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 Marine Technologies Ltd, a United Kingdom corporation, Pacific Green Technologies International Limited, a British Virgin
Islands corporation, and its wholly owned subsidiary, Energy Park Sutton Bridge, a United Kingdom corporation, PGT Technologies
(Canada) Ltd, a Canadian corporation, Pacific Green Technologies Asia Limited, and its wholly owned subsidiary, Pacific Green
Technologies China Limited, both Hong Kong companies.
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.
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 our year ended March 31, 2017 we owed Sichel $nil and we owed
PGG approximately $3,945,833 in loans and unpaid management fees. 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 pay the monthly
consulting fee, PGG may elect to be paid in shares of stock.
Details
of other material contracts and commitments follows the New Strategy and Current business section.
New
Strategy and Current business
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 manufactured the components for an ENVI-Marine unit that was 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, Union 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.
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, 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.
Schematic
of the ENVI-Clean™ Emission’s System as installed for Biomass applications
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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Significant
transactions
Management,
assisted by PGG, 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 has 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 Hookipa 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;
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June 12, 2014, $1,000,000;
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June 12, 2015, $1,000,000;
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June 12, 2016, $1,000,000
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. On September 25, 2017,
the Company and PGG agreed to a settlement of the outstanding promissory by way of a subscription agreement for 5,000,000 shares
of common stock at $1.00 per share.
The
initial 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.
Our
management believes that the ENVI-Clean™ system has significant competitive advantages in the market for emission control
systems including:
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Efficiency
:
tests performed at an 84MW coal power plant in West Virginia (USA) indicate that the ENVI-Clean™ system removed on average
99.3% of sulfur dioxide over a three day period from the plant’s emissions;
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2.
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Low Capital Cost
:
the system has a compact and flexible footprint relative to competitive products. For electricity generation applications,
EnviroTechnologies’ system is priced for market at approximately $90 per kilowatt of electricity generation. In comparison,
industry consultants state that comparable systems in North America are typically priced at $300-500 per kilowatt (Source:
High Energy Services/Babcock & Wilson-wet scrubber systems for S02 removal in North America);
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Low Ongoing Operating
Cost
: the ENVI-Clean™ system is more affordable in the long term for customers compared to competitor products;
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New and Retrofit
Applications
: for retrofit applications in particular (as required by the 2011 EPA Boiler MACT Requirements), the system
is considered by management to be more compact and adaptable than rival systems;
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Scalability
:
the ENVI-Clean™ system can be adapted for the largest power stations but also smaller applications such as diesel marine
engines. It can also remove multiple pollutants in a single system, unlike much of the competition.
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On
October 5, 2011, EnviroResolutions, a British Columbia corporation, signed a contract to supply the ENVI-Clean™ system to
a new waste to energy plant being built in Peterborough, United Kingdom (the “Peterborough Contract”). The initial
material term and condition of the contract was that EnviroResolutions demonstrate testing of the system that achieved the performance
levels represented in regards to emissions by March 31, 2012. This condition was successfully satisfied and confirmed with Peterborough
Renewable Energy Limited (“PREL”) prior to the required date. The Peterborough Contract entitles us, as the holder
of the representation agreement, to a commission of approximately $4,600,000 before third party agency fees.
Effective
March 5, 2013, we entered into a supplemental agreement with EnviroTechnologies and EnviroResolutions. The supplemental agreement
amends the representation agreement between PGG and EnviroTechnologies dated June 7, 2010, which was later assigned to us from
PGG in connection with an assignment and share transfer agreement dated June 14, 2012. The supplemental agreement entitles our
company to a commission of equal to 50% (previously 20%) of any licensing revenue that may be generated by EnviroTechnologies
Inc. in respect of its existing and future technologies.
In
addition, pursuant to the supplemental agreement, we will receive from EnviroResolutions an amount equal to 50% of any assets
or consideration received as compensation from PREL for PREL’s failure to perform under a contingent sale agreement dated
October 5, 2011 between EnviroResolutions and PREL. We will receive the fee for our assistance to EnviroResolutions during their
negotiations with PREL regarding PREL’s failure to perform. The fee, if any, provided to us will not constitute any repayment
of our loans that were made to EnviroResolutions.
The
supplemental agreement supplements the Peterborough Contract dated October 5, 2011 entered into among EnviroResolutions, PREL
and GEPL. Pursuant to the Peterborough Contract, EnviroResolutions was to supply PREL with a wet scrubbing emission control system
to a proposed waste to energy plant being built in Peterborough, United Kingdom.
Information
on Pacific Green Technologies Limited
Pacific
Green Technologies Limited is a limited liability company incorporated under the laws of England and Wales on April 5, 2011 (“PGT”).
The director of PGT was Mr. Joseph Grigor Kelly. On November 7, 2012, Mr. Joseph Grigor Kelly tendered his resignation to the
board of directors. PGT has no employees. Concurrently, Neil Carmichael consented to and was appointed as the sole director and
chief executive and financial officer of PGT.
The
purpose of incorporating PGT was to utilize local knowledge and contacts to build a platform for sales in the following regions:
Western Europe, Eastern Europe, Russian Federation, Turkey, Middle East, Azerbaijan, Kazakhstan and Africa. However, our company
has found that the cost to have physical presence in England far out weights the benefit. As a result, PGT is now in the process
of being dissolved as of the date of the filing of this annual report.
Information
on Pacific Green Energy Parks Limited
Pacific
Green Energy Parks Limited (“PGEP”) sees an opportunity to develop renewable power stations with capacities up to
50MW in the biomass and waste to energy sectors. In addition to their positive impact on the world’s environment, these
projects have the potential to deliver a sustainable post-tax equity IRR and may provide our company with an opportunity to deploy
its technologies. To this end our company has been identifying and investigating appropriate projects worldwide.
On
March 26, 2012, PGEP reached an agreement with the shareholders of Energy Park Sutton Bridge Limited (“EPSB”), whereby
PGEP would fund a planning application for the development of a biomass energy plant in return for a 75% shareholding in EPSB.
EPSB was incorporated in the UK in 2009 to develop a 49 MW biomass energy plant in Sutton Bridge, Lincolnshire, UK. A planning
application for EPSB was submitted to South Holland District Council (“
SHDC
”) on September 4, 2012.
On
March 5, 2013, PGEP acquired the remaining 25% of EPSB. On May 8, 2013, EPSB secured planning permission for a 49MW biomass power
plant at Sutton Bridge, Lincolnshire.
The
facility will have an installed energy capacity of 49MW. The export capacity of the facility will be circa 44MW. The electricity
will be supplied to the National Grid. Heat from the operation will be used within the facility and the ancillary buildings whilst
off-take points will be provided for future combined heat and power needs in the area. The location of the plant alongside an
existing industrial estate and in proximity of an area proposed for future industrial expansion makes the realization of the potential
for combined heat and power more likely than in other possible locations. EPSB has secured options to purchase the freehold of
the Energy Park site from the land owners.
Biomass
is considered to be carbon neutral because the quantity of CO
2
released during combustion is the same as that
absorbed by plants as a result of photosynthesis during their growth. This differs from fossil fuels in that, although both originating
from organic matter, the carbon in fossil fuels has been locked away for millions of years, and when released during combustion,
results in a net increase in CO
2
levels in the atmosphere.
Biomass
is also considered environmentally sustainable as in many cases it is derived from by-products of other industries such as agriculture
and forestry management. This contains a closed carbon cycle with no net increase in atmospheric CO
2
levels. As
a result, EPSB will be entitled to renewables obligation certificates (“
ROCs
”) under the UK’s Renewable
Obligation regime. As of April 2016, pure biomass will be afforded 1.4 ROCs/MWh of electricity produced, for a 20 year tariff
period. EPSB’s forecasts assume:
EPSB
will recover energy from virgin wood using steam turbine technology. The plant will require approximately 325,000 tonnes of virgin
wood per annum (“
Feedstock
”).
Following
discussions with industry experts, engineers, consultants and financiers, our company estimates that EPSB should cost approximately
£165,000,000 to construct. Once the project is “spade ready”, construction should take 2 years. Previously,
we anticipated that the project would be “spade ready” by March 2014. However, our company’s application for
planning consent was not accepted by council and we resubmitted our application on June 20, 2014. The EPC contractor will provide
a fixed cost turnkey completion guarantee. Planning consent was again turned down April 2015.
A
detailed carbon assessment has been submitted within the EIA presenting the carbon savings offered by the operation of the facility.
The
project will deliver combined heat and power (“
CHP
”) infrastructure. Our company is investigating potential
opportunities for supplying local heat customers at both existing and potential new developments off site. EPSB will maintain
an open dialogue with the local authority and will ensure that an appropriate boiler and turbine design is selected to facilitate
the distribution of heat.
Currently
our company is identifying and assessing further renewable power plant developments that are complimentary to the use of ENVI-Emissions
Systems where possible.
Securing
additional financial and human capital
We
have limited capital and four directors. It is anticipated that we will expand our management team to fully exploit the representation
agreement and it will also therefore be necessary to raise financial capital. We anticipate that we will need to raise additional
financial capital through equity issuances, debt instruments and guarantees.
Form
of any subsequent acquisitions
The
manner in which we participate in an opportunity will depend upon the nature of the opportunity, our respective needs and desires
and those of the promoters of the opportunity, and our relative negotiating strength compared to that of such promoters.
It
is likely that we will acquire further participations in business opportunities through the issuance of our common stock, or other
of our securities. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances
the criteria for determining whether or not an acquisition is a so-called “tax free” reorganization under Section
368(a)(1) of the Internal Revenue Code of 1986, as amended, or the Code, depends upon whether the owners of the acquired business
own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions
rather than other “tax free” provisions provided under the Code, all prior stockholders would in such circumstances
retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon
the relative negotiating strength of the parties, prior stockholders may retain substantially less than 20% of the total issued
and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who
were our stockholders prior to such reorganization.
Our
stockholders will likely not have control of a majority of our voting securities following a reorganization transaction. As part
of such a transaction, our directors may resign and one or more new directors may be appointed without any vote by stockholders.
In
the case of an acquisition, the transaction may be accomplished upon the sole determination of management without any vote or
approval by our stockholders. In the case of a statutory merger or consolidation directly involving our company, it will likely
be necessary to call a stockholders’ meeting and obtain the approval of the holders of a majority of our outstanding securities.
The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed
transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek
to structure any such transaction so as not to require stockholder approval.
It
is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial management time and attention and substantial
cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs
theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an agreement is reached for the
participation in a specific business opportunity, the failure to consummate that transaction may result in the loss to us of the
related costs incurred.
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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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.
|
the Debtors retain
possession of, yet make a pilot-scale scrubber available for rental to our company at a nominal cost.
|
On
June 11, 2013, we submitted 24,336,229 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant to
our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
Pursuant
to a debt settlement agreement dated May 17, 2013 among our company, EnviroTechnologies and EnviroResolutions, on November 22,
2013, our company was transferred a 40% shareholding in PREL by GEPL (who had, prior to this transfer, held all the issued and
outstanding shares of PREL). PREL is a limited liability company incorporated under the laws of the United Kingdom.
PREL
was incorporated by GEPL to develop a 79MWe waste to energy power station at Peterborough, United Kingdom (the “
Peterborough
Plant
”). The Peterborough Plant has full planning permission at 79MWe and environmental agency permits. It is understood
that the Peterborough Plant will be built in two stages at a total capital cost of approximately GBP£500 million (approximately
US$824,534,442). As of May 17, 2013, PREL owned 20% of Energy Park Investments Limited, the holding company that is currently
intended to finance the development of the Peterborough Plant in turn through its wholly owned operating subsidiary Energy Park
Peterborough Limited.
On
June 17, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreements we acquired 8,061,286 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for the issuance of 806,132 shares of common stock of our company. We issued as aggregate of
806,132 shares of common stock to 19 shareholders
On
August 6, 2013, we entered into two share exchange agreements with two shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we acquired 440,000 issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange
for shares of common stock of our company on a 1 for 10 basis. Pursuant to the terms of the other agreement, we acquired 600,000
issued and outstanding common shares of EnviroTechnologies from one shareholder in exchange for shares of common stock of our
company on a 1 for 15 basis.
On
August 27, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we acquired 32,463,489 issued and outstanding common shares of EnviroTechnologies from the shareholders in
exchange for shares of common stock of our company on a 1 for 10 basis.
On
September 13, 2013, we submitted 41,564,775 common shares of EnviroTechnologies to EnviroTechnologies for cancellation pursuant
to our debt settlement agreement with EnviroTechnologies and EnviroResolutions dated May 17, 2013.
On
September 26, 2013, we entered into an agreement with Andrew Jolly, wherein Dr. Jolly agreed to serve as a director of our company.
Pursuant to the agreement, our company is to compensate Dr. Jolly for serving as a director of our company at GBP£2,000
(approximately $3,235) per calendar month. Effective October 1, 2013, we appointed Dr. Jolly as a director of our company. Effective
September 1, 2014, the monthly fee for Mr. Jolly was reduced to GBP£1,000 (approximately $1,617).
On
October 11, 2013, we entered into share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant to the terms
of the agreements, we agreed to acquire 674,107 issued and outstanding common shares of EnviroTechnologies from the shareholders
in exchange for shares of common stock of our company on a 1 for 10 basis.
On
December 18, 2013, we announced that our company engaged BlueMount Capital to spearhead the development of its proprietary emission
control technologies, ENVI-Clean™ and ENVI-Pure™, in the People’s Republic of China (“
PRC
”).
In addition to corporate finance advisory services both within and outside China, BlueMount offers a tailored service to clients
wishing to enter the PRC market with a particular emphasis on companies that own proprietary technology, intellectual property
and expertise. To that end, BlueMount provides a comprehensive suite of services to enhance the effectiveness and long-term sustainability
of foreign brands entering the PRC market via: Our company’s strategic objective is to establish an operating presence in
China with established local partners and rapidly rollout its technologies.
On
December 27, 2013, we entered into and closed share exchange agreements with certain shareholders of EnviroTechnologies. Pursuant
to the terms of the share exchange agreements, we acquired 130,000 issued and outstanding common shares of EnviroTechnologies
from the shareholders in exchange for shares of common stock of our company on a 1 for 10 basis. On December 27, 2013, we issued
an aggregate of 13,000 common shares to the shareholders of EnviroTechnologies.
On
January 27, 2014, we entered into an agreement with Pöyry Management Consulting (UK) Limited. Pursuant to the agreement,
Pöyry is to provide consulting services to us. Our company has agreed to compensate Pöyry a minimum of £5,000
(approximately $ 8,293) as consulting fees for the first year of the agreement and a variable hourly rate as set out in the agreement.
On
May 27, 2014, we entered into a $200,000 convertible debenture with Intrawest Overseas Limited. Under the terms of the debenture,
the amount is unsecured, bears interest at 10% per annum, and is due on May 27, 2015. Pursuant to the agreement, should any portion
of loan remain outstanding past maturity the interest will increase to 15% per annum. The note is convertible into shares of common
stock 180 days after the date of issuance (November 27, 2014) until maturity at a conversion rate of 75% of the average offer
price of our company’s common stock for the 45 days ending one trading day prior to the date the conversion notice is sent
by the holder to our company.
Our
company analyzed the conversion option under ASC 815, “Accounting for Derivative Instruments and Hedging Activities”,
and determined that the conversion feature should be classified as a liability and recorded at fair value due to there being no
explicit limit to the number of shares to be delivered upon settlement of the conversion option. In accordance with ASC 815, our
company recognized the intrinsic value of the embedded beneficial conversion feature of $33,922. On November 27, 2014, the note
became convertible resulting in our company recording a derivative liability of $33,922 with a corresponding adjustment to loss
on change in fair value of derivative liabilities.
On
June 12, 2014, we entered into a $100,000 convertible debenture with Gerstle Consulting Pty Limited. Under the terms of the debenture,
the amount is unsecured, bears interest at 10% per annum, and is due on June 12, 2015. Pursuant to the agreement, should any portion
of loan remain outstanding past maturity the interest will increase to 15% per annum. The note is convertible into shares of common
stock 180 days after the date of issuance (December 12, 2014) until maturity at a conversion rate of 75% of the average closing
bid prices of our company’s common stock for the 45 days ending one trading day prior to the date the conversion notice
is sent by the holder to our company.
Our
company analyzed the conversion option under ASC 815, “Accounting for Derivative Instruments and Hedging Activities”,
and determined that the conversion feature should be classified as a liability and recorded at fair value due to there being no
explicit limit to the number of shares to be delivered upon settlement of the conversion option. In accordance with ASC 815, our
company recognized the intrinsic value of the embedded beneficial conversion feature of $9,793. On December 12, 2014, the note
became convertible resulting in our company recording a derivative liability of $9,793 with a corresponding adjustment to loss
on change in fair value of derivative liabilities.
On
June 30, 2015, through our wholly owned subsidiary, Pacific Green Energy Parks Limited, we purchased all of the issued and outstanding
shares in Pacific Green Technologies Asia Limited for $1.00 from Alexander Shead.
We
entered into an agreement dated July 20, 2015 with Mr. Alexander Shead. Pursuant to this agreement, Mr. Shead has agreed to serve
as a director of our company. As a director of our company, Mr. Shead shall be compensated $1,000 for every calendar month of
the term of the agreement. The term of the agreement is for 12 months. On July 20, 2015, we appointed Mr. Shead as a director
of our company.
On
September 22, 2015, our company entered into a consulting agreement (the “Agreement”) with Midam Ventures, LLC (“Midam”)
wherein Midam will provide investor relations and business advisory services to us from September 23, 2015 to March 23, 2016.
Any compensation described in the Agreement shall be deemed earned and vested by Midam even in the case of early termination of
the Agreement.
Pursuant
to the terms of the Agreement, we will to pay $30,000 in cash and 200,000 common restricted shares of our company to Midam. Effective
October 20, 2015, we issued all of the shares pursuant to an exemption from registration relying on the provisions of Rule 506
of Regulation D promulgated under the
Securities Act of 1933
, as amended.
On
October 24, 2015, our company entered into a marketing and consulting agreement with Red Rock Marketing Media, Inc. (“Red
Rock”) wherein Red Rock will provide investor relations and business advisory services to us for a period of 40 business
days starting on or before the 10 business days after Red Rock receives compensation from our company. Pursuant to the terms of
the Agreement, we will to pay $100,000 in cash by October 29, 2015.
On
October 27, 2015, our company entered into a loan agreement with a significant shareholder for proceeds of approximately $4,231.
The loan is unsecured, bears an interest rate of US Prime Rate plus 4%, and is due on demand.
On
November 10, 2015,
we issued a convertible note (the “
Note
”) to Tangiers Investment Group, LLC
(“
Tangiers
”) in exchange for an aggregate of $100,000 from Tangiers. The Note is for the aggregate sum of $110,000
with 10% interest as an original issue discount and convertible into our common shares of (the “
Shares
”) at
a price of equal to the lower of: (a) $.40 per common share of our company or (b) 60% of the lowest trading price of our common
stock during the 20 consecutive trading days prior to the date on which the holder of the Note elects to convert all or part of
the Note.
On
November 17, 2015, Pacific Green Technologies China Limited, a wholly-owned subsidiary of our company, entered into a commercial
joint venture agreement with PowerChina SPEM Company Limited (“
PowerChina
”) wherein PowerChina would receive
and process orders from our company for customers, and manufacture and install products as an engineering procurement construction
process. In return, our company agreed to design the product and provide a technology license and technical supports to PowerChina.
During the Agreement, we will provide PowerChina with a non-transferrable right and license to use Technology to manufacture and
install our product within the Peoples’ Republic of China.
Upon
receiving each order from us, PowerChina and we shall submit to each other the respective estimated budgets. For each project,
after receipt of the revenue from the relevant customer, the budgets of our company and PowerChina shall be deducted and reimbursed
from the revenue proportionally. We have agreed to share the gross profit pursuant to an even split of 50% to PowerChina and 50%
to our company.
On
July 14, 2017, the Company entered into a new memorandum of understanding to establish a new joint venture company in China with
PowerChina (the “Supplier”) wherein the Supplier would receive and process orders, manufacture, and install products
for the Company’s customers. In return, the Company agreed to design the product, provide strategic pricing, sales and marketing
direction, as well as provide technology licenses and technical support (the “Technology”) to the Supplier. During the
term of the agreement, the Company will provide the Supplier with a non-transferrable right and license to use the Technology
to manufacture and install the product within the Asia and Russia region.
The
parties will fund the venture proportionately, 50.1% by the Company and 49.9% by the Supplier, and excess operating cash flows
will be distributed on a quarterly basis.
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 months ended June 30, 2018 and 2017.
Our
net loss for the three month periods ended June 30, 2018 and 2017 are summarized as follows:
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Advertising and promotion
|
|
$
|
34,517
|
|
|
$
|
15,850
|
|
Amortization of intangible assets
|
|
$
|
218,953
|
|
|
$
|
218,953
|
|
Consulting fees
|
|
$
|
357,084
|
|
|
$
|
101,803
|
|
Depreciation
|
|
$
|
2,356
|
|
|
$
|
2,356
|
|
Foreign exchange loss (gain)
|
|
$
|
(144,729
|
)
|
|
$
|
98,471
|
|
Office and miscellaneous
|
|
$
|
62,643
|
|
|
$
|
46,831
|
|
Professional fees
|
|
$
|
69,542
|
|
|
$
|
39,529
|
|
Research and Development
|
|
$
|
-
|
|
|
$
|
52,304
|
|
Transfer agent and filing fees
|
|
$
|
17,022
|
|
|
$
|
13,301
|
|
Travel
|
|
$
|
83,494
|
|
|
$
|
50,419
|
|
Interest expense
|
|
$
|
(2,990
|
)
|
|
$
|
(268,703
|
)
|
Loss on change in fair value of derivative liabilities
|
|
$
|
(145,147
|
)
|
|
$
|
(105,060
|
)
|
Net Loss
|
|
$
|
(849,019
|
)
|
|
$
|
(1,013,580
|
)
|
Expenses
for the three month period ended June 30, 2018 were $700,882 as compared to $639,817 for the three month period ended June 30,
2017. The increase in expenses was primarily in consulting fees and travel, with an offsetting reduction research and development
expenses and a foreign exchange gain.
For
the three month period ended June 30, 2018, our company had a net loss of $849,019 ($0.02 per share) compared to a net loss of
$1,013,580 ($0.04 per share) for the three month period ended June 30, 2017. In addition to the operating expenses noted above,
for the three month period ended June 30, 2018, our company had interest expense of $2,990 and loss on change in fair value of
derivative liabilities of $145,147 as compared to interest expense of $268,703 and loss on change in fair value of derivative
liabilities of $105,060 for the three month period ended June 30, 2017. The decrease in net loss is primarily due to foreign exchange
gains and a decrease in interest expense.
Liquidity
and Capital Resources
Working
Capital
|
|
As at
June 30,
2018
|
|
|
As at
March 31,
2018
|
|
Current Assets
|
|
$
|
2,864,184
|
|
|
$
|
331,927
|
|
Current Liabilities
|
|
$
|
1,044,506
|
|
|
$
|
1,223,809
|
|
Working Capital (Deficit)
|
|
$
|
1,819,678
|
|
|
$
|
(891,882
|
)
|
Cash
Flows
|
|
Three Months Ended
June 30,
2018
|
|
|
Three Months Ended
June 30,
2017
|
|
Net cash used in operating activities
|
|
$
|
(718,815
|
)
|
|
$
|
(617,492
|
)
|
Net cash provided by investing activities
|
|
$
|
-
|
|
|
$
|
(87,647
|
)
|
Net cash provided by financing activities
|
|
$
|
2,936,000
|
|
|
$
|
807,300
|
|
Effect of foreign exchange
|
|
$
|
(139,332
|
)
|
|
$
|
43,311
|
|
Net increase in cash
|
|
$
|
2,077,853
|
|
|
$
|
145,472
|
|
Cash, End of Period
|
|
$
|
2,307,735
|
|
|
$
|
527,639
|
|
As of June 30, 2018, we had $2,307,735 in cash,
other current assets of 556,449, a long-term lease receivable of $1,995,000, and total liabilities of $1,044,506. As of March 31,
2018, we had working capital of $1,819,678.
During the three months ended June 30, 2018,
we spent $718,815 on operating activities, whereas $617,492 was spent on operating activities for the three month period ended
June 30, 2017.
During the three months ended June 30, 2018,
we used $Nil in investing activities, whereas we used $87,647 in investing activities during the three months ended June 30, 2017.
During the three months ended June 30, 2018,
we received $2,936,000 from financing activities, which consisted of proceeds from securities purchase agreements, whereas we
received $807,300 from financing activities during the three months ended June 30, 2017.
Anticipated
Cash Requirements
We
may 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 will be approximately $2,045,000 as described in the table below. These
estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our
shareholders or other sources.
Description
|
|
Estimated
Expenses
($)
|
|
Legal and accounting fees
|
|
|
200,000
|
|
Marketing and advertising
|
|
|
150,000
|
|
Investor relations and capital raising
|
|
|
50,000
|
|
Engineering, research and technical development
|
|
|
400,000
|
|
Travel
|
|
|
250,000
|
|
Management and operating costs
|
|
|
250,000
|
|
Salaries and consulting fees
|
|
|
450,000
|
|
General and administrative expenses
|
|
|
250,000
|
|
Total
|
|
|
2,000,000
|
|
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 require a minimum of $2,000,000 to proceed with our business plan over the next 12 months. As
of June 30, 2018, we had $2,307,735 cash on hand
Should
our business plans change, requiring additional cash resources, we would intend to raise the balance of our cash requirements
from private placements, the exercise of warrants and options, 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.
Going
Concern
Our
consolidated financial statements for the three month period ended June 30, 2018 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 the Company as a going concern is dependent upon the continued financial support from its shareholders, creditors,
and related parties, and the ability of the Company to generate profitable operations. As at June 30, 2018, the Company has begun
commercial sales generating revenues; the Company has an accumulated deficit of $68,613,070 since inception. A history of significant
losses raises doubts regarding the Company’s ability 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.
Revenue
recognition
The
Company recognizes revenues when equipment has been delivered and accepted by a customer and risk of ownership has transferred.
In addition, terms and pricing has been finalized and the collectability of proceeds is reasonably assured. The energy management
lease arrangement qualifies for sales-type lease accounting and includes an option for the transfer of title at the conclusion
of the lease payments.
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
February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, “Leases”. This new guidance was initiated
as a joint project with the International Accounting Standards Board to simplify lease accounting and improve the quality of and
comparability of financial information for users. This new guidance would eliminate the concept of off-balance sheet treatment
for “operating leases” for lessees for the vast majority of lease contracts. Under ASU No. 2016-02, at inception,
a lessee must classify all leases with a term of over one year as either finance or operating, with both classifications resulting
in the recognition of a defined “right-of-use” asset and a lease liability on the balance sheet. However, recognition
in the income statement will differ depending on the lease classification, with finance leases recognizing the amortization of
the right-of-use asset separate from the interest on the lease liability and operating leases recognizing a single total lease
expense. Lessor accounting under ASU No. 2016-02 would be substantially unchanged from the previous lease requirements under GAAP.
ASU No. 2016-02 will take effect for public companies in fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. Early adoption is permitted and for leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements, lessees and lessors must apply a modified retrospective transition
approach. The Company is currently evaluating the new guidance and has not determined the impact this standard may have on the
consolidated financial statements.
Our company has implemented all new accounting pronouncements that are in effect and that may
impact its consolidated financial statements. At this time, management 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.