PACIFIC GREEN TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

This quarterly report contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "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 quarterly 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 quarterly 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 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) Richborough Energy Park Ltd., 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:



  ? 500,000,000 shares of common stock with a par value of $0.001; and

  ? 10,000,000 shares of preferred stock with a par value of $0.001.




                                       2





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 sulphur dioxide as an acid gas. Testing has been
conducted on diesel shipping to confirm the application of seawater as a
neutralizing agent for sulphur emissions as well as capturing particulate
matter. In addition to marine applications, these tests also showed
applicability of the system for large displacement engines such as stationary
generators, compressors, container handling, heavy construction, and mining
equipment.




ENVI-Pure TM



Increasing legislation relating to landfill of municipal solid waste has led to
the emergence of increasing numbers of waste to energy plants ("WtE"). A WtE
plant obviates the need for landfill, burning municipal waste for conversion to
electricity. A WtE plant is typically 45-100MW. The ENVI-Clean™ system is
particularly suited to WtE as it cleans multiple pollutants in a single system.



ENVI-Clean TM



EnviroTechnologies Inc. has successfully conducted sulphur dioxide demonstration
tests at the American Bituminous Coal Partners power plant in Grant Town, West
Virginia. The testing achieved a three test average of 99.3% removal efficiency.
The implementation of US Clean Air regulations in July 2010 has created
additional demand for sulphur dioxide removal in all industries emitting sulphur
pollution. Furthermore, China consumes approximately one half of the world's
coal, but introduced measures designed to reduce energy and carbon intensity in
its 14th 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 sulphur dioxide,
particulate matter, greenhouse gases and other hazardous air pollutants from the
flue gases produced by the combustion of coal, biomass, municipal solid waste,
diesel and other fuels.



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 broadened our business to provide turnkey and scalable end-to-end technology
solutions in the renewable energy sector. Our technological platform now has
four main components:



  ? Emission Control Systems ("ECS");




  ? Concentrated Solar Power ("CSP");




  ? Battery Energy Storage Systems ("BESS"); and




  ? Electric Vehicle Charging Stations ("EVCS").




                                       3




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

? on December 20, 2019, the Company closed the acquisition of Shanghai Engin

Digital Technology Co. Ltd. (“Engin”) a solar design, development and

engineering company. Engin is a design and engineering business focused

primarily on CSP, desalination and waste to energy technologies. Engin’s

CSP reference plants in China comprise over 150MW and we are now in talks

to provide CSP alongside future ammonia and hydrogen production facilities

        in Asia and South America;




    ?   on October 20, 2020, the Company closed the acquisition of Innoergy

Limited (“Innoergy”), a UK based designer of BESS whose clients include

Osaka Gas Co. Ltd, in Japan, and Limejump Limited in the UK, a subsidiary

        of Royal Dutch Shell plc. The acquisition underpins our entry into the
        BESS market; and



? on March 18, 2021, the Company acquired Richborough Energy Park Limited

(“Richborough”), a BESS development project to deliver 100MW of energy in

        Kent, UK.



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.



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.



ECS



The Company has a joint venture with PowerChina SPEM Limited (the "JV"). The JV
has successfully provided manufacturing, installation and logistical support on
over USD$200m of ECS business, particularly in the marine industry. PowerChina
is one of the largest EPC contractors in the world with annual revenues of
approximately USD$50bn.



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 provides manufacturing of the
solar field and molten salt tank services, and (3) PowerChina provides the
EPC
role worldwide.



                                       4





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 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 mentioned in the M&A section above.



EVCS


The agreement with SEG will extend to EVCS.

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.



Results of Operations


The following summary of our results of operations should be read in conjunction
with our unaudited interim financial statements for the three months ended
December 31, 2021, and 2020.




Revenue for the three and nine months ended December 31, 2021 was $2,642,184 and
$5,535,004 versus $4,658,466 and $37,470,425 for the three and nine months ended
December 31, 2020. The Company's revenues were mainly derived from the sale of
marine scrubber units and related services. During the nine months ended
December 31, 2021, the Company recognized revenue for 9 (2020 - 46) marine
scrubber units and these marine scrubber units were in various stages of
engineering, delivery, and commissioning. For the three and nine months ended
December 31, 2021, revenue from solar business sector was $916,597 and
$1,227,626 as compared to $2,371 and $139,231 for the three and nine months
ended December 31, 2020. During the nine months ended December 31, 2021, the
Company recognized revenue for 11 (2020 - 7) solar projects.



During the nine months, the Company realized a gross margin of 43% (2020 - 40%).
Gross margin increased mainly due to higher gross margin on sale of scrubber
units.



Expenses for the nine months ended December 31, 2021, were $12,764,679 as
compared to $20,973,556 for the nine months ended December 31, 2020, as the
Company reduced its operations for the nine months period. Management and
technical consulting fees decreased significantly also due to lower sales.
Management and technical consulting fees were comprised of fees paid to third
parties for business development efforts, advisory services, as well as amounts
paid to the directors of the Company. Advertising, office-based costs, and
professional fees also decreased due to reduced business activities.
Additionally, the delivery of units resulted in warranty provision being
recorded for possible maintenance and claim issues within a prescribed period.
For the nine months ended December 31, 2021, the Company recorded a warranty
expense recovery of $4,853 (2020 - expense of $1,407,420) related to the
estimated expectation of warranty costs.



Expenses for the three months ended December 31, 2021, were $4,324,649 as
compared to $4,386,278 for the three months ended December 31, 2020. Management
and technical consulting fees decreased due to lower sales and were comprised of
fees paid to third parties for business development efforts, advisory services,
as well as amounts paid to the directors of the Company. Professional fee
decreased due to less contract and acquisition work. For the three months ended
December 31, 2021, the Company recorded a warranty expense of $16,795 (2020 -
$160,125) related to the estimated expectation of warranty costs.



                                       5




Our financial results for the three and nine months ended December 31, 2021 and
2020 are summarized as follows:



                                                Three Months Ended                 Nine Months Ended
                                                   December 31,                      December 31,
                                               2021             2020             2021             2020
Revenues                                   $  2,642,184     $  4,658,466     $  5,535,004     $ 42,128,892
Cost of goods sold                         $  1,328,338     $  3,625,204   
 $  3,137,247     $ 25,515,248

Gross Profit                               $  1,313,846     $  1,033,262     $  2,397,757     $ 16,613,644

Expenses
Advertising and promotion                  $    170,870     $    152,172     $    488,088     $    510,748
Amortization of intangible assets          $    396,539     $    389,703     $  1,178,217     $  1,169,039
Bad debts expense                          $     21,012     $          -     $     21,012     $          -
Depreciation                               $     52,519     $     47,807     $    152,062     $    144,457
Foreign exchange loss                      $     34,791     $    (41,959 )   $     86,369     $      2,577
Lease expense                              $    117,350     $     93,910     $    360,717     $    342,077
Management and technical consulting        $  1,026,808     $  1,238,962     $  3,072,262     $  9,583,143
Office and miscellaneous                   $    525,009     $    460,338     $  1,318,839     $  1,396,263
Professional fees                          $    390,866     $    601,790     $  1,338,544     $  1,494,425
Research and development                   $          -     $          -     $          -     $      4,368
Salaries and wages                         $  1,234,243     $  1,187,967     $  4,029,737     $  4,510,241
Transfer agent and filing fees             $     91,865     $    (34,007 )   $    253,088     $    106,758
Travel and accommodation                   $    249,338     $    129,470   
 $    473,953     $    302,040
Warranty costs                             $     16,795     $    160,125     $     (4,853 )   $  1,407,420

Total expenses                             $  4,328,005     $  4,386,278     $ 12,768,035     $ 20,973,556

Other income (expense)
Gain on derecognition of subsidiary and
termination of lease                       $          -     $          -     $          -     $    242,193
Gain (loss) on change in fair value of
derivative liability                       $          -     $    (50,869 )   $          -     $     (1,306 )
Gain on reduction of acquisition costs
of subsidiary                              $          -     $          -     $          -     $  3,240,250
Financing interest income                  $     85,889     $    247,253     $    378,840     $    548,543
Gain (loss) on change in fair value of
derivative liability                       $    (53,198 )   $    (24,015 ) 

$ 47,534 $ (41,725 )

Net Income (Loss)                          $ (2,981,468 )   $ (3,180,647 ) 
 $ (9,943,904 )   $   (371,957 )



Liquidity and Capital Resources



Working Capital



                               December 31,       March 31,
                                   2021              2021
Current Assets                 $  23,050,745     $ 41,228,286
Current Liabilities            $  32,509,427     $ 41,180,588

Working Capital (Deficiency)   $  (9,458,683 )   $     47,698




                                       6





Cash Flows




                                                                                        Nine Months
                                                                Nine Months Ended          Ended
                                                                  December 31,         December 31,
                                                                      2021                 2020
Net Cash Used in Operating Activities                          $       (13,610,996 )   $  (5,937,101 )
Net Cash Used in Investing Activities                          $           (49,540 )   $     (85,683 )
Net Cash Provided by (Used in) Financing Activities            $           (99,504 )   $       1,750
Effect of Exchange Rate Changes on Cash                        $          

121,391 $ 73,182


Net Change in Cash and Cash Equivalents                        $       

(13,638,649 ) $ (5,947,852 )





As of December 31, 2021, we had $9,797,768 in cash and cash equivalent,
$23,050,745 in total current assets, $32,509,427 in total current liabilities
and a working capital deficit of $9,458,683 compared to working capital of
$47,698 as at March 31, 2021. The Company's working capital reduced as less
revenue was recognized from marine scrubbers and paydown of accounts payable. In
addition, the Company's contract assets, contract liabilities, and accruals
change from period to period, depending on the status of equipment deliveries,
customer receipts and payments to third party manufacturers.



During the nine months ended December 31, 2021, we used $13,610,996 in operating
activities, whereas we used $5,937,101 from operating activities for the nine
months period ended December 31, 2020. The negative operating cash flow for the
nine months ended December 31, 2020, mainly resulted from reduction in revenue.



During the nine months ended December 31, 2021, we used $49,540 in investing
activities, whereas we used $85,683 in investing activities during the nine
months ended December 31, 2020. Our investing activities for the nine months
ended December 31, 2021, were primarily related to additions of equipment.



During the nine months ended December 31, 2021, we used $99,504 in financing
activities, whereas we received $1,750 in financing activities for the nine
months ended December 31, 2020. Our financing activities for the nine months
ended December 31, 2021, were related to stock option exercise.



Anticipated Cash Requirements




The Company is developing a battery energy storage system "BESS" facility in the
UK. At the date of filing the 10Q, there are no contractual commitments to
proceed since the preconditions required to achieve financial close have not yet
been reached. To part-fund the project equity, the Company is currently
negotiating a subordinated debt facility which is anticipated to be concluded
contemporaneously with the financial close.



                                       7




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, Spain 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 December 31, 2021, we had $9,797,768 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 quarter ended December 31, 2021, have been
prepared on a going concern basis.

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.



Contractual Obligations


As a “smaller reporting company”, we are not required to provide tabular
disclosure obligations.




Critical Accounting Policies



Use of Estimates



The preparation of these consolidated financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. The Company regularly evaluates estimates and assumptions
related to the useful life and recoverability of property and equipment and
intangible assets, contract assets and 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.



                                       8





Intangible Assets


Intangible assets are stated at cost less accumulated amortization and are
comprised of 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.



Patents                  17 years straight-line
Customer relationships   6 years straight-line
Plant designs            6 years straight-line
Software licensing       10 years straight-line



Impairment of Long-lived Assets




Our company reviews long-lived assets such as property and equipment and
intangible assets with finite useful lives for impairment whenever events or
changes in circumstance indicate that the carrying amount may not be
recoverable. If the total of the expected undiscounted future cash flows is less
than the carrying amount of the asset, a loss is recognized for the excess of
the carrying amount over the fair value of the asset.



Revenue Recognition


To date, the Company has derived revenue from the sale of emission control
equipment and related services as well as providing design and engineering
services for Concentrated Solar Power.

Irrespective of the line of business 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 determines revenue recognition through the following five steps:



  ? identification of the contract, or contracts, with a customer;




  ? identification of the performance obligations in the contract;




  ? determination of the transaction price;




    ?   allocation of the transaction price to the performance obligations in the
        contract; and



? recognition of revenue when, or as, performance obligations are satisfied.

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.




As our contracts with customers include multiple performance obligations,
judgment is required to determine whether performance obligations specified in
these contracts are distinct and should be accounted for as separate revenue
transactions for recognition purposes. For such arrangements, revenue is
allocated to each performance obligation based on its relative standalone
selling price. Standalone selling prices are generally determined based on the
prices charged to customers or using expected cost-plus margin.



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



                                       9





Contracts signed with one customer has a significant financing component. The
Company provides design, production, and installation services of scrubber units
to this customer. 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 instalments 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.



Accounts Receivable



Accounts receivables consist of trade receivables arising in the normal course
of business. The Company establishes an allowance for doubtful accounts that
reflects the Company's best estimate of probable losses inherent in the accounts
receivable balance. The Company determines the allowance based on known troubled
accounts, historical experience, age, financial information that is publicly
accessible and other currently available evidence.



Financial Instruments and Fair Value Measurements




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.



Stock-based compensation



The Company records share-based payment transactions for acquiring goods and
services from employees and nonemployees in accordance with ASC 718,
Compensation - Stock Compensation, using the fair value method. All transactions
in which goods or services are the consideration received for the issuance of
equity instruments are measured at grant-date fair value of the equity
instruments issued.



The Company uses the Black-Scholes option pricing model to calculate the fair
value of stock-based awards. This model is affected by the Company's stock price
as well as assumptions regarding a number of subjective variables. These
subjective variables include but are not limited to the Company's expected stock
price volatility over the term of the awards, and actual and projected employee
stock option exercise behaviors. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense in the consolidated
statement of operations over the requisite service period. The majority of the
Company's awards vest upon issuance.



                                       10




Subsequent to the adoption of ASU 2018-07 – Improvements to Nonemployee
Share-Based Payment Accounting, the accounting for employee and non-employee
stock options is now aligned.

Contract Liabilities and Contract Assets




Contractual arrangements with customers for the sale of a scrubber unit
generally provide for deposits and instalments 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 are recorded as contract assets until the equipment is
manufactured to specifications and accepted by the customer.



The Company presents the contract liabilities and contract assets on its balance
sheet when one of the parties to the revenue contract has performed before
the
other.



Warranty Provision



The Company reserves a 2% warranty provision on the completion of a contract
following the commissioning of marine scrubbers, there being a number of
milestone-based stage payments. 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.



Lease


Leases classified as operating leases, where the Company is the lessee, are
recorded as lease liabilities based on the present value of minimum lease
payments over the lease term, discounted using the lessor's rate implicit in the
lease for each individual lease arrangement or the Company's incremental
borrowing rate, if the lessor's implicit rate is not readily determinable.
Corresponding right-of-use assets are recognized consisting of the lease
liabilities, initial direct costs and any lease incentive payments. Lease
liabilities are drawn down as lease payments are made and right-of-use assets
are depreciated over the term of the lease. Operating lease expenses are
recognized over the term of the lease, consisting of interest accrued on the
lease liability and depreciation of the right-of-use asset.

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