SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2021.
Commission File Number
LI-CYCLE HOLDINGS CORP.
Li-Cycle Corp.
2351 Royal Windsor Dr. Unit 10
Mississauga, ON L5J 4S7 (877) 542-9253
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)( 1): ☐
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LI-CYCLE HOLDINGS CORP. | ||
By: |
/s/ Ajay Kochhar |
|
Name: | Ajay Kochhar | |
Title: | Chief Executive Officer and Director |
Date: September 9, 2021
Exhibit 99.1
Li-Cycle to Build New Lithium-Ion Battery Recycling Facility in Alabama
Li-Cycle will Add a Fourth Spoke in Alabama as the Pace of New Battery Mega-Factory Deployment Continues to Exceed Expectations
Commercial Spoke 4 will Provide an Initial Processing Capacity Increase of up to 5,000 tonnes of Manufacturing Scrap and End-of-life Batteries per year, Bringing Li-Cycles North American Recycling Capacity to 25,000 tonnes per year
TORONTO, Ontario (September 8, 2021) Li-Cycle Holdings Corp. (NYSE: LICY) (Li-Cycle or the Company), an industry leader in lithium-ion battery resource recovery and the leading lithium-ion battery recycler in North America, today announced that the Company will build a fourth commercial lithium-ion battery recycling facility, to be located in Tuscaloosa, Alabama.
With the pace of deployment of new battery mega-factories far exceeding initial expectations, Li-Cycle will construct an additional fourth Spoke in North America (Spoke 4). The Company previously had a base case plan for three North American Spokes (the Kingston, Ontario and Rochester, New York Spoke facilities are commercially operational; the Gilbert, Arizona Spoke facility is in advanced execution stages).
The southeastern United States is emerging as a critical region for the lithium-ion battery supply chain, as battery manufacturers and automotive OEMs establish operations in the region, which will lead to the generation of significant quantities of battery manufacturing scrap and end-of-life batteries available for recycling. Univar Solutions Inc. will be an anchor battery feed supply customer for the new facility, following on Li-Cycles previously announced on-site partnership with Univar Solutions to provide waste management solutions for electric vehicle and lithium-ion battery manufacturing.
When completed, Li-Cycles Spoke 4 facility will have an initial capacity of up to 5,000 tonnes of battery manufacturing scrap and end-of-life batteries per year, bringing Li-Cycles total North American recycling capacity to 25,000 tonnes per year. The Tuscaloosa site is also being developed to accommodate a future, second 5,000 tonne processing line, which would increase capacity at the Tuscaloosa site to 10,000 tonnes per year, and Li-Cycles total North American recycling capacity to 30,000 tonnes per year. As Li-Cycle continues to build upon its position as a leading lithium-ion battery recycler and resource recovery company, the Alabama Spoke is projected to commence operations by mid-2022 and is expected to create an initial 30+ new jobs.
The execution of Spoke 4 is strongly supported by a range of local stakeholders, including but not limited to:
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Univar Solutions and their existing automotive customer base; |
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The Alabama Automotive Manufacturers Association (AAMA); |
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The State of Alabama, including the Alabama Department of Commerce; and |
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The Tuscaloosa County Economic Development Authority. |
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Our new facility in Alabama positions us well to meet the growing demand for lithium-ion battery recycling, said Tim Johnston, Co-founder, and Executive Chairman of Li-Cycle. Originally, we had planned on rolling out three commercial Spoke facilities in North America over the next five years, with a total recycling capacity of 20,000 tonnes per year. However, demand for lithium-ion battery recycling has continued to outperform our forecasts and we are now forecasting total recycling capacity of 30,000 tonnes per year. This facility is essential in filling a recycling gap in the southeastern United States. Like our Arizona Spoke, we expect the new facility to have the capability to process entire vehicle battery packs, without dismantling.
We have a responsibility to not only manufacture vehicles and batteries, but to be good corporate citizens in the choices we make to protect our environment and the community around us, said Michael Goebel, President and CEO, Mercedes-Benz, US International, Inc. (MBUSI), which is working together with Univar Solutions on end-of-life solutions for lithium-ion batteries. We welcome the partnership between Univar Solutions and Li-Cycle and the strong commitment of our partners here in Tuscaloosa, Alabama to push a sustainable future for mobility.
At Univar Solutions, were committed to bringing more sustainable solutions for a better world, leveraging our expertise to help our customers and suppliers make progress toward their sustainability goals. We are thrilled to work together with industry leaders like Li-Cycle and MBUSI to make a difference in lithium-ion battery recycling, said Stephen Molica, Vice President of Services for Univar Solutions Inc. We look forward to further assisting MBUSI with best-in-class sustainability solutions through our OnSite Services team, including supporting the addition of Li-Cycles new facility in Alabama.
Li-Cycles decision to locate in Alabama helps position our state on the leading edge as our industry enters the era of electric vehicle production, said Ron Davis, President of the Alabama Automotive Manufacturers Association (AAMA). With its innovative technology and process, Li-Cycle is bringing a capability that will offer the auto industry a solution to what will become an issue of critical importance. I am very excited to see Li-Cycles ground-breaking contributions to our growing Alabama automotive industry.
With the popularity of electric vehicles accelerating, its critical that old batteries are recycled and Li-Cycles technologies make that possible, Governor Kay Ivey said. Li-Cycles selection of Tuscaloosa for its network of recycling facilities means not only jobs in Alabama, but also a positive for the environment.
With EV production set to start in Alabama in 2022, Li-Cycles Tuscaloosa recycling facility will ensure that Alabama plays another important role in the lifecycle of the batteries powering electric vehicles, said Greg Canfield, Secretary of the Alabama Department of Commerce. This project addresses the battery repurposing proposition that must also be a part of the sustainability solution that EVs offer.
With a strategic focus on mobility and power, West Alabama is a prime location for Li-Cycles Spoke facility, said Danielle Winningham, executive director for Tuscaloosa County Economic Development Authority. We welcome Li-Cycles sustainable and environmentally friendly end-of-life solution for lithium-ion batteries, which assists meeting the demand for electric vehicle battery materials.
About Li-Cycle Holdings Corp. (NYSE: LICY)
Li-Cycle is on a mission to leverage its innovative Spoke & Hub Technologies to provide a customer-centric, end-of-life solution for lithium-ion batteries, while creating a secondary supply of critical battery materials. Lithium-ion rechargeable batteries are increasingly powering our world in automotive, energy storage, consumer electronics, and other industrial and household applications. The world needs improved technology and supply chain innovations to better manage battery manufacturing waste and end-of-life batteries and to meet the rapidly growing demand for critical and scarce battery-grade raw materials through a closed-loop solution. For more information, visit https://li-cycle.com/.
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CONTACTS
Investor Relations: investors@li-cycle.com
Press: media@li-cycle.com
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this communication may be considered forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1993, as amended, Section 21 of the Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws. Forward-looking statements may generally be identified by the use of words such as will, continue, expect, would, plan, projected, future or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. These statements are based on various assumptions, whether or not identified in this communication, which Li-Cycle believe are reasonable in the circumstances. There can be no assurance that such estimates or assumptions will prove to be correct and, as a result, actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and are not guarantees of future performance. Li-Cycle believes that these risks and uncertainties include, but are not limited to, the following: Li-Cycles inability to economically and efficiently source, recover and recycle lithium-ion batteries and lithium-ion battery manufacturing scrap, as well as third party black mass, and to meet the market demand for an environmentally sound, closed-loop solution for manufacturing waste and end-of-life lithium-ion batteries; Li-Cycles inability to successfully implement its global growth strategy, on a timely basis or at all; Li-Cycles inability to manage future global growth effectively; Li-Cycles inability to develop the Rochester Hub, Arizona Spoke, Alabama Spoke and other future projects in a timely manner or on budget or that those projects will not meet expectations with respect to their productivity or the specifications of their end products; Li-Cycles failure to materially increase recycling capacity and efficiency; Li-Cycle may engage in strategic transactions, including acquisitions, that could disrupt its business, cause dilution to its shareholders, reduce its financial resources, result in incurrence of debt, or prove not to be successful; one or more of Li-Cycles current or future facilities becoming inoperative, capacity constrained or if its operations are disrupted; additional funds required to meet Li-Cycles capital requirements in the future not being available to Li-Cycle on commercially reasonable terms or at all when it needs them; Li-Cycle expects to incur significant expenses and may not achieve or sustain profitability; problems with the handling of lithium-ion battery cells that result in less usage of lithium-ion batteries or affect Li-Cycles operations; Li-Cycles inability to maintain and increase feedstock supply commitments as well as securing new customers and off-take agreements; a decline in the adoption rate of EVs, or a decline in the support by governments for green energy technologies; decreases in benchmark prices for the metals contained in Li-Cycles products; changes in the volume or composition of feedstock materials processed at Li-Cycles facilities; the development of an alternative chemical make-up of lithium-ion batteries or battery alternatives; Li-Cycles revenues for the Rochester Hub are derived significantly from a single customer; Li-Cycles insurance may not cover all liabilities and damages; Li-Cycles heavy reliance on the experience and expertise of its management; Li-Cycles reliance on third-party consultants for its regulatory compliance; Li-Cycles inability to complete its recycling processes as quickly as customers may require; Li-Cycles inability to compete successfully; increases in income tax rates, changes in income tax laws or disagreements with tax authorities; significant variance in Li-Cycles operating and financial results from period to period due to fluctuations in its operating costs and other factors; fluctuations in foreign currency exchange rates which could result in declines in reported sales and net earnings; unfavourable economic conditions, such as consequences of the global COVID-19 pandemic; natural disasters, unusually adverse weather, epidemic or pandemic outbreaks, boycotts and geo-political events; failure to protect Li-Cycles intellectual property; Li-Cycle may be subject to intellectual property rights claims by third parties; Li-Cycles failure to effectively remediate the material weaknesses in its internal control over financial reporting that it has identified or if it fails to develop and maintain a proper and effective internal control over financial reporting. These and other risks and uncertainties related to Li-Cycles business are described in greater detail in the section entitled Risk Factors in its final prospectus dated August 10, 2021 filed with the Ontario Securities Commission in Canada and the Form 20-F filed with the SEC. Because of these risks, uncertainties and assumptions, readers should not place undue reliance on these forward-looking statements. Actual results could differ materially from those contained in any forward-looking statement.
# # #
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Exhibit 99.2
Li-Cycle Holdings Corp. Reports Financial Results for Third Quarter 2021
Rochester Hub and Arizona Spoke Continue to be on Track
Li-Cycle will Add a Fourth Spoke in Alabama to Meet Demand; Pace of New Battery Mega-factory Deployment Far Exceeding Expectations
Li-Cycle Reports Third Quarter Revenue Increasing 840% Year-Over-Year to $1.7 Million
Subsequent to Fiscal Q3 2021, Li-Cycle Successfully Completed its Public Listing in August 2021, Resulting in Net Proceeds of $527 Million
TORONTO, ONTARIO (September 9, 2021) Li-Cycle Holdings Corp. (NYSE: LICY) (Li-Cycle or the Company), an industry leader in lithium-ion battery resource recovery and the leading lithium-ion battery recycler in North America, today announced financial results for its third quarter ended July 31, 2021.
Founded in 2016, Li-Cycle utilizes its patented Spoke & Hub Technologies to achieve industry-leading resource recovery rates and produce the critical battery materials underpinning the global growth in electric vehicle (EV) proliferation. The imperative for economically and environmentally sustainable resource recycling is growing in lockstep with the exponential growth of battery manufacturing with an average of 5% to 10% of new battery production being rejected/scrapped. Li-Cycles two-stage battery recycling model enables customers to benefit from an economically sustainable, safe and environmentally friendly solution for the recycling of all types of lithium-ion materials.
I am incredibly proud of what the Li-Cycle team has accomplished so far in 2021, continuing our mission to solve the global battery manufacturing scrap and end-of-life lithium-ion battery problem by creating a secondary supply of critical battery materials, while also ensuring a sustainable future for our planet. Since announcing our business combination with Peridot Acquisition Corp. in February, we signed significant commercial agreements with Ultium Cells LLC (the joint venture between General Motors and LG Energy Solution) and Univar Solutions Inc.; we began construction of our Arizona Spoke; and just yesterday, we announced plans to build an incremental fourth Spoke in Alabama. With the funds from our business combination transaction completed in August 2021, we believe that Li-Cycle is primed to capitalize on the significant growth opportunities created by the continuing mobility revolution, said Ajay Kochhar, President and Chief Executive Officer of Li-Cycle.
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Key Fiscal Q3 2021 Highlights
Spoke and Hub Roll-out Plans Responding to Increasing Market Demand
Demand for lithium-ion battery recycling has continued to exceed the Companys projections and, in order to meet this growing demand, Li-Cycle plans to increase and accelerate its investment in the build-out of the Companys recycling capacity. In addition to the Arizona Spoke project, Li-Cycle has announced the development of the Alabama Spoke, increasing its North American processing capacity beyond that of previous plans and projections. The Company is confident in its ability to scale the business to at least 100,000 tonnes per year of Spoke processing capacity and 220,000-240,000 tonnes per year of Hub processing capacity by 2025 (measured as tonnes of lithium-ion battery equivalent input per year). The Company expects to provide fiscal year 2022 guidance in conjunction with the reporting of full fiscal year 2021 results.
Commercial highlights
Fourteen additional battery supply customers were onboarded during fiscal Q3 2021, bringing Li-Cycles battery supply customer base to a new total of over 70. This demonstrates continued Li-Cycle technical and commercial validation, alongside continued market acceleration. New battery supply customers include the following (as previously announced):
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Agreement with Ultium Cells LLC to recycle up to 100% of the scrap generated by battery cell manufacturing at Ultiums Lordstown, Ohio battery cell plant. |
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Partnership with Renewance to deliver a safe, sustainable, and cost-effective lithium-ion battery recycling solution for end-of-life energy storage systems. |
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Partnership with Univar Solutions OnSite Services to provide comprehensive lithium-ion battery environmental services and solutions. |
Hub capital project execution highlights
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Li-Cycles first revenue-generating Hub will be located in Rochester, New York, and is currently in late-stage development. |
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The Rochester Hub will leverage Li-Cycles patented technology, providing a leading economic and environmental sustainability profile for recycling lithium-ion battery materials. |
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Li-Cycles pre-feasibility engineering for the Rochester Hub provides that the facility will have the capacity to process 25,000 tonnes of black mass annually (equivalent to approximately 60,000 tonnes of lithium-ion battery feed equivalent annually). |
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Li-Cycle expects to complete the definitive engineering phase for the Rochester Hub in late 2021. |
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Pending the completion of definitive engineering, final project, budget and regulatory approvals, the Company expects construction at the Hub site to begin in late 2021, with operations commencing in early 2023. |
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Spoke expansion highlights
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Arizona Spoke the Arizona Spoke (in Gilbert, Arizona in the Phoenix metropolitan area) is strategically located close to Li-Cycles existing battery supply network in the Southwestern United States, as well as being at the nexus of where we expect there will be continued growth in the quantity of lithium-ion batteries available for recycling. The Arizona Spoke will have a recycling capacity of 10,000 tonnes of lithium-ion batteries per year (comprised of two 5,000 tonnes/year Spoke lines, built out via a staged approach). Li-Cycle expects the first processing line at its Arizona Spoke to commence operations in early 2022, with the second processing line to commence operations during 2023. |
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Alabama Spoke the Alabama Spoke, a recently announced fourth Spoke, will start by servicing strategic and anchor battery supply customers that are proximal to the facility. It is also expected to benefit from the rapid pace of other newly announced battery manufacturing facilities in the Southeast USA. The Alabama Spoke is incremental to the previously planned three North American Spoke facilities and will increase Li-Cycles total recycling capacity to 25,000 tonnes of lithium-ion batteries per year. The Company expects to develop the Tuscaloosa site to accommodate a future second 5,000 tonne processing line, which would increase Li-Cycles total North American recycling capacity to 30,000 tonnes per year. The Alabama Spoke is in the definitive engineering and early works phase. The first Alabama Spoke processing line is expected to commence operations by mid-2022. |
Spoke operations highlights Kingston Spoke and Rochester Spoke
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A total of 524 tonnes of black mass were produced from the Kingston and Rochester Spokes. The produced black mass contained: |
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85 tonnes of lithium carbonate equivalent (equivalent to 16 tonnes of lithium metal); |
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75 tonnes of nickel metal equivalent; and |
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23 tonnes of cobalt metal equivalent. |
Financial Results for Third Quarter 2021
Revenues grew 840% to $1.7 million, compared to $0.2 million in the prior-year period, driven by increases in recycling services and product sales, primarily as a result of the increase in the quantities of batteries and battery scrap processed at the Rochester Spoke and the continued onboarding of new battery supply customers. Revenues from product sales were approximately $1.6 million, while revenues from recycling services were approximately $0.1 million.
Operating expenses increased to $7.9 million, compared to $1.9 million during the prior-year period driven by increased personnel costs, a ramp-up of operations at the Kingston and Rochester Spokes, increases in raw materials and supplies, increased R&D spending, and non-recurring expenses related to the business combination between Li-Cycle and Peridot Acquisition Corp. completed in August 2021 (the Business Combination). The year-over-year changes in R&D expenditures were primarily due to the fact that R&D expenses in 2020 were largely funded by government grants, the amortization of which offset the applicable R&D expense for accounting purposes.
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Net loss was approximately $6.9 million, compared to approximately $1.8 million in the prior-year period.
Adjusted EBITDA (loss) was $(5.2) million, compared to $(1.3) million for the prior-year period1.
Cash flows used in operating activities were approximately $5.2 million, compared to $2.2 million during the prior-year period, primarily driven by increased personnel costs, a ramp up of operations at the Kingston Spoke and Rochester Spoke, increases in raw materials, supplies and finished goods, increased R&D spending, and consulting costs relating to the development of the Rochester Hub. Cash, cash equivalents and marketable securities were approximately $2.4 million as of July 31, 2021. Subsequent to quarter end, Li-Cycle completed the Business Combination, resulting in net proceeds of $527 million.
Shares outstanding as of August 31, 2021 were 163,179,553 common shares.
Financial Results for the Nine Months Ended July 31, 2021
Revenues grew approximately 824% to approximately $3.0 million, compared to approximately $0.3 million in the prior-year period, driven by increases in recycling services and product sales, primarily as a result of the increase in the quantities of batteries and battery scrap processed at the Kingston and Rochester Spokes and the continued onboarding of new battery supply customers. Revenues from product sales were approximately $2.7 million, while revenues from recycling services were approximately $0.3 million for the nine-month period ended July 31, 2021.
Operating expenses increased to approximately $20.8 million, compared to approximately $5.0 million during the prior-year period, driven by increased personnel costs, a ramp up of operations at the Kingston and Rochester Spokes, increases in raw materials, supplies and finished goods, increased R&D spending, and non-recurring expenses related to the Business Combination. The year-over-year changes in R&D expenditure were primarily due to the fact that R&D expenses in 2020 were largely funded by government grants, the amortization of which offset the applicable R&D expense for accounting purposes.
Net loss was approximately $21.6 million, compared to approximately $4.8 million in the prior-year period.
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Adjusted EBITDA is not a recognized measure under IFRS, does not have a standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. See Non-IFRS Financial Measures section of this press release, including for a reconciliation of Adjusted EBITDA to net loss. |
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Adjusted EBITDA (loss) was approximately $(12.6) million for the first nine months of 2021, compared to approximately $(3.7) million for the prior-year period.
Cash flows used in operating activities were approximately $16.6 million, compared to approximately $7.7 million during the prior-year period, primarily driven by increased personnel costs, a ramp up of operations at the Kingston Spoke and Rochester Spoke, increases in raw materials and supplies, increased R&D spending, and consulting costs relating to the development of the Rochester Hub.
Fiscal Year 2021 Outlook and Previously Disclosed Projections
Li-Cycles fiscal year 2021 business outlook is provided as follows:
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Li-Cycle is reiterating the continued ramp-up at the Kingston Spoke and Rochester Spoke during H2 2021, in-line with expectations; |
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The Rochester Hub procurement will begin during fiscal year 2021, enabling Li-Cycle to continue on track with project execution; |
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The Arizona Spoke procurement and construction will continue; |
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The recently announced Alabama Spoke procurement and execution will be kicked off; and |
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Fiscal year 2022 guidance will be provided in conjunction with fiscal year 2021 results. |
Li-Cycle included certain projected financial information in the F-4/proxy statement initially filed with the SEC on July 15, 2021 in connection with the Business Combination (as amended, the Proxy/Registration Statement).
As highlighted above, demand for lithium-ion battery recycling has continued to exceed the Companys projections. In order to meet this growing demand, the Company plans to increase and accelerate investment in the build-out of its recycling capacity, including through the development of the Alabama Spoke, increasing its processing capacity beyond that of previous plans and projections. As a result of such developments, the assumptions underlying the projections included in the Proxy/Registration Statement, including a number regarding capital expenditures and the timing of the roll-out of new facilities, no longer reflect a reasonable basis on which to project Li-Cycles future results and therefore such projections should not be relied on as indicative of future results. The Companys actual results could differ materially relative to the projected financial information contained in the Proxy/Registration Statement. The Company is confident in its ability to scale the business to at least 100,000 tonnes per year of Spoke processing capacity and 220,000-240,000 tonnes per year of Hub processing capacity by 2025 (measured as tonnes of lithium-ion battery equivalent input per year). As noted within this press release, the Company expects to provide fiscal year 2022 guidance in conjunction with the reporting of full fiscal year 2021 results.
Webcast and Conference Call Information
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Company management will host a webcast and conference call on September 9, 2021, at 9:00 a.m. Eastern Time, to discuss the Companys financial results.
Interested investors and other parties can listen to a webcast of the live conference call and access the Companys first quarter update presentation by logging onto the Investor Relations section of the Companys website at https://investors.li-cycle.com/.
The conference call can be accessed live over the phone by dialing 1-877-407-0784 (domestic) or + 1-201-689-8560 (international). A telephonic replay will be available approximately two hours after the call by dialing 1-844-512-2921 (domestic) or +1-412-317-6671 (international). The conference ID for the live call and pin number for the replay is 13722615. The replay will be available until 11:59 p.m. Eastern Time on September 21, 2021.
About Li-Cycle Holdings Corp.
Li-Cycle (NYSE: LICY) is on a mission to leverage its innovative Spoke & Hub Technologies to provide a customer-centric, end-of-life solution for lithium-ion batteries, while creating a secondary supply of critical battery materials. Lithium-ion rechargeable batteries are increasingly powering our world in automotive, energy storage, consumer electronics, and other industrial and household applications. The world needs improved technology and supply chain innovations to better manage battery manufacturing waste and end-of-life batteries and to meet the rapidly growing demand for critical and scarce battery-grade raw materials through a closed-loop solution. For more information, visit https://li-cycle.com/.
Contacts:
Investors: investors@li-cycle.com
Media: media@li-cycle.com
Non-IFRS Financial Measures
Adjusted EBITDA (loss)
The table below reconciles Adjusted EBITDA (loss) to net profit (loss):
Three months ended | Nine months ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(U.S. dollar amounts in thousands) | ||||||||||||||||
Net loss |
(6,897 | ) | (1,811 | ) | (21,591 | ) | (4,842 | ) | ||||||||
Depreciation, gross |
698 | 328 | 1,831 | 717 | ||||||||||||
Interest expense (income), gross |
428 | 162 | 900 | 307 | ||||||||||||
Share-based compensation |
298 | 57 | 1,308 | 220 |
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Three months ended
July 31, |
Nine months ended
July 31, |
|||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(U.S. dollar amounts in thousands) | ||||||||||||||||
Foreign exchange (gain) loss |
(214 | ) | (74 | ) | 536 | (109 | ) | |||||||||
Fair value loss on restricted share units |
509 | | 2,433 | | ||||||||||||
Forfeited SPAC transaction cost |
| | 2,000 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA loss |
(5,178 | ) | (1,338 | ) | (12,583 | ) | (3,708 | ) |
Li-Cycle reports its financial results in accordance with the International Financial Reporting Standards (IFRS). The Company makes references to certain non-IFRS measures, including Adjusted EBITDA. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of the Companys results of operations from managements perspective. Accordingly, they should not be considered in isolation nor as a substitute for the analysis of the Companys financial information reported under IFRS.
Forward-Looking Statements
Certain statements contained in this communication may be considered forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1993, as amended, Section 21 of the Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws. Forward-looking statements may generally be identified by the use of words such as will, continue, anticipate, expect, would, could, plan, future or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Forward-looking statements in this press release include but are not limited to Li-Cycles ability to capitalize on growth opportunities, Li-Cycles ability to scale the business to at least 100,000 tonnes per year of Spoke processing capacity and 220,000-240,000 tonnes per year of Hub processing capacity by 2025; the expected recycling capacity of the Arizona Spoke and the Alabama Spoke and the development of a second processing line at the Alabama Spoke, the expected date of the commencement of operations for the first and second processing lines at the Arizona Spoke and the first processing line at the Alabama Spoke; continued increasing ramp-up at the Kingston Spoke and Rochester Spoke during H2 2021; and procurement of the Rochester Hub mechanical equipment during fiscal 2021.These statements are based on various assumptions, whether or not identified in this communication, which Li-Cycle believe are reasonable in the circumstances. There can be no assurance that such estimates or assumptions will prove to be correct and, as a result, actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements.
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These forward-looking statements are provided for the purpose of assisting readers in understanding certain key elements of Li-Cycles current objectives, goals, targets, strategic priorities, expectations and plans, and in obtaining a better understanding of Li-Cycles business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes and is not intended to serve as, and must not be relied on, by any investor as a guarantee, an assurance, a prediction or a definitive statement of fact or probability.
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and are not guarantees of future performance. Li-Cycle believes that these risks and uncertainties include, but are not limited to, the following: Li-Cycles inability to economically and efficiently source, recover and recycle lithium-ion batteries and lithium-ion battery manufacturing scrap, as well as third party black mass, and to meet the market demand for an environmentally sound, closed-loop solution for manufacturing waste and end-of-life lithium-ion batteries; Li-Cycles inability to successfully implement its global growth strategy, on a timely basis or at all; Li-Cycles inability to manage future global growth effectively; Li-Cycles inability to develop the Rochester Hub, Arizona Spoke, Alabama Spoke and other future projects in a timely manner or on budget or that those projects will not meet expectations with respect to their productivity or the specifications of their end products; Li-Cycles failure to materially increase recycling capacity and efficiency; Li-Cycle may engage in strategic transactions, including acquisitions, that could disrupt its business, cause dilution to its shareholders, reduce its financial resources, result in incurrence of debt, or prove not to be successful; one or more of Li-Cycles current or future facilities becoming inoperative, capacity constrained or if its operations are disrupted; additional funds required to meet Li-Cycles capital requirements in the future not being available to Li-Cycle on commercially reasonable terms or at all when it needs them; Li-Cycle expects to incur significant expenses and may not achieve or sustain profitability; problems with the handling of lithium-ion battery cells that result in less usage of lithium-ion batteries or affect Li-Cycles operations; Li-Cycles inability to maintain and increase feedstock supply commitments as well as securing new customers and off-take agreements; a decline in the adoption rate of EVs, or a decline in the support by governments for green energy technologies; decreases in benchmark prices for the metals contained in Li-Cycles products; changes in the volume or composition of feedstock materials processed at Li-Cycles facilities; the development of an alternative chemical make-up of lithium-ion batteries or battery alternatives; Li-Cycles revenues for the Rochester Hub are derived significantly from a single customer; Li-Cycles insurance may not cover all liabilities and damages; Li-Cycles heavy reliance on the experience and expertise of its management; Li-Cycles reliance on third-party consultants for its regulatory compliance; Li-Cycles inability to complete its recycling processes as quickly as customers may require; Li-Cycles inability to compete successfully; increases in income tax rates, changes in income tax laws or disagreements with tax authorities; significant variance in Li-Cycles operating and financial results from period to period due to fluctuations in its operating costs and other factors; fluctuations in foreign currency exchange rates which could result in declines in reported sales and net earnings; unfavourable economic conditions, such as consequences of the global COVID-19 pandemic; natural disasters, unusually adverse weather, epidemic or pandemic outbreaks, boycotts and geo-political events; failure to protect Li-Cycles intellectual property; Li-Cycle may be subject to intellectual property rights claims by third parties; Li-Cycles failure to effectively remediate the material weaknesses in its internal control over financial reporting that it has identified or if it fails to develop and maintain a proper and effective internal control over financial reporting. These and other risks and uncertainties related to Li-Cycles business are described in greater detail in the section entitled Risk Factors in its final prospectus dated August 10, 2021 filed with the Ontario Securities Commission in Canada and the Form 20-F filed with the SEC. Because of these risks, uncertainties and assumptions, readers should not place undue reliance on these forward-looking statements. Actual results could differ materially from those contained in any forward-looking statement.
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Li-Cycle Corp. |
Condensed consolidated interim statements of financial position |
As at July 31, 2021 and October 31, 2020 |
(Unauditedexpressed in U.S. dollars) |
July 31, 2021 | October 31, 2020 | |||||||
$ | $ | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
2,350,722 | 663,557 | ||||||
Accounts receivable |
3,255,981 | 890,229 | ||||||
Prepayments and deposits |
7,911,436 | 963,951 | ||||||
Inventory |
1,502,921 | 179,994 | ||||||
|
|
|
|
|||||
15,021,060 | 2,697,731 | |||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Plant and equipment |
18,113,712 | 5,602,580 | ||||||
Right of use assets |
16,277,652 | 3,859,088 | ||||||
|
|
|
|
|||||
34,391,364 | 9,461,668 | |||||||
|
|
|
|
|||||
49,412,424 | 12,159,399 | |||||||
|
|
|
|
|||||
Liabilities |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued liabilities |
15,778,982 | 4,364,372 | ||||||
Restricted share units |
3,259,010 | 171,849 | ||||||
Lease liabilities |
1,190,086 | 591,355 | ||||||
Loans payable |
1,688,853 | 1,468,668 | ||||||
|
|
|
|
|||||
21,916,931 | 6,596,244 | |||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Lease liabilities |
15,044,408 | 3,021,815 | ||||||
Loans payable |
9,776,681 | 779,210 | ||||||
Restoration provisions |
332,420 | 321,400 | ||||||
|
|
|
|
|||||
25,153,509 | 4,122,425 | |||||||
|
|
|
|
|||||
47,070,440 | 10,718,669 | |||||||
|
|
|
|
|||||
Shareholders equity |
||||||||
Share capital |
37,805,879 | 15,441,600 | ||||||
Contributed surplus |
952,441 | 824,683 | ||||||
Accumulated deficit |
(36,119,724 | ) | (14,528,941 | ) | ||||
Accumulated other comprehensive loss |
(296,612 | ) | (296,612 | ) | ||||
|
|
|
|
|||||
2,341,984 | 1,440,730 | |||||||
|
|
|
|
|||||
49,412,424 | 12,159,399 | |||||||
|
|
|
|
9
Li-Cycle Corp.
Condensed consolidated interim statements of loss and comprehensive loss
Three and nine months ended July 31, 2021 and 2020
(Unauditedexpressed in U.S. dollars)
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenue |
||||||||||||||||
Product sales |
1,593,563 | 107,040 | 2,682,531 | 185,156 | ||||||||||||
Recycling services |
115,560 | 74,692 | 301,216 | 137,877 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,709,123 | 181,732 | 2,983,747 | 323,033 | |||||||||||||
Expenses |
||||||||||||||||
Employee salaries and benefits, net |
2,481,939 | 547,080 | 5,358,953 | 1,415,661 | ||||||||||||
Raw materials, supplies and finished goods |
2,261,304 | 142,161 | 4,876,561 | 344,704 | ||||||||||||
Professional fees |
1,176,310 | 897,224 | 4,095,596 | 1,560,108 | ||||||||||||
Research and development, net |
576,551 | (282,541 | ) | 1,928,582 | (19,357 | ) | ||||||||||
Share-based compensation |
298,489 | 57,383 | 1,307,874 | 220,440 | ||||||||||||
Office and administrative |
369,113 | 64,786 | 987,820 | 134,337 | ||||||||||||
Depreciation, net |
272,724 | 327,806 | 788,830 | 717,278 | ||||||||||||
Freight and shipping |
155,456 | (5,450 | ) | 587,953 | 57,303 | |||||||||||
Marketing |
160,479 | 65,570 | 465,269 | 188,500 | ||||||||||||
Plant facilities |
74,818 | 59,774 | 232,358 | 223,767 | ||||||||||||
Travel and entertainment |
102,768 | 30,754 | 188,712 | 125,535 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
7,929,951 | 1,904,547 | 20,818,508 | 4,968,276 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(6,220,828 | ) | (1,722,815 | ) | (17,834,761 | ) | (4,645,243 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other (income) expense |
||||||||||||||||
Foreign exchange (gain) loss |
(214,496 | ) | (73,931 | ) | 536,216 | (109,297 | ) | |||||||||
Interest expense |
382,639 | 164,819 | 788,335 | 340,695 | ||||||||||||
Interest income |
(503 | ) | (2,722 | ) | (1,725 | ) | (34,178 | ) | ||||||||
Fair value loss on restricted share units |
508,850 | | 2,433,196 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
676,490 | 88,166 | 3,756,022 | 197,220 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
(6,897,318 | ) | (1,810,981 | ) | (21,590,783 | ) | (4,842,463 | ) | ||||||||
Other comprehensive income (loss) |
||||||||||||||||
Foreign currency translation |
| 249,607 | | (276,873 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
(6,897,318 | ) | (1,561,374 | )) | (21,590,783 | ) | (5,119,336 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss per common sharebasic and diluted |
(2.88 | ) | (0.86 | ) | (9.10 | ) | (2.35 | ) | ||||||||
|
|
|
|
|
|
|
|
10
Li-Cycle Corp. |
||||||||
Condensed consolidated interim statements of cash flows |
||||||||
Three and nine months ended July 31, 2021 and 2020 |
||||||||
(Unauditedexpressed in U.S. dollars) |
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Operating activities |
||||||||||||||||
Net loss for the period |
(6,897,318 | ) | (1,810,981 | ) | (21,590,783 | ) | (4,842,463 | ) | ||||||||
Items not affecting cash |
||||||||||||||||
Share-based compensation |
298,489 | 57,383 | 1,307,874 | 220,440 | ||||||||||||
Depreciation |
697,604 | 327,806 | 1,830,603 | 717,278 | ||||||||||||
Amortization of government grants |
(26,887 | ) | (1,086,133 | ) | (92,926 | ) | (2,176,041 | ) | ||||||||
Loss on disposal of assets |
| | 13,399 | | ||||||||||||
FX (gain) loss on translation |
(152,562 | ) | 153,808 | 509,195 | (451,238 | ) | ||||||||||
Fair value loss on restricted share units |
508,850 | | 2,433,196 | | ||||||||||||
Share-based professional fees |
| 455,055 | | 455,055 | ||||||||||||
Interest and accretion on convertible debt |
| | | 9,931 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(5,571,824 | ) | (1,903,062 | ) | (15,589,442 | ) | (6,067,038 | ) | |||||||||
Changes in non-cash working capital items |
||||||||||||||||
Accounts receivable |
(1,504,376 | ) | 218,432 | (2,365,752 | ) | 327,776 | ||||||||||
Prepayments and deposits |
(2,668,131 | ) | (631,538 | ) | (7,118,905 | ) | (1,938,325 | ) | ||||||||
Inventory |
(719,231 | ) | (711 | ) | (1,322,927 | ) | (191,310 | ) | ||||||||
Accounts payable and accrued liabilities |
5,218,663 | 155,725 | 9,830,211 | 214,656 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(5,244,899 | ) | (2,161,153 | ) | (16,566,815 | ) | (7,654,241 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Investing activity |
||||||||||||||||
Purchases of plant and equipment |
(5,298,447 | ) | (836,378 | ) | (12,066,848 | ) | (1,748,271 | ) | ||||||||
Proceeds from disposal of plant and equipment |
| | 16,866 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(5,298,447 | ) | (836,378 | ) | (12,049,982 | ) | (1,748,271 | ) | |||||||||
Financing activities |
||||||||||||||||
Proceeds from share issuance, net of share issue costs |
| | 21,620,000 | 6,481,381 | ||||||||||||
Proceeds from exercise of stock options |
169,105 | | 169,105 | | ||||||||||||
Proceeds from loans payable |
7,000,000 | 5,663 | 10,091,220 | 2,149,335 | ||||||||||||
Proceeds from government grants |
26,887 | 429,537 | 92,926 | 1,131,730 | ||||||||||||
Repayment of lease liabilities |
(204,231 | ) | (137,173 | ) | (530,953 | ) | (250,371 | ) | ||||||||
Repayment of loans payable |
(423,595 | ) | (3,871 | ) | (1,138,336 | ) | (10,051 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
6,568,166 | 294,156 | 30,303,962 | 9,502,024 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in cash |
(3,975,180 | ) | (2,703,375 | ) | 1,687,165 | 99,512 | ||||||||||
Cash, beginning of period |
6,325,902 | 6,586,336 | 663,557 | 3,783,449 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, end of period |
2,350,722 | 3,882,961 | 2,350,722 | 3,882,961 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-cash investing activities |
||||||||||||||||
Accrual for purchase of plant and equipment |
251,802 | | 1,584,399 | | ||||||||||||
Non-cash financing activities |
||||||||||||||||
Shares issued for non-cash costs |
| | 455,055 | 492,409 |
11
Exhibit 99.3
Condensed consolidated interim financial statements of
Li-Cycle Corp.
Three and nine months ended July 31, 2021 and 2020
(unaudited)
Condensed consolidated interim statements of financial position |
2 | |||
Condensed consolidated interim statements of loss and comprehensive loss |
3 | |||
Condensed consolidated interim statements of changes in equity |
4 | |||
Condensed consolidated interim statements of cash flows |
5 | |||
Notes to the condensed consolidated interim financial statements |
618 |
Li-Cycle Corp.
Condensed consolidated interim statements of financial position
As at July 31, 2021 and October 31, 2020
(Unaudited - expressed in U.S. dollars)
Notes |
July 31, 2021
$ |
October 31, 2020
$ |
||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash |
2,350,722 | 663,557 | ||||||||||
Accounts receivable |
3 | 3,255,981 | 890,229 | |||||||||
Prepayments and deposits |
4 | 7,911,436 | 963,951 | |||||||||
Inventory |
5 | 1,502,921 | 179,994 | |||||||||
|
|
|
|
|||||||||
15,021,060 | 2,697,731 | |||||||||||
|
|
|
|
|||||||||
Non-current assets |
||||||||||||
Plant and equipment |
6 | 18,113,712 | 5,602,580 | |||||||||
Right of use assets |
7 | 16,277,652 | 3,859,088 | |||||||||
|
|
|
|
|||||||||
34,391,364 | 9,461,668 | |||||||||||
|
|
|
|
|||||||||
49,412,424 | 12,159,399 | |||||||||||
|
|
|
|
|||||||||
Liabilities |
||||||||||||
Current liabilities |
||||||||||||
Accounts payable and accrued liabilities |
15,778,982 | 4,364,372 | ||||||||||
Restricted share units |
9 | 3,259,010 | 171,849 | |||||||||
Lease liabilities |
11 | 1,190,086 | 591,355 | |||||||||
Loans payable |
8 | 1,688,853 | 1,468,668 | |||||||||
|
|
|
|
|||||||||
21,916,931 | 6,596,244 | |||||||||||
|
|
|
|
|||||||||
Non-current liabilities |
||||||||||||
Lease liabilities |
11 | 15,044,408 | 3,021,815 | |||||||||
Loans payable |
8 | 9,776,681 | 779,210 | |||||||||
Restoration provisions |
332,420 | 321,400 | ||||||||||
|
|
|
|
|||||||||
25,153,509 | 4,122,425 | |||||||||||
|
|
|
|
|||||||||
47,070,440 | 10,718,669 | |||||||||||
|
|
|
|
|||||||||
Shareholders equity |
||||||||||||
Share capital |
9 | 37,805,879 | 15,441,600 | |||||||||
Contributed surplus |
9 | 952,441 | 824,683 | |||||||||
Accumulated deficit |
(36,119,724 | ) | (14,528,941 | ) | ||||||||
Accumulated other comprehensive loss |
(296,612 | ) | (296,612 | ) | ||||||||
|
|
|
|
|||||||||
2,341,984 | 1,440,730 | |||||||||||
|
|
|
|
|||||||||
49,412,424 | 12,159,399 | |||||||||||
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated interim statements.
Page 2
Li-Cycle Corp.
Condensed consolidated interim statements of loss and comprehensive loss
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||||||
Notes |
2021
$ |
2020
$ |
2021
$ |
2020
$ |
||||||||||||||||
Revenue |
||||||||||||||||||||
Product sales |
1,593,563 | 107,040 | 2,682,531 | 185,156 | ||||||||||||||||
Recycling services |
115,560 | 74,692 | 301,216 | 137,877 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
1,709,123 | 181,732 | 2,983,747 | 323,033 | |||||||||||||||||
Expenses |
||||||||||||||||||||
Employee salaries and benefits, net |
2,481,939 | 547,080 | 5,358,953 | 1,415,661 | ||||||||||||||||
Raw materials, supplies and finished goods |
2,261,304 | 142,161 | 4,876,561 | 344,704 | ||||||||||||||||
Professional fees |
1,176,310 | 897,224 | 4,095,596 | 1,560,108 | ||||||||||||||||
Research and development, net |
576,551 | (282,541 | ) | 1,928,582 | (19,357 | ) | ||||||||||||||
Share-based compensation |
9 | 298,489 | 57,383 | 1,307,874 | 220,440 | |||||||||||||||
Office and administrative |
369,113 | 64,786 | 987,820 | 134,337 | ||||||||||||||||
Depreciation, net |
6,7 | 272,724 | 327,806 | 788,830 | 717,278 | |||||||||||||||
Freight and shipping |
155,456 | (5,450 | ) | 587,953 | 57,303 | |||||||||||||||
Marketing |
160,479 | 65,570 | 465,269 | 188,500 | ||||||||||||||||
Plant facilities |
74,818 | 59,774 | 232,358 | 223,767 | ||||||||||||||||
Travel and entertainment |
102,768 | 30,754 | 188,712 | 125,535 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
7,929,951 | 1,904,547 | 20,818,508 | 4,968,276 | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Loss from operations |
|
(6,220,828 | ) | (1,722,815 | ) | (17,834,761 | ) | (4,645,243 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Other (income) expense |
||||||||||||||||||||
Foreign exchange (gain) loss |
(214,496 | ) | (73,931 | ) | 536,216 | (109,297 | ) | |||||||||||||
Interest expense |
382,639 | 164,819 | 788,335 | 340,695 | ||||||||||||||||
Interest income |
(503 | ) | (2,722 | ) | (1,725 | ) | (34,178 | ) | ||||||||||||
Fair value loss on restricted share units |
508,850 | | 2,433,196 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
676,490 | 88,166 | 3,756,022 | 197,220 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
|
(6,897,318 | ) | (1,810,981 | ) | (21,590,783 | ) | (4,842,463 | ) | |||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||
Foreign currency translation |
| 249,607 | | (276,873 | ) | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Comprehensive loss |
|
(6,897,318 | ) | (1,561,374 | )) | (21,590,783 | ) | (5,119,336 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||||||
Loss per common share - basic and diluted |
13 | (2.88 | ) | (0.86 | ) | (9.10 | ) | (2.35 | ) | |||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
Page 3
Li-Cycle Corp.
Condensed consolidated interim statements of changes in equity
For the six months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
Notes |
Number of
common shares |
Share capital
$ |
Contributed
surplus $ |
Accumulated
deficit $ |
Accumulated
other comprehensive income (loss) $ |
Total
$ |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, October 31, 2020 |
|
2,088,733 | 15,441,600 | 824,683 | (14,528,941 | ) | (296,612 | ) | 1,440,730 | |||||||||||||||||||
Stock option expense |
9 | | | 702,932 | | | 702,932 | |||||||||||||||||||||
Exercise of stock options |
9 | 25,664 | 289,224 | (120,119 | ) | | | 169,105 | ||||||||||||||||||||
Shares issued for cash |
9 | 281,138 | 21,620,000 | | | | 21,620,000 | |||||||||||||||||||||
Shares issued for non-cash costs |
9 | 12,000 | 455,055 | (455,055 | ) | | | | ||||||||||||||||||||
Comprehensive loss |
| | | (21,590,783 | ) | | (21,590,783 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, July 31, 2021 |
|
2,407,535 | 37,805,879 | 952,441 | (36,119,724 | ) | (296,612 | ) | 2,341,984 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Notes |
Number of
common shares |
Share capital
$ |
Contributed
surplus $ |
Accumulated
deficit $ |
Accumulated
other comprehensive income (loss) $ |
Total
$ |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, October 31, 2019 |
|
1,916,003 | 8,467,810 | 123,781 | (5,252,979 | ) | (77,886 | ) | 3,260,726 | |||||||||||||||||||
Stock option expense |
9 | | | 132,568 | | | 132,568 | |||||||||||||||||||||
Shares issued for cash |
9 | 159,294 | 6,481,381 | | | | 6,613,949 | |||||||||||||||||||||
Shares issuable for non-cash costs |
9 | | | 455,055 | | | 455,055 | |||||||||||||||||||||
Conversion of convertible debt |
9 | 13,436 | 492,409 | | | | 492,409 | |||||||||||||||||||||
Comprehensive loss |
| | | (4,842,463 | ) | (276,873 | ) | (5,119,336 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, July 31, 2020 |
|
2,088,733 | 15,441,600 | 711,404 | (10,095,442 | ) | (354,759 | ) | 5,702,803 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
Page 4
Li-Cycle Corp.
Condensed consolidated interim statements of cash flows
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||
Notes | $ | $ | $ | $ | ||||||||||||||||
Operating activities |
||||||||||||||||||||
Net loss for the period |
(6,897,318 | ) | (1,810,981 | ) | (21,590,783 | ) | (4,842,463 | ) | ||||||||||||
Items not affecting cash |
||||||||||||||||||||
Share-based compensation |
9 | 298,489 | 57,383 | 1,307,874 | 220,440 | |||||||||||||||
Depreciation |
6, 7 | 697,604 | 327,806 | 1,830,603 | 717,278 | |||||||||||||||
Amortization of government grants |
(26,887 | ) | (1,086,133 | ) | (92,926 | ) | (2,176,041 | ) | ||||||||||||
Loss on disposal of assets |
| | 13,399 | | ||||||||||||||||
FX (gain) loss on translation |
(152,562 | ) | 153,808 | 509,195 | (451,238 | ) | ||||||||||||||
Fair value loss on restricted share units |
508,850 | | 2,433,196 | | ||||||||||||||||
Share-based professional fees |
9 | | 455,055 | | 455,055 | |||||||||||||||
Interest and accretion on convertible debt |
| | | 9,931 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(5,571,824 | ) | (1,903,062 | ) | (15,589,442 | ) | (6,067,038 | ) | |||||||||||||
Changes in non-cash working capital items |
||||||||||||||||||||
Accounts receivable |
(1,504,376 | ) | 218,432 | (2,365,752 | ) | 327,776 | ||||||||||||||
Prepayments and deposits |
(2,668,131 | ) | (631,538 | ) | (7,118,905 | ) | (1,938,325 | ) | ||||||||||||
Inventory |
(719,231 | ) | (711 | ) | (1,322,927 | ) | (191,310 | ) | ||||||||||||
Accounts payable and accrued liabilities |
5,218,663 | 155,725 | 9,830,211 | 214,656 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(5,244,899 | ) | (2,161,153 | ) | (16,566,815 | ) | (7,654,241 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Investing activity |
||||||||||||||||||||
Purchases of plant and equipment |
6 | (5,298,447 | ) | (836,378 | ) | (12,066,848 | ) | (1,748,271 | ) | |||||||||||
Proceeds from disposal of plant and equipment |
| | 16,866 | | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(5,298,447 | ) | (836,378 | ) | (12,049,982 | ) | (1,748,271 | ) | |||||||||||||
Financing activities |
||||||||||||||||||||
Proceeds from share issuance, net of share issue costs |
9 | | | 21,620,000 | 6,481,381 | |||||||||||||||
Proceeds from exercise of stock options |
9 | 169,105 | | 169,105 | | |||||||||||||||
Proceeds from loans payable |
8 | 7,000,000 | 5,663 | 10,091,220 | 2,149,335 | |||||||||||||||
Proceeds from government grants |
26,887 | 429,537 | 92,926 | 1,131,730 | ||||||||||||||||
Repayment of lease liabilities |
(204,231 | ) | (137,173 | ) | (530,953 | ) | (250,371 | ) | ||||||||||||
Repayment of loans payable |
(423,595 | ) | (3,871 | ) | (1,138,336 | ) | (10,051 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
6,568,166 | 294,156 | 30,303,962 | 9,502,024 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net change in cash |
(3,975,180 | ) | (2,703,375 | ) | 1,687,165 | 99,512 | ||||||||||||||
Cash, beginning of period |
6,325,902 | 6,586,336 | 663,557 | 3,783,449 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash, end of period |
2,350,722 | 3,882,961 | 2,350,722 | 3,882,961 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Non-cash investing activities |
||||||||||||||||||||
Accrual for purchase of plant and equipment |
251,802 | | 1,584,399 | | ||||||||||||||||
Non-cash financing activities |
||||||||||||||||||||
Equity issued for non-cash costs |
| | | 947,464 |
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
Page 5
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
1. |
Nature of operations and going concern |
(i) |
Li-Cycle Corp. (Li-Cycle or the Company) was incorporated under the Business Corporations Act (Ontario) on November 18, 2016. The Companys registered address is 2351 Royal Windsor Drive, Unit 10, Mississauga, ON L5J 4S7 Canada. |
Li-Cycles core business model is to build, own and operate recycling plants tailored to regional needs. Li-Cycles Spoke and Hub Technologies provide an environment friendly and scalable solution that address the growing global lithium-ion battery recycling challenge and provide an economically viable resource recovery solution, supporting the global transition toward electrification.
On March 28, 2019, the Company incorporated a 100% owned subsidiary in Delaware, U.S., by the name of Li-Cycle Inc., under the General Corporation Law of the State of Delaware.
On September 2, 2020, the Company incorporated a 100% owned subsidiary in Delaware, U.S., by the name of Li-Cycle North America Hub, Inc., under the General Corporation Law of the State of Delaware.
On February 12, 2021, the Company incorporated a 100% owned subsidiary in Ontario, Canada, by the name of Li-Cycle Holdings Corp., under the Business Corporations Act (Ontario).
On February 16, 2021, the Company entered into a definitive business combination agreement with Peridot Acquisition Corp. (NYSE: PDAC) and Li-Cycle Holdings Corp. Upon closing, the combined company will be renamed Li-Cycle Holdings Corp.
On August 10, 2021, in accordance with the plan of arrangement to reorganize Li-Cycle Corp., the Company finalized the business combination with Peridot Acquisition Corp. (NYSE: PDAC). Upon closing, the combined company was renamed Li-Cycle Holdings Corp.
(ii) |
Going concern |
These condensed consolidated interim statements have been prepared by management on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. For the three and nine months ended July 31, 2021, the Company had not achieved a level of revenue from its operations to be profitable and incurred a loss of $6.7 million and $21.4 million, respectively (losses of $1.8 million and $4.8 million in the three and nine months ended July 31, 2020). Cash used in operations for the three and nine months ended July 31, 2021 was $5.2 million and $16.6 million, respectively (used in operations was $2.1 million and $7.6 million in the three and nine months ended July 31, 2020).
In order to continue its long-term operations, the Company must achieve profitable operations and continue to obtain additional equity or debt financing. Until the Company achieves profitability, management plans to fund its operations and capital expenditures through borrowings and issuance of capital stock. Until the Company generates revenue at a level to support its cost structure, the Company expects to continue to incur substantial operating losses and net cash outflows.
There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital on acceptable terms, it may be compelled to reduce the scope of its operations and planned capital expenditures or sell certain assets, including intellectual property assets. These conditions call into question the Companys ability to continue as a going concern.
Page 6
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
Subsequent to the quarter end, the Company finalized the business combination with Peridot Acquisition Corp. (NYSE: PDAC) in August 2021. The new combined company Li-Cycle Holdings Corp received $582 million of gross transaction proceeds, before deduction of $55 million of transaction costs. These funds are sufficient to fund the current operations and capital expenditures related to the Companys expansion plans for the next 12 months. As a result, after considering all relevant information, including its actions completed to date and its future plans, management has concluded that there are no material uncertainties related to events or conditions that may cast significant doubt upon the Companys ability to continue as a going concern for a period of 12 months from the date these condensed consolidated interim financial statements are available to be issued.
The estimates used by management in reaching this conclusion are based on information available as of the date these condensed consolidated interim financial statements were authorized for issuance and include internally generated cash flow forecasts. Accordingly, actual results could differ from these estimates and resulting variances may be material to managements assessment.
2. |
Significant accounting policies |
(a) |
Statement of compliance |
These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) under International Accounting Standard (IAS) 34 Interim Financial Reporting. Except as described below, these financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as outline in Note 2, Significant accounting policies in the Companys consolidated financial statements for the year ended October 31, 2020. These financial statements do not include all the notes required in annual financial statements.
These condensed consolidated interim consolidated interim financial statements were approved and authorized for issue by the Board of Directors on September 8, 2021.
(b) |
Basis of consolidation |
These condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. The Companys three subsidiaries are entities controlled by the Company. Control exists when the Company has power over an investee, when the Company is exposed, or has rights, to variable returns from the investee and when the Company has the ability to affect those returns through its power over the investee. The subsidiaries are included in the condensed consolidated interim financial results of the Company from the effective date of incorporation up to the effective date of disposition or loss of control. The Companys principal subsidiaries and their geographic location as at July 31, 2021 was as follows:
Company |
Location | Ownership interest | ||||
Li-Cycle Inc. |
Delaware, U.S. | 100 | % | |||
Li-Cycle North America Hub, Inc. |
Delaware, U.S. | 100 | % | |||
Li-Cycle Holdings Corp. |
Ontario, Canada | 100 | % |
Intercompany transactions, balances and unrealized gains/losses on transactions between the Company and its subsidiary are eliminated.
(c) |
Basis of preparation |
Change in Functional Currency: Prior to November 1, 2020, the Company had determined its functional currency was the Canadian dollar on the basis that its operating expenditures, capital expenditures and financing were primarily denominated in Canadian dollars. With increasing volume of operations, new contracts with US based suppliers, commencement of
Page 7
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
operations at its US Spoke and increasing capital expenditures in its US facilities, the Companys operating expenditures are becoming predominantly denominated in US dollars. Additionally, due to the increase in US dollar expenses and its expansion plans in the US, the Company has obtained, and plans to continue to seek, financing in US dollars. As a result of the increasing activities in US dollars, the Company has changed its functional currency to the U.S. dollar effective November 1, 2020.
Accordingly, beginning with the three month period ended January 31, 2021, the Company transitioned its functional and presentation currency to U.S. dollars. Transactions in currencies other than the U.S. dollar are recorded at the exchange rates on the dates of transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the closing rate on that date.
Comparative financial information for the 2020 fiscal periods was translated from Canadian dollars into U.S. dollars in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates:
(i) |
Assets and liabilities were translated at the closing rate at end of each reporting period; |
(ii) |
Items recognized in the statement of loss and comprehensive loss were translated at the exchange rate at the time of transaction; |
(iii) |
Equity items have been translated using the historical rate at the time of transaction; |
(iv) |
All resulting exchange differences were recognized in other comprehensive loss. |
Page 8
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
3. |
Accounts receivable |
July 31, 2021
$ |
October 31, 2020
$ |
|||||||
Trade receivables |
2,877,970 | 571,300 | ||||||
Harmonized Sales Taxes receivable |
378,011 | 274,998 | ||||||
Other receivables |
| 43,931 | ||||||
|
|
|
|
|||||
3,255,981 | 890,229 | |||||||
|
|
|
|
For product sales, the Company estimates the amount of consideration to which it expects to be entitled under provisional pricing arrangements. The amount of consideration for black mass and mixed copper/aluminum sales is based on the mathematical product of: (i) market prices of the constituent metals at the date of settlement, (ii) product weight, and (iii) assay results (ratio of the constituent metals initially estimated by management and subsequently trued up to customer confirmation). Certain adjustments like handling and refining charges are also made per contractual terms with customers. Depending on the contractual terms with customers, the payment of receivables may take up to 12 months from date of shipment. Product sales and the related trade accounts receivables are measured at fair value at initial recognition and are re-estimated at each reporting period end using the market prices of the constituent metals at the respective measurement dates. Changes in fair value are recognized as an adjustment to profit and loss and the related accounts receivable. For the three and nine months ended July 31, 2021, the fair value gain arising from changes in estimates was $361,141 and $529,109, respectively (three and nine months ended July 31, 2020: Nil).
An insignificant portion of the receivables relate to services revenue which are initially measured at fair value and subsequently at amortized cost. For the period ended July 31, 2021 and 2020, the Company has assessed an allowance for credit loss of $nil for service-related receivables based on its past experience, the credit ratings of its existing customers and economic trends.
4. |
Prepayments and deposits |
July 31, 2021
$ |
October 31, 2020
$ |
|||||||
|
|
|
|
|||||
Prepaid lease deposits |
675,773 | 33,501 | ||||||
Prepaid transaction costs |
6,176,806 | | ||||||
Other prepaids |
1,058,857 | 930,450 | ||||||
|
|
|
|
|||||
7,911,436 | 963,951 | |||||||
|
|
|
|
Prepaid transactions costs principally relate to the business combination with Peridot Acquisition Corp. (NYSE: PDAC) discussed in Note 1.
Other prepaids consist principally of prepaid insurance, environmental financial assurance, subscriptions, and parts and consumables.
5. |
Inventory |
July 31, 2021
$ |
October 31, 2020
$ |
|||||||
Raw material |
342,591 | 140,419 | ||||||
Finished goods |
1,160,330 | 39,575 | ||||||
|
|
|
|
|||||
1,502,921 | 179,994 | |||||||
|
|
|
|
Page 9
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
The cost of inventories recognized as an expense during the three and nine month ended July 31, 2021 was $2,156,737and $4,647,469, respectively (three and nine months ended July 31, 2020: $142,161 and $344,704).
The cost of inventories recognized as an expense during the three months ended July 31, 2021 includes a write down of $571,947 for finished goods and write down of $148,522 for raw materials (three months ended July 31, 2020: $nil for finished goods and $nil for raw materials) in respect of adjustments of inventory to net realizable value. Net realizable value of inventory is calculated as the estimated consideration under provisional pricing arrangements (as described in Note 3) less the estimated cost of completion and the estimated costs necessary to make the sale.
6. |
Plant and equipment |
Plant
equipment $ |
Storage
containers $ |
Vehicles
$ |
Leasehold
improvements $ |
Total
$ |
||||||||||||||||
Cost |
||||||||||||||||||||
At October 31, 2020 |
4,434,874 | 67,619 | 157,604 | 1,577,201 | 6,237,298 | |||||||||||||||
Additions |
11,757,027 | | 62,017 | 1,832,204 | 13,651,248 | |||||||||||||||
Disposals |
| | (40,323 | ) | | (40,323 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
At July 31, 2021 |
16,191,901 | 67,619 | 179,298 | 3,409,405 | 19,848,223 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Accumulated depreciation |
||||||||||||||||||||
At October 31, 2020 |
(474,658 | ) | (7,410 | ) | (24,827 | ) | (127,823 | ) | (634,718 | ) | ||||||||||
Depreciation expensed |
(290,685 | ) | (1,927 | ) | (9,421 | ) | (118,140 | ) | (420,173 | ) | ||||||||||
Depreciation capitalized into Inventory |
(477,727 | ) | (3,127 | ) | (15,880 | ) | (192,944 | ) | (689,678 | ) | ||||||||||
Disposals |
| | 10,058 | | 10,058 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
At July 31, 2021 |
(1,243,070 | ) | (12,464 | ) | (40,070 | ) | (438,907 | ) | (1,734,511 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Carrying amounts |
||||||||||||||||||||
At October 31, 2020 |
3,960,216 | 60,209 | 132,777 | 1,449,378 | 5,602,580 | |||||||||||||||
At July 31, 2021 |
14,948,831 | 55,155 | 139,228 | 2,970,498 | 18,113,712 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
At July 31, 2021, $10,254,820 of the plant equipment was under construction (October 31, 2020: $1,919,465).
The depreciation expense displayed on the statement of loss and comprehensive loss is the net depreciation expensed, excluding the depreciation capitalized into inventory in the table above.
Page 10
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
7. |
Right-of-use assets |
Premises | Equipment | Total | ||||||||||
Cost | $ | $ | $ | |||||||||
At October 31, 2020 |
4,354,001 | 113,809 | 4,467,810 | |||||||||
Additions & modifications |
13,119,356 | 19,960 | 13,139,316 | |||||||||
|
|
|
|
|
|
|||||||
At July 31, 2021 |
17,473,357 | 133,769 | 17,607,126 | |||||||||
|
|
|
|
|
|
|||||||
Accumulated depreciation |
||||||||||||
At October 31, 2020 |
(592,153 | ) | (16,569 | ) | (608,722 | ) | ||||||
Depreciation expensed |
(357,195 | ) | (11,462 | ) | (368,657 | ) | ||||||
Depreciation capitalized into Inventory |
(340,969 | ) | (11,126 | ) | (352,095 | ) | ||||||
|
|
|
|
|
|
|||||||
At July 31, 2021 |
(1,290,317 | ) | (39,157 | ) | (1,329,474 | ) | ||||||
|
|
|
|
|
|
|||||||
Carrying amounts |
||||||||||||
At October 31, 2020 |
3,761,848 | 97,240 | 3,859,088 | |||||||||
|
|
|
|
|
|
|||||||
At July 31, 2021 |
16,183,040 | 94,612 | 16,277,652 | |||||||||
|
|
|
|
|
|
The average lease term is 5 years.
The depreciation expense displayed on the statement of loss and comprehensive loss is the net depreciation expensed, excluding the depreciation capitalized into inventory in the table above.
8. |
Loans Payable |
BDC Loan | Other Loans | Total | ||||||||||
$ | $ | $ | ||||||||||
Balance at October 31, 2020 |
2,174,540 | 73,338 | 2,247,878 | |||||||||
Proceeds from loans payable |
3,091,220 | 7,000,000 | 10,091,220 | |||||||||
Repayment of loans payable |
(1,102,833 | ) | (35,503 | ) | (1,138,336 | ) | ||||||
Foreign exchange gain or loss |
261,598 | 3,174 | 264,772 | |||||||||
|
|
|
|
|
|
|||||||
Balance at July 31, 2021 |
4,424,525 | 7,041,009 | 11,465,534 | |||||||||
|
|
|
|
|
|
(i) |
BDC Capital Loan |
On December 16, 2019, the Company entered into a binding agreement with BDC Capital Inc. for a secured loan of Canadian dollars (C$7 million) to help finance the expansion plans of the Company (the BDC Capital Loan), which is to be distributed in up to three tranches, with the second and third tranches to be distributed based on the achievement of certain milestones by the Company. Pursuant to the BDC Capital Loan, each of the Company and Li-Cycle Inc. have entered into general security agreements with BDC Capital Inc. granting the lender a general security interest over all assets of the Company and Li-Cycle Inc., respectively. In addition, Li-Cycle Inc. has guaranteed the Companys obligations under BDC Capital Loan under a guarantee agreement. The maturity date of the BDC Capital Loan is December 14, 2023. The base rate of interest is 16% per annum, paid monthly, plus additional accrued interest of 3% that can be reduced to 0% based on the achievement of certain milestones by the Company. Principal payments began on the first anniversary date of the loan and are being made at
Page 11
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
C$175,000 per month with a balloon payment of C$700,000 at maturity. As of July 31, 2021, a total of C$1.4 million has been repaid.
On February 10, 2020, the Company received the first tranche of the BDC Capital Loan for C$3 million. Transaction costs associated with the loan amounted to C$121,861 and were deducted from the loan balance.
On November 2, 2020, the Company received the second tranche of the BDC Capital Loan for C$2,000,000 upon the completion of the milestone for such additional funding.
On April 7, 2021, the Company received the third tranche of the BDC Capital Loan for C$2,000,000 upon the completion of the milestone for such additional funding.
On July 20, 2021, Li-Cycle signed an agreement with BDC Capital Inc to repay the BDC Capital Loan in full, conditional upon the closing of Li-Cycles business combination with Peridot Acquisition Corp on August 10, 2021.
(Ii) |
Promissory Notes |
On June 16, 2021, Li-Cycle issued promissory notes (the Promissory Notes) for an aggregate principal amount of $7,000,000 as consideration for loans received from companies related to the Chief Executive Officer and the Executive Chair of Li-Cycle, respectively. The Promissory Notes bear interest at the rate of 10% per annum and mature on December 15, 2023. The Promissory Notes are unsecured and subordinate to indebtedness owing to Li-Cycles senior lender, BDC Capital Inc. Li-Cycle has the option of prepaying all or any portion of the principal and accrued interest of the Promissory Notes prior to the maturity date without penalty, subject to certain conditions.
9. |
Share capital |
Authorized share capital
The Company is authorized to issue an unlimited number of voting common shares, Class A non-voting common shares, preference shares and Class A preferred shares, in each case without par value. All issued shares are fully paid.
Between December 20 and December 27, 2019, the Company completed a non-brokered private placement and issued 159,294 common shares for proceeds of $6,481,381 at $40.05 per share.
On December 27, 2019, a convertible debenture was converted to 13,436 common shares representing proceeds of $492,409.
On November 13, 2020, the Company completed a private placement with two entities to purchase 281,138 Class A preferred shares at a price of $81.81 per share, for total proceeds of $23,000,000 and incurred transaction fees of $1,380,000.
On January 25, 2021, the Company issued 12,000 shares as full and final satisfaction of all obligations under a consulting agreement for services the Company received up to May 2020.
Between June 11 and June 24, 2021, four employees exercised stock options for a total of 25,664 common shares at an aggregate exercise price of $169,105.
Long-term incentive plans
Stock options
The Company has a stock option plan (the Plan) approved by the Companys shareholders that allows it to grant stock options, subject to regulatory terms and approval, to its officers, directors, employees and service providers. This Plan was effective from September 2017 through October 31, 2019.
Page 12
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
Each stock option converts into one common share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. Options are exercisable at a price equal to the average market price of the Companys common shares on the date of grant. The vesting period is one-third on the first-year anniversary of the grant, and one-third every consecutive year thereafter. If the options remain unexercised after a period of 5 years from the date of grant, the options expire. Options are forfeited if the recipient terminates their contract with the Company before the options vest.
On November 1, 2019, the Company adopted a new Long Term Incentive Plan (the LTIP) approved by the Companys shareholders that allows it to grant stock options, restricted share units, deferred share units, stock appreciation rights, and other forms of equity compensation, subject to regulatory terms and approval, to its officers, directors, employees and service providers.
For stock options issued under the LTIP, each stock option converts into one common share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. Options are exercisable at a price equal to the fair market value of the Companys common shares on the date of grant. The vesting period is one-third on the first-year anniversary of the grant, and one-third every consecutive year thereafter. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the recipient terminates their contract with the Company before the options vest.
A summary of activity under the Plan and the LTIP is as follows:
Number of
stock options |
Weighted average
exercise price per stock option |
|||||||
|
|
|
|
|||||
Balance October 31, 2020 |
133,500 | 15.35 | ||||||
Granted |
31,750 | 85.29 | ||||||
Exercised |
(25,664 | ) | 6.59 | |||||
Forfeited |
(4,500 | ) | 42.43 | |||||
|
|
|
|
|||||
Balance July 31, 2021 |
135,086 | 33.74 |
As at July 31, 2021, 70,109 of the stock options (October 31, 2020: 62,773) were exercisable.
A summary of outstanding stock options is as follows:
Number of
stock options |
Exercise price | |||||||
|
$ | |||||||
Expiration dates |
||||||||
September 11, 2022 |
10,000 | 0.65 | ||||||
April 10, 2023 |
20,000 | 0.65 | ||||||
April 10, 2023 |
6,656 | 14.45 | ||||||
April 1, 2024 |
8,500 | 14.45 | ||||||
July 17, 2024 |
31,680 | 14.45 | ||||||
December 16, 2029 |
2,500 | 42.75 | ||||||
April 21, 2030 |
12,000 | 42.75 | ||||||
July 19, 2030 |
12,000 | 42.75 | ||||||
November 30, 2030 |
16,000 | 85.94 | ||||||
February 11, 2031 |
15,750 | 85.94 | ||||||
|
|
|
|
|||||
135,086 | ||||||||
|
|
|
|
Page 13
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
The Company recognized total expenses of $298,489 and $702,932 related to equity-settled share-based compensation during the three and nine months ended July 31, 2021 (three and nine months ended July 31, 2020: $57,383 and $132,015).
The fair value of the stock options granted during the nine months ended July 31,2021 was determined to be $1,899,350 (nine months ended July 31, 2020: $996,823) using the Black-Scholes Merton option pricing model. The assumptions used in the stock option pricing model were as follows:
Risk free interest rate |
0.46 | % | ||
Expected life of options |
10 years | |||
Expected dividend yield |
0.0 | % | ||
Expected stock price volatility |
65 | % | ||
Expected forfeiture rate |
0.0 | % |
Expected volatility was determined by calculating the average historical volatility of a group of listed entities that are considered similar in nature to the Company.
During the three and nine months ended July 31, 2021, four employees exercised 25,664 stock options to acquire a total of 25,664 common shares at an aggregate exercise price aggregate exercise of $169,105. During the three and nine months ended July 31, 2020, no stock options were exercised.
Restricted share units
Under the terms of the LTIP, restricted share units have been issued to executives and directors. The RSUs vest immediately and are exercisable upon issuance. The RSUs represent the right to receive a distribution from the Company in an amount equal to the fair market value of an ordinary share of the Company at the time of distribution. The RSUs can be settled in shares, cash, or any combination of shares and cash, at the option of the holder. The Company granted 7,319 RSUs to certain key executives and recognized share-based compensation expense of $nil and $604,942 in the three and nine months ended July 31, 2021, respectively (three and nine months ended July 31, 2020: nil grants and grant of 2,182 units at an expense of $88,425, respectively). The Company has recorded a liability of $3,259,010 as at July 31, 2021 (October 31, 2020: $171,849) that represents the fair value of the RSUs outstanding and has recorded fair value loss of $508,850 and $2,433,196 for the three and nine months ended July 31, 2021, respectively (three and nine months ended July 31, 2020: $nil).
10. |
Financial instruments and financial risk factors |
Fair values
The Companys financial instruments consist of cash, accounts receivables, accounts payable and accrued liabilities, loans payable. The fair values of the cash, trade receivables, accounts payable and accrued liabilities approximate their carrying amounts because of their current nature.
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:
|
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; |
|
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
Page 14
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
|
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
There were no transfers between the levels during the current or prior year.
The Companys financial assets measured at fair value on a recurring basis were calculated as follows:
Balance
$ |
Quoted prices in
active markets for identical assets (Level 1) $ |
Significant
other observable inputs (Level 2) $ |
Significant
unobservable inputs (Level 3) $ |
|||||||||||||
As at July 31, 2021 |
||||||||||||||||
Accounts receivable |
3,255,981 | | 3,255,981 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,255,981 | | 3,255,981 | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
As at October 31, 2020 |
||||||||||||||||
Accounts receivable |
890,229 | | 890,229 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
890,229 | | 890,229 | | |||||||||||||
|
|
|
|
|
|
|
|
See note 3 above for additional details related to measurement of accounts receivable. The Companys financial liabilities measured at fair value on a recurring basis were calculated as follows:
Balance
$ |
Quoted prices
in active markets for identical assets (Level 1) $ |
Significant
other observable inputs (Level 2) $ |
Significant
unobservable inputs (Level 3) $ |
|||||||||||||
As at July 31, 2021 |
||||||||||||||||
Restricted share units |
3,259,010 | | 3,259,010 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,259,010 | | 3,259,010 | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
As at October 31, 2020 |
||||||||||||||||
Restricted share units |
171,849 | | 171,849 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
171,849 | | 171,849 | | |||||||||||||
|
|
|
|
|
|
|
|
Currency risk
It is managements opinion that the Company is not exposed to significant currency risk as its cash is denominated in both Canadian and U.S. dollars and funds its operations accordingly.
Interest rate risk
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Companys financial instruments. The Company is not exposed to significant interest rate risk, as it has no variable interest rate debt.
Credit, liquidity, and market risks
Credit risks associated with cash are minimal as the Company deposits majority of its cash with a large Canadian financial institution. The Companys credit risks associated with receivables are managed and exposure to potential loss is assessed as minimal. Ultimate responsibility for
Page 15
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Companys short-term, medium and long-term funding and liquidity requirements. Market risks associated with short-term investments are assessed as minimal as they are considered short -term in nature.
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.
The capital structure of the Company consists of net debt (borrowings after deducting cash and bank balances) and equity of the Company (comprising issued share capital, contributed surplus and accumulated deficit as disclosed in Note 9).
The Company is not subject to any externally imposed capital requirements. The Companys Board of Directors reviews the capital structure on a semi-annual basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital.
11. |
Lease liabilities |
The Company has the following lease liabilities as of July 31, 2021.
Maturity analysis Undiscounted |
Year 1
$ |
Year 2
$ |
Year 3
$ |
Year 4
$ |
Year 5
$ |
Thereafter
$ |
Total
$ |
|||||||||||||||||||||
Premises |
2,113,752 | 2,827,686 | 2,712,935 | 2,393,353 | 2,271,673 | 10,176,525 | 22,495,924 | |||||||||||||||||||||
Equipment |
41,386 | 26,574 | 25,058 | 25,058 | 6,818 | | 124,894 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
2,155,138 | 2,854,260 | 2,737,993 | 2,418,411 | 2,278,491 | 10,176,525 | 22,620,818 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities Discounted |
Current
$ |
Non-Current
$ |
Total
$ |
|||||||||
Premises |
1,158,790 | 14,972,348 | 16,131,138 | |||||||||
Equipment |
31,296 | 72,060 | 103,356 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,190,086 | 15,044,408 | 16,234,494 | |||||||||
|
|
|
|
|
|
The Companys lease obligations include leases for plant operations, storage facilities, and office space for employees. In the nine months ended July 31, 2021, the company has added 4 new premises leases, 1 new equipment lease and modified 3 leases.
12. |
Commitments |
The Company is committed to director and consulting fees of $180,000 (Year ended October 31, 2020: $181,000) in total per year to nine directors and Advisory Board members, until cancellation of their respective agreements, which requires notice of 30 days by either party.
Page 16
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
As of July 31, 2021, there were $7.3 million in committed purchase orders for equipment and services (As of October 31, 2020: $4.2 million).
13. |
Loss per share |
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss |
$ | (6,897,318 | ) | $ | (1,810,981 | ) | $ | (21,590,783 | ) | $ | (4,842,463 | ) | ||||
Weighted average number of ordinary shares |
2,394,475 | 2,100,603 | 2,372,731 | 2,057,723 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic and diluted loss per share |
$ | (2.88 | ) | $ | (0.86 | ) | $ | (9.10 | ) | $ | (2.35 | ) | ||||
|
|
|
|
|
|
|
|
Adjustments for diluted loss per share were not made for the three and nine months ended July 31, 2021 and 2020 as they would be anti-dilutive in nature. The following potential common shares are anti-dilutive and are therefore excluded from the weighted average number of common shares for the purpose of diluted earnings per share:
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Stock options |
135,086 | 133,500 | 135,086 | 133,500 | ||||||||||||
Restricted share units |
9,501 | 2,182 | 9,501 | 2,182 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
144,587 | 135,682 | 144,587 | 135,682 | |||||||||||||
|
|
|
|
|
|
|
|
14. |
Segment reporting |
The consolidated financial data presented in these financial statements is reviewed regularly by the Companys chief operating decision maker (CODM) for making strategic decisions, allocations resources and assessing performance, in consultation with the Board of Directors. The Corporations CODM is its Chief Executive Officer.
During the three and nine months ended July 31, 2021, the Company operated in Canada and began operations in the United States. Management has concluded that the customers, and the nature and method of distribution of goods and services delivered, if any, to these geographic regions are similar in nature. The risks and returns across the geographic regions are not dissimilar; therefore, the Company operates as a single operating segment.
The following is a summary of the Companys geographical information:
Canada
$ |
United States
$ |
Total
$ |
||||||||||
For the nine months ended July 31, 2021 |
||||||||||||
Revenue |
2,042,730 | 941,017 | 2,983,747 | |||||||||
Non-current assets |
7,872,842 | 26,518,522 | 34,391,364 | |||||||||
For the nine months ended July 31, 2020 |
||||||||||||
Revenue |
323,033 | | 323,033 | |||||||||
Non-current assets |
2,945,214 | 3,204,621 | 6,149,835 | |||||||||
For the year ended October 31, 2020 |
||||||||||||
Revenue |
792,254 | | 792,254 | |||||||||
Non-current assets |
3,395,049 | 6,066,619 | 9,461,668 | |||||||||
|
|
|
|
|
|
Page 17
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
The following is a summary of the Companys main customers:
Three months ended July 31, | Nine months ended July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
% | % | % | % | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue |
||||||||||||||||
Customer A |
44 | % | 59 | % | 61 | % | 57 | % | ||||||||
Customer B |
49 | % | 0 | % | 28 | % | 0 | % | ||||||||
Accounts Receivable |
||||||||||||||||
Customer A |
47 | % | 58 | % | ||||||||||||
Customer B |
24 | % | 0 | % | ||||||||||||
|
|
|
|
|
|
|
|
15. |
Subsequent events |
On August 3, 2021, Li-Cycle entered into a ground lease agreement covering the future site of the Rochester Hub. The lease covers approximately 41 acres and has an original term of 20 years plus multiple renewal terms totalling 29 additional years. It also includes an option to purchase the land. The lease increases the Companys contractual obligations by undiscounted cash flows of approximately $9.3 million over the original term of the lease.
On August 10, 2021, in accordance with the plan of arrangement to reorganize Li-Cycle Corp., the Company finalized the business combination with Peridot Acquisition Corp. (Peridot) (NYSE: PDAC). Upon closing, the combined company was renamed Li-Cycle Holdings Corp. (NYSE: LICY). The new combined company Li-Cycle Holdings Corp. received $582 million of gross transaction proceeds, before deduction of $55 million of transaction costs.
The business combination with Peridot will be accounted for as a reverse acquisition in accordance with IFRS. Under this method of accounting, Peridot will be treated as the acquired company for accounting purposes. Since Peridot does not meet the definition of a business under IFRS, net assets of Peridot will be stated at historical cost, with no goodwill or other intangible assets recorded. Li-Cycle Corp. has been determined to be the accounting acquirer based on an evaluation of the following facts and circumstances, and accordingly the Business Combination is treated as an equivalent to an acquisition of Peridot accompanied by a recapitalization.
The acquisition of Peridot is outside the scope of IFRS 3, Business Combinations, and it is accounted for as an equity-settled, share-based payment transaction in accordance with IFRS 2, Share-based Payments (IFRS 2). Li-Cycle Holdings Corp. is considered to be a continuation of Li-Cycle Corp, with the net identifiable assets of Peridot deemed to have been acquired by Li-Cycle Corp. in exchange for shares of Li-Cycle Corp. Under IFRS 2, the transaction is measured at the fair value of the consideration deemed to have been issued by Li-Cycle Corp. in order to acquire 100% of Peridot Acquisition Corp. Any difference in the fair value of the consideration deemed to have been issued by Li-Cycle Corp and the fair value of Peridot Acquisition Corps identifiable net assets represents a listing service received by Li-Cycle Corp, recorded through profit and loss.
Page 18
Li-Cycle Corp.
Notes to the condensed consolidated interim financial statements
Three and nine months ended July 31, 2021 and 2020
(Unaudited - expressed in U.S. dollars)
The Company expects the business combination with Peridot to result in an increase in assets of $522 million, an increase in liabilities of $53 million, and an increase in equity of $469 million. The Company expects to recognize a listing expense of approximately $153 million for the difference between fair value of the share capital given up and the fair value of the net assets received.
On August 11, 2021, in accordance with the agreement to repay the BDC Capital Loan in full upon the closing of Li-Cycles business combination with Peridot Acquisition Corp, Li-Cycle paid BDC Capital Inc $5.3 million (C$6.6 million) to settle the BDC Capital Loan, including additional interest expense of $0.7 million (C$0.9 million).
On August 17, 2021, Li-Cycle repaid the $7 million Promissory Notes and accrued interest in full.
On September 7, 2021, Li-Cycle entered into a warehouse lease for the Arizona Spoke. The Arizona Spoke warehouse lease covers approximately 67,000 square feet and has an original term of 5 years 3 months plus a renewal term totaling 5 additional years. The lease increases the Companys contractual obligations by undiscounted cash flows of approximately $3.7 million over the original term of the lease.
On September 8, 2021, Li-Cycle entered into a premises lease for the Alabama Spoke. The Alabama Spoke premises lease covers approximately 108,000 square feet and has an original term of 20 years plus multiple renewal terms totaling 10 additional years. The lease increases the Companys contractual obligations by undiscounted cash flows of approximately $21.0 million over the original term of the lease.
Page 19
Exhibit 99.4
LI-CYCLE MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the management of Li-Cycle Holdings Corp. (Li-Cycle Holdings, we or our) believes is relevant to an assessment and understanding of the condensed consolidated interim results of operations and financial condition of Li-Cycle Corp. (Li-Cycle) (a direct, wholly-owned subsidiary of Li-Cycle Holdings), for the three and nine month periods ended July 31, 2021. This discussion and analysis should be read together with Li-Cycles audited historical consolidated financial statements and unaudited historical condensed consolidated interim financial statements and related notes. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, see the section entitled Cautionary Note Regarding Forward-Looking Statements. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Key Factors affecting our Performance).
Li-Cycles financial statements have been prepared in accordance with IFRS. All amounts are in U.S. dollars except as otherwise indicated. For more information about the basis of presentation of Li-Cycles financial statements, see the section entitled Basis of Presentation.
Certain figures, such as interest rates and other percentages included in this discussion and analysis, have been rounded for ease of presentation. Percentage figures included in this discussion and analysis have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this discussion and analysis may vary slightly from those obtained by performing the same calculations using the figures in Li-Cycles financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.
Li-Cycle reports its financial results in accordance with the International Financial Reporting Standards (IFRS). The Company makes references to certain non-IFRS measures, including Adjusted EBITDA. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of the Companys results of operations from managements perspective. Accordingly, they should not be considered in isolation nor as a substitute for the analysis of the Companys financial information reported under IFRS.
This managements discussion and analysis is dated as of September 8, 2021.
Company Overview
Li-Cycle is an industry leader in lithium-ion battery resource recovery based on installed permitted capacity for lithium-ion battery recycling measured in tonnes per year. Its proprietary Spoke & Hub recycling process is designed (a) at its spokes (Spokes), to process battery manufacturing scrap and end-of-life batteries to produce black mass and other intermediate products, and (b) at its hubs (Hubs), to process black mass to recover raw materials, including but not limited to lithium carbonate, nickel sulphate and cobalt sulphate. Li-Cycle currently owns and operates two Spokes, located in Kingston, Ontario (the Kingston Spoke) and Rochester, New York (the Rochester Spoke), respectively. Additionally, Li-Cycle is currently developing a third Spoke located in Gilbert, Arizona, in the Phoenix metropolitan area (the Arizona Spoke) and a fourth Spoke located near Tuscaloosa, Alabama (the Alabama Spoke). Li-Cycles first commercial-scale Hub facility (Rochester Hub) is currently in late-stage development and will be located in the Eastman Business Park, in Rochester, New York.
Li-Cycle was until 2020 a development stage company with no commercial revenues. For the year ended October 31, 2020, Li-Cycles revenue was $0.8 million and it recorded a net loss of $9.3 million. For the three and nine months ended July 31, 2021, Li-Cycles revenue was $1.7 million and $3.0 million, respectively, and it recorded a net loss of $6.9 million and $21.6 million, respectively.
Page 1
Business Combination and Arrangement
On August 10, 2021, Li-Cycle, Li-Cycle Holdings Corp. (a wholly-owned subsidiary of Li-Cycle prior to the Business Combination) (Old Li-Cycle Holdings) and Peridot Acquisition Corp. (Peridot) completed their previously announced business combination pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the Business Combination).
Pursuant to the terms of the Business Combination, on the closing date of the Business Combination, (i) Peridot and Old Li-Cycle Holdings amalgamated, and in connection therewith, the Class A common shares and warrants to purchase Class A common shares of Peridot converted into an equivalent number of shares and warrants of the amalgamated entity, Li-Cycle Holdings, and the common share in Old Li-Cycle Holdings held by Li-Cycle were exchanged for a share of Li-Cycle Holdings; (ii) the share of Li-Cycle Holdings held by Li-Cycle was purchased for cancellation by Li-Cycle Holdings for cash equal to the subscription price for the common share in Old Li-Cycle Holdings for which such share was exchanged pursuant to the amalgamation; (iii) the preferred shares of Li-Cycle converted into common shares of Li-Cycle; and (iv) Li-Cycle Holdings acquired all of the issued and outstanding common shares of Li-Cycle from Li-Cycles shareholders (including Li-Cycle common shares issued upon exercise, cancellation, exchange or settlement of all issued and outstanding equity awards (whether vested or unvested), including pursuant to the Business Combination, but excluding any equity awards that were cancelled and exchanged for equity awards of Li-Cycle Holdings and remained outstanding on the day following the closing date of the Business Combination) in exchange for common shares of Li-Cycle Holdings. Pursuant to the Business Combination, Li-Cycle became a wholly-owned subsidiary of Li-Cycle Holdings.
Upon the closing of the Business Combination and a concurrent $315 million private placement of common shares (the PIPE Financing), the combined company received $582 million of gross transaction proceeds, net of $55 million of transaction costs.
Accounting Treatment of Business Combination
The Business Combination will be accounted for as a reverse acquisition in accordance with IFRS. Under this method of accounting, Li-Cycle Holdings (as the continuing entity after the amalgamation of Li-Cycle Holdings and Peridot) will be treated as the acquired company for accounting purposes. Since Li-Cycle Holdings does not meet the definition of a business under IFRS, net assets of Li-Cycle Holdings will be stated at historical cost, with no goodwill or other intangible assets recorded.
Li-Cycle has been determined to be the accounting acquirer based on an evaluation of the following facts and circumstances, and accordingly the Business Combination is treated as an equivalent to an acquisition of Peridot accompanied by a recapitalization.
|
Li-Cycles shareholders prior to the Business Combination had, immediately following the Business Combination, the greatest voting interest in the combined entity relative to other shareholders (including following the redemptions discussed below under Liquidity and Capital Resources Sources of Liquidity); |
|
the largest individual minority shareholder of the combined entity was a shareholder of Li-Cycle prior to the Business Combination; |
|
the senior management of Li-Cycle became the senior management of Li-Cycle Holdings following the Business Combination; |
|
Prior to the Business Combination, Li-Cycle was larger than Peridot based on historical total assets and revenues; and |
|
Li-Cycles operations comprise the ongoing operations of Li-Cycle Holdings. |
Page 2
Upon consummation of the Business Combination and the closing of the PIPE Financing, the most significant change in Li-Cycles future reported financial position and results of operations was an estimated increase in cash and cash equivalents (as compared to Li-Cycles balance sheet at July 31, 2021) of approximately $527 million, including $315 million in gross proceeds from the PIPE Financing. Total direct and incremental transaction costs of Peridot and Li-Cycle are estimated at approximately $55 million, a portion of which will be treated as a reduction of the cash proceeds and deducted from Li-Cycle Holdings additional paid-in capital and a portion of which will be treated as an expense on Li-Cycle Holdings statement of operations.
As a consequence of the Business Combination, Li-Cycle Holdings became the successor to an SEC-registered and NYSE-listed company, which will require Li-Cycle to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors and officers liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Current Situation with Respect to COVID-19
In late 2019, a novel strain of coronavirus, now referred to as COVID-19, was identified in China. The virus has spread globally, resulting in governmental authorities implementing protective measures, such as travel restrictions, quarantines, shelter-in-place orders and shutdowns, in order to contain its spread and reduce its impact. This pandemic has significantly disrupted economies around the world.
COVID-19 continues to have a materially adverse impact in North America. The United States is one of the largest markets for lithium-ion battery recycling. The continuous spread of COVID-19 has caused lockdowns and shutdowns of manufacturing facilities. Therefore, many industry sectors, including the automotive sector, have been negatively impacted and continue to be unable to produce at capacity. The continued impact of COVID-19 on manufacturing production may lead to less demand for lithium-ion batteries, impacting the resulting contribution of batteries and battery-related scrap material to the recycling market over the short-to-medium term.
Li-Cycles operations have been impacted by the COVID-19 pandemic. Because Li-Cycles operations have been considered an essential service in both Canada and the United States, Li-Cycles plants have continued operations during the pandemic, albeit with the implementation of appropriate measures to ensure employee safety. Li-Cycle shut down its commercial headquarters in March 2020 and has enforced a work-from-home mandate since that time. The Kingston Spoke experienced some battery supply related issues in the second fiscal quarter of 2021 due to COVID-19 related shutdowns in Ontario, Canada which were alleviated in the third fiscal quarter of 2021. In the coming months, and depending on government guidelines, Li-Cycle may re-open its office facilities but with a robust plan to ensure compliance with all recommended actions to ensure employee safety.
Comparability of Financial Information
Li-Cycles future results of operations and financial position may not be comparable to historical results as a result of the Business Combination and the factors described below, among other things.
In addition, Li-Cycle included certain projected financial information in the proxy statement/prospectus on Form F-4 dated July 15, 2021 and filed with the U.S. Securities and Exchange Commission (the SEC) in connection with the Business Combination (as amended, the Proxy/Registration Statement), which information was also incorporated by reference in Li-Cycles non-offering final prospectus dated August 10, 2021 filed with the Ontario Securities Commission (the Canadian Prospectus) and Shell Company Report on Form 20-F filed with the SEC.
Demand for lithium-ion battery recycling has continued to exceed our forecasts and, in order to meet this growing demand, we have determined to increase and accelerate our investment in the build-out of our recycling capacity in certain respects. Since the date of effectiveness of the Proxy/Registration Statement, we have, among other things, announced the development of the Alabama Spoke, increasing our North American processing capacity beyond that of our previous plans and projections. As a result of these developments, the assumptions underlying the projected financial information included in the Proxy/Registration Statement, including a number of assumptions regarding
Page 3
capital expenditures and the timing of the roll-out of new operational facilities, no longer reflect a reasonable basis on which to project our future results and therefore such projections should not be relied on as indicative of future results. Our actual results could differ substantially from the projected financial information contained in the Proxy/Registration Statement. We expect to provide guidance for fiscal year 2022 in our first fiscal quarter of 2022.
Key Factors Affecting Li-Cycles Performance
We believe that Li-Cycles performance and future success is dependent on multiple factors that present significant opportunities for Li-Cycle, but also pose significant risks and challenges, including those discussed below and in the Canadian Prospectus and in our periodic filings with the SEC, in the section entitled Risk Factors.
Availability of Lithium-Ion Batteries for Recycling
Li-Cycle is reliant on obtaining lithium-ion batteries for recycling through its contracts with suppliers. Li-Cycle currently has over 70 commercial contracts with suppliers of end-of-life lithium-ion batteries and battery-related manufacturing scrap and we expect Li-Cycle to attract new suppliers by differentiating itself based on the sustainability of its process and the robustness of its technology, which in turn enable Li-Cycle to offer competitive terms to suppliers. We expect Li-Cycles supply pipeline to grow as we expect existing suppliers will have growing volumes of batteries available for recycling due to the continuing trend toward electric vehicles (EVs), and as Li-Cycle continues to source additional supplier relationships. However, there can be no assurance that Li-Cycle will attract new suppliers or expand its supply pipeline from existing suppliers, and any decline in supply volume from existing contracts or an inability to source new supplier relationships could have a negative impact on Li-Cycles operating results.
Li-Cycles commercial supply contracts include leaders in the EV and lithium-ion battery ecosystem, including companies in consumer electronics, manufacturing scrap, energy storage, and auto OEMs/transportation. We believe that Li-Cycle has approximately 30% North American market share, based on our internal estimatescomprising of lithium-ion batteries and lithium-ion battery materials that derive 18% from consumer electronics, 49% from manufacturing scrap, 28% from auto OEMs / transportation, and 5% from energy storage systems.
On May 11, 2021, Li-Cycle announced its entry into an agreement with Ultium Cells LLC (Ultium), a joint venture between General Motors and LG Energy Solution, pursuant to which Li-Cycle will purchase and recycle up to 100% of the scrap generated by battery cell manufacturing at Ultiums Lordstown, Ohio site.
Customer Demand for Lithium-Ion Recycled Raw Materials
Li-Cycle has entered into two agreements with Traxys North America LLC covering off-take from its Spokes and Hubs. We expect Li-Cycle to enter into additional off-take customer agreements in the future.
Ability to Build Out Additional Facilities
Li-Cycle is confident in its ability to scale the business as currently planned. Li-Cycle has a market-leading position in North America through its two operational commercial Spokes in Kingston, Ontario, and Rochester, New York, and is developing the Rochester Hub. Li-Cycle has also announced its development and construction of the Arizona Spoke and the Alabama Spoke. Li-Cycle is evaluating additional opportunities to scale its operations with a range of potential partners and expansion opportunities that may include acquisitions, joint ventures or other commercial arrangements in North America, Europe, and Asia. Li-Cycles continued growth and results of operations will be negatively impacted if it is unable to continue to scale its operations.
International operations are subject to certain risks inherent in doing business abroad, including:
|
political, civil and economic instability; |
|
corruption risks; |
|
trade, customs and tax risks; |
|
currency exchange rates and currency controls; |
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|
limitations on the repatriation of funds; |
|
insufficient infrastructure; |
|
restrictions on exports, imports and foreign investment; |
|
increases in working capital requirements related to long supply chains; |
|
changes in labour laws and regimes and disagreements with the labour force; |
|
difficulty in protecting intellectual property rights; and |
|
different and less established legal systems. |
Expanding our business in international markets is an important element of our strategy and, as a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential effects on our business and results of operations will vary from country to country and are unpredictable, but could have an adverse effect on our ability to execute our strategy and accordingly on our results of operations.
Commodity and Specialty Prices
The price Li-Cycle can charge for its end products is tied to commodity and specialty pricing for lithium, nickel, and cobalt, among others. This can lead to variability in revenues, but we believe the wide range of raw materials Li-Cycle produces results in a diversification effect that provides it with a natural hedge against significant variations in the commodity pricing related to a single product.
Regulatory Landscape
We believe Li-Cycle is well-positioned to comply with heightened battery regulations across the globe. Li-Cycle holds all licenses currently required in connection with its technologies and operations. Li-Cycle has engaged a third-party consultant to work with a dedicated team across all Li-Cycle projects, to provide support with permitting and regulatory compliance, and to keep Li-Cycle abreast of legal and regulatory developments.
While competitors face challenges adapting to increasingly stringent environmental regulations, Li-Cycles technologies are sustainable and attractive to a growing number of ESG-focused clients. Li-Cycles scalable, sustainable, safe and patented Spoke & Hub Technologies enable an up to 95% Spoke Recycling Efficiency Rate, produce minimal solid waste or wastewater, zero impact air emissions, and use far less energy than any other existing solution. By contrast, other hydrometallurgical technologies often have significant water emissions and solid waste streams, while smelting or thermal processing typically involves the burning of lithium-ion batteries that produces toxic emissions in the off-gas. The emissions caused by competitor methods present regulatory compliance challenges and complicate facility permitting. We believe that this provides a significant opportunity for Li-Cycle with a truly differentiated hydrometallurgical process.
Government mandates also continue to drive increased infrastructure spending and funding availability for the battery supply chain. In the United States, the Biden Administration announced it will make a $2 trillion investment in infrastructure, including investments in the clean energy economy.
Research and Development
Li-Cycle continues to conduct R&D centered on various aspects of its business. R&D work is ongoing in support of its Spoke operations and its Rochester Hub project, specifically focused on continuous optimization of operating parameters and preparing for operations. Li-Cycle also continues to develop and evaluate new concepts with an eye to the future, including solid-state battery processing and others related to the Spoke & Hub Technologies.
Components of Results of Operations
Basis of Presentation
Li-Cycles consolidated financial statements have been prepared in accordance with IFRS. All amounts are in U.S. dollars except otherwise indicated. Currently, Li-Cycle conducts business through one operating segment. Li-Cycle was a pre-revenue company with no commercial operations until 2020. For more information about Li-Cycles basis of presentation, refer to Note 2 in the accompanying financial statements of Li-Cycle. Li-Cycles fiscal year end is October 31.
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Revenue
Li-Cycle recognizes revenue from: (i) sales of products, which currently include three intermediate products, being black mass, mixed copper/aluminum and mixed plastics from Li-Cycles Spokes; and (ii) providing the service of recycling lithium-ion batteries, which includes coordination of logistics and destruction of batteries. We expect Li-Cycles sales of products to increase as a percentage of overall revenue as more Spokes and Hubs become operational over time.
For product sales, revenue is recognized when control of the goods has transferred, meaning when the goods have been shipped to the customers location (delivery). A receivable is recognized by Li-Cycle when the goods are delivered to the customer, as this represents the point in time at which the right to consideration becomes unconditional, as passage of time is the only condition to payment becoming due. The revenue recognized is based on commodity prices at the time of delivery. Under Li-Cycles standard contract terms, customers do not have a right of return. We estimate the amount of consideration to which we expect to be entitled under provisional pricing arrangements. The amount of consideration for black mass and mixed copper/aluminum sales is based on the mathematical product of: (i) market prices of the constituent metals at the date of settlement, (ii) product weight, and (iii) assay results (ratio of the constituent metals initially estimated by management and subsequently trued up to customer confirmation). Certain adjustments like handling and refining charges are also made per contractual terms with customers. Depending on the contractual terms with customers, the payment of receivables may take up to 12 months from date of shipment. Product sales and the related trade accounts receivables are measured at fair value at initial recognition and are re-estimated at each reporting period end using the market prices of the constituent metals at the respective measurement dates. Changes in fair value are recognized as an adjustment to profit and loss and to the related accounts receivable.
Service revenue is recognized upon completion of each service. Prices for services are separately identifiable within each contract. A receivable is recognized by Li-Cycle when the services are completed as this represents the point in time at which the right to consideration becomes unconditional, as passage of time is the only condition to payment becoming due.
Expenses
Primary expense categories for Li-Cycle include employee salaries and benefits, consulting and professional fees, R&D and depreciation. As Li-Cycle continues to grow and expand internationally, we expect it to incur additional expenses in connection with acquisitions, joint ventures and/or other commercial or contractual arrangements. Additional personnel expenses are also anticipated. The amount of consulting and professional fees Li-Cycle incurs and we expect it to incur is commensurate with the engineering requirements associated with the Rochester Hub, Arizona Spoke and Alabama Spoke projects, as well as requisite expenses for legal and audit as Li-Cycle funds its operations and scales its internal systems and processes. R&D expenses reflect ongoing efforts by Li-Cycle to develop and expand its technology, and such costs are offset by any government funding for government funded projects.
Finance Costs/Interest Expense
Financing costs are typically applied against the gross proceeds of any capital raised, and in the case of debt, amortized over the term of such debt. Interest expense represents the actual cash interest costs incurred plus any accrued interest payable at a future date.
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Results of Operations
Comparison of the three and nine months ended July 31, 2021 and 2020
Three months ended | $ | % | Nine months ended | $ | % | |||||||||||||||||||||||||||
July 31, | Change | Change | July 31, | Change | Change | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
(dollar amounts in thousands, except share and per share data) | ||||||||||||||||||||||||||||||||
Revenues |
1,709 | 182 | 1,527 | 840 | % | 2,984 | 323 | 2,661 | 824 | % | ||||||||||||||||||||||
Product sales |
1,594 | 107 | 1,487 | 1389 | % | 2,683 | 185 | 2,497 | 1349 | % | ||||||||||||||||||||||
Recycling Services |
116 | 75 | 41 | 55 | % | 301 | 138 | 163 | 118 | % | ||||||||||||||||||||||
Operating expenses |
7,930 | 1,905 | 6,025 | 316 | % | 20,819 | 4,968 | 15,850 | 319 | % | ||||||||||||||||||||||
Employee salaries and benefits, net |
2,482 | 547 | 1,935 | 354 | % | 5,359 | 1,416 | 3,943 | 279 | % | ||||||||||||||||||||||
Raw materials, supplies and finished goods |
2,261 | 142 | 2,119 | 1491 | % | 4,877 | 345 | 4,532 | 1315 | % | ||||||||||||||||||||||
Professional fees |
1,176 | 897 | 279 | 31 | % | 4,096 | 1,560 | 2,535 | 163 | % | ||||||||||||||||||||||
Research and development, net |
577 | (283 | ) | 859 | 1,929 | (19 | ) | 1,948 | ||||||||||||||||||||||||
Share-based compensation |
298 | 57 | 241 | 420 | % | 1,308 | 220 | 1,087 | 493 | % | ||||||||||||||||||||||
Office and administrative |
369 | 65 | 304 | 470 | % | 988 | 134 | 853 | 635 | % | ||||||||||||||||||||||
Depreciation, net |
273 | 328 | (55 | ) | (17 | %) | 789 | 717 | 72 | 10 | % | |||||||||||||||||||||
Freight and shipping |
155 | (5 | ) | 161 | 588 | 57 | 531 | 926 | % | |||||||||||||||||||||||
Marketing |
160 | 66 | 95 | 145 | % | 465 | 189 | 277 | 147 | % | ||||||||||||||||||||||
Plant facilities |
75 | 60 | 15 | 25 | % | 232 | 224 | 9 | 4 | % | ||||||||||||||||||||||
Travel and entertainment |
103 | 31 | 72 | 234 | % | 189 | 126 | 63 | 50 | % | ||||||||||||||||||||||
Other (income) expenses |
676 | 88 | 588 | 667 | % | 3,756 | 197 | 3,559 | 1804 | % | ||||||||||||||||||||||
Foreign exchange (gain) loss |
(214 | ) | (74 | ) | (141 | ) | 190 | % | 536 | (109 | ) | 646 | -591 | % | ||||||||||||||||||
Interest expense |
383 | 165 | 218 | 132 | % | 788 | 341 | 448 | 131 | % | ||||||||||||||||||||||
Interest income |
(1 | ) | (3 | ) | 2 | -82 | % | (2 | ) | (34 | ) | 32 | -95 | % | ||||||||||||||||||
Fair value loss on restricted share units |
509 | | 509 | 100 | % | 2,433 | | 2,433 | 100 | % | ||||||||||||||||||||||
Net loss |
(6,897 | ) | (1,811 | ) | (5,086 | ) | 281 | % | (21,591 | ) | (4,842 | ) | (16,748 | ) | 346 | % | ||||||||||||||||
Foreign currency translation adjustment |
0 | 250 | (250 | ) | (100 | %) | 0 | (277 | ) | 277 | (100 | %) | ||||||||||||||||||||
Comprehensive loss |
(6,897 | ) | (1,561 | ) | (5,336 | ) | 342 | % | (21,591 | ) | (5,119 | ) | (16,471 | ) | 322 | % | ||||||||||||||||
Basic and diluted loss per share |
(2.88 | ) | (0.86 | ) | (2.02 | ) | 234 | % | (9.10 | ) | (2.35 | ) | (6.75 | ) | 287 | % | ||||||||||||||||
Weighted average number of common shares outstanding |
2,394,475 | 2,100,603 | 293,872 | 14 | % | 2,372,731 | 2,057,723 | 315,008 | 15 | % |
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Revenue
For the three and nine months ended July 31, 2021, Li-Cycles revenues increased by 840% and 824%, respectively, when compared to the corresponding periods in 2020. Revenue reached $1.7 million and $3.0 million in the three and nine months ended July 31, 2021, as compared to $0.2 and $0.3 million in the corresponding periods of 2020, respectively. The Revenue growth was attributable to increases in recycling services revenue and product sales, in each case primarily as a result of the Rochester Spoke beginning to process meaningful quantities of batteries and battery scrap and the onboarding of a new offtake customer. Revenues from recycling services were approximately $0.1 million and $0.3 million, respectively, while revenues from product sales were approximately $1.6 million and $2.7 million, respectively, for the three- and nine-month periods ended July 31, 2021.
Expenses
For the three and nine months ended July 31, 2021, operating expenses increased by 316% and 319%, respectively, when compared to the corresponding periods of 2020, as Li-Cycle scaled up its operations in North America. The increases in personnel costs of $1.9 million and $3.9 million for the three- and nine-month periods ended July 31, 2021 reflect the ramp up of operations of the Kingston Spoke and Rochester Spoke as well as the increase in corporate team members as Li-Cycle ramps up its expansion plans. The increases in raw materials and supplies of $2.1 million and $4.5 million, respectively, are mainly a result of strong sales figures and increased inventory production during the ramp-up phase of the Spoke operations. The period-to-period changes in R&D expenditure are primarily due to the fact that research and development expenses in 2020 were largely funded by government grants, the amortization of which offset the applicable R&D expense for accounting purposes. The amortization of government grants in the three and nine months ended July 31, 2020 totaled $1.1 million and $2.2 million, respectively, and did not recur in the 2021 comparative periods. The level of consulting and professional fees is commensurate with the engineering requirements associated with the Rochester Hub project, as well as requisite legal and audit expenses for raising capital to execute Li-Cycles growth plan, including completion of the Business Combination.
Other (Income) Expenses
Other expenses were $0.7 million and $3.8 million in the three and nine months ended July 31, 2021, respectively. The increase as compared to the corresponding 2020 periods was mainly a result of a fair value loss on restricted share units, interest expenses on the loans payable, lease liabilities and foreign exchange losses.
Non-IFRS Measure Reconciliation
Adjusted EBITDA
Li-Cycle defines Adjusted EBITDA as net earnings or earnings before depreciation and amortization, interest expense (income), stock-based compensation, foreign exchange (gain) loss, income tax expense (recovery), fair value (gain) loss on restricted share units, and forfeited SPAC transaction cost, as set out in the reconciliation table below.
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Three months ended | Nine months ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(dollar amounts in thousands) | ||||||||||||||||
Net loss |
(6,897 | ) | (1,811 | ) | (21,591 | ) | (4,842 | ) | ||||||||
Depreciation, gross |
698 | 328 | 1,831 | 717 | ||||||||||||
Interest expense (income), gross |
428 | 162 | 900 | 307 | ||||||||||||
Share-based compensation |
298 | 57 | 1,308 | 220 | ||||||||||||
Foreign exchange (gain) loss |
(214 | ) | (74 | ) | 536 | (109 | ) | |||||||||
Fair value loss on restricted share units |
509 | | 2,433 | | ||||||||||||
Forfeited SPAC transaction cost |
| | 2,000 | | ||||||||||||
Adjusted EBITDA loss |
(5,178 | ) | (1,338 | ) | (12,583 | ) | (3,708 | ) |
Capital Projects
Arizona Spoke
In March 2021, Li-Cycle announced the development and construction of the Arizona Spoke. We expect the Arizona Spoke to have a nominal recycling capacity of 10,000 tonnes per year. While the Kingston Spoke and Rochester Spoke each operate a single battery recycling line with capacity of 5,000 tonnes per year, the Arizona Spoke will operate two battery recycling lines totaling 10,000 tonnes per year. Each Spoke recycling line is constructed in a modular format and subsequently installed at the designated site.
The Phoenix metropolitan area is strategically proximate to Li-Cycles existing battery and battery scrap supply network, as well as being at the nexus of where we expect there will be continued growth of lithium-ion batteries available for recycling due to the growing EV industry in Arizona, Nevada and other western States.
We expect Li-Cycle to invest approximately $20 million to construct, commission and commence operations at the Arizona Spoke.
The Arizona Spoke project is currently in the detailed engineering and facility construction stage. We expect that the detailed engineering and facility construction will be completed by the end of 2021, at a cost of approximately $4 million. We expect the first processing line at the Arizona Spoke to be constructed, commissioned and commence operations in 2022, at an estimated cost of approximately $8 million, in addition to the $4 million of expenses during the engineering and facility construction phase. We expect the second processing line to be constructed, commissioned and commence operations in 2023, at an estimated cost of approximately $8 million. As of July 31, 2021, Li-Cycle had spent $2.9 million on detailed engineering, equipment procurement and facility-related expenditures in connection with the Arizona Spoke.
The principal regulatory and other approvals required to develop and construct the Arizona Spoke consist of a conditional use permit required by the Town of Gilbert, Arizona and environmental permits required by the Arizona Department of Environmental Quality and the Maricopa County Air Quality Department, all of which are expected to be filed and completed by the end of 2021. Under the U.S. Resource Conservation and Recovery Act, Li-Cycle is required to obtain a permit for battery storage and processing, which Li-Cycle intends to obtain in 2022.
Alabama Spoke
On September 8, 2021, Li-Cycle announced the development and construction of the Alabama Spoke. We expect the Alabama Spoke to have an initial recycling capacity of 5,000 tonnes per year, bringing Li-Cycles total recycling capacity to 25,000 tonnes per year. The location can also accommodate a future second 5,000 tonne per year processing line, which would increase capacity at the Alabama Spoke to 10,000 tonnes per year, and Li-Cycles total North American recycling capacity to 30,000 tonnes per year. Each Spoke recycling line is constructed in a modular format and subsequently installed at the designated site.
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The Alabama Spoke is located near Tuscaloosa, Alabama, in a region where we expect there will be continued growth of lithium-ion battery materials available for recycling due to the growing EV industry in Alabama and the U.S. Southeast.
We expect Li-Cycle to invest approximately $10 million to construct, commission and commence operations at the Alabama Spoke.
The Alabama Spoke project is currently in the detailed engineering and facility construction stage. We expect that the detailed engineering and facility construction will be completed in 2022, at a cost of approximately $2 million. We expect the processing line at the Alabama Spoke to be constructed, commissioned and commence operations in 2022, at an estimated cost of approximately $8 million, in addition to the $2 million of expenses during the engineering and facility construction phase.
The principal regulatory and other approvals required to develop and construct the Alabama Spoke consist of a conditional use permit and site plan approval required by the City of Tuscaloosa, and environmental permits required by the Alabama Department of Environmental Quality and the local county, all of which are expected to be filed and completed in 2022. Under the U.S. Resource Conservation and Recovery Act and corresponding Alabama laws, Li-Cycle is required to obtain a permit for battery storage and processing, which Li-Cycle intends to obtain in 2022.
Rochester Hub
Li-Cycles first revenue-generating Hub will be located in Rochester, New York, and is currently in late stage development. The location for the Rochester Hub was specifically selected due to the nature of the infrastructure available at the site, including utilities, logistics, and other physical infrastructure. Li-Cycles pre-feasibility study for the Rochester Hub provides that the facility will have the capacity to process 25,000 tonnes of black mass annually (equivalent to approximately 60,000 tonnes of lithium-ion battery feed equivalent annually). Based on the pre-feasibility study, the Rochester Hub would require an estimated investment of at least $175 million (+/-30%, based on the scope as at the pre-feasibility study).
The Rochester Hub is currently in the definitive engineering phase. As the Rochester Hub project has progressed through the definitive engineering phase, Li-Cycle has identified a range of potential scope additions, covering items such as infrastructure tie-ins and systems to achieve zero liquid discharge from the plant. Li-Cycle is also pursuing optimization strategies throughout the definitive engineering phase, including in response to market developments (such as increasing EV battery manufacturing volumes in North America and trends around battery chemistries in EV applications), which could lead to potential changes in the scope of the project. The ultimate scale of and investment in the Rochester Hub may be significantly greater than 25,000 tonnes per annum and $175 million (+/-30%) set forth in the pre-feasibility study.
We expect Li-Cycle to spend approximately $10 million on definitive engineering for the Rochester Hub, with completion of the definitive engineering phase expected to occur in late 2021. As of July 31, 2021, Li-Cycle had spent $7.5 million on the definitive engineering phase for the Rochester Hub. Pending the completion of definitive engineering, final project and budget approvals by Li-Cycles board of directors, and the receipt of applicable regulatory and other approvals, we expect construction at the Rochester Hub site to begin in late 2021, with operations commencing in early 2023.
The anticipated principal regulatory and other approvals required to develop and construct the Rochester Hub consist of: a special use permit, site plan approval, subdivision approval and special permit from the Town of Greece, New York, including the related New York State Environmental Quality Review Act process; and permits for air emissions, storm water discharge and chemical bulk storage granted by the New York State Department of Environmental Conservation.
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Additional Spokes
Li-Cycle plans to develop additional Spokes over the next five years in North America (including the Arizona Spoke and the Alabama Spoke), Europe and the Asia-Pacific region (including China). In furtherance of these plans, Li-Cycle opened a new Spoke Fulfillment Centre in Kingston, Ontario in July 2021 where Li-Cycle will fabricate and assemble on a custom basis machinery and equipment for future Spoke recycling lines. These assembled lines will be modular and able to be shipped to, and installed at, the relevant Spoke site.
We expect the initial European Spoke to have an annual throughput capacity of 5,000 tonnes of lithium-ion battery equivalent. In Europe, Li-Cycle is engaged in discussions with potential battery feedstock suppliers to identify both sources of supply and strategic locations for future Spokes. With the assistance of a third-party consultant, Li-Cycle is currently assessing locations in several European countries, with a view to identifying and leasing an appropriate site for, and constructing and commissioning, its initial European Spoke in 2022. The process of identifying an appropriate location takes into account a variety of other factors, including utilities, logistics, and other physical infrastructure. Upon selecting a site for its initial European Spoke, we expect Li-Cycle to incur expenses in connection with the site lease, detailed engineering, facility construction and local site plan and environmental permit approvals. We estimate that the aggregate cost of identifying and leasing a site for, and constructing and commissioning, Li-Cycles initial European Spoke will be approximately $10.0 million.
In the Asia-Pacific region (including China), Li-Cycle intends to establish an initial Spoke in 2022, with an expected annual throughput capacity of 5,000 tonnes of lithium-ion battery equivalent. Li-Cycle is engaged in discussions with both potential joint venture partners and potential battery feedstock suppliers in the Asia-Pacific region to identify both sources of supply and strategic locations for future Spokes. We expect Li-Cycle to incur expenses in connection with the negotiation of joint venture documentation, a site lease, detailed engineering, local site plan and environmental permit approvals and constructing and commissioning its initial Spoke in the Asia-Pacific region. We estimate that the aggregate cost of negotiating joint venture documentation and identifying and leasing a site for, and constructing and commissioning, Li-Cycles initial Asia-Pacific region Spoke will be approximately $10.0 million.
Liquidity and Capital Resources
Sources of Liquidity
Prior to the Business Combination, Li-Cycle financed its operations primarily through: (i) private placements of Li-Cycle Common and Preferred Shares; (ii) a loan from BDC Capital Inc.; (iii) loans from corporations controlled by Li-Cycles Chief Executive Officer and Executive Chair; and (iv) various government funding initiatives.
We expect both Li-Cycles capital and operating expenditures will increase significantly in connection with its ongoing activities, as Li-Cycle: completes the development and construction of the Rochester Hub, which is currently in late stage development; completes the development and construction of the Arizona Spoke and the Alabama Spoke; expands globally with the deployment of additional Spokes and Hubs, including through acquisitions and/or through joint ventures or other contractual arrangements; continues to invest in its technology, R&D efforts and the expansion of its intellectual property portfolio; increases its investment in logistics infrastructure for transportation of intermediate products from Spokes to Hubs; obtains, maintains and improves its operational, financial and management information systems; hires additional personnel; and operates as a public company.
Since inception, Li-Cycle has generally operated at a loss. We expect that as it completes its Rochester Hub and adds Spokes, it will be able to operate at a profit in future periods, though there can be no assurance that Li-Cycle will achieve or maintain profitability in the future. In order to continue to fund the planned expansion of its business and maintain profitability in the future, to acquire complementary businesses and/or due to unforeseen circumstances, Li-Cycle may need to secure additional debt or equity financing. Such additional funds may not be available when Li-Cycle needs them on terms that are acceptable to it, or at all.
The net proceeds from the Business Combination and PIPE Financing, which were approximately $527 million (the Net Transaction Proceeds), are expected to be used as follows: (i) approximately $12 million to repay borrowings
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under the loan from BDC Capital Inc. and the promissory notes issued to corporations controlled by Li-Cycles Chief Executive Officer and Executive Chair (now complete), (ii) approximately $20 million to fund the development, construction and commissioning costs of the Arizona Spoke, (iii) approximately $10 million to fund the development, construction and commissioning costs of the Alabama Spoke, (iv) at least $175 million to fund the development, construction and commissioning costs of the Rochester Hub, (v) approximately $280 million to fund the development, construction and commissioning costs of additional Spokes and future Hubs (such funding to be supplemented by cash flow from operations and capital contributions from third parties), (vi) $10 million for research and development, and (vii) the remainder for working capital.
Based on our pre-feasibility study, we have estimated the potential related expenditures and expenses of the Rochester Hub to be at least $175 million (+/- 30%, based on the scope as at the pre-feasibility study). The ultimate scale of and investment in the Rochester Hub may be significantly greater than 25,000 tonnes per annum and $175 million (+/-30%), respectively, set forth in the pre-feasibility study.
Debt Obligations
On December 16, 2019, Li-Cycle entered into a binding agreement with BDC Capital Inc. for a loan of $5.3 million (Cdn. $7.0 million) to help finance the expansion plans of Li-Cycle. The maturity date of the loan was December 14, 2023 and loan was funded in three tranches based on the achievement of specific milestones by Li-Cycle. The base rate of interest was 16% per annum, paid monthly, plus additional accrued interest in kind of 3% that could be reduced to 0% based on the achievement of certain milestones by Li-Cycle. Principal payments began on the first anniversary date of the loan and could be made at $0.13 million (Cdn. $0.175 million) per month with a balloon payment of $0.5 million (Cdn. $0.7 million) at maturity. As of July 31, 2021, the BDC Capital Inc. loan balance was $4.4 million.
On August 11, 2021, in accordance with an agreement to repay the BDC Capital Loan in full upon the closing of the Business Combination, Li-Cycle repaid BDC Capital Loan in full.
On June 16, 2021, Li-Cycle issued promissory notes (the Promissory Notes) for an aggregate principal amount of $7,000,000 as consideration for loans received from companies related to the Chief Executive Officer and the Executive Chair of Li-Cycle, respectively. The Promissory Notes bore interest at the rate of 10% per annum and had a maturity date of December 15, 2023. The Promissory Notes were unsecured and subordinate to indebtedness owing to Li-Cycles senior lender, BDC Capital Inc. Li-Cycle had the option of prepaying all or any portion of the principal and accrued interest of the Promissory Notes prior to the maturity date without penalty, subject to certain conditions. On August 17, 2021, Li-Cycle repaid the Promissory Notes and accrued interest in full.
Cash Flows Summary
Presented below is a summary of Li-Cycles operating, investing, and financing cash flows for the periods indicated:
Three months ended | Nine months ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Cash flows used in operating activities |
$ | (5,245 | ) | $ | (2,161 | ) | $ | (16,567 | ) | $ | (7,654 | ) | ||||
Cash flows used in investing activities |
(5,298 | ) | (836 | ) | (12,050 | ) | (1,748 | ) | ||||||||
Cash flows from financing activities |
6,568 | 294 | 30,304 | 9,502 | ||||||||||||
Net change in cash |
$ | (3,975 | ) | $ | (2,703 | ) | $ | 1,687 | $ | 100 |
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Cash Flows Used in Operating Activities
For the three and nine months ended July 31, 2021, cash flows used in operating activities were approximately $5.2 million and $16.6 million, respectively, and in each case were primarily driven by the growth and commercialization of Li-Cycles operations, including headcount, ramp-up phase production costs at the Rochester Spoke, research and development, and consulting costs relating to the development of the Rochester Hub. The period over period increases in cash flows used in operating activities for the three- and nine-month periods ended July 31, 2021 were primarily the result of an increase in operating expenses of $6.0 million and $15.9 million for those periods, respectively, partially offset by an increase in accounts payable and accrued liabilities in each period in 2021.
Cash Flows Used in Investing Activities
For the three and nine months ended July 31, 2021, cash flows used in investing activities were primarily driven by the acquisition of equipment and leasehold improvements for the Rochester Spoke and the Rochester Hub. For the three and nine months ended July 31, 2020, cash flows used in investing activities were primarily for the Kingston Spoke.
Cash Flows from Financing Activities
Cash flows generated from financing activities in the three and nine months ended July 31, 2021 related primarily to capital raising through the issuance of common shares and net proceeds from loans. In the three months ended July 31, 2021, Li-Cycle received $7 million from the Promissory Notes issued to companies related to the Chief Executive Officer and the Executive Chair of Li-Cycle, respectively. In the nine months ended July 31, 2021, Li-Cycle received net proceeds of $21.6 million from a private placement of 281,138 class A shares in November 2020, $3.1 million (Cdn. $4 million) from a loan advance from BDC Capital Inc., and $7 million from the Promissory Notes. In the nine months ended July 31, 2020, cash flows from financing activities related to Li-Cycles Series B round, loan advance of $2.3 million (Cdn. $3.0 million) from BDC Capital Inc., and proceeds from government grants of $1.1 million.
Contractual Obligations and Commitments
The following table summarizes Li-Cycles contractual obligations and other commitments for cash expenditures as of July 31, 2021, and the years in which these obligations are due.
Payment due by period | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Contractual Obligations | Total | Less than | 1 - 3 years | 3 - 5 years | More than | |||||||||||||||
1 year | 5 years | |||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 15,779 | $ | 15,779 | $ | | $ | | | |||||||||||
Lease liabilities |
22,621 | 2,155 | 5,592 | 4,697 | 10,177 | |||||||||||||||
Loan payable |
11,466 | 7,012 | 4,454 | | | |||||||||||||||
Restoration provisions |
332 | | 81 | 53 | 198 | |||||||||||||||
Restricted share units |
3,259 | 3,259 | | | | |||||||||||||||
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|
|
|
|
|
|
|
|
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Total as of July 31, 2021 |
53,457 | 28,205 | 10,127 | 4,750 | 10,375 |
Note:
(1) |
On August 3, 2021, Li-Cycle North America Hub, Inc., a wholly-owned subsidiary of Li-Cycle, entered into a ground lease for the lands on which Li-Cycle intends to construct its Rochester Hub. Li-Cycle North America Hub, Inc.s lease liabilities in connection with the ground lease will be as follows: (i) less than 1 year: $450,000; (ii) 1 3 years: $900,000; (iii) 3 5 years: $900,000; and (iv) more than 5 years: $7,050,000. Under a guaranty dated as of August 3, 2021, Li-Cycle has agreed to guarantee the performance of Li-Cycle North America Hub, Inc.s obligations under the lease. |
(2) |
On September 7, 2021, Li-Cycle Inc. entered into a warehouse lease for the Arizona Spoke. The Arizona Spoke warehouse lease covers approximately 67,000 square feet and has an original term of 5 years 3 months plus a renewal term totaling 5 additional years. The lease increases the Companys contractual obligations by undiscounted cash flows of approximately $3.7 million over the original term of the lease. Li-Cycle has guaranteed the performance of Li-Cycle Inc.s obligations under the lease. |
(3) |
On September 8, 2021, Li-Cycle Inc. entered into a premises lease for the Alabama Spoke. The Alabama Spoke premises lease covers approximately 108,000 square feet and has an original term of 20 years plus multiple renewal terms totaling 10 additional years. The lease increases the Companys contractual obligations by undiscounted cash flows of approximately $21.0 million over the original term of the lease. Li-Cycle has guaranteed the performance of Li-Cycle Inc.s obligations under the lease. |
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As of July 31, 2021, there were $7.3 million in committed purchase orders that Li-Cycle was in various stages of executing (October 31, 2020: $4.2 million).
For the 12 months following July 31, 2021, we expect Li-Cycle to enter into additional premises leases relating to a warehouse for the Arizona Spoke, a facility for the Alabama Spoke and a land lease for the Rochester Hub (which leases were entered into on August 3, 2021, September 7, 2021 and September 8, 2021, respectively, and are described in the Notes to the table above). We also expect Li-Cycle to enter into premises leases for additional Spokes and/or Hubs.
Related Party Transactions
Related-Party Lease
During the past four years, Li-Cycle has leased certain office space from Ashlin BPG Marketing, which is controlled by certain members of the immediate family of our President and Chief Executive Officer. Under the terms of the lease, Li-Cycle is required to pay $4,500 per month plus applicable taxes in Canadian dollars, subject to 60 days notice of termination.
Consulting Agreement
On May 1, 2020, Li-Cycle entered into a consulting agreement with Atria Limited (Atria), an entity which beneficially owned more than 5% of the outstanding Li-Cycle Shares at that time, to agree upon and finalize the consideration for certain business development and marketing consulting services that were previously performed on behalf of Li-Cycle from 2018 through April 2020. The fees for such services were agreed at 12,000 common shares of Li-Cycle Corp., payable in installments of 1,000 shares per month. On January 25, 2021, Li-Cycle issued all of the 12,000 shares to Atria as full and final satisfaction of all obligations of Li-Cycle to Atria under the consulting agreement. Atria also directed the issuance of such shares as follows: 8,000 Shares to Atria; 2,000 Shares to Pella Ventures (an affiliated company of Atria); and 2,000 Shares to a director of Li-Cycle Corp. at the time, who is not related to Atria.
Promissory Notes
Li-Cycle issued promissory notes (the Promissory Notes) for an aggregate principal amount of $7,000,000 as consideration for loans received from companies related to the Chief Executive Officer and the Executive Chair of Li-Cycle, respectively. The Promissory Notes bore interest at the rate of 10% per annum and had a maturity date of December 15, 2023. The Promissory Notes were unsecured and subordinate to indebtedness owing to Li-Cycles senior lender, BDC Capital Inc. Li-Cycle had the option of prepaying all or any portion of the principal and accrued interest of the Promissory Notes prior to the maturity date without penalty, subject to certain conditions. On August 17, 2021, Li-Cycle repaid the $7 million Promissory Notes and accrued interest in full.
Off-Balance Sheet Arrangements
During the periods presented, Li-Cycle did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Li-Cycles condensed consolidated interim financial statements and consolidated annual financial statements have been prepared in conformity with IFRS using the significant accounting policies and measurement bases that are in effect at October 31, 2020, as summarized in Note 2 of the financial statements. These were used throughout all periods presented with any applicable changes noted in the July 31, 2021 condensed consolidated interim financial statements.
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Outstanding Share Data
As of September 8, 2021, Li-Cycle Holdings had the following issued and outstanding shares, warrants and stock options:
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163,179,553 common shares, which are listed on the New York Stock Exchange under the symbol LICY. |
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23,000,000 warrants, which are listed on the New York Stock Exchange under the symbol LICY.WS. Each warrant is exercisable for a common share at a price of $11.50, subject to adjustment. |
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5,296,553 stock options to purchase 5,296,553 common shares. |
Internal Control Over Financial Reporting
Prior to the date of the Canadian Prospectus, Li-Cycle Holdings had been a private company and we have addressed our internal control over financial reporting with internal accounting and financial reporting personnel and other resources.
In the course of preparing the Canadian Prospectus, Li-Cycle identified material weaknesses in its internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Li-Cycles annual or interim consolidated financial statements may not be prevented or detected on a timely basis.
Li-Cycle did not have in place an effective control environment with formal processes and procedures or an adequate number of accounting personnel with the appropriate technical training in, and experience with, IFRS to allow for a detailed review of complex accounting transactions that would identify errors in a timely manner, including inventory costing and business combinations. Li-Cycle did not design or maintain effective controls over the financial statement close and reporting process in order to ensure the accurate and timely preparation of financial statements in accordance with IFRS. In addition, information technology controls, including end user and privileged access rights and appropriate segregation of duties, including for certain users the ability to create and post journal entries, were not designed or operating effectively.
We have taken steps to address these material weaknesses and expect to continue to implement the remediation plan, which we believe will address their underlying causes. We expect to engage external advisors to provide assistance in the areas of information technology, internal controls over financial reporting, and financial accounting in the short term and to evaluate and document the design and operating effectiveness of our internal controls and assist with the remediation and implementation of our internal controls as required. We are evaluating the longer-term resource needs of our various financial functions. These remediation measures may be time consuming, costly, and might place significant demands on our financial and operational resources. Although we have made enhancements to our control procedures in this area, the material weaknesses will not be remediated until the necessary controls have been implemented and are operating effectively. We do not know the specific time frame needed to fully remediate the material weaknesses identified.
Quantitative and Qualitative Disclosures About Market Risk
Li-Cycle is exposed to various risks in relation to financial instruments. The main types of risks are currency risk and interest rate risk. While Li-Cycle may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged.
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Furthermore, Li-Cycle does not have foreign-exchange hedging contracts in place with respect to all currencies in which it does business.
Currency Risk
It is managements opinion that Li-Cycle is not exposed to significant currency risk as its cash is denominated in both Canadian and US dollars and funds its operations accordingly. Up to October 31, 2020, most of Li-Cycles transactions have been in Canadian dollars. Effective November 1, 2020, the functional currency has changed to US dollars given the shift in currency of most of Li-Cycles transactions to US dollars.
Interest Rate Risk
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on Li-Cycles financial instruments. It is managements opinion that Li-Cycle is not exposed to significant interest rate risk, as it has no variable interest rate debt.
Credit Risk
Financial instruments that potentially subject us to concentration of credit risk consist of cash and cash equivalents and accounts receivable. Substantially all of our cash and cash equivalents were deposited in accounts at one financial institution, and account balances may at times exceed federally insured limits. Management believes that we are not exposed to significant credit risk due to the financial strength of the depository institution in which the cash is held.
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting standards, amendments to existing standards, and interpretations are issued by the International Accounting Standards Board (IASB). Unless otherwise discussed, and as further highlighted in Note 3 to the fiscal 2020 consolidated financial statements, Li-Cycle believes that the impact of recently issued standards or amendments to existing standards that are not yet effective will not have a material impact on Li-Cycles financial position or results of operations under adoption.
Cautionary note regarding forward-looking statements
Certain statements in this managements discussion and analysis may constitute forward-looking statements for purposes of applicable securities laws.
Our forward-looking statements include, but are not limited to, statements regarding our or our management teams expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words anticipate, believe, continue, could, estimate, expect, intends, may, might, plan, possible, potential, predict, project, should, would and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this managements discussion and analysis may include, for example, statements about:
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the benefits of the Business Combination; | |
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Li-Cycle Holdings financial performance following the Business Combination; | |
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changes in Li-Cycles strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; | |
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expansion plans and opportunities; and | |
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the outcome of any known and unknown litigation and regulatory proceedings. |
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These forward-looking statements are based on information available as of the date of this managements discussion and analysis, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
You should not place undue reliance on these forward-looking statements in deciding whether or not to invest in our securities. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
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the outcome of any legal proceedings that may be instituted against Li-Cycle Holdings or Li-Cycle; | |
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the risk that the proposed Business Combination disrupts current plans and operations of Li-Cycle as a result of the announcement and consummation of the transactions described herein; | |
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Li-Cycle Holdings ability to realize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition and the ability of Li-Cycle Holdings to grow and manage growth profitably following the Business Combination; | |
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costs related to the Business Combination; | |
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changes in applicable laws or regulations; | |
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the effects of the COVID-19 pandemic on Li-Cycle Holdings or Li-Cycles business; | |
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the possibility that Li-Cycle Holdings or Li-Cycle may be adversely affected by other economic, business, and/or competitive factors; and | |
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other risks and uncertainties described in this managements discussion and analysis, including those under the section in the Canadian Prospectus entitled Risk Factors. |
Additional Information
Additional information relating to Li-Cycle is available on SEDAR at www.sedar.com and on Edgar at www.sec.gov.
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Exhibit 99.5
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