Note 1 – The Company and basis of Presentation
The Company
Loop
Industries
,
Inc. was incorporated on March 11, 2010 under the laws of the State of Nevada, under the name “Radikal Phones Inc.” We changed our name to “First American Group Inc.” on October 7, 2010, and then we subsequently changed our name to , “Loop Industries, Inc.”, effective July 21, 2015.
On June 29, 2015, Loop Industries, Inc. (the Company) entered into a Share Exchange Agreement (the “Share Exchange Agreement”), by and among the Company, and the holders of common stock of Loop Holdings, Inc. (“Loop Holdings”). Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 23,257,500 shares of common stock in consideration for all the issued and outstanding shares in Loop Holdings. The effect of the issuance was that Loop Holdings shareholders held approximately 78.1% of the issued and outstanding shares of common stock of the Company upon consummation of the Share Exchange Agreement.
Pursuant to a Stock Redemption Agreement dated June 29, 2015 entered into commensurate with the share exchange, the Company redeemed 25,000,000 shares of First American Group common stock from two stockholders’ for an aggregate redemption price of $16,000.
As the former owners and management of Loop Industries had voting and operating control of the Company after the share exchange, the transaction has been accounted for as a recapitalization with Loop Holdings deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. No step-up in basis or intangible assets or goodwill was recorded and the aggregate cost of $60,571 representing the net liabilities assumed of $35,243, $16,000 cost of the redeemed shares and closing costs of $9,328 has been reflected as a cost of the transaction. The consolidated financial statements reflect the historical results of Loop Industries prior to the Share Exchange, and that of the combined company following the Share Exchange.
The Company engages in the designing, prototyping and building a closed loop plastics recycling business that leverages a proprietary de-polymerization technology.
All references to shares of common stock in this Report on Form
10-Q/A
give retroactive effect to a one-for-four (1:4) reverse split of the Company’s issued and outstanding shares of common stock, which reverse split took effect on the OTCQB on September 21, 2015.
On May 24, 2016, 9449507 Canada Inc. was incorporated to carry on the Company’s depolymerization business. On November 11, 2016, the shares of 9449507 Canada Inc., which was wholly owned by Mr. Solomita, were transferred to Loop Industries Inc. On December 23, 2016, 9449507 Canada Inc. changed its legal name to Loop Canada Inc. On December 31, 2016, all employees, assets, liabilities, and operations pertaining to the Company’s depolymerization business, were transferred to Loop Canada Inc. from 8198381 Canada Inc., a company wholly owned by Mr. Solomita.
On March 9, 2017, Loop Holdings, a wholly-owned subsidiary of the Company, merged with and into the Company, with the Company being the surviving entity as a result of the merger.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Loop Industries, Inc. and its wholly-owned subsidiary Loop Canada Inc. (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form
10-Q/A
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information as of August 31, 2016 is derived from the Company’s audited consolidated financial statements and related notes for the fiscal year ended February 28, 2017, which is included in Item 8 of the Company’s 2017
Amended
Annual Report on Form
10-K/A
filed with the Securities and Exchange Commission (SEC) on
January 12, 2018
.
These unaudited interim condensed consolidated financial statements should be read in conjunction with those consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended August 31, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.
Intercompany balances and transactions have been eliminated in consolidation.
Liquidity
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has no recurring source of revenue and during the six months ended August 31, 2017, the Company incurred a net loss of $3,699,054 and used cash in operations of $2,269,615. As of August 31, 2017, the Company had cash on hand of $5,383,651 and stockholders’ equity of $6,555,617.
Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. However, the Company will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. Management may consider seeking additional funds, primarily through the issuance of debt and equity securities for cash and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Note 2 – Summary of Significant Accounting Policies
and Restatement of Previously Issued Financial Statements
Restatement of previously issued financial statements
The Company’s unaudited condensed consolidated balance sheet as of August 31, 2017, and condensed consolidated statement of shareholders’ equity for the six month period ended August 31, 2017, have been restated for an error with regard to the accounting for stock based compensation in fiscal 2017.
Adjustment
We identified and corrected an error related to the measurement of stock-based compensation associated with the grant of common shares to the Company’s President and Chief Executive Officer in June 2015. The share-based award vests based on the achievement of specified performance conditions, which pursuant to ASC 718 impacts the timing of recognition of stock-based compensation expense, but which does not affect the determination of the fair value of the award. The fair value of the “equity-classified” award should be determined on the grant date.
Previously, the Company had determined the fair value of the award on the date at which it became probable that the first of four performance conditions had been met, resulting in the recognition of $5,500,000 of non-cash stock based compensation expense in the fourth quarter and fiscal year ended February 28, 2017. The Company has recognized an adjustment to record stock-based compensation of $800,000, which is the amount of the award expected to vest in fiscal 2017, and is based on the grant date fair value of the award as at June 29, 2015.
The adjustment had no impact on the condensed consolidated statements of operations and comprehensive loss and cash flows for the three and six-month periods ended August 31, 2017.
The following table illustrates the impact of the correction to the condensed consolidated balance sheets:
|
|
As at February 28, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Accumulated deficit
|
|
|
(11,937,803
|
)
|
|
|
4,700,000
|
|
|
|
(7,237,803
|
)
|
|
|
As at August, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Accumulated deficit
|
|
|
(15,636,857
|
)
|
|
|
4,700,000
|
|
|
|
(10,936,857
|
)
|
The following table illustrates the impact of the correction on the condensed consolidated statement of shareholders’ equity:
|
|
Six month period ended August 31, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Accumulated deficit at Feb 28, 2017
|
|
|
(11,937,803
|
)
|
|
|
4,700,000
|
|
|
|
(7,237,803
|
)
|
Accumulated deficit at August 31, 2017
|
|
|
(15,636,857
|
)
|
|
|
4,700,000
|
|
|
|
(10,936,857
|
)
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property and equipment, analysis of impairments of recorded intellectual property, accruals for potential liabilities and assumptions made in calculating the fair value of certain stock instruments.
Foreign Currency Translations and Transactions
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenses are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
The following table summarizes the exchange rates used:
|
|
Six Months Ended August 31,
|
|
|
|
2017
|
|
|
2016
|
|
Period end Canadian $: US Dollar exchange rate
|
|
$
|
0.80
|
|
|
$
|
0.76
|
|
Average period Canadian $: US Dollar exchange rate
|
|
$
|
0.76
|
|
|
$
|
0.77
|
|
Expenditures are translated at the average exchange rate for the period presented.
Value added tax, tax credits and other receivables
The Company is registered for the Canadian Federal and Provincial Goods and Services Taxes. As a registrant, the company is obligated to collect, and is entitled to claim sale taxes paid on its expenses and capital expenditures incurred in Canada. As at the Balance Sheet date of August 31 and February 28, 2017, the computed net recoverable sale taxes amounted to $79,723 and $198,830, respectively.
Research and Development Costs
Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded amounted to $950,775 and $433,629 for the three months ended August 31, 2017 and 2016, respectively, and to $1,447,309 and $849,198 for the six months ended August 31, 2017 and 2016, respectively. Research and development costs are net of $4,472 of grants received and research and development tax credit of $127,713 claimed during the period ended August 31, 2017.
Net Loss per Share
The Company computes net loss per share in accordance with FASB ASC 260 Earnings per share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. 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 months ended August 31, 2017 and 2016, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. The potentially dilutive securities consisted of 1,000,000 common shares issuable and 2,004,582 outstanding warrants as of August 31, 2017 and 2,035,004 outstanding warrants as of August 31, 2016.
Stock Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation–Stock Compensation (Topic 718)
, which is intended to simplify accounting for share-based payment transactions. The ASU changed several aspects of the accounting for share-based payment award transactions, including accounting for income taxes, forfeitures and minimum statutory tax withholding requirements. Management adopted this ASU beginning March 1, 2017, with an immaterial impact to the Company's consolidated net loss and cash flows.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. On August 12, 2015, FASB delayed the required implementation to fiscal years beginning after December 15, 2017 but now permitted organizations such the Company to adopt earlier. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. As the Company does not currently have any revenues from contracts with customers, the adoption of ASU 2014-09 on March 1, 2018 will not to have an impact, on transition.
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02,
Leases
. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Note 3 – Property and Equipment
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
August 31,
|
|
|
February 28,
|
|
|
|
Life
|
|
|
2017
|
|
|
2017
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
5 - 7
|
|
|
$
|
1,796,015
|
|
|
$
|
1,590,187
|
|
Office equipment and furniture
|
|
5 - 8
|
|
|
|
158,242
|
|
|
|
131,607
|
|
Leasehold improvements
|
|
|
3
|
|
|
|
388,670
|
|
|
|
342,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,342,927
|
|
|
|
2,064,213
|
|
Less: accumulated depreciation
|
|
|
|
|
|
|
(661,414
|
)
|
|
|
(497,244
|
)
|
Property and equipment, net
|
|
|
|
|
|
$
|
1,681,513
|
|
|
$
|
1,566,969
|
|
Depreciation expense amounted to $75,880 and $65,596 for the three months ended August 31, 2017 and 2016, respectively and to $150,472 and $156,363 for the six months ended August 31, 2017 and 2016, respectively.
Note 4 – Intellectual Property
On October 27, 2014, the Company entered into an intellectual property agreement with Mr. Hatem Essaddam wherein the Company purchased for cash of $445,050, a certain technique and method for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure. The Company is using such intellectual property as part of their research and development activities. The technology is being amortized using the straight-line method over the 7 years estimated useful life of the patents.
In addition to the $445,050 paid by the Company under the Intellectual Property Assignment Agreement, the Company is required to make additional payments totaling CDN$800,000 to Mr. Essaddam within sixty (60) days of each of the following milestones (the “Milestones”) having been met, as follows:
|
(i)
|
CDN$200,000 when an average of twenty (20) metric tons per day of terephthalic acid is produced by the Company for twenty (20) operating days;
|
|
|
|
|
(ii)
|
CDN$200,000 when an average of thirty (30) metric tons per day of terephthalic acid is produced by the Company for thirty (30) operating days;
|
|
|
|
|
(iii)
|
CDN$200,000 when an average of sixty (60) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days; and
|
|
|
|
|
(iv)
|
CDN$200,000 when an average of one hundred (100) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days.
|
As of August 31, 2017, the Company is still in its test pilot program, none of the Milestones have been met, and accordingly no additional payments have been made.
Additionally, the Company is obligated to make royalty payments to Mr. Essaddam of up to CDN$25,700,000, payable as follows:
|
(a)
|
10% of gross profits on the sale of all products derived by the Company from the technology assigned to the Company under the agreement;
|
|
|
|
|
(b)
|
10% of any license fee paid to the Company in respect of any licensing or other right to use the technology assigned to the Company and granted to a third party by the Assignee;
|
|
|
|
|
(c)
|
5% of any royalty or other similar payment made to the Company by a third party to whom a license or other right to use the technology assigned to the Company has been granted by the Company; and
|
|
|
|
|
(d)
|
5% of any royalty or other similar payment made to the Company by a third party in respect of a sub-license or other right to use the technology assigned to the Company granted by the third party.
|
As of August 31, 2017, the Company has not made any royalty payments under the Intellectual Property Assignment Agreement.
Amortization expense amounted to $15,895 and $9,532 for the three months ended August 31, 2017 and 2016, respectively and to $31,789 and $31,789 for the six months ended August 31, 2017 and 2016, respectively.
Note 5 – Related Party Transactions
Advances from Major Shareholder
Mr. Daniel Solomita, the Company’s major stockholder and CEO, or companies controlled by him, previously made advances to the Company. The advances were unsecured, non-interest bearing with no formal terms of repayment. During the period ended August 31, 2017, the Company repaid to Mr. Solomita or companies controlled by him, as applicable, an aggregate amount of $249,762 and netted against the advances an aggregate amount of $113,223 representing value added taxes and other receivables owing. The amounts due to these entities as of February 28, 2017 were $391,695.
Employment Agreement and Accrued Compensation due to Major Shareholder
The Company entered into an employment agreement with Daniel Solomita, the Company’s President and Chief Executive Officer for an indefinite term. During the term, the officer shall receive monthly salary of $15,000. Compensation expense under this agreement amounted to $45,000. As at February 28, 2017, accrued compensation $360,000 was due to Mr. Solomita. As at August 31, 2017, the total accrued compensation due to Mr. Solomita was paid.
In addition, the Company agreed to grant the officer 4 million shares of the Company’s common stock, form of equity to be determined, if certain milestones were met.
Effective April 10, 2017, the Company qualified to trade on the OTCQX and began trading the same date. Accordingly, as at August 31, 2017, the officer’s entitlement to 1,000,000 shares with a fair value of
$800,000
(note 2),
in aggregate, have vested. The
performance conditions
for the remaining 3,000,000 shares of common stock
are
not
considered probable, therefore the stock based compensation expense associated with the grant has not
been
recognized
.
Note 6 – Stockholders’ Equity
Common Stock
During the six months ended August 31, 2017 the Company sold 1,123,266 shares of its common stock at an offering price of $5.25 per share, resulting in net proceeds to the Company of $5,897,188.
Equity Incentive Plan
On July 6, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of options to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were reserved for issuance under the Plan with an automatic share reserve increase, as defined in the Plan, effective commencing March 1, 2018. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of stock options granted, the share price pursuant to the stock options and the vesting conditions and period. The options, 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 option will not exceed 5 years.
During the period ended August 31, 2017, the Company issued to its Chief Financial Officer a warrant to purchase up to 400,000 shares of our common stock at an exercise price of $5.25 per share, which vests quarterly in equal amounts over 24 months beginning on April 3, 2017, and have a contractual life of 10 years. This warrant has a grant date fair value of $1,836,360 as determined by a Black Scholes option pricing model and will be amortized over the vesting period. In addition, the Company issued to its Chief Financial Officer a warrant to purchase up to 150,000 additional shares of our common stock at an exercise price of $5.25 per share that will vest when certain milestones are achieved. This warrant has a grant date fair value of $688,635 as determined by a Black Scholes option pricing model and amortization will commence when it is probable that the milestones will be achieved.
During the period ended August 31, 2017, the Company issued three warrants to two employees, not covered under the Plan to purchase up to 530,000 shares of our common stock, in aggregate, at an exercise price of $5.25 per share. The warrants to purchase up to an aggregate of 100,000 and 380,000 shares of our common stock, respectively, each vest quarterly in equal amounts over 24 and 48 months, respectively, beginning on July 24, 2017 and June 13, 2017, respectively, and each have a contractual life of 10 years. These warrants collectively have a grant date fair value of $4,786,142 as determined by a Black Scholes option pricing model and will be amortized over the vesting period. In addition, a warrant to purchase up to 50,000 additional shares of our common stock will vest when certain milestones are achieved. This warrant had a grant date fair value of $479,885 as determined by a Black Scholes option pricing model and amortization will commence when it is probable that the milestones will be achieved.
The warrants grant date fair value were determined by a Black Scholes option pricing model with the following assumptions:
Risk-free interest rate
|
1.60 to 2.02%
|
Expected dividend yield
|
0%
|
Expected volatility
|
82 to 84%
|
Expected life
|
4 to 6 years
|
During the period ended August 31, 2017, the Company amended the terms of warrants to purchase up to 702,452 shares of our common stock which were originally issued on December 1, 2015 to three employees. The amendment extended the expiry date of the warrants to November 30, 2025 from November 30, 2017. As a result of the modification, we recognized additional compensation expense of $63,677.
Amortization of these costs amounted to $697,869 and $32,348 for the three months period ended August 31, 2017 and 2016, respectively, and to $920,373 and $73,707 for the six months period ended August 31, 2017 and 2016, respectively, and are included in operating expenses. As of August 31, 2017 and 2016, the unamortized balance of these costs was $7,637,197 and $456,488. The aggregate intrinsic value of the warrants outstanding as of August 31, 2017 was $22,529,036 calculated as the difference between the closing market price of $14.45 and the exercise price of the Company’s warrants as of August 31, 2017.
The table below summarizes the Company’s warrant activities:
|
|
Number of Warrant Shares
|
|
Exercise Price Range Per Share
|
|
|
Weighted Average Exercise Price
|
|
Balance, February 28, 2017
|
|
|
1,647,670
|
|
|
$0.80 to $6.00
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,080,000
|
|
|
$5.25
|
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(65,418
|
)
|
|
$0.80 to $3.00
|
|
|
$
|
2.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(213,770
|
)
|
|
$0.80 to $6.00
|
|
|
$
|
5.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(443,900
|
)
|
|
$6.00
|
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2017
|
|
|
2,004,582
|
|
|
$0.80 to $5.25
|
|
|
$
|
3.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned and exercisable, August 31, 2017
|
|
|
616,457
|
|
|
$0.80 to $5.25
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, August 31, 2017
|
|
|
1,388,125
|
|
|
$0.80 to $5.25
|
|
|
$
|
4.11
|
|
As at August 31, 2017, 20,000 shares of the Company’s common stock were issued as a result of a cashless exercise of 22,919 warrants with an exercise price of $0.80 and a fair value of $0.55. In addition, the Company issued 193,770 shares of its common stock upon the exercise of warrants at an offering price of $6.00 per share, resulting in proceeds of $1,163,016.
The following table summarizes information concerning outstanding and exercisable warrants as of August 31, 2017:
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Range of Exercise Prices
|
|
|
Number Outstanding
|
|
|
Average Remaining Contractual Life (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Average Remaining Contractual Life (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.80
|
|
|
|
912,082
|
|
|
|
6.50
|
|
|
$
|
0.80
|
|
|
|
557,082
|
|
|
|
6.48
|
|
|
$
|
0.80
|
|
$
|
3.00
|
|
|
|
12,500
|
|
|
|
0.76
|
|
|
$
|
3.00
|
|
|
|
9,375
|
|
|
|
0.76
|
|
|
$
|
3.00
|
|
$
|
5.25
|
|
|
|
1,080,000
|
|
|
|
9.93
|
|
|
$
|
5.25
|
|
|
|
50,000
|
|
|
|
9.73
|
|
|
$
|
5.25
|
|
Note
7
– Subsequent Events
Issuance of common shares
On September 7, 2017, the Board of Directors approved the issuance and sale of 18,128 common shares of the Company’s common stock, par value $0.0001 per share at an offering price of $12.00 per share, for gross proceeds of $217,536. In addition, the Company reclassified the stock subscriptions in the amount of $54,780, in aggregate, to common stock. As at the filing date, the Company had received total proceeds which will be used for working capital and general corporate purpose principally.
The shares issued to investors were not registered under the Securities Act of 1933, as amended (the “Act”), in reliance upon the private offering safe harbor provision of Rule 506 Regulation D.
Credit Facility
On September 12, 2017, the Company entered into a credit facility consisting of a $50,000 CDN credit card facility, secured by a $50,000 CDN Guaranteed Investment Certificate (“GIC”) bearing interest at 0.45% maturing on October 1, 2018.
Forward Foreign Exchange Contracts
On September 12, 2017, the Company entered into a conditional forward foreign exchange contract to sell $250,000 USD with a term of September 12, 2017 to November 14, 2017, with an interim strike date on October 12, 2017 based on the following conditions:
|
·
|
If the spot rate never traded at or below 1.2025 CDN to USD and the spot rate is greater than 1.2025 the Company sells at 1.2025 CDN to USD;
|
|
|
|
|
·
|
If the spot rate traded at or below 1.2025 CDN to USD and the spot rate is:
|
|
i)
|
less than or equal to 1.2025 CDN to USD, then the Company sells at 1.2025 CDN to USD; or
|
|
|
|
|
ii)
|
greater than 1.2025, then no exchange or cash payment will occur.
|
As security for the conditional forward foreign exchange contract the Company has pledged a $50,000 GIC bearing interest at 0.45% maturing on December 29, 2017 in favor of the Company’s derivative dealer.
In addition to the amount above, the Company entered into two $500,000 USD dual currency contracts, requiring the value of the contract to be deposited in a GIC, having terms of 30 days and 63 days, respectively. For the 30 day contract if the spot rate is less than or equal to 1.23 CDN per USD, then the GIC matures at $500,000 USD plus interest at 4.55% per annum. If the spot rate is greater than 1.23 CDN per USD, then the GIC matures at $615,000 CDN plus interest of 4.55%. For the 63 day contract if the spot rate is less than or equal to 1.23 CDN per USD, then the GIC matures at $500,000 USD plus interest of 4.8% per annum. If the spot rate is greater than 1.23 CDN per USD, then the GIC matures at $615,000 CDN plus interest of 4.8%.
Equity Incentive Plan
On September 14, 2017, the Company issued stock options, to two employees, under the Plan to purchase up to 700,000 shares of our common stock in aggregate, of which 200,000 vest immediately and 500,000 vest in equal monthly installments over 60 months beginning on September 14, 2017, at an exercise price of $12.00 per share. The warrants have a grant date fair value of $8,173,550 as determined by a Black Scholes option pricing model with the following assumptions:
Risk-free interest rate
|
1.50%
|
Expected dividend yield
|
0%
|
Expected volatility
|
94%
|
Expected life
|
3 years
|
Purchase of land
On September 27, 2017, the Company entered into a promise to purchase land, building and equipment for consideration of $957,240, in aggregate. An amount of $95,724 was deposited in escrow on the date of the agreement. We have 60 days following the acceptance of the promise to purchase to complete our due diligence and proceed to the execution of the deed of sale.