Notes to the Condensed Consolidated
Financial Statements
(Unaudited)
1. The Company, Basis of Presentation
The Company
Loop
Industries, Inc. (the
“Company,” “Loop Industries,”
“we,” or “our”) is a technology company
that owns patented and proprietary technology that depolymerizes no
and low-value waste 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 for use in food-grade packaging and polyester
fiber.
On
November 20, 2017, Loop Industries commenced trading on the NASDAQ
Global Market under its new trading symbol, “LOOP.”
From April 10, 2017 to November 19, 2017, our common
stock was quoted on the OTCQX tier of the OTC Markets
Group Inc. under the symbol “LLPP.”
Basis of presentation
The
accompanying 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, 2020, filed with the SEC on May 5, 2020 and
amended on May 6, 2020 and September 21, 2020. 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, 2020,
included herein, was derived from the audited financial statements
as of that date, but does not include all disclosures including
certain notes required by 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, 2020 are not necessarily indicative of the
results to be expected for any subsequent quarter, the fiscal year
ending February 28, 2021, or any other period.
2. Summary of Significant Accounting Policies
Use of estimates
The
preparation of financial statements in conformity with US GAAP
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 expenses during the
reporting period. Actual results could differ from those estimates.
Those estimates and assumptions include estimates for depreciable
lives of property, plant and equipment, intangible assets, analysis
of impairments of long-lived assets and intangible assets, accruals
for potential liabilities and assumptions made in calculating the
fair value of stock-based compensation and other equity
instruments.
The
COVID-19 pandemic has disrupted business operations for us and our
customers, suppliers, vendors and other parties with whom we do
business and such disruptions are expected to continue for an
indefinite period of time. The uncertain duration of these measures
have had and may continue to have an effect on our development and
commercialization efforts. In particular, the situation in the
United States and the continued border closures and quarantine
requirements between Canada and the United States have caused
disruptions in our timetable of our joint venture with Indorama in
the development of our Spartanburg facility and commercialization
of our technology, which is currently continuing with renewed
discussions on structure and financing to address these
disruptions.
Although
we continue to monitor the situation and may adjust our current
policies as more information and public health guidance become
available, the COVID-19 pandemic is ongoing, and its dynamic
nature, including uncertainties relating to the ultimate spread of
the virus, the severity of the disease, the duration of the
outbreak and actions that may be taken by governmental authorities
to contain the outbreak or to treat its impact, makes it difficult
to assess whether there will be further impact on the development
and commercialization of our technology which could have a material
adverse effect on our results of operations and cash
flows.
Foreign currency translations and transactions
The
accompanying unaudited condensed consolidated financial statements
are presented in U.S. dollars, the reporting currency of the
Company. Assets and liabilities of subsidiaries that have a
functional currency other than that of the Company are translated
to U.S. dollars at the exchange rate as at the balance sheet date.
Income and expenses are translated at the average exchange rate of
the period. The resulting translation adjustments are included in
other comprehensive income (loss) (“OCI”). As a result,
foreign currency exchange fluctuations may impact operating
expenses. The Company currently has not engaged in any currency
hedging activities.
For
transactions and balances, monetary assets and liabilities
denominated in foreign currencies are translated into the
functional currency of the entity at the prevailing exchange rate
at the reporting date. Non-monetary assets and liabilities, and
revenue and expense items denominated in foreign currencies are
translated into the functional currency using the exchange rate
prevailing at the dates of the respective transactions. Foreign
exchange gains and losses resulting from the settlement of such
transactions are recognized in the consolidated statements of
operations and comprehensive loss, except for gains or losses
arising from the translation of intercompany balances denominated
in foreign currencies that forms part in the net investment in the
subsidiary which are included in OCI.
Stock-based compensation
Loop
Industries, Inc. periodically issues stock options, warrants and
restricted stock units to employees and non-employees in
non-capital raising transactions for services and financing
expenses. The Company accounts for stock options granted to
employees based on the authoritative guidance provided by the FASB
wherein the fair value of the award is measured on the grant date
and where there are no performance conditions, recognized as
compensation expense on the straight-line basis over the vesting
period and where performance conditions exist, recognize
compensation expense when it becomes probable that the performance
condition will be met. Forfeitures on share-based payments are
accounted for by recognizing forfeitures as they
occur.
The
Company accounts for stock options and warrants granted to
non-employees in accordance with the authoritative guidance of the
FASB wherein the fair value of the stock compensation is based upon
the measurement date determined as the earlier of the date at which
either a) a commitment is reached with the counterparty
for performance or b) the counterparty completes its
performance.
The
Company estimates the fair value of restricted stock unit awards to
employees and directors based on the closing market price of its
common stock on the date of grant.
The
fair value of the stock options granted are estimated using the
Black-Scholes-Merton Option Pricing (“Black-Scholes”)
model, which uses certain assumptions related to risk-free interest
rates, expected volatility, expected life of the stock options, and
future dividends. Stock-based compensation expense is recorded
based on the value derived from the Black-Scholes model and on
actual experience. The assumptions used in the Black-Scholes model
could materially affect stock-based compensation expense recorded
in the current and future periods.
Income taxes
The
Company calculates its provision for income tax on the basis of the
tax laws enacted at the balance sheet date in the countries where
the Company and its subsidiaries operate and generate taxable
income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset
and liability approach for financial accounting and reporting for
income taxes that allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits
in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future
deductibility is uncertain. The Company’s policy is to
recognize interest and/or penalties related to income tax matters
in income tax expense.
Research and development expenses
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 during the six-month
periods ended August 31, 2020 and 2019 amounted to
$4,229,810 and $1,968,074,
respectively, and are net of government research and development
tax credits and government grants from the federal and provincial
taxation authorities accrued and recorded based on qualifying
expenditures incurred during the fiscal periods.
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
six-month periods ended August 31, 2020 and 2019, 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, 2020, the potentially dilutive securities consisted of
1,590,470 outstanding stock options (August 31, 2019 –
1,657,081), 4,313,750 outstanding restricted stock units (August
31, 2019 – 4,419,753) and 4,884,331 outstanding warrants
(August 31, 2019 – 5,040,267).
Recently adopted accounting pronouncements
In
August 2018, the FASB issued ASU 2018-15, “Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement that Is a Service Contract,” which aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). This update is
effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. The adoption
of the standard had no impact on the consolidated financial
statements of the Company.
In
February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which permits
entities to reclassify the disproportionate income tax effects of
the Tax Reform Act on items within accumulated other comprehensive
income (loss) ("AOCI") to retained earnings. These disproportionate
income tax effect items are referred to as "stranded tax effects."
Amendments in this update only relate to the reclassification of
the income tax effects of the Tax Reform Act. Other accounting
guidance that requires the effect of changes in tax laws or rates
to be included in net income from continuing operations is not
affected by this update. ASU 2018-02 should be applied either in
the period of adoption or retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Reform Act is recognized. ASU 2018-02 is applicable
beginning March 1, 2020. The adoption of the standard had no impact
on the consolidated financial statements of the
Company.
In
February 2016, the FASB issued ASU 2016-02, “Leases,”
amended in July by ASU 2018-10, “Codification Improvements to
Topic 842, Leases,” ASU 2018-11, “Targeted
Improvements,” and ASU 2018-20, “Narrow-Scope
Improvements for Lessors,” which requires lessees to
recognize leases on the balance sheet while continuing to recognize
expenses in the income statement in a manner similar to current
accounting standards. For lessors, the new standard modifies the
classification criteria and the accounting for sales-type and
direct financing leases. Enhanced disclosures will also be required
to give financial statement users the ability to assess the amount,
timing, and uncertainty of cash flows arising from leases. This ASU
may either be adopted on a modified retrospective approach at the
beginning of the earliest comparative period, or through a
cumulative-effect adjustment at the adoption date. This update is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The Company
adopted these standards effective March 1, 2020. The adoption of
the standard had no impact on the consolidated financial statements
of the Company. The Company elected to apply the package of
practical expedients that allows us not to reassess whether expired
or existing contracts contain leases, the classification of these
leases and whether previously capitalized initial direct costs
would qualify for capitalization under Accounting Standards
Codification (or “ASC”) 842. Furthermore, we
elected to use hindsight in determining the lease term and
assessing impairment of the right-of-use assets.
Recently issued accounting pronouncements not yet
adopted
In December 2019, the FASB issued ASU 2019-12, “Simplifying
the Accounting for Income Taxes,” which removes specific
exceptions to the general principles in ASC 740, “Income
Taxes,” and clarifies certain aspects of the existing
guidance. This update is effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal
years, with early adoption being permitted as of the beginning of
an interim or annual reporting period. All amendments to this ASU
must be adopted in the same period on a prospective basis, with
certain exceptions. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
In June
2016, the FASB issued ASU 2016-13, “Financial
Instruments—Credit Losses”. This ASU added a new
impairment model (known as the current expected credit loss
(“CECL”) model) that is based on expected losses rather
than incurred losses. Under the new guidance, an entity recognizes
an allowance for its estimate of expected credit losses and applies
to most debt instruments, trade receivables, lease receivables,
financial guarantee contracts, and other loan commitments. The CECL
model does not have a minimum threshold for recognition of
impairment losses and entities will need to measure expected credit
losses on assets that have a low risk of loss. This update is
effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years for smaller
reporting companies. We are still evaluating the impact of this
accounting guidance on our results of operations and financial
position.
3. Sales Tax, Tax Credits and Other
Receivables
Sales tax, research and development tax credits and other
receivables as at August 31, 2020 and February 29, 2020 were as
follows:
|
|
|
Sales
tax
|
$232,506
|
$180 971
|
Research and
development tax credits
|
177,237
|
447,843
|
Other
receivables
|
101,413
|
35,730
|
|
$511,156
|
$664,544
|
4. Prepaid Expenses and
Deposits
Prepaid expenses as at August 31, 2020 and February 29, 2020 were
as follows:
|
|
|
Machinery and
equipment
|
$1,305,010
|
$-
|
Insurance
|
907,895
|
61,891
|
Other prepaid
expenses
|
80,378
|
79,335
|
|
$2,293,283
|
$141,226
|
Deposits made on machinery and equipment are
non-refundable.
5. Property, Plant and Equipment
|
|
|
|
|
|
Building
|
$1,900,849
|
$(164,404)
|
$1,736,445
|
Land
|
234,965
|
-
|
234,965
|
Building and land
improvements
|
1,446,246
|
(303,364)
|
1,142,882
|
Machinery and
equipment
|
6,984,840
|
(1,909,269)
|
5,075,571
|
Office equipment
and furniture
|
170,671
|
(73,126)
|
97,545
|
Balances, end of
period
|
$10,737,571
|
$(2,450,163)
|
$8,287,408
|
|
|
|
|
|
|
Building
|
$1,846,070
|
$(128,911)
|
$1,717,159
|
Land
|
264,868
|
-
|
264,868
|
Building and land
improvements
|
733,884
|
(214,068)
|
519,816
|
Machinery and
equipment
|
6,085,195
|
(1,426,465)
|
4,658,730
|
Office equipment
and furniture
|
162,466
|
(62,785)
|
99,681
|
Balances, end of
period
|
$9,092,483
|
$(1,832,229)
|
$7,260,254
|
Depreciation
expense for the three- and six-month periods ended August 31, 2020
amounted to $291,498 and $539,697, respectively (2019 –
195,876 and $357,197, respectively), and is recorded as an
operating expense in the consolidated statements of operations and
comprehensive loss.
6. Intangible Assets
|
|
|
|
|
|
Intangible assets,
at cost - beginning of period
|
$225,174
|
$127,672
|
Intangible assets,
accumulated depreciation – beginning of period
|
(22,310)
|
-
|
|
202,864
|
127,672
|
|
|
|
Add: Additions in
the period
|
153,753
|
99,972
|
Deduct:
Amortization of intangibles
|
(18,864)
|
(22,631)
|
Deduct: Foreign
exchange effect
|
5,177
|
(2,150)
|
|
$342,930
|
$202,863
|
Amortization
expense for the three- and six-month periods ended August 31, 2020
amounted to $11,088 and $18,864, respectively (2019 - $5,527 and
$8,545, respectively), and is recorded as an operating expense in
the unaudited condensed consolidated statements of operations and
comprehensive loss.
7. Fair value of financial
instruments
The
following tables present the fair value of the Company’s
financial liabilities as at August 31, 2020 and February 29,
2020:
|
Fair Value
Measurements as at August 31, 2020
|
|
|
|
|
Instruments
measured at fair value on a recurring basis:
|
|
|
|
Foreign exchange
contracts
|
$44,923
|
$44,923
|
Level
1
|
|
|
|
|
Instruments
measured at amortized cost:
|
|
|
|
Long-term
debt
|
$2,370,081
|
$2,380,882
|
Level
2
|
|
Fair Value
Measurements at February 29, 2020
|
|
|
|
|
Instruments
measured at fair value on a recurring basis:
|
|
|
|
Foreign exchange
contracts
|
$26,840
|
$26,840
|
Level
1
|
|
|
|
|
Instruments
measured at amortized cost:
|
|
|
|
Long-term
debt
|
$2,290,152
|
$2,291,109
|
Level
2
|
8. Accounts Payable and
Accrued Liabilities
Accounts payable and accrued liabilities as at August 31, 2020 and
February 29, 2020 were as follows:
|
|
|
Trade accounts
payable
|
$890,101
|
$814,081
|
Trade accrued
liabilities
|
492,621
|
593,789
|
Accrued employee
compensation
|
618,434
|
634,807
|
Foreign exchange
contracts
|
44,923
|
26,840
|
Other accrued
liabilities
|
53,436
|
13,181
|
|
$2,099,515
|
$2,082,698
|
9. Joint Venture
On
September 15, 2018, the Company, through its wholly-owned
subsidiary Loop Innovations, LLC, a Delaware limited liability
company, entered into a Joint Venture Agreement (the
“Agreement”) with Indorama Ventures Holdings LP, USA,
an indirect subsidiary of Indorama Ventures Public Company Limited
(“Indorama Ventures”), to manufacture and commercialize
sustainable polyester resin. Each company has a 50/50 equity
interest in Indorama Loop Technologies, LLC (“ILT”),
which was specifically formed to operate and execute the joint
venture.
Under
the Agreement, Indorama Ventures is contributing manufacturing
knowledge and Loop Industries is required to contribute its
proprietary science and technology. Specifically, the Company is
contributing an exclusive world-wide royalty-free license to ILT to
use its proprietary technology to produce 100% sustainably produced
PET resin and polyester fiber.
ILT
meets the accounting definition of a joint venture where neither
party has control of the joint venture entity and both parties
have joint control over the decision-making process in ILT. As
such, the Company uses the equity method of accounting to account
for its share of the investment in ILT. There were no operations in
ILT from the date of inception of September 24, 2018 to August 31,
2020 and, as at August 31, 2020, the carrying value of the equity
investment was $1,500,000, which is the total of the cash
contributions we have made to ILT. During the three- and six-month periods ended
August 31, 2020, we made contributions to ILT of nil and $650,000
respectively (2019 – nil and $500,000). These contributions
to ILT, which have been matched by Indorama Ventures, were used to
fund engineering design costs which have been capitalized in
ILT.
10. Long-Term Debt
|
|
|
Investissement
Québec financing facility:
|
|
|
Principal
amount
|
$1,693,938
|
$1,645,122
|
Unamortized
discount
|
(279,908)
|
(289,852)
|
Accrued
interest
|
21,250
|
958
|
Total
Investissement Québec financing facility
|
1,435,280
|
1,356,228
|
Term
loan
|
|
|
Principal
amount
|
934,801
|
933,924
|
Less: current
portion
|
(53,673)
|
(52,126)
|
Total term loan,
net of current portion
|
881,128
|
881,798
|
Long-term debt, net
of current portion
|
$2,316,408
|
$2,238,026
|
Investissement Québec financing facility
On February 21, 2020, the Company received $1,693,938
(CDN$2,209,234) from Investissement Québec as the first
disbursement of our financing facility, out of a maximum of
$3,527,066 (CDN$4,600,000) (the “Financing Facility”).
The loan bears interest at 2.36% and there is a 36-month moratorium
on both capital and interest repayments starting on the date of the
first disbursement, after which capital and interest is repayable
in 84 monthly installments. The
Company established the fair value of the loan for the first
disbursement at $1,354,408 based on a discount rate of 5.45%, which
reflected a debt discount of $290,714. The discount rate used was
based on the external financing from a Canadian
bank. The Company, under the loan agreement, was
required to pay fees representing 1% of the loan amount, $35,271
(CDN$46,000) to Investissment Québec which we deferred and
recorded as a reduction of the Financing Facility. Debt discount
and deferred financing expenses are amortized to “Interest
and other financial expenses” in our Consolidated Statements of Operations and
Comprehensive Loss. The
Company recorded interest expense on the Investissement Québec
loan for the three- and six-month periods ended August 31, 2020 in
the amount of $9,875 and $19,291 respectively (2019 – nil and
nil) and an accretion expense of $9,112 and $17,658 respectively
(2019 – nil and nil).
The Company has also agreed to issue to Investissement Québec
warrants to purchase shares of common stock of the Company in an
amount equal to 10% of each disbursement up to a maximum aggregate
amount of $352,707 (CDN$460,000). The exercise price of the
warrants is equal to the higher of (i) $11.00 per share and (ii)
the ten-day weighted average closing price of Loop Industries
shares of common stock on the Nasdaq stock market for the 10 days
prior to the issue of the warrants. The warrants can be exercised
immediately upon grant and will have a term of three years from the
date of issuance. The loan can be repaid at any time by the Company
without penalty. In connection the first disbursement of the
Financing Facility, the Company
issued a warrant (“First
Disbursement Warrant”) to acquire 15,153 shares of
common stock at a strike price of $11.00 per share to
Investissement Québec. The Company determined the fair value
of the warrants using the Black-Scholes pricing formula. The fair
value of the First Disbursement Warrant was determined to be
$77,954 and is included in “Additional paid-in capital
– Warrants” in our Condensed Consolidated Balance
Sheets. The First Disbursement
Warrant remains outstanding as at August 31,
2020.
The remaining amount available under the financing facility
is $1,833,128 (CDN$2,390,766) to be received in a maximum of two
additional disbursements.
Term loan
On
January 24, 2018, the Company obtained a $1,073,455 (CDN$1,400,000)
20-year term instalment loan (the “Loan”), from a
Canadian bank. The Loan bears interest at the bank’s Canadian
prime rate plus 1.5%. By agreement, the Loan is repayable in
monthly payments of $4,472 (CDN$5,833) plus interest, until January
2021, at which time the monthly repayment amount and interest rate
will be subject to renewal. It includes an option allowing for the
prepayment of the Loan without penalty. During the three- and
six-month periods ended August 31, 2020, we repaid $14,143 and
$26,836 respectively (2019 – $13,269 and $26,326) on the
principal balance of the Loan and interest paid amounted to $9,130
and $19,441 and (2019 - $13,993 and $27,062). The terms of the
credit facility require the Company to comply with certain
financial covenants. As at August 31, 2020 and 2019, the Company
was in compliance with its financial covenants.
Principal
repayments due on the Company’s long-term debt over the next
five years are as follows:
Years
ending
|
|
February 28,
2021
|
$26,836
|
February 28,
2022
|
53,673
|
February 28,
2023
|
53,673
|
February 29,
2024
|
295,660
|
February 28,
2025
|
295,660
|
Thereafter
|
1,889,818
|
Total
|
$2,615,320
|
11.
Related
Party Transactions
Employment Agreement
On June
29, 2015, the Company entered into an employment agreement with Mr.
Daniel Solomita, the Company’s President and Chief Executive
Officer (“CEO”). The employment agreement is for an
indefinite term.
On July
13, 2018, the Company and Mr. Solomita entered into an amendment
and restatement of the employment agreement which provided for a
long-term incentive grant of 4,000,000 shares of the
Company’s common stock, in tranches of one million shares
each, upon the achievement of four performance milestones. This was
modified to provide a grant of 4,000,000 restricted stock units
covering 4,000,000 shares of the Company’s common stock while
the performance milestones remained the same. The grant of the
restricted stock units became effective upon approval by the
Company’s shareholders at the Company’s 2019 annual
meeting, of an increase in the number of shares available for grant
under the Plan. Such approval was granted by the
Company’s shareholders at the Company’s 2019 annual
meeting.
On April 30, 2020, the Company and Mr. Solomita entered into an
amendment of Mr. Solomita’s employment
agreement. The amendment clarified the milestones
consistent with the shift in the Company’s business from the
production of terephthalate to the production of dimethyl
terephthalate, another proven monomer of PET plastic that is far
simpler to purify.
During
the three- and six-month periods ended August 31, 2020 and August
31, 2019, no outstanding milestones were probable of being
met based on the
authoritative guidance provided by the FASB and, accordingly, the
Company did not record any additional compensation expense. When a
milestone becomes probable, the corresponding expense will be
valued based on the grant date fair value on April 30, 2020, the
date of the last modification of Mr. Solomita’s employment
agreement. The closing price of the Company’s common stock on
the Nasdaq on April 30, 2020 was $7.74 per share.
12. Stockholders’ Equity
Common Stock
For
the period ended August 31, 2020
|
|
|
Balance, February
29, 2020
|
39,910,774
|
$3,992
|
Issuance of shares
upon settlement of restricted stock units
|
24,436
|
2
|
Balance, August 31,
2020
|
39,935,210
|
$3,994
|
For
the period ended August 31, 2019
|
|
|
Balance, February
28, 2019
|
33,805,706
|
$3,381
|
Issuance of shares
for cash
|
4,693,567
|
469
|
Issuance of shares
for services rendered
|
43,932
|
4
|
Issuance of shares
upon the cashless exercise of stock options
|
4,565
|
1
|
Issuance of shares
upon the exercise of warrants
|
15,432
|
1
|
Issuance of shares
upon settlement of legal matter
|
150,000
|
15
|
Issuance of shares
upon conversion of Convertible notes
|
319,326
|
32
|
Balance, August 31,
2019
|
39,032,528
|
$3,903
|
During
the six months ended August 31, 2020, the Company recorded the
following common stock transaction:
(i)
|
The
Company issued 24,436 shares of its common stock to settle
restricted stock units that vested in the period.
|
During
the six months ended August 31, 2019, the Company recorded the
following common stock transactions:
(i)
|
On
March 1, 2019, the Company sold 600,000 shares of its common stock
at an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $5,130,000;
|
(ii)
|
On
March 8, 2019 and March 11, 2019, the Company issued 150,000 shares
of its common stock in settlement of a legal matter;
|
(iii)
|
On
April 9, 2019, the Company converted Convertible notes with a face
value of $2,650,000 plus accrued interest of $80,241 at a
conversion price of $8.55, into 319,326 common shares.
|
(iv)
|
On June
14, 2019, the Company sold 4,093,567 shares of its common stock at
an offering price of $8.55 per share in a registered direct
offering, for gross proceeds of $35,000,000;
|
(v)
|
On June
21, 2019, the Company issued 7,043 shares of common stock upon the
vesting of restricted stock units related to an
employee.
|
(vi)
|
On July
2, 2019 and July 3, 2019, the Company issued 23,547 shares of
common stock upon the vesting of restricted stock units related to
current and former Directors.
|
(vii)
|
On July
12, 2019, the Company issued 4,565 shares of common stock upon the
cashless exercise of stock options related to an
employee.
|
(viii)
|
On July
15, 2019, the Company issued 13,342 shares of common stock upon the
vesting of restricted stock units related to a former
Director.
|
(ix)
|
On July
17, 2019, the Company issued 15,432 shares of common stock upon the
exercise of warrants.
|
13. Share-based Payments
Stock Options
During
the six-month period ended August 31, 2020, the Company granted
3,389 stock options (2019 – nil) with a weighted average
exercise price of $8.78 (2019 – nil), no stock options were
forfeited (2019 – 39,902; weighted average exercise price:
$9.67) or exercised (2019 – 5,000; weighted average exercise
price: $0.80) and no stock options expired (2019 – 260,417;
weighted average exercise price: $13.59).
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 were as follows:
|
|
|
Exercise
price
|
$8.78
|
$-
|
Risk-free interest
rate
|
1.05%
|
-
|
Expected dividend
yield
|
0.00%
|
-
|
Expected
volatility
|
75.95%
|
-
|
Expected
life
|
7.5 years
|
-
|
The
total number of stock options outstanding as at August 31, 2020 was
1,587,081 (2019 – 1,657,081) with a weighted average exercise
price of $6.81 (2019 - $6.55), of which 1,083,748 were exercisable
(2019 – 958,748) with a weighted average exercise price of
$7.05 (2019 – $6.26).
During
the three- and six-month periods ended August 31, 2020, stock-based
compensation expense attributable to stock options amounted to
$553,540 and $1,110,435 respectively (2019 - $498,198 and
$1,073,711) and is included in expenses.
Restricted Stock Units
During
the six-month period ended August 31, 2020, the Company granted
122,373 restricted stock units (“RSUs”) (2019 –
4,114,567) with a weighted average fair value of $8.86 (2019
– $1.06), settled 24,436 RSUs (2019 – 43,932) with a
weighted average fair value of $9.78 (2019 – 10.36) and 2,989
RSUs were forfeited (2019 – 53,750) with a weighted average
fair value of $8.78 (2019 – $9.82).
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 closing share price at grant date
multiplied by the number of restricted stock unit awards
granted.
The
total number of RSUs outstanding as at August 31, 2020 was
4,313,750 (2019 – 4,218,802), of which 891,327 were
vested (2019 – 1,031,684).
During
the three- and six-month periods ended August 31, 2020, stock-based
compensation expense attributable to RSUs amounted to $312,390 and
$682,877 respectively (2019 - $305,130 and $660,307) and is
included in expenses.
During
the three- and six-month periods ended August 31, 2020 and August
31, 2019, stock-based compensation included in research and
development expenses amounted to $352,282 and $704,289 respectively
(2019 – $250,242 and $660,455), and in general and
administrative expenses amounted to $513,648 and $1,173,465
respectively (2019 - $755,229 and $1,530,686).
14. 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)
or such number of shares determined by the Administrator of the
Plan, effective March 1, 2018. In March 2020, the Board of
Directors elected to waive the annual share reserve increase for
the fiscal year ending February 28, 2021. 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 during the six-month periods ended
August 31, 2020 and 2019:
|
|
|
|
|
|
Outstanding,
beginning of period
|
1,300,518
|
3,223,516
|
Share reserve
increase
|
-
|
2,000,000
|
Units
granted
|
(125,762)
|
(4,114,567)
|
Units
forfeited
|
2,989
|
93,652
|
Units
expired
|
-
|
260,417
|
Outstanding, end of
period
|
1,177,745
|
1,463,018
|
15. Warrants
During
the six-month period ended August 31, 2020, the Company issued, in
exchange for consulting services, a warrant to purchase 25,000
shares of our common stock at the price of $9.43 per share expiring
May 12, 2022 and warrants to issue 200,000 shares of our common
stock with an exercise price of $11.00 expired. No warrants were
exercised or forfeited in the six-month period ended August 31,
2020.
During
the six-month period ended August 31, 2019, the Company issued a
warrant to purchase 159,663 shares of our common stock at the price
of $8.55 per share expiring October 5, 2020 as well as a warrant to
purchase 4,093,567 shares of our common stock at the price of
$11.00 per share expiring June 14, 2022. During the six-month
period ended August 31, 2019, 15,432 shares of our common stock
were issued upon the exercise of a warrant with an exercise price
of $9.32. No warrants were forfeited and no warrants expired in the
six-month period ended August 31, 2019.
16. Interest and Other Finance Costs
Interest and other finance costs for the three- and six-month
periods ended August 31, 2020 and 2019 are as follows:
|
Three Months
Ended August 31
|
Six Months Ended
August 31
|
|
|
|
|
|
Interest
on long-term debt
|
$19,005
|
$13,993
|
$38,732
|
$27,062
|
Interest
on convertible notes
|
-
|
98,000
|
-
|
215,433
|
Accretion
expense
|
9,112
|
488,325
|
17,658
|
1,035,888
|
Amortization
of deferred finance costs
|
-
|
19,885
|
-
|
66,327
|
Loss
(gain) on revaluation of foreign exchange contracts
|
(87,022)
|
-
|
11,481
|
-
|
Revaluation
of warrants
|
-
|
-
|
-
|
8,483
|
Gain on
conversion of November 2018 Notes
|
-
|
-
|
-
|
(232,565)
|
Other
|
-
|
1,980
|
-
|
3,436
|
|
$(58,905)
|
$622,183
|
$67,871
|
$1,124,064
|
17. Subsequent events
On
September 21, 2020, the Company entered into an underwriting
agreement (the “Underwriting Agreement”) with Roth
Capital Partners, LLC, as underwriter (the
“Underwriter”), relating to the sale and issuance of an
aggregate of 1,880,000 shares (the “Shares”) of the
Company’s common stock. The offering price to the public of
the Shares was $12.75 per share, and the Underwriters have agreed
to purchase the Shares from the Company pursuant to the
Underwriting Agreement at a price of $12.1125 per share. Under the
terms of the Underwriting Agreement, the Company also granted the
Underwriters an option, exercisable for 30 days, to purchase up to
an additional 282,000 shares of Common Stock at the same price per
share as the Shares which was exercised for 207,000 shares. The net
proceeds from the offering, including net proceeds received in
connection with the Underwriter’s option to purchase
additional shares, were approximately $25,087,500.
On
September 2, 2020, the Company entered into a know-how and
engineering agreement (the “Chemtex Agreement”) with
Chemtex Global Corporation (“Chemtex”) to license the PET plastic and
polyester polymer for fiber manufacturing know-how of
INVISTA’s technology and licensing group, INVISTA Performance
Technologies (IPT) (“INVISTA”). The Chemtex Agreement
represents a total commitment of $4,300,000, of which $500,000 was
paid by the Company in September 2020, and covers the know-how and
design of two Infinite LoopTM
facilities.
On
September 10, 2020, the Company entered into a partnership
agreement with Suez Groupe (“Suez”), the Enhanced
Recycling Partnership Agreement (the “Partnership”),
with the purpose to cooperate in building an Infinite
LoopTM
facility in Europe. There is currently no existing commitment by
either party as to the funding of this project.