In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form
10-Q/A,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Note 1 – The Company and Basis of Presentation
The Company
Loop
Industries,
Inc. was incorporated on March 11, 2010 under the laws of the State of Nevada, under the name “Radikal Phones Inc.” We changed our name to “First American Group Inc.” on October 7, 2010, and then we changed our name to our current name, “Loop Industries, Inc.”, effective July 21, 2015.
On June 29, 2015, Loop Industries, Inc. (the "Company" or "Loop Industries") entered into a Share Exchange Agreement (the “Share Exchange Agreement”), by and among the Company, and the holders of common stock of Loop Holdings, Inc. (“Loop Holdings”). Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 23,257,500 shares of common stock in consideration for all the issued and outstanding shares in Loop Holdings. The effect of the issuance was that Loop Holdings shareholders held approximately 78.1% of the issued and outstanding shares of common stock of the Company upon consummation of the Share Exchange Agreement.
Pursuant to a Stock Redemption Agreement dated June 29, 2015 entered into commensurate with the share exchange, the Company redeemed 25,000,000 shares of First American Group common stock from two stockholders for an aggregate redemption price of $16,000.
As the former owners and management of Loop Industries had voting and operating control of the Company after the share exchange, the transaction has been accounted for as a recapitalization with Loop Holdings deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. No step-up in basis or intangible assets or goodwill was recorded and the aggregate cost of $60,571, representing the net liabilities assumed of $35,243, cost of the redeemed shares of $16,000 and closing costs of $9,328, had been reflected as a cost of the transaction. The consolidated financial statements reflect the historical results of Loop Industries prior to the share exchange, and that of the combined company following the share exchange.
The Company engages in the designing, prototyping and building a closed loop plastics recycling business that leverages a proprietary depolymerization technology.
On May 24, 2016, 9449507 Canada Inc. was incorporated to carry on the Company’s depolymerization business. On November 11, 2016, the shares of 9449507 Canada Inc., which was wholly owned by Mr. Solomita, were transferred to Loop Industries, Inc. On December 23, 2016, 9449507 Canada Inc. changed its legal name to Loop Canada Inc. On December 31, 2016, all employees, assets, liabilities, and operations pertaining to the Company’s depolymerization business were transferred to Loop Canada Inc. from 8198381 Canada Inc., a company wholly owned by Mr. Solomita.
On March 9, 2017, Loop Holdings, a wholly owned subsidiary of the Company, merged with and into the Company, with the Company being the surviving entity as a result of the merger.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Loop Industries, Inc. and its wholly-owned subsidiary Loop Canada Inc. (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the year ending February 28, 2018.
Intercompany balances and transactions have been eliminated on consolidation.
Liquidity
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has no recurring source of revenue and during the three months ended May 31, 2017, the Company incurred a net loss of $1,523,090 and used cash in operations of $983,769. As of May 31, 2017, the Company had cash on hand of $5,535,020 and stockholders’ equity of $6,744,100.
Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. However, the Company will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. Management may consider seeking additional funds, primarily through the issuance of debt and equity securities for cash and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing.
Note 2 –
Restatement of Previously Issued Financial Statements and
Summary of Significant Accounting Policies
Restatement of previously issued financial statements
The Company’s unaudited condensed consolidated balance sheet as of May 31, 2017, and condensed consolidated statement of shareholders’ equity for the three month period ended May 31, 2017, have been restated for an error with regard to the accounting for stock based compensation in fiscal 2017.
Adjustment
We identified and corrected an error related to the measurement of stock-based compensation associated with the grant of common shares to the Company’s President and Chief Executive Officer in June 2015. The share-based award vests based on the achievement of specified performance conditions, which pursuant to ASC 718 impacts the timing of recognition of stock-based compensation expense, but which does not affect the determination of the fair value of the award. The fair value of the “equity-classified” award should be determined on the grant date.
Previously, the Company had determined the fair value of the award on the date at which it became probable that the first of four performance conditions had been met, resulting in the recognition of $5,500,000 of non-cash stock based compensation expense in the fourth quarter and fiscal year ended February 28, 2017. The Company has recognized an adjustment to record stock-based compensation of $800,000, which is the amount of the award expected to vest in fiscal 2017, and is based on the grant date fair value of the award as at June 29, 2015.
The adjustment had no impact on the unaudited condensed consolidated statements of operations and comprehensive loss and cash flows for the three-month period ended May 31, 2017.
The following table illustrates the impact of the correction to the unaudited condensed consolidated balance sheets:
|
|
As at February 28, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Accumulated deficit
|
|
|
(11,937,803
|
)
|
|
|
4,700,000
|
|
|
|
(7,237,803
|
)
|
|
|
As at May 31, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Accumulated deficit
|
|
|
(13,460,893
|
)
|
|
|
4,700,000
|
|
|
|
(8,760,893
|
)
|
The following table illustrates the impact of the correction on the condensed consolidated statement of shareholders’ equity:
|
|
Three month period ended May 31, 2017
|
|
|
|
As previously reported
|
|
|
Adjustment
|
|
|
Restated
|
|
Accumulated deficit at Feb 28, 2017
|
|
|
(11,937,803
|
)
|
|
|
4,700,000
|
|
|
|
(7,237,803
|
)
|
Accumulated deficit at May 31, 2017
|
|
|
(13,460,893
|
)
|
|
|
4,700,000
|
|
|
|
(8,760,893
|
)
|
Common stock issuable
|
|
|
5,500,000
|
|
|
|
(4,700,000
|
)
|
|
|
800,000
|
|
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property and equipment, analysis of impairments of recorded intangibles, accruals for potential liabilities and assumptions made in calculating the fair value of certain stock instruments.
Foreign Currency Translations and Transactions
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenses are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
The following table summarizes the exchange rates used:
|
|
Three Months
Ended May 31,
|
|
|
|
2017
|
|
|
2016
|
|
Period end Canadian $: US Dollar exchange rate
|
|
$
|
0.74
|
|
|
$
|
0.76
|
|
Average period Canadian $: US Dollar exchange rate
|
|
$
|
0.74
|
|
|
$
|
0.78
|
|
Expenditures are translated at the average exchange rate for the period presented.
Value added tax, tax credits and other receivables
The Company is registered for the Canadian Federal and Provincial Goods and Services Taxes. As a registrant, the Company is obligated to collect, and is entitled to claim sale taxes paid on its expenses and capital expenditures incurred in Canada. As at the balance sheet date of May 31 and February 28, 2017, the computed net recoverable sale taxes amounted to $63,182 and $198,830, respectively.
Research and Development Costs
Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded during the three months ended May 31, 2017 and 2016 amounted to $496,538 and $415,568 respectively. Research and development costs are net of $4,472 of grant revenue received and research and development tax credit of $113,223 claimed during the period ended May 31, 2017.
Net Loss per Share
The Company computes net loss per share in accordance with FASB ASC 260 Earnings per share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.
For the three months ended May 31, 2017 and 2016, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. The potentially dilutive securities consisted of 1,000,000 common shares issuable and 1,860,455 and 1,653,668 outstanding warrants as of May 31, 2017 and 2016, respectively.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. On August 12, 2015, FASB delayed the required implementation to fiscal years ending after December 15, 2017 but now permitted organizations such the Company to adopt earlier. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management has determined to adopt ASU 2014-09 when it becomes effective for the Company in Fiscal 2018 and has not determined the effect of the standard on our ongoing financial reporting.
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02,
Leases
. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
Note 3 – Property and Equipment
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
May 31,
|
|
|
February 28,
|
|
|
|
Life
|
|
|
2017
|
|
|
2017
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
5 - 7
|
|
|
$
|
1,591,327
|
|
|
$
|
1,590,187
|
|
Office equipment and furniture
|
|
5 - 8
|
|
|
|
141,124
|
|
|
|
131,607
|
|
Leasehold improvements
|
|
3
|
|
|
|
356,662
|
|
|
|
342,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,089,113
|
|
|
|
2,064,213
|
|
Less: accumulated depreciation
|
|
|
|
|
|
(570,346
|
)
|
|
|
(497,244
|
)
|
Property and equipment, net
|
|
|
|
|
$
|
1,518,767
|
|
|
$
|
1,566,969
|
|
Depreciation expense for the three months ended May 31, 2017 and 2016 was $74,592 and $93,921, respectively.
Note 4 – Intellectual Property
On October 27, 2014, the Company entered into an intellectual property agreement with Mr. Hatem Essaddam (the "Intellectual Property Assignment Agreement") wherein the Company purchased a certain technique and method for $445,050 allowing for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure. The Company will use such technique and know-how in its manufacturing facility. The technology is being amortized using the straight-line method over the 7 years estimated useful life of the patents.
In addition to the $445,050 paid by the Company under the Intellectual Property Assignment Agreement, the Company is required to make additional payments totaling CDN$800,000 to Mr. Essaddam within sixty (60) days of each of the following milestones (the “Milestones”) having been met, as follows:
|
(i)
|
CDN$200,000 when an average of twenty (20) metric tons per day of terephthalic acid is produced by the Company for twenty (20) operating days;
|
|
|
|
|
(ii)
|
CDN$200,000 when an average of thirty (30) metric tons per day of terephthalic acid is produced by the Company for thirty (30) operating days;
|
|
|
|
|
(iii)
|
CDN$200,000 when an average of sixty (60) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days; and
|
|
|
|
|
(iv)
|
CDN$200,000 when an average of one hundred (100) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days.
|
As of May 31, 2017, the Company is still in its test pilot program, none of the Milestones have been met, and accordingly no additional payments have been made.
Additionally, the Company is obligated to make royalty payments of up to CDN$25,700,000, payable as follows:
|
(a)
|
10% of gross profits on the sale of all products derived by the Company from the technology assigned to the Company under the Intellectual Property Assignment Agreement;
|
|
(b)
|
10% of any license fee paid to the Company in respect of any licensing or other right to use the technology assigned to the Company and granted to a third party by the Assignee;
|
|
|
|
|
(c)
|
5% of any royalty or other similar payment made to the Company by a third party to whom a license or other right to use the technology assigned to the Company has been granted by the Company; and
|
|
|
|
|
(d)
|
5% of any royalty or other similar payment made to the Company by a third party in respect of a sub-license or other right to use the technology assigned to the Company granted by the third party.
|
As of May 31, 2017, the Company has not made any royalty payments under the Intellectual Property Assignment Agreement.
Amortization expense is recorded as an operating expense in the consolidated statements of operations and comprehensive loss and amounted to $15,895, and $22,257 for the three months ended May 31, 2017 and 2016, respectively. As of May 31 and February 28, 2017, accumulated amortization was $152,945 and $137,050, respectively.
Note 5 – Related Party Transactions
Advances from Major Shareholder
Mr. Daniel Solomita, the Company’s major stockholder and CEO, or companies controlled by him, previously made advances to the Company. The advances were unsecured, non-interest bearing with no formal terms of repayment. As of February 28, 2017, the aggregate amount due to Mr. Solomita or companies controlled by him was $391,695. During the period ended May 31, 2017, the Company repaid to Mr. Solomita or companies controlled by him, as applicable, an aggregate amount of $278,472 and reclassified from value added taxes and other receivables an aggregate amount of $113,223.
Employment Agreement and Accrued Compensation due to Major Shareholder
The Company entered into an employment agreement with Daniel Solomita, the Company’s President and Chief Executive Officer for an indefinite term. During the term, the officer shall receive monthly salary of $15,000. Compensation expense under this agreement amounted to $45,000 during the three months ended May 31, 2017 and May 31, 2016. As of May 31 and February 28, 2017, accrued compensation of $35,156 and $360,000, respectively, was due to Mr. Solomita. On May 5, 2017, the total accrued compensation due to Mr. Solomita for an amount of $360,000 was paid.
In addition, the Company agreed to grant the officer 4 million shares of the Company’s common stock, form of equity to be determined, if certain milestones were met.
Effective April 10, 2017, the Company qualified to trade on the OTCQX and began trading the same date. Accordingly, as at May 31, 2017, the officer’s entitlement to 1,000,000 shares with a fair value of
$800,000
(note 2),
in aggregate, have vested. The
performance conditions
for the remaining 3,000,000 shares of common stock
are
not
considered probable, therefore the stock based compensation expense associated with the grant has not
been
recognized.
Note 6 – Stockholders’ Equity
Common Stock
During the three months ended May 31, 2017 the Company sold 1,123,266 shares of its common stock at an offering price of $5.25 per share, resulting in net proceeds to the Company of $5,897,188.
Warrants
The Company has not adopted a formal stock option plan as of May 31, 2017; however, it has made periodic non-plan grants of warrants for services and financing.
During the period ended May 31, 2017, the Company issued to its Chief Financial Officer a warrant to purchase up to 400,000 shares of our common stock at an exercise price of $5.25 per share, which vests quarterly in equal amounts over 24 months beginning on April 3, 2017, and have a contractual life of 10 years. This warrant had a grant date fair value of $2,331,000 as determined by a Black Scholes option pricing model and will be amortized over the vesting period. In addition, the Company issued to its Chief Financial Officer a warrant to purchase up to 150,000 additional shares of our common stock at an exercise price of $5.25 per share that will vest when certain milestones achieved. This warrant had a grant date fair value of $874,125 as determined by a Black Scholes option pricing model and will be amortized as the Company makes progress towards those milestones.
During the three months ended May 31, 2017, and 2016, the Company amortized $220,504, and $41,359 respectively, of these costs which are included in operating expenses. As of May 31, 2017, the unamortized balance of these costs was $3,377,143. The aggregate intrinsic value of the warrants outstanding as of May 31, 2017 was $9,325,489 calculated as the difference between the closing market price of $8.05 and the exercise price of the Company’s warrants as of May 31, 2017.
During the three months ended May 31, 2017 warrants to purchase an aggregate of 314,667 shares of our common stock expired.
The table below summarizes the Company’s warrants activities:
|
|
Number of Warrant Shares
|
|
|
Exercise Price Range Per Share
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2017
|
|
|
1,647,670
|
|
|
$
|
0.80 to $6.00
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
550,000
|
|
|
$
|
5.25
|
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(22,548
|
)
|
|
$
|
0.80
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(314,667
|
)
|
|
$
|
6.00
|
|
|
$
|
6.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2017
|
|
|
1,860,455
|
|
|
$
|
0.80 to $6.00
|
|
|
$
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned and exercisable, May 31, 2017
|
|
|
836,705
|
|
|
$
|
0.80 to $6.00
|
|
|
$
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, May 31, 2017
|
|
|
1,023,750
|
|
|
$
|
0.80 to $5.25
|
|
|
$
|
3.34
|
|
For warrants requiring an assessment of value during the period of May 31, 2017, the fair value of each warrant was estimated using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate
|
|
|
2.02
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
110.72
|
%
|
Expected life
|
|
|
6 years
|
|
As at May 31, 2017, 20,000 shares of common stock were issued as a result of a cashless exercise of 22,548 warrants with an exercise price of $0.80 per share.
The following table summarizes information concerning outstanding and exercisable warrants as of May 31, 2017:
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Range of Exercise Prices
|
|
|
Number Outstanding
|
|
|
Average Remaining Contractual Life (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Average Remaining Contractual Life (in years)
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.80
|
|
|
|
912,452
|
|
|
|
0.51
|
|
|
$
|
0.80
|
|
|
|
507,452
|
|
|
|
0.51
|
|
|
$
|
0.80
|
|
$
|
6.00
|
|
|
|
323,003
|
|
|
|
0.08
|
|
|
$
|
6.00
|
|
|
|
323,003
|
|
|
|
0.08
|
|
|
$
|
6.00
|
|
$
|
3.00
|
|
|
|
75,000
|
|
|
|
1.02
|
|
|
$
|
3.00
|
|
|
|
6,250
|
|
|
|
1.02
|
|
|
$
|
3.00
|
|
$
|
5.25
|
|
|
|
550,000
|
|
|
|
9.98
|
|
|
$
|
5.25
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Note 7 –
Subsequent Event
On June 30, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”). The Plan permits the granting of options to employees, directors and consultants of the Company. A total of 3,000,000 shares of common stock were reserved for issuance under the Plan with an automatic share reserve increase, as defined in the Plan, effective commencing March 1, 2018. The Plan is administered by the Board of Directors who designates eligible participants to be included under the Plan, the number of stock options granted, the share price pursuant to the stock options and the vesting conditions and period. The options, when granted, will have an exercise price of no less than the estimated fair value of shares at the date of grant and a life not exceeding 10 years from the grant date. However, where a participant, at the time of the grant, owns stock representing more than 10% of the voting power of the Company, the life of the option will not exceed 5 years.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form
10-Q/A
and the audited financial information and the notes thereto included in our most recent
Amended
Annual Report on Form
10-K/A,
which was filed with the Securities and Exchange Commission, or the SEC, on
January 12, 2018.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form
10-Q/A,
including those risks identified in the “Risk Factors” section of our most recent
Amended
Annual Report on Form
10-K/A.
Overview
Our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy.
Currently, the focus of our business is on the depolymerizing waste PET plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PET into its base chemicals, PTA and MEG, at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature.
Depolymerization presents two unique advantages in recycling resin-based products: (i) the ability to return a recovered resin to virgin-resin-like quality, and (ii) the potential to recover a valuable feedstock from products that are economically challenging to recycle. When plastic is mechanically recycled, even small levels of contamination can compromise the performance of the resin. However, because depolymerization breaks down plastics into monomer form, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable.
We are a development-stage company and have never generated any revenues. Our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues. We intend to sell depolymerized LOOP™-branded PET resin to sustainably focused customers. During January 2016, we announced the successful completion of a pilot plant facility in Montreal, Canada with a production capacity of 2.5 metric tons per day of high purity PTA and MEG.
Plan of Operation
We are planning to and have begun taking steps to build a commercial scale facility with an installed capacity of a minimum of 10,000 metric tons (MT) per annum to supply our potential customers with LOOP™ branded PET resin of up to 50% recycled content. We are planning to finance any new facilities through additional sales of our common stock, government assistance, including grants and low-interest loans and traditional bank financing.
We are conducting qualification testing of our LOOP™ branded PET resin and negotiating long term supply contracts with potential customers. In addition, we are optimizing our manufacturing process to ensure a smooth transition from pilot scale to full scale commercial manufacturing facility.
Our plan of operation also includes the development of the LOOP™ branded PET resin, by establishing co-marketing and co-branding initiatives with potential customers. LOOP™ branded PET resin will primarily focus on educating consumers on the importance of the circular economy and the Loop technology that can play a pivotal role in this new economy.
Results of Operations
For the three months ended May 31, 2017 and May 31, 2016
We recorded no revenues for the three months ended May 31, 2017 and May 31, 2016.
We realized a net loss from operations of $1.5 million for the three months ended May 31, 2017 compared to a net loss of $1.0 million for the three months ended May 31, 2016. This net loss from operations is mainly due to an increase in general and administrative expenses of $0.9 million for the period ended May 31, 2017 compared to $0.4 million for the period ended May 31, 2016. In addition, we incurred $0.5 million in research and development expenses for the period ended May 31, 2017 compared to $0.4 million for the period ended May 31, 2016 as we continue to scale our technology.
Activity in the three months ended May 31, 2017 continues to focus on the development of plans for a commercial facility, continued testing and improvement of our depolymerization process as well as testing of various feedstocks used in the depolymerization process.
On the commercial side, we have undertaken various marketing initiatives to raise awareness of the Loop depolymerization process. In addition, we have been working with future customers and other key stakeholders to ensure that the Loop™ branded PET resin meets customers’ needs and specifications once commercial production begins.
Liquidity and Capital Resources
As reflected in the accompanying consolidated financial statements, we have no recurring source of revenue and during the three months ended May 31, 2017, we incurred a net loss of $1.5 million and used cash in operations of $1.0 million. As of May 31, 2017, we had cash on hand of $5.5 million and stockholders’ equity of $6.7 million as a result of the sale of 1,123,266 shares of our common stock on May 4, 2017 for net proceeds of $5.9 million.
We estimate that the current funds on hand will be sufficient to continue operations through the next twelve months. However, we will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. We are currently seeking additional funds, primarily through the issuance of debt and equity securities for cash and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.
No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.
Off-Balance Sheet Arrangements
As of May 31, 2017, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.