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
Loop is a technology company whose mission is to accelerate the world's shift
towards sustainable PET plastic and polyester fiber and away from our dependence
on fossil fuels. Loop owns patented and proprietary technology that
depolymerizes no and low-value waste PET plastic and polyester fiber, including
plastic bottles and packaging, carpets and textiles of any color, transparency
or condition and even ocean plastics that have been degraded by the sun and
salt, to its base building blocks (monomers). The monomers are filtered,
purified and polymerized to create virgin-quality Loop™ branded PET resin and
polyester fiber suitable for use in food-grade packaging, thus enabling our
customers to meet their sustainability objectives.
The Company is in the planning stages of pursuing the construction of Infinite
Loop™ commercial scale facilities in
Industry Background and Market Opportunity
The global annual market demand for PET plastic and polyester fiber is expected
to exceed
Global consumer packaged goods companies ("CPG 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;
· Ikea's ambition is, that by 2030, all plastic used in their products will
be based on renewable or recycled material;
· Puma is aiming to increase the amount of recycled materials in their
apparel and accessories products and by 2025, 75% of the polyester used in
Puma products will be from recycled sources;
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· By 2025, Lululemon aims to achieve at least 75% sustainable materials for
their products, including fibers that are recycled, renewable,
regenerative, sourced responsibly and are manufactured using low-resource
processes; and
· Nike has set a 2025 target of diverting 100% of its waste from landfills
with at least 80% recycled back into their products and goods.
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 for all plastic packaging to 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 : As of January 2021 , the European Union introduced a new tax of
€800/ton on non-recycled plastic packaging based on the amount of plastic
packaging placed on each member state's market. Effective April 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.
Italy is introducing a tax of €450 per ton on virgin plastic used in
manufacture or importation of single use plastic which is expected in
January 2023 . Spain has also proposed a tax of €450 per ton on
non-reusable plastic packaging with an anticipated start date of January
2023 . 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.
Mechanical recycled PET plastic is produced principally through the conversion of bales of PET bottles. The materials have been collected and transported to a materials recovery facility ("MRF"), where they are sorted from other materials, baled, and sent to specific PET recycling facilities. The bales are broken and sorted to remove any non-PET materials. The PET is then ground and put through a separation process which separates the PET from the bottle cap and label materials. Clean PET flake is then further processed depending on its intended end market. It may become more highly refined PET pellet for new bottles or extruded into PET sheet for clamshells, trays, and cups. Recycled PET is also spun into fiber for carpet, clothing, fiber fill, or other materials.
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 yields purified terephthalic acid ("PTA") and monoethylene
glycol ("MEG"), two common monomers of PET. As the Company evaluated the
transition of 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 Loop. We believe that
To independently validate that our
To protect our technology and intellectual property rights, 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, the GEN I technology
portfolio includes 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 ,
Mexico , South Korea , and various other countries all expected to expire,
if granted, on or around July 2036 , not including any patent term
extensions.
· The GEN II technology portfolio currently consists of four patent
families:
o One family has two issued U.S. patents and a pending U.S. application,
all expected to expire on or around September 2037 . Internationally,
this patent family has issued patents in Bangladesh and in Argentina ,
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, not including any
patent term extensions.
o An additional aspect of the GEN II technology, as claimed in two issued
U.S. patents and a pending U.S. application, all expected to expire on
or around June 2039 . Internationally, this patent family includes
issued or allowed patents in Morocco , Argentina , and 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, not including any patent
term extensions.
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o Another aspect of the GEN II technology, which is the subject of an
allowed U.S. application. Internationally, this patent family includes
pending applications in Canada , Europe , India , Singapore , Papua New
Guinea , 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 extensions.
o Another aspect of the GEN II technology, which is the subject of an
issued U.S. patent and a pending U.S. application, both expected to
expire on or around March 2040 . Internationally, this patent family
includes an allowed application in Bangladesh and pending applications
in Canada , China , Korea , the Eurasian Patent Organization , Europe , the
Gulf Cooperation Council , India , Japan , Mexico , and various other
countries, all expected to expire on or around March 2040 , if granted,
not including any patent term extensions.
Loop owns registrations for its trademarks in
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.
We currently have agreements with some of the world's leading brands to be supplied from our planned commercial facilities, including:
· A new multi-year supply agreement with Danone SA ("Danone"), one of the
world's leading global food and beverage companies announced on May 16,
2022 . Danone will purchase 100% sustainable and upcycled Loop™ branded PET
to be supplied from our planned Infinite Loop™ manufacturing facility in
Bécancour, Québec 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
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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 both an important advantage of Loop™ PET resin over mechanically recycled PET resin and is additive to the number of PET waste streams that may be recycled. 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 Loop's technology through a mix
of fully owned manufacturing facilities, strategic partnerships, and licensing
agreements. We believe that industrial companies, some of which today may not be
in the business of manufacturing 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 three regions:
The Infinite Loop™ 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 by
recycling waste plastic rather than depleting finite resources. The Infinite
Loop™ manufacturing technology allows for waste PET plastic and polyester fiber
to be broken down into its base building blocks, monomers DMT and MEG, using
Loop's patented technology. Once the monomers are purified, they are then
repolymerized into PET plastic or polyester fiber using INVISTA know how, which
Loop licenses, and
We have completed our basic design package for the Infinite Loop™ full-scale
manufacturing facilities with our engineering partners Worley, BBA and
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 the feasibility design engineering and cost estimate work, timing and permitting of a facility, customer offtake demand, commitment terms, and feedstock sources, quality, availability, PET bale index pricing, logistics, and ramp up, among others.
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
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In addition, on
SKGC currently owns approximately 10% of Loop's common shares. In conjunction
with the equity investment, Mr.
As reported on
SKGC unveiled on
Infinite Loop™
Our Infinite Loop™
The Québec Project is currently contemplated as wholly-owned and operated by
Loop which allows us to commercialize near our innovation and engineering teams
located in
We acquired the project site in
On
The site offers attractive logistics being located on the St-Lawrence river and
access to rail. The site size exceeds our project needs and the Company has been
pursuing a sale of the excess land that will not be needed for the construction
of its manufacturing facility. On
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Infinite Loop™ Europe We announced on
The expanded partnership intends to combine SKGC's petrochemical manufacturing experience with SUEZ's resource management expertise and Loop's breakthrough proprietary technology to supply up to 70,000 M/T of virgin quality, 100% recycled PET plastic and polyester fiber to the European market. The planned Infinite Loop™ facility is contemplated to offer a solution to consumer goods companies which have committed to goals for significantly increased use of recycled content in their products and/or packaging and help to meet the growing demand for recycled PET resin and polyester fiber.
The three companies are re-evaluating the optimal location for the planned European Infinite Loop™ manufacturing facility. We are working with our partners Suez and SKGC on acquiring the preferred project site, alignment of various levels of government support and additional steps for the project which include advancing permitting, site specific engineering, customer offtake contracts, feedstock and financing.
Technology Due Diligence Report
Loop's strategic partners, Suez and Danone, among others, collectively engaged
an independent, globally recognized third-party engineering firm to execute a
thorough due diligence and technology validation report. We believe the final
report, which was communicated in
Unveiling of L'OCCITANE en Provence Almond Shower Oil Bottle
On
Unveiling of New evian Loop Bottle
On
Loop continues to work toward new brand and market introductions with additional consumer goods brand companies.
Terrebonne Facility Delivery of Loop™ PET
As part of our plan for the commercialization of future Infinite Loop™
manufacturing facilities, we enhanced our
We have completed the planned upgrades at the Terrebonne Facility which have
increased its production capacity, giving us the opportunity to further support
product campaigns with customers, such as the evian Loop bottle. In completing
the upgrade of the
In the quarter ended
Joint Venture with Indorama for Retrofit
In
Human Capital
As of
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Results of Operations
The following table summarizes our operating results for the three-month periods
ended
Three months ended August 31,
2022 2021 Change
Revenues $ 135,428 $ - $ 135,428
ExpensesResearch and development Machinery and equipment expenditures 1,183,652 2,485,232 (1,301,580 ) External engineering
610,839 551,381 59,458
Employee compensation 1,748,679 1,098,161 650,518
Stock-based compensation 319,046 394,527 (75,481 )
Plant and laboratory operating expenses 583,615 707,043 (123,428 ) Tax credits
(838,665 ) (110,741 ) (727,924 )
Other 143,989 159,194 (15,205 )
Total research and development 3,751,155 5,284,797 (1,533,642 )
General and administrative
Professional fees 1,475,768 856,997 618,771
Employee compensation 722,665 554,830 167,835
Stock-based compensation 309,633 313,292 (3,659 )
Insurance 1,070,840 1,059,153 11,687
Other 431,781 331,954 99,827
Total general and administrative 4,010,687 3,116,226 894,461
Depreciation and amortization 138,100 140,770 (2,670 )
Interest and other financial expenses 43,230 33,102 10,128
Interest income (9,334 ) (8,413 ) (921 )
Foreign exchange loss (gain) (93,244 ) (174,066 ) 80,822
Total expenses 7,840,594 8,392,416 (551,822 )
Net loss $ (7,705,166 ) $ (8,392,416 ) $ 687,250 Three Months Ended
Revenues
First time revenues for the three-month period ended
Research and Development
Research and development expense for the three-month period ended
These decreases were partially offset by a
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General and administrative expenses
General and administrative expenses for the three-month period ended
Net Loss
The net loss for the three-month period ended
Six Months Ended
The following table summarizes our operating results for the six-month periods
ended
Six months ended August 31,
2022 2021 Change
Revenues $ 135,428 $ - $ 135,428
ExpensesResearch and development Machinery and equipment expenditures 3,073,309 5,108,125 (2,034,816 ) External engineering
2,206,454 3,454,829 (1,248,375 )
Employee compensation 3,639,525 2,788,744 850,781
Stock-based compensation 715,541 790,072 (74,531 )
Plant and laboratory operating expenses 1,449,693 1,398,510 51,183
Tax credits (907,622 ) (152,391 ) (755,231 )
Other 374,739 534,743 (160,004 )
Total research and development 10,551,639 13,922,632 (3,370,993 )
General and administrative
Professional fees 2,274,752 2,488,447 (213,695 )
Employee compensation 1,437,403 1,399,865 37,538
Stock-based compensation 8,379,448 (70,338 ) 8,449,786
Insurance 2,173,381 1,927,799 245,582
Other 782,344 531,024 251,320
Total general and administrative 15,047,328 6,276,797 8,770,531
Depreciation and amortization 276,642 272,770 3,872
Interest and other financial expenses 84,559 63,689 20,870
Interest income (22,527 ) (18,174 ) (4,353 )
Foreign exchange loss (91,108 ) 32,066 (123,174 )
Total expenses 25,846,533 20,549,780 5,296,753
Net loss $ (25,711,105 ) $ (20,549,780 ) $ (5,161,325 )
Revenues
First time revenues for the six-month period ended
Research and Development
Research and development expense for the six-month period ended
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General and administrative expenses
General and administrative expenses for the six-month period ended
Net Loss
The net loss for the six-month period ended
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
From inception to
Management actively monitors the Company's cash resources against the Company's short-term cash commitments to ensure the Company has sufficient liquidity to fund its costs for at least twelve months from the financial statement issuance date. Management evaluates the Company's liquidity to determine if there is substantial doubt about the Company's ability to continue as a going concern. In preparing this liquidity assessment, management applies significant judgment in estimating future cash flow requirements of the Company based on budgets and forecasts which includes developing assumptions related to: (i) estimation of amount and timing of future cash outflows and cash inflows and (ii) determining what future expenditures are committed and what could be considered discretionary. Management prepared the Company's consolidated financial statements on a going concern basis in accordance with ASC 205-40, as management believes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations as they become due for a period of no less than 12 months from the date of issuance of these consolidated financial statements.
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. We will
require a significant amount of capital to fund our growth as we invest in the
planned construction of our Infinite Loop™ manufacturing facility in
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As the Company pursues its commercialization strategy and invests in the
We 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
On
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