Pacific Green Technologies Inc. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2022

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [        ] to [          ]

Commission file number 000-54756

Registrant’s telephone number, including area code: (302) 601-4659

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of Common Stock held by non-affiliates of the Registrant on September 30, 2021, was $52,405,587 based on a $1.66 average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

47,026,886 common shares issued and outstanding as of August 10, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Table of Contents

PART I

Item 1. Business

This annual 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 “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” 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, including the risks in the section entitled “Risk 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 law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this annual report and unless otherwise indicated, the terms “we”, “us”, “our”, the “Company”, and “our company” mean Pacific Green Technologies Inc., a Delaware corporation, and our wholly owned subsidiaries, (1) Pacific Green Innoergy Technologies Ltd., a United Kingdom company, (2) Pacific Green Marine Technologies Group Inc., a Delaware corporation, (3) Pacific Green Marine Technologies Inc., a Delaware corporation, (4) Pacific Green Technologies (UK) Ltd. (Formerly Pacific Green Marine Technologies Ltd.), a United Kingdom company, (5) Pacific Green Technologies (Middle East) Holdings Ltd., a United Arab Emirates company, (6) Pacific Green Technologies Arabia LLC, 70% owned, a Kingdom of Saudi Arabia company, (7) Pacific Green Marine Technologies (USA) Inc., a Delaware corporation (inactive), (8) Pacific Green Technologies (Canada) Inc. (Formerly Pacific Green Marine Technologies Inc.), a Canadian corporation, (9) Pacific Green Solar Technologies Inc., a Delaware corporation, (10) Pacific Green Corporate Development Inc. (formerly Pacific Green Hydrogen Technologies Inc.), a Delaware corporation, (11) Pacific Green Wind Technologies Inc., a Delaware corporation, (12) Pacific Green Technologies International Ltd., a British Virgin Islands company, (13) Pacific Green Technologies Asia Ltd., a Hong Kong company, (14) Pacific Green Technologies Engineering Services Limited (Formally Pacific Green Technologies China Ltd.), a Hong Kong company, (15) Pacific Green Technologies (Australia) Pty Ltd., an Australia company, (16) Pacific Green Environmental Technologies (Asia) Ltd., 50.1% owned, a Chinese company, (17) Pacific Green Technologies (Shanghai) Co. Ltd. (Formerly Shanghai Engin Digital Technology Co. Ltd.), a Chinese company, (18) Guangdong Northeast Power Engineering Design Co. Ltd., a Chinese company, (19) Pacific Green Energy Parks Inc., a Delaware corporation, (20) Pacific Green Energy Storage Technologies Inc., a Delaware corporation, (21) Pacific Green Energy Storage (UK) Ltd. (Formerly Pacific Green Marine Technologies Trading Ltd.), a United Kingdom company, (22) Pacific Green Battery Energy Parks 1 Ltd., 50% owned, a United Kingdom company, (23) Richborough Energy Park Ltd., 50% owned, a United Kingdom company, 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 ensuing five years, we sought out 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:

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.

Original Strategy and Recent 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 sulfur dioxide as an acid gas. Testing has been conducted on diesel shipping to confirm the application of seawater as a neutralizing agent for sulfur 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.

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 sulfur 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 sulfur dioxide removal in all industries emitting sulfur 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. The ENVI-Clean™ system removes most of the sulfur 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.

Vision & Strategy

Pacific Green envisions a world of rapidly growing demand for renewable energy technological solutions to address the challenges presented by a changing climate. Having achieved success in marine emission control technologies we have now diversified our business to provide turnkey and scalable end-to-end environmental and renewable technology solutions in the energy sector. Our technological platform now has three main divisions:

In all the above areas, Pacific Green plans to execute this vision by a dual strategy of equipment sales and proactive infrastructure development and ownership, each is led by acquisitions of technology capabilities and project investment opportunities, highlighted to date by the following events:

In support of this dual strategy, we have adopted a Human Resource Strategy that seeks to hire the best talent in the core areas of our business. At March 31, 2022, the Company employed approximately 53 staff excluding full time consultants and contractors across a network of offices around the world. Our hiring plan includes the addition of sales and project execution specialists.

Strategic Partnerships

Pacific Green has forged global partnerships with private and state-owned energy providers and owners. This strategic alignment with leading energy industry platforms empowers Pacific Green to provide quickly scalable solutions in the core areas of our business, to gather unique insights on cutting-edge trends and leverage recurring revenue opportunities that enable us to cross-sell products and services.

The Company has entered into several partnership and framework agreements in the core areas of our business.

Concentrated Solar Power (“CSP”)

On December 23, 2019, the Company entered into a International Strategic Alliance Agreement with (1) Beijing Shouhang IHW Resources Saving Technology Company Ltd. (“Shouhang”), a company listed on the Shenzhen Stock Exchange in China, and (2) PowerChina.

The Strategic Alliance Agreement provides for the development of CSP plants whereby (1) the Company provides the Intellectual Property, the technical know-how, design and engineering, (2) Shouhang, with annual revenues of approximately USD$157 million, provides manufacturing of the solar field and molten salt tank services, and (3) PowerChina provides the EPC role worldwide.

Battery Energy Storage Systems (“BESS”)

On January 14, 2021, the Company signed a framework agreement with Shanghai Electric Gotion New Energy Technology Co., Ltd (“SEG”). The agreement provides for the supply of lithium-ion BESS. SEG is a joint-venture between Shanghai Electric Group Co., Ltd. (“Shanghai Electric”) and Guoxuan High-tech Co., Ltd. With multiple production facilities and a long-established history in technology manufacturing and supply-chain management, SEG is well-positioned to provide lithium-ion BESS technology around the world. Shanghai Electric has operating revenues in excess of USD$20bn.

On March 18, 2021, the Company signed a framework agreement with TUPA Energy Limited (“TUPA”) to gain exclusive rights to 1.1GW of BESS projects in the UK. TUPA is a UK based company with expertise in planning, grid connections and land acquisition. The Company has to date executed 100MW in relation to the Richborough Energy Park project.

In addition to supply agreements, on December 2, 2020, the Company signed a joint venture and marketing agreement with AMKEST to assist with the promotion of the Company’s core business platform in the Kingdom of Saudi Arabia and the wider Middle East. Amkest Group is overseen by its founder, Amr Khashoggi, who holds board positions in numerous influential companies and government bodies across the Kingdom and is currently serving as Strategic Advisor to the Kingdom’s prominent new development city, King Abdullah Economic City (KAEC). Amkest Group’s leadership team is led by Chief Executive Officer, Salman Alireza, whose background includes various founding, executive and director-level positions in the business development sector within the Kingdom of Saudi Arabia, in addition to an MBA from London Business School. There have been no transactions up until March 31, 2022.

Significant Events

On September 21, 2021, the Company announced that it had signed an offer letter from Close Leasing Limited (“CLL”), wherein CLL will provide debt financing of £28 million (US$31.6 million) for the construction of a 99.8 MW BESS the Company is developing in Kent, England.

On September 28, 2021, the Company announced that under the terms of its framework agreement (the “Agreement”) with Tupa Energy Limited (“TUPA”), it has confirmed its intent to acquire Sheaf Energy Limited (“SEL”), a Kent, England-based 249 MW BESS development wholly-owned by TUPA. Following the 99.8 MW Richborough Energy Park Limited BESS development that the Company acquired earlier this year, the 249 MW SEL BESS development is the next phase of the 1,100 MW BESS Agreement that the Company entered into with TUPA in March 2021. The Company and TUPA continue to build on the success of the initial developments, with the balance of the 750 MW expected to be operational in 2025.

Intellectual Property & Technical Know-How

Pacific Green has built a unique horizontal intellectual property platform consisting of:

We do not own, either legally or beneficially, any registered patent or trademark, except for the following proprietary emission abatement systems and associated marks, currently known as:

The ENVI-Clean™ system has protected intellectual property rights throughout most of the world. Its technology is protected by Patent Cooperation Treaty (PCT) patent application no. PCT/CA210/000988 filed June 25, 2010 with a priority filing date of June 25, 2009. The International Preliminary Report on Patentability for this PCT application considered all patent claims of the application to be patentable. EnviroTechnologies has pending national or regional phase patent applications claiming priority from PCT/CA2010/000988 covering 127 countries. Once patents are issue, patent rights in this technology will generally endure until June 25, 2030.

Further, we own the rights to the US provisional patent application no. US 61/614696 for the integrated wet scrubbing system. Additionally, we own the rights to US provisional patent application no. US 61/645874 for the flooded wet scrubbing head patent. 

We claim copyright in all our published corporate, promotional and sales materials. 

Government Regulations

Some aspects of our intended operations will be subject to a variety of federal, provincial, state and local laws, rules and regulations in North America and worldwide relating to, among other things, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. For example, we are subject to the Resource Conservation Recovery Act (“RCRA”), the principal federal legislation regulating hazardous waste generation, management, and disposal.

Under some of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removing or remediating certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Laws of this nature often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of the hazardous or toxic substances. These laws and regulations may require the removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some of the laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation, and abandonment orders. The costs arising from compliance with environmental and natural resource laws and regulations may increase operating costs for both us and our potential customers. We are also subject to safety policies of jurisdictional-specific Workers Compensation Boards and similar agencies regulating the health and safety of workers.

We are not aware of any material violations of environmental permits, licenses or approvals issued with respect to our operations. We expect to comply with all applicable laws, rules and regulations relating to our intended business. At this time, we do not anticipate any material capital expenditures to comply with environmental or various regulations and requirements.

Subsidiaries

Our company’s wholly owned subsidiaries are (1) Pacific Green Innoergy Technologies Ltd., a United Kingdom company, (2) Pacific Green Marine Technologies Group Inc., a Delaware corporation, (3) Pacific Green Marine Technologies Inc., a Delaware corporation, (4) Pacific Green Technologies (UK) Ltd. (Formerly Pacific Green Marine Technologies Ltd.), a United Kingdom company, (5) Pacific Green Technologies (Middle East) Holdings Ltd., a United Arab Emirates company, (6) Pacific Green Technologies Arabia LLC, 70% owned, a Kingdom of Saudi Arabia company, (7) Pacific Green Marine Technologies (USA) Inc., a Delaware corporation (inactive), (8) Pacific Green Technologies (Canada) Inc. (Formerly Pacific Green Marine Technologies Inc.), a Canadian corporation, (9) Pacific Green Solar Technologies Inc., a Delaware corporation, (10) Pacific Green Corporate Development Inc. (formerly Pacific Green Hydrogen Technologies Inc.), a Delaware corporation, (11) Pacific Green Wind Technologies Inc., a Delaware corporation, (12) Pacific Green Technologies International Ltd., a British Virgin Islands company, (13) Pacific Green Technologies Asia Ltd., a Hong Kong company, (14) Pacific Green Technologies Engineering Services Limited (Formally Pacific Green Technologies China Ltd.), a Hong Kong company, (15) Pacific Green Technologies (Australia) Pty Ltd., an Australia company, (16) Pacific Green Environmental Technologies (Asia) Ltd., 50.1% owned, a Chinese company, (17) Pacific Green Technologies (Shanghai) Co. Ltd. (Formerly Shanghai Engin Digital Technology Co. Ltd.), a Chinese company, (18) Guangdong Northeast Power Engineering Design Co. Ltd., a Chinese company, (19) Pacific Green Energy Parks Inc., a Delaware corporation, (20) Pacific Green Energy Storage Technologies Inc., a Delaware corporation, (21) Pacific Green Energy Storage (UK) Ltd. (Formerly Pacific Green Marine Technologies Trading Ltd.), a United Kingdom company, (22) Pacific Green Battery Energy Parks 1 Ltd., 50% owned, a United Kingdom company, (23) Richborough Energy Park Ltd., 50% owned, a United Kingdom company, unless otherwise indicated.    

REPORTS TO SECURITY HOLDERS

We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission and our filings are available to the public over the internet at the Securities and Exchange Commission’s website at http://www.sec.gov. The public may read and copy any materials filed by us with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street N.E. Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-732-0330. The SEC also maintains an Internet site that contains reports, proxy and formation statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

Employees

As of March 31, 2022, the Company’s subsidiaries employed people in Canada, United Kingdom, and China. The Company also relies heavily upon the use of contractors and consultants. The Company employed 53 full-time employees as of March 31, 2022 (59 as of March 31, 2021) that serve in technical, commercial, and administrative roles. More recently, the Company has hired new staff to support the anticipated growth in the Batteries and Solar businesses.

The Company is committed to providing its employees with a safe and healthy work environment, free from harassment or discrimination (based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, veteran status, caste, or other legally protected characteristic), intimidation, or personal behavior not conducive to a productive work climate. The Company is an equal opportunity employer committed to inclusion and diversity.

In order to attract and retain quality employees, the Company offers competitive remuneration. The Company invests in tools and resources that support employees’ individual growth and development.

Item 1A. Risk Factors

Risks Related to Our Financial Position and Capital Requirements

We have a limited operating history with significant losses.

We have yet to establish a sustained history of profitable operations. We incurred a cumulative deficit of $85,530,306 for the period from April 5, 2011 (inception) to March 31, 2022. We generated our first revenues during the year ended March 31, 2018 of $1,995,000. Our profitability will depend on our ability to successfully market and sell the Technologies and there can be no assurance that we will be able to do so. The economic driver for the purchase by shipping companies for our marine scrubbers is primarily the spread between low-cost (high sulfur) bunker fuel and high-cost (low sulfur) bunker fuel. Following the oil price drop of 2020 which saw the fuel price spread drop significantly from over $200/tonne to $50/tonne, the demand for our scrubbers fell away. In recent months, the spread has risen to over $100/tonne which provides a strong indication of a possible return of demand, but it is not clear whether this is a continuing upward trend or a temporary rise and we cannot provide assurance of the resumption in demand for our marine scrubber technology. Over the last two years we have been exploring alternative strategies to complement our emission control Technologies, and have identified opportunities for both concentrated solar power and battery energy storage systems technologies in various geographies around the world, to support a global transition away from the use of hydrocarbons. We are taking a medium- to long-term view of these opportunities and are at an early stage in pursuing and developing them, and there is no certainty that these will grow and become profitable and cash-generative ventures for us.

We have identified two material weaknesses in our internal control over financial reporting that resulted in material errors in our financial statements. If we fail to remediate these two material weaknesses or if we experience additional material weaknesses in the future, we may be unable to accurately and timely report our financial results or comply with the requirements of being a public company, which may adversely affect investor confidence in us; could cause the price of our common stock to decline and harm our business and operating results; and expose us to potential litigation.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected and corrected on a timely basis.

Based on its evaluation in accordance with the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), management identified two material weaknesses in the recognition of revenue and the cost of goods sold. Firstly, accounting guidance had not been rigorously applied to the revenue contracts and management had relied on analysis of the revenue contracts performed in earlier periods. Secondly, management failed to identify an error in the presentation of certain expenses which should have been treated as cost of goods sold. These two material weaknesses in the Company’s internal control over financial reporting resulted in material errors not being detected timely with the Company’s consolidated financial statements for the fiscal year ending March 31, 2021 as well as relevant unaudited quarters comprising that fiscal year, and the three subsequent interim and cumulative periods for the year ending March 31, 2022, all of which are being restated within this 10-K report for the year ending March 31, 2022.

Effective internal control over financial reporting is necessary for the Company to provide reliable financial reports and prevent fraud. The Company has identified the steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.

If the Company is not able to remediate the two material weaknesses, or if the Company identifies any new material weaknesses in the future, it may be unable to maintain compliance with the requirements of securities laws, stock exchange listing rules, or debt instrument covenants regarding timely filing of information; it could lose access to sources of capital or liquidity; and investors may lose confidence in its financial reporting and its stock price may decline as a result. Though the Company is taking steps to remediate the two material weaknesses, it cannot assure you that the measures it has taken to date, or any measures it may take in the future, will be sufficient to remediate the two material weaknesses or avoid potential future material weaknesses.

We may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.

We anticipate needing significant capital to develop our sales force and effectively market the Technologies and develop the BESS facilities. We may use capital more rapidly than currently anticipated and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs. We may need new or additional financing in the future to conduct our operations or expand our business. Any sustained weakness in the general economic conditions and/or financial markets in the United States or globally could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied, and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding.

Beginning in 2020, the global COVID-19 pandemic significantly increased the volatility of financial markets worldwide. Beginning in March 2022, the ongoing Russian-Ukraine conflict has also contributed to economic volatility and unpredictability, and may continue to do so, as may future crises and conflicts. Significant volatility or disruptions of the capital markets could eliminate our access to financing, and/or significantly increase its cost. Such volatility or disruptions in the capital markets may cause lenders to be unwilling to provide us with financing to fund our ongoing operations and growth.

If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition, and results of operations.

Our prospects must be considered in light of the risks, expenses, delays and difficulties frequently encountered in establishing a new business in an emerging and evolving industry, including the following factors:

We cannot be sure that we will be successful in meeting these challenges and addressing these risks and uncertainties. If we are unable to do so, our business will not be successful and the value of your investment in us will decline.

Risks Related to our Business and Operations

The development and expansion of our business through acquisitions, joint ventures, and other strategic transactions may create risks that may reduce the benefits we anticipate from these strategic alliances and may prevent us from achieving or sustaining profitability.

We intend to enter into technology acquisition and licensing agreements and strategic alliances such as joint ventures or partnerships in order to develop and commercialize our proposed technologies and services, and to increase our competitiveness. Our management is unable to predict whether or when we will secure any such commitments or agreements, or whether such commitments or agreements will be secured on favorable terms and conditions.

Our ability to continue or expand our operations through acquisitions, joint ventures or other strategic alliances depends on many factors, including our ability to identify acquisitions, joint ventures, or partnerships, or access capital markets on acceptable terms. Even if we are able to identify strategic alliance targets, we may be unable to obtain the necessary financing to complete these transactions and could financially overextend ourselves.

Acquisitions, joint ventures or other strategic transactions may present financial, managerial and operational challenges, including diversion of management attention from existing business and difficulties in integrating operations and personnel. Acquisitions or other strategic alliances also pose the risk that we may be exposed to successor liability relating to prior actions involving a predecessor company, or contingent liabilities incurred before a strategic transaction. Due diligence conducted in connection with an acquisition, and any contractual guarantees or indemnities that we receive from sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Liabilities associated with an acquisition or a strategic transaction could adversely affect our business and financial performance and reduce the benefits of the acquisition or strategic transaction. Any failure to integrate new businesses or manage any new alliances successfully could adversely affect our business and financial performance and prevent us from achieving profitability. 

We are dependent upon our officers for execution of our business plan.

As a result, our future success depends heavily upon the continuing services of the members of our senior management team. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted, and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel or attract and retain high-quality senior executives or key personnel in the future. We do not currently maintain key man insurance on our senior managers. The loss of the services of our senior management team and employees could result in a disruption of operations which could result in reduced revenues.

Significant volatility in oil prices may have a material adverse effect on our business.

The volatility in oil prices caused by geopolitical tensions such as those between Russia and Ukraine have created volatility in the price of fuel oil used by our marine customers. The economic driver for the purchase by shipping companies for our marine scrubbers is primarily the spread between low-cost (high sulfur) bunker fuel and high-cost (low sulfur) bunker fuel. The volatility, particularly a reduction in the price of low sulfur fuel oil, could negatively affect the demand for our marine scrubbers. Fuels with higher sulfur content have been cheaper than low sulfur fuel historically. Our marine scrubbers allow our customers to use fuels with higher sulfur content. A decrease in the demand for marine scrubbers, which allow the use of heavy fuel oil under IMO 2020, could reduce our sales of marine scrubbers.

Adverse economic conditions.

Economic downturns and financial crises in the global markets could produce illiquidity in the capital markets, market volatility, increased exposure to interest rate and credit risks and reduced access to capital markets. If global financial markets and economic conditions significantly deteriorate in the future, we may face restricted access to the capital markets or bank lending, which may make it more difficult and costly to fund future growth. Decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.

Adverse economic conditions or other developments relating directly to our customers may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our services. Our customers’ inability to pay for any reason could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to make or realize expected benefits from acquisitions and implementing our long-term strategy of growth through acquisitions may harm our financial condition and performance.

A principal component of our long-term strategy is to continue to grow by expanding our business both in the geographic areas and markets where we have historically focused as well as into new geographic areas, market segments and services. We may not be successful in expanding our operations and any expansion may not be profitable. Our long-term strategy of growth through acquisitions involves business risks commonly encountered in acquisitions of companies, including:

Acquisitions may not be profitable to us at the time of their completion and may not generate revenues sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our results of operations and financial condition, including risks that we may: fail to realize anticipated benefits, such as cost-savings, revenue and cash flow enhancements and earnings accretion; decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions; incur additional indebtedness, which may result in significantly increased interest expense or financial leverage, or issue additional equity securities to finance acquisitions, which may result in significant shareholder dilution; incur or assume unanticipated liabilities, losses or costs associated with the business acquired; or incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

Exposure to currency exchange rate fluctuations results in fluctuations in our cashflows and operating results.

Substantially all of our revenues are earned in U.S. dollar. A portion of our operating costs are incurred in currencies other than U.S. dollars. This partial mismatch in operating revenues and expenses leads to fluctuations in net income due to changes in the value of the U.S. dollar relative to other currencies, in particular the GB pound. Because we report our operating results in U.S. dollars, changes in the value of the U.S. dollar relative to other currencies also result in fluctuations of our reported revenues and earnings. Under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, advances from affiliates and long-term debt are revalued and reported based on the prevailing exchange rate at the end of the applicable period. This revaluation historically has caused us to report significant unrealized foreign currency exchange gains or losses each period.

We are at risk that the Technologies will not perform to expectations.

As at the date of this annual report, the Technologies have been tested to satisfactory requirements but there is no guarantee that the Technologies will continue to perform satisfactorily in the future which would damage our prospects.

The market for alternative energy products, technologies or services is emerging and rapidly evolving and its future success is uncertain. Insufficient demand for the Technologies would prevent us from achieving or sustaining profitability.

It is possible that we may spend large sums of money to bring the Technologies to market, but demand may not develop or may develop more slowly than we anticipate.

Our future success is currently dependent on our Technologies and:

We may be unable to develop widespread commercial markets for our Technologies. We may be unable to achieve or sustain profitability.

Competition within the renewable energy industry may prevent us from becoming profitable.

The renewal energy industry is competitive and fragmented and includes numerous small companies capable of competing effectively in the market we target as well as several large companies that possess substantially greater financial and other resources than we do. Larger competitors’ greater resources could allow those competitors to compete more effectively than we can with our Technologies. A number of competitors have developed more mature businesses than us and have successfully built their names in the international alternative energy markets. These various competitors may be able to offer products, sustainability technologies or services more competitively priced and more widely available than our Technologies and may also have greater resources to create or develop new technologies and products than us. Failure to compete in the alternative energy industry may prevent us from becoming profitable, and thus you may lose your entire investment.

We are at risk that we are unable to manufacture our Technologies in accordance with contractual terms.

All contracts which we secure for the sale of our Technologies will require that we supply a functioning emission control system. There is a risk that we are unable to manufacture and supply our Technologies in accordance with contractual terms. Any failure by us to perform our obligations under any such contract may have a detrimental impact on our financial standing and reputation.

Legal, Regulatory and Litigation Risks

Our business is subject to environmental and consumer protection legislation and any changes in such legislation could prevent us from becoming profitable.

The energy production and technology industries are subject to many laws and regulations which govern the protection of the environment, quality control standards, health and safety requirements, and the management, transportation and disposal of hazardous substances and other waste. Environmental laws and regulations may require removal or remediation of pollutants and may impose civil and criminal penalties for violations. Some environmental laws and regulations authorize the recovery of natural resource damages by the government, injunctive relief and the imposition of stop, control, remediation, and abandonment orders. Similarly, consumer protection laws impose quality control standards on products marketed to the public and prohibit the distribution and marketing of products not meeting those standards.

The costs arising from compliance with environmental and consumer protection laws and regulations may increase operating costs for both us and our potential customers. Any regulatory changes that impose additional environmental restrictions or quality control requirements on us or on our potential customers could adversely affect us through increased operating costs and potential decreased demand for our services, which could prevent us from becoming profitable.

Climate change and greenhouse gas restrictions may affect our business.

Many governmental bodies have adopted, or are considering the adoption of treaties or national, state and local laws, regulations and frameworks to reduce greenhouse gas emissions due to concerns about climate change. 

In 2016, the Paris Agreement, in which almost 200 countries committed to reduce their greenhouse gas emissions and set firm target reduction goals. The Glasgow Climate Change Conference held in 2021, reiterated countries’ commitment to bringing down emissions and pursuant to which over 140 countries pledged to reach net-zero carbon emissions. In November 2021, nearly 500 global financial services firms, managing $130 trillion and approximately 40% of the world’s financial assets, committed to reach net-zero carbon emissions by 2050, and committed to interim goals towards a 50 percent reduction by 2030 as well as a 25 percent reduction in the next five years.  

Our future business growth will be partially driven by the enforcement of emissions-related environmental regulations and further tightening of emission standards worldwide, which are beyond our control. For example, our ability to expand in our marine business sector is dependent on the effective implementation of IMO 2020, which requires the burning of low-sulfur oil for marine vessels or the installation of marine scrubbers. If existing regulations and emissions standards are not enforced by governmental authorities, it could have a material adverse effect on our operating results and long-term growth.

Risks Related to our Stockholders and Shares of Common Stock

The continued sale of our equity securities will dilute the ownership percentage of our existing stockholders and may decrease the market price for our common stock.

As of March 31, 2022, the Company’s cash reserves are approximately $6.29 million. We expect to continue our efforts to market, manufacture and deliver our Technologies to customers. Should the Company need additional resources, we may consider selling additional equity securities which will result in dilution to our existing stockholders. In short, our continued need to sell equity will result in reduced percentage ownership interests for all of our investors, which may decrease the market price for our common stock.

We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.

We have never paid dividends and do not intend to pay any dividends for the foreseeable future. To the extent that we may require additional funding currently not provided for in our financing plan, our funding sources may prohibit the declaration of dividends. Because we do not intend to pay dividends, any gain on your investment will need to result from an appreciation in the price of our common stock. There will therefore be fewer ways in which you are able to make a gain on your investment. In the future when we do intend to pay dividends, we will formalize a dividend policy.

Because the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your shares, which may cause the value of your investment to decline.

Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) which imposes additional sales practice requirements on brokers-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock. This could prevent you from reselling your shares and may cause the value of your investment to decline.

Financial Industry Regulatory Authority (FINRA) sales practice requirements may limit your ability to buy and sell our common stock, which could depress the price of our shares.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

General Risk Factors

We may have risks associated with the security of our information technology systems.

We make significant efforts to maintain the security of our information technology systems and protect our critical data. Despite our continuing efforts, cyber-attacks may occur that could significantly disrupt our business activities and financial performance, resulting in loss of revenues, reputation, and customer relationships.

Cyber-attacks are unwelcome attempts to steal, expose, alter, disable, or destroy information through unauthorized access to computer systems. It is becoming increasingly common and more sophisticated, targeted, and undetected. It may be perpetrated by criminal organizations, professional hackers, or others engaged in corporate espionage. As the methods of cyber-attacks continue to evolve, we may be required to expand our information system to enhance our existing protective measures. This will cause increased costs in our business. A successful cyber-attack could also result in significant costs associated with the investigation and remediation of our technology systems, as well as increased regulatory and legal liability.

Outbreaks of epidemic diseases, including COVID-19, could adversely impact our business operations.

The novel coronavirus pandemic is dynamic and expanding, and its ultimate scope, duration and effects are uncertain. We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industry and customers, which in turn may impact our business, results of operations and financial condition. Effects of the current pandemic include, or may include, among others:

Beginning in early 2020 since the start of the COVID-19 pandemic, there has been an overall decline in new orders from our customers in the shipping business. There has been reduced investments and operations in the shipping industry due to increased travel restrictions, demand disruptions, and the volatility of oil prices. The pandemic has certainly contributed indirectly to the reduction in demand for our marine scrubbers, as many of our customers have vessels that have sat idle during the outbreak. Given the uncertainty of the pandemic’s evolution, it may further impact the business in the future.

The financial position of our customers could be adversely impacted by the COVID-19 pandemic. We may have difficulty collecting receivables from our customers, which will reduce our operating cashflows and cause adverse effects on our liquidity and cash flow.

In addition, COVID-19 pandemic has disrupted our supply chain and sales and distribution channels, affecting our ability to deliver products and provide services to our customers. The Chinese government may place additional restrictions on the transportation of products in and out of China. These restrictions would adversely impact our business, results of operations, and financial condition.

Item 1B. Unresolved Staff Comments

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Properties

Our registered business address for correspondence is Suite #10212 8 The Green, Dover, DE 19901. Our telephone number is (302) 601-4659.

We have an operations headquarters, based at 4 Albemarle Street, London, W1S 4GA, United Kingdom.

Item 3. Legal Proceedings

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest. 

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are quoted on the OTCQB under the symbol “PGTK”, but trade infrequently. Our common shares are not currently listed on the NASDAQ.

The high and low bid prices of our common stock for the periods indicated below are as follows:

As of August 10, 2022, there were 285 holders of record of our common stock. As of such date, 47,026,886 of our common stock were issued and outstanding.

Dividends

We have not paid any cash dividends to date and do not anticipate or contemplate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of our business.

Securities Authorized for Issuance under Equity Compensation Plans

On January 15, 2021, the Company granted 25,000 stock options to Richard Fraser-Smith. These options are exercisable at a 25% discount to the average of the 30 trading days immediately prior to January 15, 2021. The options are exercisable on January 15, 2022 for a period of 3 years or 12 months following the termination of officer’s employment contract dated January 15, 2020, whichever is earlier.

On March 31, 2021, the Company granted 75,000 stock options to Riseley D’Souza. 25,000 options at the exercise price of $0.01 and 50,000 options at the exercise price of $1.50. The options are exercisable on March 31, 2021 for a period of three years.

On January 15, 2022, the Company granted 25,000 stock options to Richard Fraser-Smith. These options are exercisable at a 25% discount to the average of the 30 trading days immediately prior to January 15, 2022. The options are exercisable on January 15, 2023 for a period of 3 years or 12 months following the termination of officer’s employment contract dated January 15, 2020, whichever is earlier.

On March 15, 2022, the Company granted 100,000 stock options to Peter Rossbach at the exercise price of $1.20. 60,000 options are exercisable on March 15, 2022 for a period of 3 years. 40,000 options are exercisable on August 1, 2022 for a period of 3 years.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Except where otherwise indicated, each of the below described issuances of common shares was made to a non - U.S. person, as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S of the Securities Act of 1933, as amended.

On July 17, 2020, the Company issued 50,000 shares of common stock with an aggregate value of $69,500 to a former officer of the Company as per the terms of an employment settlement agreement.

On August 6, 2020, the Company issued 50,000 shares of common stock with a fair value of $62,500 pursuant to a conversion of $20,000 in principal and $42,550 in derivative liability relating to the November 10, 2015 convertible debenture. The fair value of the common stock was determined based on the closing price of the Company’s common stock of $1.25 per share. This transaction resulted in a gain on extinguishment of debt of $50.

On August 31, 2020, 175,000 stock options were exercised by a director of the Company at the exercise price of $0.01 per share with an aggregate value of $1,750. The Company issued 175,000 shares of common stock from the treasury.

On September 28, 2020, the Company issued 95,238 shares of common stock with an aggregate value of $95,238 under the terms of a sales commission agreement.

On October 19, 2020, the Company issued 525,000 shares of common stock with an aggregate value of $577,500 as part of the acquisition of Innoergy.

On October 19, 2020, the Company issued 100,000 shares of common stock with an aggregate value of $100,000 to a former director in recognition and appreciation for his years of exemplary service and commitment to the Company as a bonus. 

On January 11, 2021, the Company issued 228,980 shares of common stock with a fair value of $354,921 pursuant to a conversion of $10,000 in principal and $344,921 in derivative liability relating to the November 10, 2015 convertible debenture. The fair value of the common stock was determined based on the closing price of the Company’s common stock of $1.55 per share. This transaction resulted in a gain on extinguishment of debt of $3,077.

On March 30, 2021, the Company issued 106,375 shares of common stock with a fair value of $222,304 for investor relations.

On August 25, 2021, 25,000 stock options were exercised by an employee of the Company at the exercise price of $0.01 per share with an aggregate value of $250. The Company issued 25,000 shares of common stock from the treasury.

On August 31, 2021, 11,321 common shares of the Company were issued to an employee of the Company at $2.12 per share.

Item 6. [Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes for the years ended March 31, 2022 and 2021 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those discussed below and elsewhere in this annual report, particularly in section Item 1A “Risk Factors” of this annual report.

Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

Restatement for Revenue Recognition and Cost of Goods Sold

In June 2022, while preparing the financial statements for the year-ending March 31, 2022, the Company identified an error with respect to the application of the revenue recognition accounting policy. In previous accounting periods, the Company identified three distinct performance obligations for the sale of marine scrubbers: certified design and engineering work, acceptance of delivered equipment to customers, and acceptance of commissioned equipment. These three components were determined to be separate performance obligations within the contracts. However, based on further analysis of our marine scrubber sale contracts and a review of the five-step revenue recognition model, the Company has now concluded that the three components do not meet the definition of being “distinct” according to ASC 606-10-25-14. Customers purchase the entire marine scrubber system and do not benefit from the separate components on their own. Therefore, a single performance obligation is appropriate.

According to ASC 606-10-25-27, if the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date, revenue should be recognized over time. The Company’s scrubber system is customized to each vessel at the detailed design level, so the performance under the contract does not create an asset with an alternative use. According to the Company’s contracts signed with customers under English law, the customers are contractually and legally obliged to pay for performance completed to date that covers cost plus a reasonable profit margin. The Company has sought independent legal counsel to confirm this conclusion. Therefore, the Company concluded that revenue from the sale of marine scrubbers should be recognized over time versus at points in time for the original three performance obligations. The Company recognizes revenue based on the input method and it is the change in the cost of goods sold (using a percentage of costs to complete) that has driven the change in revenues.

Reclassification of Cost of Goods Sold

The Company has reassessed its presentation of cost of goods sold.

In previous periods the Company presented the cost of amortization of its technical intellectual property in expenses. Having reconsidered this, the Company concludes that these costs relate to fulfilling its obligations under its marine scrubber revenue contracts and, as a result, should be presented within cost of goods sold. The Company has identified certain marine sales commission costs previously included in Management and technical consulting fees that it has determined should be presented within cost of goods sold as they are considered to relate to initiating its revenue contracts. In addition, through incremental analysis, the Company has also identified certain salaries previously included in Salaries and wages and technical consulting fees previously included in Management and technical consulting fees that it has determined are appropriate to present within cost of goods sold as they are considered to relate to fulfilling the Company’s obligations under its revenue contracts. The sales commission costs represented 12.6% of total cost of goods sold for the year ended March 31, 2021. The salaries and technical consulting fees represented 4.2% of total cost of goods sold for the year ended March 31, 2021.

Effects of Adjustments on the Restated Financial Statements

The correction of these errors and the restatement adjustments for these changes to the Company’s previously issued audited annual consolidated financial statements are shown in Note 2 to the financial statements, and the previously issued unaudited quarterly consolidated financial statements are shown in Note 22 to the financial statements.

The impact of the change to revenue recognition resulted in earlier recognition of revenues and related cost of goods sold for scrubber sales. The impact on the opening deficit at March 31, 2020 was a reduction of $2,353,912. For the year ended, March 31, 2021, revenues decreased by $8,795,042 and the related cost of goods sold decreased by $5,803,538 for a net reduction of $2,991,504 to net income.

Results of Operations

The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended March 31, 2022 and also for March 31, 2021 which is as restated.

Revenue for the year ended March 31, 2022 was $15,439,199 versus $52,618,478 for the year ended March 31, 2021. The Company’s revenues were mainly derived from the sale of products (marine scrubbers). During the year ended March 31, 2022, the Company was in the process of commissioning 8 (2021 – 44) marine scrubber units which contributed to revenue of $12,680,104 (2021 – $50,728,436). The decrease in revenue was due to a major client deferring 32 marine scrubber units. 6 of these units have proceeded while 13 have cancelled. The remainder are still postponed with an option to either proceed or cancel. Revenue from services, including specific services performed in the marine business sector and design and engineering services in the solar business sector, was $2,759,096 (2021 – $1,890,042).

During the year ended March 31, 2022, the gross profit margin for products and services were 80% (2021- 20%) and 26% (2021 – 38%) respectively. The gross profit margin for products increased in 2022 because of higher contract value and consistent cost of goods sold for marine scrubbers delivered in 2022. In addition, the Company released a $2.2 million accrual from a major supplier due to settlement. Overall, the gross profit margin for the year ended March 31, 2022 was approximately 70% (2021 – 20%).

Expenses for the year ended March 31, 2022 were $22,111,094 as compared to $16,350,477. This increase was due to large one-off impairment expenses of goodwill and intangible assets. This year, the company recovered bad debt expenses of $36,526, after receiving amounts previously assumed to be unrecoverable. Management and technical consulting fees were comprised of fees paid to our directors, officers and advisors for business development efforts and advisory services. Advertising and professional fees decreased due to reduced business activities. For the year ended March 31, 2022, the Company recorded a warranty expense recovery of $731,529 (2021 - expense of $1,228,092) related to the estimated expectation of warranty costs. The impact of various international factors on FX rates caused fluctuations which saw the Company’s foreign exchange losses increase dramatically.

For the year ended March 31, 2022, our company had a net loss of $10,752,458 ($0.23 per share) compared to net loss of $1,810,425 ($0.04 per share) for the year ended March 31, 2021.  

Our financial results for the years ended March 31, 2022 and 2021 are summarized as follows:

Liquidity and Capital Resources

Working Capital

Cash Flows

As of March 31, 2022, we had $6,286,468 in cash, $24,854,658 in total current assets, $19,079,665 in total current liabilities, and working capital of $5,774,993, compared to working deficit of $589,893 as at March 31, 2021. The Company’s working capital improved as we released liabilities previously accrued with a major supplier through a settlement agreement and third party’s commitment for equity contribution. The Company’s prepaid manufacturing costs, contract liabilities and accruals changed significantly from period to period, depending on the status of equipment deliveries, customer receipts and payments to third party manufacturers.

During the year ended March 31, 2022, we used $15,955,899 in operating activities, whereas we received $3,402,719 from operating activities for the year ended March 31, 2021. Operating cash flows for the year ended March 31, 2022 primarily consist of deposits and installments received from customers and our corresponding manufacturing outlays. The negative operating cash flow for the year ended March 31, 2022 mainly resulted from reduction in revenue.

During the year ended March 31, 2022, we used $1,965,172 in investing activities, whereas we used $1,559,728 in investing activities during the year ended March 31, 2021. Our investing activities for the year ended March 31, 2022 were primarily related to the acquisition of office equipment.

During the year ended March 31, 2022, we used $99,504 related to financing activities, whereas we received $1,750 from financing activities during the year ended March 31, 2021. Our financing activity for the year ended March 31, 2022 related to exercise of stock options and repurchase of shares.

Anticipated Cash Requirements

We do not anticipate requiring additional funds to fund our forecast normal operating expenditure over the next 12 months. We do require funds to construct our first BESS 99.98MW facility project at Richborough Energy Park in Kent, United Kingdom. On May 11, 2022 the Company announced it had entered into a Subscription and Shareholders Agreement with a third party investor, who has committed $16 million (£13 million) of equity funds to the project. On June 21, 2022 the Company announced it had reached financial close (“Financial Close”) for $34.90 million (£28.25 million) of senior debt for the Richborough project. The senior debt, in conjunction with the equity investment, will provide the Company with the funding to bring the battery park to commercial operations in June 2023. The senior debt facility agreement is entered into with Close Leasing Limited (“CLL”), pursuant to which CLL will provide a development loan to fund the construction, which will be utilized in stages following the expenditure of the equity investment. The development loan will then be refinanced into a 10-year amortized term loan upon the start of commercial operations.

Our cash requirement estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources.

We currently have office locations in the United States, Canada, United Kingdom, China, Hong Kong, Abu Dhabi, Kingdom of Saudi Arabia, and Australia. We have hired staff in various regions and rely heavily upon the use of contractors and consultants. Our general and administrative expenses for the year will consist primarily of technical consultants, management, salaries and wages, professional fees, transfer agent fees, bank and interest charges and general office expenses. The professional fees relate to matters such as contract review, business acquisitions, regulatory filings, patent maintenance, and general legal, accounting and auditing fees.

Should we require additional funding over the next twelve months, we would intend to raise new cash requirements 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.

As of March 31, 2022, we had $6,286,468 in cash on hand. Our realized and anticipated profits derived from sales of ENVI marine units plus anticipated sales of products and services in our new Batteries and Solar businesses are expected to fund our planned expenditure levels. After careful consideration we believe current operations, anticipated deliveries and expected profit from such deliveries to be sufficient to cover expected cash operating expenses over the next 12 months.

Going Concern

Our financial statements for the year ended March 31, 2022 have been prepared on a going concern basis.

The assessment of the liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This includes judgments about the Company’s future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company’s forecasted model of liquidity include forecasted sales, costs, and capital expenditures. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.

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 Estimates

The preparation of these consolidated financial statements in conformity with United States 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 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. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties.

Useful lives of Intangible Assets

The carrying value of our intangible assets represents its original cost at the time of purchase, less accumulated amortization. We depreciate our intangible assets using the straight-line method over their estimated useful lives. The estimated useful life of our intangible assets are listed in the table below.

Impairment of Long-lived Assets

We review 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. The determination of whether impairment indicators exist requires significant judgment in evaluating underlying significant assumptions including expected sales contracts, operating costs, and current market value of assets. If an indication is identified, and 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.

We recorded an impairment charge of $2,641,639 on intangible assets during the year ended March 31, 2022 (2021- $37,700) as management’s estimated fair value of the assets were less than its carrying value.

Goodwill

We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. The allocation of the purchase price of acquired companies requires certain judgments and estimates. Goodwill is not amortized but is evaluated annually for impairment at the reporting unit level or when indicators of a potential impairment are present. The process of evaluating the potential impairment of goodwill requires significant judgment and are based upon existing contracts, historical experience, financial forecasts, and general economic conditions

We recorded an impairment charge of $3,870,223 on Engin goodwill and $549,092 on Innoergy goodwill during the year ended March 31, 2022 (2021- $nil) as management’s estimated fair value of the reporting unit was less than its carrying value determined during impairment testing.

Revenue Recognition

We derive revenue from the sale of products and delivery of services. Irrespective of the types of revenue described above, revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services. The Company’s marine scrubber sales contracts contain a single performance obligation satisfied over time.

Revenue recognition requires significant judgements from management in regard to the determination of accounting treatment for contracts with customers. Management is required to assess contracts with customers to the identify whether performance obligations in the contract are distinct and to determine whether contract terms provide the Company with a basis to recognize revenue over time. As discussed in Note 2, the Company restated the March 31, 2021 financial statements to correctly account for its contracts with customers.

In previous accounting periods, the Company identified three distinct performance obligations for sale of marine scrubbers: certified design and engineering work, acceptance of delivered equipment to customers, and acceptance of commissioned equipment. These three components were determined to be separate performance obligations within the contracts. However, based on further analysis of our contracts and a review of the five-step revenue recognition model, the Company concluded that the three components do not meet the definition of being “distinct” according to ASC 606-10-25-14. Customers purchase the entire marine scrubber system and do not benefit from the separate components on their own. Therefore, a single performance obligation is appropriate.

According to ASC 606-10-25-27, if the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date, revenue should be recognized over time. The Company’s scrubber system is customized to each vessel at the detailed design level, so the performance under the contract does not create an asset with an alternative use. According to the Company’s contracts signed with customers under English law, the customers are contractually and legally obliged to pay for performance completed to date that covers cost plus a reasonable profit margin. Therefore, the Company concluded that revenue should be recognized over time versus at points in time for the original three performance obligations. The Company recognizes revenue based on the input method and it is the change in cost of goods sold (using a percentage of costs to complete) that has driven the change in revenues.

In the case of settlement agreements with customers where no continued performance obligation is required, we recognize revenue based on consideration settled according to the agreement.

A contract signed with one customer has a significant financing component. 20% of the contract price is payable at least 6 calendar months prior to the dry dock date. The remaining 80% is payable in 24 equal monthly installments starting at the end of the calendar month following the installation date on a vessel-by-vessel basis. As 80% of the contract price is payable after the last performance obligation towards the scrubber, a significant financing component is separated from revenue and interest income at 5.4% is recorded when payments are received from the customer.

Contract Liabilities, Prepaid Manufacturing Costs, and Accrued Revenue

We have analyzed our sales contracts under ASC 606 and identified performance conditions that are not directly correlated with contractual payment terms with customers. As a result of the timing differences between customer payments and satisfaction of performance conditions, contractual assets and contractual liabilities have been recognized.

Contractual arrangements with customers for the sale of a scrubber unit generally provide for deposits and installments through the procurement and design phases of equipment manufacturing. Amounts received from customers, which are not yet recorded as revenues under the Company’s revenue recognition policy, are presented as contract liabilities.

Similarly, contractual arrangements with suppliers and manufacturers normally involved with the manufacturing of scrubber units may require advances and deposits at various stages of the manufacturing process. Payments to our manufacturing partners, which are not yet recorded as costs of goods sold under the Company’s revenue recognition policy, are recorded as prepaid manufacturing costs.

The Company presents the contract liabilities and prepaid manufacturing costs on its balance sheet when one of the parties to the revenue contract and supply contract, respectively, has performed before the other.

Accrued revenue is revenue that has been earned by providing a good or service, but for which the Company has not yet billed the customer.

Accounts Receivable

We assess the collectability of accounts receivable and long-term receivable on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured. In establishing the allowance, we consider factors such as known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence.

Warranty Provision

The Company reserves a 2% warranty provision on the completion of a contract following the commissioning of marine scrubbers. The specific terms and conditions of those warranties vary depending upon the product sold and geography of sale. The Company’s product warranties generally start from the commissioning date and continue for up to twelve to twenty-four months. The Company provides warranties to customers for the design, materials, and installation of scrubber units. The Company has a back-to-back manufacturing guarantee from its major supplier, which covers materials, production, and installation. Factors that affect the Company’s warranty obligation include product failure rates, anticipated hours of product operations and costs of repair or replacement in correcting product failures. These factors are estimates that may change based on new information that becomes available each period. Similarly, the Company also accrues the estimated costs to address reliability repairs on products no longer in warranty when, in the Company’s judgment, and in accordance with a specific plan developed by the Company, it is prudent to provide such repairs. The Company intends to assess the adequacy of recorded warranty liabilities quarterly and adjusts the liability as necessary.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 8. Financial Statements and Supplementary Data

PACIFIC GREEN TECHNOLOGIES INC.

Consolidated Financial Statements

March 31, 2022

(Expressed in US dollars)

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Pacific Green Technologies Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Pacific Green Technologies Inc. and subsidiaries (the Company) as of March 31, 2021, the related consolidated statement of operations and comprehensive income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

Correction of a Misstatement

As discussed in Note 2 to the consolidated financial statements, the March 31, 2021 financial statements have been restated to correct a misstatement.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the audit of the consolidated financial statements as of and for the year ended March 31, 2021 that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Going Concern Assessment

As discussed in Note 1 to the consolidated financial statements, the consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. In making this assessment, the Company has evaluated whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. This included assessment of liquidity, judgments about the Company’s future activities including the estimates of future cash flows. The Company concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

We identified the assessment of the existence of conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern as a critical audit matter. The evaluation of the Company’s estimate of cash flows used in its forecasted model of liquidity for at least 12 months beyond the date of the issuance of the consolidated financial statements involved a high degree of subjective auditor judgment due to uncertainty in the estimate of cash flows.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s assessment of its ability to continue as a going concern. This included a control related to determination of significant assumptions used in the forecasted model of liquidity, including forecast sales and forecast costs. We assessed the reasonableness of the significant assumptions used in the Company’s forecasted model of liquidity by comparing the forecasted cash flows to actual results, underlying agreements and documentation. We compared the Company’s historical forecasted cash flows to actual results to assess the Company’s ability to accurately forecast. We performed sensitivity analyses to assess the impact of changes in the significant assumptions included in the Company’s forecasted model of liquidity. We assessed the Company’s forecasted model of liquidity in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by the Company.

Revenue recognition

As discussed in Notes 3(g) and 12 to the consolidated financial statements, revenue recognition requires significant judgments from management in regard to the determination of the accounting treatment for contracts with customers. Management is required to assess contracts with customers for product sales associated with marine scrubbers to the identify whether performance obligations in the contract are distinct and to determine whether contract terms provide the Company with a basis to recognize revenue over time. As discussed in Note 2 to the consolidated financial statements, the Company restated the March 31, 2021 consolidated financial statements to correctly account for its contracts with customers.

We identified the assessment of revenue recognition as a critical audit matter. The related audit effort in evaluating management’s judgments in determining revenue recognition for these customer contracts required a high degree of auditor judgment. These judgments related to the revenue recognition criteria which have a material impact on the Company’s revenue recognized during the period.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the Company’s significant accounting policies related to these contracts with customers for product sales associated with marine scrubbers by assessing the terms and conditions in customer agreements and correspondence with legal advisors on the implications of potential contract terminations. We evaluated the Company’s determination of the timing of revenue recognition for a selection of customer contracts by comparing amounts recognized for consistency with the Company’s accounting policies and underlying documentation.

/s/ KPMG LLP

Chartered Professional Accountants

We served as the Company’s auditor from 2019 to 2022.

Vancouver, Canada

June 29, 2021, except for Note 2, as to which the date is August 10, 2022

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Pacific Green Technologies Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Pacific Green Technologies Inc. and subsidiaries (the “Company”) as of March 31, 2022, the related consolidated statement of operations and comprehensive income, consolidated statement of stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Going Concern Assessment

As discussed in Note 1 to the consolidated financial statements, the consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. In making this assessment, the Company has evaluated whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the consolidated financial statements are issued. This included assessment of liquidity, judgments about the Company’s future activities including the estimates of future cash flows. The Company concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern.

The volatility in oil prices, particularly a reduction in the price of low sulphur fuel oil, could negatively affect the demand for Company’s marine scrubbers, thereby affecting Company’s revenue. There is significantly more judgement applied in developing cash flow forecasts including assumptions relating to the future prospective projects, the impact on the Company’s sales and the anticipated cost savings throughout the going concern period. The evaluation of the Company’s estimate of cash flows used in its forecasted model of liquidity for at least 12 months beyond the date of the issuance of the consolidated financial statements involved a high degree of subjective auditor judgment due to uncertainty in the estimate of cash flows. We have thus identified a critical audit matter related to going concern as a result of the judgements involved in the estimation of headroom required to conclude there is no material uncertainty related to going concern.

The following are the primary procedures we performed to address this critical audit matter:

Goodwill and intangible assets impairment assessment

As discussed in Notes 8 and 9 to the consolidated financial statements, the Company acquired Shanghai Engin Digital Technology Co. Ltd., a company incorporated and registered in China (“Engin”), on December 20, 2019, and acquired Innoergy Limited (“Innoergy”) on October 19, 2020. These acquisition activities have resulted in a consolidated goodwill balance of $4.4 million, $3.9 million for Engin and $0.5 million for Innoergy, respectively. As part of the acquisition, the Company also acquired intangible assets in Engin which amounted to $2.6 million as of March 31, 2022. The Company’s consolidated goodwill and intangible assets balances were $4.4 million and $9.7 million as of April 12, 2022 (testing date), respectively. These figures are pre-impairment. Management has recorded an impairment in goodwill of $4.4 million and an impairment in intangible assets of $2.6 million in the current year. Management evaluates intangible assets and goodwill for possible impairment as of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.

The principal considerations for our determination that performing procedures relating to the goodwill and intangible assets impairment assessment for the reporting units is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant assumptions related to forecast cash flows, the long-term growth rate and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

The following are the primary procedures we performed to address this critical audit matter:

Revenue Recognition

As discussed in Notes 3(g) and 12, revenue recognition requires significant judgements from management in regard to the determination of accounting treatment for contracts with customers. There were items of revenue that were incorrectly accounted for during the year. As a result of the errors identified, the engagement team needed to perform additional testing to determine that the recorded revenue was materially accurate.

The related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:

/s/ GRANT THORNTON UK LLP

We have served as the Company’s auditor since 2022.

London, United Kingdom

August 10, 2022

PACIFIC GREEN TECHNOLOGIES INC.

Consolidated Balance Sheets

(Expressed in U.S. Dollars)

Nature of Operations (Note 1)

Commitments (Note 19)

(The accompanying notes are an integral part of these consolidated financial statements)

PACIFIC GREEN TECHNOLOGIES INC.

Consolidated Statements of Operations and Comprehensive Income

(Expressed in U.S. Dollars)

(The accompanying notes are an integral part of these consolidated financial statements)

PACIFIC GREEN TECHNOLOGIES INC.

Consolidated Statement of Stockholders’ Equity

(Expressed in U.S. Dollars)

(The accompanying notes are an integral part of these consolidated financial statements)

PACIFIC GREEN TECHNOLOGIES INC.

Consolidated Statements of Cash Flows

(Expressed in U.S. Dollars)

(The accompanying notes are an integral part of these consolidated financial statements)

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

Pacific Green Technologies Inc. (the “Company”) was incorporated in the state of Delaware, USA on March 10, 1994. The Company is in the business of acquiring, developing, and marketing environmental technologies, with a focus on emission control technologies.

In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

Management’s evaluation has concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these consolidated financial statements are issued. These consolidated financial statements have therefore been prepared on the basis that the Company will continue as a going concern.

The assessment of the liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. This includes judgments about the Company’s future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company’s forecasted model of liquidity include forecasted sales, costs, and capital expenditures. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

Revenue recognition and cost of goods sold

In June 2022, while preparing the financial statements for the year-ending March 31, 2022, the Company identified an error with respect to the application of the revenue recognition accounting policy. In previous accounting periods, the Company identified three distinct performance obligations for the sale of marine scrubbers: certified design and engineering work, acceptance of delivered equipment to customers, and acceptance of commissioned equipment. These three components were determined to be separately identifiable within the contracts. However, based on further analysis of our marine scrubber sale contracts and a review of the five-step revenue recognition model, the Company has now concluded that the three components do not meet the definition of being “distinct” according to ASC 606-10-25-14. Customers purchase the entire marine scrubber system and do not benefit from the separate components on their own. Therefore, a single performance obligation is appropriate.

According to ASC 606-10-25-27, if the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date, revenue should be recognized over time. The Company’s scrubber system is customized to each vessel at the detailed design level, so the performance under the contract does not create an asset with an alternative use. According to the Company’s contracts signed with customers under English law, the customers are contractually and legally obliged to pay for performance completed to date that covers cost plus a reasonable profit margin. Therefore, the Company concluded that revenue from the sale of marine scrubbers should be recognized over time versus at points in time for the original three performance obligations. The Company recognizes revenue based on the input method and it is the change in the cost of goods sold (using a percentage of costs to complete) that has driven the change in revenues.

As part of our analysis of our revenue recognition and cost of goods sold for previous periods, we also identified $2,233,792 of prepaid manufacturing costs that had remained on our balance sheet after contract modifications in February 2021. These amounts have been written off and included in cost of goods sold for the year ended March 31, 2021.  

The impact of the change to revenue recognition resulted in a change to the timing of recognition of revenues and related cost of goods for scrubber sales. The impact on the opening deficit at March 31, 2020 was a reduction of $2,353,912. For the year ended, March 31, 2021, revenues decreased by $8,795,042 and the related cost of goods sold decreased by $5,803,538 for a net reduction of $2,991,504 to net income.

Reclassification of cost of goods sold

The Company has reassessed its presentation of cost of goods sold.

The Company has reassessed its presentation of cost of goods sold and has identified the following costs that should be presented as part of costs of goods sold as they relate to either obtaining or fulfilling revenue contracts with customers:

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

Effects of adjustments on the restated financial statements

The correction of these errors and the restatement adjustments for these changes to the Company’s previously issued audited annual consolidated financial statements are shown in the table below, and the previously issued unaudited quarterly consolidated financial statements are shown in Note 22 to the financial statements.

The impact of the change to revenue recognition resulted in earlier recognition of revenues and related cost of goods sold for scrubber sales. The impact on the opening deficit at March 31, 2020 was a reduction of $ 2,353,912. For the year-ended March 31, 2021, revenues decreased by $8,795,042 and the related cost of goods sold decreased by $5,803,538 for a net reduction of $2,991,504 to net income.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America and are expressed in U.S. dollars. The following accounting policies are consistently applied in the preparation of the consolidated financial statements. These consolidated financial statements include the accounts of the Company and the following entities:

All inter-company balances and transactions have been eliminated upon consolidation.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

The preparation of these consolidated financial statements in conformity with United States 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. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of property and equipment and intangible assets, prepaid manufacturing costs, and contract liabilities associated with revenue contracts in progress, contingent consideration on asset acquisition, warranty accruals, going concern, 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.

Property and equipment is recorded at cost. Depreciation is recorded at the following annual rates, net of any residual value determined.

Intangible assets are stated at cost less accumulated amortization and include patents, customer relationships, plant designs, and software licensing. The patents, which were acquired in 2013, are being amortized on a straight-line over the estimated useful life of 17 years. The other intangible assets, which were acquired in December 2019, are being amortized according to the following table. Intangible assets are reviewed annually for impairment.

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. 

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

ASC 820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, short term investments, accounts receivable, lease receivable, amounts due from and to related parties, accounts payable and accrued liabilities, and operating lease liability. The recorded values of all financial instruments are at amortized cost which approximate their current fair values because of their nature and respective maturity dates or durations.

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2022, and 2021, the Company held $1,932,323 and $1,126,728, respectively in short term investment and amount in escrow. Accounts held in each U.S. institution are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250,000. At March 31, 2022 and March 31, 2021 the Company had $3,696,760 and $nil in excess of the FDIC insured limit, respectively.

We assess the collectability of accounts receivable and long-term receivable on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured. In establishing the allowance, we consider factors such as known troubled accounts, historical experience, age, financial information that is publicly accessible and other currently available evidence. A significant portion of our accounts receivable is concentrated with a few major customers, For the year ended March 31, 2022, 90% (2021 – 98%) of the Company’s accounts receivable was from one customer.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

The Company derives revenue from the sale of products and delivery of services. Product revenue is generated from sale of marine scrubbers. Service revenue includes specific services provided to marine scrubber systems as well as design and engineering services for Concentrated Solar Power (“CSP”).

Irrespective of the types of revenue described above, revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services. The Company’s marine scrubber sales contracts contain a single performance obligation satisfied over time, based on percent completion of the contract.

The Company determines revenue recognition through the following five steps:

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue recognition requires significant judgements from management in regard to the determination of accounting treatment for contracts with customers. Management is required to assess contracts with customers to the identify whether performance obligations in the contract are distinct and to determine whether contract terms provide the Company with a basis to recognize revenue over time. As discussed in Note 2, the Company restated the March 31, 2021 financial statements to correctly account for its contracts with customers.

In previous accounting periods, the Company identified three distinct performance obligations for the sale of marine scrubbers: certified design and engineering work, acceptance of delivered equipment to customers, and acceptance of commissioned equipment. These three components were determined to be separately identifiable from the contracts. However, based on further analysis of our marine scrubber sale contracts and a review of the five-step revenue recognition model, the Company has now concluded that the three components do not meet the definition of being “distinct” according to ASC 606-10-25-14. Customers purchase the entire marine scrubber system and do not benefit from the separate components on their own. Therefore, as further described in Note 2, a single performance obligation is appropriate.

Contracts for the sale of products (marine scrubbers) include a single performance obligation for revenue recognition as the separate components identified in the revenue contracts are not considered distinct as the customer does not benefit from the separate components on their own. The single performance obligation is recognized over time, based on percentage completion of the contract, due to the unique nature of the assets and the Company’s ability to obtain payment for performance to date. The Company recognizes revenue based on the input method and records balances as Accrued revenue to the extent that revenue has been recognized but the Company has not yet billed the customer.

In the case of settlement agreements with customers where no continued performance obligation is required, the Company recognizes revenue based on consideration settled according to the agreement.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

A contract signed with one customer has a significant financing component. 20% of the contract price is payable at least 6 calendar months prior to the dry dock date. The remaining 80% is payable in 24 equal monthly installments starting at the end of the calendar month following the installation date on a vessel-by-vessel basis. As 80% of the contract price is payable after the last performance obligation towards the scrubber, a significant financing component is separated from revenue and interest income at 5.4% is recorded when payments are received from the customer.

Contracts for specific services provided to marine scrubber systems represent maintenance services. Contracts for CSP include design and engineering services provided to clients. Performance obligations vary depending on the service contracts. All contracts are analyzed, and revenue recorded in accordance with the five-step revenue recognition model.

The cost of providing services to our customers is included in the cost of goods sold on the statement of operations and comprehensive income. Our cost of goods sold includes direct costs associated with creating products and services. In addition, we have included within cost of goods sold other related costs associated with obtaining or fulfilling our obligations in our revenue contracts, including sales commission, salaries and wages, technical consulting costs, and amortization. We have adopted the practical expedient whereby costs associated with obtaining a revenue contract can be expensed as incurred so long as the amortization period of the asset that the entity otherwise would have recognized is one year or less.

Contractual arrangements with customers for the sale of a scrubber unit generally provide for deposits and installments through the procurement and design phases of equipment manufacturing. Amounts received from customers, which are not yet recorded as revenues under the Company’s revenue recognition policy are presented as contract liabilities.

Similarly, contractual arrangements with suppliers and manufacturers normally involved with the manufacturing of scrubber units may require advances and deposits at various stages of the manufacturing process. Payments to our manufacturing partners, which are not yet recorded as costs of goods sold under the Company’s revenue recognition policy are presented as prepaid manufacturing costs.

The Company presents the contract liabilities and prepaid manufacturing costs on its balance sheet when one of the parties to the revenue contract and supply contract, respectively, has performed before the other.

Accrued revenue is revenue that has been earned by providing a good or service, but for which the Company has not yet billed the customer.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)

The Company reserves a 2% warranty provision on the completion of a contract following the commissioning of marine scrubbers. The specific terms and conditions of those warranties vary depending upon the product sold and geography of sale. The Company’s product warranties generally start from the delivery date and continue for up to twelve to twenty-four months. The Company provides warranties to customers for the design, materials, and installation of scrubber units. The Company has a back-to-back manufacturing guarantee from its major supplier, which covers materials, production, and installation. Factors that affect the Company’s warranty obligation include product failure rates, anticipated hours of product operations and costs of repair or replacement in correcting product failures. These factors are estimates that may change based on new information that becomes available each period. Similarly, the Company also accrues the estimated costs to address reliability repairs on products no longer in warranty when, in the Company’s judgment, and in accordance with a specific plan developed by the Company, it is prudent to provide such repairs. The Company intends to assess the adequacy of recorded warranty liabilities quarterly and adjusts the liability as necessary.

The Company accounts for income taxes using the asset and liability method. The asset and liability method provides that deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred income tax assets to the amount that is believed more likely than not to be realized.

The Company provides for interest and potential administrative penalties where management has assessed that the probability of assessment is greater than 50%. Interest and penalties assessed or expected to be assessed by tax authorities are included in other expenses for the period of $50,553 (2021 - $nil).

The Company owns a 50% controlling interest in its subsidiary Pacific Green Battery Energy Parks 1 Ltd. Green Power Reserves Limited owns the remaining 50% nonredeemable noncontrolling interests. Noncontrolling interests are recorded as a separate component of equity. Net income attributable to noncontrolling interests is a component of consolidated net income.

PACIFIC GREEN TECHNOLOGIES INC.

Notes to the Consolidated Financial Statements

Years Ended March 31, 2022 and 2021

(Expressed in U.S. Dollars)