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.
3 Table of Contents Introduction
Loop is a technology company whose mission is to accelerate the world's shift
toward sustainable PET plastic and polyester fiber and away from our dependence
on fossil fuels. Loop owns patented and proprietary technology that
depolymerizes no and low-value waste PET plastic and polyester fiber, including
plastic bottles and packaging, carpets and textiles of any color, transparency
or condition and even ocean plastics that have been degraded by the sun and
salt, to its base building blocks (monomers). The monomers are filtered,
purified and polymerized to create virgin-quality Loop™ branded PET resin
suitable for use in food-grade packaging and polyester fiber, thus enabling our
customers to meet their sustainability objectives.
The Company is in the planning stages of pursuing the construction of Infinite Loop™ commercial scale facilities. Loop is currently engaged in discussions to secure financing for its investments in the various planned manufacturing facilities and the sequencing of the manufacturing facilities will be determined in conjunction with the outcome of the company's financing discussions.
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:
· InJanuary 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; · InSeptember 2021 , PepsiCo stated 10 European markets are moving key Pepsi-branded products to 100% rPET bottles by 2022, and in theU.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; 4 Table of Contents · Puma is aiming to increase the amount of recycled materials in its apparel and accessories products and have announced a 2025 goal of having at least 75% of the polyester used in Puma products be from recycled sources; · 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. ACalifornia law enacted onSeptember 24, 2020 requires that plastic bottles contain at least 25% by 2025 and 50% by 2030. · InEurope : As ofJanuary 2021 , theEuropean 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. EffectiveApril 2022 , a new £200/ton tax applies in theUK to plastic packaging produced or imported into theUK 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 inJanuary 2023 .Spain has also proposed a tax of €450 per ton on non-reusable plastic packaging with an anticipated start date ofJanuary 2023 .France has a stated goals of 100% plastics recycled by 2025 and 77% of beverage bottles to be collected. · InAsia :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 non-PET materials such as bottle caps and labels. 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.
5 Table of Contents
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
· TheGEN I technology portfolio has three issuedU.S. patents, all expected to expire on or aroundJuly 2035 . Internationally, theGEN I technology portfolio includes issued patents inChina , theEurasian Patent Organization ,Europe ,Japan ,India , theGulf Cooperation Council , and various other countries, and pending patent applications inCanada ,Mexico ,South Korea , and various other countries all expected to expire, if granted, on or aroundJuly 2036 , not including any patent term extensions. · The GEN II technology portfolio currently consists of four patent families: o One family has two issuedU.S. patents and a pendingU.S. application, all expected to expire on or aroundSeptember 2037 . Internationally, this patent family has issued patents inBangladesh and inArgentina , and pending applications inCanada ,China , theEurasian Patent Organization ,Europe , theGulf Cooperation Council ,India ,Japan ,Mexico ,South Korea , and various other countries, all expected to expire on or aroundSeptember 2038 , if granted, not including any patent term extensions. o An additional aspect of the GEN II technology, as claimed in two issuedU.S. patents and a pendingU.S. application, all expected to expire on or aroundJune 2039 . Internationally, this patent family includes issued or allowed patents inMorocco ,Algeria , andBangladesh , and pending applications inCanada ,China , theEurasian Patent Organization ,Europe , theGulf Cooperation Council ,India ,Japan ,Mexico ,South Korea , and various other countries, all expected to expire on or aroundJune 2039 , if granted, not including any patent term extensions. 6 Table of Contents o Another aspect of the GEN II technology, which is the subject of an issuedU.S. patent and a pendingU.S. application. Internationally, this patent family includes pending applications inCanada ,Europe ,India ,Singapore ,Papua New Guinea ,Brazil , andSouth Africa . Any patents that would ultimately grant from this application would be expected to expire on or aroundMarch 2040 , not including any patent term extensions. o Another aspect of the GEN II technology, which is the subject of an issuedU.S. patent and a pendingU.S. application, both expected to expire on or aroundMarch 2040 . Internationally, this patent family includes an allowed application inBangladesh and pending applications inCanada ,China ,Korea , theEurasian Patent Organization ,Europe , theGulf Cooperation Council ,India ,Japan ,Mexico , and various other countries, all expected to expire on or aroundMarch 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:
· Multi-year supply agreement withDanone SA ("Danone"), one of the world's leading global food and beverage companies, enabling Danone to 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
7 Table of Contents
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.
On
The global expansion plan for our technology will allow our customers, mostly comprised of CPG brand companies and apparel companies, to expand the use of Loop™ PET resin and polyester fiber into their packaging and clothing. As countries around the globe continue to increase sustainability targets and recycled content mandates, our customers are increasing the use of sustainably produced materials into their products.
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. The engineering philosophy we have adopted is "design one, build many." This approach allows for the basic design package, to be used as the base engineering platform for all future geographical expansion. We believe this approach allows for a quick execution, speed to market and lends itself well to modular construction. The basic design package has a capacity of up to 70,000 M/T of PET resin output per year. Permitting, site and regulatory considerations may impact plant capacity.
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 SKGC intend to form a joint venture with exclusivity to build
sustainable PET plastic and polyester fiber manufacturing facilities throughout
8 Table of Contents
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
Loop and SKGC are collaborating closely with SK ecoengineering ("SKEE"), a
subsidiary of SK group, on providing the engineering related to the construction
of the planned Infinite Loop™ manufacturing facility in
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.
Infinite Loop™Québec
We acquired a project site in
9 Table of Contents
Although the company is currently focusing on developing the planned joint
venture facilities in
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
As part of our plan for the commercialization of future Infinite Loop™
manufacturing facilities, we enhanced our
We completed the planned upgrades at the Terrebonne Facility which have given us
the opportunity to support product campaigns with customers, such as the evian
Loop bottle. In completing the upgrade of the
In the nine-month period ended
10 Table of Contents
On
Joint Venture with Indorama for Retrofit
In
Human Capital
As of
11 Table of Contents Results of Operations
The following table summarizes our operating results for the three-month periods
ended
Three months ended November 30, 2022 2021 Change Revenues$ 24,924 $ -$ 24,924 Expenses
Research and development Machinery and equipment expenditures 1,059,266 2,599,758 (1,540,492 ) External engineering
707,113 1,585,512 (878,399 ) Employee compensation 1,539,581 1,424,330 115,251 Stock-based compensation 455,013 362,435 92,578 Plant and laboratory operating expenses 915,951 665,893 250,058 Tax credits (299,793 ) 97,480 (397,273 ) Other 204,421 99,896 104,525 Total research and development 4,581,552 6,835,304 (2,253,752 ) General and administrative Professional fees 1,278,478 650,164 628,314 Employee compensation 492,178 748,668 (256,490 ) Stock-based compensation 419,153 279,574 139,579 Insurance 709,952 1,193,554 (483,602 ) Other 283,166 219,295 63,871 Total general and administrative 3,182,927 3,091,255 91,672 Gain on disposition of assets (6,703,558 ) - (6,703,558 ) Depreciation and amortization 133,902 135,035 (1,133 ) Interest and other financial expenses 54,402 49,655 4,747 Interest income (13,315 ) (23,654 ) 10,339 Foreign exchange loss (gain) (197,913 ) 10,648 (208,561 ) Total expenses 1,037,997 10,098,243 (9,060,246 ) Net loss$ (1,013,073 ) $ (10,098,243 ) $ 9,085,170
Three Months Ended
Revenues
Revenues for the three-month period ended
Research and Development
Research and development expense for the three-month period ended
12 Table of Contents
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
Nine Months Ended
The following table summarizes our operating results for the nine-month periods
ended
Nine months ended November 30, 2022 2021 Change Revenues$ 160,352 $ -$ 160,352 Expenses
Research and development Machinery and equipment expenditures 4,132,575 7,707,882 (3,575,307 ) External engineering
2,913,567 5,040,342 (2,126,775 ) Employee compensation 5,179,105 4,213,075 966,030 Stock-based compensation 1,170,554 1,152,506 18,048
Plant and laboratory operating expenses 2,365,643 2,064,403 301,240 Tax credits
(1,207,415 ) (54,911 ) (1,152,504 ) Other 579,162 634,640 (55,478 ) Total research and development 15,133,191 20,757,937 (5,624,746 ) General and administrative Professional fees 3,840,844 3,138,611 702,233 Employee compensation 1,929,581 2,148,533 (218,952 ) Stock-based compensation 8,798,601 209,236 8,589,365 Insurance 2,883,333 3,121,353 (238,020 ) Other 777,896 750,319 27,577 Total general and administrative 18,230,255 9,368,052 8,862,203 Gain on disposition of assets (6,703,558 ) - (6,703,558 ) Depreciation and amortization 410,544 407,806 2,738 Interest and other financial expenses 138,962 113,344 25,618 Interest income (35,842 ) (41,828 ) 5,986 Foreign exchange loss (gain) (289,022 ) 42,712 (331,734 ) Total expenses 26,884,530 30,648,023 (3,763,493 ) Net loss$ (26,724,178 ) $ (30,648,023 ) $ 3,923,845 Revenues
Revenues for the nine-month period ended
13 Table of Contents Research and Development
Research and development expense for the nine-month period ended
General and administrative expenses
General and administrative expenses for the nine-month period ended
Net Loss
The net loss for the nine-month period ended
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Since its inception, the Company has been in the development stage with limited
revenues, with its ongoing operations and commercialization plans financed
primarily by raising equity. To date, we have been successful in raising capital
to finance our ongoing operations. Our liquidity position consists of cash and
cash equivalents on hand of
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.
14 Table of Contents
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 our
planned commercial facilities in
In
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
On
15 Table of Contents
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