Notes to the Consolidated Financial
Statements
(in United States dollars except where otherwise
indicated)
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.
Basis of presentation
These
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
of America (“US GAAP”) and 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.
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 judgement 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.
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.
Fair value of financial instruments
The
Company applies Financial Accounting Standards Board
(“FASB”) Codification (“ASC”) 820,
Fair Value Measurement,
which defines fair value and establishes a framework for measuring
fair value and making disclosures about fair value measurements.
FASB ASC 820 establishes a hierarchal disclosure framework which
prioritizes and ranks the level of market price observability used
in measuring financial instruments at fair value. Market price
observability is impacted by a number of factors, including the
type of financial instruments and the characteristics specific to
them. Financial instruments with readily available quoted prices or
for which fair value can be measured from actively quoted prices
generally will have a higher degree of market price observability
and a lesser degree of judgment used in measuring fair
value.
There
are three levels within the hierarchy that may be used to measure
fair value:
|
Level 1
–
|
A
quoted price in an active market for identical assets or
liabilities.
|
|
|
|
|
Level 2
–
|
Significant
pricing inputs are observable inputs, which are inputs that reflect
the assumptions market participants would use in pricing the asset
or liability developed based on market data obtained from
independent sources.
|
|
|
|
|
Level 3
–
|
Significant
pricing inputs are unobservable inputs, which are inputs that
reflect the Company’s own assumptions about the assumptions
market participants would use in pricing the asset or liability
developed based on the best information available in the
circumstances.
|
The
fair value measurements level of an asset or liability within the
fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques
used should maximize the use of observable inputs and minimize the
use of unobservable inputs.
The
valuation methodologies described above may produce a fair value
calculation that may not be indicative of future net realizable
value or reflective of future fair values.
The
fair value of cash and accounts payable and accrued liabilities
approximate their carrying values due to their short-term
maturity.
Government grants
US GAAP
for profit-oriented entities does not define government grants; nor
is there specific guidance applicable to government grants. Under
the Company’s accounting policy for government grants and
consistent with non-authoritative guidance, grants are recognized
on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which the grants are
intended to compensate.
Grants
that relate to the acquisition of an asset are recognized as a
reduction of the cost of the asset and in the statement of
operations and comprehensive loss as the asset is depreciated or
amortized.
A grant
that is compensation for expenses or losses already incurred, or
for which there are no future related costs, is recognized in the
statement of operations and comprehensive loss in the period in
which it becomes receivable.
Low-interest
loans or interest-free loans from a government are initially
measured at fair value and interest expense is recognized on the
loan subsequently under the effective interest method, with the
difference recognized as a government grant.
Deferred financing costs and other transaction costs
Deferred
financing costs represent commitment fees, legal fees and other
costs associated with obtaining commitments for financing. These
fees are amortized as a component of interest expense over the
terms of the respective financing agreements, including convertible
notes, on a straight-line basis. Unamortized deferred financing
fees are expensed in full when the associated debt is refinanced or
repaid before maturity. Costs incurred in seeking financial
transactions that do not close are expensed in the period in which
it is determined that the financing will not be successful.
Deferred financing fees related to the liability portion of
Convertible Notes are deducted from their related liabilities on
the balance sheet.
Transaction
costs associated with the equity portion of convertible notes are
reflected as a charge to deficit or as a reduction of accumulated
paid-in-capital. The cost of issuing equity is reflected as a
reduction of accumulated paid-in-capital.
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.
Property, plant and equipment
Property,
plant and equipment are recorded at cost and are amortized over
their estimated useful lives, unless the useful life is indefinite,
using the straight-line method
over the following periods:
|
Building
|
30
years
|
|
Land
|
Indefinite
|
|
Office
equipment and furniture
|
8
years
|
|
Machinery
and equipment
|
3-8
years
|
|
Building
improvements
|
5
years
|
Costs
related to repairs and maintenance of property, plant and equipment
are expensed in the period in which they are incurred. Upon sale or
disposal, the Company writes off the cost of the asset and the
related amount of accumulated depreciation. The resulting gain or
loss is included in the consolidated statement of operations and
comprehensive loss.
Management
reviews the carrying values of its property, plant and equipment
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group might not be
recoverable. Assets are grouped at the lowest level for which
identifiable cash flows are largely independent when testing for,
and measuring for, impairment. In performing its review of
recoverability, the Company estimates the future cash flows
expected to result from the use of the asset or asset group and its
eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying amount of the asset or
asset group, an impairment loss is recognized in the consolidated
statements of operations. Measurement of the impairment loss is
based on the excess of the carrying amount of the asset or asset
group over the fair value calculated using discounted expected
future cash flows.
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.
Starting in the third quarter of the
fiscal year ended February 28, 2021, machinery and equipment
purchases related to the pilot plant which is now dedicated solely
to research and development activities with no alternative use are
also expensed as incurred.
Intangible assets
Intangible
assets are recorded at cost and are amortized over their estimated
useful lives, unless the useful life is indefinite, using the
straight-line method over 7
years.
The
Company reviews the carrying value of intangible assets subject to
amortization whenever events or changes in circumstances indicate
that the carrying amount of an intangible asset might not be
recoverable, or a change in the remaining useful life of an
intangible asset. If the carrying value of an asset exceeds its
undiscounted cash flows, the Company writes down the carrying value
of the intangible asset to its fair value in the period identified.
If the carrying value of assets is determined not to be
recoverable, the Company records an impairment loss equal to the
excess of the carrying value over the fair value of the assets. The
Company’s estimate of fair value is based on the best
information available, in the absence of quoted market prices. The
Company generally calculates fair value as the present value of
estimated future cash flows that the Company expects to generate
from the asset. If the estimate of an intangible asset’s
remaining useful life is changed, the Company amortizes the
remaining carrying value of the intangible asset prospectively over
the revised remaining useful life.
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
expense recorded in the current and future periods.
Income taxes
The
Company calculates its provision for income tax on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset
and liability approach for financial accounting and reporting for
income taxes that allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future
deductibility is uncertain. The Company’s policy is to
recognize interest and/or penalties related to income tax matters
in income tax expense.
Net loss per share
The
Company computes net loss per share in accordance with FASB ASC
260, Earnings Per Share.
Basic earnings (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders by the weighted
average number of shares of common stock outstanding during the
year. The Company includes common stock issuable in its
calculation. Diluted earnings (loss) per share is computed by
dividing the net income (loss) applicable to common stockholders by
the weighted average number of common shares outstanding plus the
number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued, using the
treasury stock method. Potential common shares are excluded from
the computation if their effect is antidilutive.
For the
years ended February 28, 2021 and February 29, 2020, the
calculations of basic and diluted loss per share are the same
because potential dilutive securities would have an antidilutive
effect. As at February 28, 2021, the potentially dilutive
securities consisted of 1,587,081 outstanding stock options (2020
– 1,587,081), 4,210,520 outstanding restricted stock units
(2020 – 4,218,802), and 4,133,720 outstanding warrants (2020
– 5,059,331).
Recently adopted accounting pronouncements
In
August 2018, the FASB issued ASU 2018-15, “Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement that Is a Service Contract,” which aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). This update is
effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. The adoption
of this accounting guidance did not materially impact our results
of operations or financial position.
Recently issued accounting pronouncements not yet
adopted
In June
2016, the FASB issued ASU 2016-13, “Financial
Instruments—Credit Losses”. This ASU added a new
impairment model (known as the current expected credit loss
(“CECL”) model) that is based on expected losses rather
than incurred losses. Under the new guidance, an entity recognizes
an allowance for its estimate of expected credit losses and applies
to most debt instruments, trade receivables, lease receivables,
financial guarantee contracts, and other loan commitments. The CECL
model does not have a minimum threshold for recognition of
impairment losses and entities will need to measure expected credit
losses on assets that have a low risk of loss. This update is
effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years for smaller
reporting companies. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
In
December 2019, the FASB issued ASU 2019-12, “Simplifying the
Accounting for Income Taxes”, which removes specific
exceptions to the general principles in ASC 740, “Income
Taxes,” and clarifies certain aspects of the existing
guidance. This update is effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years, with early adoption being permitted as of the beginning of
an interim or annual reporting period. All amendments to this ASU
must be adopted in the same period on a prospective basis, with
certain exceptions. We do not expect this accounting guidance to
materially impact our results of operations or financial
position.
In
March 2020, the FASB issued ASU 2020-04, “Reference Rate
Reform,” which provides optional guidance for a limited
period of time to ease the potential burden in accounting for (or
recognizing the effects of) reference rate reform on financial
reporting. This update provides optional expedients and exceptions
for applying GAAP to contracts, hedging relationships, and other
transactions that reference the London Interbank Offered Rate or
another reference rate expected to be discontinued because of
reference rate reform. This update is effective as of March 12,
2020, through December 31, 2022. We are currently evaluating this
accounting guidance and have not elected an adoption
date.
3. Sales Tax, Tax Credits and Other
Receivables
Sales tax, research and development tax credits and other
receivables as at February 28, 2021 and February 29, 2020 were as
follows:
|
|
|
|
|
Sales
tax
|
$1,155,504
|
$180,971
|
|
Research and
development tax credits
|
435,467
|
447,843
|
|
Other
receivables
|
172,864
|
35,730
|
|
|
$1,763,835
|
$664,544
|
The
Company is registered for the Canadian federal and provincial goods
and services taxes. As such, the Company is obligated to collect
from third parties, and is entitled to claim sales taxes paid on
its expenses and capital expenditures incurred in
Canada.
In
addition, Loop Canada Inc. is entitled to receive government
assistance in the form of refundable and non-refundable research
and development tax credits from the federal and provincial
taxation authorities, based on qualifying expenditures incurred
during the fiscal year. The refundable credits are from the
provincial taxation authorities and are not dependent on its
ongoing tax status or tax position and accordingly are not
considered part of income taxes. The Company records refundable tax
credits as a reduction of research and development expenses when
the Company can reasonably estimate the amounts and it is more
likely than not, they will be received. During
the year ended February 28, 2021, the Company recorded a $115,566
net expense included in research and development expenses due to
adjustments made to prior year estimates of refundable tax credits.
This adjustment was related to a re-assessment by tax authorities,
reducing our research and development tax credits and resulted in
the Company repaying $93,249 during the year ended February 28,
2021 for research and development tax credits previously received
by the Company from taxation authorities. During the year ended
February 29, 2020, the Company recorded tax credits of $221,603 as
a reduction of research and development expenses and received
$175,929 from taxation authorities for research and development tax
credits.
We
received during the year ended February 28, 2021 a wage subsidy
from the Canadian federal government related to a COVID-19 relief
program that amounted to $259,273 (2020 - nil), of which $221,603
was recorded against research and development expenses and $37,670
against general and administrative expenses. Government grants
receivable at February 28, 2021 amounted to nil (2020 –
nil).
The
Company is also eligible for non-refundable research and
development tax credits from the federal taxation authorities which
can be used as a reduction of income tax expense in any given year
to the extent the Company has taxable income. The Company has not
had taxable income since inception and has not been able to use
these non-refundable federal research and development tax credits.
During the year ended February 28, 2021, the Company was eligible
for non-cash research and development tax credits in the amount of
$272,206 (2020 – $251,019). These non-cash tax credits, which
have an unlimited carry forward period are not recognized in the
Company’s consolidated financial statements. As at February
28, 2020, the carry forward balance of non-cash research and
development tax credits was $1,090,691 (2020 -
$764,507).
4. Property, Plant and Equipment
|
|
|
|
|
|
Accumulated
depreciation, write-down and impairment
|
|
|
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
|
|
|
|
|
|
|
Accumulated
depreciation, write-down and impairment
|
|
|
Building
|
$1,846,070
|
(128,911)
|
1,717,159
|
|
Land
|
264,868
|
-
|
264,868
|
|
Building
Improvements
|
733,884
|
(214,068)
|
519,816
|
|
Machinery and
equipment
|
6,085,195
|
(1,426,465)
|
4,658,730
|
|
Office equipment
and furniture
|
162,466
|
(62,785)
|
99,681
|
|
$
|
$9,092,483
|
$(1,832,229)
|
7,260,254
|
Depreciation
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$733,831 for the year ended February 28, 2021 (2020 -
$807,800).
During
the year ended February 28, 2021, the Company recorded write-down
and impairment expenses of $5,043,119, (2020 – $22,985).
In the year ended February 28,
2021, the Company’s management
made the decision to convert its 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 contained within the pilot plant. As such, the carrying value of the machinery and
equipment was written off resulting in an expense of $5,034,606
being recognized in the year ended February 28, 2021. With the
decision to dedicate the demonstration and training facility to
research and development, the accounting for future costs
associated with these activities are considered in scope of ASC
730, Research and Development Costs, and will be recognized
as a research and development expense in the consolidated
statements of operations and comprehensive loss in the period they
are incurred. During the year ended February 28, 2021, the Company
purchased $7,475,742 of machinery and equipment associated with its ongoing research and
development activities, which have no future alternative use and as
such, were recognized as research and development expenses
in the consolidated statements of operations and comprehensive
loss. See Note 14 for components of
research and development expenses.
5. Intangible Assets
During
the year ending February 28, 2021, the Company continued to develop
its next Generation II (“GEN II”) technology and filed
various patents in jurisdictions around the world. On April 9,
2019, the first GEN II U.S. patent was issued. The GEN II
technology portfolio has two issued U.S. patents and a pending U.S.
application, all expected to expire, if granted, on or around
September 2037. Internationally, the GEN II technology portfolio
also has an issued patent and an allowed application in Bangladesh,
and pending applications in Argentina, Australia, Bolivia, Brazil,
Bhutan, Canada, China, Columbia, 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. Additional aspects of the GEN II
technology are claimed in an issued U.S. patent and a pending U.S.
application, 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.. Additionally, a
further apsect of the GEN II technology are 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. Another 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 wouldtely grant
from these applications would be expected to expire on or around
March 2040.
Concurrent
with the GEN II development, in June 2018, the Company transitioned
to its newly constructed GEN II industrial pilot plant. The GEN II
technology forms the basis for the commercialization of the Company
into the future.
Amortization
expense is recorded as an operating expense in the consolidated
statements of operations and comprehensive loss and amounted to
$41,844 for the year ended February 28, 2021 (2020 -
$22,631).
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, at cost
– beginning of period
|
$225,174
|
$127,672
|
|
Patents,
accumulated depreciation – beginning of period
|
(22,310)
|
-
|
|
Patents, net
– beginning of period
|
202,864
|
127,672
|
|
|
|
|
|
Additions in the
year – patents
|
623,811
|
99,972
|
|
Amortization of
patents
|
(41,844)
|
(22,631)
|
|
Foreign exchange
effect
|
10,063
|
(2,150)
|
|
Patents, net
– end of period
|
$794,894
|
$202,863
|
6. Fair value of financial
instruments
The
following table presents the fair value of the Company’s
financial liabilities at February 28, 2021 and February 29,
2020:
|
|
Fair Value
Measurements as at February 28, 2021
|
|
|
|
|
|
|
Financial
liabilities measured at amortized cost:
|
|
|
|
|
Long-term
debt
|
$2,454,123
|
$2,464,540
|
Level 2
|
|
|
Fair Value
Measurements at February 29, 2020
|
|
|
|
|
|
|
Financial
liabilities measured at amortized
cost:
|
|
|
|
|
Long-term
debt
|
$2,290,152
|
$2,314,117
|
Level 2
|
7. Accounts Payable and
Accrued Liabilities
Accounts payable and accrued liabilities as at February 28, 2021
and February 29, 2020 were as follows:
|
|
|
|
|
Trade accounts
payable
|
$5,082,736
|
$814,081
|
|
Accrued engineering
fees
|
535,359
|
-
|
|
Accrued employee
compensation and payroll taxes
|
970,154
|
873,242
|
|
Accrued
professional fees
|
1,270,628
|
133,038
|
|
Other accrued
liabilities
|
265,988
|
262,337
|
|
|
$8,124,865
|
$2,082,698
|
8. 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 world-wide royalty-free
license to ILT to use its proprietary technology to produce 100%
sustainably produced PET resin and polyester fiber.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in 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.
Although
the Company remains committed to the project, the joint venture
made a decision in July 2020 that due to the COVID-19 situation it
would delay work. Since then, no expenditures have been incurred by
the joint venture.
9. Long-term Debt
|
|
|
|
|
Investissement
Québec financing facility:
|
|
|
|
Principal
amount
|
$1,741,612
|
$1,645,122
|
|
Unamortized
discount
|
(268,192)
|
(289,852)
|
|
Accrued
interest
|
42,588
|
958
|
|
Total
Investissement Québec financing facility
|
1,516,008
|
1,356,228
|
|
Term
loan
|
|
|
|
Principal
amount
|
938,116
|
933,924
|
|
Less: current
portion
|
(938,116)
|
(52,126)
|
|
Total term loan,
net of current portion
|
-
|
881,798
|
|
Long-term debt, net
of current portion
|
$1,516,008
|
$2,238,026
|
Investissement Québec financing facility
On February 21, 2020, the Company received $1,741,611
(CDN$2,209,234) from Investissement Québec as the first
disbursement of our financing facility, out of a maximum of
$3,626,330 (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 lo an 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, $36,263
(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 year ended February 28, 2021 in the amount of $39,599
(2020 – $968) and an accretion expense of $36,847 (2020
– $872).
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 $362,633 (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 February 28,
2021.
The remaining amount available under the financing facility
is $1,884,719 (CDN$2,390,766) to be received in a maximum of two
additional disbursements before June 30, 2021.
Term Loan
On
January 24, 2018, the Company obtained a $1,103,666 (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 $4,598 (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 year ended
February 28, 2021, we repaid $50,585 (2020 – $52,126) on the
principal balance of the Loan and interest paid amounted to $38,157
(2020 – $56,152). The terms of the credit facility require
the Company to comply with certain financial covenants. As at
February 28, 2021 and February 29, 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
|
|
|
February 28,
2022
|
$938,116
|
|
February 28,
2023
|
-
|
|
February 28,
2024
|
248,798
|
|
February 29,
2025
|
248,798
|
|
February 28,
2026
|
248,794
|
|
Thereafter
|
995,222
|
|
Total
|
$2,679,728
|
10.
Convertible Notes
First Issuance
Initial terms and accounting treatment
On November 13, 2018, the Company issued convertible notes (the
“November 2018 Notes”), together with related warrants
to acquire an additional 50% of the shares issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrants”), for an aggregate purchase price of $2,450,000
(the “November 2018 Private Placement”). On January 3,
2019, the Company issued additional convertible notes from this
issuance (the “November 2018 Notes”), together with
related warrants to acquire an additional 50% of the shares issued
upon the conversion of the November 2018 Notes (the “November
2018 Warrants”), for an aggregate purchase price of $200,000
(the “November 2018 Private Placement”). The Company
used the net proceeds of the November 2018 Private Placement for
general corporate and working capital purposes. The November 2018
Notes were converted on April 5, 2019.
The November 2018 Notes carried an interest rate of 8.00% per annum
and had initial maturity dates of May 13, 2019 and July 3, 2019
(the “November 2018 Maturity Date”), respectively, upon
which date the outstanding principal amount of the November 2018
Notes and all accrued and unpaid interest shall automatically
convert into shares of the common stock of the Company at the price
per share equal to the lesser of (i) $13.00 and (ii) the average
closing price of the Company’s Common Stock on the Nasdaq
stock market for the ten days preceding the day to the conversion
of the November 2018 Notes (the “November 2018 Conversion
Price”). The total number of shares of Common Stock to be
issued upon automatic conversion shall equal the outstanding
principal amount of the November 2018 Notes and all accrued and
unpaid interest on the November 2018 Notes, divided by the November
2018 Conversion Price.
The November 2018 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issued upon the
conversion of the November 2018 Notes (the “November 2018
Warrant Shares”). The per share purchase price (the
“November 2018 Exercise Price”) for each of the
November 2018 Warrant Shares purchasable under the November 2018
Warrants shall be equal to the lesser of (i) $15.00 and (ii) the
average closing price of the Company’s Common Stock on the
Nasdaq stock market for the ten days preceding the day of the
conversion of the November 2018 Notes. The November 2018 Warrants
will be issued upon conversion of the November 2018 Notes. The
November 2018 Warrants expire eighteen (18) months from the date of
the conversion of the November 2018 Notes (the “November 2018
Expiration Date”). The Investors may exercise the November
2018 Warrants at any time prior to the November 2018 Expiration
Date.
Due to the variable conversion price, the November 2018 Notes
contain characteristics of a variable share-forward sales contracts
(“VSF”) under the guidance of ASC 480-10. Management
has determined that for the purpose of the accounting for
the November 2018 Notes, it is more likely than not that the
November 2018 Conversion Price will be below $13.00, resulting in
the issuance of a variable number of shares, the November 2018
Notes are classified as a liability, and accounted for at amortized
cost.
Due to the variable number of warrants to be issued and the
variable strike price of the November 2018 Warrants, these do not
meet the “fixed-for-fixed” criteria under ASC 815-40.
Accordingly, the November 2018 Warrants are classified as a
derivative liability, initially measured at fair value and
subsequently revalued at fair value through the income
statement. The
fair value was calculated using a Monte Carlo
simulation.
The aggregate value of the November 2018 Notes and November 2018
Warrants as shown on the consolidated balance sheet are broken down
as follows:
|
|
|
|
|
|
November 2018
Convertible Notes - Liability
|
$-
|
$-
|
$2,495,636
|
|
Accrued interest
– Liability
|
-
|
-
|
-
|
|
Deferred financing
costs
|
-
|
-
|
(63,738)
|
|
|
-
|
-
|
2,431,898
|
|
|
|
|
|
|
November 2018
Warrants - Liability
|
$-
|
$-
|
$154,364
|
The
transaction costs relating to this issuance were split pro-rata
between the November 2018 Notes and the November 2018 Warrants. The
portion relating to the November 2018 Notes were deferred and are
being amortized over the life of the convertible notes. The portion
relating to the November 2018 Warrants was immediately
expensed.
Amendment and subsequent accounting treatment
On
April 5, 2019, the Company and the Investors that purchased the
November 2018 Notes from the Company pursuant to the Note and
Warrant Purchase Agreement dated as of November 13, 2018 or January
3, 2019, executed an Amendment, Surrender and Conversion Agreement
(“Conversion Agreement”) whereby the parties agreed to
convert the November 2018 Notes, and all accrued and unpaid
interest, into shares of the common stock of the Company at a newly
agreed conversion price per share equal to $8.55 (the “New
Conversion Price”), replacing the previous formula which
converted the November 2018 Notes and
accrued and unpaid interest into shares of the common stock of the
Company at the price per share equal to the lesser of (i) $13.00
and (ii) the average closing price of the Company’s Common
Stock on the Nasdaq stock market for the ten days preceding the day
to the conversion of the November 2018 Notes. The Conversion
Agreement stipulates that the interest on the November 2018 Notes
would be paid up to and including April 3, 2019. Pursuant to the
2018 Note Purchase Agreement, the Investors also received related
warrants to acquire an additional 50% of the shares issued upon the
conversion of the November 2018 Notes. As part of the Conversion
Agreement, the exercise price of the November 2018 Warrants will
also be the New Conversion Price, replacing the previous formula
which established the conversion price for the November 2018
Warrants as the lesser of (i) $15.00 and (ii) the average closing
price of the Company’s Common Stock on the Nasdaq stock
market for the ten days preceding the day of the conversion of the
November 2018 Notes. As a result of the Conversion Agreement, the
Company issued 319,326 shares of common stock of the Company and
issued 159,663 warrants. The November 2018 Warrants expiration date
was eighteen (18) months from the date of the conversion of the
November 2018 Notes, on October 5, 2020. All of the November 2018
Warrants were exercised in the quarter ended November 30,
2020.
The
Company recorded an expense upon revaluation of the warrants for
the period from March 1, 2019 to April 5, 2019 in the amount of
$8,483 (2018 – nil) and is included in operating expenses.
The Company recorded accretion interest expense on the November
2018 Notes from March 1, 2019 to April 5, 2019 in the amount of
$154,364 and is included in operating expenses. The Company
recorded interest expense on the November 2018 Notes for the period
from March 1, 2019 to April 3, 2019 in the amount of $19,433 (2018
– nil). The value of the 159,633 warrants issued as part of
the conversion was determined using the Black-Scholes pricing
formula and amounted to $316,929 and is included in additional
paid-in capital – warrants. Also, the conversion of the
November 2018 Notes into common stock resulted in a gain of
$232,565 and has been offset against expenses.
Second Issuance
On January 15, 2019, the Company issued convertible notes (the
“January 2019 Notes”), together with related warrants
to acquire an additional 50% of the shares issuable upon the
conversion of the January 2019 Notes (the “January 2019
Warrants”), for an aggregate purchase price of $4,500,000
(the “January 2019 Private Placement”). On January 21,
2019, the Company issued additional convertible notes from this
issuance (the “January 2019 Notes”), together with
related warrants to acquire an additional 50% of the shares
issuable upon the conversion of the January 2019 Notes (the
“January 2019 Warrants”), for an aggregate purchase
price of $400,000 (the “January 2019 Private
Placement”). The Company used the net proceeds of the January
2019 Private Placement for general corporate and working capital
purposes.
The January 2019 Notes carried an interest rate of 8.00% per annum
and had initial maturity dates of January 15, 2020 and January 21,
2020 (the “January 2020 Maturity Date”), respectively.
At the January 2020 Maturity Date, the outstanding principal amount
of the January 2019 Notes automatically converted into shares of
the common stock of the Company at the price per share equal to
$8.10 (the “January 2020 Conversion Price”). The
January 2020 Conversion Price could have been adjusted in the event
that the Company issued common shares in a private sale or offering
at a lower price per share than $8.10 within 180 days of the
closing date. The lower price would become the new conversion price
of the January 2019 Notes, which would impact the number of shares
that would be issued. The total number of shares of Common Stock to
be issued upon automatic conversion would equal the outstanding
principal amount of the January 2019 Notes divided by the January
2020 Conversion Price. The January 2019 Notes were converted at the
January 2020 Maturity Date with no adjustment to the January 2020
Conversion Price.
With respect to accrued and unpaid interest at the January 2020
Maturity Date, the Investors had the option of receiving cash or
common stock of the Company at that date. Upon the January 2020
Maturity Date, where the Investor elected payment of accrued and
unpaid interest on the January 2019 Notes in common stock, the
price per share would equal to the trading price of the common
stock at the close of the market on the date immediately preceding
the January 2020 Maturity Date. On the January 2020 Maturity Date,
$312,000 in accrued interest was paid in cash and a value of
$80,000 was paid in common stock (7,820 shares).
The January 2019 Warrants are exercisable for an additional fifty
percent (50%) of the shares of Common Stock issuable upon the
conversion of the January 2019 Notes (the “January 2019
Warrant Shares”). The per share purchase price (the
“January 2019 Exercise Price”) for each of the January
2019 Warrant Shares purchasable under the January 2019 Warrants
would equal to 115% of the January 2020 Conversion Price. The
January 2019 Warrants would be calculated and issued upon the
closing date of the January 2019 Notes, based upon the initial
$8.10 conversion price. As such, the Company issued 302,469
warrants at the closing dates of the January 2019 Notes. If the
Investor elected to take accrued and unpaid interest on the January
2019 Notes in common stock, additional warrants would be issued to
acquire 50% of the shares issued in connection with the accrued and
unpaid interest (also referred to as the “January 2019
Warrants”). Upon conversion, 3,911 additional warrants were
issued in connection with accrued interest paid in common stock.
The January 2019 Warrants expire twenty-four (24) months from the
date of their issuance (the “January 2019 Expiration
Date”). The Investors could exercise the January 2019
Warrants at any time prior to the January 2019 Expiration Date.
During the year ended February 28, 2021, 30,864 of the January 2019
Warrants were exercised (2020 – 15,432). The remaining
January 2019 Warrants expired on January 15, 2021.
A beneficial conversion feature (“BCF”) of a
convertible note is normally characterized as the convertible
portion feature that provides a rate of conversion that is below
market value or “in-the-money” when issued. A BCF
related to the issuance of a convertible note is recorded at the
issue date. With the conversion feature on the January 2019 Notes
being “in the money”, the beneficial conversion feature
is measured using the intrinsic value method and is shown as a
discount on the carrying amount of the convertible note and is
credited to additional paid-in capital. The intrinsic value of the
beneficial conversion feature at the issue date of the January 2019
Notes was determined to be $1,200,915.
In
connection with the January 2019 Warrants issued along with the
January 2019 Notes, they meet the requirements of the scope
exemptions in ASC 815-10-15-74 and are thus classified as equity
upon issuance. The Company determined the fair value of the
warrants using the Black-Scholes pricing formula and is shown as a
discount on the carrying amount of the convertible note and is
credited to additional paid-in capital. The fair value of the
warrants at the issue date was determined to be $757,704. The fair
value of the additional warrants issued in connection with accrued
interest paid in stock was also calculated using the Black-Scholes
and amounted to $7,744.
The allocated fair values of the beneficial conversion feature and
the warrants is recorded in the financial statements as a debt
discount from the face amount of the convertible note and such
discount is amortized over the expected term of the convertible
note and is charged to interest expense.
The aggregate values of the beneficial conversion feature, the
January 2019 Warrants and the January 2019 Notes are broken down as
follows:
|
|
|
|
|
|
January 2019
Convertible Notes – Liability
|
$-
|
$-
|
$2,941,381
|
|
Accrued interest
– Liability
|
-
|
-
|
-
|
|
Deferred financing
costs
|
-
|
-
|
(79,539)
|
|
|
-
|
-
|
2,861,842
|
|
|
|
|
|
|
January 2019
Beneficial Conversion Option – Equity
|
-
|
-
|
1,200,915
|
|
|
|
|
|
|
January 2019
Warrants – Equity
|
$-
|
$727,148
|
$757,704
|
The
Company recorded accretion expense during the year ended February
28, 2021 of $1,773,114 (2020 – $1,773,114; 2019 - $185,505)
and is included in operating expenses. The Company recorded
interest expense on the January 2019 Notes for the year ended
February 29, 2021 in the amount of $342,989 (2020 – $342,989;
2019 – $49,011).
The
transaction costs relating to this issuance were split pro-rata
between the January 2019 Notes, the beneficial conversion feature
and the January 2019 Warrants. The portion relating to the January
2019 Notes were deferred and are being amortized over the life of
the convertible notes. The portion relating to the beneficial
conversion feature and January 2019 Warrants were recorded as share
issuance expenses and offset against paid-in capital. Upon
conversion of the notes, the liability portion and $80,000 in
accrued interest were reversed to equity (common stock $61,28 and
additional paid-in capital $4,979,939) and the BCF was reversed to
additional paid-in capital.
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. The amended and restated employment agreement
provides for an increase in Mr. Solomita’s base salary and
eligibility to participate in an annual cash bonus subject to
performance measures. Mr. Solomita’s base salary and bonus
opportunity are retroactive effective to March 1,
2018.
In
addition, the employment agreement 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 performance conditions in the form 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 Company’s board of directors approved
the grant of the restricted stock units, effective and contingent
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. The restricted stock units
vest upon the achievement of applicable performance milestones, as
follows:
i)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company’s securities are listed on an exchange or the OTCQX
tier of the OTC Markets;
ii)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company executes a contract for a minimum quantity of 25,000 M/T of
DMT/MEG or a PET;
iii)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company’s first full-
scale production facility is in commercial operation;
and
iv)
1,000,000
shares of common stock shall be issued to Mr. Solomita when the
Company’s second full-
scale production facility is in commercial operation.
During
the year ended February 28, 2017, it became probable that the first
milestone would be met. Accordingly, 1,000,000 performance
incentive shares of common stock with a fair value of $800,000 were
earned and are issuable to Mr. Solomita. This amount was reflected
as stock-based compensation expense during the year ended February
28, 2017 based on the grant date fair value. The 1,000,000
performance incentive shares of common stock have been replaced by
restricted stock units and are issuable to Mr. Solomita, of which
200,000 were settled in October 2020 and 200,000 were settled in
October 2019.
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.
As at
February 28, 2021, 3,600,000 (2020 – 3,800,000) of Mr.
Solomita’s RSUs were outstanding of which 600,000 were vested
(2020 – 800,000). The vested units are settled annually in
tranches of 200,000 units. The unvested 3,000,000 RSUs would be
forfeited if Mr. Solomita left the Company, except in the case of
termination without cause or resignation for good reason, in which
case he would receive 50% of the unvested RSUs at the time of
termination, or 100% in the case of termination without cause or
resignation for good reason within 24 months after a change in
control. During the years ended February 28, 2021 and February 29,
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
Series A Preferred Stock
Mr.
Solomita’s amended employment agreement of February 15, 2016
provides that the Company shall issue to Mr. Solomita one share of
the Company’s Series A Preferred Stock in exchange for Mr.
Solomita agreeing not to terminate his employment with the Company
for a period of five years from the date of the agreement. The
agreement effectively provides Mr. Solomita with a “change of
control” provision over the Company in the event that his
ownership of the issued and outstanding shares of common stock of
the Company is diluted to less than a majority. In order to issue
Mr. Solomita his one share of Series A Preferred Stock under the
amendment, the Company created a “blank check”
preferred stock. Subsequently, the board of directors of the
Company approved a Certificate of Designation creating the Series A
Preferred Stock. Subsequently, the Company issued one share of
Series A Preferred Stock to Mr. Solomita.
The one
share of Series A Preferred Stock issued to Mr. Solomita holds
a majority of the total voting power so long as Mr.
Solomita holds not less than 7.5% of the issued and outstanding
shares of common stock of the Company, assuring Mr. Solomita of
control of the Company in the event that his ownership of the
issued and outstanding shares of common stock of the Company is
diluted to a level below a majority. Currently, Mr.
Solomita’s ownership of 19,010,000 shares of common stock and
1 share of Series A Preferred Stock provides him with 77.0% of the
voting control of the Company.
Additionally,
the one share of Series A Preferred Stock issued to Mr. Solomita
contains protective provisions, which precludes the Company from
taking certain actions without Mr. Solomita’s (or that of any
person to whom the one share of Series A Preferred Stock is
transferred) approval. More specifically, so long as any shares of
Series A Preferred Stock are outstanding, the Company shall not,
without first obtaining the approval (by vote or written consent,
as provided by law) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock, voting as a
separate class:
(a)
amend the Articles
of Incorporation or, unless approved by the Board of Directors,
including by the Series A Director, amend the Company’s
By-laws;
(b)
change or modify
the rights, preferences or other terms of the Series A Preferred
Stock, or increase or decrease the number of authorized shares of
Series A Preferred Stock;
(c)
reclassify or
recapitalize any outstanding equity securities, or, unless approved
by the Board of Directors, including by the Series A Director,
authorize or issue, or undertake an obligation to authorize or
issue, any equity securities or any debt securities convertible
into or exercisable for any equity securities (other than the
issuance of stock-options or
securities under any employee option or benefit plan);
(d)
authorize or effect
any transaction constituting a Deemed Liquidation (as defined in
this subparagraph) under the Articles, or any other merger or
consolidation of the Company;
(e)
increase or
decrease the size of the Board of Directors as provided in the
By-laws of the Company or remove the Series A Director (unless
approved by the Board of Directors, including the Series A
Director);
(f)
declare or pay any
dividends or make any other distribution with respect to any class
or series of capital stock (unless approved by the Board of
Directors, including the Series A Director);
(g)
redeem, repurchase
or otherwise acquire (or pay into or set aside for a sinking fund
for such purpose) any outstanding shares of capital stock (other
than the repurchase of shares of common stock from employees,
consultants or other service providers pursuant to agreements
approved by the Board of Directors under which the Company has the
option to repurchase such shares at no greater than original cost
upon the occurrence of certain events, such as the termination of
employment) (unless approved by the Board of Directors, including
the Series A Director);
(h)
create or amend any
stock option plan of the Company, if any (other than amendments
that do not require approval of the stockholders under the terms of
the plan or applicable law) or approve any new equity incentive
plan;
(i)
replace the
President and/or Chief Executive Officer of the Company (unless
approved by the Board of Directors, including the Series A
Director);
(j)
transfer assets to
any subsidiary or other affiliated entity (unless approved by the
Board of Directors, including the Series A Director);
(k)
issue, or cause any
subsidiary of the Company to issue, any indebtedness or debt
security, other than trade accounts payable and/or letters of
credit, performance bonds or other similar credit support incurred
in the ordinary course of business, or amend, renew, increase or
otherwise alter in any material respect the terms of any
indebtedness previously approved or required to be approved by the
holders of the Series A Preferred Stock (unless approved by the
Board of Directors, including the Series A Director);
(l)
modify or change
the nature of the Company’s business;
(m)
acquire, or cause a
Subsidiary of the Company to acquire, in any transaction or series
of related transactions, the stock or any material assets of
another person, or enter into any joint venture with any other
person (unless approved by the Board of Directors, including the
Series A Director); or
(n)
sell, transfer,
license, lease or otherwise dispose of, in any transaction or
series of related transactions, any material assets of the Company
or any Subsidiary outside the ordinary course of business (unless
approved by the Board of Directors, including the Series A
Director).
Common Stock
|
For
the year ended February 28, 2021
|
|
|
|
Balance, February
29, 2020
|
39,910,774
|
$3,992
|
|
Issuance of shares
for cash
|
2,087,000
|
209
|
|
Issuance of shares
upon the exercise of warrants
|
190,529
|
19
|
|
Issuance of shares
upon settlement of restricted stock units
|
225,388
|
22
|
|
Balance, February
28, 2021
|
42,413,691
|
$4,242
|
|
For
the year ended February 29, 2020
|
|
|
Balance, February
28, 2019
|
33,805,706
|
$3,381
|
|
Issuance of shares
for cash
|
4,693,567
|
469
|
|
Issuance of shares
upon vesting of restricted stock units
|
244,884
|
25
|
|
Issuance of shares
upon the cashless exercise of stock options
|
69,101
|
7
|
|
Issuance of shares
upon the exercise of warrants
|
15,432
|
1
|
|
Issuance of shares
upon settlement of legal matter
|
150,000
|
15
|
|
Issuance of shares
upon conversion of convertible notes
|
932,084
|
94
|
|
Balance, February
29, 2020
|
39,910,774
|
$3,992
|
During
the year ended February 28, 2021, the Company recorded the
following common stock transactions:
(i)
On
September 23, 2020 and October 1, 2020, the Company sold 1,880,000
and 207,000 shares, respectively of its common stock at an offering
price of $12.75 per share in a registered direct offering, for
total gross proceeds of $26,609,250.
(ii)
The
company issued 190,529 shares of its common stock upon the exercise
of warrants.
(iii)
On
October 15, 2020, the Company issued 200,000 shares of common stock
to settle restricted stock units related to the President and Chief
Executive Officer.
(iv)
The
Company issued 25,388 shares of its common stock to settle
restricted stock units that vested in the period.
During
the year ended February 29, 2020, the Company recorded the
following common stock transactions:
(i)
On
March 1, 2019, the Company sold 600,000 shares of its common stock
at an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $5,130,000;
(ii)
On
March 8, 2019 and March 11, 2019, the Company issued 150,000 shares
of its common stock in settlement of a legal matter;
(iii)
On
April 9, 2019, the Company converted convertible notes with a face
value of $2,650,000 plus accrued interest of $80,241 at a
conversion price of $8.55, into 319,326 common shares;
(iv)
On June
14, 2019, the Company sold 4,093,567 shares of its common stock at
an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $35,000,000;
(v)
On July
17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants;
(vi)
On
January 16, 2020 and January 21, 2020, the Company converted
convertible notes with a face value of $4,900,000 at a conversion
price of $8.10 plus $80,000 of accrued interest at a conversion
price of $10.23 into a total of 612,758 shares of common
stock;
(vii)
The
Company issued 244,884 shares of common stock, in aggregate, upon
the vesting of restricted stock units related to employees and
directors; and
(viii)
The
Company issued 69,101 shares of common stock, in aggregate, upon
the cashless exercise of stock options related to
employees;
13. Research and development expenses
Research
and development expenses for the years ended February 28, 2021 and
February 29, 2020 were as follows:
|
|
|
|
|
External
engineering
|
$5,655,997
|
$149,333
|
|
Employee
compensation
|
4,457,125
|
3,531,973
|
|
Machinery and
equipment expenditures
|
6,149,075
|
-
|
|
Demonstration plant
operating expenses
|
1,852,615
|
901,687
|
|
Other
|
572,202
|
134,182
|
|
|
$18,687,014
|
$4,717,175
|
14. General and administrative expenses
General
and administrative expenses for the years ended February 28, 2021
and February 29, 2020 were as follows:
|
|
|
|
|
Professional
fees
|
$4,613,717
|
$1,193,884
|
|
Employee
compensation
|
4,389,219
|
4,516,171
|
|
Directors and
officers insurance
|
2,072,647
|
761,876
|
|
Other
|
464,757
|
743,489
|
|
|
$11,540,340
|
$7,215,420
|
15. Share-Based Payments
Stock Options
The
following tables summarizes the continuity of the Company’s
stock options during the years ended February 28, 2021 and February
29, 2020:
|
|
|
|
|
|
|
Weighted average
exercise price
|
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
1,587,081
|
$6.81
|
1,962,400
|
$7.53
|
|
Granted
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
(75,000)
|
0.80
|
|
Forfeited
|
-
|
-
|
(39,902)
|
9.67
|
|
Expired
|
-
|
-
|
(260,417)
|
13.59
|
|
Outstanding, end of
year
|
1,587,081
|
$6.81
|
1,587,081
|
$6.81
|
|
Exercisable, end of
year
|
1,181,248
|
$7.19
|
986,248
|
$6.89
|
|
|
|
|
|
|
Number of stock
options outstanding
|
Weighted average
remaining life (years)
|
Number of stock options
outstanding
|
Weighted average remaining life
(years)
|
|
$0.80
|
507,081
|
4.75
|
507,081
|
5.75
|
|
$5.25
|
380,000
|
6.49
|
380,000
|
7.49
|
|
$12.00
|
700,000
|
6.54
|
700,000
|
7.54
|
|
|
1,587,081
|
5.96
|
1,587,081
|
6.96
|
|
|
1,181,248
|
6.06
|
986,248
|
6.97
|
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 years ended February 28, 2021 and February
29, 2020.
During
the year ended February 28, 2021, stock-based compensation expense
attributable to stock options amounted to $2,212,078 (2020 –
$2,178,948).
Restricted Stock Units
The
following table summarizes the continuity of the restricted stock
units (“RSUs”) during the years February 28, 2021 and
February 29, 2020:
|
|
|
|
|
|
|
Weighted average
fair value price
|
|
Weighted average fair value
price
|
|
Outstanding,
beginning of year
|
4,218,802
|
$1.60
|
402,868
|
$8.77
|
|
Granted
|
239,611
|
9.74
|
4,114,567
|
1.06
|
|
Settled
|
(225,388)
|
1.80
|
(244,884)
|
2.54
|
|
Forfeited
|
(22,505)
|
12.27
|
(53,750)
|
9.82
|
|
Outstanding, end of
year
|
4,210,520
|
$1.98
|
4,218,802
|
$1.60
|
|
Outstanding vested,
end of year
|
691,327
|
$2.07
|
831,684
|
$1.19
|
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 closing share price at grant date multiplied
by the number of restricted stock unit awards granted.
During
the year ended February 28, 2021, stock-based compensation
attributable to RSUs amounted to $1,378,106 (2020 -
$1,290,443).
During
the years ended February 28, 2021 and February 29, 2020,
stock-based compensation included in research and development
expenses amounted to $1,417,004 and $1,252,394 respectively, and in
general and administrative expenses amounted to $2,257,622 and
$2,216,997 respectively.
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. In March 2020, the Board of
Directors elected to waive the annual share reserve increase for
the fiscal year ended February 28, 2021. 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 years ended February 28,
2021 and February 29, 2020:
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of year
|
1,300,518
|
3,223,516
|
|
Share reserve
increase
|
-
|
2,000,000
|
|
Units
granted
|
(239,611)
|
(4,114,567)
|
|
Units
forfeited
|
22,505
|
93,652
|
|
Units
expired
|
-
|
97,917
|
|
Outstanding, end of
year
|
1,083,412
|
1,300,518
|
17. Warrants
|
|
|
|
|
|
|
Weighted average
exercise price
|
|
Weighted average exercise
price
|
|
Outstanding,
beginning of year
|
5,059,331
|
$10.89
|
802,469
|
$10.74
|
|
Issued
|
25,000
|
9.43
|
4,272,294
|
10.91
|
|
Exercised
|
(190,529)
|
8.68
|
(15,432)
|
9.32
|
|
Expired
|
(760,082)
|
10.83
|
-
|
-
|
|
Outstanding, end of
year
|
4,133,720
|
$10.99
|
5,059,331
|
$10.89
|
The
expiration dates of the warrants outstanding as at February 28,
2021 are as follows:
|
|
2021
|
|
|
|
Weighted average exercise
price
|
|
May 12,
2022
|
25,000
|
$9.43
|
|
June 14,
2022
|
4,093,567
|
11.00
|
|
February 21,
2023
|
15,153
|
11.00
|
|
Outstanding, end of
year
|
4,133,720
|
$10.99
|
18. Interest and Other Finance Costs
Interest and other finance costs for the years ended February 28,
2021 and February 29, 2021 are as follows:
|
|
|
|
|
Interest
on long-term debt
|
$77,756
|
$57,450
|
|
Interest
on convertible notes
|
-
|
362,426
|
|
Accretion
expense
|
36,847
|
1,892,185
|
|
Amortization
of deferred finance costs
|
-
|
96,155
|
|
Revaluation
of warrants
|
-
|
8,483
|
|
Gain on
conversion of November 2018 Notes
|
|
(232,565)
|
|
Other
|
(32,607)
|
39,170
|
|
|
$81,996
|
$2,223,304
|
19. Income Taxes
The components of the Company’s loss before taxes are
summarized below:
|
|
|
|
|
U.S.
operations
|
$(7,126,988)
|
$(4,220,000)
|
|
Foreign
operations
|
(29,217,935)
|
(10,285,455)
|
|
Loss
before taxes
|
$(36,344,923)
|
$(14,505,455)
|
A reconciliation from the statutory U.S. income tax rate and the
Company’s effective income tax rate, as computed on loss
before taxes, is as follows:
|
|
|
|
|
Statutory
Federal rate
|
21%
|
21%
|
|
|
|
|
|
Federal
income tax at statutory rate
|
$(7,632,436)
|
$(3,046,145)
|
|
Effect
of foreign jurisdiction
|
(1,433,653)
|
(424,593)
|
|
Non-deductible
expenses
|
695,941
|
1,069,845
|
|
Tax
credits related to research and development
expenditures
|
(302,703)
|
(446,967)
|
|
Unrecognized
tax benefit of net operating losses and other available
deductions
|
8,672,851
|
2,847,860
|
|
Effective
income tax expense
|
$-
|
$-
|
|
|
|
|
|
Current
|
$-
|
$-
|
|
Deferred
|
$-
|
$-
|
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act
(“U.S. tax reform”) that lowers the statutory tax rate
on U.S. earnings to 21%, taxes historic foreign earnings at a
reduced rate of tax, establishes a territorial tax system and
enacts new taxes associated with global operations.
The
impact of enactment of U.S. tax reform was recorded on a
provisional basis as the legislation provided for additional
guidance to be issued by the U.S. Department of the Treasury on
several provisions including the computation of the transition tax.
Loop's Controlled Foreign Corporations ("CFC") were deficit
earnings & profit corporations, as such no income was
recognized by Loop during 2018. No further inclusions were made
thereafter based on the guidance issued.
Additionally, as part of tax reform, the U.S. has enacted a minimum
tax on foreign earnings (“global intangible low tax
income”). We have not made an accrual for the deferred tax
aspects of this provision as Loop's CFCs have suffered net tested
losses.
With the enactment of U.S. tax reform, we recorded, for the year
ended February 28, 2018, tax expense of $876,812 to reflect the
revaluation of deferred taxes. For the years ended February 28,
2019 through February 28, 2021, we finalized our provisional
estimate of the enactment of U.S. tax reform without additional tax
expense.
On March 27, 2020, the US government signed the Coronavirus Aid,
Relief and Economic Security (“CARES”) Act into law, a
$2 trillion relief package to provide support to individuals,
businesses and government organizations during the COVID-19
pandemic. The income tax provisions contained in the CARES Act are
not likely to have an impact for the Company.
The Company has net operating loss carry forwards of approximately
$22,043,030 (2020 – $16,074,873) for U.S. Federal income tax
purposes expiring between 2035 and 2038, post 2018 net operating
losses may be carried forward indefinitely. The Company has net
operating loss carry forwards for Canadian Federal and Québec
tax purposes of approximately 34,715,320 (CDN$43,953,067), 2020
– 15,560,615 (CDN$19,701,295), and 35,224,105
(CDN$44,597,239), 2020 – 15,727,538 (CDN$19,912,636),
respectively, expiring between 2037 and 2041. Realization of future
tax assets is dependent on future earnings, the timing and amount
of which are uncertain. Accordingly, the net future tax assets have
been fully offset by a valuation allowance. The valuation allowance
increased by $8,860,563 and $2,896,093, respectively, for the years
ended February 28, 2021 and February 29, 2020. The Company has
provided a full valuation allowance on the deferred tax assets as a
result of the uncertainty regarding the probability of its
realization.
The Company has approximately $3,678,832 (CDN$4,657,769), 2020 -
$3,340,127 (CDN$4,485,456), of research and development
expenditures for Canadian Federal and Québec provincial
purposes that are available to reduce taxable income in future
years and have an unlimited carry forward period, the benefit of
which has not been reflected in these financial statements.
Research and development expenditures are subject to audit by the
taxation authorities and accordingly, these amounts may
vary.
The tax effect of temporary differences between US GAAP accounting
and federal income tax accounting creating deferred income tax
assets and liabilities were as follows:
|
|
|
|
|
|
|
|
Deferred
tax assets
|
|
|
|
Canada
net operating loss carry forward
|
$9,258,070
|
$3,905,836
|
|
U.S.
net operating loss carry forward
|
4,629,036
|
3,376,117
|
|
Accrual
and reserves
|
335,742
|
186,985
|
|
Intangibles
|
123,711
|
92,292
|
|
Property,
plant and equipment
|
2,482,633
|
140,538
|
|
Research
and development expenditures and credits
|
1,778,078
|
1,426,470
|
|
Other
|
698
|
126,362
|
|
Deferred tax
assets
|
18,607,968
|
9,254,600
|
|
Deferred
tax liabilities
|
|
|
|
Property,
plant and equipment
|
-
|
-
|
|
Intangibles
|
(211,049)
|
(27,267)
|
|
Accrual
and reserves
|
(64,112)
|
-
|
|
Investment
tax credits
|
-
|
-
|
|
Unrealized
foreign exchange
|
-
|
-
|
|
Other
|
(244,910)
|
-
|
|
Deferred tax liabilities
|
(520,072)
|
(27,267)
|
|
|
|
|
|
Deferred
tax assets, net
|
18,087,896
|
9,227,333
|
|
Valuation
allowance
|
(18,087,896)
|
(9,227,333)
|
|
Deferred tax assets, net
|
$-
|
$-
|
Assessment of the amount of value assigned to the Company's
deferred tax assets under the applicable accounting rules is
judgmental. The Company is required to consider all available
positive and negative evidence in evaluating the likelihood that
the Company will be able to realize the benefit of its deferred tax
assets in the future. Such evidence includes scheduled
reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and the results of recent
operations. Since this evaluation requires consideration of
events that may occur some years into the future, there is an
element of judgment involved. Realization of the Company's
deferred tax assets is dependent on generating sufficient taxable
income in future periods. Management does not believe that it
is more likely than not that future taxable income will be
sufficient to allow it to recover substantially all of the value
assigned to its deferred tax assets. Accordingly, the Company
has provided for a valuation allowance of the Company's deferred
tax asset.
The tax years subject to examination by major tax jurisdiction
include the years 2016 and forward by the U.S. Internal Revenue
Service and most state jurisdictions, and the years 2016 and
forward for the Canadian jurisdiction.
20. Legal Settlement
On January 27, 2017, two individuals (“Plaintiffs”),
filed a claim against the Company in the Los Angeles Superior Court
(“Court”), seeking damages for breach of implied
covenant of good faith and fair dealing, breach of contract, and
promissory fraud, asserting entitlement to shares of the
Company’s common stock. On February 25, 2019, the Company and
the Plaintiffs entered into a settlement agreement and release
(“Settlement Agreement”), which sets forth the
parties’ agreement in principle for settlement. Through the
Settlement Agreement, Plaintiffs, the Company and certain other
parties to the Settlement Agreement agreed to mutual releases of
any and all claims.
Pursuant to the terms of the Settlement Agreement, without agreeing
that any of the Plaintiffs’ claims have merit, the Company
agreed to issue to the Plaintiffs 150,000 shares of the
Company’s common stock (“Plaintiff Common
Shares”) and 500,000 warrants exercisable for shares of the
Company’s common stock (“Plaintiff Warrants”).
The Plaintiff Common Shares will be restricted upon issuance, but
within 180 days following the date of the Settlement Agreement, the
Company has agreed to file and use its reasonable best efforts to
have declared effective a registration statement to register the
Plaintiff Common Shares and the shares of the Company’s
common stock underlying the Plaintiff Warrants. The Company also
agreed to maintain such registration statement for 2 years from the
date of effectiveness unless the Plaintiffs sell or otherwise
transfer the shares covered by such registration statement prior to
the two-year anniversary. 300,000 of the Plaintiff Warrants are
exercisable for shares of the Company’s common stock at an
exercise price of $12.00 per share for a period of 24 months
following the date of the Settlement Agreement. The remaining
200,000 Plaintiff Warrants are exercisable for shares of the
Company’s common stock at an exercise price of $11.00 per
share for a period of 24 months, but in the event the
Company’s 5-day average trading price during any period in
the first 18 months following the date of the Settlement Agreement
is above $11 per share, then the exercise term of such warrants
shall automatically be reduced to 18 months instead of 24
months.
In connection with the legal settlement, the Company recorded an
expense in the amount of $4,041,627, based on the fair value of the
Plaintiff Common Shares and Plaintiff Warrants that were issued on
February 25, 2019, under the terms of the Settlement Agreement.
During the year ended February 28, 2021, all of the Plaintiff
Warrants expired.
21. 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. During the year ended February 28, 2021,
$900,000 was paid by the Company related to this agreement and
included in research and development expenses.
On October 29, 2020, Coca-Cola Cross Enterprise Procurement Group
(“CEPG”) advised the Company of its intention to terminate the Master Terms and
Conditions Supply Agreement for Loop PET plastic, dated November
14, 2018 (the “MTC”) because the Company did not
satisfy its first production milestone from the joint venture
facility by July 2020 as required by the MTC.
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.
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 is due 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.
22. Subsequent Events
On May
27, 2021, we acquired a
19 million square foot parcel of land in Bécancour,
Québec for $4.8 million (CDN $5.9 million). The site is part
of our planning for an Infinite LoopTM manufacturing
facility. The location is near existing industrial infrastructure,
which reduces project costs, permitting time and does not result in
the destruction of wetlands or forest. We will not exercise the
purchase option which was agreed in January 2021 to acquire
approximately 2 million square feet of land in Bécancour,
Québec. Therefore, we will cease monthly payments for the
option rights.
