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
Since 2012, the Company has focused
on marketing, developing and acquiring technologies designed to improve the environment by reducing pollution. The Company has
acquired technologies, patents and intellectual property from EnviroTechnologies Inc. through share transfer, assignment and representation
agreements entered into during 2012 and 2013. Following those acquisitions, management has expanded the registration of intellectual
property rights around the world and pursued opportunities globally for the development and marketing of the emission control technologies.
Working with a worldwide network
of agents to market the ENVI-Systems™ emission control technologies, the Company has focused on three applications of the
technology:
ENVI-Marine
TM
Diesel exhaust from ships, ferries
and tankers includes ash and soot as particulate components and sulphur dioxide as an acid gas. Testing has been conducted on diesel
shipping to confirm the application of seawater as a neutralizing agent for sulphur emissions as well as capturing particulate
matter. In addition to marine applications, these tests also showed applicability of the system for large displacement engines
such as stationary generators, compressors, container handling, heavy construction and mining equipment.
The Company has manufactured the
components for an ENVI-Marine unit to be installed in Union Maritimes’ (Union) MV Westminster chemical ship during the summer
of 2017. Under the terms of an Energy Management Lease dated December 16, 2016, following acceptance of the unit by Union, they
will make quarterly payments to the Company determined on their savings realized by the ENVI-Marine units’ operation up to
an aggregate of $1,995,000.
The Company has been actively marketing
its ENVI-Marine™ units to ship brokers and ship owners through most of the year.
ENVI-Pure
TM
Increasing legislation relating
to landfill of municipal solid waste has led to the emergence of increasing numbers of waste to energy plants (“
WtE
”).
A WtE plant obviates the need for landfill, burning municipal waste for conversion to electricity. A WtE plant is typically 45-100MW.
The ENVI-Clean™ system is particularly suited to WtE as it cleans multiple pollutants in a single system.
ENVI-Clean
TM
EnviroTechnologies Inc. has successfully
conducted sulphur dioxide demonstration tests at the American Bituminous Coal Partners power plant in Grant Town, West Virginia.
The testing achieved a three test average of 99.3% removal efficiency. The implementation of US Clean Air regulations in July 2010
has created additional demand for sulphur dioxide removal in all industries emitting sulphur pollution. Furthermore, China consumes
approximately one half of the world’s coal, but introduced measures designed to reduce energy and carbon intensity in its
12th Five Year Plan. Applications include regional power facilities and heating for commercial buildings and greenhouses. Typical
applications range in size from 1 to 20 megawatts (MW) with power generation occupying the larger end of the range.
Following the signing of a joint
venture agreement with Power China SPEM, subsequent to year end an ENVI-Clean™ was sold to a steelworks company in Yancheng
to remove SO
2
from its 93MW gas combustion powerplant.
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-Clean™ system is
comprised of five components:
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an induced draft fan (“ID fan”);
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a gas conditioning chamber;
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the ENVI-Clean™ unit;
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a demister; and
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settling tanks.
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The ID fan creates the pressure
differential required to force the gas through the scrubbing fluid suspended on each head and move it through the other components
in the system. The gas conditioning chamber cools the hot flue gas prior to entering the ENVI-Clean™ System. The ENVI-Clean™
System contains the heads and the demister pads at the exhaust exit. The neutralizing fluid is constantly circulated and cleaned
by mechanical means with the contaminated component of the separation going to a settling tank prior to dewatering. The settled
solids are disposed of with the bottom ash produced by the combustion process.
The ENVI-CES™ technology forces
100% of the polluted exhaust flue gas into the neutralizing fluid to produce a highly turbulent interaction between the target
pollutants and the fluid. The aggressive mixing produces small bubbles which create a very high surface contact area between the
exhaust gas and fluid to enhance the transfer of particulate and targeted gaseous and hazardous pollutants from the exhaust to
the fluid.
Unique to the ENVI approach is the
introduction of the gas in the lower section of the ENVI-Clean™ unit which makes the greatest portion of its cross section
available for fluid–gas interaction. This permits a smaller and highly flexible footprint. Furthermore, the system design
allows for multiple heads each containing different neutralizing fluids to remove various pollutants from the flue gas. The ordered
removal of acid and greenhouse gases within a single unit makes the system highly desirable by industries whose fuels contain multiple
contaminants. The resulting ENVI-Clean™ unit has high efficiency and is very simple to operate.
The neutralizing solution is selected
to remove targeted pollutants: limestone and hydrated lime are used to neutralize the scrubbing solution for the removal of acid
gases such as sulphur dioxide, hydrogen chloride and hydrogen fluoride. The unique design of the ENVI system allows for the sequential
removal of pollutants by stacking heads and utilizing different neutralizing chemistry in each operating unit. This provides industry
with a system that fulfills multiple applications.
The ENVI-Clean™ system has
numerous new and retrofit applications:
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coal and coal waste fuelled CFBC boilers;
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pulverized coal and stoker-grate boilers;
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heavy oil fired boilers;
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biomass and waste to energy boilers;
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lime kilns, dryers, shredders and foundries;
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industrial exhaust scrubbing of particulates and acid gases;
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diesel engines, large marine and stationary engines; and
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sewage sludge, hazardous waste and MSW incinerators.
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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 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.
Since 2012, the Company has focused
on marketing, developing and acquiring technologies designed to improve the environment by reducing pollution. The Company has
acquired technologies, patents and intellectual property from EnviroTechnologies Inc. through share transfer, assignment and representation
agreements entered into during 2012 and 2013. Following those acquisitions, management has expanded the registration of intellectual
property rights around the world and pursued opportunities globally for the development and marketing of the emission control technologies.
Working with a worldwide network
of agents to market the ENVI-Systems™ emission control technologies, the Company has focused on three applications of the
technology:
ENVI-Marine
TM
Diesel exhaust from ships, ferries
and tankers includes ash and soot as particulate components and sulphur dioxide as an acid gas. Testing has been conducted on diesel
shipping to confirm the application of seawater as a neutralizing agent for sulphur emissions as well as capturing particulate
matter. In addition to marine applications, these tests also showed applicability of the system for large displacement engines
such as stationary generators, compressors, container handling, heavy construction and mining equipment.
The Company has manufactured the
components for an ENVI-Marine unit to be installed in Union Maritimes’ (Union) MV Westminster chemical ship during the summer
of 2017. Under the terms of an Energy Management Lease dated December 16, 2016, following acceptance of the unit by Union, they
will make quarterly payments to the Company determined on their savings realized by the ENVI-Marine units’ operation up to
an aggregate of $1,995,000.
The Company has been actively marketing
its ENVI-Marine™ units to ship brokers and ship owners through most of the year.
ENVI-Pure
TM
Increasing legislation relating
to landfill of municipal solid waste has led to the emergence of increasing numbers of waste to energy plants (“
WtE
”).
A WtE plant obviates the need for landfill, burning municipal waste for conversion to electricity. A WtE plant is typically 45-100MW.
The ENVI-Clean™ system is particularly suited to WtE as it cleans multiple pollutants in a single system.
ENVI-Clean
TM
EnviroTechnologies Inc. has successfully
conducted sulphur dioxide demonstration tests at the American Bituminous Coal Partners power plant in Grant Town, West Virginia.
The testing achieved a three test average of 99.3% removal efficiency. The implementation of US Clean Air regulations in July 2010
has created additional demand for sulphur dioxide removal in all industries emitting sulphur pollution. Furthermore, China consumes
approximately one half of the world’s coal, but introduced measures designed to reduce energy and carbon intensity in its
12th Five Year Plan. Applications include regional power facilities and heating for commercial buildings and greenhouses. Typical
applications range in size from 1 to 20 megawatts (MW) with power generation occupying the larger end of the range.
Following the signing of a joint
venture agreement with Power China SPEM, subsequent to year end an ENVI-Clean™ was sold to a steelworks company in Yancheng
to remove SO
2
from its 93MW gas combustion powerplant.
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-Clean™ system is
comprised of five components:
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an induced draft fan (“ID fan”);
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a gas conditioning chamber;
|
|
●
|
the ENVI-Clean™ unit;
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a demister; and
|
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settling tanks.
|
The ID fan creates the pressure
differential required to force the gas through the scrubbing fluid suspended on each head and move it through the other components
in the system. The gas conditioning chamber cools the hot flue gas prior to entering the ENVI-Clean™ System. The ENVI-Clean™
System contains the heads and the demister pads at the exhaust exit. The neutralizing fluid is constantly circulated and cleaned
by mechanical means with the contaminated component of the separation going to a settling tank prior to dewatering. The settled
solids are disposed of with the bottom ash produced by the combustion process.
The ENVI-CES™ technology forces
100% of the polluted exhaust flue gas into the neutralizing fluid to produce a highly turbulent interaction between the target
pollutants and the fluid. The aggressive mixing produces small bubbles which create a very high surface contact area between the
exhaust gas and fluid to enhance the transfer of particulate and targeted gaseous and hazardous pollutants from the exhaust to
the fluid.
Unique to the ENVI approach is the
introduction of the gas in the lower section of the ENVI-Clean™ unit which makes the greatest portion of its cross section
available for fluid–gas interaction. This permits a smaller and highly flexible footprint. Furthermore, the system design
allows for multiple heads each containing different neutralizing fluids to remove various pollutants from the flue gas. The ordered
removal of acid and greenhouse gases within a single unit makes the system highly desirable by industries whose fuels contain multiple
contaminants. The resulting ENVI-Clean™ unit has high efficiency and is very simple to operate.
The neutralizing solution is selected
to remove targeted pollutants: limestone and hydrated lime are used to neutralize the scrubbing solution for the removal of acid
gases such as sulphur dioxide, hydrogen chloride and hydrogen fluoride. The unique design of the ENVI system allows for the sequential
removal of pollutants by stacking heads and utilizing different neutralizing chemistry in each operating unit. This provides industry
with a system that fulfills multiple applications.
The ENVI-Clean™ system has
numerous new and retrofit applications:
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coal and coal waste fuelled CFBC boilers;
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pulverized coal and stoker-grate boilers;
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heavy oil fired boilers;
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biomass and waste to energy boilers;
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lime kilns, dryers, shredders and foundries;
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industrial exhaust scrubbing of particulates and acid gases;
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diesel engines, large marine and stationary engines; and
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sewage sludge, hazardous waste and MSW incinerators.
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Other Business Matters
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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$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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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.
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, 2017 and 2016.
Our net loss for the three and six
month periods ended September 30, 2017 and 2016 are summarized as follows:
|
|
Three Months Ended
September 30,
|
|
|
Six Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Advertising and promotion
|
|
$
|
8,100
|
|
|
$
|
-
|
|
|
$
|
23,950
|
|
|
$
|
-
|
|
Amortization of intangible assets
|
|
$
|
218,953
|
|
|
$
|
218,953
|
|
|
$
|
437,906
|
|
|
$
|
437,907
|
|
Consulting fees
|
|
$
|
76,996
|
|
|
$
|
214,045
|
|
|
$
|
178,799
|
|
|
$
|
423,302
|
|
Depreciation
|
|
|
2,357
|
|
|
|
-
|
|
|
|
4,713
|
|
|
|
-
|
|
Foreign exchange (gain) loss
|
|
$
|
(50,556
|
)
|
|
$
|
(41,124
|
)
|
|
$
|
47,915
|
|
|
$
|
(153,058
|
)
|
Office and miscellaneous
|
|
$
|
16,866
|
|
|
$
|
33,830
|
|
|
$
|
63,697
|
|
|
$
|
69,239
|
|
Professional fees
|
|
$
|
49,760
|
|
|
$
|
75,862
|
|
|
$
|
89,289
|
|
|
$
|
140,466
|
|
Research and development
|
|
|
377,660
|
|
|
|
-
|
|
|
|
429,964
|
|
|
|
228,854
|
|
Transfer agent and filing fees
|
|
$
|
12,550
|
|
|
$
|
5,309
|
|
|
$
|
25,851
|
|
|
$
|
18,429
|
|
Travel
|
|
$
|
75,919
|
|
|
$
|
20,779
|
|
|
$
|
126,338
|
|
|
$
|
53,602
|
|
Gain on extinguishment of debt
|
|
$
|
97,631
|
|
|
$
|
Nil
|
|
|
$
|
97,631
|
|
|
$
|
Nil
|
|
Interest expense
|
|
$
|
(75,296
|
)
|
|
$
|
(305,437
|
)
|
|
$
|
(343,999
|
)
|
|
$
|
(609,993
|
)
|
Impairment of property and equipment
|
|
$
|
(290,580
|
)
|
|
$
|
Nil
|
|
|
$
|
(290,580
|
)
|
|
$
|
Nil
|
|
Gain (loss) on change in fair value of derivative liabilities
|
|
$
|
(179,309
|
)
|
|
|
(76,071
|
)
|
|
$
|
(284,369
|
)
|
|
$
|
333,308
|
|
Net Loss
|
|
$
|
(1,236,159
|
)
|
|
$
|
(757,020
|
)
|
|
$
|
(2,249,739
|
)
|
|
$
|
(1,495,425
|
)
|
Operating expenses for the three month
period ended September 30, 2017 were $788,605 as compared to $527,654 for the three month period ended September 30, 2016. The
increase in operating expenses is primarily attributed to increases in research and development, travel, and transfer agent and
filing fees offset by decreases in consulting fees and professional fees.
Operating expenses for the six month period
ended September 30, 2017 were $1,428,422 as compared to $1,218,740 for the six month period ended September 30, 2016. The increase
in operating expenses is primarily attributed to increases in advertising and promotion, professional fees, research and development,
and travel offset by a decrease in consulting fees, professional fees, and a gain in foreign exchange.
For the three month period ended
September 30, 2017, our company had a net loss of $1,236,159 ($0.04 per share) compared to a net loss of $757,020 ($0.03 per share)
for the three month period ended September 30, 2016. In addition to the operating expenses noted above, for the three month period
ended September 30, 2017, our company incurred interest expense of $75,296 as compared to interest expense of $305,437 for the
three month period ended September 30, 2016.
For the six month period ended September
30, 2017, our company had a net loss of $2,249,739 ($0.08 per share) compared to a net loss of $1,495,425 ($0.06 per share) for
the six month period ended September 30, 2016. For the six month period ended September 30, 2017, our company incurred interest
expense of $343,999 as compared to interest expense of $609,993 for the six month period ended September 30, 2016. For the six
month period ended September 30, 2017, we also had a loss on change in fair value of derivative liability of $284,369 compared
to a gain of $333,308 in the comparative period.
Liquidity and Capital Resources
Working Capital
|
|
As at September 30,
2017
|
|
|
As at
March 31,
2017
|
|
Current Assets
|
|
$
|
251,785
|
|
|
$
|
443,938
|
|
Current Liabilities
|
|
$
|
1,749,376
|
|
|
$
|
10,581,522
|
|
Working Capital (Deficit)
|
|
$
|
(1,497,591
|
)
|
|
$
|
(10,137,584
|
)
|
Cash Flows
|
|
Six Months Ended September 30,
2017
|
|
|
Six Months Ended September 30,
2016
|
|
Net cash used in operating activities
|
|
$
|
(793,972
|
)
|
|
$
|
(1,080,514
|
)
|
Net cash used in investing activities
|
|
$
|
(669,466
|
)
|
|
$
|
(25,784
|
)
|
Net cash provided by financing activities
|
|
$
|
1,190,884
|
|
|
$
|
1,561,569
|
|
Effect of foreign exchange rate changes
|
|
$
|
40,800
|
|
|
$
|
(98,102
|
)
|
Net change in cash
|
|
$
|
(231,754
|
)
|
|
$
|
357,169
|
|
As of September 30, 2017, we had
$150,413 in cash, $251,785 in total current assets, $1,749,376 in total current liabilities and a working capital deficit of $1,497,591.
As of March 31, 2017, we had a working capital deficit of $10,137,584.
We are dependent on funds raised
through debt/equity financing and proceeds from shareholder loans.
During the six months ended September
30, 2017, we spent $793,792 on operating activities, whereas $1,080,514 was spent on operating activities for the six month period
ended September 30, 2016.
During the six months ended September
30, 2017, we used $669,466 on investing activities for the purchase of property and equipment, whereas we used $25,784 in investing
activities for the six month period ended September 30, 2016.
During the six months ended September
30, 2017, we received $1,190,884 from financing activities, which consisted of $1,470,000 in proceeds from share subscriptions
received offset by $56,666 in repayment of a loan payable and $222,450 due to related parties, whereas we received $1,561,569 from
financing activities during the six months ended September 30, 2016 which consisted of $1,880,500 in proceeds from share subscriptions
offset by $298,931 in repayments to related parties and $20,000 of loan payable.
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 October 2017) will be approximately $1,550,000 as described in the table below. These estimates
may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders
or other sources.
Description
|
|
Estimated
Expenses
($)
|
|
Legal and accounting fees
|
|
|
220,000
|
|
Marketing and advertising
|
|
|
50,000
|
|
Investor relations and capital raising
|
|
|
80,000
|
|
Management and operating costs
|
|
|
350,000
|
|
Sales agents, commissions, engineering and consulting fees
|
|
|
550,000
|
|
General and administrative expenses
|
|
|
300,000
|
|
Total
|
|
$
|
1,550,000
|
|
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 exclude legal, accounting, and auditing fees.
Based on our planned expenditures,
we will require approximately $1,550,000 to proceed with our business plan over the next 12 months. As of September 30, 2017, we
had $150,413 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 condensed consolidated interim
financial statements for the six month period ended September 30, 2017 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, 2017, our company has not generated any revenues, has a working capital deficit of $1,497,591, and has an accumulated
deficit of $65,807,950 since inception. These factors raise substantial doubt regarding our company’s ability to continue
as a going concern. These condensed consolidated interim 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
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.