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Loop Industries, Inc. - Quarter Report: 2021 May (Form 10-Q)

 

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, 2021
 
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, 2021, there were 42,445,351 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.
 
 
 
 
 
LOOP INDUSTRIES, INC.
 
TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
 
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20
 
 
 
 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
Loop Industries, Inc.
Three months ended May 31, 2021
Index to the Unaudited Interim Condensed Consolidated Financial Statements
 
Contents
 
Page(s)
 
 
 
 
F-2
 
 
 
 
F-3
 
 
 
 
F-4
 
 
 
 
F-5
 
 
 
 
F-6
 
 
F-1
 
 
Loop Industries, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
 
As at
 
 
 
May 31, 2021
 
 
February 28, 2021
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 $18,037,062 
 $35,221,951 
Sales tax, tax credits and other receivables (Note 3)
  1,551,702 
  1,763,835 
Prepaid expenses (Note 4)
  1,978,390 
  609,782 
Total current assets
  21,567,154 
  37,595,568 
Investment in joint venture
  1,500,000 
  1,500,000 
Property, plant and equipment, net (Note 5)
  8,569,606 
  3,513,051 
Intangible assets, net (Note 6)
  881,223 
  794,894 
Total assets
 $32,517,983 
 $43,403,513 
 
    
    
Liabilities and Stockholders' Equity
    
    
Current liabilities
    
    
Accounts payable and accrued liabilities (Note 8)
 $9,057,423 
 $8,124,865 
Current portion of long-term debt (Note 10)
  971,257 
  938,116 
Total current liabilities
  10,028,680 
  9,062,981 
Long-term debt (Note 10)
  1,614,971 
  1,516,008 
Total liabilities
  11,643,651 
  10,578,989 
 
    
    
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; 42,433,320 shares issued and outstanding (February 28, 2021 – 42,413,691) (Note 12)
  4,244 
  4,242 
Additional paid-in capital
  113,663,032 
  113,662,677 
Additional paid-in capital – Warrants
  8,826,165 
  8,826,165 
Accumulated deficit
  (101,819,334)
  (89,661,970)
Accumulated other comprehensive loss
  200,225 
  (6,590)
Total stockholders' equity
  20,874,332 
  32,824,524 
Total liabilities and stockholders' equity
 $32,517,983 
 $43,403,513 
 
    
    
 
    
    
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-2
 
Loop Industries, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
 
 
 
 
Three Months Ended
 
 
 
May 31, 2021
 
 
May 31, 2020
 
Revenue
 $- 
 $- 
 
    
    
Expenses :
    
    
Research and development (Note 13)
  8,637,905 
  1,480,588 
General and administrative (Notes 14)
  3,160,571 
  1,953,081 
Depreciation and amortization (Notes 5 and 6)
  132,001 
  255,974 
Interest and other financial expenses (Note 18)
  30,588 
  126,776 
Interest income
  (9,761)
  (40,346)
Foreign exchange loss (gain)
  206,060 
  76,641 
Total expenses
  12,157,364 
  3,852,714 
 
    
    
Net loss
  (12,157,364)
  (3,852,714)
 
    
    
Other comprehensive loss -
    
    
Foreign currency translation adjustment
  206,815 
  (170,412)
Comprehensive loss
 $(11,950,549)
 $(4,023,126)
Loss per share
    
    
Basic and diluted
 $(0.29)
 $(0.10)
Weighted average common shares outstanding
    
    
Basic and diluted
  42,433,107 
  39,916,838 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-3
 
 
Loop Industries, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
 (Unaudited)
 
 
 
                  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 
 
 
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 15)
  6,131 
  1 
  - 
  - 
  (1)
  - 
  - 
  - 
  - 
Warrant issued for services (Note 17)
  - 
  - 
  - 
  - 
  - 
  84,442 
  - 
  - 
  84,442 
Stock options issued for services (Note 15)
  - 
  - 
  - 
  - 
  556,895 
  - 
  - 
  - 
  556,895 
Restricted stock units issued for services (Note 15)
  - 
  - 
  - 
  - 
  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 
 
 
 
                  Three months ended May 31, 2021
 
 
 
    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 
 
 
Accumulated Deficit 
 
 
Accumulated Other Comprehensive Income (Loss) 
 
 
Total Stockholders’ Equity 
 
Balance, February 28, 2021
  42,413,691 
 $4,242 
  1 
 $- 
 $113,662,677 
 $8,826,165 
 $(89,661,970)
 $(6,590)
 $32,824,524 
 
    
    
    
    
    
    
    
    
    
Issuance of shares upon the vesting of restricted stock units (Note 15)
  19,629 
  2 
  - 
  - 
  (2)
  - 
  - 
  - 
  - 
Stock options issued for services (Note 15)
  - 
  - 
  - 
  - 
  549,318 
  - 
  - 
  - 
  549,318 
Restricted stock units issued (forfeited) for services (Note 15)
  - 
  - 
  - 
  - 
  (548,961)
  - 
  - 
  - 
  (548,961)
Foreign currency translation
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  206,815 
  206,815 
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  (12,157,364)
  - 
  (12,157,364)
Balance, May 31, 2021
  42,433,320 
 $4,244 
  1 
 $- 
 $113,663,032 
 $8,826,165 
 $(101,819,334)
 $200,225 
 $20,874,332 
 
 
 
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,
 
 
 
2021
 
 
2020
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net loss
 $(12,157,364)
 $(3,852,714)
Adjustments to reconcile net loss to net cash used in operating activities:
    
    
Depreciation and amortization (Notes 5 and 6)
  132,001 
  256,090 
Stock-based compensation expense (Note 15)
  15,357 
  1,011,824 
Accretion and accrued interest expenses (Note 18)
  21,408 
  17,963 
Loss on revaluation of foreign exchange contracts (Note 18)
  - 
  98,502 
Changes in operating assets and liabilities:
    
    
Sales tax and tax credits receivable (Note 3)
  287,116 
  76,410 
Prepaid expenses (Note 4)
  (1,326,519)
  (1,865,216)
Accounts payable and accrued liabilities (Note 8)
  622,443 
  (720,759)
Net cash used in operating activities
  (12,405,558)
  (4,977,900)
 
    
    
Cash Flows from Investing Activities
    
    
Investment in joint venture (Note 9)
  - 
  (650,000)
Additions to property, plant and equipment (Note 5)
  (4,867,007)
  (394,403)
Additions to intangible assets (Note 6)
  (52,319)
  (144,386)
Net cash used in investing activities
  (4,919,326)
  (1,188,789)
 
    
    
Cash Flows from Financing Activities
    
    
Repayment of long-term debt (Note 10)
  (14,496)
  (12,693)
Net cash (used) provided by financing activities
  (14,496)
  (12,693)
 
    
    
Effect of exchange rate changes
  154,491 
  (29,534)
Net decrease in cash
  (17,184,889)
  (6,208,916)
Cash, beginning of period
  35,221,951 
  33,717,671 
Cash, end of period
 $18,037,062 
 $27,508,755 
 
    
    
Supplemental Disclosure of Cash Flow Information:
    
    
Income tax paid
 $- 
 $- 
Interest paid
 $9,178 
 $10,311 
Interest received
 $9,761 
 $40,346 
 
See accompanying notes to the condensed consolidated financial statements.
 
 
F-5
 
 
Loop Industries, Inc.
Three Months Ended May 31, 2021 and 2020
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
 
1. The Company and Basis of Presentation
 
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 suitable for use in food-grade packaging and polyester fiber.
 
On November 20, 2017, Loop Industries 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 28, 2021, filed with the SEC on June 1, 2021. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50% interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method.
 
Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 28, 2021, 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, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter, for the fiscal year ending February 28, 2022, or for 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 as well as the carrying value of our joint venture investment, accruals for potential liabilities, assumptions made in calculating the fair value of stock-based compensation and other equity instruments, and the assessment of performance conditions for stock-based compensation awards and the judgment in the assessment.
 
The COVID-19 pandemic has disrupted business operations for us and our customers, suppliers, vendors and other parties with whom we do business, and such disruptions are expected to continue for an indefinite period of time. The uncertain duration of these measures has had and may continue to have an effect on our development and commercialization efforts. In particular, as previously disclosed, the situation in the United States and the continued travel restrictions and quarantine requirements between Canada and the United States have caused disruptions in our timetable of our joint venture with Indorama in the development of our Spartanburg facility and commercialization of our technology.
 
 
F-6
 
 
Although the Company continues to monitor the situation and may adjust the Company’s current policies as more information and public health guidance become available, the COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus, the severity of the disease, the duration of the outbreak and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to assess whether there will be further impact on the development and commercialization of the Company’s technology which could have a material adverse effect on the Company’s results of operations and cash flows.
 
Stock-based compensation
 
The Company 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 expenses recorded in the current and future periods.
 
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, 2021 and 2020 amounted to $8,637,905 and $1,480,588, 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.
 
Foreign currency translations and transactions
 
The accompanying 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 is 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.
 
Net earnings (loss) per share
 
 
F-7
 
 
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, 2021 and 2020, 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, 2021, the potentially dilutive securities consisted of 1,587,081 outstanding stock options (2020 – 1,587,081), 4,149,125 outstanding restricted stock units (2020 – 4,293,407), and 4,133,720 outstanding warrants (2020 – 5,084,331).
 
3. Sales Tax, Tax Credits and Other Receivables
 
Sales tax, research and development tax credits and other receivables as at May 31, 2021 and February 28, 2021 were as follows:
 
 
 
May 31, 2021
 
 
February 28, 2021
 
Sales tax
 $935,883 
 $1,155,504 
Research and development tax credits
  500,345 
  435,467 
Other receivables
  115,474 
  172,864 
 
 $1,551,702 
 $1,763,835 
 
4. Prepaid expenses
 
Prepaid expenses and deposits as at May 31, 2021 and February 28, 2021 were as follows:
 
 
 
May 31, 2021
 
 
February 28, 2021
 
Directors and officers insurance
 $812,455 
 $- 
Deposits on machinery and equipment
  965,670 
  379,395 
Other
  200,265 
  230,387 
 
 $1,978,390 
 $609,782 
 
Non-refundable cash deposits on machinery and equipment that will be used in research and development activities will be expensed, and classified as research and development expenses, in the period the equipment is received and placed into use.
 
 
F-8
 
 
5. Property, Plant and Equipment
 
 
 
As at May 31, 2021
 
 
 
Cost
 
 
Accumulated depreciation, write-down and impairment
 
 
Net book value
 
Building
 $2,053,585 
 $(228,932)
 $1,824,653 
Land
  5,173,641 
  - 
  5,173,641 
Building Improvements
  1,938,596 
  (594,078)
  1,344,518 
Machinery and equipment
  6,514,252 
  (6,514,252)
  - 
Office equipment and furniture
  342,258 
  (115,464)
  226,794 
 
 $16,022,332 
 $(7,452,726)
 $8,569,606 
 
 
 
As at February 28, 2021
 
 
 
Cost
 
 
Accumulated depreciation, write-down and impairment
 
 
Net book value
 
Building
 $1,954,345 
 $(201,589)
 $1,752,756 
Land
  241,578 
  - 
  241,578 
Building Improvements
  1,804,872 
  (474,114)
  1,330,758 
Machinery and equipment
  6,514,252 
  (6,514,252)
  - 
Office equipment and furniture
  292,946 
  (104,987)
  187,959 
 
 $10,807,993 
 $(7,294,942)
 $3,513,051 
 
During the three-month period ended May 31, 2021, the Company acquired a 19 million square foot parcel of land in Bécancour, Québec for $4.9 million (CDN $5.9 million). The Company intended use for the site is to construct a commercial facility to manufacture Loop™ branded PET resin using its Infinite Loop™ technology.
 
Depreciation expense for the three-month periods ended May 31, 2021 and 2020 amounted to $115,057 and $248,199, respectively, and is recorded as an operating expense in the consolidated statements of operations and comprehensive loss.
 
 
F-9
 
 
6. Intangible Assets
 
 
 
 
 
 As at May 31,
2021
 
 
 As at February 28,
2021
 
    


 
 
 
 
 
 
 
Patents, at cost - beginning of period
 $859,048 
 $225,174 
Patents, accumulated depreciation – beginning of period
  (64,154)
  (22,310)
Patents, net – beginning of period
  794,894 
  202,864 
 
    
    
Additions in the period – patents
  52,319 
  623,811 
Amortization of patents
  (16,944)
  (41,844)
Foreign exchange effect
  50,954 
  10,063 
Patents, net – end of period
 $881,223 
 $794,894 
 
 
Amortization expense for the three-month periods ended May 31, 2021 and 2020 amounted to $16,944 and $7,891, 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, 2021 and February 28, 2021:
 
 
 
Fair Value Measurements as at May 31, 2021
 
 
 
Carrying Amount
 
 
Fair Value
 
 
Level in the hierarchy
 
Instruments measured at amortized cost:
 
 
 
 
 
 
 
 
 
Long-term debt
 $2,586,227 
 $2,596,787 
  Level 2  
 
 
 
Fair Value Measurements at February 28, 2021
 
 
 
Carrying Amount
 
 
Fair Value
 
 
Level in the hierarchy
 
Instruments measured at amortized cost:
 
 
 
 
 
 
 
 
 
Long-term debt
 $2,454,123 
 $2,464,540 
  Level 2 
 
 
F-10
 
 
8. Accounts Payable and Accrued Liabilities
 
Accounts payable and accrued liabilities as at May 31, 2021 and February 28, 2021 were as follows:
 
 
 
May 31, 2021
 
 
February 28, 2021
 
Trade accounts payable
 $5,279,857 
 $5,082,736 
Accrued employee compensation
  1,051,109 
  970,154 
Accrued professional fees
  1,040,791 
  1,270,628 
Accrued engineering fees
  862,645 
  535,359 
Other accrued liabilities
  823,021 
  265,988 
 
 $9,057,423 
 $8,124,865 
 
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 “Joint Venture 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 Joint Venture Agreement, Indorama Ventures is contributing manufacturing knowledge and Loop Industries is required to contribute its proprietary science and technology. Specifically, the Company is contributing an exclusive worldwide 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 ILT. There were no operations in ILT from the date of inception of September 24, 2018 to February 28, 2021 and, as at February 28, 2021, 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 year ended February 28, 2021, we made contributions to ILT of $650,000 (2020 – $850,000). These contributions to ILT, which have been matched by Indorama Ventures, were used to fund engineering design costs which have been capitalized in ILT.
 
See Note 20. Subsequent Events for the description of an amendment to the Joint Venture Agreement dated June 18, 2021.
 
10. Long-Term Debt
 
Long-term debt as of May 31, 2021 and February 28, 2021, was comprised of the following:
 
 
 
May 31, 2021
 
 
February 28, 2021
 
Investissement Québec financing facility :
 
 
 
 
 
 
Principal amount
 $1,830,048 
 $1,741,612 
Unamortized discount
  (271,001)
  (268,192)
Accrued interest
  55,924 
  42,588 
Total Investissement Québec financing facility
  1,614,971 
  1,516,008 
Term loan
    
    
Principal amount
  971,256 
  938,116 
Less: current portion
  (971,256)
  (938,116)
Total term loan, net of current portion
  - 
  - 
Long-term debt, net of current portion
 $1,614,971 
 $1,516,008 
 
 
F-11
 
 
Investissement Québec financing facility
 
On February 21, 2020, the Company received $1,830,048 (CDN$2,209,234) from Investissement Québec as the first disbursement of our financing facility, out of a maximum of $3,810,471 (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, $38,105 (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-month period ended May 31, 2021 in the amount of $10,882 (2020 – $9,416) and an accretion expense of $10,526 (2020 – $8,547).
 
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 $381,047 (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, 2021.
 
The remaining amount available under the financing facility is $1,980,422 (CDN$2,390,766) and relates to expenditures incurred up to June 30, 2021 in connection with our demonstration and training facility.
 
Term Loan
 
On January 24, 2018, the Company obtained a $1,159,708 (CDN$1,400,000) 20-year term installment 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 $4,832 (CDN$5,833) plus interest, until January 2022. It includes an option allowing for the prepayment of the Loan without penalty. In January 2021, the Company and the Canadian bank agreed to maintain the same repayment amount and interest rate until January 2022, at which time the monthly repayment amount and interest rate will be subject to renewal. During the three-month period ended May 31, 2021, we repaid $14,496 (2020 – $12,693) on the principal balance of the Loan and interest paid amounted to $9,178 (2020 – $10,311). The terms of the credit facility require the Company to comply with certain financial covenants. As at May 31, 2021 and 2020, the Company was in compliance with its financial covenants.
 
Principal repayments due on the Company’s bank indebtedness over the next five years are as follows:
 
Years ending
 
Amount
 
February 28, 2022
 $45,560 
February 28, 2023
  57,985 
February 29, 2024
  319,417 
February 28, 2025
  319,417 
February 28, 2026
  319,417 
Thereafter
  1,727,084 
Total
 $2,788,880 
 
 
F-12
 
 
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.
 
On April 30, 2020, the Company and Mr. Solomita entered into an amendment of Mr. Solomita’s employment agreement.  The amendment clarified the milestones consistent with the shift in the Company’s business from the production of terephthalate to the production of dimethyl terephthalate, another proven monomer of PET plastic that is simpler to purify.
 
During the quarters ended May 31, 2021 and May 31, 2020, 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, 2021
 
Number of shares
 
 
Amount
 
Balance, February 28, 2021
  42,413,691 
 $4,242 
Issuance of shares upon settlement of restricted stock units
  19,629 
  2 
Balance, May 31, 2021
  42,433,320 
 $4,244 
 
 
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 
 
During the three months ended May 31, 2021, the Company recorded the following common stock transaction:
 
(i) The Company issued 19,629 shares of the common stock to settle restricted stock units that vested in the period.
 
During the three months ended May 31, 2020, the Company recorded the following common stock transaction:
 
(i) The Company issued 6,131 shares of the common stock to settle restricted stock units that vested in the period.
 
 
F-13
 
 
13. Research and Development Expenses
 
Research and development expenses for the three-month periods ended May 31, 2021 and 2020 were as follows:
 
 
 
May 31, 2021
 
 
May 31, 2020
 
External engineering
 $2,903,448 
 $74,932 
Employee compensation
  2,086,128 
  819,048 
Machinery and equipment expenditures
  2,622,892 
  - 
Demonstration plant operating expenses
  691,537 
  286,103 
Other
  333,900 
  300,505 
 
 $8,637,905 
 $1,480,588 
 
14. General and Administrative Expenses
 
General and administrative expenses for the three-month periods ended May 31, 2021 and 2020 were as follows:
 
 
 
May 31, 2021
 
 
May 31, 2020
 
Professional fees
 $1,631,451 
 $221,697 
Employee compensation(1)
  461,405 
  1,142,851 
Directors and officers insurance
  868,647 
  473,574 
Other
  199,068 
  114,959 
 
 $3,160,571 
 $1,953,081 
 
(1)
Includes stock-based compensation expense. In the three-month period ended May 31, 2021, the Company recorded RSU forfeitures for an amount of $935,837 (2020 – $4,005) as a net reversal of stock-based compensation.
 
15. Share-based Payments
 
Stock Options
 
During the three-month period ended May 31, 2021, the Company granted no stock options (2020 – nil), no stock options were forfeited (2020 – nil) or exercised (2020 – nil) and no stock options expired (2020 – nil).
 
The Company applies the fair value method of accounting for stock-based compensation awards granted. Fair value is calculated based on a Black-Scholes option pricing model. There were no new issuances of stock options for the three-month periods ended May 31, 2021 and 2020.
 
The total number of stock options outstanding as at May 31, 2021 was 1,587,081 (2020 – 1,587,081) with a weighted average exercise price of $6.81 (2020 - $6.81), of which 1,229,998 were exercisable (2019 – 986,248) with a weighted average exercise price of $7.25 (2020 – $7.32).
 
During the three-month periods ended May 31, 2021 and 2020, stock-based compensation expense attributable to stock options amounted to $549,318 and $556,895, respectively, and is included in operating expenses.
 
 
F-14
 
 
Restricted Stock Units
 
During the three-month period ended May 31, 2021, the Company granted 253,758 restricted stock units (“RSUs”) (2020 – 83,725) with a weighted average fair value of $8.85 (2020 – $8.71), settled 19,629 RSUs (2020 – 6,131) with a weighted average fair value of $9.02 (2020 – $9.55) and 295,524 RSUs were forfeited (2020 – 2,989) with a weighted average fair value of $7.93 (2020 – $8.78).
 
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.
 
The total number of RSUs outstanding as at May 31, 2021 was 4,149,125 (2020 – 4,293,407), of which 696,327 were vested (2020 – 836,684).
 
During the three-month periods ended May 31, 2021 and 2020, stock-based compensation attributable to RSUs amounted to ($533,961) and $370,487, respectively, and is included in operating expenses. The net reversal in expenses attributable to RSUs in the three-month period ended May 31, 2021 is due to forfeitures recorded in the period for a total of $935,837 (2020 – $4,005).
 
During the three-month periods ended May 31, 2021 and 2020, stock-based compensation included in research and development expenses amounted to $395,545 and $352,007, respectively, and in general and administrative expenses amounted to ($380,188) and $659,817, respectively. The net reversal in stock-based compensation included in general and administrative expenses in the three-month period ended May 31, 2021 is due to forfeitures recorded in the period for a total of $935,837 (2020 – $4,005).
 
16. Equity Incentive Plan
 
On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of warrants, stock options, stock appreciation rights and restricted stock units to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were initially reserved for issuance under the Plan at July 6, 2017, with annual automatic share reserve increases, as defined in the Plan, amounting to the lessor of (i) 1,500,000 shares, (ii) 5% of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) or such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2021 and 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, 2021 and 2020:
 
 
 
2021
 
 
2020
 
 
 
Number of units
 
 
Number of units
 
Outstanding, beginning of period
  1,083,412 
  1,300,518 
Automatic share reserve increase
  - 
  - 
Units granted
  (253,758)
  (87,114)
Units forfeited
  295,524 
  2,989 
Units expired
  - 
  - 
Outstanding, end of period
  1,125,178 
  1,216,393 
 
 
F-15
 
 
17. Warrants
 
During the three-month period ended May 31, 2021, no warrants were granted, were forfeited, were exercised nor expired.
 
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, 2021.
 
18. Interest and Other Financial Expenses
 
Interest and other financial expenses for the three-month periods ended May 31, 2021 and 2020 are as follows:
 
 
 
2021
 
 
2020
 
Interest on long-term debt
 $20,059 
 $19,727 
Accretion expense
  10,529 
  8,547 
  Loss on revaluation of foreign exchange contracts
  - 
  98,502 
 
 $30,588 
 $126,776 
 
19. Commitments and Contingencies
 
Commercial Commitments
 
On September 2, 2020, the Company entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET plastic and polyester polymer for fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”). The total amount of the Chemtex Agreement is $4,300,000 and covers the know-how and design of two Infinite Loop™ facilities. Payment terms are based on the completion of certain milestones and total $2,150,000 for each facility. As at May 31, 2021, the cumulative amount paid was $900,000 and during the three-month period ended May 31, 2021, no additional amount was paid by the Company related to this agreement and included in research and development expenses.
 
Contingencies
 
On October 13, 2020, the Company and certain of its officers were named as defendants in a proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Olivier Tremblay, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-0838 (“Tremblay Class Action”). The allegations in the complaint claim that the defendants allegedly violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. Plaintiff seeks unspecified damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020.
 
On October 28, 2020, the Company and certain of its officers were named as defendants in a second proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Michelle Bazzini, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-09031-UA. The allegations in this complaint are similar in nature to those made in the Tremblay Class Action.
 
On January 4, 2021, the United States District Court for the Southern District of New York rendered a stipulation and order granting the consolidation of the two class-action lawsuits filed in New York as In re Loop Industries, Inc. Securities Litigation, Master File No. 7:20-cv-08538. Sakari Johansson and John Jay Cappa have been appointed as Co-Lead Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP have been appointed as Co-Lead Counsel for the class.
 
 
F-16
 
 
Plaintiffs served a consolidated amended complaint on February 18, 2021 which alleges defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The consolidated amended complaint relies on the October 13, 2020 report published by a third party regarding the Company to support their allegations. Defendants served a motion to dismiss the consolidated amended complaint on April 27, 2021. Plaintiffs’ opposition to the motion to Dismiss was served on May 27, 2021 and Defendants’ reply in support of the motion to dismiss was served on June 11, 2021.
 
On October 13, 2020, the Company, Loop Canada Inc. and certain of their officers and directors were named as defendants in a proposed securities class action filed in the Superior Court of Québec (District of Terrebonne, Province of Québec, Canada), in file no. 700-06-000012-205. The Application for authorization of a class action and for authorization to bring an action pursuant to section 225.4 of the Québec Securities Act (“the Application”) was filed by an individual shareholder on behalf of himself and a class of buyers who purchased our securities during the “Class Period” (not defined). Plaintiff alleges that throughout the Class Period, the defendants allegedly made false and/or misleading statements and allegedly failed to disclose material adverse facts concerning the Company’s technology, business model, operations and prospects, thus causing the Company’s stock price to be artificially inflated and thereby causing plaintiff to suffer damages. Plaintiff seeks unspecified damages stemming from losses he claims to have suffered as a result of the foregoing. On December 13, 2020, the Application was amended in order to add allegations regarding specific misrepresentations.
 
Management believes that these cases lack merit and intends to defend them vigorously. No amounts have been provided for in the consolidated financial statements with respect to these claims. Management has not yet determined what effect these lawsuits may have on its financial position or results of operations as they are still in the preliminary stages.
 
20. Subsequent Events
 
Strategic Partnership
 
On June 22, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) by and between the Company and SK global chemical Co., Ltd, an accredited investor (the “Purchaser”). Pursuant to the Purchase Agreement, the Company has agreed to issue and sell to the Purchaser the following securities for an aggregate purchase price of approximately $56.5 million (collectively, the “Investment”):
 
an aggregate of 4,714,813 shares (the “Shares”) of the Company’s common stock (the “Common Stock”);
warrants to purchase 4,714,813 shares of Common Stock for an exercise price of $15.00 (the “First Tranche Warrants”), with an expiration date of the third anniversary of the issue date;
warrants to purchase 2,357,407 shares of Common Stock for an exercise price of $20.00 (the “Second Tranche Warrants”), with an expiration date of the earlier of (A) the date that is the third anniversary of the First Plant Milestone (as defined in the Second Tranche Warrants), (B) the expiration of the JV Negotiation Period (as defined in the Second Tranche Warrants), provided that the Joint Venture Transaction Agreements (as defined in the Second Tranche Warrants) have not been executed by the expiration of the JV Negotiation Period and (C) the third anniversary of the Date of approval of the basic engineering package for the facilities constructed by the JV, provided that the First Plant Milestone has not occurred as of such date; and
warrants to purchase 461,298 shares of Common Stock for an exercise price of $11.00 (the “Third Tranche Warrants,” and together with First Tranche Warrants and the Second Tranche Warrants, the “Warrants”), with an expiration date of June 14, 2022.
 
The Purchaser may exercise the First Tranche Warrant and the Third Tranche Warrant at any time prior to their applicable expiration dates. The Purchaser may exercise the Second Tranche Warrant at any time on or after the first business day following the First Plant Milestone (as defined in the Second Tranche Warrant) prior to its expiration date.
 
After the closing of the Investment, the Purchaser is expected to own approximately 10.0% of the issued and outstanding Common Stock as of that date.
 
Simultaneous with the execution of the Purchase Agreement, the Company and the Purchaser entered into a Joint Venture Memorandum of Understanding (“JV MOU”) with respect to a potential joint venture to commercialize the Company’s plastic recycling technology in Asia (“Proposed Asia JV”). The JV MOU, which is non-binding, outlines certain principal terms for the Proposed Asia JV. The Purchase Agreement provides that the parties will negotiate exclusively with one another from the date of the Purchase Agreement until the date which is six months from the BDP Date (as defined in the Purchase Agreement) with respect to the Proposed Asia JV (subject to extension in accordance with the terms and conditions of the Purchase Agreement), with the objective of executing definitive agreements for the Proposed Asia JV.
 
 
F-17
 
 
Joint Venture Amendment
 
In conjunction with the SK strategic partnership described above, on June 18, 2021, the Company, Loop Innovations, LLC, a wholly-owned subsidiary of the Company (“Loop Innovations”), Indorama Ventures Holdings LP (“Indorama”) and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended (i) the Limited Liability Company Agreement between Loop Innovations, LLC and Indorama Ventures Holdings LP (the “LLC Agreement”), (ii) the Marketing Agreement between the Company and Indorama Loop Technologies, LLC (the “Marketing Agreement”) and (iii) the License Agreement between the Company and the Indorama Joint Venture Company (the “License Agreement”), each dated September 24, 2018 (collectively such amendments, the “Indorama Joint Venture Amendments”).
 
Under the Indorama Joint Venture Amendments, the Company, Indorama and the Indorama Joint Venture Company agreed to:
 
terminate Indorama’s right of first refusal under the LLC Agreement over any facility to produce products utilizing any waste-to-resin technology applying the PET depolymerization process of the Company;
amend the non-compete obligations under the LLC Agreement to solely apply to the Company;
limit the scope of the Company’s grant of intellectual property rights and the scope of the exclusivity rights of the Indorama Joint Venture Company for the retrofit of existing facilities under the License Agreement to North America and Europe; and
limit the scope of the Indorama Joint Venture Company’s permitted marketing rights under the Marketing Agreement to North America and Europe.
 
 
F-18
 
 
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 scale, manufacture and sell our products in order to generate revenues, (viii) our proposed business model and our ability to execute thereon, (ix) adverse effects on the Company’s business and operations as a result of increased regulatory, media or financial reporting scrutiny, practices, rumors, or otherwise, (x) disease epidemics and health related concerns, such as the current outbreak of 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, government employment subsidy programs, travel restrictions or the like to prevent the spread of disease, and market or other changes that could result in noncash impairments of our intangible assets, and property, plant and equipment, (xi) the outcome of the current SEC investigation or recent class action litigation filed against us, (xii) our ability to hire and/or retain qualified employees and consultants and (xiii) other factors discussed in our subsequent filings with the SEC.
 
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 plastic bottles and packaging, carpets and textiles of any color, transparency or condition and even ocean plastics that have been degraded by the sun and salt, to its base building blocks (monomers). The monomers are filtered, purified and polymerized to create virgin-quality Loop™ branded PET resin suitable for use in food-grade packaging and polyester fiber, thus enabling our customers to meet their sustainability objectives. Loop Industries is contributing to the global movement toward a circular economy by reducing plastic waste and recovering waste plastic for a sustainable future.
 
Industry Background and Market Opportunity
 
The global annual market demand for PET plastic and polyester fiber at nearly $130 billion per year, and the current growth projections from the 2018 IHS Polymer Market Report indicate this will exceed $160 billion by 2022.
 
We believe, plastic pollution continues to be one of the most persistently covered environmental issues by media and local and global environmental non-governmental organizations. Some of the main concerns associated with PET are the emissions associated with its production from non-renewable hydrocarbons and the length of time it persists in landfills and the natural environment. 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. In the last few years, governments in North America and Europe have been enacting and proposing laws and regulations mandating the use of minimum recycled content in packaging underlying the strength of this issue in the marketplace. Consumer brands are seeking a solution to their plastic challenge, and they are taking action. In recent years we have seen major brands make significant commitments to close the loop on their plastic packaging by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging.
 
Global consumer goods companies, apparel manufacturers, and retail brands have announced significant public commitments and targets to make the transition to a circular plastic economy, namely:
 
In January 2018, Danone’s evian® brand bottled spring water committed to a 100% recycled content package by 2025;
In 2018, Coca-Cola committed to an average recycled content of 50% across its packaging by 2030;
In 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;
In 2020, L’OCCITANE en Provence committed to 100% recycled content plastic in their bottles by 2025;
In 2020, L’Oréal Group committed to using 100% recycled or biobased plastic in their packaging by 2030;
By 2025, Unilever targets increasing the use of post-consumer recycled plastic material in their packaging to at least 25%;
Colgate-Palmolive states a 2025 goal of increasing recycled content for plastic to 25%;
Nestlé aims to increase the amount of recycled PET used across their brands globally to 50% by 2025;
Adidas Group aims to replace all virgin polyester with recycled polyester in all adidas and Reebok products where a solution exists by 2024;
H&M is aiming to ensure that at least 25% of the plastic they use is from post-consumer recycled materials.
Walmart has an objective to use at least 17% post-consumer recycled content globally in their private brand plastic packaging and is taking action to eliminate problematic or unnecessary plastic packaging and move from single-use toward reuse models where relevant by 2025; and
Ikea’s ambition is, that by 2030, all plastic used in their products will be based on renewable or recycled material.
 
Additionally, there is a growing regulatory and policy environment to encourage a reduction in the production of virgin fossil fuel based plastic and a minimum recycled content in packaging imposed by various governments. For example, on July 21 2020, the European Union announced a new tax on plastic waste starting January 1, 2021. This tax will have a rate of €800/ton on nonrecycled plastic packaging. In the UK, a new £200/ton tax will apply to plastic packaging produced or imported into the UK that does not contain at least 30% recycled plastic, effective 2022. A California law filed on September 24, 2020 requires that plastic bottles contain at least 15% post-consumer resin by 2022, 25% by 2025 and 50% by 2030. The growing regulatory environment is expected to increase the demand for recycled PET plastic further.
 
We believe that mechanical recycling processes may not be adequate to meet increasing demand resulting from companies’ changing packaging demand and shifting regulatory environment discussed above. As explained by the International Bottled Water Association, currently, mechanical recycled PET (rPET) plastic is produced principally through the conversion of bales of PET bottles. The materials have to be collected and transported to a materials recovery facility (“MRF”), where they are sorted from other materials, baled, and sent to specific PET recycling facilities. The bales are broken and sorted to remove any non-PET materials. The PET is then ground and put through a separation process which separates the PET from the bottle cap and label materials. Clean PET flake is then further processed depending on its intended end market. It may become more highly refined PET pellet for new bottles or extruded into PET sheet for clamshells, trays, and cups. Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.
 
 
5
 
 
We believe mechanically recycled PET has a number of challenges in meeting the quality specifications and growing volume requirements implied by commitments from major brands, mainly due to the cost and variety of acceptable PET feedstock. Some mechanical recycling processes involve remelting the PET flake which reduces the quality of the rPET output each time it is recycled relative to the specifications of virgin PET produced from fossil fuels. Each time the PET plastic is mechanically recycled, its quality and clarity are reduced. Therefore, mechanically recycled PET may need to be mixed with virgin PET from fossil fuels to maintain quality. Lower quality mechanically recycled PET is often downcycled to alternate uses such as polyester fibers which may be dyed and used in carpets or clothing. Additionally, mechanically recycled PET manufactured for use in clear bottles or food containers requires predominantly clear and clean PET flakes separated from waste bales, and cannot accommodate darkly colored PET flakes, lower quality fiber feedstock, or materially contaminated feedstock, which may be cheaper.
 
We believe the commercialization plans of Loop™ PET resin and polyester fiber may provide the ideal solution for global brands because Loop™ PET resin and polyester fiber contains 100% recycled PET and polyester fiber content. The Loop™ PET resin and polyester fiber is virgin quality suitable for use in food-grade packaging. That means consumer packaged goods companies will be able to choose to market packaging made from a 100% Loop™ branded PET resin and polyester fiber.
 
Proprietary Technology and Intellectual Property
 
We believe, the power of our technology lies in its ability to use post-industrial and post-consumer waste PET plastic and polyester fiber feedstocks, which could end up in landfills, rivers, oceans and natural areas, to create Loop™ PET resin. We believe our technology can deliver high-purity profitable virgin quality PET resin suitable for use in food-grade packaging and polyester fiber.
 
Our Generation I technology (“GEN I”) is a hydrolysis-based depolymerization technology which yielded purified terephthalic acid (“PTA”) and monoethylene glycol (“MEG”), two common monomers of PET. As the Company evaluated the transition from the GEN I technology from pilot scale to commercial scale, several challenges involving PTA and MEG purification were identified. To overcome the GEN I technology challenges, we embarked on the development of a second generation of our technology. Our Generation II technology (“GEN II”) is a methanolysis-based depolymerization technology that uses temperatures below 90 °C to depolymerize waste PET and polyester fiber. The low temperature offers several key advantages which the company believes will improve its ability to commercialize the GEN II technology, including;
 
Lower energy usage during depolymerization and therefore reduced processing cost relative to higher temperature processes;
Avoidance of side reactions with non-PET waste, which are inherent in waste PET feedstock streams, during depolymerization which may occur during higher temperature and higher pressure depolymerization processes. This allows for a simplified distillation purification process resulting in less, and more effective, steps to isolate the desired high purity DMT and MEG monomers suitable to produce virgin quality PET required to meet food contact regulations as well as the quality and clarity requirements of global consumer product companies;
Allowing the depolymerization of less costly and low-quality feedstocks, which cannot be effectively recycled today, such as carpet fiber, clothing and mixed plastics, and upcycling them into high-quality PET that can be used in food contact use; and
The GEN II technology uses only trace amounts of water, eliminates the need for a halogenated solvent and uses a catalyst at low concentration.
 
This shift, from producing the monomer PTA to the monomer DMT, was a pivotal moment for Loop Industries. We believe that GEN II requires less energy and fewer resource inputs than conventional PET production processes. We also believe it is an environmentally sustainable method for producing virgin quality food-grade PET plastic by decoupling PET manufacturing from the fossil fuel industry.
 
To independently validate that our GEN II technology can produce DMT and MEG monomers at mini-pilot and pilot scale, we commissioned Kemitek, a College Centre for Technology Transfer specialized in the fields of green chemistry and chemical process scale-up. Kemitek’s findings allowed them to confirm that our technology produces monomers that meet our purity specifications for the production of PET resin and polyester fiber. The complete, Kemitek report was filed with the SEC by the Company on December 14, 2020.
 
 
6
 
 
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, We have two technology areas, referred to as GEN I technology and the GEN II technology, with patent claims relating to our technology for depolymerizing PET.
 
The GEN I technology portfolio has three issued U.S. patents, all expected to expire on or around July 2035. Internationally, we also have issued patents in Argentina, Australia, Europe, Eurasia, China, Israel, Japan, Taiwan, South Africa, and in the members of the Gulf Cooperation Council and pending patent applications in Brazil, Canada, Hong Kong, India, Korea, Mexico, and the Philippines, all expected to expire, if granted, on or around July 2036, not including any patent term extension.
 
The GEN II technology portfolio currently consists of four patent families:
 
o
The first has two issued U.S. patent and a pending U.S. application, all expected to expire on or around September 2037. Internationally, we also have an issued patent in Bangladesh, and pending applications in Argentina, Australia, Bolivia, Brazil, Bhutan, Canada, China, Colombia, Eurasia, Europe, members of the Gulf Countries, Hong Kong, Indonesia, Israel, India, Iraq, Japan, Korea, Kuwait, Laos, Mexico, Malaysia, Panama, Papua New Guinea, Philippines, Pakistan, Singapore, Taiwan, Uruguay, Uzbekistan, Venezuela, and South Africa, all expected to expire on or around September 2038, if granted and not including any patent term extension.
 
o
An additional aspect of the GEN II technology is claimed in an issued U.S. patent and a pending U.S. application. Internationally, we also have an allowed patent application in Bangladesh and pending applications in Algeria, Argentina, Australia, Bahrain, Bolivia, Brazil, Cambodia, Canada, Chile, China, Eurasia, Egypt, Europe, India, Indonesia, Israel, Iran, Japan, Korea, Kuwait, Laos, Malaysia, members of the Gulf Cooperation Council, Mexico, Morocco, New Zealand, Oman, Pakistan, Panama, Peru, Philippines, Qatar, Saudi Arabia, Singapore, South Africa, Taiwan, Thailand, Tunisia, United Arab Emirates, Uruguay, Uzbekistan and Vietnam, all expected to expire on or around June 2039, if granted and 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 an International 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, an International application, and pending 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.
 
Loop owns registrations for its trademarks in Canada, the European Union, the United Kingdom, and the U.S. Loop also has pending applications in Cambodia, Canada, Indonesia, Taiwan, the U.S., and Vietnam.
 
Government Regulation and Approvals
 
As we seek to further develop and commercialize our technology, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations, including food packaging regulations, could increase our operational costs.
 
Our operations require various governmental permits and approvals. We are in the process of obtaining all necessary permits and approvals for the operation of our business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. 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. See “Risk Factors” below for additional information.
 
We believe that if we are successful in addressing food packaging regulations in various countries and economic regions, that the regulatory environment may provide Loop™ PET resin a competitive advantage relative to mechanically recycled alternative resins and virgin PET.
 
 
7
 
 
We received a no-objection letter (NOL) on March 1, 2021 from the US Federal Food and Drug Administration (“FDA”) to confirm the capability of Loop Industries’ tertiary recycling process, known as methanolysis, in cleaning and producing post-industrial and post-consumer recycled PET for use in the manufacture of food-contact articles that contact all food types all conditions of use for which PET is permitted. The request to the FDA was initiated on November 23, 2020 and the NOL grant was provided within the expected response period of three to six months.
 
We have received from the European Chemicals Agency a confirmation of registration for our MEG on November 17, 2020, and for our DMT on December 7, 2020. The registration under the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) Regulation (EC 1907/2006) confirms that our monomers are of a purity equal to what is currently recognized within Europe and entitles us to manufacture/import the monomers into Europe. It should be noted that MEG and DMT are on the positive list for plastic materials, which means that the two monomers can be used as food contact materials.
The levels of monomer purity confirmed by Kemitek’s verification are in line with the data submitted for the REACH registration of our DMT and MEG monomers and additionally support the March 1, 2021 NOL from the FDA.
 
Supply Agreements with Global Consumer Brands
 
Consumer brands are seeking a solution to their plastic challenge and they are taking bold action. In the past years, we have seen major brands make significant commitments to close the loop on their plastic use in two ways; by transitioning their packaging to recyclable materials and by incorporating more recycled content into their packaging. We believe Loop™ PET resin provides the ideal solution for these brands because it is recyclable and is made from 100% recycled PET waste and polyester fiber, while being virgin-quality and suitable for use in food-grade packaging and polyester fiber.
 
Due to the commitments by large global consumer brands to incorporate more recycled content into their product packaging, the regulatory requirements for minimum recycled content in packaging imposed by governments, the virgin-quality of Loop™ branded PET resin and its marketability to extoll the sustainability credentials of consumer brands that incorporate it, we believe we will be able to sell Loop™ branded PET resin at a premium price relative to virgin and mechanically recycled PET resin.
 
We are pursuing supply agreements with customers that are located in North America, Europe, and Asia. We currently have agreements with some of the world’s leading brands to be supplied from our planned 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 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 PET Waste into Feedstock
 
We use waste PET plastic and polyester fiber as feedstock. Our technology can use PET plastic bottles and packaging of any color, transparency or condition, carpet, clothing and other polyester textiles that may contain colors, dyes or additives, and even PET plastics that have been recovered from the ocean and degraded by exposure to sun and salt. We believe that our ability to use many materials that mechanical recyclers cannot use is an important advantage of Loop™ PET resin over mechanically recycled PET resin. 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.
 
 
8
 
 
Commercialization Plan and Progress
 
During the three month-period ended May 31, 2021, we continued executing our corporate strategy with a focus on the commercialization of our technology. We are progressing on the engineering of our full-scale commercial facilities with our engineering partner Worley, a leading global engineering, procurement and construction company. Our design approach allows for the process design package, which has been completed, to be used as the base engineering platform for all future geographical expansion. We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction.
 
The 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 recycled content. The Infinite Loop™ technology is being engineered to support the commitment of global consumer brands to achieve a high level of recycled content in packaging. Infinite Loop™ facilities could be located near large urban centers where more plastic is being consumed and therefore more waste plastic feedstock is likely available.
 
Our objective is to achieve global expansion of the technology through a mix of fully owned facilities, strategic partnerships, and licensing agreements. We believe that industrial companies, some of which today may not be in the business of manufacturing PET resin or polyester fiber, will view involvement in Infinite Loop™ projects as a growth opportunity, which may offer attractive economic returns either as Loop manufacturing partners or as licensees of the technology. We are currently pursuing projects for future commercial production facilities in four regions: Canada, Europe, Asia and the U.S.
 
On September 2, 2020, we entered into a know-how and engineering agreement (the “Chemtex Agreement”) with Chemtex Global Corporation (“Chemtex”) to license the PET resin and polyester fiber manufacturing know-how of INVISTA’s technology and licensing group, INVISTA Performance Technologies (IPT) (“INVISTA”). The INVISTA know-how will be used for the polymerization of DMT and MEG monomer output from Loop’s depolymerization technology, the result of which is LoopTM PET resin or polyester fiber made from 100% recycled content. The INVISTA polymerization process and the associated designs are historically proven in the commercial production of PET resin and polyester fiber.
 
We continue to focus on the completion of the Infinite LoopTM engineering design with an initial target capacity of up to 70,000 metric tons/year. Permitting, site and regulatory considerations may impact plant capacity for the various projects. As discussed above, the design includes the integration of our depolymerization technology with INVISTA’s polymerization technology in partnership with Worley. We intend to use this design when evaluating Infinite LoopTM facilities in various regions. Worley has completed the pre-feasibility engineering as part of the planning phase for an Infinite LoopTM manufacturing facility in the province of Québec. We expect that Worley may also play a role in the feasibility phase of engineering and the future design of larger capacity facilities.
 
We believe that Infinite LoopTM recycled PET resin and polyester fiber could command premium pricing over virgin, petroleum-based PET resin and provide attractive economic returns. We are targeting multi-year take or pay offtake agreements for planned Infinite LoopTM production. Factors under consideration in determining project economics include pre-feasibility design engineering and cost estimate work, timing and permitting of a facility, customer offtake demand, commitment terms, and feedstock sources, quality, availability, logistics, and ramp up, among others.
 
Strategic Partnership with SK Global Chemical
 
We and SK global chemical Co. Ltd. (“SKGC”) intend to form a joint venture with exclusivity to build sustainable PET plastic and polyester fiber manufacturing facilities throughout Asia, which accounts for approximately 60 percent of the world’s population, making it a key market in terms of plastic manufacturing, consumption and waste. Under the terms of the Memorandum of Understanding (“MOU”) for the proposed joint venture, SKGC will own 51 percent of the joint venture and we will own 49 percent. We will also receive a recurring annual royalty fee as a percentage of revenue from each facility for the use of its technology.
 
In addition, we and SKGC have entered into a definitive agreement for SKGC to become a strategic investor in Loop. SKGC will purchase 4,714,813 of our common shares at a price of $12 per share, for total consideration of $56.5 million. Closing of the strategic equity investment will be as soon as practical and no later than 90 days from the June 23, 2021 announcement.
 
We will also grant SKGC options to acquire an additional 461,298 common shares at $11 per share within the next 12 months, 4,714,813 common shares at a price of $15 per share, within the next 3 years, and a further 2,357,407 shares at $20 per share, conditional upon the timing of construction of the first Asian manufacturing facility. SKGC is being granted a seat on our Board of Directors and as such is expected to provide valued input into the continuing development of our global commercialization strategy.
 
 
9
 
 
Infinite LoopTM Bécancour, Québec
 
We are in the planning phase for an Infinite LoopTM manufacturing facility in the province of Québec (the “Québec Project”). On May 27, 2021, we acquired a 19 million square foot parcel of land in Bécancour, Québec for $4.9 million (CDN $5.9 million) (the “New Site”). The site offers attractive logistics being located on the St-Lawrence river and access to rail. As previously disclosed, we had identified a different 2 million square feet parcel of land in Bécancour, Québec (the “Previous Site”), and had negotiated an option right to purchase that parcel of land. The purchase option was canceled in May 2021. The environmental impact of building on the New Site is lower than the Previous Site because we will be recycling an industrial site that has previously been demolished. The development of this site will likely not result in the destruction of wetlands or forest and it reduces the overall construction costs and permitting time. The site size exceeds our project needs and we may choose to sell a portion of the land to offset part of our project commitment.
 
The Québec Project is currently contemplated as wholly-owned and operated by us which allows us to commercialize near our innovation and engineering teams located in Terrebonne, Québec. To fund the project and enhance our target returns, we are exploring financing options. Alternatives under exploration include incentive and financing programs supported by, or in partnership with, various levels of government.
 
The Québec Project would allow us to proceed with Infinite LoopTM commercialization in a more expeditious manner without being impacted by COVID-19 restrictions on international travel.
 
Infinite LoopTM Europe
 
We announced on September 10, 2020 a strategic partnership with SUEZ GROUP (“Suez”), with the objective to build the first Infinite Loop™ manufacturing facility in Europe. With the combination of the Infinite LoopTM technology and the resource management expertise of Suez, this partnership seeks to respond to growth in demand in Europe from global beverage and consumer goods brand companies who we believe are committed to ambitious targets for a high level of recycled content in their products. Together with Suez, we have initiated the work to enable us to make a final investment decision for the project with the current priorities being on the site selection, permitting, and feedstock requirements and engineering. We are targeting final site selection during the summer of 2021.
 
Joint Venture with Indorama
 
In September 2018 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 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 of 100% sustainable and recycled PET resin.
 
We entered into a Limited Liability Company Agreement between (the “LLC Agreement”), a Marketing Agreement (the “Marketing Agreement”) and a License Agreement (the “License Agreement”), each dated September 24, 2018 (together, the “Joint Venture Agreements”), with Indorama through our wholly-owned subsidiary Loop Innovations, LLC (“Loop Innovations”), a Delaware limited liability company. Each company has 50/50 equity interest in the joint venture. We are contributing to the 50/50 joint venture an exclusive worldwide royalty-free license to use our proprietary technology to produce 100% sustainably produced PET resin in addition to our equity cash contribution. 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. In 2019, the joint venture decided to increase the capacity of the planned Spartanburg plant due to customer demand to 40,000 metric tons per year.
 
We have currently contracted for the sale of approximately 40% of the planned capacity, of the expected output of the Spartanburg facility and we will resume discussions for the remaining volume once we have more visibility on the commissioning date of the facility, although we have had and may continue to experience delays due to the COVID-19 pandemic (see “The global COVID-19 pandemic” as noted under “Risk Factors”). As part of the Joint Venture Agreement, we are committed to contribute our equity share for the costs under the joint venture agreement to construct the facility. During the year ended February 28, 2021, we made a contribution of $650,000 and as at May 31, 2021, we have contributed a total of $1,500,000 to the joint venture.
 
 
10
 
 
The joint venture made a decision over the summer of 2020 that due to the COVID-19 pandemic it would temporarily delay work on the project. Since then, no expenditures have been incurred by the joint venture. The travel restrictions and quarantine requirements between Canada and the US continued to cause disruptions in our timetable. While both joint venture partners currently remain committed to the project, we continue to monitor the COVID-19 implications on the project timetable.
 
In conjunction with the SK strategic partnership mentioned above, on June 18, 2021, we, Loop Innovations, Indorama and Indorama Loop Technologies, LLC (the “Indorama Joint Venture Company”) amended the Joint Venture Agreements (the “Indorama Joint Venture Amendments”).
 
Under the Indorama Joint Venture Amendments, we, Indorama and the Indorama Joint Venture Company agreed to:
 
terminate Indorama’s right of first refusal under the LLC Agreement over any facility to produce products utilizing any waste-to-resin technology applying our PET depolymerization process
amend the non-compete obligations under the LLC Agreement to solely apply to the Company;
limit the scope of our grant of intellectual property rights and the scope of the exclusivity rights of the Indorama Joint Venture Company for the retrofit of existing facilities under the License Agreement to North America and Europe; and
limit the scope of the Indorama Joint Venture Company’s permitted marketing rights under the Marketing Agreement to North America and Europe.
 
The foregoing description of the Indorama Joint Venture Amendments does not purport to be complete and is qualified in its entirety by reference to the Indorama Joint Venture Amendments, a copy of which are filed as exhibits to this Quarterly Report on Form 10-Q for the quarter ended May 31, 2021.
 
Demonstration Plant and Innovation Center in Terrebonne, Québec
 
As part of our plan for the commercialization of future Infinite LoopTM manufacturing facilities, we decided to convert our Terrebonne, Québec pilot plant to an Infinite LoopTM demonstration and training facility. This demonstration facility will be used to showcase the Infinite LoopTM end to end technology to potential partners and customers, and train operational teams in advance of the commissioning of commercial plants.
 
We made significant investments in the demonstration plant during the three-month period ended May 31, 2021. In particular, we began installation of new distillation columns in the last quarter. We also continued testing on the two recently installed depolymerization reactors which substantially increase our demonstration facility’s depolymerization capacity and confirm the design and scale-up factor for the feasibility engineering of the planned commercial-scale facilities. In addition, we have also entered into an agreement to acquire PET polymerization equipment from Chemtex to manufacture of Loop™ branded PET resin at our demonstration plant. We anticipate the Infinite LoopTM demonstration plant project to be largely completed by late in calendar 2021 and delivering Loop™ branded PET resin to customers in calendar 2022.
 
In addition to the capital requirements for our commercialization, we continue to invest in strengthening our intellectual property portfolio, building a core competency in managing strategic relationships and continue enhancing our brand value. Our research and development innovation center in Terrebonne, Québec will continue to push forward the development of our technology.
 
Human Capital
 
Our employees are essential to our success and we are committed to providing a safe, productive, discrimination-free and harassment-free work environment. All employees are responsible for compliance with our Code of Ethics as well as our health and safety, and anti-harassment policies. These policies and practices help us foster a workplace environment that promotes inclusion and diversity.
 
To attract and retain highly capable and innovative employees, we have developed competitive compensation packages and benefits programs. Our compensation packages include market-competitive pay, healthcare benefits, paid time off and family leave and flexible work schedules. We also offer equity awards with multi-year vesting provisions to incentivize and reward our employees for long-term corporate performance and promote retention throughout the vesting period.
 
To support our employees this fiscal year and to promote their health and safety, we encouraged administrative and engineering employees to work remotely. We provided emergency leave for employees to take care of a child or parent due to COVID-19 disruptions.
 
As of May 31, 2021, we had 74 employees of which 29 work in research and development and 32 in engineering and operations. 
 
 
 
11
 
 
Results of Operations
 
The following table summarizes our operating results for the three-month periods ended May 31, 2021 and 2020, in U.S. Dollars.
 
 
 
Three months ended May 31,
 
 
 
2021
 
 
2020
 
 
Change
 
Revenues
 $- 
 $- 
 $- 
 
    
    
    
Expenses
    
    
    
Research and development
    
    
    
Stock-based compensation
  395,545 
  352,007 
  43,538 
External engineering
  2,903,448 
  74,932 
  2,828,516 
Employee compensation
  1,690,583 
  467,041 
  1,223,542 
Machinery and equipment expenditures
  2,622,892 
  - 
  2,622,892 
Demonstration plant operating expenses
  691,537 
  286,103 
  405,434 
Other
  333,900 
  300,505 
  33,395 
Total research and development
  8,637,905 
  1,480,588 
  7,157,317 
 
    
    
    
General and administrative
    
    
    
Stock-based compensation
  (383,630)
  659,817 
  (1,043,447)
Professional fees
  1,631,451 
  221,697 
  1,409,754 
Employee compensation
  845,035 
  483,034 
  362,001 
Directors and officers insurance
  868,647 
  473,574 
  395,073 
Other
  199,068 
  114,959 
  84,109 
Total general and administrative
  3,160,571 
  1,953,081 
  1,207,490 
 
    
    
    
Depreciation and amortization
  132,001 
  255,974 
  (123,973)
Interest and other financial expenses
  30,588 
  126,776 
  (96,188)
Interest income
  (9,761)
  (40,346)
  30,585 
Foreign exchange loss
  206,060 
  76,641 
  129,419 
Total expenses
  12,157,364 
  3,852,714 
  8,304,650 
Net loss
 $(12,157,364)
 $(3,852,714)
 $(8,304,650)
 
First Quarter Ended May 31, 2021
 
The net loss for the three-month period ended May 31, 2021 increased $8.30 million to $12.16 million, as compared to the net loss for the three-month period ended May 31, 2020 which was $3.85 million. The increase is primarily due to increased research and development expenses of $7.16 million, increased general and administrative expenses of $1.21 million, an increase in foreign exchange loss of $0.13 million and a decrease in interest income of $0.03 million, partially offset by lower depreciation and amortization expenses of $0.12 million and lower interest and other financial expenses of $0.1 million.
 
 
12
 
 
The $7.16 million increase in research and development for the three-month period ended May 31, 2021 was primarily attributable to the following:
 
$2.83 million increase in external engineering expenses for ongoing design work for our Infinite LoopTM manufacturing process;
$2.62 million increase in purchases of research and development machinery and equipment. Starting in Q3 of fiscal 2021, we expense research and development machinery and equipment in accordance with ASC 730, Research and Development Costs, and no longer capitalize these costs. The timing of this accounting treatment is related to management’s decision to convert our pilot plant to exclusively a demonstration and training facility for our future Infinite Loop™ manufacturing facilities, therefore foregoing any alternative future use of its machinery and equipment assets in other applications;
$1.2 million increase in employee compensation expenses due to an increase in hiring; and
$0.41 million increase in demonstration plant and laboratory operating expenses due to increased activity at our demonstration plant.
 
The $1.21 million increase in general and administrative expenses for the three-month period ended May 31, 2021 was primarily attributable to the following:
 
$1.41 million increase in expenses for legal and professional fees due to costs principally associated with the ongoing SEC investigation and class action suits described in “Part II, Item 1. Legal Proceedings”
$0.40 million increase in insurance expenses mainly due to directors and officers (“D&O”) insurance renewal costs; and
$0.36 million increase in employee compensation expenses due to an increase in hiring.
 
The listed increases in general and administrative expenses were partially offset by lower stock-based compensation expenses of $1.04 million which are mainly due to forfeitures of RSUs recorded in the three-month period ended May 31, 2021 for a total of $0.94 million.
 
The $0.12 million decrease in depreciation and amortization expenses for the three-month period ended May 31, 2021 is mainly attributable to the write-down of machinery and equipment assets related to the decision in the third quarter of fiscal 2021 to dedicate the demonstration and training facility to research and development activities. Although the machinery and equipment will continue to be utilized at our demonstration and training facility as it is an integral part of supporting the commercialization of our technology, application of ASC 730, Research and Development Costs requires machinery and equipment assets to be written off and all future costs associated with the demonstration and training facility to be recognized as a research and development expense in the consolidated statements of operations and comprehensive loss.
 
The $0.12 million increase in foreign exchange loss for the three-month period ended May 31, 2021 is mainly due to the fluctuation in USD/CAD exchange rates. The $0.10 million decrease in interest and other financial expenses for the three-month period ended May 31, 2021 is mainly due to the loss on revaluation of foreign exchange contracts in the three-month period ended May 31, 2020 which was nil in the three-month period ended May 31, 2021. The $0.03 million decrease in interest income for the three-month period ended May 31, 2021 is mainly due to lower interest rates as well as lower cash balances on which we receive interest.
 
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. As at May 31, 2021, we had cash and cash equivalents on hand of $18.04 million. Management actively monitors the Company’s cash balance and short term cash commitments to ensure current operations are funded. We are also exploring options to finance our commercial projects.
 
Management continues to pursue our growth strategy and is evaluating our financing plans to continue to raise capital to finance the start-up of commercial operations and continue to fund the further development of our ongoing operations. Although our liquidity position consists of cash and cash equivalents on hand of $18.04 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 part of our strategic partnership with SKGC, SKGC will purchase 4,714,813 new treasury common shares of Loop at a price of $12 per share, for total consideration of $56.5 million. Closing of the strategic equity investment will be as soon as practical and no later than 90 days from the June 23, 2021 announcement.
 
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 committed 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, 2021 interim unaudited 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.
 
 
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We have a short-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 demonstration plant and corporate offices are located at 480 Fernand-Poitras, Terrebonne, Québec, Canada J6Y 1Y4. On January 24, 2018, the Company obtained a $1,159,708 (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 $4,832 (CDN$5,833) plus interest, until January 2022, 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 our demonstration and training plant up to a maximum of $3,810,471 (CDN$4,600,000). We received the first disbursement in the amount of $1,830,048 (CDN$2,209,234) on February 21, 2020. See Note 10 in the accompanying interim unaudited condensed consolidated financial statements for additional information. The remaining amount available under the financing facility after the first disbursement was $1,980,422 (CDN$2,390,766) and relates to expenditures incurred up to June 30, 2021 in connection with our demonstration and training facility.
 
Flow of Funds
 
Summary of Cash Flows
 
A summary of cash flows for the three months ended May 31, 2021 and 2020 was as follows:
 
 
 
Three Months Ended May 31,
 
 
 
2021
 
 
2020
 
Net cash used in operating activities
 $(12,405,558)
 $(4,977,900)
Net cash used in investing activities
  (4,919,326)
  (1,188,789)
Net cash used by financing activities
  (14,496)
  (12,693)
Effect of exchange rate changes on cash
  154,491 
  (29,534)
Net (decrease) increase in cash
 $(17,184,889)
 $(6,208,916)
 
Net Cash Used in Operating Activities
 
During the three-month period ended May 31, 2021, we used $12.41 million in operations compared to $4.98 million during the three-month period ended May 31, 2020. This increase is mainly due to increased operating expenses as we move forward on commercialization activities and D&O insurance payments in the amount of $1.9 million due to an increase in the annual premium. As discussed above in the Results of Operations, the main increases in expenses were engineering fees for ongoing design work for our Infinite LoopTM manufacturing process, research and development machinery and equipment expenses related to upgrades in our demonstration plant, employee compensation due to an increase in hiring and professional fees mainly due to the ongoing SEC investigation and class action suits.
 
Net Cash Used in Investing Activities
 
During the three months ended May 31, 2021, we made investments of $4.92 million in property, plant and equipment as compared to $1.19 million for the three months ended May 31, 2020, primarily in connection with the purchase for $4.90 million of a parcel of Land in Bécancour, Québec for the construction of our first Infinite Loop™ manufacturing facility. During the three months ended May 31, 2021, we made investments in intangible assets of $0.05 million, particularly in its patent technology in the United States and around the world.
 
During the three months ended May 31, 2020, we made investments of $0.39 million in property, plant and equipment, primarily in connection with the upgrade of its pilot plant. During the three months ended May 31, 2020, we made investments in intangible assets of $0.14 million, particularly in its patent technology in the United States and around the world. During the three months ended May 31, 2020, we 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, 2021 and 2020, we repaid $0.01 million of long-term debt.
 
 
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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.
 
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. 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.
 
 
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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, 2021.
 
B.
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting during the quarter ended May 31, 2021 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
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PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
SEC Investigation
 
As previously disclosed in our Current Report on Form 8-K filed with the SEC on October 16, 2020, on October 15, 2020, we received a subpoena from the SEC requesting certain information from us, including information regarding testing, testing results and details of results from our GEN I and GEN II technologies and certain of our partnerships and agreements. The SEC informed us that its investigation does not mean that the SEC has concluded that anyone has violated the law and that the investigation does not mean that the SEC has a negative opinion of us. We cannot predict when this matter will be resolved or what, if any, action the SEC may take following the conclusion of the investigation.
 
Litigation
 
On October 13, 2020, the Company and certain of its officers were named as defendants in a proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Olivier Tremblay, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-0838 (“Tremblay Class Action”). The allegations in the complaint claim that the defendants allegedly violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by allegedly making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. Plaintiff seeks unspecified damages on behalf of a class of purchasers of Loop’s securities between September 24, 2018 and October 12, 2020.
 
On October 28, 2020, the Company and certain of its officers were named as defendants in a second proposed class-action lawsuit filed in the United States District Court for the Southern District of New York, captioned Michelle Bazzini, Individually and on Behalf of All Other Similarly Situated v. Loop Industries, Inc., Daniel Solomita, and Nelson Gentiletti, Case No. 7:20-cv-09031-UA. The allegations in this complaint are similar in nature to those made in the Tremblay Class Action.
 
On January 4, 2021, the United States District Court for the Southern District of New York rendered a stipulation and order granting the consolidation of the two class-action lawsuits filed in New York as In re Loop Industries, Inc. Securities Litigation, Master File No. 7:20-cv-08538. Sakari Johansson and John Jay Cappa have been appointed as Co-Lead Plaintiffs and Glancy Prongay & Murray LLP and Pomerantz LLP have been appointed as Co-Lead Counsel for the class.
 
Plaintiffs served a consolidated amended complaint on February 18, 2021 which alleges defendants violated Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making materially false and/or misleading statements, as well as allegedly failing to disclose material adverse facts about the Company’s business, operations, and prospects, which caused the Company’s securities to trade at artificially inflated prices. The consolidated amended complaint relies on the October 13, 2020 report published by a third party regarding the Company to support their allegations. Defendants served a motion to dismiss the consolidated amended complaint on April 27, 2021. Plaintiffs’ opposition to the motion to Dismiss was served on May 27, 2021 and Defendants’ reply in support of the motion to dismiss was served on June 11, 2021.
 
On October 13, 2020, the Company, Loop Canada Inc. and certain of their officers and directors were named as defendants in a proposed securities class action filed in the Superior Court of Québec (District of Terrebonne, Province of Québec, Canada), in file no. 700-06-000012-205. The Application for authorization of a class action and for authorization to bring an action pursuant to section 225.4 of the Québec Securities Act (the “Application”) was filed by an individual shareholder on behalf of himself and a class of buyers who purchased our securities during the “Class Period” (not defined). Plaintiff alleges that throughout the Class Period, the defendants allegedly made false and/or misleading statements and allegedly failed to disclose material adverse facts concerning the Company’s technology, business model, operations and prospects, thus causing the Company’s stock price to be artificially inflated and thereby causing plaintiff to suffer damages. Plaintiff seeks unspecified damages stemming from losses he claims to have suffered as a result of the foregoing. On December 13, 2020, the Application was amended in order to add allegations regarding specific misrepresentations.
 
 
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From time to time, we may become involved in various lawsuits and legal proceedings or investigations 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 June 1, 2021. No material changes to such risk factors have occurred during the three months ended May 31, 2021.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On May 12, 2020, we issued to a service provider 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.
 
 
 
18
 
 
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
10.1
 
Amendment to Joint Venture Agreements dated June 18, 2021 by and between the Company, Indorama Ventures Holdings LP and other parties thereto 
 
 
 
Filed herewith  
 
 
 
 
10.2
 
Securities Purchase Agreement dated June 22, 2021 by and between SK Global Chemical Co. LTD. 
 
 
 
Filed herewith  
 
 
 
 
24.1
 
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
 
 
 
 
 
 
 
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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 15, 2021
By:
/s/ Daniel Solomita
 
 
Name:
Daniel Solomita
 
 
Title:
President and Chief Executive Officer, and Director (Principal Executive Officer)
 
 
 
 
 
Date: July 15, 2021
By:
/s/ Drew Hickey
 
 
Name:
Drew Hickey
 
 
Title:
Chief Financial Officer and Treasurer (Principal Accounting Officer and Principal Financial Officer)
 
 
 
 
 
 
 
 
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