Loop Industries Inc

Notes to the Condensed Consolidated Financial Statements

1. The Company, Basis of Presentation and Going Concern

The Company

Loop Industries, Inc. (the “Company,” “Loop,” “we,” or “our”) is a technology company that owns patented and proprietary technology that depolymerizes no and low-value waste polyethylene terephthalate (“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. The Company is currently in the pre-commercialization stage with limited revenues.

Basis of Presentation

These unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2024, filed with the SEC on May 29, 2024. The unaudited interim condensed consolidated financial statements comprise the consolidated financial position and results of operations of Loop Industries, Inc. and its subsidiaries, Loop Innovations, LLC and Loop Canada Inc. All subsidiaries are, either directly or indirectly, wholly owned subsidiaries of Loop Industries, Inc. (collectively, the “Company”). The Company also owns, through Loop Innovations, LLC, a 50% interest in a joint venture, Indorama Loop Technologies, LLC, which is accounted for under the equity method.

Intercompany balances and transactions are eliminated on consolidation. The condensed consolidated balance sheet as of February 29, 2024, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by US GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods. The results for the three- and six-month periods ended August 31, 2024 are not necessarily indicative of the results to be expected for any subsequent quarter, for the fiscal year ending February 28, 2025, or for any other period.

All monetary amounts in these notes to the condensed consolidated financial statements are in thousands of U.S. dollars unless otherwise specified, except for per share data.

Going Concern

These unaudited interim condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and settlement of liabilities in the normal course of business as they come due. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the date of issuance of these consolidated financial statements.

Since its inception, the Company has been in the pre-commercialization stage with no material revenues from customers, and its ongoing operations and commercialization plans have been financed primarily by raising equity and debt. Therefore, the Company has incurred net losses and negative cash flow from operating and investing activities since its inception and expects to incur additional net losses while it continues to develop and plan for commercialization. As at August 31, 2024, the Company’s available liquidity was $2,403, consisting of cash and cash equivalents of $1,395 and an undrawn amount on a senior loan facility from a Canadian bank of $1,008. Also, current liabilities exceeded current assets by $2,510 as at August 31, 2024.

Management continuously monitors the Company’s cash resources against its short-term cash commitments to ensure there is 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 its ability to continue as a going concern. In preparing this going concern 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 the estimation of amount and timing of future cash outflows and inflows. Based on this assessment, it is estimated that the Company has sufficient liquidity to cover expected cash outflows until end of November 2024, by which time management believes the financing with Reed (see Note 18 for additional details) will be completed, and that the remaining closing conditions will have been addressed. This is expected to provide an initial amount of $11,080 (€10,000), with further amounts at future dates. To secure the Company’s liquidity in the event of timing delays in funding, certain insiders have committed to provide bridge financing of $2,000 if necessary. Notwithstanding, these events and conditions are material uncertainties that raise substantial doubt upon the Company’s ability to continue as a going concern and accordingly, the appropriateness of the use of accounting principles applicable to a going concern.

The Company’s ability to move to the next stage of its strategic development and construct manufacturing plants is dependent on, among other factors, whether the Company can obtain the necessary financing through a combination of the issuance of debt, equity, and/or joint ventures, and/or government incentive programs and/or customers. However, there is no assurance that the Company will be successful in attracting additional funding. Even if additional financing is available, it may not be available on terms favorable to the Company. Failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on the Company’s financial position and on its ability to execute its business plan. The Company is seeking to finalize the negotiation of previously announced financing initiatives on acceptable terms (see Note 18 for additional details), however, there is no assurance it will succeed.

These unaudited interim condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.

2. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to use its judgment 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 the going concern assessment, estimates for depreciable lives of property, plant and equipment and intangible assets, recoverability of tax credits receivable, 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.

Unearned revenue

Unearned revenue represents obligations to our customers for which payment has been received in advance of the delivery of goods or performance of services. Such revenue is recognized on the balance sheet as a contract liability until we fulfill our contractual obligations.

The timing of revenue recognition is based upon the transfer of control of the specified goods or services to the customer. For goods, this typically occurs at the time of shipment or delivery, depending on the terms of the contract. For services, revenue is recognized as the services are performed, either at a point in time or over a specified period.

Net earnings (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 three- and six-month periods ended August 31, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an antidilutive effect. As at August 31, 2024, the potentially dilutive securities consisted of 2,771,216 outstanding stock options (2023 –2,782,000),4,461,818 outstanding restricted stock units (2023 –4,417,688), and 2,357,407 outstanding warrants (2023 –7,089,400).

Recently issued accounting pronouncements not yet adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The amendments in this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. The updated standard is effective for our annual periods beginning after December 15, 2024. Early adoption is permitted. Management is currently evaluating the impact that the updated standard will have on our financial statement disclosures. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements, other than additional disclosures in our notes to the consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. Early adoption is permitted. Management is currently evaluating the impact that the updated standard will have on our financial statement disclosures.

**3.**Sales Tax, Tax Credits and Other Receivables

Sales tax, research and development tax credits and other receivables as at August 31, 2024 and February 29, 2024 were as follows:

**4.**Inventories

Inventories as at August 31, 2024 and February 29, 2024 were as follows:

As at August 31, 2024 and February 29, 2024, inventories included finished goods, work in process and raw materials. Finished goods inventories consist of bottle grade and fiber grade Loop™ PET resin. Work in process inventories consist of recycled monomers (dimethyl terephthalate (“rDMT”) and monoethylene glycol (“rMEG”), either purified or yet to be purified, resulting from the depolymerization of PET feedstock. These monomers can be polymerized into Loop™ PET. Raw materials inventories consist of chemicals which are used as inputs in the PET depolymerization process. As at August 31, 2024 and February 29, 2024, finished goods and work in process inventories were presented at their net realizable value, while raw materials were presented at average cost. As at August 31, 2024, the Company recorded an allowance for inventory write-down of $802 (February 29, 2024 – $817) on finished goods and work in process inventories related to inventory volumes not expected to be sold in the next twelve months.

5. Prepaid Expenses and Other Deposits

Prepaid expenses and other deposits as at August 31, 2024 and February 29, 2024 were as follows:

As of August 31, 2023, the Company had placed non-refundable cash deposits totaling $5,065 on long-lead equipment intended for use in the initial Infinite Loop™ manufacturing facility. By February 29, 2024, this equipment had been received, and the corresponding amount was transferred to Machinery & Equipment on our balance sheet.

6. Property, Plant and Equipment, Net

Depreciation expense for the three- and six-month periods ended August 31, 2024 amounted to $79 and $170, respectively (2023 – $101 and $201).

7. Intangible Assets, Net

Intangible assets as at August 31, 2024 and February 29, 2024 were $1,786 and $1,548, respectively.

During the six-month periods ended August 31, 2024 and 2023, we made additions relating to patent application costs to intangible assets of $325 and $225, respectively.

Amortization expense for the three- and six-month periods ended August 31, 2024 amounted to $50 and $96, respectively (2023 – $35 and $67).

**8.**Fair Value of Financial Instruments

The following tables presents the fair value of the Company’s financial liabilities as at August 31, 2024 and February 29, 2024:

The fair value of cash, restricted cash, due to customer, other receivables, and accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity.

9. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities as at August 31, 2024 and February 29, 2024 were as follows:

10. Long‑Term Debt

Long-term debt as of August 31, 2024 and February 29, 2024, was comprised of the following:

Investissement Québec financing facility

The Company recorded interest expense on the Investissement Québec loan for the three- and six-month periods ended August 31, 2024 in the amount of $29 and $59, respectively (2023 – $22 and $43) and an accretion expense of $14 and $27, respectively (2023 – $18 and $36). During the six-month period ended August 31, 2024, the Company made repayments of $50 (2023 – $32) on the Investissement Québec loan.

Credit facility from a Canadian bank

On July 26, 2022, Loop Canada, Inc., a wholly-owned subsidiary of the Company, entered into an Operating Credit Facility (the “Credit Facility”) with a Canadian bank. The Credit Facility allows for borrowings of up to $2,594 (CDN $3,500) in aggregate principal amount and provides for a two-year term on amounts drawn. The Credit Facility is collateralized by the Company’s Terrebonne, Québec property and is subject to a minimum equity covenant, tested quarterly with which the Company was in compliance as at August 31, 2024. All borrowings under the Credit Facility bear interest at an annual rate equal to the bank’s Canadian prime rate plus 1.0%. As at August 31, 2024, the Company borrowed $1,587 under the Credit Facility. The Company recorded interest expense on the Credit Facility for the three- and six-month periods ended August 31, 2024 in the amount of $61 and $62, respectively (2023 – nil and nil)

Total repayments due on the Company’s indebtedness over the next five years are as follows:

11. Unearned revenue

As at August 31, 2024, unearned revenue was $101 (2023 – nil), comprised of a payment received from a customer while the Company has not yet fulfilled its obligation to deliver rPET.

12. Stockholders’ Equity

Common Stock

During the six months ended August 31, 2024, the Company recorded the following common stock transaction:

During the six months ended August 31, 2023, the Company recorded the following common stock transaction:

13. Research and Development Expenses

Research and development expenses for the three-month periods ended August 31, 2024 and 2023 were as follows:

Research and development expenses for the six-month periods ended August 31, 2024 and 2023 were as follows:

14. General and Administrative Expenses

General and administrative expenses for the three-month periods ended August 31, 2024 and 2023 were as follows:

General and administrative expenses for the six-month periods ended August 31, 2024 and 2023 were as follows:

15. Share-based Payments

Stock Options

The following table summarizes the continuity of the Company’s stock options during the three-month periods ended August 31, 2024 and 2023:

The following tables summarizes the continuity of the Company’s stock options during the six-month periods ended August 31, 2024 and 2023:

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. The principal components of the pricing model for the stock options granted in the six-month period ended August 31, 2024 and 2023 were as follows:

During the three-month periods ended August 31, 2024 and 2023, stock-based compensation expense attributable to stock options amounted to $148 and $172, respectively. During the six-month periods ended August 31, 2024 and 2023, stock-based compensation expense attributable to stock options amounted to $295 and $333, respectively.

Restricted Stock Units

The following table summarizes the continuity of the restricted stock units during the three-month periods ended August 31, 2024 and 2023:

The following table summarizes the continuity of the restricted stock units during the six-month periods ended August 31, 2024 and 2023:

The Company applies the fair value method of accounting for awards granted through the issuance of restricted stock units. Fair value is calculated based on the intrinsic value at grant date multiplied by the number of restricted stock unit awards granted.

During the three-month periods ended August 31, 2024 and 2023, stock-based compensation attributable to RSUs amounted to $214 and $216, respectively. During the six-month periods ended August 31, 2024 and 2023, stock-based compensation attributable to RSUs amounted to $437 and $410, respectively.

Stock-Based Compensation Expense

During the three-month periods ended August 31, 2024 and 2023, stock-based compensation included in research and development expenses amounted to $131 and $155, respectively, and in general and administrative expenses amounted to $231 and $233, respectively. During the six-month periods ended August 31, 2024 and 2023, stock-based compensation included in research and development expenses amounted to $261 and $315, respectively, and in general and administrative expenses amounted to $471 and $428, 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) such number of shares determined by the Administrator of the Plan, effective March 1, 2018. On March 1, 2024, the share reserve was increased by 1,500,000 shares (2023 –1,500,000). 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 that were authorized for issuance as at and during the six-month periods ended August 31, 2024 and 2023:

*The use of the term “units” in the table above describes a combination of stock options and RSUs.

17. Warrants

During the six-month period ended August 31, 2024, warrants for the purchase of 4,714,813 shares of our common stock, each with an exercise price of $15.00, expired, and warrants for the purchase of 17,180 shares of our common stock, each with an exercise price of $11.00 also expired.

18. Contractual agreements

Agreement with Reed Management SAS (“Reed”)

On May 30, 2024, the Company and Reed, a European investment firm, entered into definitive binding agreements, subject to certain closing conditions, for an investment of €35 million from Reed to fund the global commercialization of the Infinite Loop™ Technology and have agreed to form a 50/50 joint venture for the European deployment of Loop’s technology.

Under the terms of the agreement, which has been signed following the completion by Reed of extensive operational, technical, ESG, and legal due diligence, Reed will provide capital as follows:

The closing of the transaction is subject to the fulfillment of certain closing conditions, principally the conditions that (i) Reed shall have completed its first capital raising for its fund; and (ii) Loop shall have received a binding financing commitment from a governmental agency.

Strategic partnership with Ester Industries Ltd. (“Ester”)

On May 1, 2024, the Company entered into an agreement with Ester, a manufacturer of polyester films and specialty polymers in India, to form a 50/50 joint venture based in India ("India JV"). The purpose of the India JV is to build and operate an Infinite Loop™ manufacturing facility in India which will produce lower carbon footprint rDMT, rMEG and specialty polymers, using the Infinite Loop™ Technology. To date, no amounts have been contributed by the Company to the India JV.

Subject to the terms of the relevant governing documents, Ester will be the exclusive producer of specialty polymers for the India JV, and the Company will be the exclusive seller and marketing agent of the India JV’s products. Ester and the Company will work in collaboration on all financing activities for the India JV pursuant to the terms of the agreement. Pursuant to the terms of the relevant governing documents, Loop and Ester parties are required to obtain debt for a minimum of 60% of the total installed cost of the Infinite Loop™ manufacturing facility in India and will each contribute 50% of the initial equity capital of the India JV.

Agreement with SK Geo Centric Co. Ltd. (“SKGC”)

On April 27, 2023, the Company and SKGC entered into an agreement to build Infinite Loop™ manufacturing facilities in Asia. Pursuant to the agreement, the Company and SKGC agreed to form a new entity, which will be headquartered in Singapore. To date, no amounts have been contributed by the Company to the new entity.

19. Subsequent event

Distribution from Joint Venture

The carrying value of the Company’s investment in Indorama Loop Technologies, LLC (“ILT”), its joint venture with Indorama Ventures Holdings LP, USA (“Indorama”), was $381 as at August 31, 2024, which represented the Company’s 50% portion of the cash balance in ILT. On October 9, 2024, ILT distributed a total of $735 in cash to the Company and Indorama, of which $368 was received by the Company. The carrying value of the Company’s investment ILT was $13 after the distribution.