Item
1. Financial Statements
Our
consolidated unaudited interim financial statements for the three and six month periods ended September 30, 2016 form part of
this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally
accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X.
PACIFIC
GREEN TECHNOLOGIES INC.
Condensed
Consolidated Financial Statements
September
30, 2016
(Expressed
in US dollars)
(unaudited)
|
Index
|
|
|
Condensed
Consolidated Balance Sheets
|
F–1
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive Loss
|
F–2
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
F–3
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
F–4
|
PACIFIC
GREEN TECHNOLOGIES INC.
Condensed
Consolidated Balance Sheets
(Expressed
in U.S. dollars)
|
|
September 30,
2016
$
|
|
|
March
31,
2016
$
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
397,277
|
|
|
|
40,108
|
|
VAT receivable
|
|
|
4,668
|
|
|
|
4,996
|
|
Prepaid expenses
|
|
|
33,261
|
|
|
|
–
|
|
Due
from related parties (Note 8)
|
|
|
49,334
|
|
|
|
50,747
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
484,540
|
|
|
|
95,851
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
25,784
|
|
|
|
–
|
|
Intangible
assets (Note 3)
|
|
|
11,928,649
|
|
|
|
12,366,555
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
12,438,973
|
|
|
|
12,462,406
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities (Note 8)
|
|
|
745,223
|
|
|
|
821,515
|
|
Loan payable (Note
4)
|
|
|
546,153
|
|
|
|
625,574
|
|
Convertible
debentures, net of unamortized discount of $48,527 and $105,018, respectively (Note 5)
|
|
|
61,473
|
|
|
|
4,982
|
|
Current
portion of note payable, net of unamortized discount of $110,005 and $33,000, respectively (Note 7)
|
|
|
4,889,995
|
|
|
|
3,967,000
|
|
Due to related parties
(Note 8)
|
|
|
4,476,164
|
|
|
|
5,025,249
|
|
Derivative
liabilities (Note 6)
|
|
|
482,908
|
|
|
|
816,216
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
11,201,916
|
|
|
|
11,260,536
|
|
|
|
|
|
|
|
|
|
|
Note
payable, net of unamortized discount of $nil and $180,507, respectively (Note 7)
|
|
|
–
|
|
|
|
819,493
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
11,201,916
|
|
|
|
12,080,029
|
|
|
|
|
|
|
|
|
|
|
Nature of Operations and Continuance
of Business (Note 1)
|
|
|
|
|
|
|
|
|
Commitments (Note 13)
|
|
|
|
|
|
|
|
|
Subsequent Events (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock,
10,000,000 shares authorized, $0.001 par value Nil shares issued and outstanding
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Common stock, 500,000,000
shares authorized, $0.001 par value 23,941,909 and 23,104,908 shares issued and outstanding, respectively
|
|
|
23,942
|
|
|
|
23,105
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable
(Note 9)
|
|
|
900,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Subscriptions receivable
(Note 9)
|
|
|
(50,000
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
|
61,848,969
|
|
|
|
60,219,306
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income
|
|
|
140,365
|
|
|
|
120,760
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
(61,626,219
|
)
|
|
|
(60,130,794
|
)
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
1,237,057
|
|
|
|
382,377
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
|
12,438,973
|
|
|
|
12,462,406
|
|
The
accompanying notes are an integral part of these c
ondensed consolidated financial statements
PACIFIC
GREEN TECHNOLOGIES INC.
Condensed
Consolidated Statements of Operations and Comprehensive Loss
(Expressed
in U.S. dollars)
(unaudited)
|
|
Three
Months Ended
September 30,
2016
$
|
|
|
Three
Months Ended
September 30,
2015
$
|
|
|
Six
Months Ended
September 30,
2016
$
|
|
|
Six
Months Ended
September 30,
2015
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets
|
|
|
218,953
|
|
|
|
218,953
|
|
|
|
437,906
|
|
|
|
437,907
|
|
Consulting fees
(Note 8)
|
|
|
214,045
|
|
|
|
243,342
|
|
|
|
423,302
|
|
|
|
389,592
|
|
Engineering fees
|
|
|
–
|
|
|
|
–
|
|
|
|
228,854
|
|
|
|
–
|
|
Foreign exchange
gain
|
|
|
(41,124
|
)
|
|
|
(247,921
|
)
|
|
|
(153,058
|
)
|
|
|
(178,772
|
)
|
Office and miscellaneous
|
|
|
33,830
|
|
|
|
20,887
|
|
|
|
69,239
|
|
|
|
37,153
|
|
Professional fees
|
|
|
75,862
|
|
|
|
44,586
|
|
|
|
140,466
|
|
|
|
85,490
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
251,577
|
|
|
|
–
|
|
|
|
251,577
|
|
Transfer agent and
filing fees
|
|
|
5,309
|
|
|
|
9,379
|
|
|
|
18,429
|
|
|
|
20,666
|
|
Travel
|
|
|
20,779
|
|
|
|
37,077
|
|
|
|
53,602
|
|
|
|
38,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
527,654
|
|
|
|
577,880
|
|
|
|
1,218,740
|
|
|
|
1,082,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other expenses
|
|
|
(527,654
|
)
|
|
|
(577,880
|
)
|
|
|
(1,218,740
|
)
|
|
|
(1,082,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment
of debt
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
171,501
|
|
Impairment of goodwill
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(126,782
|
)
|
Interest expense
(Notes 5)
|
|
|
(305,437
|
)
|
|
|
(293,438
|
)
|
|
|
(609,993
|
)
|
|
|
(633,155
|
)
|
Gain
(loss) on change in fair value of derivative liabilities (Note 7)
|
|
|
76,071
|
|
|
|
–
|
|
|
|
333,308
|
|
|
|
(1,057,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(229,366
|
)
|
|
|
(293,438
|
)
|
|
|
(276,685
|
)
|
|
|
(1,646,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(757,020
|
)
|
|
|
(871,318
|
)
|
|
|
(1,495,425
|
)
|
|
|
(2,728,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation gain (loss)
|
|
|
6,603
|
|
|
|
56,256
|
|
|
|
19,605
|
|
|
|
(23,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss for the period
|
|
|
(750,417
|
)
|
|
|
(815,062
|
)
|
|
|
(1,475,820
|
)
|
|
|
(2,752,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
|
(0.06
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of shares outstanding
|
|
|
23,894,706
|
|
|
|
18,560,068
|
|
|
|
23,672,576
|
|
|
|
17,897,133
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
PACIFIC
GREEN TECHNOLOGIES INC.
Condensed
Consolidated Statements of Cash Flows
(Expressed
in U.S. dollars)
(unaudited)
|
|
Six
Months Ended
September 30,
2016
$
|
|
|
Six
Months Ended
September 30,
2015
$
|
|
Operating Activities
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
(1,495,425
|
)
|
|
|
(2,728,675
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Accretion of discount
on note payable and convertible debentures
|
|
|
159,993
|
|
|
|
178,832
|
|
Amortization of
intangible assets
|
|
|
437,906
|
|
|
|
437,907
|
|
Common stock issuable
for consulting services
|
|
|
–
|
|
|
|
102,000
|
|
Gain on extinguishment
of debt
|
|
|
–
|
|
|
|
(171,501
|
)
|
Impairment of goodwill
|
|
|
–
|
|
|
|
126,782
|
|
Imputed interest
|
|
|
450,000
|
|
|
|
450,000
|
|
Loss (gain) on change
in fair value of derivative liabilities
|
|
|
(333,308
|
)
|
|
|
1,057,818
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
251,577
|
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
VAT receivable
|
|
|
328
|
|
|
|
(75
|
)
|
Prepaid expenses
|
|
|
(33,261
|
)
|
|
|
(9,130
|
)
|
Due from related
parties
|
|
|
1,413
|
|
|
|
–
|
|
Advances receivable
|
|
|
–
|
|
|
|
25,000
|
|
Accounts payable
and accrued liabilities
|
|
|
(76,292
|
)
|
|
|
(48,298
|
)
|
Due
to related parties
|
|
|
(191,868
|
)
|
|
|
(6,424
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Used In Operating Activities
|
|
|
(1,080,514
|
)
|
|
|
(334,187
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash acquired on
acquisition of subsidiary
|
|
|
–
|
|
|
|
50,064
|
|
Purchase
of property and equipment
|
|
|
(25,784
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used In) Investing Activities
|
|
|
(25,784
|
)
|
|
|
50,064
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of common stock
|
|
|
1,880,500
|
|
|
|
–
|
|
Proceeds from related
parties
|
|
|
–
|
|
|
|
15,573
|
|
Repayments to related
parties
|
|
|
(298,931
|
)
|
|
|
(140,144
|
)
|
Repayment of loan
payable
|
|
|
(20,000
|
)
|
|
|
–
|
|
Proceeds
from share subscriptions received
|
|
|
–
|
|
|
|
650,000
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
1,561,569
|
|
|
|
525,429
|
|
|
|
|
|
|
|
|
|
|
Effect
of Foreign Exchange Rate Changes on Cash
|
|
|
(98,102
|
)
|
|
|
(181,045
|
)
|
|
|
|
|
|
|
|
|
|
Increase in Cash
|
|
|
357,169
|
|
|
|
60,261
|
|
|
|
|
|
|
|
|
|
|
Cash, Beginning of Period
|
|
|
40,108
|
|
|
|
1,270
|
|
|
|
|
|
|
|
|
|
|
Cash, End of Period
|
|
|
397,277
|
|
|
|
61,531
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Convertible
debentures settled with common stock
|
|
|
–
|
|
|
|
1,606,419
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
–
|
|
|
|
–
|
|
Income
taxes paid
|
|
|
–
|
|
|
|
–
|
|
The
accompanying notes are an integral part of these c
ondensed consolidated financial statements
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
1.
|
Nature
of Operations and Continuance of Business
|
The
accompanying interim condensed consolidated financial statements of Pacific Green Technologies Inc. (the “Company”)
should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities
and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016. In the opinion
of management, the accompanying condensed consolidated financial statements reflect all adjustments of a recurring nature considered
necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the
periods shown.
The
preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could
differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative
of the results to be expected for the full year.
These
condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders and note holders, the ability of the Company to
obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations. As at September
30, 2016, the Company has not generated any revenues, has a working capital deficit of $10,717,376, and has an accumulated deficit
of $61,626,219 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going
concern. These condensed consolidated financial statements do not include any adjustments to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern.
2.
|
Significant
Accounting Policies
|
|
(a)
|
Principles
of Consolidation
|
These
condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally
accepted in the United States, and are expressed in U.S. dollars. These condensed consolidated financial statements include the
accounts of the Company and the following entities:
|
Pacific
Green Technologies Marine Limited (PGTML)
|
|
Wholly-owned
subsidiary
|
|
Pacific
Green Technologies International Limited (“PGTIL”)
|
|
Wholly-owned
subsidiary
|
|
Energy
Park Sutton Bridge Ltd. (“EPSB”)
|
|
Wholly-owned
subsidiary of PGTIL
|
|
Pacific
Green Technologies Asia Limited ("PGTA")
|
|
Wholly-owned
subsidiary of PGTIL
|
|
Pacific
Green Technologies China Limited ("PGTC")
|
|
Wholly-owned
subsidiary of PGTA
|
All
inter-company balances and transactions have been eliminated.
|
(b)
|
Financial
Instruments
|
ASC
820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the
fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes
the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
2.
|
Significant
Accounting Policies
(continued)
|
|
(b)
|
Financial
Instruments (continued)
|
The
Company’s financial instruments consist principally of cash, VAT receivable, amounts due from and to related parties, accounts
payable and accrued liabilities, loan payable, convertible debentures, and note payable. With the exception of long-term note
payable, the recorded values of all other financial instruments approximate their current fair values because of their nature
and respective maturity dates or durations.
The
following table represents assets and liabilities that are measured and recognized at fair value as of September 30, 2016, on
a recurring basis:
|
|
|
Level
1
$
|
|
|
Level
2
$
|
|
|
Level
3
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
397,277
|
|
|
|
–
|
|
|
|
–
|
|
|
Derivative
liabilities
|
|
|
–
|
|
|
|
482,908
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
397,277
|
|
|
|
482,908
|
|
|
|
–
|
|
During
the period ended September 30, 2016, the Company recognized a gain on change in fair value of derivative liabilities of $333,308
(2015 - loss of $1,057,818).
Certain
of the figures presented for comparative purposes have been reclassified to conform to the presentation adopted in the current
period.
|
(d)
|
Recent
Accounting Pronouncements
|
In
April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, “Interest – Imputation
of Interest: Simplifying the Presentation of Debt Issuance Costs” ("ASU 2015-03"), which resulted in the reclassification
of debt issuance costs from “Other Assets” to inclusion as a reduction of the debt balance. The Company adopted ASU
2015-03 during the three months ended June 30, 2016, with full retrospective application as required by the guidance. The application
of this standard did not have a material impact on the Company's consolidated balance sheet or operations for any period presented.
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements
and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
|
|
|
Cost
$
|
|
|
Accumulated
amortization
$
|
|
|
Impairment
$
|
|
|
September
30,
2016
Net carrying value
$
|
|
|
March
31,
2016
Net carrying value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and technical information
|
|
|
35,852,556
|
|
|
|
(3,466,652
|
)
|
|
|
(20,457,255
|
)
|
|
|
11,928,649
|
|
|
|
12,366,555
|
|
On
May 17, 2013, the Company entered into an Assignment of Assets agreement with EnviroTechnologies, Inc. (“Enviro”),
whereby the Company acquired various patents and technical information related to the manufacture of a wet scrubber for removing
sulphur, other pollutants, and the particulate matter from diesel engine exhaust. In exchange for these assets, the Company waived
all obligations owing to the Company as well as agreed to return a total of 88,876,443 of Enviro’s shares back to Enviro.
The obligations waived consisted of $237,156 owing to the Company as well as $93,721 of debt owing to Pacific Green Group Limited
(“PGG”), which was assigned to the Company. The Company entered into share exchange agreements with Enviro shareholders
in which it issued shares of its common stock in exchange for shares of Enviro on a one-for-ten basis. The intangible assets acquired
were recorded at cost and is being amortized using the straight-line method over the estimated useful life of 17 years.
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
As
at September 30, 2016, PGTIL, the Company’s wholly owned subsidiary, owes $546,153 (£419,586) (March 31, 2016 - $625,574
(£435,000)) to a director of the Company, which is non-interest bearing, unsecured, and due on demand.
5.
|
Convertible
Debentures
|
|
(a)
|
On
May 27, 2014, the Company entered into a $200,000 convertible debenture with a non-related
party. Under the terms of the debenture, the amount is unsecured, bears interest at 10%
per annum, and is due on May 27, 2015. Pursuant to the agreement, should any portion
of the loan remain outstanding past maturity, the interest rate will increase to 15%
per annum. The note is convertible into shares of common stock 180 days after the date
of issuance (November 27, 2014) until maturity at a conversion rate of 75% of the average
closing bid prices of the Company’s common stock for the 45 days ending one trading
day prior to the date the conversion notice is sent by the holder to the Company.
|
The
Company analyzed the conversion option under ASC 815, “Accounting for Derivative Instruments and Hedging Activities”
(“ASC 815”), and determined that the conversion feature should be classified as a liability and recorded at fair value
due to there being no explicit limit to the number of shares to be delivered upon settlement of the conversion option. In accordance
with ASC 815, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $33,922. On November
27, 2014, the note became convertible resulting in the Company recording a derivative liability of $33,922 with a corresponding
adjustment to loss on change in fair value of derivative liabilities. During the six months ended September 30, 2016, the Company
had accreted $nil (2015 - $12,820) of the debt discount to interest expense. On May 4, 2015, the Company issued 1,058,317 shares
of common stock for the conversion of $200,000 of this debenture and $18,888 of accrued interest.
|
(b)
|
On
June 12, 2014, the Company entered into a $100,000 convertible debenture with a non-related
party. Under the terms of the debenture, the amount is unsecured, bears interest at 10%
per annum, and is due on June 12, 2015. Pursuant to the agreement, should any portion
of the loan remain outstanding past maturity, the interest rate will increase to 15%
per annum. The note is convertible into shares of common stock 180 days after the date
of issuance (December 12, 2014) until maturity at a conversion rate of 75% of the average
closing bid prices of the Company’s common stock for the 45 days ending one trading
day prior to the date the conversion notice is sent by the holder to the Company.
|
The
Company analyzed the conversion option under ASC 815, and determined that the conversion feature should be classified as a liability
and recorded at fair value due to there being no explicit limit to the number of shares to be delivered upon settlement of the
conversion option. In accordance with ASC 815, the Company recognized the intrinsic value of the embedded beneficial conversion
feature of $9,793. On December 12, 2014, the note became convertible resulting in the Company recording a derivative liability
of $9,793 with a corresponding adjustment to loss on change in fair value of derivative liabilities. During the six months ended
September 30, 2016, the Company had accreted $nil (2015 - $1,637) of the debt discount to interest expense. On May 13, 2015, the
Company issued 459,418 shares of common stock for the conversion of $100,000 of this debenture and $7,796 of accrued interest.
|
(c)
|
On
November 10, 2015, the Company entered into a $110,000 convertible debenture with a non-related
party, in exchange for $100,000, net of $10,000 for legal fees which have been deferred
and will be amortized over the term of the debenture. Under the terms of the debenture,
the amount is unsecured, bears one-time guaranteed interest at 10%, and is due on November
10, 2016. The note is convertible into shares of common stock of the Company equal to
the lower of: (a) $0.40 or (b) 60% of the lowest trading price of the Company’s
common stock during the 20 consecutive trading days prior to the date of conversion.
As at September 30, 2016, the Company recorded accrued interest of $11,000 (March 31,
2016 - $11,000), which has been included in accounts payable and accrued liabilities.
|
The
Company analyzed the conversion option under ASC 815, and determined that the conversion feature should be classified as a liability
and recorded at fair value due to there being no explicit limit to the number of shares to be delivered upon settlement of the
conversion option. In accordance with ASC 815, the Company recognized the intrinsic value of the embedded beneficial conversion
feature of $110,000. During the six months ended September 30, 2016, the Company had accreted $56,491 (2015 - $nil) of the debt
discount to interest expense. As at September 30, 2016, the carrying value of the debenture was $61,473 (March 31, 2016 - $4,982)
and the fair value of the derivative liability was $482,908 (March 31, 2016 - $816,216).
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
6.
|
Derivative
Liabilities
|
The
Company records the fair value of the conversion price of the convertible debentures disclosed in Note 5 in accordance with ASC
815. The fair value of the derivative liabilities was calculated using a binomial option pricing model. The fair value of the
derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated
statement of operations. During the six months ended September 30, 2016, the Company recorded a gain on the change in fair value
of derivative liabilities of $333,308 (2015 - loss of $1,057,818). As at September 30, 2016, the Company recorded derivative liabilities
of $482,908 (March 31, 2016 - $816,216).
The
following inputs and assumptions were used to fair value the convertible debenture outstanding during the six months ended September
30, 2016:
|
|
|
November
10, 2015
Convertible Debenture
|
|
|
|
|
As
at
September 30,
2016
|
|
|
As
at
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Estimated common stock issuable upon
extinguishment
|
|
|
302,500
|
|
|
|
302,500
|
|
|
Estimated exercise price per common share
|
|
|
0.40
|
|
|
|
0.40
|
|
|
Risk-free interest rate
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
Expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
|
Expected volatility
|
|
|
90
|
%
|
|
|
250
|
%
|
|
Expected
life (in years)
|
|
|
0.11
|
|
|
|
0.61
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
|
$
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
|
816,216
|
|
|
|
|
|
|
|
|
Mark-to-market
adjustment
|
|
|
(333,308
|
)
|
|
|
|
|
|
|
|
Balance, September 30,
2016
|
|
|
482,908
|
|
|
|
|
September 30,
2016
$
|
|
|
March
31,
2016
$
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
4,786,493
|
|
|
|
4,479,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of unamortized discount
|
|
|
103,502
|
|
|
|
306,641
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
4,889,995
|
|
|
|
4,786,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(4,889,995
|
)
|
|
|
(3,967,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion
|
|
|
–
|
|
|
|
819,493
|
|
The
principal repayments of the note payable are as follows:
|
|
|
$
|
|
|
|
|
|
|
|
Due on demand
|
|
|
4,000,000
|
|
|
June 12, 2017
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
On
June 14, 2012, the Company entered into an Assignment and Share Transfer Agreement with PGG, a company controlled by a shareholder
of the Company who has a significant influence on the Company’s operations, concerning the assignment of the Representation
Agreement entered between PGG and Enviro and the purchase of 100% of the issued and outstanding common shares of PGT Limited,
a subsidiary of PGG, in exchange for an aggregate of 5,000,000 shares of common stock as well as a $5,000,000 promissory note.
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
7.
|
Note
Payable
(continued)
|
The
note payable will be repaid in instalments of $1,000,000 on the anniversary of the agreement beginning on June 12, 2013 with the
income earned under the terms of the Representation Agreement. If the Company is unable to meet the repayment schedule, PGG will
have the option to either roll over any unpaid portion to the following payment date or to convert the outstanding amount into
shares of the Company’s stock. The note had been discounted at a market rate of 18% to arrive at the net present value of
$3,127,171 as at June 12, 2012. The note is unsecured and cannot itself be used by PGG to cause the Company to become insolvent.
During the six months ended September 30, 2016, the Company recorded imputed interest of $450,000 (2015 - $450,000), at a rate
of 18% per annum, which has been included in additional paid-in capital.
8.
|
Related
Party Transactions
|
|
(a)
|
As
at September 30, 2016, the Company was owed $38,077 (March 31, 2016 - $38,506) from a
company controlled by a shareholder of the Company who has a significant influence on
the Company's operations. The amounts owed are unsecured, non-interest bearing, and due
on demand.
|
|
(b)
|
As
at September 30, 2016, the Company was owed $11,257 (March 31, 2016 – $11,257)
from a director of the Company. The amount owing is unsecured, non-interest bearing,
and due on demand.
|
|
(c)
|
As
at September 30, 2016, the Company was owed $nil (March 31, 2016 - $984) from a shareholder
of the Company who has a significant influence in the Company's operations. The amount
owing is unsecured, non-interest bearing, and due on demand.
|
|
(d)
|
As
at September 30, 2016, the Company owed $4,383,768 (March 31, 2016 – $4,862,555)
to a company controlled by a shareholder of the Company who has a significant influence
on the Company's operations. The amounts owing are unsecured, non-interest bearing, and
due on demand. On July 20, 2015, the Company entered into a conversion agreement with
this company, whereby up to $1,000,000 in outstanding amounts may be converted at a rate
of $0.70 per share for a 12 month period between July 20, 2016 and July 20, 2017. The
Company determined that the convertible debt contained no embedded beneficial conversion
feature as the conversion price was the same as the fair market value of the Company’s
common stock on the date of issuance.
|
|
(e)
|
As
at September 30, 2016, the Company owed $1,692 (March 31, 2016 – $38,430) to a
shareholder of the Company who has a significant influence on the Company's operations.
Of this amount, $nil (March 31, 2016 - $20,765) is unsecured, bears interest at the US
Bank Prime Rate plus 4%, and due on demand. The remainder of the amount owing is unsecured,
non-interest bearing, and due on demand.
|
|
(f)
|
As
at September 30, 2016, the Company owed $103,719 (March 31, 2016 – $124,264) to
directors of the Company, of which $13,015 (March 31, 2016 - $nil) was recorded in accounts
payable and accrued liabilities. The amounts owing are unsecured, non-interest bearing,
and due on demand.
|
|
(g)
|
During
the six months ended September 30, 2016, the Company incurred $120,000 (2015 –
$120,000) in consulting fees to a company controlled by a shareholder of the Company
who has a significant influence on the Company's operations.
|
|
(h)
|
During
the six months ended September 30, 2016, the Company incurred $120,840 (2015 –
$3,063) in consulting fees to companies controlled by directors of the Company.
|
|
(i)
|
During
the six months ended September 30, 2016, the Company incurred $nil (2015 - $2,361) in
consulting fees to a director of the Company.
|
|
(a)
|
On
April 30, 2016, the Company issued 246,667 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $370,000.
|
|
(b)
|
On
May 19, 2016, the Company issued 150,000 shares of common stock to a director of the
Company relating to a non-brokered private placement at a price of $1.00 per share for
proceeds of $150,000, which was recorded as common stock issuable as at March 31, 2016.
|
|
(c)
|
On
May 21, 2016, the Company issued 97,334 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $146,000.
|
|
(d)
|
On
May 24, 2016, the Company issued 161,667 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $242,500.
|
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
|
9.
|
Common
Stock
(continued)
|
|
(e)
|
On
July 12, 2016, the Company issued 98,000 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $147,000.
|
|
(f)
|
On
July 14, 2016, the Company issued 50,000 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $75,000.
|
|
(g)
|
On
September 12, 2016, the Company issued 33,333 shares of common stock relating to a non-brokered
private placement at a price of $1.50 per share for proceeds of $50,000, which was received
on October 26, 2016. Refer to Note 14(b).
|
|
(h)
|
As
at September 30, 2016, the Company had $900,000 in common stock issuable for the issuance
of 600,000 shares of common stock at $1.50 per share.
|
10.
|
Share
Purchase Warrants
|
|
|
|
Number
of
warrants
|
|
|
Weighted
average exercise price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31 and
September 30, 2016
|
|
|
934,963
|
|
|
|
0.001
|
|
As
at September 30, 2016, the following share purchase warrants were outstanding:
|
Number
of warrants outstanding
|
|
|
Exercise
price
$
|
|
|
Expiry
date
|
|
|
|
|
|
|
|
|
|
|
|
|
934,963
|
|
|
|
0.001
|
|
|
January
8, 2018
|
The
following table summarizes the continuity of stock options:
|
|
|
Number
of
options
|
|
|
Weighted
average exercise price
$
|
|
|
Weighted
average remaining contractual life (years)
|
|
|
Aggregate
intrinsic value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
|
1,529,167
|
|
|
|
1.15
|
|
|
|
0.7
|
|
|
|
2,833,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,166,667
|
)
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30,
2016
|
|
|
362,500
|
|
|
|
0.01
|
|
|
|
1.8
|
|
|
|
721,375
|
|
Additional
information regarding stock options outstanding as at June 30, 2016 is as follows:
|
|
|
|
Outstanding
and exercisable
|
|
|
Range
of
exercise prices
$
|
|
|
Number
of shares
|
|
|
Weighted
average remaining contractual life (years)
|
|
|
Weighted
average
exercise price
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
362,500
|
|
|
|
1.8
|
|
|
|
0.01
|
|
12.
|
Segmented
Information
|
The
Company is located and operates in the US and its subsidiaries are primarily located and operating in the United Kingdom and China.
All non-current assets are located in the US.
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
|
(a)
|
On
May 1, 2010, the Company entered into consulting agreements with Sichel Limited (“Sichel”),
the parent company of PGG. Sichel will assist the Company in developing commercial agreements
for green technology and the building of an international distribution centre. Effective
December 31, 2013, this consulting agreement was assigned to Pacific Green Development
Ltd., a company controlled by a shareholder of the Company who has a significant influence
in the Company's operations. The agreement shall continue for four years with consideration
as follows:
|
|
i)
|
Stock
consideration to PGG or to any third party as directed by PGG of 5,000 ordinary shares
of common stock of the Company upon signing of the agreement, which have been waived
by PGG;
|
|
ii)
|
Monthly
consultancy fees of $20,000 are to be paid within fourteen days of each month-end. If
the Company is unable to pay this fee, then PGG has the option to elect to be paid 5,000
shares of common stock of the Company in lieu of cash;
|
|
iii)
|
Sales
commission of 10% of sales value excluding shipping and local sales taxes; and
|
|
iv)
|
Finance
commission of 10% of net proceeds of any funds raised by way of issued of stock, debt
or convertible note after any brokers commission as introduced by PGG.
|
|
(b)
|
On
May 15, 2013, the Company entered into an acquisition agreement to acquire 100% of the
issued and outstanding shares of PGTIL. PGTIL plans to develop a biomass power plant
facility. As part of the acquisition agreement, the Company is required to issue $3,000,000
payable in shares of common stock in the event of PGTIL either purchasing the property
or securing a lease permitting PGTIL to operate a biomass power plant facility. The Company
is also required to issue $33,000,000 payable in shares of common stock in the event
of PGTIL securing sufficient financing for the construction of the facility.
|
|
(c)
|
On
November 17, 2015, PGTC entered into a commercial joint venture agreement (the “Agreement”)
with a non-related party (the "Supplier") wherein the Supplier would receive
and process orders, manufacture, and install products for the Company's customers. In
return, the Company agreed to design the product and provide a technology license and
technical support (the "Technology") to the Supplier. During the term of the
Agreement, the Company will provide the Supplier with a non-transferrable right and license
to use the Technology to manufacture and install the product within the Peoples’
Republic of China.
|
Upon
receiving each order from the Company, the Supplier and the Company shall submit to each other the respective estimated budgets.
For each project, after receipt of the revenue from the relevant customer, the expenses of the Company and the Supplier shall
be deducted and reimbursed from the revenue proportionally. The parties have agreed to share the gross profits at an even split
of 50% each.
|
(d)
|
On
August 4, 2016, the Company entered into a three year lease agreement commencing November
15, 2016. The minimum lease payments over the term of the lease are as follows:
|
|
Year
|
|
$
|
|
|
|
|
|
|
|
|
2016
|
|
|
7,389
|
|
|
2017
|
|
|
57,740
|
|
|
2018
|
|
|
60,539
|
|
|
2019
|
|
|
54,868
|
|
|
|
|
|
|
|
|
|
|
|
180,536
|
|
PACIFIC
GREEN TECHNOLOGIES INC.
Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Expressed
in U.S. Dollars)
(unaudited)
|
13.
|
Commitments
(continued)
|
|
(e)
|
On
August 31, 2016, the Company entered into a six month marketing agent agreement with
an unrelated party (the “Agent”) effective September 1, 2016, to appoint
the Agent as the Company’s marketing representative for introducing products to
appropriate parties in India. Consideration for the Agent’s services are as follows:
|
|
i)
|
Monthly
fees of A$5,000 per month from September 1, 2016 for the duration of the term plus travel
and entertainment expenses
|
|
ii)
|
A
payment of A$100,000 upon signing of a joint venture agreement between the Company and
an Indian customer able to distribute, manufacture and sell the products in India. Additionally,
upon signing of a joint venture agreement, the Company will grant options to purchase
100,000 common shares of the Company at a 20% discount to the price at the time of the
signing of a joint venture agreement, exercisable within 24 months
|
|
iii)
|
10%
of net revenue received by the Company in the 12 months period following the signing
of the joint venture agreement and 5% of net revenue received by the Company in the 12
months following the initial 12 month period
|
|
iv)
|
A
commission equal to 3% of the net revenue actually collected for the sale of the products
to any client outside of the Indian joint venture agreement
|
|
v)
|
5%
of any funds received from equity investors in the Company’s common stock following
a direct introduction from the Agent for the first $2.5 million raised and 3% thereafter
up to a maximum of $25 million raised
|
|
(a)
|
On
October 5, 2016, the Company received share subscription proceeds of $150,000 for shares
of common stock at a price of $1.75 per share relating to a non-brokered private placement.
|
|
(b)
|
On
October 26, 2016, the Company received share subscription proceeds of $50,000 for shares
of common stock at a price of $1.50 per share relating to a non-brokered private placement,
which was recorded as share subscriptions receivable as at September 30, 2016.
|
|
(c)
|
On
October 28, 2016, the Company received share subscription proceeds of $300,000 for shares
of common stock at a price of $1.50 per share relating to a non-brokered private placement.
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING
STATEMENTS
This
quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such as “could”, “may”, “will”,
“should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”,
“predict”, “potential” or the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United
States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
Our
unaudited consolidated financial statements are stated in U.S. dollars and are prepared in accordance with generally accepted
accounting principles in the United States. The following discussion should be read in conjunction with our financial statements
and the related notes that appear elsewhere in this quarterly report.
As
used in this current report and unless otherwise indicated, the terms “we”, “us”, “our” and
“our company” mean Pacific Green Technologies Inc., a Delaware corporation, and our wholly owned subsidiaries, Pacific
Green Technologies Limited, a United Kingdom corporation, Pacific Green Energy Parks Limited, a British Virgin Islands corporation,
and its wholly owned subsidiary, Energy Park Sutton Bridge, a United Kingdom corporation, unless otherwise indicated.
Corporate
History
Our
company was incorporated in Delaware on March 10, 1994, under the name of Beta Acquisition Corp. In September 1995, we changed
our name to In-Sports International, Inc. In August 2002, we changed our name from In-Sports International, Inc. to ECash, Inc.
In 2007, due to limited financial resources, we discontinued our operations. Over the course of the last five years, we have sought
new business opportunities.
On
June 13, 2012, we changed our name to Pacific Green Technologies Inc. and effected a reverse split of our common stock following
which we had 27,002 shares of common stock outstanding with $0.001 par value.
Effective
December 4, 2012, we filed with the Delaware Secretary of State a Certificate of Amendment of Certificate of Incorporation, wherein
we increased our authorized share capital to 510,000,000 shares of stock as follows:
|
●
|
500,000,000
shares of common stock with a par value of $0.001; and
|
|
|
|
|
●
|
10,000,000
shares of preferred stock with a par value of $0.001.
|
The
increase of authorized capital was approved by our board of directors on July 1, 2012 and by a majority of our stockholders by
a resolution dated July 1, 2012.
Effective
November 1, 2016, Mr. Jordan Starkman resigned as a Director and, if any, from all offices of our company. Mr. Starkman’s
resignation was not the result of any disagreements with our company regarding our operations, policies, practices or otherwise.
Our board of directors now consists of Andrew Jolly, Alexander Shead and Neil Carmichael.
Historical
Business Overview
On
May 1, 2010 we entered into a consulting agreement with Sichel Limited. Sichel has investigated new opportunities for us and has
subscribed for new shares of our company’s common stock. The consulting agreement entitles Sichel to $20,000 per calendar
month. With an effective date of March 31, 2013, the consulting agreement, along with all amounts owed to Sichel, were assigned
to Pacific Green Group Limited (“
PGG
”). As at December 31, 2014, we owed Sichel $nil and we owed PGG $5,223,110.
Pursuant to the terms of the consulting agreement, if we are unable to pay the monthly consulting fee, PGG may elect to be paid
in shares of stock, and if we are unable to make payments for more than six months in any 12 month period, PGG has the right to
appoint an officer or director to the board, which right has not been exercised at this time.
New
Strategy
Management,
assisted by PGG, has identified an opportunity to build a business focused on marketing, developing and acquiring technologies
designed to improve the environment by reducing pollution. To this end we entered into and closed an assignment and share transfer
agreement, on June 14, 2012, for the assignment of a representation agreement and the acquisition of a company involved in the
environmental technology industry.
The
assignment and share transfer agreement provided for the acquisition of 100% of the issued and outstanding shares of Pacific Green
Technologies Limited, formerly PGG’s subsidiary in the United Kingdom. Additionally, PGG assigned to our company a ten year
exclusive worldwide representation agreement with EnviroTechnologies Inc., (formerly EnviroResolutions, Inc.), a Delaware corporation,
to market and sell EnviroTechnologies’ current and future environmental technologies. The representation agreement entitles
PGG to a commission of 20% of all sales (net of taxes) generated by EnviroTechnologies. Pursuant to the terms of the assignment
and share transfer agreement, all rights and obligations under the representation agreement have been transferred to our company.
We currently anticipate that sales under the representation agreement will be our sole source of revenue for the foreseeable future.
We had intended to complete an acquisition of EnviroTechnologies, as this would have been a logical step in our development. However,
as discussed herein, we have settled with EnviroTechnologies as an alternative.
Both
Sichel and PGG are wholly owned subsidiaries of the Hookipia Trust. PGG’s wholly owned subsidiary was Pacific Green Technologies
Limited. As a result, we acquired Pacific Green Technologies Limited from PGG. Sichel is a significant shareholder of our company
and also provides us with consulting services. The sole director of Sichel is also the sole director of PGG. Further, PGG is a
significant shareholder of EnviroTechnologies.
The
assignment and share transfer agreement closed on June 14, 2012 via the issuance of 5,000,000 shares of our common stock as well
as a $5,000,000 promissory note to PGG. We have consequently undertaken the operations of Pacific Green Technologies Limited and
PGG’s obligations under the representation agreement.
Full
consideration contemplated by the assignment and share transfer agreement was $25,000,000 satisfied through the issue of 5,000,000
new shares of our common stock at a price of $4 per share with the balance of $5,000,000 structured as a promissory note over
the next five years as follows:
|
●
|
June
12, 2013, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
|
|
|
|
|
●
|
June
12, 2014, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
|
|
|
|
|
●
|
June
12, 2015, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
|
|
|
|
|
●
|
June
12, 2016, $1,000,000 (which remains outstanding and has been rolled over to the following payment date); and
|
|
|
|
|
●
|
June
12, 2017, $1,000,000.
|
Under
the terms of the promissory note, the loan repayments specified above shall not exceed the amount we earn under the terms of the
representation agreement. If we are unable to meet the repayment schedule set out above, PGG will have the option to either roll
over any unpaid portion to the following payment date or to convert the outstanding amount into new shares of our common stock.
However, the entire amount of the promissory note is due upon the maturity date on the fifth anniversary. The promissory note
is unsecured.
The
total consideration of $25,000,000 was a purchase price not determined under U.S. GAAP, and both the $25,000,000 total price and
the deemed price of $4 per share does not represent the fair value of the stock issued or a value used in accounting for the acquisition.
The number of shares issued and the terms of the promissory note were negotiated between the parties and are intended to represent
full consideration for the acquisition of Pacific Green Technologies Limited and the representation agreement.
Other
Business Matters
Effective
December 18, 2012, we entered into a non-executive director agreement with Dr. Neil Carmichael, wherein Dr. Carmichael will receive
compensation of $1,000 per year for the term of the agreement and was granted options to purchase up to 62,500 shares of common
stock at an exercise price of $0.01 per share of common stock. The options will terminate the earlier of 24 months, or upon the
termination of the agreement and Dr. Carmichael’s engagement with our company. The director agreement and related options
are in the process of being renewed. As of the date of this quarterly report, the options issued to Dr. Carmichael have not been
exercised.
On
April 3, 2013, we entered into and closed a share exchange agreement with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreement, we agreed to acquire 17,653,872 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for the issuance of 1,765,395 shares of the common stock of our company. We issued an aggregate
of 1,765,395 common shares to 47 shareholders.
On
April 25, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreement, we agreed to acquire 6,682,357 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for the issuance of 668,238 shares of common stock of our company. We issued an aggregate of
668,238 common shares to 20 shareholders.
On
May 15, 2013, we entered into and closed a stock purchase agreement with all five of the shareholders of Pacific Green Energy
Parks Limited (“PGEP”), a company incorporated in the British Virgin Islands. PGEP is the sole shareholder of Energy
Park Sutton Bridge Limited, a company incorporated in the United Kingdom. PGEP is developing a biomass power plant facility and
holds an option to purchase the real property upon which the facility will be built.
Pursuant
to the stock purchase agreement, we agreed to acquire all of the 1,752 issued and outstanding common shares of PGEP from the shareholders
in exchange for:
|
1.
|
a
payment of $100 upon execution of the stock purchase agreement, which has been paid by us;
|
|
|
|
|
2.
|
$14,000,000
paid in common shares in our capital stock at a deemed price at the lower of $4 per share or the average closing price per
share of our capital stock in the ten trading days immediately preceding the date of closing of the stock purchase agreement,
which have been issued by us;
|
|
|
|
|
3.
|
$3,000,000
payable in common shares of our capital stock at a deemed price at the lower of $4 per share or the average closing price
per share of our capital stock in the ten trading days immediately preceding the date upon which PGEP either purchases the
property or secures a lease permitting PGEP to operate the facility on the property, which has not yet occurred; and
|
|
|
|
|
4.
|
subject
to leasing or purchasing the property and PGEP securing sufficient financing for the construction of the facility, $33,000,000
payable in common shares of our capital stock at a deemed price at the lower of $4 per share or the average closing price
per share of our capital stock in the ten trading days immediately preceding the date that PGEP secures sufficient financing
for the construction of the facility, which has not yet occurred.
|
All
consideration from our company to the shareholders has been and will be issued on a pro-rata, pari-passu basis in proportion to
the respective number of shares of PGEP sold by each respective shareholder. On May 15, 2013, pursuant to the stock purchase agreement,
we issued an aggregate of 3,500,000 common shares, at an agreed upon deemed price of $4 per share, to the five shareholders.
Pacific
Green Energy Parks Limited and its wholly owned subsidiary, Energy Park Sutton Bridge, are now subsidiaries of our company.
On
May 17, 2013, we entered into a debt settlement agreement with EnviroTechnologies and EnviroResolutions (collectively, the “
Debtors
”).
Pursuant to the terms of the debt settlement agreement, we agreed to release and waive all obligations of the Debtors to repay
debts, in the aggregate of $293,406 and CAD$38,079, to us and agreed to return an aggregate of 88,876,443 common shares of EnviroTechnologies
to EnviroResolutions. The 88,876,443 common shares of EnviroTechnologies were returned as of June 30, 2016. As consideration for
this release and waiver and return of shares, the Debtors agreed to transfer all rights, interests and title to certain intellectual
property, the physical embodiments of such intellectual property, and to the supplemental agreement dated March 5, 2013 among
EnviroResolutions, PREL and Green Energy Parks Limited (“
GEPL
”) (collectively, the “
Debtors’
Assets
”).
The
Debtors’ Assets include the intellectual property rights throughout most of the world for the
ENVI-Clean™
system, the ENVI-Pure™ system and the ENVI-SEA™ scrubber.
The ENVI-Clean™ system removes most of
the sulphur dioxide, particulate matter, greenhouse gases and other hazardous air pollutants from the flue gases produced by the
combustion of coal, biomass, municipal solid waste, diesel and other fuels. The ENVI-Pure™ emission system combines the
ENVI-Clean™ highly effective patent-pending wet scrubbing technology with an innovative wet electrostatic precipitator and
a granular activated carbon adsorber to remove particulate matter, acid gases, regulated metals, dioxins and VOCs from the flue
gas to levels significantly below those required by strictest international regulations. The ENVI-SEA™ scrubber can be applied
to diesel exhaust emissions that require sulphur and particulate matter abatement. Using seawater on a single-pass basis as the
scrubbing fluid in combination with its patent pending scrubbing head will provide a highly interactive zone of turbulent mixing
for absorption of SO
2
, particulate matter and other pollutants from the engine’s exhaust.
The
following is a brief description of further terms and conditions of the debt settlement agreement that are material to our company:
|
1.
|
We
pay 25% of all funds, if any, received under the supplemental agreement to the Debtors within 14 days upon receipt of funds,
if any, pursuant to the supplemental agreement;
|
|
|
|
|
2.
|
We
enter into definitive agreements with the Debtors to:
|
|
a.
|
license
the Debtors’ Assets back to the Debtors, under arm’s length commercial terms, for use in the USA and Canada, with
the exception of NRG Energy, Inc. and Edison Mission and affiliates; and
|
|
|
|
|
b.
|
have
the Debtors provide engineering services to us on terms to be agreed upon, acting reasonably;
|
|
3.
|
The
Debtors pay pro-rata any third party broker fees and legal fees, if any, that are subsequent costs associated with the Supplemental
Agreement; and
|
|
|
|
|
4.
|
the
Debtors retain possession of, yet make a pilot-scale scrubber available for rental to our company at a nominal cost.
|
On
June 11, 2013, we submitted 24,336,229 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant to
our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
Pursuant
to a debt settlement agreement dated May 17, 2013 among our company, EnviroTechnologies and EnviroResolutions, on November 22,
2013, our company was transferred a 40% shareholding in PREL by GEPL (who had, prior to this transfer, held all the issued and
outstanding shares of PREL). PREL is a limited liability company incorporated under the laws of the United Kingdom.
PREL
was incorporated by GEPL to develop a 79MWe waste to energy power station at Peterborough, United Kingdom (the “
Peterborough
Plant
”). The Peterborough Plant has full planning permission at 79MWe and environmental agency permits. It is understood
that the Peterborough Plant will be built in two stages at a total capital cost of approximately GBP£500 million (approximately
US$824,534,442). As of May 17, 2013, PREL owned 20% of Energy Park Investments Limited, the holding company that is currently
intended to finance the development of the Peterborough Plant in turn through its wholly owned operating subsidiary Energy Park
Peterborough Limited.
On
June 17, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreements we acquired 8,061,286 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for the issuance of 806,132 shares of common stock of our company. We issued as aggregate of
806,132 shares of common stock to 19 shareholders.
On
August 6, 2013, we entered into two share exchange agreements with two shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we acquired 440,000 issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange
for shares of common stock of our company on a 1 for 10 basis. Pursuant to the terms of the other agreement, we acquired 600,000
issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange for shares of common stock of our
company on a 1 for 15 basis.
On
August 27, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we acquired 32,463,489 issued and outstanding common shares of EnviroTechnologies from the shareholders in
exchange for shares of common stock of our company on a 1 for 10 basis.
On
September 13, 2013, we submitted 41,564,775 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant
to our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
On
September 26, 2013, we entered into an agreement with Andrew Jolly, wherein Dr. Jolly agreed to serve as a director of our company.
Pursuant to the agreement, our company is to compensate Dr. Jolly for serving as a director of our company at GBP£2,000
(approximately $3,235) per calendar month. Effective October 1, 2013, we appointed Dr. Jolly as a director of our company. Effective
September 1, 2014, the monthly fee for Mr. Jolly was reduced to GBP£1,000 (approximately $1,617).
On
October 11, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we agreed to acquire 674,107 issued and outstanding common shares of EnviroTechnologies from the shareholders
in exchange for shares of common stock of our company on a 1 for 10 basis.
On
December 18, 2013, we announced that our company engaged BlueMount Capital to spearhead the development of its proprietary emission
control technologies, ENVI-Clean™ and ENVI-Pure™, in the People’s Republic of China (“
PRC
”).
In addition to corporate finance advisory services both within and outside China, BlueMount offers a tailored service to clients
wishing to enter the PRC market with a particular emphasis on companies that own proprietary technology, intellectual property
and expertise. To that end, BlueMount provides a comprehensive suite of services to enhance the effectiveness and long-term sustainability
of foreign brands entering the PRC market via: Our company’s strategic objective is to establish an operating presence in
China with established local partners and rapidly rollout its technologies.
On
December 27, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreements, we acquired 130,000 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for shares of common stock of our company on a 1 for 10 basis. On December 27, 2013, we issued
an aggregate of 13,000 common shares to the shareholders of EnviroTechnologies.
On
January 27, 2014, we entered into an agreement with Pöyry Management Consulting (UK) Limited. Pursuant to the agreement,
Pöyry is to provide consulting services to us. Our company has agreed to compensate Pöyry a minimum of £5,000
(approximately $ 8,293) as consulting fees for the first year of the agreement and a variable hourly rate as set out in the agreement.
On
May 27, 2014, we entered into a $200,000 convertible debenture with Intrawest Overseas Limited. Under the terms of the debenture,
the amount is unsecured, bears interest at 10% per annum, and is due on May 27, 2015. Pursuant to the agreement, should any portion
of loan remain outstanding past maturity the interest will increase to 15% per annum. The note is convertible into shares of common
stock 180 days after the date of issuance (November 27, 2014) until maturity at a conversion rate of 75% of the average offer
price of our company’s common stock for the 45 days ending one trading day prior to the date the conversion notice is sent
by the holder to our company.
Our
company analyzed the conversion option under ASC 815, “Accounting for Derivative Instruments and Hedging Activities”,
and determined that the conversion feature should be classified as a liability and recorded at fair value due to there being no
explicit limit to the number of shares to be delivered upon settlement of the conversion option. In accordance with ASC 815, our
company recognized the intrinsic value of the embedded beneficial conversion feature of $33,922. On November 27, 2014, the note
became convertible resulting in our company recording a derivative liability of $33,922 with a corresponding adjustment to loss
on change in fair value of derivative liabilities.
On
June 12, 2014, we entered into a $100,000 convertible debenture with Gerstle Consulting Pty Limited. Under the terms of the debenture,
the amount is unsecured, bears interest at 10% per annum, and is due on June 12, 2015. Pursuant to the agreement, should any portion
of loan remain outstanding past maturity the interest will increase to 15% per annum. The note is convertible into shares of common
stock 180 days after the date of issuance (December 12, 2014) until maturity at a conversion rate of 75% of the average closing
bid prices of our company’s common stock for the 45 days ending one trading day prior to the date the conversion notice
is sent by the holder to our company.
Our
company analyzed the conversion option under ASC 815, “Accounting for Derivative Instruments and Hedging Activities”,
and determined that the conversion feature should be classified as a liability and recorded at fair value due to there being no
explicit limit to the number of shares to be delivered upon settlement of the conversion option. In accordance with ASC 815, our
company recognized the intrinsic value of the embedded beneficial conversion feature of $9,793. On December 12, 2014, the note
became convertible resulting in our company recording a derivative liability of $9,793 with a corresponding adjustment to loss
on change in fair value of derivative liabilities.
On
June 30, 2015, through our wholly owned subsidiary, Pacific Green Energy Parks Limited, we purchased all of the issued and outstanding
shares in Pacific Green Technologies Asia Limited for $1.00 from Alexander Shead.
We
entered into an agreement dated July 20, 2015 with Mr. Alexander Shead. Pursuant to this agreement, Mr. Shead has agreed to serve
as a director of our company. As a director of our company, Mr. Shead shall be compensated $1,000 for every calendar month of
the term of the agreement. The term of the agreement is for 12 months. On July 20, 2015, we appointed Mr. Shead as a director
of our company.
On
September 22, 2015, our company entered into a consulting agreement (the “
Agreement
”) with Midam Ventures,
LLC (“
Midam
”) wherein Midam will provide investor relations and business advisory services to us from September
23, 2015 to March 23, 2016. Any compensation described in the Agreement shall be deemed earned and vested by Midam even in the
case of early termination of the Agreement.
Pursuant
to the terms of the Agreement, we will to pay $30,000 in cash and 200,000 common restricted shares of our company to Midam. Effective
October 20, 2015, we issued all of the shares pursuant to an exemption from registration relying on the provisions of Rule 506
of Regulation D promulgated under the
Securities Act of 1933
, as amended.
On
October 24, 2015, our company entered into a marketing and consulting agreement with Red Rock Marketing Media, Inc. (“
Red
Rock
”) wherein Red Rock will provide investor relations and business advisory services to us for a period of 40 business
days starting on or before the 10 business days after Red Rock receives compensation from our company. Pursuant to the terms of
the Agreement, we will to pay $100,000 in cash by October 29, 2015.
On
October 27, 2015, our company entered into a loan agreement with a significant shareholder for proceeds of approximately $4,231.
The loan is unsecured, bears an interest rate of US Prime Rate plus 4%, and is due on demand.
On
November 10, 2015,
we issued a convertible note (the “
Note
”) to Tangiers Investment Group, LLC
(“
Tangiers
”) in exchange for an aggregate of $100,000 from Tangiers. The Note is for the aggregate sum of $110,000
with 10% interest as an original issue discount and convertible into our common shares of (the “
Shares
”) at
a price of equal to the lower of: (a) $.40 per common share of our company or (b) 60% of the lowest trading price of our common
stock during the 20 consecutive trading days prior to the date on which the holder of the Note elects to convert all or part of
the Note.
On
November 17, 2015, Pacific Green Technologies China Limited, a wholly-owned subsidiary of our company, entered into a commercial
joint venture agreement with PowerChina SPEM Company Limited (“
PowerChina
”) wherein PowerChina would receive
and process orders from our company for customers, and manufacture and install products as an engineering procurement construction
process. In return, our company agreed to design the product and provide a technology license and technical supports to PowerChina.
During the Agreement, we will provide PowerChina with a non-transferrable right and license to use Technology to manufacture and
install our product within the Peoples’ Republic of China.
Upon
receiving each order from us, PowerChina and we shall submit to each other the respective estimated budgets. For each project,
after receipt of the revenue from the relevant customer, the budgets of our company and PowerChina shall be deducted and reimbursed
from the revenue proportionally. We have agreed to share the gross profit pursuant to an even split of 50% to PowerChina and 50%
to our company.
Results
of Operations
The
following summary of our results of operations should be read in conjunction with our unaudited interim consolidated financial
statements for the three and six months ended September 30, 2016 and 2015.
Our
net loss for the three and six month periods ended September 30, 2016 and 2015 are summarized as follows:
|
|
Three
Months Ended
September 30,
|
|
|
Six
Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Amortization of intangible
assets
|
|
$
|
218,953
|
|
|
$
|
218,953
|
|
|
$
|
437,906
|
|
|
$
|
437,907
|
|
Consulting fees
|
|
$
|
214,045
|
|
|
$
|
243,342
|
|
|
$
|
423,302
|
|
|
$
|
389,592
|
|
Engineering fees
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
228,854
|
|
|
$
|
Nil
|
|
Foreign exchange (gain) loss
|
|
$
|
(41,124
|
)
|
|
$
|
(247,921
|
)
|
|
$
|
(153,058
|
)
|
|
$
|
(178,772
|
)
|
Office and miscellaneous
|
|
$
|
33,830
|
|
|
$
|
20,887
|
|
|
$
|
69,239
|
|
|
$
|
37,153
|
|
Professional fees
|
|
$
|
75,862
|
|
|
$
|
44,586
|
|
|
$
|
140,466
|
|
|
$
|
85,490
|
|
Stock-based compensation
|
|
$
|
Nil
|
|
|
$
|
251,577
|
|
|
$
|
Nil
|
|
|
$
|
251,577
|
|
Transfer agent and filing fees
|
|
$
|
5,309
|
|
|
$
|
9,379
|
|
|
$
|
18,429
|
|
|
$
|
20,666
|
|
Travel
|
|
$
|
20,779
|
|
|
$
|
37,077
|
|
|
$
|
53,602
|
|
|
$
|
38,808
|
|
Gain on extinguishment of debt
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
(171,501
|
)
|
Impairment of goodwill
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
126,782
|
|
Interest expense
|
|
$
|
305,437
|
|
|
$
|
293,438
|
|
|
$
|
609,993
|
|
|
$
|
633,155
|
|
Loss
(gain) on change in fair value of derivative liabilities
|
|
$
|
(76,071
|
)
|
|
$
|
Nil
|
|
|
$
|
(333,308
|
)
|
|
$
|
1,057,818
|
|
Net
Loss
|
|
$
|
(757,020
|
)
|
|
$
|
(871,318
|
)
|
|
$
|
(1,495,425
|
)
|
|
$
|
(2,728,675
|
)
|
Operating
expenses for the three month period ended September 30, 2016 were $527,654 as compared to $577,880 for the three month period
ended September 30, 2015. Consulting fees were comprised of fees paid to the director of our subsidiary, Pacific Green Technologies
Limited; professional fees were comprised of legal, audit and accounting costs. The decrease in operating expenses is primarily
attributed to decreases in consulting fees, stock-based compensation, and transfer agent and filing fees.
Operating
expenses for the six month period ended September 30, 2016 were $1,218,740 as compared to $1,082,421 for the six month period
ended September 30, 2015. The increase in operating expenses is primarily attributed to increases in consulting fees, engineering
fees, office and miscellaneous, and professional fees.
For
the three month period ended September 30, 2016, our company had a net loss of $757,020 ($0.03 per share) compared to a net loss
of $871,318 ($0.05per share) for the three month period ended September 30, 2015. In addition to the operating expenses noted
above, for the three month period ended September 30, 2016, our company incurred interest expense of $305,437 as compared to interest
expense of $293,438 for the three month period ended September 30, 2015.
For
the six month period ended September 30, 2016, our company had a net loss of $1,495,425 ($0.06 per share) compared to a net loss
of $2,752,415 ($0.15 per share) for the six month period ended September 30, 2015. For the six month period ended September 30,
2016, our company incurred interest expense of $609,993 as compared to interest expense of $633,155 for the six month period ended
September 30, 2015. For the six month period ended September 30, 2016, we also had a gain on change in fair value of derivative
liabilities of $333,308 compared to a loss of $1,057,818 in the comparative period.
Liquidity
and Capital Resources
Working
Capital
|
|
As
at September 30,
2016
|
|
|
As
at
March 31,
2016
|
|
Current Assets
|
|
$
|
484,540
|
|
|
$
|
95,851
|
|
Current
Liabilities
|
|
$
|
11,201,916
|
|
|
$
|
11,260,536
|
|
Working
Capital (Deficit)
|
|
$
|
(10,717,376
|
)
|
|
$
|
(11,164,685
|
)
|
Cash
Flows
|
|
Six
Months Ended September 30,
2016
|
|
|
Six
Months Ended September 30,
2015
|
|
Net cash used in operating
activities
|
|
$
|
(1,080,514
|
)
|
|
$
|
(334,187
|
)
|
Net cash provided by investing activities
|
|
$
|
(25,784
|
)
|
|
$
|
50,064
|
|
Net cash provided by financing activities
|
|
$
|
1,561,869
|
|
|
$
|
525,429
|
|
Effect
of foreign exchange rate changes
|
|
$
|
(98,102
|
)
|
|
$
|
(181,045
|
)
|
Net
change in cash
|
|
$
|
357,169
|
|
|
$
|
60,261
|
|
As
of September 30, 2016, we had $397,277 in cash, $484,540 in total current assets, $11,201,916 in total current liabilities and
a working capital deficit of $10,717,376. As of March 31, 2016, we had a working capital deficit of $11,164,685.
We
are dependent on funds raised through debt/equity financing and proceeds from shareholder loans.
During
the six months ended September 30, 2016, we spent $1,080,514 on operating activities, whereas $334,187 was spent on operating
activities for the six month period ended September 30, 2015.
During
the six months ended September 30, 2016, we used $25,784 on investing activities for the purchase of property and equipment, whereas
we received $50,064 in investing activities for the six month period ended September 30, 2015.
During
the six months ended September 30, 2016, we received $1,561,569 from financing activities, which consisted of $1,880,500 in proceeds
from share subscriptions received offset by $298,931 in repayments to related parties and $20,000 of loan payable, whereas we
received $525,429 from financing activities during the six months ended September 30, 2015 which consisted of $650,000 in proceeds
from share subscriptions received and $15,573 from related parties offset by $140,144 in repayments to related parties.
Anticipated
Cash Requirements
We
will require additional funds to fund our budgeted expenses over the next 12 months. These funds may be raised through, equity
financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.
We
anticipate that our cash expenses over the next 12 months (beginning July 2016) will be approximately $825,000 as described in
the table below. These estimates may change significantly depending on the nature of our business activities and our ability to
raise capital from our shareholders or other sources.
Description
|
|
Estimated
Expenses
($)
|
|
Legal and accounting fees
|
|
|
200,000
|
|
Marketing and advertising
|
|
|
25,000
|
|
Investor relations and capital raising
|
|
|
50,000
|
|
Management and operating costs
|
|
|
125,000
|
|
Salaries and consulting fees
|
|
|
350,000
|
|
General
and administrative expenses
|
|
|
75,000
|
|
Total
|
|
$
|
825,000
|
|
Our
general and administrative expenses for the year will consist primarily of transfer agent fees, bank and interest charges and
general office expenses. The professional fees are related to our regulatory filings throughout the year and include legal, accounting
and auditing fees.
Based
on our planned expenditures, we will require approximately $825,000 to proceed with our business plan over the next 12 months.
As of June 30, 2016, we had $150,668 cash on hand. If we secure less than the full amount of financing that we require, we will
not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on
our available financial resources.
We
intend to raise the balance of our cash requirements for the next 12 months from private placements, shareholder loans or possibly
a registered public offering (either self-underwritten or through a broker-dealer). If we are unsuccessful in raising enough money
through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment
from any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available,
on terms that will be acceptable to us.
Even
though we plan to raise capital through equity or debt financing, we believe that the latter may not be a viable alternative for
funding our operations as we do not have sufficient tangible assets to secure any such financing. We anticipate that any additional
funding will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged
and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to finance
our operations. In the absence of such financing, we may be forced to abandon our business plan.
Going
Concern
Our
consolidated financial statements for the three month period ended June 30, 2016 have been prepared on a going concern basis and
contain an additional explanatory paragraph which identifies issues that raise substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
continuation of our company as a going concern is dependent upon the continued financial support from its shareholders and note
holders, the ability of our company to obtain necessary equity financing to continue operations, and ultimately the attainment
of profitable operations. As at September 30, 2016, our company has not generated any revenues, has a working capital deficit
of $10,717,376, and has an accumulated deficit of $61,626,219 since inception. These factors raise substantial doubt regarding
our company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any
adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be
necessary should our company be unable to continue as a going concern.
If
our operations and cash flow improve, management believes that we can continue to operate. However, no assurance can be given
that management’s actions will result in profitable operations or an improvement in our liquidity situation. The threat
of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain
our business operations.
Off-Balance
Sheet Arrangements
We
have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are
material to stockholders.
Critical
Accounting Policies
Use
of Estimates
The
preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Our company regularly evaluates estimates and assumptions related to the useful life and recoverability of intangible
assets, valuation of note payable, fair value of convertible debentures, fair value of derivative liabilities, fair value of stock-based
compensation, impairment of goodwill, and deferred income tax asset valuation allowances. Our company bases its estimates and
assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of
costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ
materially and adversely from our company’s estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected.
Intangible
Assets
Intangible
assets are stated at cost less accumulated amortization and are comprised of patents. The patents are amortized straight-line
over the estimated useful life of 17 years.
Impairment
of Long-lived Assets
Our
company reviews long-lived assets such as property and equipment and intangible assets with finite useful lives for impairment
whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. If the total of the expected
undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the excess of the carrying
amount over the fair value of the asset.
Stock-based
compensation
Our
company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using
the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable.
Our
company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected
by our company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables
include, but are not limited to our company’s expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest
is recognized as an expense in the consolidated statement of operations over the requisite service period.
Recent
Accounting Pronouncements
In
April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, “Interest – Imputation
of Interest: Simplifying the Presentation of Debt Issuance Costs” ("ASU 2015-03"), which resulted in the reclassification
of debt issuance costs from “Other Assets” to inclusion as a reduction of the debt balance. The Company adopted ASU
2015-03 during the three months ended June 30, 2016, with full retrospective application as required by the guidance. The application
of this standard did not have a material impact on the Company's consolidated balance sheet or operations for any period presented.
Our
company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements
and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.