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:
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500,000,000
shares of common stock with a par value of $0.001; and
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10,000,000
shares of preferred stock with a par value of $0.001.
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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:
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June
12, 2013, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
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June
12, 2014, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
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June
12, 2015, $1,000,000 (which remains outstanding and has been rolled over to the following payment date);
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June
12, 2016, $1,000,000 (which remains outstanding and has been rolled over to the following payment date); and
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June
12, 2017, $1,000,000.
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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:
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a
payment of $100 upon execution of the stock purchase agreement, which has been paid by us;
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2.
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$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;
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3.
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$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
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4.
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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.
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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:
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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;
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2.
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We
enter into definitive agreements with the Debtors to:
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a.
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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
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b.
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have
the Debtors provide engineering services to us on terms to be agreed upon, acting reasonably;
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3.
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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
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4.
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the
Debtors retain possession of, yet make a pilot-scale scrubber available for rental to our company at a nominal cost.
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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.
Recent
Developments and Transactions
On
July 12, 2016, we 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.
On
July 14, 2016, we 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 $75,000.
On
August 4, 2016, we entered into a three year lease agreement commencing November 15, 2016. The minimum lease payments over the
term of the lease are as follows:
Year
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$
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2016
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7,389
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2017
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57,740
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2018
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60,539
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2019
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54,868
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180,536
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On
August 31, 2016, we 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:
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i)
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Monthly
fees of $3,615 (AU$5,000) per month from September 1, 2016 for the duration of the term
plus travel and entertainment expenses
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ii)
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A
payment of $72,300 (AU$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
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iii)
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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
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iv)
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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
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v)
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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
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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.
On
August 31, 2016, through our wholly owned subsidiary Pacific Green Technologies Marine Limited, we entered into a Heads of Agreement
with Union Maritime Limited, and its subsidiary, UML Westminster Limited, pursuant to which we have agreement to supply UML Westminster
with our Envi-Marine
TM
Sulphur removal system, beginning with one candidate test system and, subject to performance
testing, up to ten additional units. Upon confirmation that the system meets regulated performance standards, UML Westminster
has agreed to lease the system for a total sum of $1,995,000 to be paid in variable installments through each operating quarter
until the fee has been paid in full. UML Westminster shall also have the right to purchase each system outright during the three
years following acceptance of the system at a discount of $80,000 from the balance of the lease payment, or during the fourth
and subsequent years following acceptance of the system at a discount of $40,000 from the balance of the lease payment.
On September 22, 2016, through our wholly
owned subsidiary Pacific Green Technologies China Limited, we entered into a Research and Development Agreement with POWERCHINA
SPEM Limited Company pursuant to which have agreed to implement with POWERCHINA SPEM and quality assurance program in relation
to the ENVI-Clean
TM
system being installed at the Lianxin Steel Group Plant located in Yancheng China. We have agreed
to pay RMB 1,050,000 in consideration of POWERCHINA SPEMs services to be paid in two installments of $160,198 payable within 3
months and 6 months, respectively, following the date of acceptance of the ENVI-Clean
TM
system at the Lianxin Steel
Group Plant. The term of the agreement is one year following the date of acceptance of the ENVI-CleanTM system at the Lianxin
Steel Group Plant.
On October 20, 2016 we entered into
a Products and Services Purchase Agreement with POWERCHINA SPEM Company Limited pursuant to which we have agreed to purchase from
POWERCHINA SPEM all the components required to complete an ENVI-Marine
TM
Flue Gas Desulphurization system in consideration
for a total purchase price of RMB 7,506,568 ($1,083,000). 30% of the purchase price is payable upon execution of the agreement,
20% upon final inspection, 40% upon delivery, and 10% within 14 days following installation and commissioning.
On
October 27, 2016, we issued 85,714 shares of common stock relating to a non-brokered private placement at a price of $1.75 per
share for proceeds of $150,000.
On
November 19, 2016, together with our wholly owned subsidiary Pacific Green Technologies China Limited, we entered into a Consulting
Agreement with POWERCHINA SPEM Limited Company pursuant to which we have engaged the emission control system engineering and design
services of Mr. Li Xionghao. In consideration of the services we have agreed to pay US$31,500 to POWERCHINA SPEM on or before
December 31, 2016, and a cash bonus of $20,000 to Mr. Li upon successful performance of a high Sulphur test conducted at the joint
venture project delivered by Pacific Green and POWERCHINA SPEM. The term of the agreement is 6 months, following which the parties
have agreed to negotiate in good faith to extend the arrangement.
On
November 23, 2016, we entered into subscription agreement with Twynam Agricultural Group Pty Limited pursuant to which Twynam
purchased 666,667 stock units of our Company at a price of $1.50 per unit. Each unit consists of one common shares, one share
purchase warrant exercisable for 12 month to purchase one additional common share at the price of $1.50 per share, and one share
purchase warrants exercisable for 24 months to purchase one additional common share at the price of $1.50 per share.
On
December 5, 2016, we entered into a three month consulting agreement with Trilogy Media Partners, Inc., an unrelated party (“Trilogy”).
Pursuant to the Agreement, Trilogy shall act as an advisor to the Company and provide strategic consulting in the areas of investor
relations, public relations and marketing. In consideration for Trilogy’s services, we shall pay Trilogy a total of $10,000.
On
December 16, 2016 we entered into an Energy Management Lease with UML Westminster Limited and its parent company, Union Maritime
Limited, pursuant to which we have agreed to lease to UML Westminster an Envi-Marine
TM
emission control system. The
Energy Management Lease Agreement is an extension of our Heads of Agreement with UML Westminster and Union Maritime dated August
31, 2016. Pursuant to the Lease the consideration of $1,995,000 will be paid in variable installments following each operating
quarter until the fee has been paid in full. Individual payments will be calculated at the rate of $14,50 per hour for open mode
operations, or $33 per hour for closed mode operations, with a minimum guarantee of 3,480 hours per year during the term, subject
to the exercise of the purchase option by the lessors. UML Westminster shall also have the right to purchase each
system outright during the three years following acceptance of the system at a discount of $80,000 from the balance of the lease
payment, or during the fourth and subsequent years following acceptance of the system at a discount of $40,000 from the balance
of the lease payment.
On
December 21, 2016, we issued 11,765 shares of common stock relating to a non-brokered private placement at a price of $1.70 per
share for proceeds of $20,000, which has been recorded as share subscription receivable as at December 31, 2016.
On
December 22, 2016, we issued 235,884 shares of common stock relating to a non-brokered private placement at a price of $1.70 per
share for proceeds of $401,003, of which $251,003 has been recorded as share subscription receivable as at December 31, 2016.
On
December 23, 2016, we issued 1,000,000 shares of common stock relating to a non-brokered private placement at a price of $1.50
per share for proceeds of $1,500,000.
On January 1, 2017 we entered into a
Tooling Development Agreement with POWERCHINA SPEM Limited Company pursuant to which we have engaged POWERCHINA SPEM to complete
tooling for the pending projects of our joint venture. The agreement has a term of one year. In consideration of the eservices
we will pay to POWERCHINA SPEM RMB 1,050,000 ($160,198) on the 1
st
anniversary of the agreement.
On January 1, 2017 we entered into a
Sales and Marketing Agreement with POWERCHINA SPEM Limited Company pursuant to which we have engaged POWERCHINA SPEM to assist
in the marketing of ENVI-CLEAN
TM
.. The agreement has a term of nine months beginning upon the date of acceptance of
the ENVI-CleanTM system at the Lianxin Steel Group Plant. In consideration of the eservices we will pay to POWERCHINA SPEM RMB
1,050,000 ($160,198) upon completion of the term.
On
January 3, 2017, we received share subscription proceeds of $120,002 for shares of common stock at a price of $1.70 per share
relating to a non-brokered private placement, which was recorded as share subscriptions receivable as at December 31, 2016.
On
January 4, 2017, we received share subscription proceeds of $100,001 for shares of common stock at a price of $1.70 per share
relating to a non-brokered private placement, which was recorded as share subscriptions receivable as at December 31, 2016.
On
January 5, 2017, we received share subscription proceeds of $51,000 for shares of common stock at a price of $1.70 per share relating
to a non-brokered private placement, which was recorded as share subscriptions receivable as at December 31, 2016.
On
January 17, 2017, we received share subscription proceeds of $25,000 for shares of common stock at a price of $1.70 per share
relating to a non-brokered private placement.
On
January 18, 2017, we received share subscription proceeds of $200,000 for shares of common stock at a price of $1.50 per share
relating to a non-brokered private placement.
On
January 20, 2017, we received share subscription proceeds of $25,000 for shares of common stock at a price of $1.70 per share
relating to a non-brokered private placement.
On
January 27, 2017, we received share subscription proceeds of $200,000 for shares of common stock at a price of $1.50 per share
relating to a non-brokered private placement.
On
February 1, 2017, we entered into a two month consulting agreement with Trilogy Media Partners, Inc., an unrelated party (“Trilogy”).
Pursuant to the Agreement, Trilogy shall act as an advisor to the Company and provide strategic consulting in the areas of social
media advertising. In consideration for Trilogy’s services, we shall pay Trilogy a total of $10,000.
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 nine months ended December 31, 2016 and 2015.
Our net loss for the three and nine
month periods ended December 31, 2016 and 2015 are summarized as follows:
|
|
Three Months Ended December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Advertising and promotion
|
|
$
|
–
|
|
|
$
|
10,000
|
|
|
$
|
–
|
|
|
$
|
10,000
|
|
Amortization of intangible assets
|
|
$
|
218,953
|
|
|
$
|
218,953
|
|
|
$
|
656,859
|
|
|
$
|
656,860
|
|
Consulting fees
|
|
$
|
578,923
|
|
|
$
|
227,881
|
|
|
$
|
1,002,225
|
|
|
$
|
954,050
|
|
Depreciation
|
|
$
|
2,356
|
|
|
$
|
–
|
|
|
$
|
2,356
|
|
|
$
|
–
|
|
Engineering fees
|
|
$
|
4,848
|
|
|
$
|
–
|
|
|
$
|
233,702
|
|
|
$
|
–
|
|
Foreign exchange gain
|
|
$
|
(135,536
|
)
|
|
$
|
(110,290
|
)
|
|
$
|
(288,594
|
)
|
|
$
|
(289,062
|
)
|
Office and miscellaneous
|
|
$
|
64,133
|
|
|
$
|
25,958
|
|
|
$
|
133,372
|
|
|
$
|
63,111
|
|
Professional fees
|
|
$
|
61,225
|
|
|
$
|
62,716
|
|
|
$
|
201,691
|
|
|
$
|
148,206
|
|
Transfer agent and filing fees
|
|
$
|
(2,575
|
)
|
|
$
|
6,501
|
|
|
$
|
15,854
|
|
|
$
|
27,167
|
|
Travel
|
|
$
|
56,537
|
|
|
$
|
36,504
|
|
|
$
|
110,139
|
|
|
$
|
75,312
|
|
Gain (loss) on change in fair value of derivative liabilities
|
|
$
|
(137,217
|
)
|
|
$
|
(160,411
|
)
|
|
$
|
196,091
|
|
|
$
|
(1,218,229
|
)
|
Gain on extinguishment of debt
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
171,501
|
|
Impairment of goodwill
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
(126,782
|
)
|
Interest expense
|
|
$
|
(314,466
|
)
|
|
|
(297,866
|
)
|
|
$
|
(924,459
|
)
|
|
$
|
(931,021
|
)
|
Net Loss
|
|
$
|
(1,300,547
|
)
|
|
$
|
(936,500
|
)
|
|
$
|
(2,795,972
|
)
|
|
$
|
(3,750,175
|
)
|
Operating
expenses for the three month period ended December 31, 2016 were $848,864 as compared to $478,223 for the three month period ended
December 31, 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 increase in operating expenses is primarily attributed
to increases in consulting fees, travel expenses, and professional fees.
Operating
expenses for the nine month period ended December 31, 2016 were $2,067,604 as compared to $1,645,644 for the nine month period
ended December 31, 2015. The increase in operating expenses is primarily attributed to increases in consulting fees, travel expenses,
stock-based compensation, foreign exchange loss, and professional fees.
For
the three month period ended December 31, 2016, our company had a net loss of $1,300,547 ($0.05 per share) compared to a net loss
of $936,500 ($0.05 per share) for the three month period ended December 31, 2015. In addition to the operating expenses noted
above, for the three month period ended December 31, 2016, our company incurred interest expense of $314,466 as compared to interest
expense of $297,866 for the three month period ended December 31, 2015.
For
the nine month period ended December 31, 2016, our company had a net loss of $2,795,972 ($0.12 per share) compared to a net loss
of $3,750,175 ($0.20 per share) for the nine month period ended December 31, 2015. For the nine month period ended December 31,
2016, our company incurred interest expense of $924,459 as compared to interest expense of $931,021 for the nine month period
ended December 31, 2015. For the nine month period ended December 31, 2016, we also had a gain on change in fair value of derivative
liabilities of $196,091 compared to a loss of $1,218,229 in the comparative period.
Liquidity
and Capital Resources
Working
Capital
|
|
As at
December 31,
2016
|
|
|
As at
March 31,
2016
|
|
Current Assets
|
|
$
|
562,312
|
|
|
$
|
95,851
|
|
Current Liabilities
|
|
$
|
11,370,222
|
|
|
$
|
11,260,536
|
|
Working Capital (Deficit)
|
|
$
|
(10,807,910
|
)
|
|
$
|
(11,164,685
|
)
|
Cash
Flows
|
|
Nine Months Ended
December 31,
2016
|
|
|
Nine Months
Ended
December 31,
2015
|
|
Net cash used in operating activities
|
|
$
|
(1,427,539
|
)
|
|
$
|
(583,742
|
)
|
Net cash provided by (used in) investing activities
|
|
$
|
(847,468
|
)
|
|
$
|
50,064
|
|
Net cash provided by financing activities
|
|
$
|
2,865,868
|
|
|
$
|
1,099,429
|
|
Effect of foreign exchange rate changes on cash
|
|
$
|
(163,229
|
)
|
|
$
|
(233,289
|
)
|
Increase in cash
|
|
$
|
427,632
|
|
|
$
|
332,462
|
|
As
of December 31, 2016, we had $467,740 in cash, $562,312 in total current assets, $11,370,222 in total current liabilities and
a working capital deficit of $10,807,910 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 nine months ended December 31, 2016, we spent $1,427,539 on operating activities, whereas $583,742 was spent on operating
activities for the nine month period ended December 31, 2015.
During
the nine months ended December 31, 2016, we used $847,468 on investing activities for the purchase of property and equipment,
whereas we received $50,064 in investing activities for the nine month period ended December 31, 2015.
During
the nine months ended December 31, 2016, we received $2,865,868 from financing activities, which consisted of $3,430,500 in proceeds
from share subscriptions received offset by $451,352 in repayments to related parties and $113,280 of loan payable, whereas we
received $1,099,429 from financing activities during the nine months ended December 31, 2015 which consisted of $1,125,000 in
proceeds from share subscriptions received and $19,804 from related parties offset by $145,375 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 January, 2017) 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 December 31, 2016, we had $467,740 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 nine month period ended December 31, 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 December
31, 2016, our company has not generated any revenues, has a working capital deficit of $10,807,910, and has an accumulated deficit
of $62,926,766 since inception. These factors raise substantial doubt regarding our company’s ability to continue as a going
concern. The 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 December 31, 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.