods ended May 31, 2020 and May 31, 2019, we made contributions to ILT of $650,000 and $500,000, respectively.
 
10. Long-Term Debt
 
Long-term debt as of May 31, 2020 and February 29, 2020, was comprised of the following:
 
 
 
May 31,
2020
 
 
February 29,
2020
 
Investissement Québec financing facility:
 
 
 
 
 
 
Principal amount
 $1,602,404 
 $1,645,122 
Unamortized discount
  (273,652)
  (289,852)
Accrued interest
  10,489 
  958 
Total Investissement Québec financing facility
  1,339,241 
  1,356,228 
Term loan
    
    
Principal amount
  896,980 
  933,924 
Less: current portion
  (50,772)
  (52,126)
Total term loan, net of current portion
  846,208 
  881,798 
Long-term debt, net of current portion
 $2,185,449 
 $2,238,026 
 
 
F-10
 
 
Investissement Québec financing facility
 
On February 21, 2020, the Company received $1,645,122 (CDN$2,209,234) from Investissement Québec as the first disbursement of our financing facility, out of a maximum of $3,425,423 (CDN$4,600,000) (the “Financing Facility”). The loan bears interest at 2.36% and there is a 36-month moratorium on both capital and interest repayments starting on the date of the first disbursement, after which capital and interest is repayable in 84 monthly installments. The Company established the fair value of the loan for the first disbursement at $1,354,408 based on a discount rate of 5.45%, which reflected a debt discount of $290,714. The discount rate used was based on the external financing from a Canadian bank. The Company, under the loan agreement, was required to pay fees representing 1% of the loan amount, $34,254 (CDN$46,000) to Investissment Québec which we deferred and recorded as a reduction of the Financing Facility. Debt discount and deferred financing expenses are amortized to “Interest and other financial expenses” in our Consolidated Statements of Operations and Comprehensive Loss. The Company recorded interest expense on the Investissement Québec loan for the three months ended May 31, 2020 in the amount of $9,416 (2019 – nil) and an accretion expense of $8,547 (2019 – nil).
 
The Company has also agreed to issue to Investissement Québec warrants to purchase shares of common stock of the Company in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $333,648 (CDN$460,000). The exercise price of the warrants is 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 will have a term of three years from the date of issuance. The loan can be repaid at any time by the Company without penalty. In connection the first disbursement of the Financing Facility, the Company issued a warrant (“First Disbursement Warrant”) to acquire 15,153 shares of common stock at a strike price of $11.00 per share to Investissement Québec. The Company determined the fair value of the warrants using the Black-Scholes pricing formula. The fair value of the First Disbursement Warrant was determined to be $77,954 and is included in “Additional paid-in capital – Warrants” in our Condensed Consolidated Balance Sheets. The First Disbursement Warrant remains outstanding as at May 31, 2020.
 
The remaining amount available under the financing facility is $1,734,073 (CDN$2,390,766) to be received in a maximum of two additional disbursements.
 
Term loan
 
On January 24, 2018, the Company obtained a $1,015,449 (CDN$1,400,000) 20-year term instalment loan (the “Loan”), from a Canadian bank. The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of $4,231 (CDN$5,833) plus interest, until January 2021, at which time it will be subject to renewal. It includes an option allowing for the prepayment of the Loan without penalty. During the three-month period ended May 31, 2020, we repaid $12,693 (2019 – 13,057) on the principal balance of the Loan. Interest paid amounted to $10,311 during the quarter ended May 31, 2020 (2019 - $13,070). The terms of the credit facility require the Company to comply with certain financial covenants. As at May 31, 2020 and 2019, the Company was in compliance with its financial covenants.
 
Principal repayments due on the Company’s long-term debt over the next five years are as follows:
 
Years ending
 
Amount
 
February 28, 2021
 $38,079 
February 28, 2022
  50,772 
February 28, 2023
  50,772 
February 29, 2024
  279,684 
February 28, 2025
  279,684 
Thereafter
  1,787,700 
Total
 $2,486,691 
 
 
11.
 Related Party Transactions
 
Employment Agreement
 
On June 29, 2015, the Company entered into an employment agreement with Mr. Daniel Solomita, the Company’s President and Chief Executive Officer (“CEO”).  The employment agreement is for an indefinite term. 
 
On July 13, 2018, the Company and Mr. Solomita entered into an amendment and restatement of the employment agreement which provided for a long-term incentive grant of 4,000,000 shares of the Company’s common stock, in tranches of one million shares each, upon the achievement of four performance milestones. This was modified to provide a grant of 4,000,000 restricted stock units covering 4,000,000 shares of the Company’s common stock while the performance milestones remained the same. The grant of the restricted stock units became effective upon approval by the Company’s shareholders at the Company’s 2019 annual meeting, of an increase in the number of shares available for grant under the Plan.  Such approval was granted by the Company’s shareholders at the Company’s 2019 annual meeting.
 
 
F-11
 
 
On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement.  The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is far simpler to purify.
 
During the quarters ended May 31, 2020 and May 31, 2019, no outstanding milestones were probable of being met based on the authoritative guidance provided by the FASB and, accordingly, the Company did not record any additional compensation expense. When a milestone becomes probable, the corresponding expense will be valued based on the grant date fair value on April 30, 2020, the date of the last modification of Mr. Solomita’s employment agreement. The closing price of the Company’s common stock on the Nasdaq on April 30, 2020 was $7.74 per share.
 
12.
Stockholders’ Equity
 
Common Stock
 
For the period ended May 31, 2020
 
Number of shares
 
 
Amount
 
Balance, February 29, 2020
  39,910,774 
 $3,992 
Issuance of shares upon settlement of restricted stock units
  6,131 
  1 
Balance, May 31, 2020
  39,916,905 
 $3,993 
 
 
For the period ended May 31, 2019
 
Number of shares
 
 
Amount
 
Balance, February 29, 2019
  33,805,706 
 $3,381 
Issuance of shares for cash
  600,000 
  60 
Issuance of shares upon settlement of legal matter
  150,000 
  15 
Issuance of shares upon conversion of Convertible notes
  319,326 
  32 
Balance, May 31, 2019
  34,875,032 
 $3,488 
 
During the three months ended May 31, 2020, the Company recorded the following common stock transactions:
 
(i)
The Company issued 6,131 shares of the common stock to settle restricted stock units that vested in the period.
 
During the three months ended May 31, 2019, the Company recorded the following common stock transactions:
 
(i)
On March 1, 2019, the Company sold 600,000 shares of its common stock at an offering price of $8.55 per share in a registered direct offering, for gross proceeds of $5,130,000;
(ii)
On March 8, 2019 and March 11, 2019, the Company issued 150,000 shares of its common stock in settlement of a legal matter;
(iii)
On April 9, 2019, the Company converted Convertible notes with a face value of $2,650,000 plus accrued interest of $80,241 at a conversion price of $8.55, into 319,326 common shares.
 
13. Share-based Payments
 
Stock Options
 
During the three-month period ended May 31, 2020, the Company granted 3,389 stock options (2019 – nil) with a weighted average exercise price of $8.78 (2019 – nil), no stock options were forfeited (2019 – 10,010; weighted average exercise price: $8.75) or exercised (2019 – nil) and no stock options expired (2019 – 260,417; weighted average exercise price: $13.89).
 
The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. The principal components of the pricing model were as follows:
 
 
 
2020
 
 
2019
 
Exercise price
 $8.78 
 $- 
Risk-free interest rate
  1.05% 
  - 
Expected dividend yield
  0.00% 
  - 
Expected volatility
  75.95% 
  - 
Expected life
  7.5 years  
  - 
 
During the three-month periods ended May 31, 2020 and 2019, stock-based compensation expense attributable to stock options amounted to $556,895 and $575,513, respectively, and is included in operating expenses.
 
 
F-12
 
 
Restricted Stock Units
 
During the three-month period ended May 31, 2020, the Company granted 83,725 restricted stock units (“RSUs”) (2019 – 25,145) with a weighted average fair value of $8.71 (2019 – 9.79), settled 6,131 RSUs (2019 – 7,043) with a weighted average fair value of $9.55 (2019 – 12.16) and 2,989 RSUs were forfeited (2019 – 17,203) with a weighted average fair value of $8.78 (2019 $8.75).
 
The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the closing share price at grant date multiplied by the number of restricted stock unit awards granted.
 
During the three-month periods ended May 31, 2020 and 2019, stock-based compensation attributable to RSUs amounted to $370,487 and $355,178, respectively, and is included in operating expenses.
 
During the three-month periods ended May 31, 2020 and 2019, stock-based compensation included in research and development expenses amounted to $352,007 and $312,435, respectively, and in general and administrative expenses amounted to $659,817 and $618,255, respectively.
 
14.
Equity Incentive Plan
 
On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2020, the Board of Directors opted to waive the annual share reserve increase. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10% of the voting power of the Company, the life of the options shall not exceed 5 years.
 
The following table summarizes the continuity of the Company’s Equity Incentive Plan units during the three-month periods ended May 31, 2020 and 2019:
 
 
 
2020
 
 
2019
 
 
 
Number of units
 
 
Number of units
 
Outstanding, beginning of period
  1,300,518 
  3,223,516 
Automatic share reserve increase
  - 
  1,500,000 
Units granted
  (87,114)
  (25,145)
Units forfeited
  2,989 
  27,213 
Units expired
  - 
  260,417 
Outstanding, end of period
  1,216,393 
  4,986,001 
 
15. Warrants
 
During the three-month period ended May 31, 2020, the Company issued, in exchange for consulting services, a warrant to purchase 25,000 shares of our common stock at the price of $9.43 per share expiring May 12, 2022. No warrants were exercised or expired in the three-month period ended May 31, 2020.
 
During the three-month period ended May 31, 2019, the Company issued a warrant to purchase 159,663 shares of our common stock at the price of $8.55 per share expiring October 5, 2020. No warrants were exercised or expired in the three-month period ended May 31, 2019.
 
 
F-13
 
 
16. Interest and Other Financial Expenses
 
Interest and other financial expenses for the three-month periods ended May 31, 2020 and 2019 are as follows:
 
 
 
2020
 
 
2019
 
Interest on long-term debt
 $19,727 
 $13,070 
Interest on convertible notes
  - 
  117,435 
Accretion expense
  8,547 
  547,562 
Amortization of deferred finance expenses
  - 
  46,442 
Revaluation of warrants
  - 
  8,483 
  Loss on revaluation of foreign exchange contracts
  98,502 
  - 
Gain on conversion of November 2018 Notes
  - 
  (232,565)
Other
  - 
  1,422 
 
 $126,776 
 $501,849 
 
 
F-14
 
 
ITEM 2. 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 the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q, including those risks identified in the “Risk Factors” section of our most recent Annual Report on Form 10-K.
 
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q of Loop Industries, Inc., a Nevada corporation (the “Company,” “Loop Industries,” “we,” or “our”), contains “forward-looking statements,” 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. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, ability to improve and expand our capabilities, competition, expected activities and expenditures as we pursue our business plan, the adequacy of our available cash resources, regulatory compliance, plans for future growth and future operations, the size of our addressable market, market trends, and the effectiveness of the Company’s internal control over financial reporting. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) commercialization of our technology and products, (ii) our status of relationship with partners, (iii) development and protection of our intellectual property and products, (iv) industry competition, (v) our need for and ability to obtain additional funding, (vi) building our manufacturing facility, (vii) our ability to sell our products in order to generate revenues, (viii) our proposed business model and our ability to execute thereon, (ix) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting issues and practices, rumors or otherwise, (x) disease epidemics and health related concerns, such as the current outbreak of a novel strain of coronavirus (COVID-19), which could result in (and, in the case of the COVID-19 outbreak, has resulted in some of the following) reduced access to capital markets, supply chain disruptions and scrutiny or embargoing of goods produced in affected areas, government-imposed mandatory business closures and resulting furloughs of our employees, travel restrictions or the like to prevent the spread of disease, and market or other changes that could result in noncash impairments of our intangible assets, and property, plant and equipment, and (xi) other factors discussed in our subsequent filings with the SEC.
 
Management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available.
 
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as at the date of this Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
 
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.
 
 
4
 
 
Introduction
 
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 bottles, packaging, carpets, and other textiles of any color, transparency or condition, including waste PET plastic recovered from the ocean that has been degraded by the sun and salt, to its base building blocks (monomers). The monomers are filtered, purified, and polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging, and polyester fiber, thus enabling our customers to meet their sustainability objectives. Loop Industries is contributing to the global movement towards a circular economy by preventing plastic waste and recovering waste plastic for a more sustainable future for all.
 
Industry Background
 
We believe there is an increasing demand for action to address the global plastic crisis, which has been characterized by facts provided by leading academic and not-for profit organizations. For example, the University of Georgia reports eight million metric tons of plastic waste flows into our shared oceans every year, and, according to The New Plastics Economy, by 2050 more plastic waste is expected to be present in the ocean than fish (by mass). Couple this information with the global annual market demand for PET plastic and polyester fiber at nearly $130 billion, and the current growth projections from the 2018 IHS Polymer Market Report indicating this will exceed $160 billion by 2022, and the need for governments and consumer brands to take decisive action to stem this global plastic crisis becomes readily apparent.
 
In the last few years, there are numerous examples of governments in North America and Europe proposing laws and regulations mandating the use of minimum recycled content in packaging underlying the strength of this issue in the marketplace. Plastic pollution continues to be one of the most persistently covered environmental issues by media and local and global environmental non-governmental organizations.
 
Also, global consumer goods companies have made significant commitments to make the transition to a circular plastic economy, namely:
 
i.
In January 2018, Danone’s evian® brand bottled spring water committed to a 100% recycled content package by 2025;
ii.
In 2018, Coca-Cola committed to an average recycled content of 50% across its packaging by 2030;
iii.
In October 2018, PepsiCo committed to use an average of 25% recycled plastic in its packaging by 2025; PepsiCo is also aiming to use 50% recycled plastic in its bottles across the European Union by 2030;
iv.
In 2018, L’OCCITANE en Provence committed to a 100% recycled content package by 2025; and
v.
In March 2019, the L’Oréal Group, a global manufacturer and retailer of natural cosmetics, committed to using 50% recycled or bio-sourced plastic in their packaging by 2025 and in 2020, they committed to using 100% recycled or biobased plastic in their packaging by 2030.
 
We believe these trends indicate that the transformation from a linear to a circular plastic economy is inevitable and underway. This transition is leading to a substantial demand for sustainable products such as Loop™ PET resin and polyester fiber.
 
Proprietary Technology and Intellectual Property
 
The power of our technology lies in its ability to use as feedstock what is currently considered waste PET plastic and polyester fiber from landfills, rivers, oceans and natural areas to create new, sustainable, infinitely recyclable Loop™ PET resin and polyester fiber. We believe our technology can deliver a cost-effective and profitable virgin quality PET resin suitable for use in food-grade packaging.
 
Our Generation I (“GEN I”) technology process yielded purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET, through depolymerization. While the monomers were of excellent purity and strong yield, we continued to challenge ourselves to drive down costs and eliminate inputs. It was during this process that we realized we could simplify our process and increase yields at a lower cost, namely by eliminating water and chlorinated solvents from the depolymerization process and reducing the number of reagents from five to two, if we shifted from the production of PTA to the production of dimethyl terephthalate (“DMT”), another proven monomer of PET that is far simpler to purify. Since June 2018, when we transitioned to this Generation II (“GEN II”) technology and our newly built industrial pilot plant, we continue to see consistently high monomer yields, excellent purity, and improved conversion costs.
 
This shift, from producing the monomer PTA to the monomer DMT, was a pivotal moment for Loop Industries. We believe that the GEN II technology requires less energy and fewer resource inputs than conventional PET production processes. We also believe it is one of the most environmentally sustainable methods for producing virgin quality food-grade PET plastic in the world.
 
In connection with the continuing development of our GEN II technology, we continued to invest in our industrial pilot plant. We made capital investments in the pilot plant of $394,403 during the quarter ended May 31, 2020.
 
To protect our technology, we rely on a combination of patents, trademarks, trade secrets, confidentiality agreements and provisions as well as other contractual provisions to protect our proprietary rights, which are primarily our patents, brand names, product designs and marks.
 
 
5
 
 
We have two patent families, referred to as GEN I technology and the GEN II technology, with claims relating to our technology for depolymerizing PET.
 
The GEN I portfolio has three issued U.S. patents, all expected to expire on or around July 2035. Internationally, we also have issued patents in Australia, Israel, Taiwan, South Africa, Eurasia and in the members of the Gulf Cooperation Council, and pending patent applications in Argentina, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Korea, Mexico, and the Philippines, all expected to expire, if granted, on or around July 2036.
 
The GEN II technology portfolio currently consists of four patent families:
 
o
The first has an issued U.S. patent and an allowed U.S. application, all expected to expire on or around September 2037. Internationally, we also have a an allowed application in Bangladesh, and pending applications in Argentina, Australia, Bolivia, Bhutan, Brazil, Canada, China, Euroasia, Europe, members of the Gulf Cooperation Council, India, Iraq, Israel, Japan, Korea, Mexico Pakistan, Philippines, South Africa, Taiwan, Uruguay, and Venezuela, all expected to expire on or around September 2038, if granted.
 
o
An additional aspect of the GEN II technology is claimed in a U.S. application, a PCT application, and non-PCT country applications in Argentina, Bangladesh, Bolivia, members of the Gulf Cooperation Council, Pakistan, Taiwan, and Uruguay, all expected to expire on or around June 2039,not including any patent term extension.
 
o
A further additional aspect of the GEN II technology is the subject of a U.S. application and a PCT application. Any patents that would ultimately grant from these applications would be expected to expire on or around March 2040, not including any patent term extension.
 
o
Another further additional aspect of the GEN II technology is the subject of a U.S. application, a PCT application, and non-PCT country applications in Argentina, Bolivia, Bangladesh, members of the Gulf Cooperation Council, Pakistan, Taiwan, and Uruguay. Any patents that would ultimately grant from these applications would be expected to expire on or around March 2040, not including any patent term extension.
 
Government Regulation and Approvals
 
As we seek to further develop and commercialize our business, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations could increase our operational costs.
 
Our operations require various governmental permits and approvals. We are in the process of obtaining all necessary permits and approvals for the operation of our business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Additionally, due to the impact of the COVID-19 pandemic, we may experience delays in obtaining such permits or approvals. Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.
 
The use of mechanically recycled PET for food-grade applications in certain countries is highly inadvisable for a variety of reasons including the perception of contamination from mechanically recycled sources. We believe that means that Loop™ PET resin has a distinct advantage in these markets. Since our product is not mechanically recycled PET, we expect that demand from PET manufacturers and global consumer goods companies in these regions for 100% Loop™ branded PET resin will be a significant part of our strategy going forward.
 
Supply Agreements with Global Consumer Brands
 
Consumer brands are seeking a solution to their plastic challenge and they are taking bold action. In the past years we have seen major brands make significant commitments to close the loop on their plastic packaging in two ways, 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 Loop™ PET resin and polyester fiber is recyclable and is made from 100% recycled PET and polyester fiber with virgin-quality suitable for use in food-grade packaging.
 
Loop Industries believes that due to the commitments by large global consumer brands to incorporate more recycled content into their product packaging, the regulatory requirements for minimum recycled content in packaging imposed by governments, the virgin-quality of Loop™ branded PET and the marketability of Loop™ PET to extoll the sustainability credentials of consumer brands that incorporate Loop™ PET, it will be able to sell its Loop™ branded PET at a premium price relative to virgin and mechanically recycled PET.
 
 
6
 
 
In the last two years, we have made a significant number of announcements with some of the world’s leading brands to be supplied from our planned first commercial facility from our joint venture with Indorama Ventures Holdings LP (“Indorama”) in Spartanburg, South Carolina, including:
 
Multi-year supply agreement with Danone SA, one of the world’s leading global food and beverage companies. Danone will purchase 100% sustainable and upcycled Loop™ branded PET for use in brands across its portfolio including evian®, Danone’s iconic natural spring water;
 
Multi-year supply agreement with PepsiCo, one of the largest purchasers of recycled PET plastic, enabling PepsiCo to purchase production capacity and incorporate Loop™ PET resin into its product packaging;
 
Multi-year supply framework with the Coca-Cola system’s Cross Enterprise Procurement Group to supply 100% recycled and sustainable Loop™ PET resin to authorized Coca-Cola bottlers who enter into supply agreements with us;
 
Multi-year supply agreement with L’OCCITANE en Provence to supply 100% recycled and sustainable Loop™ PET resin and incorporate Loop™ PET resin into its product packaging; and
 
Multi-year supply agreement with L’Oréal Group, the global leader in the beauty industry, enabling L’Oréal Group to purchase production capacity and incorporate Loop™ PET resin into its product packaging.
 
Turning Waste into Feedstock
 
We use waste PET plastic and polyester fiber as feedstock; these materials are introduced into our GEN II depolymerization technology to yield PET monomers DMT and MEG. Our technology can use PET plastic bottles and packaging of any color, transparency or condition, carpet, clothing and other polyester textiles that may contain colors, dyes or additives, and even PET plastics that have been recovered from the ocean and degraded by exposure to sun and salt. This is yet another advantage of Loop™ PET over mechanically recycled PET, our ability to use many materials that mechanical recyclers cannot use. This also means we are creating a new market for materials that have persistently been leaking out of the waste management system and into our shared rivers, oceans and natural areas.
 
We are identifying the availability of feedstock to ensure each facility can operate continuously at planned scale. We have identified the sources required for our first joint venture facility with Indorama and are now focusing on signing supply agreements to secure this feedstock for the long term.
 
We are also studying certain markets in the United States, Canada, European Union and Asia to help us evaluate the size and location of our next facilities. The approach includes a fulsome inventory of PET materials introduced into a region, the materials collected (or recycled) in the region and the material loss, or the difference between the material introduced and the material collected. This allows us to identify not only the material traditionally available for recycling, but how material can be effectively diverted from landfills, rivers, oceans and natural areas by providing a new outlet for what was formerly considered waste.
 
Commercialization Progress
 
During the quarter ended May 31, 2020, we continued executing our corporate strategy where Loop Industries focused on developing two distinct business models for the commercialization of Loop™ PET resin and polyester fiber to customers: 1) from our joint venture with Indorama, and 2) from Infinite LoopTM, our state of the art manufacturing technology. We continue to develop the engineering of the Infinite LoopTM technology, and we are actively engaged in planning our first Infinite LoopTM manufacturing complex in Europe with a strategic partner.
 
In September 2018, in connection with one of our business models, we announced a joint venture with Indorama to retrofit their existing PET manufacturing facilities. The joint venture was formed with the objective to manufacture and commercialize sustainable Loop™ PET resin and polyester fiber to meet the growing global demand from beverage and consumer packaged goods companies. This partnership brings together Indorama’s manufacturing footprint and Loop Industries’ proprietary technology to become a supplier in the ‘circular’ economy for 100% sustainable and recycled PET resin and polyester fiber.
 
We entered into a joint venture Agreement (the “Joint Venture Agreement”) with Indorama through our wholly-owned subsidiary Loop Innovations, LLC, a Delaware limited liability company. Each company has 50/50 equity interest in Indorama Loop Technologies, LLC (“ILT”), which was specifically formed to operate and execute the joint venture. We are contributing to the 50/50 joint venture an exclusive world-wide royalty-free license to use its proprietary technology to produce 100% sustainably produced PET resin and polyester fiber in addition to our equity cash contribution. The Joint Venture Agreement details the establishment of an initial 20,700 metric tons per year facility in Spartanburg, South Carolina, in the southeastern United States.
 
As disclosed in our 10-Q for the period ended August 31, 2019, the joint venture with Indorama decided to double the capacity of the planned Spartanburg plant due to customer demand to 40,000 metric tons per year. Following that decision, we identified a number of enhancements to the plant design to improve the operability and optimize the total construction cost of the plant and expected the commissioning of the plant to occur in the third quarter of calendar 2021.
 
 
7
 
 
We have currently contracted for the sale of the initial 20,700 metric tons expected output of the Spartanburg facility and we continue discussions to contract the additional volume up to its planned increased capacity of 40,000 metric tons. As part of the Joint Venture Agreement to establish the facility to produce 40,000 metric tons, we are committed to contribute our equity share for the costs under the joint venture agreement to construct the facility. During the three-month period ended May 31, 2020 we made a contribution of $650,000 and as at May 31, 2020, we have contributed a total of $1,500,000 to the joint venture.
 
On March 25, 2020, due to the COVID-19 pandemic, the Québec provincial government issued an order that all non-essential business and commercial activity in the province shut down. The order provided exemptions that allowed us to continue reduced operations at our pilot plant and we continued working remotely to support the engineering activities with our joint venture partner, Indorama, and our engineering partner, for the Spartanburg joint venture facility and pursue our plans for the commercialization of our technology. On May 11, the government announced that we could re-start complete operations. We have implemented all the necessary measures required by the Québec provincial government to ensure a safe work environment for our employees and we are operating at full capacity.
  
Over the period, our team in Canada continued to optimize our technology and make engineering design improvements which have reduced both capital and operating costs and further enhanced the projected return on investment for the project. These improvements were achieved together with Worley, a leading global engineering, procurement and construction company which we are engaging to provide a fixed-price construction contract for Spartanburg and work on Loop Industries engineering and construction plans.
 
In order to move forward expeditiously with the Spartanburg facility and its overall commercialization plans, and in light of the continuing improvements which have been achieved, we have expressed our desire to and are exploring joint venture structures and financing alternatives to increase our equity participation in the project. Indorama has reiterated to the joint venture its commitment to maintaining an investment in the Spartanburg project, which is strategically important to support the sustainability objectives of its customers. Discussions on the joint venture structure and financing are on-going.
 
In our 10-K which was filed on May 5, 2020 and amended on May 6, 2020 we indicated that we were monitoring the COVID-19 pandemic and the possible impacts it could have on the expected commissioning date. Unfortunately, despite the continued progress in Canada, the situation in the United States and the continued border closures and quarantine requirements between Canada and the US have caused some disruptions in our timetable. As a result, we now expect a delay in the anticipated commissioning date of the facility of approximately three to six months but that assumes no further delays, which we cannot ensure will be the case in light of the COVID-19 pandemic. The discussions regarding the structure and financing of the joint venture are not expected to further delay this timetable.
 
The Infinite LoopTM manufacturing technology is the key pillar of our commercialization blueprint. We believe our technology is at the forefront of the global transition away from fossil fuels and petrochemicals and into the circular economy, where PET plastic and polyester fiber are produced from 100% recycled content. The Infinite Loop™ technology is engineered to support the commitment of global consumer brands to achieve a high level of recycled content in packaging. Our technology allows for waste plastic currently not able to be recycled to now become fully circular and upcycled into the highest purity PET plastic and polyester fiber. Infinite Loop™ facilities could be located near large urban centers where more plastic is being consumed and therefore more waste plastic feedstock is available.
 
Our objective is to achieve global expansion of the technology through a mix of fully owned facilities, partnerships, and licensing agreements. We believe that industrial companies, which today are not in the business of manufacturing PET and polyester fiber, will view our Infinite Loop™ manufacturing technology as a growth opportunity for the future, which offers attractive economic returns either as Loop manufacturing partners or as licensees of Loop technology.
 
We plan to continue to allocate available capital to strengthen our intellectual property portfolio, build a core competency in managing strategic relationships and continue enhancing our brand value. Our research and development innovation hub in Terrebonne, Québec, Canada will continue to push forward the development of our technology. We are investing in building a strong management team to integrate best in class processes and practices while maintaining our entrepreneurial culture. On March 9, 2020, we hired Mr. Stephen Champagne as Chief Technology Officer. Mr. Champagne has over 25 years of industrial experience having participated in all project phases from laboratory development through engineering, procurement, and construction, all the way to plant commissioning.
 
 
8
 
 
Results of Operations
 
The following table summarizes our operating results for the three-month periods ended May 31, 2020 and 2019, in U.S. Dollars.
 
 
 
Three Months Ended May 31,
 
 
 
2020
 
 
2019
 
 
$ Change
 
Revenues
 $- 
 $- 
 $- 
 
    
    
    
  Operating expenses
    
    
    
Research and development
    
    
    
   Stock-based compensation
  352,007 
  312,435 
  39,572 
   Other research and development
  1,128,581 
  685,426 
  443,155 
       Total research and development
  1,480,588 
  997,861 
  482,727 
 
    
    
    
General and administrative
    
    
    
   Stock-based compensation
  659,817 
  618,255 
  41,562 
   Other general and administrative
  1,293,264 
  1,284,375 
  8,889 
       Total general and administrative
  1,953,081 
  1,902,630 
  50,451 
 
    
    
    
Depreciation and amortization
  255,974 
  164,336 
  91,638 
Interest and other financial expenses
  126,776 
  501,849 
  (375,073)
Interest income
  (40,346)
  - 
  (40,346)
 
Foreign exchange (gain) loss
 
  76,641 
  (12,126)
  88,767 
Total operating expenses
  3,852,714 
  3,554,550 
  298,164 
Net loss
 $(3,852,714
 $(3,554,550)
 $(298,164)
 
 
    
    
 
First Quarter Ended May 31, 2020
 
The net loss for the three-month period ended May 31, 2020 increased $0.30 million to $3.85 million, as compared to the net loss for the three-month period ended May 31, 2019 which was $3.55 million. The increase is primarily due to increased research and development expenses of $0.48 million, an increase in depreciation and amortization of $0.09 million, an increase in foreign exchange loss of $0.09 million and an increase in general and administration expenses of $0.05 million, offset by lower interest and other financial expenses of $0.38 million and by higher interest income of $0.04 million.
 
Research and development expenses for the three-month period ended May 31, 2020 amounted to $1.48 million compared to $1.00 million for the three-month period ended May 31, 2019, representing an increase of $0.48 million, or representing an increase of $0.44 million excluding stock-based compensation. The increase of $0.44 million was primarily attributable to higher employee-related expenses of $0.19 million and lower research and development tax credits of $0.36 million. During the three-month period ended May 31, 2020, the Company recorded a decrease in refundable research and development tax credits receivable, increasing research and development expenses by $0.24 million which was partially offset by a COVID-19 related government wage subsidy of $0.10 million. The increase in non-cash stock-based compensation expense of $0.04 million is mainly attributable to the timing of stock awards provided to certain employees.
 
General and administrative expenses for the three-month period ended May 31, 2020 amounted to $1.95 million compared to $1.90 million for the three-month period ended May 31, 2019, representing an increase of $0.05 million, or $0.01 million excluding stock-based compensation. The increase of $0.01 million was mainly attributable to higher insurance expenses of $0.36 million, offset by lower professional fees of $0.21 million and lower employee-related expenses of $0.08 million. During the three-month period ended May 31, 2020, the Company recorded a COVID-19 related government wage subsidy of $0.04 million in general and administrative expenses. Stock-based compensation expense for the three-month period ended May 31, 2020 amounted to $0.66 million compared to $0.62 million for the three-month period ended May 31, 2019, representing an increase of $0.04 million, which was mainly attributable higher stock awards provided to executives.
 
 
9
 
 
Depreciation and amortization for the three-month period ended May 31, 2020 totaled $0.26 million compared to $0.16 million for the three-month period ended May 31, 2019, representing an increase of $0.09 million. This increase is mainly attributable to the addition of fixed assets at the Company’s pilot plant and corporate offices.
 
Interest and other financial expenses for the three-month period ended May 31, 2020 totaled $0.13 million compared to $0.50 million the three-month period ended May 31, 2019, representing an increase of $0.38 million. This decrease is attributable to the non-cash accretion expense relating to the convertible notes issued during the 2019 Fiscal year in the amount of $0.51 million, the interest expense relating to the convertible notes issued during the 2019 Fiscal year in the amount of $0.12 million, offset by the gain on conversion of the November 2018 Notes in the amount of $0.27 million in the three-months ended May 31, 2019 and a loss on foreign exchange contracts of $0.10 million during the three-months ended May 31, 2020. During the three months ended May 31, 2020, there were no convertible notes outstanding.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity
 
We are a development stage company with no revenues, and our ongoing operations and commercialization plans are being financed by raising new equity and debt capital. To date, we have been successful in raising capital to finance our ongoing operations, reflecting the potential for commercializing our branded resin and the progress made to date in implementing our business plans. As at February 29, 2020, we had cash and cash equivalents on hand of $27.51 million.
 
Management continues to be positive about our growth strategy and is evaluating our financing plans to continue to raise capital to finance the start-up of commercial operations and continue to fund the further development of our ongoing operations. Although we continue to be in a good liquidity position with cash and cash equivalents on hand of $27.51 million, in light of the current global COVID-19 pandemic and its impacts on the global capital markets, our liquidity position may change, including the inability to raise new equity and debt, disruption in completing repayments or disbursements to our creditors.
 
As reflected in the accompanying interim unaudited condensed consolidated financial statements, we are a development stage company, we have not yet begun commercial operations and we do not have any sources of revenue. Management believes that the Company has sufficient financial resources to fund planned operating and capital expenditures and other working capital needs for at least, but not limited to, the 12-month period from the date of issuance of the May 31, 2020 interim condensed consolidated financial statements. There can be no assurance that any future financing will be available or, if available, that it will be on terms that are satisfactory to us.
 
As at May 31, 2020, we have a long-term debt obligation to a Canadian bank in connection with the purchase, in the year ended February 28, 2018, of the land and building where our pilot plant and corporate offices are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the Company obtained a $1,015,449 (CDN$1,400,000) 20-year term instalment loan (the “Loan”), from a Canadian bank. The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of $4,231 (CDN$5,833) plus interest, until January 2021, at which time it will be subject to renewal. It includes an option allowing for the prepayment of the Loan without penalty.
 
We also have a long-term debt obligation to Investissement Québec in connection with a financing facility equal to 63.45% of all eligible expenses incurred for the expansion of its Pilot Plant up to a maximum of $3,336,476 (CDN$4,600,000). We received the first disbursement in the amount of $1,602,404 (CDN$2,209,234) on February 21, 2020. There is a 36-month moratorium on both capital and interest repayments as of the first disbursement date. At the end of the 36-month moratorium, capital and interest will be repayable in 84 monthly installments. The loan bears interest at 2.36%. We have also agreed to issue to Investissement Québec warrants to purchase shares of our common stock in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $333,647 (CDN$460,000). The warrants will be 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 will have a term of three years from the date of issuance. The loan can be repaid at any time by us without penalty. On February 21, 2020, upon the receipt of the first disbursement under this facility, we issued a warrant to purchase 15,153 shares of common stock at a price of $11.00 to Investissement Québec.
 
Flow of Funds
 
Summary of Cash Flows
 
A summary of cash flows for the three months ended May 31, 2020 and 2019 was as follows:
 
 
 
Three Months Ended May 31,
 
 
 
2020
 
 
2019
 
Net cash used in operating activities
 $(4,977,900)
 $(2,087,353)
Net cash used in investing activities
  (1,188,789)
  (995,356)
Net cash (used) provided by financing activities
  (12,693)
  4,253,727 
Effect of exchange rate changes on cash
  (29,534
  (32,796)
Net (decrease) increase in cash
 $(6,208,916)
 $1,138,222 
 
 
10
 
 
Net Cash Used in Operating Activities
 
During the three months ended May 31, 2020, we used $4.98 million in operations compared to $2.01 million during the three months ended May 31, 2019. The increase in cash used in operations is mainly attributable to the prepayment of annual directors and officers insurance premium and other prepayments of $1.87 million as well as the variation in accounts payable and accrued liabilities of $0.72 million. The variation in the amount of prepaid directors and officers insurance is due to an increase of $1.30 million of the annual premium as well as a change in the payment structure wherein a full up-front payment was made in the current year compared to monthly payments being made in the prior year. The variation in accounts payable accrued liabilities since year-end is due to the decrease in accrued professional fees and payroll taxes which were paid during the three-month period ended May 31, 2020. The Company continued to invest in research and development on its existing technologies and new technologies, particularly on the implementation of its GEN II technology as the Company moves to the next phase of commercialization.
 
Net Cash Used in Investing Activities
 
During the three months ended May 31, 2020, the Company made investments of $0.39 million in property, plant and equipment as compared to $0.50 million for the three months ended May 31, 2019, primarily in connection with the upgrade of its GEN II industrial pilot plant. During the three months ended May 31, 2020, the Company made investments in intangible assets particularly in its GEN II patent technology in the United States and around the world.
 
During the three months ended May 31, 2020, the Company also made an additional contribution of $0.65 million to Indorama Loop Technologies, LLC, the joint venture with Indorama Ventures Holdings LP, USA.
 
Net Cash (Used) Provided by Financing Activities
 
During the three months ended May 31, 2020, we repaid $0.01 million of long-term debt.
 
Off-Balance Sheet Arrangements
 
As at May 31, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
 
As at May 31, 2020, we did not have any significant lease obligations to third parties.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are subject to risks associated with currency fluctuations and changes in foreign currency exchange rates as well as fluctuations in the supply and price of raw materials and commodity prices. 
 
Foreign Currency Exchange Risk
 
We operate mainly through two entities, Loop Industries, Inc., which is a Nevada corporation and has a U.S. dollar functional currency, and our wholly-owned subsidiary, Loop Canada Inc. (“Loop Canada”), which is based in Terrebonne, Québec, Canada and has a Canadian dollar functional currency. Our reporting currency is the U.S. dollar.
 
We mainly finance our operations through the sale and issuance of shares of common stock and debt of Loop Industries, Inc. in U.S. dollars while our operations are concentrated in our wholly-owned subsidiary, Loop Canada. Accordingly, we are exposed to foreign exchange risk as we maintain bank accounts in U.S. dollars and a significant portion of our operational costs (including payroll, site costs, costs of locally sourced supplies and income taxes) are denominated in Canadian dollars.
 
Significant fluctuations in the U.S. dollar to the Canadian dollar exchange rates could materially affect our result of operations, cash position and funding requirements. To the extent that fluctuations in currency exchange rates cause our results of operations to differ materially from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.
 
From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. As part of our risk management program, we may enter into foreign exchange forward contracts to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the variability of our operating costs and future cash flows denominated in currencies that differs from our functional currencies. 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. Nonetheless, these instruments involve costs and have risks of their own in the form of transaction costs, credit requirements and counterparty risk. If our hedging program is not successful, or if we change our hedging activities in the future, we may experience significant unexpected expenses from fluctuations in exchange rates. Any hedging technique we implement may fail to be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on the trading price of our common stock.
 
 
11
 
 
Commodity Price Risk
 
The plastics manufacturing industry is extremely price competitive because of the commodity like nature of PET resin and its correlation to the price of crude oil. The demand for recycled PET has fluctuated with the price of crude oil. If crude oil prices decline, the cost to manufacture recycled PET may become comparatively higher than the cost to manufacture virgin PET. Our ability to penetrate the market will depend in part on the cost of manufacturing virgin PET and if we do not successfully distinguish our product from those of virgin PET manufacturers, our entry into the market and our ability to secure customer contracts can be adversely affected.
 
Raw Material Price Risk
 
We purchase raw materials and packaging supplies from several sources. While all such materials are available from independent suppliers, raw materials are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other industries for the same raw materials and the availability of complementary and substitute materials. The profitability of our business also depends on the availability and proximity of these raw materials to our factories. The choice of raw materials to be used at our facility is determined primarily by the price and availability, the yield loss of lower quality raw materials, and the capabilities of the producer’s production facility. Additionally, the high cost of transportation could favor suppliers located in close proximity to our factories. If the quality of these raw materials is lower, the quality of our product may suffer. Economic and financial factors could impact our suppliers, thereby causing supply shortages. Increases in raw material costs could have a material adverse effect on our business, financial condition or results of operations. Our hedging procedures may be insufficient, and our results could be materially impacted if costs of materials increase. In light of the uncertain and evolving situation relating to the global COVID-19 pandemic, our access to raw materials, the quality and proximity of such materials may be disrupted. We currently cannot predict the impact that the global COVID-19 pandemic will have on our access to raw materials.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Management’s Evaluation of our Disclosure Controls and Procedures
 
A.
Evaluation of Disclosure Controls and Procedures
 
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
 
As of the end of the period covered by this Quarterly Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of May 31, 2020.
 
B.
Changes in Internal Control over Financial Reporting
 
There were no other changes in our internal control over financial reporting during the quarter ended May 31, 2020 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
12
 
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Except as noted above, we are not presently a party to any legal proceedings, government actions, administrative actions, investigations or claims that are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
 
It is possible that we may expend financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. It is also possible that we may expend financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.
 
ITEM 1A. RISK FACTORS
 
We are subject to various risks and uncertainties in the course of our business. Risk factors relating to us are set forth under “Risk Factors” in our Annual Report on Form 10-K, filed on May 5, 2020 and amended on May 6, 2020. No material changes to such risk factors have occurred during the three months ended May 31, 2020.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On May 12, 2020, we issued a warrant to acquire 25,000 shares of common stock at a strike price of $9.43 per share.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
None.
 
 
 
13
 
 
ITEM 6. EXHIBITS
 
The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.
Exhibit Index
 
 
 
 
Incorporated by Reference
 
 
Number
 
Description
 
Form
 
File No.
 
Filing Date
 
Exhibit No.
 
Articles of Incorporation, as amended to date
 
10-K
 
000-54768
 
May 30, 2017
 
3.1
 
By-laws, as amended to date
 
8-K
 
000-54768
 
April 10, 2018
 
3.1
 
Employment Agreement, dated January 30, 2020, by and between Loop Canada Inc. and Stephen Champagne
 
 
 
  Filed herewith
 
 
 
 
 
Power of Attorney (contained on signature page to the previously filed Annual Report on Form 10-K)
 
10-K
 
000-54768
 
08-May-19
 
24.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
Filed herewith
 
 
 
 
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
Filed herewith
 
 
 
 
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
Furnished herewith
 
 
 
 
 
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
Furnished herewith
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
Filed herewith
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
Filed herewith
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
Filed herewith
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
Filed herewith
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
Filed herewith
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
Filed herewith
 
 
 
 
 
 
 
14
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
 
Date: July 14, 2020
By:
/s/ Daniel Solomita
 
 
Name:
Daniel Solomita
 
 
Title:
President and Chief Executive Officer, and Director (Principal Executive Officer)
 
 
 
 
 
Date: July 14, 2020
By:
/s/ Nelson Gentiletti
 
 
Name:
Nelson Gentiletti
 
 
Title:
Chief Financial Officer and Treasurer (Principal Accounting Officer and Principal Financial Officer)
 
 
 
 
 
 
 
 
 
 
 
 
 
15
lp_ex101
 Exhibit 10.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
lp_ex311
 
EXHIBIT 31.1
 
SECTION 302 CERTIFICATION
 
I, Daniel Solomita, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Loop Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: July 14, 2020
 
/s/ Daniel Solomita
 
 
 
Daniel Solomita
 
 
 
President and Chief Executive Officer (principal executive officer)
 
 
 
lp_ex312
 
EXHIBIT 31.2
 
SECTION 302 CERTIFICATION
 
I, Nelson Gentiletti, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Loop Industries, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
Date: July 14, 2020
 
/s/Nelson Gentiletti
 
 
 
Nelson Gentiletti
 
 
 
Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)
 
 
 
lp_ex321
 
EXHIBIT 32.1
 
SECTION 906 CERTIFICATION
 
In connection with the accompanying Quarterly Report on Form 10-Q of Loop Industries, Inc. for the quarter ended May 31, 2020, the undersigned, Daniel Solomita, President and Chief Executive Officer of Loop Industries, Inc., does hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) such Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) the information contained in such Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, fairly presents, in all material respects, the financial condition and results of operations of Loop Industries, Inc.
 
Date: July 14, 2020
 
/s/ Daniel Solomita
 
 
 
Daniel Solomita
 
 
 
President and Chief Executive Officer (principal executive officer)
 
 
 
lp_ex322
 
EXHIBIT 32.2
 
SECTION 906 CERTIFICATION
 
In connection with the accompanying Quarterly Report on Form 10-Q of Loop Industries, Inc. for the quarter ended May 31, 2020, the undersigned, Nelson Gentiletti, Chief Financial Officer of Loop Industries, Inc., does hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) such Quarterly Report on Form 10-K for the quarter ended May 31, 2020, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) the information contained in such Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, fairly presents, in all material respects, the financial condition and results of operations of Loop Industries, Inc.
 
Date: July 14, 2020
 
/s/ Nelson Gentiletti
 
 
 
Nelson Gentiletti
 
 
 
Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)
 
 
 
v3.20.2
Document and Entity Information - shares
3 Months Ended
May 31, 2020
Jul. 09, 2020
Cover [Abstract]    
Entity Registrant Name Loop Industries, Inc.  
Entity Central Index Key 0001504678  
Document Type 10-Q  
Document Period End Date May 31, 2020  
Amendment Flag false  
Current Fiscal Year End Date --02-28  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   39,935,210
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2021  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell Company false  
Entity Interactive Data Current? Yes  
Entity Incorporation State Country Code NV  
Entity File Number 000-54768  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
May 31, 2020
Feb. 29, 2020
Current assets    
Cash and cash equivalents $ 27,508,755 $ 33,717,671
Sales tax, tax credits and other receivables (Note 3) 570,214 664,544
Prepaid expenses (Note 4) 1,937,039 141,226
Total current assets 30,016,008 34,523,441
Investment in joint venture (Note 9) 1,500,000 850,000
Property, plant and equipment, net (Note 5) 7,250,045 7,260,254
Intangible assets, net (Note 6) 334,046 202,863
Total assets 39,100,099 42,836,558
Current liabilities    
Accounts payable and accrued liabilities (Note 8) 1,411,472 2,082,698
Current portion of long-term debt (Note 10) 50,772 52,126
Total current liabilities 1,462,244 2,134,824
Long-term debt (Note 10) 2,185,449 2,238,026
Total liabilities 3,647,693 4,372,850
Stockholders' Equity    
Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding (Note 12) 0 0
Common stock par value $0.0001: 250,000,000 shares authorized; 39,916,905 shares issued and outstanding (February 29, 2020 - 39,910,774) (Note 12) 3,993 3,992
Additional paid-in capital 83,306,794 82,379,413
Additional paid-in capital - Warrants 9,870,241 9,785,799
Accumulated deficit (57,169,761) (53,317,047)
Accumulated other comprehensive loss (558,861) (388,449)
Total stockholders' equity 35,452,406 38,463,708
Total liabilities and stockholders' equity $ 39,100,099 $ 42,836,558
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
May 31, 2020
Feb. 29, 2020
Stockholders' Equity    
Series A preferred stock, par value $ 0.0001 $ 0.0001
Series A preferred stock, share authorized 25,000,000 25,000,000
Series A preferred stock, share issued 1 1
Series A preferred stock, share outstanding 1 1
Common stock, par value $ .0001 $ 0.0001
Common stock, shares authorized 250,000,000 250,000,000
Common stock, shares issued 39,916,905 39,910,774
Common stock, shares outstanding 39,916,905 39,910,774
v3.20.2
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Income Statement [Abstract]    
Revenue $ 0 $ 0
Expenses    
Research and development, net (Note 13) 1,480,588 997,861
General and administrative (Note 13) 1,953,081 1,902,630
Depreciation and amortization (Notes 5 and 6) 255,974 164,336
Interest and other financial expenses (Note 16) 126,776 501,849
Interest income (40,346) 0
Foreign exchange loss (gain) 76,641 (12,126)
Total expenses 3,852,714 3,554,550
Net loss (3,852,714) (3,554,550)
Other comprehensive loss    
Foreign currency translation adjustment (170,412) (140,142)
Comprehensive loss $ (4,023,126) $ (3,694,692)
Loss per share    
Basic and diluted $ (0.10) $ (0.11)
Weighted average common shares outstanding    
Basic and diluted 39,916,838 34,714,510
v3.20.2
Condensed Consolidated Statement of Changes in Stockholders Equity (Unaudited) - USD ($)
Common Stock
Preferred Stock
Additional Paid-in Capital
Additional Paid-in Capital - Warrants
Additional Paid-in Capital - Benificial Conversion Feature
Common Stock Issuable
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Total
Beginning balance, shares at Feb. 28, 2019 33,805,706 1              
Beginning balance, amount at Feb. 28, 2019 $ 3,381 $ 0 $ 38,966,208 $ 757,704 $ 1,200,915 $ 800,000 $ (38,811,592) $ (290,224) $ 2,626,392
Issuance of common shares for cash, net of share issuance expenses (Note 12), shares 600,000                
Issuance of common shares for cash, net of share issuance expenses (Note 12), amount $ 60   4,266,725           4,266,785
Issuance of shares for legal settlement, shares 150,000                
Issuance of shares for legal settlement, amount $ 15   (15)           0
Issuance of shares upon conversion of convertible notes, shares 319,326                
Issuance of shares upon conversion of convertible notes, amount $ 32   2,372,549 316,929         2,689,510
Stock options issued for services (Note 13)     575,513           575,513
Restricted stock units issued for services (Note 13)     355,177           355,177
Foreign currency translation               (140,142) (140,142)
Net loss (3,554,550) (3,554,550)
Ending balance, shares at May. 31, 2019 34,875,032 1              
Ending balance, amount at May. 31, 2019 $ 3,488 $ 0 46,536,157 1,074,633 1,200,915 800,000 (42,366,142) (430,366) 6,818,685
Beginning balance, shares at Feb. 29, 2020 39,910,774 1              
Beginning balance, amount at Feb. 29, 2020 $ 3,992 $ 0 82,379,413 9,785,799 0 0 (53,317,047) (388,449) 38,463,708
Issuance of shares upon vesting of restricted stock units (Note 13), shares 6,131                
Issuance of shares upon vesting of restricted stock units (Note 13), amount $ 1   (1)           0
Warrant issued for services (Note 15)       84,442         84,442
Stock options issued for services (Note 13)     556,895           556,895
Restricted stock units issued for services (Note 13)     370,487           370,487
Foreign currency translation               (170,412) (170,412)
Net loss (3,852,714) (3,852,714)
Ending balance, shares at May. 31, 2020 39,916,905 1              
Ending balance, amount at May. 31, 2020 $ 3,993 $ 0 $ 83,306,794 $ 9,870,241 $ 0 $ 0 $ (57,169,761) $ (558,861) $ 35,452,406
v3.20.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Cash Flows from Operating Activities    
Net loss $ (3,852,714) $ (3,554,550)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization (Notes 5 and 6) 256,090 164,336
Stock-based compensation expense (Note 13) 1,011,824 930,690
Accrued interest expenses (Note 10) 9,416 117,433
Loss on revaluation of warrants 0 8,483
Debt accretion (Note 10) 8,547 583,727
Deferred financing expenses 0 46,442
Gain on conversion of convertible notes 0 (268,730)
Loss on revaluation of foreign exchange contracts 98,502 0
Changes in operating assets and liabilities:    
Sales tax and tax credits receivable (Note 3) 76,410 (158,954)
Prepaid expenses (Note 4) (1,865,216) 49,136
Accounts payable and accrued liabilities (Note 8) (720,759) (5,366)
Net cash used in operating activities (4,977,900) (2,087,353)
Cash Flows from Investing Activities    
Investment in a joint venture (Note 9) (650,000) (500,000)
Additions to property, plant and equipment (Note 5) (394,403) (470,545)
Additions to intangible assets (Note 6) (144,386) (24,811)
Net cash used in investing activities (1,188,789) (955,356)
Cash Flows from Financing Activities    
Proceeds from sale of common shares 0 5,130,000
Share issuance costs 0 (863,216)
Repayment of long-term debt (Note 10) (12,693) (13,057)
Net cash (used) provided by financing activities (12,693) 4,253,727
Effect of exchange rate changes (29,534) (32,796)
Net decrease in cash (6,208,916) 1,138,222
Cash, beginning of period 33,717,671 5,833,390
Cash, end of period 27,508,755 6,971,612
Supplemental Disclosure of Cash Flow Information:    
Income tax paid 0 0
Interest paid 10,311 14,488
Interest received $ 40,346 $ 0
v3.20.2
The Company, Basis of Presentation and Going Concern
3 Months Ended
May 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
The Company, Basis of Presentation and Going Concern

The Company

 

Loop Industries, Inc. (the “Company,” “Loop Industries,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste PET plastic and polyester fiber to its base building blocks (monomers).  The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin for use in food-grade packaging and polyester fiber.

 

On November 20, 2017, Loop Industries Inc. commenced trading on the NASDAQ Global Market under its new trading symbol, “LOOP.” From April 10, 2017 to November 19, 2017, our common stock was quoted on the OTCQX tier of the OTC Markets Group Inc. under the symbol “LLPP.”

 

Basis of presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2020, filed with the SEC on May 5, 2020 and amended on May 6, 2020. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50% interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method.

 

Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 29, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three months ended May 31, 2020 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending February 28, 2021, or any other period.

 

v3.20.2
Summary of Significant Accounting Policies
3 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Use of estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of long-lived assets and intangible assets, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and other equity instruments.

 

The uncertainties around the COVID-19 pandemic required the use of estimates and assumptions that resulted in no significant impact to our unaudited condensed consolidated financial statements as of and for the three-month period ended May 31, 2020.

 

Foreign currency translations and transactions

 

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income (loss) (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses. The Company currently has not engaged in any currency hedging activities.

 

For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI. 

  

Stock-based compensation

 

Loop Industries, Inc. periodically issues stock options, warrants and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing expenses. The Company accounts for stock options granted to employees based on the authoritative guidance provided by the FASB wherein the fair value of the award is measured on the grant date and where there are no performance conditions, recognized as compensation expense on the straight-line basis over the vesting period and where performance conditions exist, recognize compensation expense when it becomes probable that the performance condition will be met. Forfeitures on share-based payments are accounted for by recognizing forfeitures as they occur.

 

The Company accounts for stock options and warrants granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance.

 

The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant.

 

The fair value of the stock options granted are estimated using the Black-Scholes-Merton Option Pricing (“Black-Scholes”) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options, and future dividends. Stock-based compensation expense is recorded based on the value derived from the Black-Scholes model and on actual experience. The assumptions used in the Black-Scholes model could materially affect stock-based compensation expense recorded in the current and future periods.

 

Income taxes

 

The Company calculates its provision for income tax on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

 

Research and development expenses

 

Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development expenses recorded during the three-month periods ended May 31, 2020 and 2019 amounted to $1,480,588 and $997,861, respectively, and are net of government research and development tax credits and government grants from the federal and provincial taxation authorities accrued and recorded based on qualifying expenditures incurred during the fiscal periods.

 

Net earnings (loss) per share

 

The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.

 

For the three-month periods ended May 31, 2020 and 2019, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at May 31, 2020, the potentially dilutive securities consisted of 1,590,470 outstanding stock options (May 31, 2019 – 1,691,973), 4,302,527 outstanding restricted stock units (May 31, 2019 – 403,767), 5,084,331 outstanding warrants (May 31, 2019 – 962,132) and nil outstanding issuable common stock (May 31, 2019 – 1,000,000).

 

Recently adopted accounting pronouncements

 

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the standard had no impact on the consolidated financial statements of the Company.

  

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Reform Act on items within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." Amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is not affected by this update. ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable beginning March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company.

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” amended in July by ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Targeted Improvements,” and ASU 2018-20, “Narrow-Scope Improvements for Lessors,” which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases. This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted these standards effective March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company. The Company elected to apply the package of practical expedients that allows us not to reassess whether expired or existing contracts contain leases, the classification of these leases and whether previously capitalized initial direct costs would qualify for capitalization under Accounting Standards Codification (or “ASC”) 842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of the right-of-use assets.

 

Recently issued accounting pronouncements not yet adopted

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which removes specific exceptions to the general principles in ASC 740, “Income Taxes,” and clarifies certain aspects of the existing guidance. This update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption being permitted as of the beginning of an interim or annual reporting period. All amendments to this ASU must be adopted in the same period on a prospective basis, with certain exceptions. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.

 

v3.20.2
Sales Tax, Tax Credits and Other Receivables
3 Months Ended
May 31, 2020
Receivables [Abstract]  
Sales Tax, Tax Credits and Other Receivables

Sales tax, research and development tax credits and other receivables as at May 31, 2020 and February 29, 2020 were as follows:

 

   

May 31,

2020

   

February 29,

2020

 
Sales tax   $ 122,419     $ 180 971  
Research and development tax credits     216,458       447,843  
Other receivables     231,337       35,730  
    $ 570,214     $ 664,544  

 

v3.20.2
Prepaid Expenses
3 Months Ended
May 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses

Prepaid expenses as at May 31, 2020 and February 29, 2020 were as follows:

 

   

May 31,

2020

   

February 29,

2020

 
Insurance   $ 1,144,500     $ 61,891  
Machinery and equipment     644,000       -  
Other prepaid expenses     148,539       79,335  
    $ 1,937,039     $ 141,226  
v3.20.2
Property, Plant and Equipment
3 Months Ended
May 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
    As at May 31, 2020  
    Cost     Accumulated depreciation     Net book value  
Building   $ 1,798,134     $ (140,542 )   $ 1,657,592  
Land     222,268       -       222,268  
Building and land improvements     900,479       (235,634 )     664,845  
Machinery and equipment     6,207,312       (1,598,626 )     4,608,686  
Office equipment and furniture     162,388       (65,734 )     96,654  
Balances, end of period   $ 9,290,581     $ (2,040,536 )   $ 7,250,045  

 

    As at February 29, 2020  
    Cost     Accumulated depreciation     Net book value  
Building   $ 1,846,070     $ (128,911 )   $ 1,717,159  
Land     264,868       -       264,868  
Building and land improvements     733,884       (214,068 )     519,816  
Machinery and equipment     6,085,195       (1,426,465 )     4,658,730  
Office equipment and furniture     162,466       (62,785 )     99,681  
Balances, end of period   $ 9,092,483     $ (1,832,229 )   $ 7,260,254  

 

Depreciation expense for the three-month periods ended May 31, 2020 and 2019 amounted to $248,199 and $161,321, respectively, and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss.

 

v3.20.2
Intangible Assets
3 Months Ended
May 31, 2020
Finite-Lived Intangible Assets, Net [Abstract]  
Intangible Assets
    As at May 31,     As at February 29,  
    2020     2020  
             
Intangible assets, at cost - beginning of period   $ 225,174     $ 127,672  
Intangible assets, accumulated depreciation – beginning of period     (22,311 )     -  
      202,863       127,672  
                 
Add: Additions in the period     144,386       99,972  
Deduct: Amortization of intangibles     (7,891 )     (22,631 )
Deduct: Impairment of intangibles     -       -  
Add (deduct): Foreign exchange effect     (5,312 )     (2,150 )
    $ 334,046     $ 202,863  

 

Amortization expense for the three-month periods ended May 31, 2020 and 2019 amounted to $7,891 and $3,015, respectively, and is recorded as an operating expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

 

v3.20.2
Fair Value of Financial Instruments
3 Months Ended
May 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

The following tables presents the fair value of the Company’s financial liabilities as at May 31, 2020 and February 29, 2020:

 

    Fair Value Measurements as at May 31, 2020  
    Carrying Amount     Fair Value     Level in the hierarchy  
Instruments measured at fair value on a recurring basis:                  
Foreign exchange contracts   $ 125,951     $ 125,951       Level 1  
                         
Instruments measured at amortized cost:                        
Long-term debt   $ 2,236,221     $ 2,246,745       Level 2  

 

    Fair Value Measurements at February 29, 2020  
    Carrying Amount     Fair Value     Level in the hierarchy  
Instruments measured at fair value on a recurring basis:                  
Foreign exchange contracts   $ 26,840     $ 26,840       Level 1  
                         
Instruments measured at amortized cost:                        
Long-term debt   $ 2,290,152     $ 2,291,109       Level 2  

 

v3.20.2
Accounts Payable and Accrued Liabilities
3 Months Ended
May 31, 2020
Payables and Accruals [Abstract]  
Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities as at May 31, 2020 and February 29, 2020 were as follows:

 

   

May 31,
2020

   

February 29,
2020

 
Trade accounts payable   $ 648,670     $ 814,081  
Trade accrued liabilities     99,587       593,789  
Accrued employee compensation     496,630       634,807  
Foreign exchange contracts     125,951       26,840  
Other accrued liabilities     40,634       13,181  
    $ 1,411,472     $ 2,082,698  
v3.20.2
Joint Venture
3 Months Ended
May 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
Joint Venture

On September 15, 2018, the Company, through its wholly-owned subsidiary Loop Innovations, LLC, a Delaware limited liability company, entered into a Joint Venture Agreement (the “Agreement”) with Indorama Ventures Holdings LP, USA, an indirect subsidiary of Indorama Ventures Public Company Limited, to manufacture and commercialize sustainable polyester resin. Each company has a 50/50 equity interest in Indorama Loop Technologies, LLC (“ILT”), which was specifically formed to operate and execute the joint venture.

 

Under the Agreement, Indorama Venture is contributing manufacturing knowledge and Loop Industries is required to contribute its proprietary science and technology.

 

Specifically, the Company is contributing an exclusive world-wide royalty-free license to ILT to use its proprietary technology to produce 100% sustainably produced PET resin and polyester fiber.

 

ILT meets the accounting definition of a joint venture where neither party has control of the joint venture entity and both parties have joint control over the decision-making process in ILT. As such, the Company uses the equity method of accounting to account for its share of the investment in Indorama Loop Technologies, LLC. There were no operations in ILT from the date of inception of September 24, 2018 to May 31, 2020 and, as at May 31, 2020, the carrying value of the equity investment was $1,500,000, which is the total of the cash contributions we have made to ILT. During the three-month periods ended May 31, 2020 and May 31, 2019, we made contributions to ILT of $650,000 and $500,000, respectively.

 

v3.20.2
Long-Term Debt
3 Months Ended
May 31, 2020
Long-term Debt, Unclassified [Abstract]  
Long-Term Debt

Long-term debt as of May 31, 2020 and February 29, 2020, was comprised of the following:

 

   

May 31,

2020

   

February 29,

2020

 
Investissement Québec financing facility:            
Principal amount   $ 1,602,404     $ 1,645,122  
Unamortized discount     (273,652 )     (289,852 )
Accrued interest     10,489       958  
Total Investissement Québec financing facility     1,339,241       1,356,228  
Term loan                
Principal amount     896,980       933,924  
Less: current portion     (50,772 )     (52,126 )
Total term loan, net of current portion     846,208       881,798  
Long-term debt, net of current portion   $ 2,185,449     $ 2,238,026  

 

Investissement Québec financing facility

 

On February 21, 2020, the Company received $1,645,122 (CDN$2,209,234) from Investissement Québec as the first disbursement of our financing facility, out of a maximum of $3,425,423 (CDN$4,600,000) (the “Financing Facility”). The loan bears interest at 2.36% and there is a 36-month moratorium on both capital and interest repayments starting on the date of the first disbursement, after which capital and interest is repayable in 84 monthly installments. The Company established the fair value of the loan for the first disbursement at $1,354,408 based on a discount rate of 5.45%, which reflected a debt discount of $290,714. The discount rate used was based on the external financing from a Canadian bank. The Company, under the loan agreement, was required to pay fees representing 1% of the loan amount, $34,254 (CDN$46,000) to Investissment Québec which we deferred and recorded as a reduction of the Financing Facility. Debt discount and deferred financing expenses are amortized to “Interest and other financial expenses” in our Consolidated Statements of Operations and Comprehensive Loss. The Company recorded interest expense on the Investissement Québec loan for the three months ended May 31, 2020 in the amount of $9,416 (2019 – nil) and an accretion expense of $8,547 (2019 – nil).

 

The Company has also agreed to issue to Investissement Québec warrants to purchase shares of common stock of the Company in an amount equal to 10% of each disbursement up to a maximum aggregate amount of $333,648 (CDN$460,000). The exercise price of the warrants is 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 will have a term of three years from the date of issuance. The loan can be repaid at any time by the Company without penalty. In connection the first disbursement of the Financing Facility, the Company issued a warrant (“First Disbursement Warrant”) to acquire 15,153 shares of common stock at a strike price of $11.00 per share to Investissement Québec. The Company determined the fair value of the warrants using the Black-Scholes pricing formula. The fair value of the First Disbursement Warrant was determined to be $77,954 and is included in “Additional paid-in capital – Warrants” in our Condensed Consolidated Balance Sheets. The First Disbursement Warrant remains outstanding as at May 31, 2020.

 

The remaining amount available under the financing facility is $1,734,073 (CDN$2,390,766) to be received in a maximum of two additional disbursements.

 

Term loan

 

On January 24, 2018, the Company obtained a $1,015,449 (CDN$1,400,000) 20-year term instalment loan (the “Loan”), from a Canadian bank. The Loan bears interest at the bank’s Canadian prime rate plus 1.5%. By agreement, the Loan is repayable in monthly payments of $4,231 (CDN$5,833) plus interest, until January 2021, at which time it will be subject to renewal. It includes an option allowing for the prepayment of the Loan without penalty. During the three-month period ended May 31, 2020, we repaid $12,693 (2019 – 13,057) on the principal balance of the Loan. Interest paid amounted to $10,311 during the quarter ended May 31, 2020 (2019 - $13,070). The terms of the credit facility require the Company to comply with certain financial covenants. As at May 31, 2020 and 2019, the Company was in compliance with its financial covenants.

 

Principal repayments due on the Company’s long-term debt over the next five years are as follows:

 

Years ending   Amount  
February 28, 2021   $ 38,079  
February 28, 2022     50,772  
February 28, 2023     50,772  
February 29, 2024     279,684  
February 28, 2025     279,684  
Thereafter     1,787,700  
Total   $ 2,486,691  

 

v3.20.2
Related Party Transactions
3 Months Ended
May 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

Employment Agreement

 

On June 29, 2015, the Company entered into an employment agreement with Mr. Daniel Solomita, the Company’s President and Chief Executive Officer (“CEO”).  The employment agreement is for an indefinite term. 

 

On July 13, 2018, the Company and Mr. Solomita entered into an amendment and restatement of the employment agreement which provided for a long-term incentive grant of 4,000,000 shares of the Company’s common stock, in tranches of one million shares each, upon the achievement of four performance milestones. This was modified to provide a grant of 4,000,000 restricted stock units covering 4,000,000 shares of the Company’s common stock while the performance milestones remained the same. The grant of the restricted stock units became effective upon approval by the Company’s shareholders at the Company’s 2019 annual meeting, of an increase in the number of shares available for grant under the Plan.  Such approval was granted by the Company’s shareholders at the Company’s 2019 annual meeting.

 

On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement.  The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is far simpler to purify.

 

During the quarters ended May 31, 2020 and May 31, 2019, no outstanding milestones were probable of being met based on the authoritative guidance provided by the FASB and, accordingly, the Company did not record any additional compensation expense. When a milestone becomes probable, the corresponding expense will be valued based on the grant date fair value on April 30, 2020, the date of the last modification of Mr. Solomita’s employment agreement. The closing price of the Company’s common stock on the Nasdaq on April 30, 2020 was $7.74 per share.

 

v3.20.2
Stockholders' Equity
3 Months Ended
May 31, 2020
Stockholders' Equity  
Stockholders' Equity

Common Stock

 

For the period ended May 31, 2020   Number of shares     Amount  
Balance, February 29, 2020     39,910,774     $ 3,992  
Issuance of shares upon settlement of restricted stock units     6,131       1  
Balance, May 31, 2020     39,916,905     $ 3,993  

  

For the period ended May 31, 2019   Number of shares     Amount  

Balance, February 29, 2019

    33,805,706     $ 3,381  
Issuance of shares for cash      600,000        60  
Issuance of shares upon settlement of legal matter     150,000       15  
Issuance of shares upon conversion of Convertible notes     319,326       32  
Balance, May 31, 2019     34,875,032     $ 3,488  

 

During the three months ended May 31, 2020, the Company recorded the following common stock transactions:

 

(i) The Company issued 6,131 shares of the common stock to settle restricted stock units that vested in the period.

 

During the three months ended May 31, 2019, the Company recorded the following common stock transactions:

 

(i) On March 1, 2019, the Company sold 600,000 shares of its common stock at an offering price of $8.55 per share in a registered direct offering, for gross proceeds of $5,130,000;

 

(ii) On March 8, 2019 and March 11, 2019, the Company issued 150,000 shares of its common stock in settlement of a legal matter;

 

(iii) On April 9, 2019, the Company converted Convertible notes with a face value of $2,650,000 plus accrued interest of $80,241 at a conversion price of $8.55, into 319,326 common shares.

 

v3.20.2
Share-Based Payments
3 Months Ended
May 31, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Payments

Stock Options

 

During the three-month period ended May 31, 2020, the Company granted 3,389 stock options (2019 – nil) with a weighted average exercise price of $8.78 (2019 – nil), no stock options were forfeited (2019 – 10,010; weighted average exercise price: $8.75) or exercised (2019 – nil) and no stock options expired (2019 – 260,417; weighted average exercise price: $13.89).

 

The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. The principal components of the pricing model were as follows:

 

    2020     2019  
Exercise price   $ 8.78     $ -  
Risk-free interest rate     1.05 %     -  
Expected dividend yield     0.00 %     -  
Expected volatility     75.95 %     -  
Expected life     7.5 years        -  

 

During the three-month periods ended May 31, 2020 and 2019, stock-based compensation expense attributable to stock options amounted to $556,895 and $575,513, respectively, and is included in operating expenses.

 

Restricted Stock Units

 

During the three-month period ended May 31, 2020, the Company granted 83,725 restricted stock units (“RSUs”) (2019 – 25,145) with a weighted average fair value of $8.71 (2019 – 9.79), settled 6,131 RSUs (2019 – 7,043) with a weighted average fair value of $9.55 (2019 – 12.16) and 2,989 RSUs were forfeited (2019 – 17,203) with a weighted average fair value of $8.78 (2019 – $8.75).

 

The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the closing share price at grant date multiplied by the number of restricted stock unit awards granted.

 

During the three-month periods ended May 31, 2020 and 2019, stock-based compensation attributable to RSUs amounted to $370,487 and $355,178, respectively, and is included in operating expenses.

 

During the three-month periods ended May 31, 2020 and 2019, stock-based compensation included in research and development expenses amounted to $352,007 and $312,435, respectively, and in general and administrative expenses amounted to $659,817 and $618,255, respectively.

 

v3.20.2
Equity Incentive Plan
3 Months Ended
May 31, 2020
Equity [Abstract]  
Equity Incentive Plan

On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2020, the Board of Directors opted to waive the annual share reserve increase. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of awards granted, the share price pursuant to the awards and the vesting conditions and period. The awards, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10% of the voting power of the Company, the life of the options shall not exceed 5 years.

 

The following table summarizes the continuity of the Company’s Equity Incentive Plan units during the three-month periods ended May 31, 2020 and 2019:

 

    2020     2019  
    Number of units     Number of units  
Outstanding, beginning of period     1,300,518       3,223,516  
Automatic share reserve increase     -       1,500,000  
Units granted     (87,114 )     (25,145 )
Units forfeited     2,989       27,213  
Units expired     -       260,417  
Outstanding, end of period     1,216,393       4,986,001  

 

v3.20.2
Warrants
3 Months Ended
May 31, 2020
Warrants Abstract  
Warrants

During the three-month period ended May 31, 2020, the Company issued, in exchange for consulting services, a warrant to purchase 25,000 shares of our common stock at the price of $9.43 per share expiring May 12, 2022. No warrants were exercised or expired in the three-month period ended May 31, 2020.

 

During the three-month period ended May 31, 2019, the Company issued a warrant to purchase 159,663 shares of our common stock at the price of $8.55 per share expiring October 5, 2020. No warrants were exercised or expired in the three-month period ended May 31, 2019.

 

v3.20.2
Interest and Other Financial Expenses
3 Months Ended
May 31, 2020
Interest And Other Financial Expenses  
Interest and Other Financial Expenses

Interest and other financial expenses for the three-month periods ended May 31, 2020 and 2019 are as follows:

 

    2020     2019  
Interest on long-term debt   $ 19,727     $ 13,070  
Interest on convertible notes     -       117,435  
Accretion expense     8,547       547,562  
Amortization of deferred finance expenses     -       46,442  
Revaluation of warrants     -       8,483  
  Loss on revaluation of foreign exchange contracts     98,502       -  
Gain on conversion of November 2018 Notes     -       (232,565 )
Other     -       1,422  
    $ 126,776     $ 501,849  

 

v3.20.2
Summary of Significant Accounting Policies (Policies)
3 Months Ended
May 31, 2020
Accounting Policies [Abstract]  
Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property, plant and equipment, intangible assets, analysis of impairments of long-lived assets and intangible assets, accruals for potential liabilities and assumptions made in calculating the fair value of stock-based compensation and other equity instruments.

 

The uncertainties around the COVID-19 pandemic required the use of estimates and assumptions that resulted in no significant impact to our unaudited condensed consolidated financial statements as of and for the three-month period ended May 31, 2020.

 

Foreign currency translations and transactions

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars, the reporting currency of the Company. Assets and liabilities of subsidiaries that have a functional currency other than that of the Company are translated to U.S. dollars at the exchange rate as at the balance sheet date. Income and expenses are translated at the average exchange rate of the period. The resulting translation adjustments are included in other comprehensive income (loss) (“OCI”). As a result, foreign currency exchange fluctuations may impact operating expenses. The Company currently has not engaged in any currency hedging activities.

 

For transactions and balances, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency of the entity at the prevailing exchange rate at the reporting date. Non-monetary assets and liabilities, and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated statements of operations and comprehensive loss, except for gains or losses arising from the translation of intercompany balances denominated in foreign currencies that forms part in the net investment in the subsidiary which are included in OCI. 

  

Stock-based compensation

Loop Industries, Inc. periodically issues stock options, warrants and restricted stock units to employees and non-employees in non-capital raising transactions for services and financing expenses. The Company accounts for stock options granted to employees based on the authoritative guidance provided by the FASB wherein the fair value of the award is measured on the grant date and where there are no performance conditions, recognized as compensation expense on the straight-line basis over the vesting period and where performance conditions exist, recognize compensation expense when it becomes probable that the performance condition will be met. Forfeitures on share-based payments are accounted for by recognizing forfeitures as they occur.

 

The Company accounts for stock options and warrants granted to non-employees in accordance with the authoritative guidance of the FASB wherein the fair value of the stock compensation is based upon the measurement date determined as the earlier of the date at which either a) a commitment is reached with the counterparty for performance or b) the counterparty completes its performance.

 

The Company estimates the fair value of restricted stock unit awards to employees and directors based on the closing market price of its common stock on the date of grant.

 

The fair value of the stock options granted are estimated using the Black-Scholes-Merton Option Pricing (“Black-Scholes”) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options, and future dividends. Stock-based compensation expense is recorded based on the value derived from the Black-Scholes model and on actual experience. The assumptions used in the Black-Scholes model could materially affect stock-based compensation expense recorded in the current and future periods.

 

Income taxes

The Company calculates its provision for income tax on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

 

Research and development expenses

Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development expenses recorded during the three-month periods ended May 31, 2020 and 2019 amounted to $1,480,588 and $997,861, respectively, and are net of government research and development tax credits and government grants from the federal and provincial taxation authorities accrued and recorded based on qualifying expenditures incurred during the fiscal periods.

 

Net earnings (loss) per share

The Company computes net loss per share in accordance with FASB ASC 260, Earnings Per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.

 

For the three-month periods ended May 31, 2020 and 2019, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at May 31, 2020, the potentially dilutive securities consisted of 1,590,470 outstanding stock options (May 31, 2019 – 1,691,973), 4,302,527 outstanding restricted stock units (May 31, 2019 – 403,767), 5,084,331 outstanding warrants (May 31, 2019 – 962,132) and nil outstanding issuable common stock (May 31, 2019 – 1,000,000).

 

Recent accounting pronouncements

Recently adopted accounting pronouncements

 

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that Is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the standard had no impact on the consolidated financial statements of the Company.

  

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Reform Act on items within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." Amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is not affected by this update. ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable beginning March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company.

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” amended in July by ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Targeted Improvements,” and ASU 2018-20, “Narrow-Scope Improvements for Lessors,” which requires lessees to recognize leases on the balance sheet while continuing to recognize expenses in the income statement in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing, and uncertainty of cash flows arising from leases. This ASU may either be adopted on a modified retrospective approach at the beginning of the earliest comparative period, or through a cumulative-effect adjustment at the adoption date. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted these standards effective March 1, 2020. The adoption of the standard had no impact on the consolidated financial statements of the Company. The Company elected to apply the package of practical expedients that allows us not to reassess whether expired or existing contracts contain leases, the classification of these leases and whether previously capitalized initial direct costs would qualify for capitalization under Accounting Standards Codification (or “ASC”) 842. Furthermore, we elected to use hindsight in determining the lease term and assessing impairment of the right-of-use assets.

 

Recently issued accounting pronouncements not yet adopted

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which removes specific exceptions to the general principles in ASC 740, “Income Taxes,” and clarifies certain aspects of the existing guidance. This update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption being permitted as of the beginning of an interim or annual reporting period. All amendments to this ASU must be adopted in the same period on a prospective basis, with certain exceptions. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We are still evaluating the impact of this accounting guidance on our results of operations and financial position.

 

v3.20.2
Sales Tax, Tax Credits and Other Receivables (Tables)
3 Months Ended
May 31, 2020
Receivables [Abstract]  
Sales tax, tax credits and other receivables
   

May 31,

2020

   

February 29,

2020

 
Sales tax   $ 122,419     $ 180 971  
Research and development tax credits     216,458       447,843  
Other receivables     231,337       35,730  
    $ 570,214     $ 664,544  
v3.20.2
Prepaid Expenses (Tables)
3 Months Ended
May 31, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid expenses
   

May 31,

2020

   

February 29,

2020

 
Insurance   $ 1,144,500     $ 61,891  
Machinery and equipment     644,000       -  
Other prepaid expenses     148,539       79,335  
    $ 1,937,039     $ 141,226  
v3.20.2
Property, Plant and Equipment (Tables)
3 Months Ended
May 31, 2020
Property, Plant and Equipment [Abstract]  
Property, plant and equipment
    As at May 31, 2020  
    Cost     Accumulated depreciation     Net book value  
Building   $ 1,798,134     $ (140,542 )   $ 1,657,592  
Land     222,268       -       222,268  
Building and land improvements     900,479       (235,634 )     664,845  
Machinery and equipment     6,207,312       (1,598,626 )     4,608,686  
Office equipment and furniture     162,388       (65,734 )     96,654  
Balances, end of period   $ 9,290,581     $ (2,040,536 )   $ 7,250,045  

 

    As at February 29, 2020  
    Cost     Accumulated depreciation     Net book value  
Building   $ 1,846,070     $ (128,911 )   $ 1,717,159  
Land     264,868       -       264,868  
Building and land improvements     733,884       (214,068 )     519,816  
Machinery and equipment     6,085,195       (1,426,465 )     4,658,730  
Office equipment and furniture     162,466       (62,785 )     99,681  
Balances, end of period   $ 9,092,483     $ (1,832,229 )   $ 7,260,254  

 

v3.20.2
Intangible Assets (Tables)
3 Months Ended
May 31, 2020
Finite-Lived Intangible Assets, Net [Abstract]  
Intangible assets
    As at May 31,     As at February 29,  
    2020     2020  
             
Intangible assets, at cost - beginning of period   $ 225,174     $ 127,672  
Intangible assets, accumulated depreciation – beginning of period     (22,311 )     -  
      202,863       127,672  
                 
Add: Additions in the period     144,386       99,972  
Deduct: Amortization of intangibles     (7,891 )     (22,631 )
Deduct: Impairment of intangibles     -       -  
Add (deduct): Foreign exchange effect     (5,312 )     (2,150 )
    $ 334,046     $ 202,863  
v3.20.2
Fair Value of Financial Instruments (Tables)
3 Months Ended
May 31, 2020
Fair Value Disclosures [Abstract]  
Fair value of financial instruments
    Fair Value Measurements as at May 31, 2020  
    Carrying Amount     Fair Value     Level in the hierarchy  
Instruments measured at fair value on a recurring basis:                  
Foreign exchange contracts   $ 125,951     $ 125,951       Level 1  
                         
Instruments measured at amortized cost:                        
Long-term debt   $ 2,236,221     $ 2,246,745       Level 2  

 

    Fair Value Measurements at February 29, 2020  
    Carrying Amount     Fair Value     Level in the hierarchy  
Instruments measured at fair value on a recurring basis:                  
Foreign exchange contracts   $ 26,840     $ 26,840       Level 1  
                         
Instruments measured at amortized cost:                        
Long-term debt   $ 2,290,152     $ 2,291,109       Level 2  

 

v3.20.2
Accounts Payable and Accrued Liabilities (Tables)
3 Months Ended
May 31, 2020
Payables and Accruals [Abstract]  
Accounts payable and accrued liabilities
   

May 31,
2020

   

February 29,
2020

 
Trade accounts payable   $ 648,670     $ 814,081  
Trade accrued liabilities     99,587       593,789  
Accrued employee compensation     496,630       634,807  
Foreign exchange contracts     125,951       26,840  
Other accrued liabilities     40,634       13,181  
    $ 1,411,472     $ 2,082,698  
v3.20.2
Long-Term Debt (Tables)
3 Months Ended
May 31, 2020
Long-term Debt, Unclassified [Abstract]  
Long-term debt
   

May 31,

2020

   

February 29,

2020

 
Investissement Québec financing facility:            
Principal amount   $ 1,602,404     $ 1,645,122  
Unamortized discount     (273,652 )     (289,852 )
Accrued interest     10,489       958  
Total Investissement Québec financing facility     1,339,241       1,356,228  
Term loan                
Principal amount     896,980       933,924  
Less: current portion     (50,772 )     (52,126 )
Total term loan, net of current portion     846,208       881,798  
Long-term debt, net of current portion   $ 2,185,449     $ 2,238,026  
Principal repayments
Years ending   Amount  
February 28, 2021   $ 38,079  
February 28, 2022     50,772  
February 28, 2023     50,772  
February 29, 2024     279,684  
February 28, 2025     279,684  
Thereafter     1,787,700  
Total   $ 2,486,691  
v3.20.2
Stockholders' Equity (Tables)
3 Months Ended
May 31, 2020
Stockholders' Equity  
Common stock
For the period ended May 31, 2020   Number of shares     Amount  
Balance, February 29, 2020     39,910,774     $ 3,992  
Issuance of shares upon settlement of restricted stock units     6,131       1  
Balance, May 31, 2020     39,916,905     $ 3,993  

  

For the period ended May 31, 2019   Number of shares     Amount  
Balance, February 29, 2019     33,805,706     $ 3,381  
Issuance of shares for cash      600,000        60  
Issuance of shares upon settlement of legal matter     150,000       15  
Issuance of shares upon conversion of Convertible notes     319,326       32  
Balance, May 31, 2019     34,875,032     $ 3,488  

 

v3.20.2
Share-Based Payments (Tables)
3 Months Ended
May 31, 2020
Share-based Payment Arrangement [Abstract]  
Key inputs into the valuation model
    2020     2019  
Exercise price   $ 8.78     $ -  
Risk-free interest rate     1.05 %     -  
Expected dividend yield     0.00 %     -  
Expected volatility     75.95 %     -  
Expected life     7.5 years        -  
v3.20.2
Equity Incentive Plan (Tables)
3 Months Ended
May 31, 2020
Equity [Abstract]  
Equity incentive plan
    2020     2019  
    Number of units     Number of units  
Outstanding, beginning of period     1,300,518       3,223,516  
Automatic share reserve increase     -       1,500,000  
Units granted     (87,114 )     (25,145 )
Units forfeited     2,989       27,213  
Units expired     -       260,417  
Outstanding, end of period     1,216,393       4,986,001  
v3.20.2
Interest and Other Financial Expenses (Tables)
3 Months Ended
May 31, 2020
Interest And Other Financial Expenses  
Interest and other financial expenses
    2020     2019  
Interest on long-term debt   $ 19,727     $ 13,070  
Interest on convertible notes     -       117,435  
Accretion expense     8,547       547,562  
Amortization of deferred finance expenses     -       46,442  
Revaluation of warrants     -       8,483  
  Loss on revaluation of foreign exchange contracts     98,502       -  
Gain on conversion of November 2018 Notes     -       (232,565 )
Other     -       1,422  
    $ 126,776     $ 501,849  
v3.20.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Research and development expenses $ 1,480,588 $ 997,861
Stock Options    
Antidilutive securities 1,590,470 1,691,973
Restricted Stock Units    
Antidilutive securities 4,302,527 403,767
Warrants    
Antidilutive securities 5,084,331 962,132
Common Stock    
Antidilutive securities 0 1,000,000
v3.20.2
Sales Tax, Tax Credits and Other Receivables (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Receivables [Abstract]    
Sales tax $ 122,419 $ 180,971
Research and development tax credits 216,458 447,843
Other receivables 231,337 35,730
Sales tax, research and development tax credits and other receivables $ 570,214 $ 664,544
v3.20.2
Prepaid Expenses (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]    
Insurance $ 1,144,500 $ 61,891
Machinery and equipment 644,000 0
Other prepaid expenses 148,539 79,335
Prepaid expenses $ 1,937,039 $ 141,226
v3.20.2
Property, Plant and Equipment (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Property, plant and equipment, gross $ 9,290,581 $ 9,092,483
Less: accumulated depreciation (2,040,536) (1,832,229)
Property, plant and equipment, net 7,250,045 7,260,254
Building    
Property, plant and equipment, gross 1,798,134 1,846,070
Less: accumulated depreciation (140,542) (128,911)
Property, plant and equipment, net 1,657,592 1,717,159
Land    
Property, plant and equipment, gross 222,268 264,868
Less: accumulated depreciation 0 0
Property, plant and equipment, net 222,268 264,868
Building and Land Improvements    
Property, plant and equipment, gross 900,479 733,884
Less: accumulated depreciation (235,634) (214,068)
Property, plant and equipment, net 664,845 519,816
Machinery and Equipment    
Property, plant and equipment, gross 6,207,312 6,085,195
Less: accumulated depreciation (1,598,626) (1,426,465)
Property, plant and equipment, net 4,608,686 4,658,730
Office Equipment and Furniture    
Property, plant and equipment, gross 162,388 162,466
Less: accumulated depreciation (65,734) (62,785)
Property, plant and equipment, net $ 96,654 $ 99,681
v3.20.2
Property, Plant and Equipment (Details Narrative) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 248,199 $ 161,321
v3.20.2
Intangible Assets (Details) - USD ($)
3 Months Ended 12 Months Ended
May 31, 2020
May 31, 2019
Feb. 29, 2020
Finite-Lived Intangible Assets, Net [Abstract]      
Intangible assets, at cost - beginning of period $ 225,174   $ 127,672
Intangible assets, accumulated depreciation (22,311)   0
Total 202,863   127,672
Add: Additions in the year 144,386   99,972
Deduct: Amortization of intangibles (7,891) $ (3,015) (22,631)
Deduct: Impairment of intangibles 0   0
Deduct: Foreign exchange effect (5,312)   (2,150)
Total $ 334,046   $ 202,863
v3.20.2
Intangible Assets (Details Narrative) - USD ($)
3 Months Ended 12 Months Ended
May 31, 2020
May 31, 2019
Feb. 29, 2020
Finite-Lived Intangible Assets, Net [Abstract]      
Amortization expense $ 7,891 $ 3,015 $ 22,631
v3.20.2
Fair Value of Financial Instruments (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Carrying amount $ 3,647,693 $ 4,372,850
Foreign Exchange Contracts | Level 1    
Carrying amount 125,951 26,840
Fair value 125,951 26,840
Long-Term Debt | Level 2    
Carrying amount 2,236,221 2,290,152
Fair value $ 2,246,745 $ 2,291,109
v3.20.2
Accounts Payable and Accrued Liabilities (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Payables and Accruals [Abstract]    
Trade accounts payable $ 648,670 $ 814,081
Trade accrued liabilities 99,587 593,789
Accrued employee compensation 496,630 634,807
Foreign exchange contracts 125,951 26,840
Other accrued liabilities 40,634 13,181
Accounts payable and accrued liabilities $ 1,411,472 $ 2,082,698
v3.20.2
Long-Term Debt (Details) - USD ($)
May 31, 2020
Feb. 29, 2020
Principal amount $ 2,486,691  
Less: current portion (50,772) $ (52,126)
Long-term debt, net of current portion 2,185,449 2,238,026
Investissement Québec Financing Facility    
Principal amount 1,602,404 1,645,122
Unamortized discount (273,652) (289,852)
Accrued interest 10,489 958
Long-term debt, net of current portion 133,941 1,356,228
Term Loan    
Principal amount 896,980 933,924
Less: current portion (50,772) (52,126)
Long-term debt, net of current portion $ 846,208 $ 881,798
v3.20.2
Long-Term Debt (Details 1)
May 31, 2020
USD ($)
Long-term Debt, Unclassified [Abstract]  
February 28, 2021 $ 38,079
February 28, 2022 50,772
February 28, 2023 50,772
February 29, 2024 279,684
February 28, 2025 279,684
Thereafter 1,787,700
Total $ 2,486,691
v3.20.2
Long-Term Debt (Details Narrative) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Investissement Québec Financing Facility    
Interest expense $ 9,416 $ 0
Accretion expense 8,547 0
Term Loan    
Interest paid $ 10,311 $ 13,070
v3.20.2
Stockholders' Equity (Details) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Beginning balance, amount $ 38,463,708 $ 2,626,392
Issuance of common shares for cash, net of share issuance expenses (Note 12), amount   4,266,785
Issuance of shares for legal settlement, amount   0
Issuance of shares upon conversion of convertible notes, amount   2,689,510
Issuance of shares upon vesting of restricted stock units (Note 13), amount 0  
Ending balance, amount $ 35,452,406 $ 6,818,685
Common Stock    
Beginning balance, shares 39,910,774 33,805,706
Beginning balance, amount $ 3,992 $ 3,381
Issuance of common shares for cash, net of share issuance expenses (Note 12), shares   600,000
Issuance of common shares for cash, net of share issuance expenses (Note 12), amount   $ 60
Issuance of shares for legal settlement, shares   150,000
Issuance of shares for legal settlement, amount   $ 15
Issuance of shares upon conversion of convertible notes, shares   319,326
Issuance of shares upon conversion of convertible notes, amount   $ 32
Issuance of shares upon vesting of restricted stock units (Note 13), shares 6,131  
Issuance of shares upon vesting of restricted stock units (Note 13), amount $ 1  
Ending balance, shares 39,916,905 34,875,032
Ending balance, amount $ 3,993 $ 3,488
v3.20.2
Share-Based Payments (Details) - $ / shares
3 Months Ended
May 31, 2020
May 31, 2019
Share-based Payment Arrangement [Abstract]    
Exercise price $ 8.78 $ .00
Risk-free interest rate 1.05% 0.00%
Expected dividend yield 0.00% 0.00%
Expected volatility 75.95% 0.00%
Expected life 7 years 6 months 0 years
v3.20.2
Share-Based Payments (Details Narrative) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Stock options granted 3,389 0
Stock options granted, weighted average exercise price $ 8.78 $ .00
Stock options forfeited 0 10,010
Stock options forfeited, weighted average exercise price $ .00 $ 8.75
Stock options exercised 0 0
Stock options expired 0 260,417
Stock options expired, weighted average exercise price $ 0 $ 13.89
Stock option expense $ 556,895 $ 575,513
Restricted stock unit expense $ 370,487 $ 355,178
Restricted Stock Units    
Restricted stock units granted 83,725 25,145
Restricted stock units granted, weighted average exercise price $ 8.71 $ 9.79
Restricted stock units settled 6,131 7,043
Restricted stock units settled, weighted average exercise price $ 9.55 $ 12.16
Restricted stock units forfeited 2,989 17,203
Restricted stock units forfeited, weighted average exercise price $ 8.78 $ 8.75
v3.20.2
Equity Incentive Plan (Details) - Equity Incentive Plan - shares
3 Months Ended
May 31, 2020
May 31, 2019
Number of units outstanding, beginning 1,300,518 3,223,516
Automatic share reserve increase 0 1,500,000
Number of units, granted (87,114) (25,145)
Number of units, forfeited 2,989 27,213
Number of units, expired 0 260,417
Number of units outstanding, ending 1,216,393 4,986,001
v3.20.2
Warrants (Details Narrative) - Warrants - $ / shares
3 Months Ended
May 31, 2020
May 31, 2019
Warrants issued 25,000 159,663
Warrants issued, weighted average exercise price $ 9.43 $ 8.55
v3.20.2
Interest and Other Financial Expenses (Details) - USD ($)
3 Months Ended
May 31, 2020
May 31, 2019
Interest And Other Financial Expenses    
Interest on long-term debt $ 19,727 $ 13,070
Interest on convertible notes 0 117,435
Accretion expense 8,547 547,562
Amortization of deferred finance costs 0 46,442
Revaluation of warrants 0 8,483
Loss on revaluation of foreign exchange contracts 98,502 0
Gain on conversion of November 2018 Notes 0 (232,565)
Other 0 1,422
Interest and other finance costs $ 126,776 $ 501,849