LOOP INDUSTRIES, INC. 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
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
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.
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Introduction
Industry Background and Market Opportunity
The global annual market demand for PET plastic and polyester fiber will exceed
We believe plastic pollution and climate change continue to be 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 greenhouse gas ("GHG") 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
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 September 2021 , PepsiCo stated 11 European markets are moving key
Pepsi-branded products to 100% rPET bottles by 2022, and in the U.S. , all
Pepsi-branded products will be converted to 100% rPET bottles 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 using at least 25% post-consumer
recycled plastic in packaging;
· 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 towards 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.
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There is a growing regulatory and policy environment to encourage a reduction in the production of virgin fossil fuel-based plastic and for minimum recycled content in packaging imposed by various governments:
· In North America : Canada has announced a zero-plastic waste by 2030 goal
and is targeting all plastic packaging contain 50% recycled content by
2030. A California law enacted on September 24, 2020 requires that plastic
bottles contain at least 15% post-consumer resin by 2022, 25% by 2025 and
50% by 2030.
· In Europe : starting January 2021 , the European Union introduced a new tax
of €800/ton on non-recycled plastic packaging. Effective 2022, a new
£200/ton tax will apply in the UK to plastic packaging produced or
imported into the UK that does not contain at least 30% recycled plastic.
France has a stated goals of 100% plastics recycled by 2025 and 77% of
beverage bottles to be collected.
· In Asia : South Korea targets reducing plastic waste by 20% and increase
recycling rates from 54% to 70% by 2025 and 30% renewable plastic by 2030.
The growing regulatory environment combined with global consumer goods companies, apparel manufacturers, and retail brand commitments for 2025 and 2030 are expected to increase the demand for recycled PET ("rPET")plastic further.
As explained by the
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% recycled 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, 100% recycled PET resin suitable for use in food-grade packaging and polyester fiber.
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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
· Lower energy usage during depolymerization and therefore reduced
processing cost and lower GHG emissions 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 fewer, 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
To independently validate that our
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
· 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 China , the Eurasian Patent Organization , Europe , Japan , India ,
the Gulf Cooperation Council , and various other countries, and pending
patent applications in Canada , Japan , South Korea , and various other
countries 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
Canada , China , the Eurasian Patent Organization , Europe , the Gulf
Cooperation Council , India , Japan , Mexico , South Korea , and various
other countries, 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, all expected to expire on
or around June 2039 . Internationally, we also have an allowed patent
application in Bangladesh and pending applications in Canada , China ,
the Eurasian Patent Organization , Europe , the Gulf Cooperation Council ,
India , Japan , Mexico , South Korea , and various other countries, 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 pending U.S. application. Internationally, we also have pending
applications in Brazil and South Africa . Any patents that would
ultimately grant from this application 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 an allowed U.S. application, a granted Bangladesh
application, a pending U.S. application, a pending International
application, and pending applications in Canada , China , Korea , the
Eurasian Patent Organization , Europe , the Gulf Cooperation Council ,
India , Japan , Mexico , and various other countries. Any patents that
would ultimately grant from these applications would be expected to
expire on or around March 2040 , if granted and not including any patent
term extension.
Loop owns registrations for its trademarks in
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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.
Loop's PET resin was subjected to independent testing by an external and
certified laboratory, which confirmed the PET complies with FDA Regulation 21
CFR § 177.1630 on
We have received from the
On
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, like PET, 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.
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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
· 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.
We are pursuing amended supply agreements with existing customers and new
agreements with additional customers that are located in
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.
Commercialization Strategy
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 significant 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:
The Infinite Loop™ greenfield 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.
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. The engineering philosophy we have adopted is "design one, build many." This 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.
We entered into a know-how and engineering agreement (the "Chemtex Agreement")
with
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We continue to focus on the completion of the Infinite Loop™ 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. 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 Loop™ facilities in various regions.
Worley has completed the pre-feasibility engineering as part of the planning
phase for an Infinite Loop™ manufacturing facility in the province of
Our market strategy is to assist global consumer goods brands in meeting their public sustainability commitments by offering packaging or polyester fibers that are made with Loop co-branded, 100% recycled, virgin-quality PET or polyester fibers. We believe that Loop™ recycled PET resin and polyester fiber could command premium pricing over virgin, petroleum-based PET resin and provide attractive economic returns. We are targeting multi-year take or pay offtake agreements for planned Infinite Loop™ production. Factors under consideration in determining project economics include 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.
Loop and SK geo centric Co., Ltd. (formerly known as 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
In addition, Loop and SKGC have concluded a definitive agreement for SKGC to
become a strategic investor in Loop. SKGC purchased 4,714,813 new treasury
common shares of Loop at a price of
SKGC owns approximately 10% of Loop's common shares. In conjunction with the
equity investment, Mr.
As reported on
SK global chemical unveiled on
Unveiling of New evian Loop Bottle
On
Loop continues to work toward new brand and market introductions with additional consumer goods brand companies.
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Infinite Loop™
Our Infinite Loop™
The Québec Project is currently contemplated as wholly-owned and operated by
We acquired the project site in
We continue to work with existing and additional customers to sign definitive
multi-year contracts for the
The site offers attractive logistics being located on the St-Lawrence river and access to rail. The site size exceeds our project needs and we plan to sell a portion of the land to offset part of our project commitment.
Infinite Loop™Europe
We announced on
Joint Venture with Indorama for Retrofit
In
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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. Both joint venture partners currently remain committed to the project and we continue to discuss the project timetable.
In conjunction with the SK strategic partnership mentioned above, on
Under the Indorama Joint Venture Amendments, the Company, Indorama and the
· 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 .
Terrebonne Facility
As part of our plan for the commercialization of future Infinite Loop™
manufacturing facilities, we enhanced our
We made significant investments in the Terrebonne Facility during the nine-month
period ended
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 with activities such as the co-branded marketing launch of an evian Loop
bottle. Our research and development innovation center in
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.
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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
Results of Operations
The following table summarizes our operating results for the three-month periods
ended
Three months ended November 30,
2021 2020 Change
Revenues $ - $ - $ -
Expenses
Research and development
Stock-based compensation 362,435 350,393 12,042
External engineering 1,585,512 2,224,910 (639,398 )
Employee compensation 1,424,330 864,041 560,289Machinery and equipment expenditures 2,599,758 2,325,540 274,218 Plant and laboratory operating expenses 665,893
515,395 150,498
Other 197,376 (5,996 ) 203,372
Total research and development 6,835,304 6,274,283 561,021
General and administrative
Stock-based compensation 279,574 546,601 (267,027 )
Professional fees 650,164 1,164,004 (513,840 )
Employee compensation 748,668 399,288 349,380
Insurance 1,193,554 480,013 713,541
Other 219,295 134,110 85,185
Total general and administrative 3,091,255 2,724,016 367,239
Write-down and impairment of property,
plant and equipment - 5,034,606 (5,034,606 )
Depreciation and amortization 135,035 104,307 30,728
Interest and other financial expenses 49,655 (41,855 ) 91,510
Interest income (23,654 ) (20,008 ) (3,646 )
Foreign exchange loss (gain) 10,648 95,644 (84,996 )
Total expenses 10,098,243 14,170,993 (4,072,750 )
Net loss $ (10,098,243 ) $ (14,170,993 ) $ 4,072,750
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Third Quarter Ended
The net loss for the three-month period ended
The
The
· $0.56 million increase in employee compensation expenses related to
increased headcount to support the Company's commercialization efforts;
· $0.27 million increase in purchases of research and development machinery
and equipment at the Company's small-scale production plant; and
· $0.15 million increase in plant and laboratory operating expenses.
These increases were partially offset by a
The
· $0.71 million increase in insurance expenses mainly due to directors and
officers ("D&O") insurance upon extension of the Company's policy; and
· $0.35 million increase in employee compensation expenses.
These increases were partially offset by a
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Nine Months Ended
The following table summarizes our operating results for the nine-month periods
ended
Nine months ended November 30,
2021 2020 Change
Revenues $ - $ - $ -
Expenses
Research and development
Stock-based compensation 1,152,506 1,054,682 97,824
External engineering 5,040,342 3,241,959 1,798,383
Employee compensation 4,213,075 2,039,469 2,173,606Machinery and equipment expenditures 7,707,882 2,325,540 5,382,342 Plant and laboratory operating expenses 2,064,403 1,385,892 678,511 Other
579,729 456,551 123,178
Total research and development 20,757,937 10,504,093 10,253,844
General and administrative
Stock-based compensation 209,236 1,720,067 (1,510,831 )
Professional fees 3,138,611 1,806,134 1,332,477
Employee compensation 2,148,533 1,371,147 777,386
Insurance 3,121,353 1,455,954 1,665,399
Other 750,319 373,037 377,282
Total general and administrative 9,368,052 6,726,339 2,641,713
Write-down and impairment of property,
plant and equipment - 5,043,120 (5,043,120 )
Depreciation and amortization 407,806 654,354 (246,548 )
Interest and other financial expenses 113,344 26,016 87,328
Interest income (41,828 ) (78,394 ) 36,566
Foreign exchange loss 42,712 275,903 (233,191 )
Total expenses 30,648,023 23,151,431 7,496,592
Net loss $ (30,648,023 ) $ (23,151,431 ) $ (7,496,592 ) The net loss for the nine-month period ended
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The
· $5.38 million increase in purchases of research and development machinery
and equipment. Starting in Q3 of fiscal 2021, the Company expensed
research and development machinery and equipment in accordance with ASC
730, Research and Development Costs, and no longer capitalized these
costs. The timing of this accounting treatment is related to management's
decision to dedicate the Terrebonne Facility to brand activation, initial
customer volumes and Infinite Loop™ demonstration, research and
development activities;
· $2.17 million increase in employee compensation expenses related to
increased headcount to support the Company's commercialization efforts;
· $1.80 million increase in external engineering expenses for ongoing design
work for our Infinite Loop™ manufacturing process; and
· $0.68 million increase in plant and laboratory operating expenses.
The
· $1.67 million increase in insurance expenses mainly due to directors and
officers ("D&O") insurance upon extension of the Company's policy;
· $1.33 million increase in expenses for legal and professional fees due to
costs principally associated with the SEC investigation and class action
suits described in "Part II, Item 1. Legal Proceedings"; and
· $0.78 million increase in employee compensation expenses.
These increases were partially offset by lower stock-based compensation expenses
of
The
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We are a development stage company with no revenues, and our ongoing operations
and commercialization plans have been financed primarily by raising new equity
capital. To date, we have been successful in raising capital to finance our
ongoing operations. As at
As part of our strategic partnership with SKGC, SKGC purchased 4,714,813 new
treasury common shares of Loop at a price of
The company has outstanding warrants to purchase 4,554,865 shares of our common
stock in aggregate at
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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 our ongoing operations. Although our
liquidity position consists of cash and cash equivalents on hand of
As reflected in the accompanying 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. As the Company pursues its commercialization
strategy and invests in the
We have a short-term debt obligation to a Canadian bank in connection with the
purchase, in the year ended
We also have a long-term debt obligation to Investissement Québec in connection
with a financing facility for the expansion of the Terrebonne Facility up to a
maximum of
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